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Saturday, June 29, 2013


Below is a listing of some takeaways of the more readily apparent tax consequences and implications from this week’s two DOMA decisions (Hollingsworth v. Perry & US v. Windsor) on same-sex marriages, along with a few personal comments mixed in:

  1. Presently, one state is not obligated to recognize the validity of a same-sex marriage conducted in another state. This may be challenged in future cases. Thus, how couples that come from or move to a state that does not recognize same-sex marriages will be treated for federal tax purposes is uncertain.
  2. If filing income tax returns as joint yields better tax results, same-sex married couples may want to amend their income tax years for prior open years. Note that married status includes both benefits and penalties under federal tax law, so a pro forma return should be prepared to make sure that better tax results obtain. Some of the income tax benefits of marriage include tax-exempt employer contributions for health insurance coverage of spouses, higher exclusions of home sale proceeds from income, sharing of capital gains and losses on a joint return,  roll over treatment for retirement accounts, minimized tax consequences on transfers of property between spouses, and child-related credits. Some of the penalties include higher rates of tax at higher income levels for joint filers, anti-loss provisions for sales of property between family members, application of related party rules to other transactions that might otherwise not be subject to them, lower thresholds for  phase-outs of deductions under PEP and PEASE for married persons, and lower thresholds for married persons for Obamacare taxes than for single persons.
  3. For future years, same-sex married couples in a qualifying state will have to choose between filing jointly, or married filing separately, for income tax purposes.
  4. Without regard to the merits of the case itself, the failure of the Supreme Court to take jurisdiction is troubling from a Constitutional perspective. It may mean that when a law is passed in a state but the executive branch of that state refuses to enforce it or support it if challenged, the people in the state may have no legal recourse to see that the law is properly enforced.
  5. Same-sex married persons living in a qualified state should now be able to take advantage of the marital deduction for transfer tax purposes, portability, and other provisions of transfer tax law that are available to married persons such as gift splitting. Again, amended gift and estate tax returns for prior open years may be in order. Unlike income taxes, the availability of married treatment for transfer taxes should almost always be a net positive for affected couples. Nonetheless, there are still some areas of negative impact, including Section 2702 transfers, and definition of family members for buy-sell agreement validity for valuation purposes.

As the cases are further reviewed by commentators, undoubtedly additional consequences will make their way to public consciousness.


Federal income taxation of nongrantor trusts is not an easy subject. Often forgotten in considering the federal income tax consequences of trusts and estates are state income taxes, which adds further complexity. This is doubly so since different states have different rates of tax, and different circumstances when taxes will be applied.  These differences can turn on whether there is a beneficiary in the applicable state, whether there is a resident trustee, where the trust is administered, and whether the trust was created by a resident of the state.

Richard Nenno of Wilmington Trust Company has prepared a useful survey of the rates and incidents of income taxation of estates and nongrantor trusts in each of the 50 states. A copy of the report can be accessed here.

Bases of State Income Taxation of Nongrantor Trusts, by Richard W. Nenno (June 4, 2013)

Wednesday, June 26, 2013


The U.S. Supreme Court has struck down the Defense of Marriage Act definition of marriage as being limited to a union between a man and a woman. By striking down that definition, the Court has opened up access to same-sex married couples of numerous federal benefits and privileges. Two 5-4 opinions on the subject were issued today
From a tax perspective, this likely opens such couples to the ability to file joint income tax returns, to obtain the benefit of the marital deduction for estate and gift tax purposes, and the ability to split gifts for gift tax return purposes. How this will work out for same-sex married persons who got married in a state that permits it, but presently reside in a state that does not is an important question.

Taxpayers who are affected, and are approaching the statute of limitations for income, estate and gift tax return amended returns and refund claims, may want to beat a hasty path to their tax preparers to file amended returns if that will yield tax savings for them for prior returns that were filed as unmarried.
I have not yet seen the opinion, so more refined comments will be forthcoming.

Tuesday, June 25, 2013


Most tax attorneys perk up when they hear the term “side agreement.” Oftentimes, the side agreement is simply a method to hide a part of a transaction from the IRS, that if known to the IRS would likely have adverse tax consequences.

In a recent Tax Court case, a taxpayer donated a historic fa├žade easement, and sought a charitable contribution deduction for it. As part of the gift, the taxpayer received a “side letter” that the easement would be removed if the taxpayer did not receive a charitable contribution deduction.

The IRS sought to disallow the deduction because the side agreement made the gifts conditional – that is, made it subject to a subsequent event. The Court agreed and the charitable deduction was denied.

One interesting question from the case is whether the taxpayer would have received the deduction if there had been no side agreement.

An even more interesting question is whether the taxpayer will be able to terminate the easement since the charitable deduction was denied. This is interesting because the taxpayer claimed in the Tax Court proceeding that the side letter was unenforceable under New York law because the conditions weren’t included in the recorded deed and under the doctrine of merger. Will that admission make it harder, or impossible, for the taxpayer to cancel the easement? Or will the taxpayer forego the cancelation of the easement out of the goodness of his heart? Or will the taxpayer be stuck both with the easement and no charitable contribution deduction?

Graev, 140 TC No. 17 (2013)


I am happy to announce the birth of a new blog. While it could be referred to as a ‘sister’ blog to Rubin on Tax, it is really a ‘daughter’ blog since the author is my daughter, Jenna Rubin.

Jenna’s blog will primarily cover recent case law and statutory developments in Florida relating to probate, trust, and guardianship litigation. If that is a field of interest to you, the blog will help you keep up with all important cases and other relevant items as they come out.

I may also point to her blog from time-to-time for items she covers that may be of interest here. The address for the blog is and you can access it by clicking on that address or here. Once on the site, you can submit your email address to be notified when new postings are made.

Sunday, June 23, 2013


Federal and state law can create significant criminal liability exposure to clients, fiduciaries and planners when firearms are involved. There are three principal areas of law involved:

1. The Gun Control Act (18 USC Chapter 44). This federal law prohibits interstate transfers of firearms, except among licensed manufacturers, dealers and importers.

2. The National Firearms Act of 1934 (26 USC 53). This federal law requires registration of owners of, and payments of excise taxes on transfers of, certain weapons alternatively referred to as ‘Type II weapons,’ ‘Class 3 weapons,’ and/or ‘NFA weapons.’ These include machine guns, short-barreled rifles, short-barreled shotguns, silencers/suppressors, destructive devises and "any other weapons."

3. Applicable state laws.

Particular problems that attorneys and fiduciaries should be on the lookout for include:

1. Being aware that directions in testamentary documents for the disposition of firearms can run afoul of the above restrictions on transfer, possession, and use of firearms.

2. Trustees, executors and personal representatives will need to determine registration status as to firearms coming within their ownership or control. Unregistered firearms may have to be turned over to law enforcement, since retroactive registration may not be available.

3. The fiduciary may need to register itself.  This process includes filing forms with the Bureau of Alcohol, Tobacco and Firearms, paying required taxes, and obtaining certifications from a local law enforcement officer. Note that obtaining such certifications may not be possible in many jurisdictions – gun trusts are often touted as a method of avoiding such certification requirements.

4. There are prohibitions on transfers to certain types of persons who may not lawfully possess firearms, including felons, aliens, and persons with capacity issues.

Some prohibitions on interstate transfer and on excise taxes may not apply to transfers occurring via inheritance.

Clients facing issues with firearms may want to consider the availability of gift annuities from the National Rifle Association in exchange for contribution of firearms (go here for more information).


Thursday, June 20, 2013




Saturday, June 15, 2013


If a taxpayer who has borrowed money from bank defaults on repayment and does not repay the bank, the taxpayer will have cancellation of indebtedness income to the extent that the amount due the lender exceeds the value of any mortgaged property taken or foreclosed upon by the bank. Banks are required to submit a Form 1099-C “Cancellation of Debt” form with the IRS and taxpayer showing this cancellation of indebtedness income, and the taxpayer is required to report that income unless some exclusion from income applies.

That is what a lender did in a recent Bankruptcy Court case. However, the lender then sought to collect the difference between the amount due and the value of the mortgaged property against the borrower (who at that time was in bankruptcy). Interestingly, the Bankruptcy Court found that the debt had been discharged, and thus the lender could not collect its deficiency.

The filing of the Form 1099-C itself did not discharge the debt of the borrower. However, based on IRS Regulations indicating when the Form should be filed, by filing it with the IRS the bank was representing that the debt had in fact been cancelled at that point. Thus, the borrower was able to use that representation to evade liability for the debt.

This is probably not the last we will hear about this issue, as there are other courts that disagree with this conclusion.

Note, however, the Bankruptcy Court did allow the bank’s claim for interest, costs, and attorneys fees that were due under the loan documents to remain, since the Form 1099-C rules do not involve a determination that these amounts have been cancelled.

In re William Stanley Reed and Debbie Elaine Reed, Case No. 12-30049 (Bkrptcy Ct Eastern District of Tenn)

Wednesday, June 12, 2013


Many states, including Florida, automatically terminate former spouses as beneficiaries under life insurance policies, annuities, and other beneficiary-designated accounts upon divorce. This avoids a former spouse receiving testamentary benefits simply because their divorcing spouse forgot to, or never got around to, changing beneficiary designations after divorce.

The U.S. Supreme Court issued a recent opinion that overrode such a statute in Virginia in regard to federal life insurance under the Federal Employees’ Group Life Insurance program. Based on the supremacy of federal law over state law, the former spouse beneficiary designation under the program could not be changed by the Virginia statute. Instead, the former spouse could be removed only through a formal change of beneficiary by the insured spouse.

Under this analysis, state statutes that change beneficiaries at divorce are unlikely to have any effect in regard to other federal accounts and plans, such as pension plans. Thus, divorcing spouses should not rely on state statutes in this regard, and will need to submit change of beneficiary forms upon divorce for these federal items.

Interestingly, Virginia anticipated that its law might be pre-empted, so it tried an end run around pre-emption. It enacted a statute that provides if the change of beneficiary statute is pre-empted, then the former spouse would be liable for the principal amount of the proceeds received by it to the party who would have received them were the statute not pre-empted. The Supreme Court found that such liability “frustrates the deliberate purpose of Congress” in regard to its beneficiary designation scheme, and thus such provision was also found to have been pre-empted.

Hillman v. Maretta, 133 S.Ct. 1943 (2013)

Saturday, June 08, 2013


On Thursday, we published the first version of our Florida Irrevocable Trust Amendment Mechanisms diagram. The posting included links to download it in an abbreviated and expanded PDF format.
Another way to view the diagram is on your iPad, iPhone, or Android tablet or other device – this is probably the best way for ease of use. First you will need to install the Mindjet Mindmanager app on your device – it is free! Then, on that device, click on this link and open it in that app. A simple tap on a topic will expand or collapse it, and a double tap will review more info if not all is being displayed. You can also use that link if you have their desktop software installed on your laptop or desktop computer (not free!).
Some browsers do not open the files. If that is a problem, send an email to and I will email you the files directly.

Thursday, June 06, 2013


In the past, we have assisted practitioners by providing tables and charts to simplify complex legal concepts. For example, one of our most popular downloads is our Summary Table – Restrictions on Transfer of Florida Homestead Property. After many months of work by myself and Jenna Rubin, a new chart is debuting today.
This chart summarizes, with helpful color codes, the various mechanisms for modifying irrevocable trusts in Florida. It thus provides a quick way to find which of the many mechanisms may be workable in any given situation.
There are two downloadable PDF versions. The first is a one page version, suitable for printing out. You can download that here.
A more detailed version that will let you click through to see copies of applicable statutes, with requirements and other key information, can also be downloaded. If you download this version, when you open it, it may take a few seconds to load. If your PDF reader will not work with it (for example, some browser PDF viewers will not work), you may need to download and open it with Adobe Reader. You may also be asked to install Adobe Flash. Once it is open, click on the '+' and '-' icons to expand or collapse the branches to get to the additional information. This expanded version can be downloaded here.
Another way to view the diagram is on your iPad, iPhone, or Android tablet or other device – this is probably the best way for ease of use. First you will need to install the Mindjet Mindmanager app on your device – it is free! Then, on that device, click on this link and open it in that app. A simple tap on a topic will expand or collapse it, and a double tap will review more info if not all is being displayed. You can also use that link if you have their desktop software installed on your laptop or desktop computer (not free!).
This is our first version. Feel free to send an email to or with any comments, corrections, or suggestions to improve the chart.
Some browsers do not open the files. If that is a problem, send an email to and I will email you the files directly.

Sunday, June 02, 2013


Code §368(a)(1)(F) facilitates the movement of corporations from one jurisdiction to another by generally treating such reorganizations as not being subject to corporate income tax at the corporate or shareholder level. A recent General Counsel Advice reminds us that if the movement is from a U.S. jurisdiction to a non-U.S. jurisdiction (that is, it is an “outbound” reorganization), it may not be income tax-free.

The potential problem in this scenario is Code §367(d). This provision creates deemed annual income to a domestic transferor of intangible property to a non-U.S. corporation. Under the facts of the General Counsel Advice, the corporation that changed from a domestic to a foreign corporation owned intangible property, thus triggering Code §367(d), notwithstanding Code §368(a)(1)(F).

Normally, Code §367(d) will result in annual income to the transferor, based on what payments unrelated parties would pay for the use of the intangible property contingent on its use over the useful life of the intangible property. However, if there is a later disposition of the intangible property, this income will be accelerated into the year of disposition based on the value of the intangible.

In the opinion of the General Counsel, the 3 deemed dispositions of stock and assets that occur during an outbound F reorganization trigger both the annual income payments and the acceleration of those income payments under the disposition rule.

CCA 201321018