The Tennessee legislature recently approved a bill that could potentially make Tennessee’s asset protection trust statute one of the most favorable among U.S. jurisdictions. The Tennessee Investment Services Act of 2007 generally provides that property transferred to a Tennessee Investment Services Trust (“TIST”) will not be subject to the claims of the transferor’s creditors four years after the property is transferred to the TIST. HB 0873/SB0713 modifies current law by providing that, for TIST property to be subject to a creditor’s claim against the transferor, the creditor must bring the action within two years after the transfer is made (or six months after the transfer was or could reasonably have been discovered by a creditor whose claim arose prior to the transfer). The bill was approved by the Senate on April 10, 2013, and was recently approved by the House on April 16, 2013. The bill, which has not been signed by Governor Haslam, is enrolled and ready for signature. I will provide updates as they are received.
Wednesday, March 27, 2013
The IRS recently released its “Data Book” for fiscal year 2012. According to IRS figures (see Table 12), 29.9% of all federal estate tax returns filed in 2012 were examined by the IRS (58.6% for those with gross estates between $5 mil. and $10 mil.; and all returns with gross estates in excess of $10 mil.). Contrast this figure with the average audit rate for all returns filed, which was less than 1%. There is a lot of interesting information in the Data Book, such as audit rates of individual tax returns with business activities reported versus those without, as well as audit rates across multiple income ranges. If you are curious about the average audit rate for your individual income tax return or for that of your business, you will likely benefit from reviewing pages 21 through 34 of the Data Book (found here).
* Note: Because returns are often audited years after they are filed, the percentages do not reflect the actual audit rate of 2012 tax returns. They are simply based on the number of examinations in 2012 relative to the number of tax returns filed in 2012.
Thursday, March 14, 2013
In 2009, the IRS created an Offshore Voluntary Disclosure Program (OVDP) designed to incentivize taxpayers with undisclosed foreign accounts and assets to come forward and disclose those accounts to the IRS (with reduced penalties for the prior nondisclosure). Some taxpayers that were already accepted into the OVDP were recently informed by the IRS that their acceptance has now been rescinded. The full details have not yet been released. Even if legitimate reasons for the rescissions exist, I suspect that the IRS’s actions will hinder the effectiveness of similar initiatives in the future.
Thursday, January 31, 2013
Thursday, January 17, 2013
In this regard, today's post is intended to remind taxpayers ages 70 1/2 or older that they may be eligible to make charitable contributions from their Individual Retirement Accounts through January 31, 2013 and have that contribution count for the 2012 tax year. If you have questions regarding the benefit of doing so, I recommend speaking with your tax professional as soon as possible.
Wednesday, June 6, 2012
As regular readers are aware, the state of Tennessee recently enacted a bill to repeal the inheritance tax gradually over the next few years, until it is finally repealed on January 1, 2016. That being said, Tennessee’s estate tax remains unchanged. In this way, you may be a little confused as to what this means for you. The answer is, not much.
An inheritance tax generally refers to a tax on the right to receive property, while an estate tax generally refers to a tax on the privilege of transferring property at death. The difference for Tennessee residents, really, is mainly semantics. Although a tax on the right to receive, the Tennessee inheritance tax is primarily paid by a decedent’s estate, which makes it almost identical to an estate tax. In fact, Tennessee’s inheritance tax shares many similarities with the federal estate tax. An individual is entitled to a $1 million exemption, similar to the federal estate tax, which currently permits a $5.12 million exemption (scheduled to revert to $1 million in 2013). The tax rate imposed by the inheritance tax is graduated in much the same manner as the federal estate tax (albeit with lower rates). The Tennessee inheritance tax also contains many of the same deductions as provided under federal law, such as a marital deduction, charitable deduction, etc. In sum, the Tennessee inheritance tax is what most people are actually referring to when they say Tennessee “estate” tax. This is the taxing scheme that will be phased out pursuant to recent changes in Tennessee law.
The estate tax, on the other hand, is really just a tax that was enacted by the state to keep money tax money within the state of Tennessee that would be otherwise payable to the federal government . Under prior federal laws (not in effect at this time), the federal estate tax permitted a credit for state death taxes paid by a decedent’s estate, which reduced the federal estate tax liability of a decedent’s estate. If a decedent’s estate paid state death taxes equal to that credit (and no more), the decedent’s overall death tax liability (federal and state) would not be any greater than if the state had not imposed any tax at all (because the federal tax of such a decedent would have been reduced dollar-for-dollar by the amount of state death taxes paid). For this reason, many states, including Tennessee, enacted laws imposing estate taxes on decedents’ estates in an amount equal to the estate tax credit permitted under federal law. In this way, these states would receive a portion of the taxes that would otherwise be remitted to the federal government without increasing the decedent’s overall tax burden. The estate tax was not repealed by the Tennessee legislature.
While the estate tax was not repealed , as the above discussion illustrates, it is the “inheritance tax” that actually creates a burden upon the estate’s of Tennessee residents (as well as those non-residents that own Tennessee property), not the estate tax. Hopefully this information will provide some relief to those of you that were concerned about the fact that Tennessee’s estate tax was not repealed along with the inheritance tax.
Tuesday, May 22, 2012
Yesterday evening, Governor Haslam signed into law two bills that were recently voted on by the state legislature. The new law repeals the state gift tax (effective 1/1/12) and the state inheritance tax (gradual phase out until repeal in 2016). This marks a significant change in Tennessee’s tax landscape. Without a true income tax, and now without gift and inheritance taxes, Tennessee will likely be viewed as one of the most taxpayer-friendly states of the nation.