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Sunday, November 04, 2018

Filing a Claim against Estate Grants IRS More Than 10 Years to Collect

Code §6502(a)(1) provides a 10 year collection period to the IRS, measured from the assessment date. The particular language reads: “Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun. . . (1) within 10 years after the assessment of the tax. . .”

In U.S. v. Estate of Albert Chicorel, 122 AFTR 2d 2018-XXXX (CA6 2018), the IRS sought to collect on an income tax assessment more than 10 years old. The Estate sought to bar the collection under the above language. The IRS countered that since it had timely filed a claim in the probate proceedings against the Estate, then it had begun a “proceeding” within the above statute within 10 years and thus could complete the collection process outside the 10 year period. The Sixth Circuit Court of Appeals sided with the IRS.

The court found a claim filing constituted a proceeding because filing a proof of claim in Michigan has significant legal consequences for the creditor, the estate, and for Michigan law generally. For example, if the estate does not provide notice that a claim is not allowed, it is automatically allowed. Further, Michigan law specifically equates presentation of the claim with a proceeding. The court noted that the Code §6502(a)(1) extension does not require a “judgment” to be reached in the applicable proceeding.

Once the timely proceeding is undertaken, the collection period does not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable. Code §6502(a) [flush language]. However, the government doesn’t have forever - the court notes that “the statute does not permit the government to allow an assessment to lie dormant and then to attempt collection long after the assessment has passed from reasonable memory.”

Would this case apply in Florida? I could not locate similar language in the Florida Probate Code that equates presentation of a claim with a proceeding. However, the effect of filing a claim and the procedures for the estate to object or be bound by the claim are substantially similar to the Michigan effect, so I would speculate that is enough for the same principles to apply in Florida.

Note the claim here was timely filed in the estate proceeding. The flush language in Code §6502(a) describes a “timely proceeding in court for the collection of a tax...” The appellate court expressly declined to rule on what would happen if the claim had been untimely. I would speculate that a different result may arise, per the statutory use of the word “timely.”

An unrelated issue is whether the personal representative/executor of the estate has personal liability for the unpaid income tax. Code §6905(a) provides a procedure for an executor to make application for a discharge of personal liability (which does not impact estate liability).

Another unrelated issue is whether the IRS is barred by state law limitations periods if they do not timely file a claim against the estate. The answer to this is no.  Board of Comm'rs of Jackson County v. United States, 308 US 343 (1939) ; United States v. Summerlin, 310 US 414 (1940) .

U.S. v. Estate of Albert Chicorel, 122 AFTR 2d 2018-XXXX (CA6 2018)

Saturday, October 27, 2018

New Inbound Investment Reporting Requirements for Certain Industries

Regulations have been recently issued under the recently passed Foreign Investment Risk Review Modernization Act (FIRRMA) to implement a pilot program that expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) and imposes filing requirements on certain transactions in the U.S. technology sector.

Parties must file a declaration with CFIUS at least 45 days in advance of certain foreign-person investments in unaffiliated U.S. businesses if involved with critical technologies used in specified industry sectors. 27 U.S. industry sectors are involved.

The program will end by March 5, 2020, but permanent reporting requirements may have been put in place by then. It applies to transactions completed on November 10, 2018 or later, although there are other effective date provisions that may apply.

After filing, CFIUS has 30 days to review the declaration and then undertake certain requests for a long-form notice form, initiate a unilateral review, or clear the transaction – or the parties can file the long-form notice initially.

Parties failing to file a required declaration may be subject to a civil penalty up to the amount of the transaction value.

Businesses and professionals involved in assisting with and/or the reporting of inbound investments should add these new reporting requirements to their checklists and lists of reporting requirements.


Thursday, October 11, 2018

The New “Newlywed” Exception to Documentary Stamp Taxes

Florida imposes documentary stamp taxes on transfers of Florida real property. The tax is based on the consideration paid for the property. Generally, if real property that is transferred is encumbered by a mortgage and the purchase price is less than the mortgage amount (or there is nothing otherwise paid), the mortgage amount is treated as consideration for purposes of calculating the tax.

This tax arises on transfers of encumbered real property, even if the transferor and transferee are married to each other. Given other exemptions for intra-spousal transfers under law (e.g., as to the federal estate tax, and under the Save Our Homes cap on ad valorem taxes), this is surprising and somewhat disheartening. Oddly enough, Florida law will NOT impose the tax on transfers of a marital home between spouses or former spouses when the transfer is incidental to a divorce. Fla.Stats. §201.02(7)(a). Of course, if there is no mortgage on the property and nothing is paid for the property, an intra-spousal transfer will not be subject to stamp taxes.

Under a new provision of law that came into effect in July, spouses can now transfer encumbered homestead property between themselves without incurring documentary stamp taxes, if no other consideration is paid. However, this new provision applies only to transfers within one year of marriage. Therefore, newlyweds can use it – spouses who have been married over a year cannot. This one year limit is also a trap for unwary newlyweds – if they take more than a year to reorganize their real property holdings, the tax will apply.

As noted, the transferred property must be homestead property. The applicable definition of “homestead” for this purpose is the ad valorem tax definition under Fla.Stats. §192.001 and the ad valorem tax provisions of s. 6(a), Art. VII of the Florida Constitution.

Any tax exemption is a good exemption (from the perspective of taxpayers), but the limitation of this new exception to newlyweds seems unduly restrictive. It appears to allow newlyweds to add a spouse to the title as part of new marriage restructuring, but why not open it up to other transfers? For example, spouses that desire to transfer homestead property owned by one spouse to TBE so as to allow for an automatic transfer at death to the surviving spouse should be able to do so without the tax. As matters stand now, if there is a large mortgage on the property, the stamp taxes can make such transfers and planning cost prohibitive.

Fla.Stats. §201.02(7)(b)