On Jan. 1, 2014, a new law came into effect in Israel that for the first time taxes foreign trusts (i.e. trusts with non-Israeli settlors, such as trusts created by US persons with at least one Israeli resident beneficiary) and/or their Israeli resident beneficiaries, and subject then to new reporting obligations.  

Basically these “Israeli beneficiary trusts” are classified in one of two ways with each taxed differently:
  • If it is what is being called a “Relatives trust,” meaning a trust under which the settlor is alive and has a specified family relationship to the beneficiary, then the trustee must notify the Israeli tax assessor of the trust’s existence by December 31, 2014 (or within 60 days of creation). At that time the trustee may make an irrevocable election to have the Israeli resident beneficiary taxed at 30% but only upon actual distributions of trust income.  If no election is made in time then the trust will be taxed annually at 25% on all trust income allocated to Israeli beneficiaries as earned by the trust.  In other words, if the trust intends to accumulate income and not distribute all of it annually, the election permits a deferral which, even at the 5% incremental tax, can represent substantial savings.
  • If it is what has been referred to as a “Non-Relatives trust” the portion of trust income allocable to Israeli beneficiaries is taxed annually rates ranging from 25% to 52%. 
Other provisions include a tax credit for foreign (i.e. US) taxes paid on this income.

Time is quickly running out if this applies to you and you have not yet made the appropriate arrangements.

 
 
irs_retirement_plan_contribution_limits_2015.pdf
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David Neufeld today published his latest article in the Leimberg Information Services Inc. Income Tax Newsletter. The article discusses the recent Tax Court decision in Yari v. Commissioner that found that the first filed return is used to calculate the listed transaction penalty even when that return is replaced with a corrected return showing zero tax liability and zero impact from the listed transaction.  Accordingly this taxpayer had a $100,000 penalty in a year when he had zero tax liability.  The article is reproduced below.

Steve Leimberg's Income Tax Planning Email Newsletter - Archive Message #75
Date: 08-Oct-14
From: Steve Leimberg's Income Tax Planning Newsletter
Subject: David Neufeld on Yari v. Commissioner: When a Return is Not the Return for Purposes of Calculating the Section 6707A Penalty

David Neufeld provides members with his analysis of Yari v. Commissioner. David S. Neufeld is a tax and T&E lawyer in Princeton, NJ. He represents clients throughout the world, doing both planning and controversy work (administrative and Tax Court). David is also an expert witness in civil cases around the country arising from 419 plans. Most notably, David represents the government of the Island of Nevis, for which he has drafted several laws, including the Nevis LLC Ordinance and recent proposed amendments to permit series LLCs and cell captive insurance companies. For more, go to www.DavidNeufeldLaw.com

Now, here is David Neufeld’s commentary:

EXECUTIVE SUMMARY:
In Yari v. Commissioner, the Tax Court sided with the Service in upholding a$100,000 penalty under Section 6707A(b)(2)(A) assessed against Yari for failing to report a listed transaction, despite the fact that during the course of the case, Congress passed the Small Business Jobs Act of 2010 that retroactively modified how the penalty should be calculated. Yari is significant for a number of reasons, not the least of which is that is a case of first impression dealing with the proper calculation of penalties under Section 6707A(b).  [TO READ MORE CLICK ON "READ MORE" TO THE RIGHT]

 
 
If you are an individual or business who owes New Jersey taxes and would like to clean the slate potentially at a reduced cost, then the recently announced 2014 Tax Amnesty program is worth considering.

Until November 17, 2014 the New Jersey Division of Taxation is offering businesses and individuals that have unpaid tax liabilities and unfiled returns from tax periods 2005 through 2013 a way to request and enter into a closing agreement with the Division in order to satisfy outstanding tax liabilities with no or reduced penalties.

According to the New Jersey Division of Taxation, most penalties can be reduced to zero. The exception would be an Amnesty Penalty imposed on taxes due on or after 1/1/2002 and before 2/1/2009. This reduction can mean a 5% to 30% decrease in liabilities. Interest will be calculated only on the tax and reduced penalties. Recovery fees may be waived and costs of collection eliminated.  [TO READ MORE, CLICK ON "READ MORE" TO THE RIGHT]

 
 
Earlier this summer I posted an article and flow chart describing the newest version of the IRS compliance program for non-compliant resident and non-resident taxpayers with foreign accounts and assets, giving a virtual amnesty to some.  The IRS has now published forms to be used by those entering this program.
Form 14653--Streamlined Certification-Outside US.pdf
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Form 14654--Streamlined Certification-Inside US.pdf
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LexisNexis® Martindale-Hubbell®, the company that has long set the standard for lawyer ratings, has published a list of Martindale-Hubbell Top Rated Lawyers who have achieved an AV® Preeminent™ Peer Review Rating, the highest rating in legal ability and ethical standards. To create this list, LexisNexis® Martindale-Hubbell® tapped its comprehensive database of Martindale-Hubbell® Peer Review Ratings™ to identify lawyers who have been rated by their peers to be AV® Preeminent™.

 
 
Steve Leimberg's Income Tax Planning Email Newsletter - Archive Message #71

Date:  08-Jul-14

David Neufeld & IRS Amnesty for Certain US Taxpayers with Offshore Income and Assets

On June 18, 2014 the IRS in IR-2014-73 modified its ‘Streamlined’ program for certain US taxpayers who have failed to properly file tax returns or foreign bank account reports, offering the closest thing to a total amnesty practitioners could have predicted.  Those that qualify could find it very beneficial; most significantly the program permits the potential waiver of most or all penalties.  

Ultimately the determination of whether it is available to those otherwise qualified is based on whether the IRS decides a taxpayer’s past non-compliance was willful. Depending on how one guesses the Service will come out on that tells taxpayers what they should do; if they feel they can make a good case for non-willfulness they should embark on this new program, but if not then they might consider either entering the Offshore Voluntary Disclosure Program, opting out or doing a ‘quiet disclosure.’ 

For the right taxpayer the Service has exhibited unusual generosity by waiving most if not all penalties and limiting the liability for past taxes to three years. But a detailed analysis is required to be certain one is the right taxpayer, as a mistake can be terribly costly.” 

David Neufeld provides members with important commentary that reviews the benefits of the modified “Streamlined” Offshore Filing Program that the Service recently announced. David’s commentary includes a handy flow chart that explains the program’s eligibility requirements, and is available exclusively to LISI members. 

David S. Neufeld is a tax and T&E lawyer in Princeton, NJ.  He represents clients throughout the world, doing both planning and controversy work (administrative and Tax Court).  David is also an expert witness in civil cases around the country arising from 419 plans.  Most notably, David represents the government of the Island of Nevis, for which he has drafted several laws, including the Nevis LLC Ordinance and recent proposed amendments to permit series LLCs and cell captive insurance companies.  For more, go to www.DavidNeufeldLaw.com 

Here is his commentary: [click on "Read More" to the right] 


 
 
If it is your business to know about the latest version of the IRS' offshore compliance program for "non-willful non-compliant" taxpayers with foreign accounts and income then this flow chart will make your life a whole lot easier.  It is available for download in the "Article Downloads" page, just request a password and it is yours.
 
 
Perhaps the silliest chapter in US tax law administration came to a close on June 12, 2014 and with it goes the ubiquitous “Circular 230 Notice” on emails and every other type of writing.

Several years ago, by administrative fiat, someone at the IRS decided that those tax practitioners wishing to practice before the IRS had to declare that any writing issued that could be deemed to be a tax opinion was not unless it was.  And with that, tax lawyers and CPAs included the appropriate statement at the bottom of each email.  Failure to do so exposed the practitioner to certain penalties.  Those reading this blog have likely used it and if not have certainly seen it.  Heck, it was even on this website.  This author’s first thought that fateful day some years back was that he and likely everyone else would put it one everything out of caution and it would soon become worthless.  And that is what happened, almost immediately.

Tax lawyers did it for professional correspondence as did CPAs. Then it migrated to non-tax professionals, like insurance agents and stock brokers, who never had to worry about practicing before the IRS, but they did it anyway not understanding why they did it.  Then it appeared on emails about little league practice and bridal showers and landscaping estimates.  Clearly it reached ridiculous levels.

Its purpose was to put on notice taxpayers intent on abusing the system and then avoiding penalties if caught with the tax version of “the devil made me do it,” i.e. my tax lawyer said it was OK, that there were times when this shield might not work.  Instead it became just more digital background noise that no one paid any attention to due to its ubiquity.  Well, no more.  Ding dong the Circular 230 Disclaimer is dead, destined to live on perhaps only at the bottom of those emails announcing cake in the break room sent by folks who not only don’t know why it’s there and may never know that it need not be there any longer.

 
 
There  are those who observed James Gandolfini’s passing in the context of his acting career, particularly his iconic role as Tony Soprano.  They are called fans.  Then  there are those who saw it as a chance to peak into his estate planning and  critique it.  They are called estate planners.

It has been reported in various news reports, the first being the New York Daily News, that Gandolfini’s estate was worth $70 million and that those who come out with the largest shares will be the government, his sisters and his infant daughter. Bemoaning this as an estate planning fiasco these observers claim that the big loser will be the estate generally, his current wife and his son from his first marriage.  While that may be true at some level this also may be simplistic, ignoring the possibility that this may be just what Gandolfini intended or that he may have left many millions to family members outside of his estate. The truth is he probably could have achieved the same result and left more to those family members he intended to benefit and less to the government if he wanted, but the magnitude of the mistake or whether it was a mistake at all is currently unknown.  Whatever else it is this is an object lesson in being thoughtful and careful in one’s estate planning regardless of level of wealth and being explicit in one’s intent.  For the sake of his attorneys, I hope he was and I hope they have that proof in their files.
Here’s what we are being told and how it seems to plays out (I have not seen any document or anything other than news reports which lack detail and require much speculation): 

1.    80% of his assumed $70 million estate, or $56 million, is left to his sisters and 9 month old daughter, the latter in a trust that distributes at 21.  The other 20% goes to his wife, yielding a marital deduction of $14 million.  (I am assuming away the $5.25 million exclusion as either utilized for lifetime gifts or based on the fact that we are
assuming round numbers anyway.)  At a combined federal and state tax rate of about 55% on the taxable $56 million, this means that the government gets $31 million and the entire family shares what’s left, $39
million.  With more careful planning the government’s share could have been reduced, but given that he died at 51 it is not unusual that even wealthy people put off the necessary planning when death seems so remote.
If there were a mistake here it was not foreseeing the inevitability of death if not the timing of it.