Tennessee Tax Guy

Tax Extender Package Approved Through 2014 Only

2014-12-17T10:02:00.003-06:00

Yesterday evening, the Senate passed a Bill to extend various special-interest tax breaks. The Bill, which had already been approved by the House, expires by its terms on December 31, 2015.

You can read more by clicking here.

Deutsche Bank Hit With Tax Evasion Charges

2014-12-09T08:15:00.001-06:00

Forbes: http://www.forbes.com/sites/laurengensler/2014/12/08/deutsche-bank-hit-with-tax-evasion-charges/

Tax Extenders Likely to be Renewed for One Year

2014-12-03T08:55:00.003-06:00

Congressional Republicans have been at odds with the President over the past few weeks regarding the extension of a number of special-interest tax breaks. Republicans had been pushing to make permanent various tax breaks that expired in 2013. The 55 tax breaks - some for businesses and some for individuals - has been a hotly debated topic of late. Last week, the President issued a veto warning for any Bill seeking to make the breaks permanent.

Yesterday, however, the Obama administration noted that the President would not be patently opposed to a short term extension. According to House Republican Paul Ryan, the Republicans are going to push a one-year extension of these breaks, which many believe will be approved.

See Reuters: Congress to push pause on 'extenders' tax breaks fight.

2014’s Best Android Apps for Lawyers

2014-12-02T00:14:00.001-06:00

Posted over at the Droid Lawyer: http://thedroidlawyer.com/2014/12/2014s-best-android-apps-for-lawyers/

Forbes: Jersey Shore's Mike 'The Situation' Sorrentino Tax Evasion Trial Delayed

2014-11-27T08:04:00.001-06:00

For all the trash TV fans out there....

http://www.forbes.com/sites/robertwood/2014/11/25/jersey-shores-mike-the-situation-sorrentino-tax-evasion-trial-delayed/

How to Encrypt Communications

2014-11-24T22:11:00.001-06:00

Lisa Needham just published a part on the Lawyerist about encrypting attorney-client communications. It is worth the read if your primary mode of communication is email.

How to Encrypt Attorney-Client Communications https://lawyerist.com/78253/email-encryption-client-portals-can-help-secure-client-data/

Avoid These 10 Contact Drafting Mistakes Like The Plague

2014-11-18T20:44:00.001-06:00

Over on Drafting Points, Vincent Martorana outlines 10 common contact drafting mistakes that make his skin crawl. His comments are spot on and worth the read if you are involved in any stage of the contact drafting process.

Ten Contract-Drafting Flaws That Are Like Nails On A Chalkboard http://www.draftingpoints.com/2014/11/17/ten-contract-drafting-flaws-that-are-like-nails-on-a-chalkboard/

IRS Clarifies What Constitutes a "Lawful Marriage" Following DOMA Decision

2013-08-30T09:23:00.001-05:00

In Windsor v. U.S., the U.S. Supreme Court overturned Section 4 of DOMA, which provides that for purposes of federal law marriage is the “legal union between one man and one woman as husband and wife.” Windsor was an estate tax refund case brought by a same-sex taxpayer domiciled in New York.

The Supreme Court's decision, however, left several questions unanswered. For example, the Supreme Court did not clarify what constitutes a "lawful marriage" between a same-sex couple. As a result, tax professionals were left guessing as to whether a couple that originally married in one of the thirteen states recognizing same-sex marriages (or in another country that did so) later moved to a state that did not. Would the place of celebration or the place of domicile control whether a marriage is lawful (particularly in light of the fact that the Supreme Court did not overturn Section 3 of DOMA, which allows each individual state to refuse to recognize same-sex marriages)?

The IRS recently issued Rev. Rul. 2013-17, which was intended to resolve this issue. According to the Revenue Ruling, same-sex couples that are legally married in either a domestic or foreign jurisdiction that recognized that marriage will be treated as married for federal tax purposes, regardless of where they later reside.

Two Year Asset Protection Trust

2013-04-30T13:29:00.001-05:00

The Tennessee legislature recently approved a bill that could potentially make Tennessee’s asset protection trust statute one of the most favorable among U.S. jurisdictions. The Tennessee Investment Services Act of 2007 generally provides that property transferred to a Tennessee Investment Services Trust (“TIST”) will not be subject to the claims of the transferor’s creditors four years after the property is transferred to the TIST. HB 0873/SB0713 modifies current law by providing that, for TIST property to be subject to a creditor’s claim against the transferor, the creditor must bring the action within two years after the transfer is made (or six months after the transfer was or could reasonably have been discovered by a creditor whose claim arose prior to the transfer). The bill was approved by the Senate on April 10, 2013, and was recently approved by the House on April 16, 2013. The bill, which has not been signed by Governor Haslam, is enrolled and ready for signature. I will provide updates as they are received.

Nearly 30% of Estate Tax Returns Audited in 2012

2013-03-27T08:27:00.001-05:00

The IRS recently released its “Data Book” for fiscal year 2012. According to IRS figures (see Table 12), 29.9% of all federal estate tax returns filed in 2012 were examined by the IRS (58.6% for those with gross estates between $5 mil. and $10 mil.; and all returns with gross estates in excess of $10 mil.). Contrast this figure with the average audit rate for all returns filed, which was less than 1%. There is a lot of interesting information in the Data Book, such as audit rates of individual tax returns with business activities reported versus those without, as well as audit rates across multiple income ranges. If you are curious about the average audit rate for your individual income tax return or for that of your business, you will likely benefit from reviewing pages 21 through 34 of the Data Book (found here).

* Note: Because returns are often audited years after they are filed, the percentages do not reflect the actual audit rate of 2012 tax returns. They are simply based on the number of examinations in 2012 relative to the number of tax returns filed in 2012.

IRS Rescinds Offshore Voluntary Disclosure Program Acceptance

2013-03-14T09:55:00.001-05:00

In 2009, the IRS created an Offshore Voluntary Disclosure Program (OVDP) designed to incentivize taxpayers with undisclosed foreign accounts and assets to come forward and disclose those accounts to the IRS (with reduced penalties for the prior nondisclosure). Some taxpayers that were already accepted into the OVDP were recently informed by the IRS that their acceptance has now been rescinded. The full details have not yet been released. Even if legitimate reasons for the rescissions exist, I suspect that the IRS’s actions will hinder the effectiveness of similar initiatives in the future.

Tax Season Officially Begins

2013-01-31T12:58:00.002-06:00

After some delay, tax season officially began yesterday - with several caveats. Those claiming certain education credits, depreciation deductions, energy credits, and numerous other business related credits Below, I have reproduced the list of forms that - according to the IRS - will not be available until late-February or early-March. You can find more information regarding the start of this year's tax seasons, as well as other useful information (such as free file and other related services), by clicking here.

Form 3800 General Business Credit
Form 4136 Credit for Federal Tax Paid on Fuels
Form 4562 Depreciation and Amortization (Including Information on Listed Property)
Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
Form 5695 Residential Energy Credits
Form 5735 American Samoa Economic Development Credit
Form 5884 Work Opportunity Credit
Form 6478 Credit for Alcohol Used as Fuel
Form 6765 Credit for Increasing Research Activities
Form 8396 Mortgage Interest Credit
Form 8582 Passive Activity Loss Limitations
Form 8820 Orphan Drug Credit
Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
Form 8839 Qualified Adoption Expenses
Form 8844 Empowerment Zone and Renewal Community Employment Credit
Form 8845 Indian Employment Credit
Form 8859 District of Columbia First-Time Homebuyer Credit
Form 8864 Biodiesel and Renewable Diesel Fuels Credit
Form 8874 New Markets Credits
Form 8900 Qualified Railroad Track Maintenance Credit
Form 8903 Domestic Production Activities Deduction
Form 8908 Energy Efficient Home Credit
Form 8909 Energy Efficient Appliance Credit
Form 8910 Alternative Motor Vehicle Credit
Form 8911 Alternative Fuel Vehicle Refueling Property Credit
Form 8912 Credit to Holders of Tax Credit Bonds
Form 8923 Mine Rescue Team Training Credit
Form 8932 Credit for Employer Differential Wage Payments
Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

Reminder: Deadline to Make Charitable Contributions from IRA

2013-01-17T09:54:00.001-06:00

Pardon the extended absence, the past year has been busy in light of the prolonged uncertainty regarding federal estate and gift taxes. Now that Congress has provided taxpayers with a "permanent" solution, I hope to be able to allocate some time to providing readers with tax updates and other tax information.

In this regard, today's post is intended to remind taxpayers ages 70 1/2 or older that they may be eligible to make charitable contributions from their Individual Retirement Accounts through January 31, 2013 and have that contribution count for the 2012 tax year. If you have questions regarding the benefit of doing so, I recommend speaking with your tax professional as soon as possible.

Clarifying Tennessee’s Estate vs. Inheritance Tax

2012-06-06T10:37:00.001-05:00

As regular readers are aware, the state of Tennessee recently enacted a bill to repeal the inheritance tax gradually over the next few years, until it is finally repealed on January 1, 2016. That being said, Tennessee’s estate tax remains unchanged. In this way, you may be a little confused as to what this means for you. The answer is, not much.

An inheritance tax generally refers to a tax on the right to receive property, while an estate tax generally refers to a tax on the privilege of transferring property at death. The difference for Tennessee residents, really, is mainly semantics. Although a tax on the right to receive, the Tennessee inheritance tax is primarily paid by a decedent’s estate, which makes it almost identical to an estate tax. In fact, Tennessee’s inheritance tax shares many similarities with the federal estate tax. An individual is entitled to a $1 million exemption, similar to the federal estate tax, which currently permits a $5.12 million exemption (scheduled to revert to $1 million in 2013). The tax rate imposed by the inheritance tax is graduated in much the same manner as the federal estate tax (albeit with lower rates). The Tennessee inheritance tax also contains many of the same deductions as provided under federal law, such as a marital deduction, charitable deduction, etc. In sum, the Tennessee inheritance tax is what most people are actually referring to when they say Tennessee “estate” tax. This is the taxing scheme that will be phased out pursuant to recent changes in Tennessee law.

The estate tax, on the other hand, is really just a tax that was enacted by the state to keep money tax money within the state of Tennessee that would be otherwise payable to the federal government . Under prior federal laws (not in effect at this time), the federal estate tax permitted a credit for state death taxes paid by a decedent’s estate, which reduced the federal estate tax liability of a decedent’s estate. If a decedent’s estate paid state death taxes equal to that credit (and no more), the decedent’s overall death tax liability (federal and state) would not be any greater than if the state had not imposed any tax at all (because the federal tax of such a decedent would have been reduced dollar-for-dollar by the amount of state death taxes paid). For this reason, many states, including Tennessee, enacted laws imposing estate taxes on decedents’ estates in an amount equal to the estate tax credit permitted under federal law. In this way, these states would receive a portion of the taxes that would otherwise be remitted to the federal government without increasing the decedent’s overall tax burden. The estate tax was not repealed by the Tennessee legislature.

While the estate tax was not repealed , as the above discussion illustrates, it is the “inheritance tax” that actually creates a burden upon the estate’s of Tennessee residents (as well as those non-residents that own Tennessee property), not the estate tax. Hopefully this information will provide some relief to those of you that were concerned about the fact that Tennessee’s estate tax was not repealed along with the inheritance tax.

Repeal of Tennessee Gift and Inheritance Tax Official

2012-05-22T11:48:00.001-05:00

Yesterday evening, Governor Haslam signed into law two bills that were recently voted on by the state legislature. The new law repeals the state gift tax (effective 1/1/12) and the state inheritance tax (gradual phase out until repeal in 2016). This marks a significant change in Tennessee’s tax landscape. Without a true income tax, and now without gift and inheritance taxes, Tennessee will likely be viewed as one of the most taxpayer-friendly states of the nation.

Applicable Federal Rates for June

2012-05-18T10:19:00.001-05:00

The AFR rates for short-, mid-, and long-term notes fell in June by a few hundredths of a percentage point. You can find all the applicable AFR rates for June here.

Updates on Tennessee Tax Changes

2012-05-09T10:20:00.001-05:00

As an update for anyone patiently awaiting the final passage of bills repealing the Tennessee inheritance and gift taxes, the inheritance tax bill (SB 3762) was transmitted to the Governor for signature today. The gift tax bill (SB 2777) was recently signed by the Speaker and should be transmitted to the Governor within the next few days. It is highly unlikely that either of these bills will not be signed by Governor Haslam.

Gift and Inheritance Tax Changes Currently Being Engrossed

2012-05-02T12:15:00.001-05:00

The House and Senate engrossing offices are hard at work drafting final versions of the bills that were recently approved by the Tennessee legislature to repeal both the inheritance and gift taxes. At present, all indications point to successful passage within the next few days, as the likelihood of a veto by Governor Haslam is very small.

While the inheritance tax will not be phased out completely until 2016, Tennessee’s gift tax repeal is poised to become effective as of January 1, 2012. If you have been wanting to make gifts to take advantage of the current federal exemptions, but have been wary of incurring the corresponding Tennessee gift tax, your opportunity may be on the horizon.

TN Inheritance Tax Bill Moves Past Another Hurdle

2012-04-26T10:27:00.001-05:00

Yesterday, the Senate Finance, Ways & Means Committee unanimously voted to approve a bill that would repeal the Tennessee inheritance tax beginning in 2016. The bill will now be placed on the Senate’s calendar for consideration of the full Senate. At this time, no date has been set.

UPDATE: The bill has been passed by the Senate and the amendment will be sent to the house for approval. Assuming the House approves, this bill will then go to Gov. Haslam for signature. Great news!

On a related note, the legislature has also voted to repeal the state’s gift tax – effective January 1, 2012. Therefore, if you were unsure about taking advantage of the favorable gift tax laws due to the potential for Tennessee taxation, you may have just received an early Christmas present.

No New Updates on the Inheritance Tax Front

2012-04-23T09:25:00.001-05:00

As regular readers are aware, I have been closely monitoring the state legislature’s push to repeal the Tennessee inheritance tax.

For those unfamiliar with the matter, the state House voted to repeal the inheritance tax (beginning 2016) on April 12, 2012. Following the House’s vote, the bill was sent to the Senate Finance, Ways, and Means Committee (SFW&M Committee) for consideration. The SFW&M Committee was scheduled to vote on the bill on April 17th. Since mid-April, voting has been deferred three times. Currently, the bill is scheduled to be voted upon tomorrow, April 24, 2012. If the bill is passed, it will likely go to the Senate for vote.

I will keep everyone updated as new developments arise.

UPDATE: Deferred again to April 25, 2012.

Bill to Repeal TN Inheritance Tax Passes House

2012-04-13T08:43:00.001-05:00

Yesterday, the Tennessee House of Representatives, by a vote of 88 to 8, passed HB 3760. This bill would repeal Tennessee’s inheritance tax beginning in 2016. The bill has yet to be approved by the Senate. At present, it is being considered by the Finance Ways and Means Committee.

New Bill Permits Extension of Franchise and Excise Tax Returns

2012-04-10T08:56:00.001-05:00

H.B. 2406/S.B. 2422, recently signed into law by Governor Bill Haslam, grants entities a six month extension to file franchise and excise tax (F&E tax) returns provided certain criteria are met. As a general matter, the extension will be granted if (i) a timely request for extension is filed; and (ii) at the time of the request, the entity has paid at least 90% of its F&E tax liability for the current year, or 100% of its F&E tax liability for the preceding year.

The full text of the bill can be found here.

TN Law Update–Draft of Bill to Repeal Inheritance Tax

2012-04-06T14:29:00.001-05:00

Last week, I mentioned that a strong push is being made by state representatives to significantly reduce Tennessee's inheritance tax. At that time, no drafts of the bill, SB 3762, were available for review.

Recently, drafts have been released illustrating the intended amendments to Tennessee’s tax law. The first amendment (which can be found here) would gradually increase the Tennessee inheritance tax exemption from its current level of $1 million, to $5 million by January 1, 2015. In other words, Tennessee residents with estates valued at less than $5 million would be exempt from Tennessee inheritance taxation by early 2015.

What’s more, however, a second amendment has been introduced that would eliminate Tennessee’s inheritance tax altogether, which would become effective January 1, 2016. Click here to view the second amendment to SB 3762.

While I have heard that the legislature would like to address the elimination of Tennessee’s gift tax in this bill as well, no mention of such changes are contained in either amendment.

Don’t You Dare Attempt to Falsify Point of Sale Reports to Avoid Tennessee Sales Tax

2012-04-04T08:09:00.001-05:00

Many businesses conduct sales through Point of Sale (POS) systems. POS systems, unlike mechanical cash registers, are run by computer programs, and users/businesses are generally unable to modify the reports generated by these systems.

In the case of businesses seeking to minimize state sales tax burdens by misrepresenting actual sales, these POS systems can create a significant burden. In response, many unscrupulous business owners have obtained what are commonly known as “zappers” or “automated sales suppression devices”. These devices (usually just a software program on a USB drive) contain programs that modify the sales shown on POS system reports. Obviously, with lower sales comes lower sales tax burdens.

On April 2, 2012, the state of Tennessee adopted a bill that makes the possession, use, or sale of any such zapper a felony. While the offence is punishable for a fine of $100,000, that is in addition to – not in lieu of – back taxes, penalties, and interest owed as a result of any non payment of taxes associated with the use of such a device. You can read the full text of the legislation here.

Understand the Difference Between Brokers & Fiduciaries in 2 1/2 Minutes

2012-03-27T13:23:00.001-05:00

Thanks to Phil Reynolds with TBH Global Asset Management.