Gift & Estate Tax
The American Taxpayer Relief Act (ATRA) of 2012 prevents steep increases in estate, gift and generation-skipping transfer (GST) taxes that were slated to occur for individuals dying and gifts made after 2012. The Act does this by permanently keeping the exemption level at $5,000,000 as indexed for inflation after 2010 (2013 exemption estimated to $5.25 Million at press time). However, the Act also permanently increases the top estate and gift tax rate from 35% to 40%.

Gift & Estate Exemption Reunification
Prior to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA) reunified the estate and gift taxes. The ATRA permanently extends unification and is effective for gifts made after December 31, 2012.

Portability of Unused Estate Tax Exemption Made Permanent

The TRUIRJCA allowed the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse for estates of decedents dying after December 31, 2010 and before January 1, 2013. The ATRA makes permanent this provision and is effective for estates of decedents dying after December 31, 2012.

CAUTION – A Form 706 (Estate Tax Return) must be timely filed to obtain the portability.

The basic exclusion amount is $5.12 million for deaths in 2012 and $5 million (subject to an inflation adjustment) for individuals dying in 2013. (Code Sec. 2010(c)(3))

The “deceased spousal unused exclusion amount” is the lesser of:

(1) the basic exclusion amount, or

(2) the excess of the applicable exclusion amount of the last deceased spouse dying after Dec. 31, 2010, of the surviving spouse, over the amount on which the tentative tax on the estate of the deceased spouse is determined. (Code Sec. 2010(c)(4))

A surviving spouse (for convenience we’ll assume it is the wife in this discussion) may use the deceased spousal unused exclusion amount in addition to her own basic exclusion for taxable transfers made during life or her estate may use it on the estate tax return at her death.

If a surviving spouse is predeceased by more than one spouse, the amount of unused exclusion that is available for use by the surviving spouse is limited to the lesser of the applicable exclusion amount (for example, $5.12 million if the spouse died in 2012) or the unused exclusion of the last deceased spouse. (Code Sec. 2010(c)(4))

For the surviving spouse or her estate to use the deceased spouse’s unused exclusion amount, the predeceased spouse’s estate must make an election – referred to as the portability election – on a timely filed estate tax return (Form 706) that includes a computation of the unused exclusion amount. To make the portability election, Form 706 must be filed even if the value of the gross estate is not enough to otherwise require filing an estate tax return. See temporary regulations § 20.2010-22T for detailed rules and guidance on the portability election.

This excerpt is pulled from the Big Book of Taxes 2012 courtesy of Lee T. Reams, Sr.



The infamous “Fiscal Cliff” was reached the end of 2012, and, as our nation fell off the Fiscal Cliff, Congress passed the American Taxpayer Relief Act of 2012 (“ATRA 2012”) on January 1, 2013. The President signed ATRA 2012 into law the very next day. As has been widely reported, the “sequester” required spending cuts were only delayed for a couple of months, ATRA 2012 increases revenue to some extent, but also included many tax benefit “extenders” and special tax benefits for some taxpayers and their companies. However, in the estate and gift tax area and as to estate and succession planning in general, ATRA 2012 makes “permanent” (until more tax legislation is passed) the benefits of the Tax Relief Act of 2010, which was set to be repealed, in effect, January 1, 2013.

Owen Fiore, JD has been involved in estate and succession planning for nearly 50 years, including presenting webcast courses for CPE Link the past several years. See prior CPE Link Blogs authored by Owen October 2 and May 8, 2012. On January 24th he will present for CPE Link an updated version of his estate planning and family wealth succession webcast, titled Family Estate and Succession Planning: 2012 and Beyond. With a detailed outline, nearly 100 power point slides, and a special ATRA 2012-based outline on succession planning issues, participants will have an inside look at the important issues for tax practitioners and their clients to consider in 2013.

The only adverse element on estate and gift taxes in ATRA 2012 is the increase in the top transfer tax rate from 35% to 40%. Of singular importance is that the $5 million (adjusted for inflation since 2011) per person lifetime exemption is made permanent. Therefore, the many clients who failed to make substantial gifts in 2012 when it was believed the 2013 exemption would go down to $1 million, now have another opportunity to transfer wealth within the family – without tax! In addition, the TRA 2010 Portability Election also was made permanent by ATRA 2012. What does this mean? The answer is that any unused exemption level in the estate of the first spouse to die in a married couple situation, by proper election, can be used by the surviving spouse in addition to his or her own exemption. Therefore, it is critical to insure that estate planning documents take this election into account.

Finally, for the clients who made large gifts in 2012, there are important gift tax return reporting requirements to be met, including via the use of qualified valuation appraisals for “hard-to-value” assets, such as closely held corporate stock, FLP and LLC interests, and even co-tenancies in real estate.

Our “triple reason” for 2013 estate and succession planning remains: low asset values, low interest rates, and the possibility of new adverse tax legislation later in 2013.

Guest blogger: Owen Fiore

Gearing up for tax season is always a big deal. Even for CPE providers! Every year, CPE Link features live webcast sessions and self-study courses that cover the latest tax changes. And we work hard on getting the content prepared for you on time and accurately.

This year’s offerings are off and running! In November, Eva Rosenberg’s live webcast Top 10 Tax Changes for 2012 Filing had its debut. Eva received top ratings from participants of 4.9 for knowledge and 4.7 for presentation. Check out Eva’s schedule for more dates.

Vern Hoven’s 16-hour Federal Tax Update series began last week. Vern scored an incredible 4.95 for knowledge and 4.875 for presentation. This is high praise when you consider that hundreds of reviews are coming in daily! Some participants have commented:

• “Good presentation. I learned some important things for my small practice.”
• “Love Vern’s wit!”
• “Awesome presentation.”
• “First Webcast. Enjoyed it.”
• “I enjoyed the presentation and would recommend CPE Link to my colleagues.”
• “Vern is an excellent presenter. This was a very beneficial seminar. Great job everyone!”
• “Great talking points on the material covered.”
• “Very informative. Better than the live seminars.”
• “This is my first time to do a 4 hour course online. Love it. SOOOO much better than having to drive 80 miles to Dallas EARLY In am! Great format!”

The online self-study version of the 2012 Federal Tax Update with streaming video of Vern is also getting great reviews:

• “Thank you for an excellent and informative update.”
• “The course is very educational and was easy to understand.”
• “Vern is funny – lightens the dreary task and makes the learning fun!!!”

If you haven’t taken your 2012-2013 tax update yet, please check for remaining live webcast dates and self-study course options.

An Interview with Eva Rosenberg, EA (aka Tax Mama)

The 2012 tax season looms and we asked Enrolled Agent, Eva Rosenberg to share some of the top issues she’s teaching for 2012 filing.

What’s on your list of the top tax updates for 2012?
Updates for this year include Circular 230 changes affecting tax professionals, Form 706 and other death-related filings, per diem rates and reporting, client consents and disclosure issues, and many more. One area I’m focusing on is the Voluntary Classification Settlement Program (VCSP).

No. 1: The Voluntary Classification Settlement Program
There has been a long-running battle between the IRS and employers about defining a worker’s status as employee or independent contractor. The IRS has pursued employers through payroll audits, but audits and collection actions are time-consuming and costly. Someone had the insight that the IRS could collect more money if it offered incentives for employers to come clean voluntarily. So the Voluntary Classification Settlement Program was born. Under the VCSP, taxpayers who have wrongly classified employees as contractors have an opportunity to come in from the cold. VSCP allows these businesses to reclassify workers from contractors to employees for future tax periods and, by doing so, to get some significant relief from federal employment taxes and a shield from related audits. Tax preparers need to look more closely at how VCSP works and whether or not to recommend this to their clients.

No. 2: Foreign assets and the amnesty decision
The IRS is getting more aggressive about offshore assets. They are going after assets in a growing number of countries and imposing hefty penalties. Penalties can be as high as 100 percent of the value of the account unless people participate in an amnesty program. But the rules governing amnesty are very rigid, so tax pros are having some major discussions about when to participate and when it’s better to opt out.

No. 3: The small employer health insurance premium credit.
Clients who are paying health insurance premiums for their employees can get a tax credit but the paperwork involved is monumental. Is the credit worth the extra effort it takes? That’s something the tax pro has to help the client decide.

No. 4: The RTRP exam—no time to delay
I want to raise an alarm about the Registered Tax Return Preparer test. Of the 400,000 people who must take the test by December 2013, only about 100,000 or so have passed this exam so far. Seats for the test are limited. So I urge tax preparers to reserve a test date now. It’s like a big game of musical chairs. A lot of people face being left standing when the time runs out.

No. 5: Update your website and client materials
The IRS has changed its website to comply with search engine optimization techniques, creating a mess of dead links for us to deal with. If you have IRS links on your website, or in materials you give to clients, you want to check them immediately, fixing the ones that don’t work anymore. It’s a time consuming task that no one wants at this time of year. But you don’t want to look uninformed or out-of-touch to clients and prospects.

We’re going to be facing a lot of uncertainty as this year comes to a close. The IRS is asking even more from tax professionals in terms of our education and updates, keeping our clients honest, and keeping our firms on the straight and narrow. My goal is not to make predictions from a cloudy crystal ball. It’s to give you useful information that you can use – and to help guide you to reliable sources that will keep you updated for the coming tax season.

For this and many more upcoming tax update programs this season, check out CPE Link.

How do we measure success in Family Wealth planning (my preferred term to that of “estate planning”)? I believe the measure of success is meeting client goals in a practical, understandable and cost efficient way. This is a human process – involving first, people and their aspirations, opinions and goals. Then, given the financial aspects of planning, we consider property, its characterization, title, income stream, and appreciation potential. Finally, the goals of most families include passing on the property to younger generation family members – and here we come face to face with taxation in its various forms. The process involved in meeting family goals requires advisor competency, communication and real concern for our clients.

For nearly 50 years I have been involved in the use of entities, often pass‐through entities, for the efficient planning of clients’ estates – during lifetime and after death. The properly formed, funded and operated entity can separate management and equity ownership, can develop a format for gift and other transfers of equity interests within a family, and often constitutes an integral part of the overall succession plan for the family.

The year 2010 was a real challenge for planners and their clients, given the 1‐year repeal of the Federal estate and GST tax (not the gift tax, however). Then, late in December, 2010, the Tax Relief Act of 2010 was enacted into law in a rush to prevent the repeal of the 2001 “Bush tax changes” effective January 1, 2011. Now we are into the second year of the 2‐year “planning mandate window” for review, update and improvement of clients’ estate plans.

Planning now, even with the 2010 new legislation in effect, seems required, at least for our clients with larger estates. The review of Wills and trusts with formula bypass and marital trust clauses is needed, at a minimum. Further, given the uncertainty here, clients should review and confirm their intentions for estate distribution at death – to make certain their wishes are carried out.

We have something of a “triple reason” for planning now – low asset values in this recessionary economy, low interest rates (example: the mid‐term AFR rate for October, 2011 – over 3 and to and including 9 year loans or sales within the family – is 1.19%), and yet valuation discounts may be in for adverse legislation soon!

For further insights into family wealth planning from guest blogger Owen Fiore, JD, view his free on-demand webcast, Family Estate and Succession Planning: 2012 and Beyond.

The California Tax Education Council (CTEC) recently approved CPE Link as a continuing education provider. With the addition of this California Registered Tax Preparer group, CPE Link is now serving six categories of financial professionals.

When CPE Link launched in 2008, it attracted CPAs from just a few states. Over the past four years, it has increased its reach, bringing its online curriculum to CPAs in all states plus international learners as well. Participants now include Certified Financial Planners (CFPs), Certified Management Accountants (CMAs), Enrolled Agents (EAs), and Registered Tax Return Preparers (RTRPs). CPE Link targets its programs to qualify for each group’s special requirements.

Practitioners governed by CTEC must complete 20 hours of continuing tax education each year in order to renew their license. These hours are broken down into specific topic requirements: 10 hours federal tax, 3 hours federal tax updates, 5 hours California tax and 2 hours of Ethics.

CTEC professionals will be able to choose from a line-up of live webcasts that fit their required categories. These California tax practitioners can stay up to date with CPE Link’s “Quarterly Tax Updates” or choose hot topics like “The Battle between W-2 and 1099.” Live webcasts currently on the summer schedule include “Representing Your Client at a 1040 Audit” and “Curing the Addicted Tax Delinquent”—both part of Eva Rosenberg’s popular IRS Practice series.

In addition to live webcasts, CPE Link offers self-study courses—delivered completely online, allowing users to study at their own pace and take the final exam when ready. With topics like “California Tax Differences,” “Health Care Provisions,” and “Death of a Taxpayer,” California tax preparers will be able to easily satisfy their annual continuing education requirements and find topics of interest and benefit to their tax practices.

CPE Link is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education as well as the state boards regulating public accounting in Illinois, New Jersey, New York, and Texas.

This tax credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low‐ and moderate‐income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

For tax years 2010 through 2013, the maximum credit is 35% for small business employers and 25% for small tax‐exempt employers such as charities. (See Code Sec. 45R(g).)

An enhanced version of the credit (50%) will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50% and 35%, respectively.

A small business employer who did not owe tax during the year can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit.

To be eligible, the employer must cover at least 50% of the cost of single (not family) health care coverage for each of its employees. The employer must also have fewer than 25 fulltime equivalent employees (FTEs) and those employees must have average wages of less than $50,000 a year.

What is a full‐time equivalent employee? Basically, two half‐time workers count as one full‐timer. Here is an example, 20 half‐time employees are equivalent to 10 full‐time workers. That makes the number of FTEs 10, not 20. Example: assume the employer pays total wages of $200,000 and has 10 FTEs. To figure average wages divide $200,000 by 10 – the number of FTEs – and the result is the average wage; the average wage would be $20,000.

Also, the amount of the credit the employer receives works on a sliding scale. The smaller the business or charity, the bigger the credit. So if the employer has more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit it will receive will be less. Taxpayers must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. A small business will include the tax credit as part of the general business credit on its income tax return.

This information is shared from a CPE Link webcast featuring speaker, Dennis J. Gerschick, Attorney, CPA, PFS, CFA. Get a complimentary recording of the full one-hour webcast Tax Implications of the Upheld Patient Protection and Affordable Care Act.

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