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NewsNotes Lesli S. Laffie, J.D., LL.M. Deferred LKEs • IRA Valuation • Qualified Decedents Estate Tax • Hiring Disabled Workers
From the IRS Rev. Rul. 2002-83 provides that a like-kind exchange (LKE), preceded by a transfer of property to a qualified intermediary (QI), is not tax-free when a related party disposes of like-kind property for cash in the transaction. The transaction is disqualified for tax-free treatment under Sec. 1031(f)(1) and (4), which prevent related taxpayers from exchanging high-basis property for low-basis property tax free, in anticipation of a sale. For more information, see Gould, Tax Clinic, Use of a QI in Sec. 1031 LKEs, this issue.
According to Letter Ruling (TAM) 200247001, an estate cannot discount the value of a decedents IRAs for income taxes payable by beneficiaries or for lack of marketability. B died owning several IRAs funded with marketable securities and money market accounts. His estate was the beneficiary. His executor hired an appraisal firm that valued his IRAs at less than the date-of-death (DOD) value of the securities and money market funds. The discount reflected potential income tax payable by estate beneficiaries on IRA distributions, and a lack of marketability due to possible delays in payment of distributions and limits on the transfer or assignment of the accounts before distribution. The IRS concluded in the TAM that the IRAs estate tax value cannot be discounted in this manner. It ruled that the Sec. 691(c) income tax deduction for estate tax attributable to items of income in respect of a decedent (IRD), which are taxable to an estate or beneficiaries, operates in the form of a valuation discount (in lieu of an estate tax reduction). As to lack of marketability, the IRS said that no restrictions bar the distribution of IRA assets to beneficiaries after a decedents death. Beneficiaries can request the IRA custodian to distribute the IRA assets and then can sell them to any willing buyer. The IRS also said that short administrative delays in processing the beneficiaries request for distributions do not warrant a discount.
Qualified Decedents Estate Tax Rev. Rul. 2002-86 explains how an estate of a qualified decedent (as defined in Sec. 2201(b)) computes Federal estate tax under Sec. 2201, as amended by the Victims of Terrorism Tax Relief Act of 2001. (For more information, see DiRe, et al., New Law Offers Relief to Terrorist Attack Victims, TTA, May 2002, p. 313.) In each of three scenarios, D, a resident of state X, is a qualified decedent. D did not make any adjusted taxable gifts (as defined in Sec. 2001(b)) during life. In filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Ds executor does not elect out of Sec. 2201(a). Ds estate pays the X death tax. In the first situation, D died in 2001, a year in which X imposed a state death tax equal to the state death tax credit allowable under Sec. 2011(a); Ds taxable estate is $2,936,818. The facts are the same in situation 2, except that Ds taxable estate is $8,762,500. In situation 3, D dies in 2005, a year in which X imposes a state death tax equal to the state death tax credit that would have been allowable under Sec. 2011(a) before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Ds taxable estate before the deduction for state death taxes is $5,953,939. Under Rev. Rul. 2002-86, Ds estate will have no Federal estate tax liability and no state death tax liability in situation 1. In situation 2, Ds estate will have no Federal estate tax liability, but will have an $882,200 state death tax liability. In situation 3, Ds estate will have no Federal estate tax liability, but will have a $505,273 state death tax liability. In all three cases, Ds estate must file Form 706, even though no Federal estate tax is due. The ruling concludes that no Federal estate tax will be due for a qualifying decedent who died in 2001 if the taxable estate does not exceed $8,762,500 and the state imposes a death tax at least equal to the Sec. 2011 state death tax credit. If the taxable estate exceeds $2,936,818, a state death tax will be due. Further, under current law, no Federal estate tax will be due for a qualifying decedent who dies in 2005 if the taxable estate before the deduction for state death taxes does not exceed $5,953,939 and the state imposes a death tax equal to the Sec. 2011 state death tax credit as it existed prior to the EGTRRA. However, the state death tax will be due.
Miscellaneous Despite the recent economic slowdown, the Department of Labor (DOL) projects U.S. job growth to increase by 55 million by 2008. One place to look for workers is the Employee Referral Assistance Network (EARN), a free service that the DOL sponsors. EARN puts employers in touch with qualified candidates with a disability. Another resource, the Job Accommodations Network (JAN), provides employers with information about accommodating people with disabilities at the workplace. Employers can call (866) 4-USA-DOL, or visit the EARN (earnworks.com) or JAN (janweb.icdi.wvu.edu) website for more information. Three tax incentives help employers cover the cost of accommodating employees with disabilities and of making their businesses accessible to disabled employees and/or customers. Disabled access credit: Sec. 44 applies to making a business accessible. Small businesses that, in the previous year, earned a maximum of $1 million in revenue or had 30 or fewer full-time employees are eligible. The credit is 50% of expenditures over $250, not to exceed $10,250, for a $5,000 maximum benefit. The annual credit can be used for a variety of costs, such as:
Barrier removal deduction: This is an annual deduction under Sec. 190 for expenses incurred to remove physical, structural and transportation barriers for persons with disabilities at the workplace. Businesses may take a tax deduction of up to $15,000 a year for such ex-penses and depreciate the excess. Businesses can also make a facility or public transportation vehicle, owned or leased for use in the business, usable by persons with disabilities. Examples include:
Small businesses can combine the credit and deduction if their expenses qualify under both Secs. 44 and 190. They can use both annually, but cannot carry over expenses to the next year. For more information on Secs. 44 and 190, contact Mark Pitzer, IRS Office of Chief Counsel, (202) 622-3110. Work opportunity tax credit: This credit replaced the targeted jobs tax credit program; it applies to employers who meet certain criteria and hire targeted low-income groups, such as individuals who are (1) Social Security recipients or (2) certified vocational rehabilitation referrals. An employer may take a credit of up to 40% of the first $6,000 (i.e., up to a $2,400 credit) for wages paid during the first 12 months, for each new hire. This program is subject to annual Congressional renewal. Other requirements apply. For more information, see the DOL Employment & Training Administrations website at http://workforcesecurity.doleta.gov/employ/wotcdata.asp . |
