Irs offer compromise income
New Section 2033A of the Internal Revenue Code (the "Code") authorizes an estate to exclude a qualified family-owned business interest from the decedent''s gross estate to the extent that the exclusion plus the unified credit does not exceed $1,300,000. irs offer compromise income Free canadian tax software. Thus, the maximum amount excludable under Section 2033A for a person dying in 1998 will be $675,000 ($1,300,000 minus the 1998 unified credit amount of $625,000). An unintended problem arises under Section 2033A because of lack of coordination between the new family-owned business exclusion and the increase in the unified credit. The unified credit, now termed "applicable exclusion amount" under TRA 97, increases in specified amounts over the nine-year period 1998-2006 from $625,000 in 1998 to $1,000,000 in 2006 and thereafter. irs offer compromise income Free taxes online. While the family business interest excludable in 1998 is $675,000 ($1,300,000 minus $625,000), the maximum excludable amount in 2006 would be only $300,000 ($1,300,000 minus $1,000,000). To correct this anomaly, the Tax Technical Corrections Bill of 1997 (HR 2645) (soon to become the Corrections Bill of 1998, since Congress did not take action on it before adjourning for the year) will coordinate the increase in the unified credit with the decrease in the family-owned business exclusion so that there will be neither an increase nor a decrease in the total estate tax on estates holding qualified family- owned businesses as increases in the unified credit are phased in. There are very strict eligibility requirements for the use of the Section 2033A exclusion, including the following: The business interest must exceed 50% of the decedent''s adjusted gross estate; the business must pass complex "material participation" tests requiring operation by the decedent or members of the family during five of the preceding eight years; "qualified heirs" (including certain employees) must have acquired the business; qualified heirs must agree to pay an additional estate tax if, within ten years following the decedent''s death, certain disqualifying events occur (such as the sale of the business to outsiders); and the estate must affirmatively elect the exclusion. irs offer compromise income Us tax forms. While the Section 2033A requirements may be strict, if the business is such that it can be passed on to family members or long- time employees, a very substantial tax saving opportunity has been provided. Reduction of Interest on Installment SalesSection 6166A of the Code as previously in effect has permitted an estate to elect to defer payment of estate tax attributable to a closely-held business for a period of up to fourteen years. If the election was made, the interest charged on the first $1,000,000 of value, including the unified credit amount, was 4% a year, with interest on additional sums due at the standard rate applicable to underpayment of taxes. Under TRA 97, the 4% rate has been reduced to 2%, and interest on value in excess of $1,000,000 is now at 45% of the underpayment of tax rate. The value upon which the 2% interest is due has also been increased to $1,000,000 over the unified credit amount. It should be noted, however, that accompanying the favorable reduction in interest rates and increase of the amount upon which the 2% interest is due are new provisions of the Act making the interest nondeductible for estate and income tax purposes. Exclusion for Qualified Conservation EasementsUnder new Code Section 2031(c), an executor may elect to exclude from the gross estate part of the value of land subject to a qualified conservation easement (in simplest terms, an easement which limits the developability of the property). The exclusion is limited to the lesser of (A) the "applicable percentage" of the land value, reduced by the amount of any charitable deduction allowed for a contribution of land exclusively for conservation purposes under Code Section 2055(f), or (B) the "exclusion limitation. " The "applicable percentage" is 40% reduced by two percentage points for each percentage point by which the value of the easement is less than 30% of the value of the land. The "exclusion limitation" is a dollar amount increasing in $100,000 increments annually from $100,000 in 1998 to $500,000 in 2002 and thereafter. New Limitations on Charitable Remainder TrustsCertain taxpayers found that charitable remainder trusts could be used as a means to avoid payment of capital gains tax on highly appreciated assets, rather than as bona fide deferred charitable giving vehicles. These taxpayers would establish short-term, high- payout trusts to eliminate most of the capital gains tax on sale of the appreciated assets. To remedy this situation, TRA 97 imposes the limitation that a trust will not qualify as a charitable remainder trust if the annual payment from the trust is more than 50% of the initial fair market value of the trust assets, in the case of a charitable remainder trust, and 50% of the annual value of the trust assets, in the case of a charitable remainder unitrust. TRA 97 also imposes a second limitation: that the value of the remainder interest for charity in the charitable remainder trust must be at least 10% of the net fair market value of property as of the date the property is contributed to the trust. This 10% minimum value rule can be very significant, limiting a taxpayer''s ability to establish a trust with successive lifetime interests prior to ultimate payment to the charity. Revaluation of Gifts for Estate Tax PurposesThe estate and gift tax is a unified tax, with a single rate schedule applied to a taxpayer''s cumulative gifts and bequests. The estate tax is computed by determining the tax on the sum of the taxable estate and prior taxable gifts, and then subtracting the unified credit and the tax on taxable gifts. After a gift tax return had been filed and the three-year statute of limitations had expired without challenge by the IRS, a taxpayer often assumed that the value of the gift could not thereafter be altered.
Irs offer compromise income
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