TAX: Carly Fiorina, Multistate Income Taxation, and the Dormant Commerce Clause

Posted by James P. Witt on Wed, Sep 30, 2015 @ 16:09 PM

The Lawletter Vol 40 No 8

Jim Witt—Senior Attorney, National Legal Research Group

     A feature of recent U.S. presidential campaigns has been the interest of the press and the public (not to mention the requirements of the law) regarding the finances of those competing for the nomination and, ultimately, for the office itself. A key element of those finances has, of course, been the income tax returns of the various candidates. In this connection, one of the present candidates for the Republican nomination, Carly Fiorina, recently offered reporters who came in person to her campaign headquarters in Virginia the opportunity to review her state income tax returns.

     Ms. Fiorina and her husband had already put their federal income tax returns for 2012 and 2013 online, but it is her state income tax returns that are of special interest. She and her husband were required to file such returns in no fewer than 17 states in 2013, with the couple's connection with some of those states so insubstantial that their tax liability in 11 of the states was less than $250.

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Topics: tax law, James P. Witt, dormant Commerce Clause, multistate income taxation, Fiorina

ESTATES: Assets—Gold Bars, Bullion, and Coins—Tangible or Intangible Property?

Posted by Matthew T. McDavitt on Mon, Jul 27, 2015 @ 09:07 AM

The Lawletter Vol 40 No 6

Matt McDavitt, Senior Attorney, National Legal Research Group

     When distributing a probate estate, it is important to determine whether particular assets are tangible or intangible property where the will's language distributes these classes of property to different beneficiaries. While many assets may be sorted based upon common-sense principles, other assets present analytical difficulties. One such problematic asset is gold formed into bars, bullion, and coins. Some laymen would classify these precious metal assets as money, others as collectibles, and it is not intuitive whether such gold objects constitute tangible assets (such as a chair or a computer) or intangible assets (such as bank account deposits or stocks).

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Topics: Matthew T. McDavitt, estates law, probate, tangible property

TRUSTS: Dean Smith Payments to Players—NCAA Violation

Posted by Gale Burns on Tue, Jun 9, 2015 @ 16:06 PM

The Lawletter Vol 40, No 4

Jim Witt, Senior Attorney, National Legal Research Group

     Dean Smith, the head coach of the University of North Carolina ("UNC") men's basketball team from 1961 to 1997, died on February 7, 2015, at age 83. Aside from the tributes paid to the man and his career that captured a good deal of media attention, a specific aspect of Coach Smith's estate plan also stirred up some interest. Following the modern trend, Smith's estate planners made a revocable living trust an important part, if not the centerpiece, of his plan for disposing of his assets at his death. Presumably, Smith transferred the bulk of his estate to the trust and, by doing so, realized a number of advantages for both himself and his estate: (1) privacy—the details of the trust, unlike information concerning an individual's assets that pass by will, do not become part of the public record; (2) because the transfer or transfers of assets to the trust are made during the individual's life, the assets are not subject to probate administration, and the expenses of such procedure are avoided (although the expenses of setting up the trust and having it administered must be considered); (3) the assets of the trust are not frozen, as can happen under a probate proceeding, thereby improving access to the assets for the estate and the heirs; (4) because the trust is revocable, the individual maintains control over the disposition of his or her assets transferred to the trust, because he or she can withdraw particular assets from the trust or dissolve the entire arrangement, which is also essentially true under a will in that a will has no effect until the individual's death.

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Topics: legal research, tax, revocable living trust

TAX: State and Local Sales Tax on Internet Sales of Goods

Posted by D. Bradley Pettit on Wed, Apr 15, 2015 @ 17:04 PM

The Lawletter Vol 40 No 2

Brad Pettit, Senior Attorney, National Legal Research Group

      A very recent decision by a Florida appellate court illustrates constitutional issues that arise when a state or locality seeks to impose a tax upon sales of goods to out-of-state customers via the Internet. In American Business USA Corp. v. Department of Revenue, 151 So. 3d 67 (Fla. 4th DCA 2014), the court addressed the question of whether Internet sales of flowers, gift baskets, other items of tangible personal property, and prepaid telephone calling arrangements by a corporation that was registered to do business in Florida to out-of-state consumers were subject to the Florida sales tax. The taxpayer in the American Business case objected to taxation of its Internet sales to out-of-state customers on the ground that such taxation violated the Commerce and/or Due Process Clauses of the U.S. Constitution. The American Business court upheld the State of Florida's taxation of Internet sales of prepaid telephone call cards but rejected the State's taxation of Internet sales of flowers and other tangible goods.

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Topics: Commerce Clause, Due Process Clause, tax law, Internet sales, state and local sales tax

ESTATES: Depletion of Eventual Probate Estate Through Inter Vivos Transfers

Posted by Matthew T. McDavitt on Tue, Apr 14, 2015 @ 13:04 PM

The Lawletter Vol 40 No 2

Matt McDavitt, Senior Attorney, National Legal Research Group

     One problematic issue regarding the administration of probate or intestate estates is that in which the property of mentally or physically incapacitated persons is found to have been significantly depleted through lifetime transfers in the period just prior to death. The Virginia Supreme Court recently addressed this problem, establishing that where such lifetime transfers benefit persons standing in a confidential relationship to the grantor, a rebuttable presumption of fraud arises so as to protect decedent estates from the depredations by third parties upon whom the decedent relied at the end of life.

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Topics: estates law, depletion of property in estate, inter vivos transfers, confidential relationship

TAX: Assessed Value Dispute Robert De Niro's Hudson Valley Compound

Posted by James P. Witt on Thu, Mar 19, 2015 @ 09:03 AM

Jim Witt, Senior Attorney, National Legal Research Group

     A real property tax assessment dispute involving a large parcel of land in Ulster County, New York, 75 miles north of Manhattan in the Hudson Valley, has recently been settled. The case is of interest for two reasons: (1) It brings into focus the issue of assessed value as based on the uniqueness of the property versus assessed value based on comparable properties in the area; and (2) the property is owned by a Trust on behalf of the actor Robert De Niro and his family.

     The property, well over 50 acres, is located in the town of Gardiner, New York, and has frontage on the Wallkill River (a tributary of the Hudson). The property was acquired in 1997 for $1.5 million, when its main structure was an 18th-century farmhouse, supplemented later by barns. Under De Niro's ownership, the house was renovated to include six bedrooms and seven bathrooms; one barn was converted into a 14,000-square-foot recreation center, containing a game room, gym, basketball court, swimming pool, boxing ring, and small film studio. Another barn was converted into a workshop and another into an office. Also there were $1 million in landscaping expenses to block any view of the property from the road.

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Topics: tax law, assessment value, property tax

PENSIONS: What Severance Contracts Are Subject to Federal ERISA Law?

Posted by Noel King on Mon, Dec 29, 2014 @ 15:12 PM

The Lawletter Vol 39 No 10

Matt McDavitt, Senior Attorney, National Legal Research Group

     While many employers create severance contracts as incentives for employees to remain during mergers or sales of the company, few employers realize that some severance agreements are governed by the Employee Retirement Income Security Act ("ERISA") and that federal ERISA law preempts state law when such severance contracts are introduced during litigation.

     However, not all employer severance contracts are subject to preemption by federal ERISA law. The ERISA statutes do not define which severance agreements are governed by federal law; fortunately, a line of federal case law has clarified how this determination is made.

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Topics: ERISA, pensions, severance contracts

ESTATES: The Scope of the Probate Exception to Federal Jurisdiction

Posted by Gale Burns on Tue, Aug 26, 2014 @ 09:08 AM

The Lawletter Vol 39 No 6

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Topics: legal research, Matt McDavitt, estates, U.S. Supreme court, Third Circuit, probate exception, federal jurisdiction, Marshall v. Marshall, Three-Keys Ltd. V. SR. Utilities Holding Co., federal court may not probate, annul, dispose of property, The Lawletter Vol 39 No 6

TAX: Disclosure of Taxpayers' Records under Obamacare

Posted by Gale Burns on Tue, Apr 8, 2014 @ 12:04 PM

Brad Pettit, Senior Attorney, National Legal Research Group 

     On August 14, 2013, the IRS issued a "document [that] contains final regulations relating to the disclosure of return information under section 6103(l)(21) of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010." Regulations Pertaining to the Disclosure of Return Information to Carry Out Eligibility Requirements for Health Insurance Affordability Programs, T.D. 9628, 2013-36 I.R.B. 169 (Aug. 14, 2013). "The [new] regulations define certain terms and prescribe certain items of return information in addition to those items prescribed by statute that will be disclosed, upon written request, under section 6103(l)(21) [of the Code."  Id. 

     As alluded to above, the Internal Revenue Code now provides that

[t]he Secretary [of the Treasury], upon written request from the Secretary of Health and Human Services, shall disclose to officers, employees, and contractors of the Department of Health and Human Services return information of any taxpayer whose income is relevant in determining any premium tax credit under [26 U.S.C.] section 36B or any cost‑sharing reduction under section 1402 of the Patient Protection and Affordable Care Act or eligibility for participation in a State medicaid program under title XIX of the Social Security Act, a State's children's health insurance program under title XXI of the Social Security Act, or a basic health program under section 1331 of Patient Protection and Affordable Care Act. 

26 U.S.C. § 6103(l)(21)(A) (emphasis added). Section 6103(l)(21)(A) goes on to say that 

[s]uch return information shall be limited to— 

(i)         taxpayer identity information with respect to such taxpayer, 

(ii)        the filing status of such taxpayer, 

(iii)       the number of individuals for whom a deduction is allowed under section 151 with respect to the taxpayer (including the taxpayer and the taxpayer's spouse), 

(iv)       the modified adjusted gross income (as defined in section 36B) of such taxpayer and each of the other individuals included under clause (iii) who are required to file a return of tax imposed by chapter 1 for the taxable year,

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Topics: legal research, Brad Pettit, tax law, taxpayer records disclosure, eligibility requirements, healthcare, information relevant to tax credit under Affordabl, 26 U.S.C. § 6103

ESTATES: Estate Plan of James Gandolfini

Posted by Gale Burns on Tue, Oct 22, 2013 @ 10:10 AM

The Lawletter Vol 38 No 8

Jim Witt, Senior Attorney, National Legal Research Group

     When Sopranos actor James Gandolfini died on June 19 of this year from a heart attack while he was on a vacation trip with his family in Italy, the media reported trivial facts surrounding his death, such as the details of his last meal and drinks. After a month or so had passed, however, attention turned to the details of Gandolfini's estate plan, with the focus on criticism of the plan.  The plan became open to comment because Gandolfini had left a 17-page will, which, like every will, had to be filed in probate court, thereby making it public.

    A general point of the criticism was that Gandolfini had left a $70 million probate estate, with only 20% of the bulk of the estate's value passing to his widow tax-free under the Internal
Revenue Code's unlimited marital deduction and 80% passing to his sisters and his infant daughter.  This plan resulted in a federal estate tax liability of approximately $30 million.

    Criticism of the plan can itself be questioned:  (1) The belief that the estate is worth $70
million is speculative; (2) it may well be that Gandolfini had other substantial assets that he placed in estate planning devices such as trusts and corporations (which might serve as a receptacle for future royalties received by the estate from the Sopranos); it is believed that there is a $7 million life insurance trust fund for Gandolfini's 13-year-old son from a prior
marriage; and (3) it is unfair to criticize the disposition of an estate solely on the basis that the estate tax liability is not minimized:  A decedent should not necessarily allow the objective of tax savings to have precedence over the disposition that he or she desires.

    Yet some of the points of criticism made in regard to Gandolfini's estate plan are valid.  First, there is the matter of privacy.  If Gandolfini's assets had been placed in a revocable trust, with the trust spelling out the disposition of the assets at Gandolfini's death, the trust would not have been filed with the probate court and could have been kept private.  A simple pour-over will could have been used to transfer assets not subject to the trust to the revocable trust.

    Additionally, a tax calculation problem is created by the fact that the will, after bequeathing $1.6 million worth of assets to friends, used percentages to divide the estate among Gandolfini's widow, two sisters, and daughter.  The problem is that because the 20% passing to the widow is not subject to federal estate tax, the calculation of the tax on the remaining 80% becomes complicated.

    Also, the will does not include a trust to govern the disposition of the share of the estate that Gandolfini's daughter will receive.  She is not to receive her share until age 21, but the prospect of having her receive a multimillion dollar sum outright at that age raises questions.  A trust under the will could have protected her share by setting ages (such as 30, 35, and 40) at which she would receive percentages of the principal, with the trustee having discretion over the distribution of principal and income to her for her current needs.

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Topics: legal research, Gandolfini, Sopranos, federal estate tax liability not minimized, speculative value, disposition, privacy of estate, Italian property involved, estate plan shortcomings, estates, Jim Witt, The Lawletter Vol 8 No 8

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