IRS Offers Filing & Penalty Relief for 2010 Estates; Basis Form Now Due Jan. 17, 20; Extension to March Available For Estate Tax Returns

Since we help our clients prepare and file estate tax returns, it is important to note that the IRS announced on September 13, 2011 that the due dates for filing Forms 8939 and 706, as well as paying the estate tax for those estates that do not elect out of the estate tax, will be extended.

The IRS announced that large estates of people who died in 2010 will have until early next year to file various required returns and pay any estate taxes due. In addition, the IRS is providing penalty relief to certain beneficiaries of these estates on their 2010 federal income tax returns.

This relief is designed to give large estates, normally those over $5 million, more time to comply with key tax law changes enacted late last year.

• The IRS is providing the following relief:
• 1) Large estates, opting out of the estate tax, now will have until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. Because this is a change in the specified due date rather than an extension, no statement or form needs to be filed with the IRS to have this new due date apply.
• 2) 2010 estates that request an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions of time to pay are granted only for good cause. As a result, most 2010 estates that timely file Form 4768 will have until Monday, March 19, 2012 to file Forms 706 or 706-NA. For estates of those dying late in 2010 (after Dec. 16, 2010 and before Jan. 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.
• 3) Special penalty relief is provided to many individuals, estates and trusts that already filed a 2010 federal income tax return, or obtained an extension and plan to file by the Oct. 17, 2011 extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010 but improperly reports gain or loss because they did not know whether the estate made the carryover basis election. Details are in Notice 2011-76 posted on the IRS website.

• Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.
  
  With respect to tax and estate law issues, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust tax attorneys and Los Angeles probate litigation attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him to request a consultation.
  
  The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. We can also arrange to have consultations at your home or office.
  
  The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office. Call (626) 793-3210.
  
  The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Call (818) 769-4221.

Tax Season Is Here: Estate Planning And Tax Issues

As we head into the fall, Tax Lawyers and Accountants know that this time of the year, more so than the spring April 15 deadline, is really Tax Season -- the time when Congress typically passes new law to be effective the following year.

This "Tax Season" is especially interesting (well, it's "interesting" if you follow tax laws for a living) since (i) many general provisions of the pre-9/11 2001 Tax Act are set to expire at year end, and (ii) among those provisions is the Federal Estate Tax, currently repealed but set to return at a very low exemption amount $1,000,000 per person. Throw in a weak recovery from a recession and a fairly serious Federal Deficit (and, for us in California, what can only be described as a continuing budget crisis), and there is a lot of potential for laws which could effect large swaths of taxpayers in a material way.

Of course, its also a mid-term Congressional election year, which means both parties will be due to issue "highly tactical" if not always "technically accurate" statements about tax law.

Here is a short list of what might make the front page of the papers this fall:

1. At what rate will the Estate Tax return? With so much of the year gone by, the odds of any sort of retroactive tax appear to drop by the day. However, Congress may be tempted to simply let the law switch back on January 1st, and if that happens a $1,000,000 exemption will mean that many taxpayers who did not have to concern themselves with Estate Taxes at all will need to do so.

2. Will income tax rates return to something approaching Clinton-era rates? For taxpayers in the top bracket, this means about a 4 to 5 percent increase. The debate about whether that should or will happen would require quite a bit of space (maybe a couple of blogs?) but what it may well mean is that if there is an opportunity to take income this year as opposed to next year or later, the savings could be material.

3. Will the Social Security and Medicare tax rates change? There is no area of tax more misunderstood than this one, mainly because neither political party has any interest in boring taxpayers with the actual details when so many votes can be had by getting everyone fired up with policy debate.

The fundamentals are:
(i) Both programs are more than 70 years old,
(ii) for the first 40 or so years, they were "pay as you go" the rates of tax were based on the payouts of the programs on an annual basis,
(iii) in the mid 1980's it was decided that workers should be, essentially "over charged" to build up a "reserve" for the baby boom generation bulge.

I put "over charged" and "reserve" in quotes because both terms are highly subjective, the reality is that if Social Security paid out $X since 1985 all of the taxpayers were charged about $2X during that time. Why? Well, this excess did not technically go into a big mattress, but went to basically reduce overall Federal Government borrowing (i.e., we own less to China and more to "ourselves").

So, when anyone says "the Social Security Trust fund will run out" it actually means that general tax revenue will need to start paying back the excess revenue borrowed since 1985. This is sometimes portrayed as a disaster, but in actuality its about what the Iraq occupation has cost. This will not happen in the short term (i.e., this fall), but there are going to have to be some adjustments somewhere in the system, and the information given to taxpayers is going to be far from the basic facts needed to make an informed decision -- it's just too easy to demagogue this issue.

4. Will California adjust its own taxes at some point? We don't talk about State taxes much, especially since California does not have a separate Estate Tax. However, with the state budget crisis seeming to persist year after year, how long will it be before California considers it?

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Am I Responsible For Filing Estate Or Decedent's Tax Returns?

Executors or administrators are responsible for estate and income tax filings. In the year of death, the executor or administrator must file the decedent's federal and state income tax returns (Form1040). The executor or administrator should also verify that the decedent's federal and state income tax returns from previous years have been filed, making sure to take corrective action if deficiencies are found.

The executor or administrator should file for a federal employer identification number (EIN) for the estate if estate tax or income tax filings are required. Estate taxes are filed on Form 706 while income taxes are filed on Form 1041. Further, all outstanding tax liabilities of the decedent that may arise during administration, including property and business taxes must be paid.

Importantly, federal and state law holds the personal representative personally liable for income and estate taxes where funds have been distributed without reserving enough to pay the various taxes. As such, the representative should be sure to create a reserve sufficient to pay the various taxes. Obtaining expert legal advice regarding the preparation and filing of these returns is important so you are not liable if there are any mistakes made.

Many of the decisions a client needs to make in the areas of estate planning and probate and trust administration are governed by the application of the California Revenue and Taxation Code and the Federal Internal Revenue Code. We advise clients in many areas of estate gift, income, and real property tax law, and regularly prepare formal requests for specific rulings from the taxing authorities. Our expertise extends to preparation of estate tax returns (which is a specialized return many accountants do not regularly prepare), and representation of estates in tax audits.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/.
The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108.
Phone: (626) 793-3210.