by Linda Suzzanne
Griffin
Tax Return Preparer Penalties
In the
2007 Data Book (IR 2008-43) 03/14/2008 the Internal Revenue Service
(the “Service”) issued its annual data book. A total of
$1,384,563 individual returns, out of 135.4 million individual
returns filed, were audited during the fiscal year ending 2007. From
the returns 36.5% were selected on the basis of the earned income
credit, 22.49% of the audits were conducted by revenue agents and
approximately 77.5% were correspondence audits. Estate and trust
income tax return audit rates were .1%, corporations with less than
10 million in assets were .9%, estate tax returns were 7.7%, gift tax
returns were .6%. Offers and compromise of 46,000 were received and
12,000 or 26% were accepted.
Advice:
It is
surprising how few returns are audited. Unfortunately you can not
predict if it is your turn!
Declining
Interest Rates: Effects on Estate Planning Techniques
The
Section 7520 interest rate of June 2008 is 3.84%. This rate has been
ranging from a high of 6.1% to a low of 3.84% over the past 9 months.
This drop in interest rate effects estate planning techniques in
different ways:
Private
Annuity – low interest rate provides a lower annual payment
amount the younger family member will have to make to the older
family member to prevent a gift on the transfer.
Grantor
Retained Annuity Trust (“GRAT”) – lower interest rate
increases the value of the annuity retained by the grantor; thus
reducing the value of the gift of the remainder.
Qualified
Personal Interest Trust (“QPRT”) – lower interest rate results
in lower value for retained income interest and a higher value for
the gift of a remainder interest.
Charitable
Remainder Annuity Trust (“CRAT”) – lower interest rate
increases value of annuity interest to grantor and a smaller
charitable deduction for the remainder gift interest.
Charitable
Remainder Unitrust (“CRUT”) – change in the rate does not
effect the tax deduction.
Charitable
Lead Unitrust (“CLUT”) – change in the rate does not effect
the tax deduction.
Charitable
Lead Annuity Trust (“CLAT”) – lower interest rate results in a
larger gift or estate tax deduction for the annuity interest going
to the charity and a smaller value of a gift of a remainder interest
to the individuals.
Advice:
This
author always has to check a “cheat” sheet to remember the good
and bad points of the interest rates. Just realize that different
techniques have different advantages and disadvantages. Look now
particularly at private annuities, GRATs and CLATs.
Minimum
Required Distributions (“MRD”)
When an
owner of an individual retirement account (“IRA”) dies, the
beneficiary can take IRA distributions over the life expectancy of
the owner or the beneficiary depending on the age of the owner at
death. Regardless of the life expectancy used the MRD must be
taken out on an annual basis. If the MRD is not taken in the first
few years, then does the payout have to be made within five years of
death? In Private Letter Ruling 200811028, a non-spouse beneficiary
of an IRA missed the MRDs. The MRDs were taken in the third year
after the death of the IRA owner. The beneficiary paid the penalty
tax (50%) for her failure to timely receive the MRDs and the
beneficiary represented and specifically did not elect the
five year distribution rule. The question was whether the failure to
timely take the required MRDs required her to receive the
balance in five years.
The
Service concluded she could take the MRDs over her life expectancy
and the Service reasoned “the default” rule is the life
expectancy rule and not the five year rule because the
beneficiary had not elected the five year rule. She also paid the 50%
excise tax.
Advice:
It is
imperative that if your client is a beneficiary of an inherited IRA
then such beneficiary must receive MRDs starting the year after the
date of the owner’s death. Failure to take those distributions can
result in an egregious penalty of 50% and a possible loss of the
deferral. If, however, your client has not taken an MRD, then the 50%
penalty may be waived if it is brought to the attention of the
Service first instead of the Service notifying you.
Contingent
Fee for Practitioners
In Notice
2008-43, 2008-15 IRB the Service provided interim rules for
contingent fees payable to practitioners. A practitioner can charge a
contingent fee for services rendered in connection with an IRS
examination of an original tax return, as amended, return of claim of
refund or credit where it was filed within 120 days of the taxpayer
receiving written notice of the examination of the tax return.
Advice:
This is
an area where you can charge a contingent fee but also carefully read
All
Contents © Copyright Linda Suzzanne Griffin,
P.A.
