Hyden, Miron & Foster, PLLC Law Blog

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.


Friday, August 22, 2014

Is the new IRS Form 1023-EZ really “EZ”?

By: Tiffany Parker Nutt 

The IRS recently announced a new Form 1023-EZ that is available for small organizations seeking tax-exempt status. The new form provides a simplified application process and is expected to reduce application backlog. However, not all organizations seeking tax-exempt status can use Form 1023-EZ. It can only be used by organizations seeing tax exempt status under IRC § 501(c)(3). IRC § 501(c)(3) applies to entities organized exclusively for religious, charitable, scientific, testing for public safety, literary, educational purposes, or for the prevention of cruelty to children or animals. The new form cannot be used by organizations with annual gross receipts exceeding $50,000.00 or with total assets exceeding $250,000.00.

Form 1023-EZ can only be filed electronically at www.pay.gov after you register for an account with that site. The IRS will not accept printed copy submissions of the application. Also, the electronic application will not be processed until the $400 user fee is paid. The user must be paid online also.

The IRS states that the new “EZ” form (3 pages) is shorter than the full Form 1023 (12 pages). However, instructions for Form 1023-EZ require that applicants must complete a seven page Eligibility Worksheet first. Applicants do not have to submit the Eligibility Worksheet with the Form 1023-EZ applications, but need to keep a copy for their records.

Form 1023-EZ only contains four parts. Part I is general information about the organization. Part II is a series of “check the box” items attesting that the organization document meets certain requirements. Part III relates to the organization’s specific activities. Part IV is a series of questions to determine whether or not the organization is a private foundation or public charity.

Even though the Form 1023-EZ is easier than the full Form 1023, the application limitations and questions are still very complicated. Contact the attorneys at Hyden, Miron & Foster, PLLC to assist with your tax-exempt status application and organization formation.


Friday, August 8, 2014

IRS Audits

The Internal Revenue Service (IRS) conducts audits to ensure that taxpayers are complying with the tax code.  Audits are not random.  In order to decide who to audit, the IRS (or their computers) look for red flags (items that are suspicious or abnormal).  

If you are chosen for an audit, the IRS will send you a letter to notify you.  If you receive an audit letter, you should contact an experienced tax professional such as an accountant, attorney, CPA or enrolled agent as soon as possible to schedule a consultation.  Audits can have serious financial consequences and the representation of a qualified attorney can reduce the chances that you will face these penalties.  A tax attorney can represent you before the IRS and assist in demystifying the process in the initial consultation.  This will minimize the stress and apprehension that often comes along with being audited. 

After you schedule a consultation, you should thoroughly review your tax return(s) for the years selected for audit.  Look for anything that might be a red flag and make note of it so you can discuss it with you attorney.  You should then begin gathering any and all documents you have relating to your tax return.  You want to be able to prove that the deductions and credits on your return by having sufficient documentation.  Gather documents relating to everything on your tax return, not just red flags, and make copies for your attorney.   If you do not have these documents, do not panic.  Your attorney may be able to assist you in gathering the required evidence from other sources.  Do not contact the IRS or send them any information.  It is best to allow the attorney to handle these correspondences.  

If you have received an audit letter from the IRS, the experienced tax attorneys at Hyden, Miron & Foster, PLLC can help you.  Call us at (501)376-8222 to schedule a consultation.


Thursday, July 31, 2014

Common Estate Planning Mistakes

Most people would like to believe that once they pass everything will go as planned.  The truth is, no matter how well you are prepared, you cannot plan for every contingency.  However, you can reduce the risk that things will go off track by avoiding some common estate planning mistakes.

Often times, individuals choose the wrong people to manage their estates.  Picking the wrong executor or trustee can wreak havoc on your plan.  Remember, you do not have to settle for the default picks (such as a spouse or child). You should pick someone you can trust.  You should put a lot of thought into these selections and consider individuals who understand what you want and who are most likely to fulfill your wishes.  You can also pick multiple people, if you think that will work best.  But, be aware this could backfire and cause more harm than good.

In many instances, people do not consider the assets they possess that may pass outside their Will or Trust.  Assets such as retirement funds and life insurance policies will pass according to the beneficiaries you designate on these accounts.  You should think carefully about these designations and review them often.

Many do not consider the possibility that something might happen to the beneficiary they have chosen.  This risk is a real one and you should therefore designate secondary beneficiaries when possible.  Not designating secondary beneficiaries could cause this bequest to fall into the residuary estate and pass to someone you did not intend to benefit in such a way.  Choosing a secondary beneficiary or adding a contingency provision to your Will or Trust can help avoid your assets passing to someone to which you did not intend them to pass. 

Another common mistake is being secretive about your estate plan.  Talking openly and generally about your estate plan with your loved ones will eliminate surprises that could cause conflicts.  

Most estate plans provide protection in the event you become incompetent through the use of a financial and health care power of attorney.  Again, you must be careful when choosing these agents.  They must be aware of your wishes, have the ability to deal with others, and be trustworthy.  You should review your powers of attorney often, especially when relationships change.  

When creating your estate plan, talk with your attorney about all of the above in order to be as prepared as possible for any issues that might arise.  Contact the attorneys at Hyden, Miron & Foster, PLLC, at (501) 376-8222, today to discuss your estate planning matter.


Thursday, July 17, 2014

Wills: What you need to know

Wills, also known as Last Wills and Testaments, have been used for centuries to instruct how property will be distributed after death.  Wills are formal legal documents that are subject to specific requirements in order to be valid.

One of the most important things to know about Wills is that it is absolutely necessary to fulfill all of the requirements for validity set out by law.  The requirements have not changed in centuries and may seem a little outdated, but they are necessary nonetheless.  Wills cannot be electronic.  There is no app to create a valid Will.  It must be on paper.  Most of the time, they also must be signed by the person making the Will and witnessed by a number of individuals. These requirements vary by state and the circumstances under which the will was made can also have an effect.  What you need to know is that no matter what the requirements are in your specific situation, they must be complied with or your will won’t be valid.

Another important thing to know is that Wills may be updated automatically.  If you don’t bother to update your Will after you get married, divorced, or have another child, state law may update it for you.  Wills also have purposes other than to instruct how to distribute your property after you die.   For example, young parents use Wills to appoint a guardian for the care of their minor children. Others include burial instructions in their Wills.  

Finally, Wills are no longer the final say in estate planning matters.  These days, most people want to avoid probate (the court process for validating a Will).  This can be done by using a variety of techniques.  For example, it is possible to name beneficiaries on most financial accounts.  Your Will does not effect on how these assets will be distributed.  In the present day, Wills might only be used as a precautionary measure to cover assets not distributed by other means.

Whether you would like to discuss creating an estate plan or have specific questions about an estate planning matter, contact the attorneys at Hyden, Miron & Foster, PLLC, at (501) 376-8222, for a consultation today. 


Thursday, July 17, 2014

Arkansas Nonprofits Obtain Needed Funds in 2013

In December, Little Rock-based newspaper Arkansas Times released its list of high-value grants received by Arkansas non-profits from Arkansas foundations for 2013. Numerous nonprofits that were able both to identify the need for funds and to demonstrate the ability to successfully utilize funds received, in many instances, six, seven and even eight-figure grants from such foundations as Walton Family Foundation, Walton Charitable Support Foundation, The Windgate Charitable Trust, The Care Foundation of Springdale, The Endeavor Foundation, The Schmeiding Foundation and The Donald W. Reynolds Foundation. Recipients included:

• The Arkansas Community Foundation, $21.4 million
• Food Bank of Northwest Arkansas, $7.1 million
• Jones Center for Families, $500,000
• Teach for America-Arkansas, $1.9 million 
• Nature Conservancy of Arkansas, $500,000
• Arkansas Children's Hospital, $400,000

In all, Arkansas foundations contributed over $200 million in grants to nonprofits throughout Arkansas in 2013.

If you represent an Arkansas charitable organization or other nonprofit organization such as a high school, university, church, hospital or museum, or if you represent a foundation located in Arkansas or another state, obtain qualified legal help by contacting the law firm of Hyden, Miron & Foster with offices in Little Rock, Conway and Hot Springs Village. Our charitable and non-profit clients include both small private family foundations and national charities. We provide a broad range of legal services related to charitable work, including:

• Incorporation
• The preparation and filing of documents and application for tax-exempt status
• Administration issues 
• The termination of organizations
• Mergers with other organizations
• Organizational strategy and planning

In addition to working with organizations, we work with individuals and families who wish to incorporate charitable giving into their estate planning. We handle trusts including charitable remainder annuity trusts, charitable remainder unitrusts and charitable lead trust, and can provide legal assistance on matters ranging from beneficiary designations to selecting the timing and type of charitable gifts, so that both our client and the charitable organization obtain maximum benefit.

Our established firm has provided estate and business planning legal services to hundreds of families and organizations located throughout Arkansas. To discuss your legal questions and needs with an experienced attorney, call 501.673.8222.

Thursday, July 17, 2014

Reasons to Update Your Estate Plan

Everyone should have an estate plan, regardless of age or socioeconomic status.  But, the unfortunate reality is that only about half of adults have a Last Will and Testament, let alone a comprehensive estate plan. Of the adults who have engaged in estate planning, they all too often allow their plans, and corresponding legal documents to become outdated. As the circumstances in life change over time, so too should your estate plan.   If you already have an estate plan, it is recommended that you take a look at it from time to time to determine if it needs to be updated or changed.

Changes to Your Inner Circle

The addition or subtraction of a family member may impact your existing estate plan.  For example, the birth of a new grandchild or a divorce may change the way you want your assets distributed.  You may also want to add a new beneficiary to your plan or cut someone out.  So, it is important to take a look at your estate plan after these types of life events occur to determine what effect they may have. 

Changes to Executor/ Trustee

Another set of factors that can affect your estate plan are the changing personal characteristics of those you have chosen to be an executor or trustee/ co-Trustee.  Estate plans can exist for a number of years and sometimes the person initially chosen for the position is no longer the best person for the job.  Consider the person’s age, residential location and abilities to determine if they are still a good candidate to serve as executor, trustee/ co-trustee after your passing

Changes to Your Assets and to Existing Tax Laws

Changes in assets can also have a significant impact on your estate plan.  It is crucial to evaluate how your assets have changed and determine if your estate plan is comprehensive enough to cover all of your assets and how they are to be distributed.  Also, tax laws change on what seems like a daily basis.  Therefore, it is also important to speak to an attorney who can advise you as to whether changes in tax laws call for changes to your existing plan.

Changes to Your Perspective

Lastly, have your personal beliefs changed?  If you feel differently now about end of life issues than you did when you first created your estate plan, your advance directives such as your healthcare power of attorney and living will may need to be changed.  Advance directives are critical to a thorough estate plan and should be considered when doing an update.

If you are seeking the representation of an experienced attorney to craft an effective estate plan or to update an existing one, call Hyden, Miron & Foster, PLLC at (501)376-8222.


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