Hyden, Miron & Foster, PLLC Law Blog

Monday, November 17, 2014

Six IRS Tips for Year-End Gifts to Charity

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. There are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

1. Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Monetary donations.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements.

3. Household goods.  Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts.  You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.

6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.


Tuesday, November 11, 2014

Arkansas Landowners Win Victory in Self-Employment Tax Case

In a victory for Arkansas property owners, the Eighth Circuit Court of Appeals has ruled that payments from the Conservation Reserve Program (CRP) are not self-employment income subject to self-employment tax. In Morehouse v. Commissioner, a three-judge panel overturned a decision by the Tax Court that allowed the IRS to assess self-employment tax on landowners who were not engaged in the trade or business of farming but who were enrolled in the CRP.  

In the CRP, landowners sign a contract with the United States Department of Agriculture promising to follow conservation measures on their land.  In exchange, the USDA makes payments to the landowners.  Conservation measures include seeding cover crops and maintaining weeds.  The IRS viewed this activity as farming—a form of trade or business—and required landowners to pay self-employment tax.   

The Circuit Court concluded that, in fact, the payments are rental income, excluded from employment tax.  CRP payments to active farmers are still taxable as self-employment, unless the farmer falls under the protection of the 2008 Farm Bill which exempts farmers receiving social security income from self-employment tax on CRP income. Still, non-farmers and farm landlords who are not "materially participating" in farming may now treat CRP payments as real estate rent.  

Whether treating the income from a farm as rental income instead of self-employment income is advantageous is something that property owners and farm landlords must weigh after consulting with their tax advisors. There may be tax considerations that go beyond the issue the Court resolved.

Whether you are a passive landholder or actively engaged in a trade or business, our attorneys can advise you on how to reduce your tax exposure in the short- and long-term.  The expert Arkansas attorneys at Hyden, Miron & Foster, PLLC can advise you on practical and legal aspects of tax strategy in all types of business activities and investment.  Call (501) 376-8222 for a consultation today.



Monday, November 3, 2014

WARNING: IRS Scam Phone Calls Continue

The IRS has unveiled a new YouTube video to warn taxpayers not to be fooled by impostors posting as tax agency representatives. Scammers may demand money or tell you that you have a refund due to try to trick you into sharing your private information. The scam callers are quite sophisticated. They may know a lot about you and even have an altered caller ID to make it look like the IRS is calling you.

The IRS wants to remind taxpayers of five things are tell-tale signs of a scam. Scammers often use these methods to get you to divulge information. However, the IRS will never:

  1. Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
  2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  4. Ask for credit or debit card numbers over the phone.
  5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or at www.tigta.gov.
  • If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add "IRS Telephone Scam" to the comments of your complaint.

Remember, too, the IRS does not use email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.


Thursday, October 30, 2014

Do I need to file an FBAR?

By: Tiffany Parker Nutt 

A United States person that has a financial interest in or signature authority over foreign financial accounts must file the Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The new FBAR form is FinCEN Report 114. Form 114 supersedes previous years’ form TD F 90-22.1. The new form is only available online through the BSE filing system. The FBAR Form 114 filing deadline is June 30. Unlike income tax returns, an extension to file cannot be obtained for Form 114.

The definitions of the bolded key terms are very important to determine whether or not you are required to file an FBAR.

Financial Account - A financial account includes, but is not limited to, securities, brokerage, savings, demand, checking, deposit, time deposit or other account maintained with a financial institution. A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund.

Foreign Financial Account - A foreign financial account is a financial account located outside of the United States.

United States Person - A United States person includes United States citizens and United States residents. Even if you are not living in the U.S. and are a U.S. citizen, you are still considered a United States Person and can be subject to the FBAR filing rule if the other requirements are met.

If you are uncertain of your filing obligations or have missed the filing deadline contact the attorneys at Hyden, Miron & Foster, PLLC. Call (501) 376-8222 for a consultation.


Tuesday, October 28, 2014

Cleaning Up A Client's Estate—Literally

Trusts and estates lawyers often develop closer personal ties with clients than lawyers in other specialties.  A recent episode dramatically illustrates how close.

It began when a lawyer received a call from the son of a client.  The client had passed away and his son had sifted through his late father's possessions, taking the ones he valued.  However, the son lived and worked abroad and needed to return there.  Would it be possible, he asked, for the lawyer to dispose of the rest of his father's possessions so that his father's house could be sold?

The lawyer, who provides legal services for over 100 families and oversees $50 million in assets, didn't refuse.  Instead, she found volunteers to help and they went through the fully furnished home.  She called nonprofit organizations and asked if she could donate the appliances and furniture.  She personally rented a truck and delivered the items to the nonprofit organizations and needy families.  

The recipients were grateful for the donations and her client was grateful that she had been able to distribute the items in a charitable way.  What's more, the client was able to deduct the charitable donations on his father’s final tax return.  

This episode is an unusual one, but the personal relationship between lawyer and client can often take both down surprising paths.  Estate planners often help clients at all stages of their lives, and trust and estate administration and estate planning involves much more than just taxes and probate.

With offices located in Little Rock, Conway and Hot Springs Village, Arkansas, the attorneys at Hyden, Miron & Foster, PLLC have a long history of providing clients with expert personal and professional service in tax law, trust and estate administration, and estate planning.  Call us at (501) 376-8222 for a consultation.

Tuesday, October 14, 2014

Court Affirms New Estate Tax Strategy for Art Collectors

Collectors of valuable artifacts face a quandary when it comes to estate planning.  Their collections often appreciate substantially over time, so that, at death, their value may exceed state and federal estate tax exemptions.  The estate might then be taxed at a rate as high as 40%.  But giving away the art to avoid estate taxes would prevent collectors from enjoying their collections during their lifetimes.

Banker James A. Elkins pursued a strategy of giving away fractional shares of his art to his children.  He retained possession of the paintings, gradually relinquishing small amounts of ownership.   His estate planning involved a number of different tax avoidance tools, including a Grantor Retained Interest Trust (GRIT).  At the time of his death in 2006, he owned a 50% interest in three works of art and 73% interest in 61 others.  His children owned the rest.

Using calculations based on carefully documented appraisals, his estate discounted the value of his art collection by 44.75% because of his fractional ownership.  The IRS sent a deficiency notice, refusing to accept the discounted valuation.  Estate tax discounts on the value of assets because of partial ownership are often permitted, but they usually involve real estate or business holdings.  The IRS rejected the idea of fractional ownership of art, claiming there was no real market for a fraction of a work of art.

The Tax Court ruled against the IRS and said some discount should be allowed.  However, it rejected the 44.75% discount proposed by the Elkins estate, choosing, instead, a flat 10% discount.

The Court of Appeals for the Fifth Circuit rejected that approach and handed the Elkins estate a victory.  It scolded the IRS for offering no data to justify its position, in contrast to the Elkins estate, which offered extensive support for its valuation.  It permitted the 44.75% discount and awarded the estate a tax refund plus interest.

The Elkins decision could have far-reaching implications for art collectors in every state, who can now reduce the size of their estates by transferring fractional shares of art to their survivors.

The case demonstrates the importance of expert trust and estate planning advice, careful documentation, and advocacy in the event of a dispute with the IRS.  Whether you have a valuable art collection or seek to reduce estate taxes, the experienced Arkansas tax lawyers at Hyden, Miron & Foster, PLLC can help.  Call (501) 376-8222 for a consultation.


Friday, September 26, 2014

Passive Income Leads to Active Battles with IRS

Business and investment activities inevitably involve complex tax laws and regulations, none more so than "passive" and "non-passive" activities.  Generally, losses from passive investments cannot be offset against non-passive gains. Taxpayers often try to characterize their activities as non-passive to use losses as freely as possible when filing their tax returns.

Labeling investment activity as “passive” or “non-passive”, however, can be problematic.  Internal Revenue Code Section 469 and IRS regulations there under leave ample room for interpretation by taxpayers.  Passive income generally comes from real estate rental activity, from a limited partnership, or from a business in which the taxpayer does not "materially participate."  The ultimate determination can be highly fact-specific.

There are at least seven factors that courts may consider when determining whether a taxpayer is materially participating in an investment.  Meeting just one of them may be sufficient for an activity to be deemed non-passive.

1. The taxpayer spends more than 500 hours annually working on the activity. 

2. Few other individuals are involved—the taxpayer’s involvement represents virtually all of the work done on an activity.

3. The taxpayer works on the activity for more than 100 hours annually, and no one else works more. 

4. The activity is a "significant participation activity" (SPA) in which the taxpayer works for more than 100 hours during the year, and the taxpayer’s annual work on all SPAs is more than 500 hours.
 
5. The taxpayer materially participated in the activity for any five of the ten preceding tax years.

6. For a personal service activity, the taxpayer materially participated for any three tax years preceding the current tax year.

7. Based on all the facts and circumstances, the taxpayer participates on regular, continuous, and substantial basis during the year.

While these criteria offer many ways to have income considered non-passive, they can also lead to disagreements with the IRS and a tax deficiency notice.  We believe that careful tax planning and expert legal representation during an IRS audit can help you avoid disputes over this and other aspects of your tax return.  

On occasion, a dispute with the IRS cannot be avoided or resolved amicably and vigorous advocacy in court is the only viable option.  Arkansas taxpayers seeking experienced, effective guidance on tax planning and representation in IRS audits should contact the tax lawyers at Hyden, Miron & Foster, PLLC.  Call (501) 376-8222 for a consultation about such tax issues. 


Thursday, September 18, 2014

Arkansas Long Term Care Resident’s Rights Act

By: Guy W. Murphy, Jr.

Many of us have friends, family, or clients who are (or will be) long term residents of nursing homes, physical rehabilitation facilities, etc.  Many people are unaware that Arkansas has enacted a resident’s “bill of rights.”  Codified at A.C.A. §20-10-1201, et seq., the Arkansas Long Term Care Resident’s Rights Act (“RRA”) includes, among other things, a list of patient rights which cannot ordinarily be violated by the facility or its staff.

Among these rights are the right of the patient to review recent facility inspection results, to be informed of what costs are not covered by social security, to pick his or her own personal physician and pharmacy to use for prescription medicines, the right to have visitors of his or her choosing during normal visiting hours, and the right to send and receive private and uncensored communication without interference from the facility.

If these rights, or others protected by the RRA, are violated, the statute allows for a civil action to be filed against the facility in the county where the facility is located.  If the case is proved, the resident can be awarded compensatory and punitive damages.

To learn more about the protections of the RRA, read the relevant portion of the statute click hereor contact an attorney familiar with the statute.


Friday, September 12, 2014

Fall: The Time to Start Tax Planning

Although most of us do not want to start thinking about our taxes until January, fall is really the best time to start your tax planning because it could save you money.  If you take certain steps now you might be able to meaningfully reduce the amount you owe in taxes come April.  If you are tax savvy, you might be able to work some of these things out on your own.  But, take caution!  You should consult with a tax professional and your accountant before doing any in depth tax planning.  Here are a few things you can do now to start preparing your tax strategy for the upcoming tax season.

Consider your investments and how they have performed thus far.  If there are losses, you might want to sell the corresponding assets now to take advantage of the offset they will give you.  If you have a mixture of gains and losses, you might want to sell the assets that made you money. You will be subject to capital gains taxes on these investments and therefore you might want to use the offset from the losses to minimize your liability. Be sure to consult with your investment advisor at the same time to understand what your gainers and losers look like. The investment advisor may want to “rebalance” your portfolio with this tax information in hand.  

Fall is also a good time to plan your charitable giving.  You should not overlook any investments that have been performing well.  For example, if you donate stock to a charity directly, you will not be subject to the capital gains taxes you would be if you sold the stock and then donated the money you netted.  In this way, the charity benefits much more from the donation since the sales proceeds will not have been subject to income tax.  You will also get the full value tax deduction for what the stock value is worth on the sale date and not just the amount of money you donated after selling it and paying the required taxes. You might also take this time to increase contributions to accounts that receive preferential tax treatment, such as IRAs, 401(k)s, 403(b), and other retirement plans.    For 2014, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $17,500.  For employees aged 50 and over (who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan), they may make an additional $1,000 catch-up contribution limit.  The 2014 limit on annual contributions to an IRA is $5,500, with a $1,000 additional catch-up contribution limit for individuals aged 50 and over.

Lastly, this is a great time to start compiling your list of deductibles.  Talk to your tax professional to determine what might be deductible and how you can use those deductions in the most beneficial way.

If you would like to meet with a tax attorney for your fall tax planning, contact the attorneys at Hyden, Miron & Foster, PLLC, at (501) 376-8222 today to schedule a consultation. We have offices in Little Rock, Conway and Hot Springs, Arkansas.

 


Friday, August 29, 2014

Rev. Proc. 2014-18 – Time is Running Out on Portability Election

By: Tiffany Parker Nutt

Rev. Proc. 2014-18 extends the portability election time period for decedents who died between January 1, 2011 and December 31, 2013. The time to elect portability expires the date the estate tax return, IRS Form 706, is due. However, Rev. Proc. 2014-18 allows for an extension of time if certain requirements are met.

Rev. Proc. 2014-18 only applies to estates of decedents that meet the following requirements: (1) has a surviving spouse; (2) decedent died between January 1, 2011 and December 31, 2013; (3) was a citizen or resident of the United States on the date of death; (4) the executor is not required to file an estate tax return for the decedent as determined under IRC § 6018(a); and 5) the executor did not file an estate tax return within the time prescribed by Treas. Reg. § 20.2010-2T(a)(1) for filing an estate tax return.

Rev. Proc. 2014-18 provides that the portability election must be filed by DECEMBER 31, 2014. The Form 706 must be completed and properly-prepared. The person filing the return must state at the top of Form 706 that the return is“FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”

If all of the requirements are met, then the portability election will be considered to have been timely filed.

Contact the attorneys at Hyden, Miron & Foster, PLLC to ensure you do not miss the portability election deadline.

For a more in depth look at portability check out our August 2014 Newsletter.


Friday, August 29, 2014

Basics of a Comprehensive Estate Plan

Estate planning is something that everyone should consider.  For many, this subject is not comfortable to think about, but what happens to your assets after you die is not just a concern for those that are aging, wealthy, or have children.  These matters should be handled as early as possible to avoid unpleasantness after a disabling event or death.  Every plan is unique, but there are some cornerstone documents that should be present in every well-rounded estate plan.

Will

A Last Will and Testament disposes of all assets that have not passed to your beneficiaries in another way.  For instance, if you do not designate a beneficiary on your life insurance account it will pass according to your Will.  A Will also nominates the person or persons responsible for administering your estate.  You may also use your Will to nominate a guardian for your minor children and make funeral arrangements. In both instances, the local circuit (probate) court will approve the nominations by formal appointment and will supervise the actions taken by these appointees.

Trusts

There are many different types of trusts that can be utilized depending on your situation.  A trust can be used to reduce estate taxes, hold assets for distribution to beneficiaries according to specific terms, and to protect assets.  A trust allows assets to pass to beneficiaries without the formalities and expense of probating the will.  

Beneficiary Forms

Most financial accounts, such as life insurance and retirement accounts, require that you designate a beneficiary to receive the proceeds of the fund upon your death.  If a beneficiary is properly designated, the asset will pass regardless of the provisions of a will. We urge you to review your designees in your policies, as your current designee may no longer be alive or appropriate, such as your former spouse.

Power of Attorney – Financial and Healthcare

These documents allow you to choose a person to handle your financial and healthcare needs if you cannot do so yourself.  They can be customized to give the agents more or less power as you see fit.  

A financial Power of Attorney is an important element of any estate plan.  It enables your attorney-in-fact or agent to handle your business and financial affairs, other than the assets in your trust, if you are unable to handle them yourself.  

The health care Power of Attorney addresses two major concerns in a single document.  First, as a living will, it sets forth your instructions that, if you should have an incurable illness and death is imminent in any event, your life should not be prolonged by artificial means (i.e., life-sustaining procedures are to be withheld or withdrawn if you are permanently unconscious).  Second, as a durable power of attorney for health care, it authorizes your health care agent to make other health care decisions for you should you be unable to do so.  

Other Things to Consider

You may also want to include a list of assets, including digital assets, with your estate plan, as well as instructions as to how your loved ones can access them.  Be sure to leave your loved ones a list of contacts that they may need in the administration of your estate, such as your attorney and financial advisors.  If you are a homeowner you might also want to leave your beneficiaries a list of all of your utility and service providers for use after your death.

By utilizing all of the above documents you can rest assured that you are on your way to creating a comprehensive plan for your loved ones.  If you are considering creating or revising an estate plan call the attorneys at Hyden, Miron & Foster, PLLC at (501) 376-8222 today. We have offices in Little Rock, Conway and Hot Springs, Arkansas.


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