The tax bill that the President signed on December 17, 2010 raised the estate tax exemption to $5 million. For a married couple, this means that – with relatively simple planning – they can transfer up to $10 million free of estate tax to their heirs.
There is something else in this tax bill. The gift tax exemption is being reunified with the estate tax exemption. This means that you can now gift up to $5 million ($10 million for marrieds) without gift tax. And, starting in 2012, this exemption will be indexed for inflation. Previously the estate tax exemption was at $3.5 million whereas the gift tax exemption was much lower – at $1 million.
The gift tax rates are remaining the same – 35% for both 2010 and 2011.
Tuesday, June 21, 2011
Willhite v. Commissioner
Taxpayers received notices of intent to levy from the IRS. The IRS stated that it would levy all state tax refunds and, if taxpayers did not pay in full, the IRS “will begin to search for other assets we may levy.” One of the notices was dated in March, 2004. Taxpayers requested an installment agreement in August, 2004. The IRS granted the installment.
The taxpayer took a large distribution from his IRA account. A large part was used to pay federal taxes. They however argued that they did not have to pay the 10% early distribution penalty. There is an exception to the 10% penalty if one takes distributions “on account of a levy under Section 6331.”
Everything hangs on what “Section 6331” says.
Taxpayers argued that, “Having received these Notices of Intent to Levy, and treating the matter seriously and in good faith and believing that the SERVICE would do in fact what it said it intended to do, and observing that they had only one asset which could be used by themselves or taken by SERVICE to pay off the past due taxes owing, petitioners paid the past due taxes in the amount of $57,172.31from their retirement account. * * *”
Seems reasonable, right?
The Tax Court said no.
The Tax Court said that the March, 2004 notice stated only an intention to levy against state tax refunds, and not other assets. Other assets would include the IRA. There was another step before the IRS could go after the IRA (the right to a hearing under section 6330(a)(1)). It WOULD HAVE BEEN that next step that triggered Section 6331.
My take: The court was clear that the threat of a levy is not the same as a levy. This area requires the tax practitioner to dot his/her "i”'s. It may be a good idea to pull out the IRS Code and work through the relevant Code sections, just to be sure that you understand where you are in the process.
The taxpayer took a large distribution from his IRA account. A large part was used to pay federal taxes. They however argued that they did not have to pay the 10% early distribution penalty. There is an exception to the 10% penalty if one takes distributions “on account of a levy under Section 6331.”
Everything hangs on what “Section 6331” says.
Taxpayers argued that, “Having received these Notices of Intent to Levy, and treating the matter seriously and in good faith and believing that the SERVICE would do in fact what it said it intended to do, and observing that they had only one asset which could be used by themselves or taken by SERVICE to pay off the past due taxes owing, petitioners paid the past due taxes in the amount of $57,172.31from their retirement account. * * *”
Seems reasonable, right?
The Tax Court said no.
The Tax Court said that the March, 2004 notice stated only an intention to levy against state tax refunds, and not other assets. Other assets would include the IRA. There was another step before the IRS could go after the IRA (the right to a hearing under section 6330(a)(1)). It WOULD HAVE BEEN that next step that triggered Section 6331.
My take: The court was clear that the threat of a levy is not the same as a levy. This area requires the tax practitioner to dot his/her "i”'s. It may be a good idea to pull out the IRS Code and work through the relevant Code sections, just to be sure that you understand where you are in the process.
Subscribe to:
Posts (Atom)