HOMESTEAD & PROPERTY THE DECEDENT NEVER LIVED IN [FLORIDA]

Florida’s Constitution provisions in regard to homestead can at times override a disposition of real property that is otherwise provided for in a decedent’s estate planning documents. A recent Florida case illustrates a point that many not be aware of.

In the case, the decedent never resided in a residence he purchased. However, his wife and daughter lived in the home before he died. When the decedent died, the wife claimed the residence was decedent’s homestead, and thus she was entitled to a life estate in it (an interest that she would not have received under the decedent’s dispositive documents if the property was not “homestead” property).

The court confirmed that the subject property was homestead property, even though the decedent never lived in it. This was based on language in the Florida Constitution that limited a homestead to “the residence of the owner or the owner's family.”

BAYVIEW LOAN SERVICING, LLC, Appellant, v. NIVIA GIBLIN, Appellee. 4th District. Case No. 4D08-1117. April 29, 2009

FOREIGN CORPORATION ESCAPES $1 MILLION EXECUTIVE COMPENSATION DEDUCTION LIMITS

Code Section 162(m) limits the deduction for compensation paid to certain highly paid employees of publicly held corporations to $1 million per year. A recent Private Letter Ruling addressed the applciation of this limitation to a foreign corporation whose American Depository Shares are publicly traded.

The Code Section 162(m) limitations only apply to corporations issuing a class of common equity shares required to be registered under section 12 of the Securities Exchange Act of 1934. In the Private Letter Ruling, the corporation paying the excess compensation was a foreign corporation that was qualified as a "foreign private issuer" under 17 CFR Section 240.3b-4(c) and as such was not required to be registered under section 12 of the Exchange Act (because such issuers are not subject to the executive compensation disclosure rules of the Exchange Act). It qualified as a foreign private issuer because it was incorporated under the laws of a foreign country and did not meet the following definition:

(1) More than 50% of the issuer's outstanding voting securities are directly or indirectly held of record by U.S. residents; and (2) One or more of the following apply: (a) the majority of the executive officers or directors are U.S. citizens or residents; (b) more than 50% of the assets of the issuer are located in the U.S.; or (c) the business of the issuer is administered principally in the U.S.

Therefore, foreign corporations with limited U.S. shareholders or that appropriately limit certain U.S. connections have some confirmation from the IRS that they are outside the $1 million compensation limits.

PLR 200916012

EMPLOYEE LEASING COMPANY OFFICER CAN BE RESPONSBILE FOR SECTION 6672 100% PENALTY

The U.S. looks very unfavorably on employee withholding taxes that are not paid over to the IRS. Code Section 6672 is an important tool in the IRS' compliance arsenal. Under Section 6672, an individual who is responsible for the collection of the taxes can be held liable for a 100% penalty if collected taxes are not paid over.

Employers often use employee leasing companies to assist them with their staffing needs and payroll responsibilities. These employers effectively lease their employees from the leasing company. The leasing company typically pays the employees (after collecting payroll amounts from the company where the leased employees actually do their work), and collects and pays over the withholding taxes to the IRS. As a matter of common law, the employees are usually not "employees" of the leasing company since the company does not direct and control the employees in their work.

If the employee leasing company does not pay over the withholding taxes to the IRS, can an officer or responsible person of the leasing company be held liable for the 100% penalty? Yes, according to a recent IRS Office of Chief Counsel Memorandum.

In the Memorandum, the employee leasing company was reporting the employees as their own on their employment tax returns, and not as employees of the company where they physically worked. Due to this reporting, the Memorandum concludes that they will be treated as employees of the leasing company, and thus responsible officers of the leasing company can be personally liable for the 100% penalty if the leasing company withholds but does not remit withholding taxes.

CCA 200916024