Wall Street Journal, 'Carried Interest' in the Cross Hairs, by Laura Saunders:
Does a recent Tax Court decision threaten the "carried interest" tax break beloved by managers of private-equity funds, venture-capital funds and, to a lesser extent, hedge funds?
Yes, says former top Treasury official Michael Graetz: "This decision in Dagres v. Commissioner [136 T.C. No. 12 (Mar. 28, 2011)] gives the Treasury Department a clear opportunity to write regulations raising taxes on carried interest." Mr. Graetz is now a professor at Columbia University's Law School.
No, says independent tax analyst and Columbia Business School adjunct professor Robert Willens: "This decision doesn't give the government unbridled authority to change the tax treatment of carried interest." ...
Now there is an important voice siding with the skeptics—the Tax Court's. ... The ruling in Dagres v. Commissioner wasn't directly about carried interest but contains an important ruling on it that experts are now parsing. ... Wrote Judge David Gustafson: "Neither the contingent nature of [Mr. Dagres's carried interest] nor its treatment as capital gain makes it any less compensation for services." The opinion also likened his business to that of "stockbrokers, financial planners, investment bankers, business promoters, and dealers"—all of whom pay taxes on their income at rates up to 35%. ...
Prof. Graetz says Treasury officials could use the decision to do administratively what Congress hasn't done legislatively—tax carried interest as ordinary income. Mr. Willens calls the holding "troubling for private-equity and venture-capital fund managers and investors," but notes that it doesn't specifically say carried interest should be taxed as compensation.
What happens next? The Treasury declined to comment. The appeal deadline passed last week, with no action taken.
The IRS on Friday issued guidance for estates of decedents dying in 2010:
Daniel Johnson and Mary Jo Corsetti were named a 2011 Five Star Wealth Manager in the Pittsburgh Magazine.
In 2008, the U.S. Supreme Court held that costs paid to an investment advisor by a nongrantor trust or estate generally are subject to the Code §67(a) 2% floor for miscellaneous itemized deductions....Read More
Often times, parties in litigation will direct property to a spouse or charity in settlement, and seek a marital or charitable deduction. At times, such settlements are motivated by and structured around the estate tax deduction. However, litigants or their counsel oftentimes do not realize that the deductions cannot be created out of whole cloth – there must be a bona fide dispute regarding the entitlement of the spouse or charity to the payment. That is, there must be some reasonable legal basis that entitled the spouse or charity to the settlement payment. That is, if such a payment was not directed for under the dispositive documents (including prior dispositive documents involved in the dispute) or some other binding obligation, parties should expect IRS resistance to deductions for such payments that are “created” in the settlement process....Read More
Last March, we discussed the bankruptcy case In re Chilton. That case held that unlike a traditional individual retirement account (IRA), an inherited IRA is not an exempt asset in bankruptcy. Our prior discussion can be read here.
That case has now been reversed. When Chilton was first decided, it was a case of first impression. Since then, there have been at least five other cases that ruled in an opposite manner. In reversing the bankruptcy court, the District Court held that (a) an inherited IRA holds “retirement funds” within the meaning of 11 U.S.C. §522(d)(12), and (b) such an IRA is tax exempt under Code §408(e)...Read More
New York Times, In Prison for Taking a Liar Loan, by Joe Nocera: Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the “mortgage fraud” for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on...Read More
Posted On: March 24, 2011 by Joel A. Schoenmeyer
Earlier this week the Wall Street Journal printed this article about "pre-mortem rulings." The idea is that some states allow you to get your Will "pre-approved" -- a Judge says you were competent to make a Will, and that your Will is valid. Potential beneficiaries are notified of the hearing, and if they fail to object within the given timeframe, then they are barred from contesting your Will after you die.......Read More
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enables executors of decedents’ estates to choose between paying the estate tax at the 2011 rates or paying no estate tax but giving up a step-up in basis on inherited assets (for decedents who died in 2010). While many people would think that the choice between the two is easily resolved with a quick computation of what would be the cheapest, there are other important factors that need to be taken into consideration.......Read More
Decedent executed a 3-year QPRT in 2000 to keep the value of her residence out of her gross estate. The QPRT terminated in 2003, and the decedent began to look into fair market rent values but died before paying any rent to the Property Trusts. The estate excluded the value of the residence in the calculation of the decedent’s gross estate and claimed a section 2053 deduction for debt of the fair market rent owed to the Property Trusts...Read More