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Wednesday, December 13, 2017

2017 Charitable Gifts

If the pending tax bills are reconciled by Congress and enacted into law, there is likely to be a substantial reduction in the number of  individuals that will itemize their deductions. For many taxpayers, this may mean they will no longer be deducting charitable contributions after 2017. Taxpayers may want to consider making or increasing charitable contributions in 2017 if it looks like they will not be deducting charitable contributions in the future. This is not a one-size-fits-all recommendation and must be tailored to individual circumstances, and of course will be impacted by if there is passage of a tax bill and what the final text contains – but it is nonetheless something worthy of consideration.

Friday, December 08, 2017

Florida Homestead Protections Against Forced Sale Under Threat of Dilution

Once every 20 years, Florida convenes a Constitution Revision Commission (CRC) to review and make recommended changes to the Florida Constitution. Proposed changes are then put to Florida voters for approval or disapproval. A CRC is presently convened and at work in making such a review.
The CRC process is fairly advanced regarding a change to Article X, Section 4. Proposal 17 would add the following language relating to the exemption of homestead property from creditor claims:
(d) Notwithstanding subsection (a), a homestead is not exempt from creditor claims if an owner:
(1) Obtained the homestead using the proceeds from a fraudulent or dishonest act; or
(2) Caused the creditor’s damages or losses by an intentional criminal or fraudulent act.
The legislature may enact implementing legislation consistent with the purposes of subsection (d), and such legislation may include, but is not limited to, limitations periods and protections for an innocent spouse or dependents.
There are a number of problems with this (especially the broad scope of losing the exemption for funds from a mere “dishonest act,” whatever that means)  but on December 4, an amendment was approved in committee to change the proposal to read:
Notwithstanding subsection (a), a homestead is not exempt from the claim of a creditor if the creditor:
  (1) Establishes in an action against the owner of the homestead that the creditor’s funds were fraudulently used by the owner to acquire or improve the homestead; or
  (2) Obtains a judgment against the owner of the homestead  for damages caused by an intentional tort or intentional criminal or fraudulent act by the owner of the homestead, so long as the homestead was not the primary residence for the owner’s spouse or minor child when the tort or act occurred or at the time of the judgment in the action.
Subsection (1) appears to me to be a fraudulent conveyance exception to creditor protection. That is, if funds are transferred into a homestead (whether such funds were fairly and legally owned, or obtained in a fraudulent or other improper manner) in defeat of a creditor’s claims, then the protection would not apply. This is not presently allowed under the Havoco decision of the Florida Supreme Court, and thus would void that holding. The policy of protecting the homestead of a debtor and his or her family members so as to avoid them being kicked to the curb and/or becoming public charges of the state would be diluted, in favor of creditors. Beyond this change in policy, the use of the term “fraudulently” also raises an interpretative question. While fraudulent conveyance law employs the term “fraud” in its title, it does not require common law fraud to occur before it applies. By using the term “fraudulently,” is this provision requiring common law fraud, thus imposing a higher standard than prevailing fraudulent conveyance law, or merely intending to co-opt the less rigorous requirements of fraudulent conveyance law?
Subsection (2) provides a new exception to protection if the creditor was injured by an intentional tort, or intentional criminal or fraudulent act - essentially a “bad acts” exception. This is a substantial loss of protection from what is under current law. It does provide an exception if the owner’s spouse or minor child is living on the homestead at the time of the bad act or judgment, which is a good thing but has the unfortunate consequences of providing a windfall to bad actors and their families if they have a cohabitating spouse or minor child..
Credit to Michael Singer for pointing out this provision at the recent Florida Bar RPPTL Section meeting.
You can monitor the activities of the CRC here.

Sunday, December 03, 2017

IRS On The Hunt for Bitcoin Gains

While bitcoin seems like money, for federal income tax purposes, it is not. Like any asset, when it is sold or used to purchase goods or services, gain results if the value of the bitcoin is greater than the taxpayer’s basis in it (generally, what the taxpayer paid to acquire it).

The IRS suspects that either intentionally or unintentionally, many taxpayers are not reporting their bitcoin gains. To help find such taxpayers, it issued a John Doe summons against Coinbase, a leading bitcoin firm, for extensive information on its users. Coinbase objected, but a federal court has now ordered it to comply. The IRS did not get access to all the information that Coinbase has on its customers, such as account opening records, copies of passports or driver's licenses, all wallet addresses, and all public keys for all accounts/wallets/vaults. Nonetheless, Coinbase has been ordered to turn over the following information for each customer, (1) the taxpayer ID number, (2) name, (3) date of birth, (4) address, (5) account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction.

Tax return preparers should be asking their clients about bitcoin transactions, and taxpayers should know that the IRS is actively seeking information on persons that buy or sell bitcoin.

U.S. v. Coinbase, Inc., Case No. 17-cv-01431-JSC (U.S.D.C. Northern District of California)