2011 Estate and Tennessee Update


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2011 Estate and Tennessee Update

  1. 1. A Global Reach with a Local Perspective www.decosimo.com2011 Estate and Tennessee UpdateChattanooga Chapter IMAJanuary 25th, 2012Kim Lawrence
  2. 2. What’s New for Estate’s in 2011:• Unified Estate, Gift, and Generation-Skipping Transfer Tax – Estate exemption at death is reduced by amounts exempted for gifts during life • Able to use full $5 million exemption to make lifetime gifts without federal gift tax • Tennessee still has gift tax and no lifetime exemption
  3. 3. Rates for 2011:• Rates for estate and gift tax top out at 35%• Exemption is set at $5 million – Increases to $5.12 in 2012 to account for inflation• TN annual exclusion remains $13,000 for Class A, $3,000 for Class B – Direct payments for tuition or medical expenses exempt from threshold, 529 plan contribution 5 year election for $65,000 – Class A donees are immediate family members, siblings, lineal descendants/ancestors, in-laws, step-children and in some cases nieces and nephews. Class B donees are all other persons – TN does recognize 529 plan contributions as completed gifts
  4. 4. Changes Extended from 2010 Tax Relief Act• Portability for federal estate tax exemption between spouses – Death of the spouse must occur in 2011 or 2012 – Married couples able to pass $10 million to heirs tax free from federal • Ex: If husband dies and has used $2 million of his exemption, then wife has $8 million available for exemptions on remaining assets – Must file an estate return electing to preserve the portability in order to take advantage – Note: Portability has NOT been adopted by state estate tax exemption or Generation Skipping Transfer tax
  5. 5. Tennessee Estate Issues 2011:• Tennessee Inheritance exemption remains at $1 million • Due 9 months after decedent’s death – extension of up to one year • Rate of up to 9.5% • Does NOT recognize portability
  6. 6. Changes in Rates from 2010-2011 Tennessee 2011 2012 2013+ 2011+Estate/Inheritance TaxExemption $5,000,000 $5,120,000* $1,000,000 $1,000,000Maximum Estate Tax Rate 35% 35% 55% 9.50%Gift Tax Annual Exclusion $13,000 $13,000 $13,000 $ 13,000 (Class A)Per Donee $ 3,000 (Class B)Lifetime Gift Tax Exemption $5,000,000 $5,000,000 $1,000,000 NoneMaximum Gift Tax Rate 35% 35% 55% 9.5%Exemption from Generation $5,000,000 $5,000,000 $1,000,000 TN GST equals FederalSkipping Tax state GST tax creditGeneration Skipping Tax 35% 35% 55% TN GST equals FederalRate state GST tax credit * Inflation adjustment
  7. 7. Case and MemorandumAICPA• Gallagher v. Commissioner T.C. Memo 2011-148 Favorable- – Fair market value of a minority interest in a closely held business held in an estate was less the value determined by the IRS and what the taxpayer reported• Estate of Turner v. Commission-Unfavorable – Decedent exercised a great amount of control as sole general partner• AICPA Suggestions for making permanent estate tax and GST tax provisions
  8. 8. Tennessee Update 8
  9. 9. Legislative Highlights-• HALL INCOME TAX- – Effective 1/1/12- increases tax exemption for taxpayers older than 65 to $27,000 for single and $37,000 for married filing jointly taxpayers• APPORTIONMENT- – Effective 06/10/11- Goodwill required to be included as a Class VII asset under Code Section 338(b)(5) and Section 1060 is excluded from both the numerator and denominator of the apportionment formula 9
  10. 10. Legislative Highlights-• EXCISE TAX- – Effective tax years ended after 6/10/11-Excess rent paid or accrued to an affiliate for the use of industrial or commercial property is subtracted from the excise net earnings to the extent it has been added to the net earnings of the affiliate 10
  11. 11. Legislative Highlights• Franchise Tax – Brownfield Property Credit: equal to 50% of the purchase price of Brownfield property purchased in Tennessee during the tax period covered by the return for the purpose of a qualified development project. – Go Green! Machinery and equipment used to produce electricity in a certified green production facility is not treated as property actually used by the taxpayer in the conduct of its principal business, for franchise tax purposes. 11
  12. 12. Legislative Highlights-• Job Tax Credit and Additional Job Tax Credits – Credit applies when capital investment and job creation requirements are met – Allows the Commissioner to lower the job threshold 50 vs. 100 new jobs (amount of credit reduced proportionally) – If the job threshold is reduced the credit is reduced – Clarifies that the tier 2 and tier 3 credit and the capital investment and job creation credit cannot both be taken simultaneously 12
  13. 13. Legislative Highlights-• Headquarter Relocation Credit – Now allows credit for remodeled or expanded headquarters facilities already located in TN – Allows the Commissioner to lower the job threshold requirement – Applies to the sales tax credit as well – Recapture: • Changed the period that the taxpayer uses the facility to be measured from end of investment period rather than substantial completion
  14. 14. Legislative Highlights-• Refund Periods May Be Extended – Prior law: must be filed within one year – Amended: may be extend the one year period by agreement between Commissioner and taxpayer• Expedited Letter Rulings – Allows taxpayer the option of requesting “expedited” letter rulings – Fee shall not exceed $10,000 – Ruling will be issued within 60 days of the request date or • Deny request and return the fee within 7 days after the submission
  15. 15. Legislative Highlights-• Headquarters Sales Tax Credit – Prior law: • Only initial establishment of a headquarters facility – Amended law: • Now available to remodeled and expanded facilities • Amended definitions for: – Qualified expenditures – Qualified Headquarter Facility- minimum capital investment of $10 million and 100 new full-time jobs (net increase) – Full-time Employee Job- must pay 150% of Tennessee’s average occupational wage
  16. 16. Legislative Highlights-• Sales Tax Disaster Assistance Refund-FEMA recipients – TN Disaster occurred between 3-23-11 through 5-12-11 – Entitled to a refund of sales tax paid on eligible items – Purchased between 03/23/2011, and 12/31/2011 – Sales and use tax paid on supplies used in a primary residence – Sales price not exceeding $3,200 per item for appliances and furniture – Sales price not exceeding $500 per item for residential building supplies – Maximum refund per residence: $2,500 – Must file application by February 29, 2012
  17. 17. Legislative Highlights-• Credit and NOL Carryforward Amendments – Prior law: Allowed waiver of the 15-year carry forward limitation for capital investments in excess of $1 billion with Commissioner approval – Amended: Waiver power has been eliminated
  18. 18. Legislative Highlights-• Personal Property Tax Filing Requirements – Prior Law: • County assessor required to furnish with schedule by February 1 each year showing valuation of tangible personal property in prior years. – Amended Law: • Failure of the assessor to send a schedule or failure of the taxpayer to receive a schedule shall not relieve or excuse any taxpayer from filing requirements by March 1 nor shall it prevent the assessor from issuing a forced assessment against the taxpayer • Limits on reasons as to why returns can be amended
  19. 19. Case Update-• Blue Bell Creameries, L.P. v. Roberts, (2011) – TN Supreme Court reverses unitary business decision – Stock redemption gain subject to tax on apportioned basis rather than as nonbusiness earnings – Court reinstated that • Earnings qualify as business earnings if they satisfy the transactional or functional test • Unitary business determination under the Operational-Function test: – If asset helps taxpayer make better use of the existing business- related resources, it serves an operational function and is part of unitary business – If asset serves to diversify a taxpayer and reduces risk of being tied to one business, it serves as an investment function as is not part of unitary business
  20. 20. Case Update-• COA Holdings, Inc. v. Trost – Prior Situation • Cross-motion for Summary Judgment: allowed parties to reach efficient resolutions without the time/expense of a trial – Result: Only be granted when material facts are not in dispute and when only one conclusion or inference can reasonably be drawn from the facts • More difficult to request summary judgment and be forced to try a case
  21. 21. Case Update-• Valenti Mid-South Management, LLC v. Farr – “Affiliated Group” - may elect to compute net worth on a consolidated basis – Result: • Not affiliated group, no basis for double taxation – Open Questions: • Affiliated group can calculate franchise tax based on consolidated property value or consolidated net worth • How to calculate the value of property that is leased from one member of the affiliated group to the other
  22. 22. 2010-2011 Letter Rulings• Code Section 754 Election-Ruling 11-78 – Results in step-up in basis for TN excise tax purpose (limited circumstances)• Sales & Use Tax Applicable to Hostess Discounts-Ruling 11-00 – Hostess purchased products using discount • Payment for discount was part of total consideration paid for by the hostess – Sample Products: based on amount paid by the advisor • Original price less the value of award product certificate
  23. 23. Bills of Interest – Not Passed• Combined Reporting Bill – Would have required combined reporting for unitary businesses• Amazon.com Click-Through Nexus – Out of state internet retailers would be subject to sales tax if they receive potential customer referrals from TN residents (i.e. link on website) and – Retailer cumulative gross receipts through referrals exceed $4,800 for four consecutive quarterly periods• Discriminatory Taxes on Digital Goods and Services – Would have prohibited state from imposing multiple or discriminatory taxes on digital goods or digital services
  24. 24. Questions or comments? 24