Intentional “Defect” May Make Sense

Sounds a little “counterintuitive,” right?  But who ever said that all tax code terminology was intended to make sense to the average bloke?

Anyway, our subject for today is a clever estate planning device known as an “intentionally defective grantor trust.”  Sounds like somebody might be making a mistake in creating such a critter, but not so.

An “intentionally defective grantor trust” (IDGT) is an irrevocable trust drafted in such a way as to cause the trust’s income to be taxable to the grantor (rather than the trust itself, hence the intentional defect concept) while assets transferred to the trust can be thereby removed from the grantor’s estate at the time of his death.Read More

Nevada’s Low Tax Rep Takes A Hit

Thanks to Republicans.

Recall that nary a few weeks back, the Nevada legislature approved a budget based on $1.4 billion of new and extended taxes for the next two year cycle.  The plans call for an increase in the annual corporation business fee, expansion of the payroll tax, increase in the cigarette tax and creation of yet a new tax:  the so-called “commerce tax” on the gross receipts of businesses with at least $4 million in Nevada revenue.

And all of this starts hammering we and thee on July 1 – just around the corner.

The centerpiece of the legislation is the new “commerce tax,” which divides producers into 26 business categories, each of which has an assigned gross receipts tax rate which range from 0.051 percent (mining) to 0.331 percent (rail transportation).

The “commerce tax” is, of course, reminiscent of the teacher espoused gross receipts tax initiative which was soundly defeated in last November’s election.  As the Tax Foundation points out, such taxes have fallen out of favor since their peak in the 1930s because of the “pyramiding” inherent in their structure.  Pyramiding occurs when taxes are imposed at each stage of production, resulting in multiple layers of taxation on the same goods.

And as folks with foreign financial accounts stare down the upcoming June 30 deadline for 2014 reporting, IRS has announced an unusual bit of leniency for blokes who may not have observed these reporting requirements in years past.  Indeed, if you have not filed a required Report of Foreign Bank and Financial Accounts (FBAR), are not under any civil examination or criminal investigation by IRS, and have not already been contacted by IRS about your delinquent FBAR(s), you can get caught up – penalty free – if you properly reported on your income tax returns and paid all tax on the income arising from the foreign accounts!

If this is you, grab this opportunity.  IRS penalties for noncompliance in this area are otherwise draconian!

And from our tax reform department comes word, this week from Presidential candidate Rand Paul that he proposes a “fair and flat tax” that would “blow up” the Internal Revenue Code, and cut taxes by $2 trillion over the next decade.

Paul proposes a 14.5 income tax rate on all individuals and businesses.

“Basically my conclusion is that the tax code can’t be fixed and should be scrapped,” says Paul.  “We should start over.”

Has some merit.

CONSULT YOUR TAX ADVISOR – This article contains general information about

various tax matters.  You should consult your CPA regarding the implications to your own

particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and

Consultants, Ltd. with offices in Incline Village and Reno.  He can be reached at 831-7288, and welcomes comments at [email protected].

IRS Tough On Gambling Loss Documentation

A recent decision of the Tax Court (in the Zetina Renner) case reminds folks of the rather strict IRS rules regarding documentation of any number of tax return deductions, including deductions for gambling losses.

The Courts love to remind us that tax deductions “are a matter of legislative grace,” with the taxpayer bearing the burden of proving entitlement to any deduction claimed.Read More

Dissolved Corporation Must Still File Returns

A recent private letter ruling issued by the Revenooers may come as a surprise to some.  IRS says that a corporation’s dissolution under state law is not the equivalent of a “termination” for income tax purposes, and the corporation must continue to file returns as long as it operates in a corporate manner.

In this case, a bloke formed a corporation which was administratively dissolved by the state in which it was formed (due to some neglect in a routine state filing, or payment of some state required fee).  During the period in which the taxpayer was unaware of the dissolution, he continued to file the annual corporate tax return and pay all corporate taxes as they came due.Read More

So You Want To Convert That Second Home To A Rental

 

A recent decision of the Tax Court (in the Redisch case) reminds us of how a bloke has to act with respect to the “conversion” of that vacation home to a rental property, entitling the taxpayer to the potential tax benefits of that rental loss, and the possibility of even deducting a loss upon the eventual sale of the property.

The Court found the facts in this case fairly cut and dried, in concluding that these folks did not convert their Florida vacation home to property “held for the production of income”.  Their rental effort wasn’t serious and the property was actually never rented.  As a result, they couldn’t deduct their rental expenses or claim a loss on the sale.Read More