GST: Predeceased Parent Rule and
Deemed Allocation Prop. Regs. • Extended Moratorium on Internet Taxes
• FASB Proposed Guidance on the AJCA (Box) • 2005 Inflation Adjustments
(Chart)
Lesli S. Laffie, J.D.,
LL.M.
AICPA
Activities
GST: Predeceased Parent Rule and Deemed Allocation Prop.
Regs.
The
AICPAs Trust, Estate and Gift Tax Technical Resource Panel
submitted comments to the IRS on the proposed regulations on the
predeceased parent rule. That rule provides an exception to the
generation-skipping transfer (GST) tax generation assignment rules
that assign a higher generation to transferees when the transferees
parent is deceased.
The
comments state that (1) Prop. Regs. Sec. 26.2651-1(b) exceeds
statutory authority; (2) Example
6 in Prop. Regs. Sec. 26.2651-1(c) should be clarified; and (3)
the final version of Prop. Regs. Sec. 26.2651-2(b) should clarify that
the definition of legal adoption therein applies only to Sec.
2651(f)(1).
Deemed
allocations:
Sec. 2632(c) proposed regulations offer guidance on electing out of
GST deemed allocations. The proposed regulations provide guidance for
electing under Sec. 2632(c)(5)(A)(i) not to have the deemed allocation
of unused GST exemption under Sec. 2632(c)(1) apply to certain
transfers to a GST trust. The proposed rules also provide guidance for
electing under Sec. 2632(c)(5)(A)(ii) to treat a trust as a GST trust.
The
AICPA recommends removing the language (including an automatic
allocation to a direct skip, but not an indirect skip) from the
final version of Regs. Sec. 26.2632-1(c)(1), to eliminate any
confusion about the deemed allocation of a GST exemption to direct and
indirect skips.
The
AICPA also suggests expanding the last sentence of Prop. Regs. Sec.
26.2632-1(b)(2)(i), to clarify its application; it recommends the
following language:
The
transferor may prevent the automatic allocation of GST exemption with
regard to an indirect skip (including indirect skips to which section
2642(f) may apply), as provided in paragraphs (b)(2)(ii) and (iii) of
this section.
Finally,
it suggests including examples in the final regulations that show how
the deemed allocation rules for indirect skips apply when trusts
subject to an estate tax inclusion period (ETIP) terminate on the
expiration of an ETIP and distribute assets to other trusts that may
be GST trusts.
The
full text of both AICPA comment letters is available at www.cpa2biz.com/ResourceCenters/Tax/Estate%2c+Gift%2c+Trust%2c+Fiduciary/default.htm.
Legislation
Extended
Moratorium on Internet Taxes
On
Dec. 3,
2004,
President Bush signed into law the Internet Tax Nondiscrimination Act,
which retroactively reinstates, through Nov.
1, 2007,
a previously expired ban on Internet access taxes. The bill broadly
defines exempt Internet access.
However, states and cities can continue to collect
taxes on telephone services for calls made over the web. States
already collecting taxes on Internet access can continue for up to
four years.
|
FASB
Proposed Guidance on the AJCA
The Financial Accounting Standards Board (FASB)
issued proposed guidance, effective immediately, on accounting
issues raised by two key provisions of the American Jobs
Creation Act of 2004 (AJCA).
The guidance,
released as two proposed FASB staff positions (proposed FSPs),
details the proper accounting treatment of the new deduction
for domestic manufacturing activities (new Sec. 199) and
provides transition rules for the 85% temporary
dividends-received-deduction (DRD) for some repatriated
foreign earnings (new Sec. 965). FSPs are a special form of
guidance the FASB developed to respond promptly to questions
on the application of FASB guidance likely to have widespread
effect.
Manufacturing
Deduction
According to proposed FSP Financial
Accounting Statement (FAS) 109-a, the manufacturing deduction
should be accounted for as a special deduction under the rules
of FASB Statement No. 109, Accounting for Income Taxes.
When fully phased in, Sec. 199 will provide a 9% deduction for
income attributable to domestic production activities.
As to whether
the deduction should be accounted for as a special deduction
or tax rate reduction, the paper concludes that the former
treatment is more appropriate, because the domestic
manufacturing deduction is based on the future performance of
specific activities and, thus, is similar to the special
deductions illustrated in FASB Statement No. 109, 231.
Repatriation
As for the repatriation provision, proposed
FSP FAS 109-b concludes that a company should be allowed
time beyond the financial reporting period of enactment to
evaluate the effect of the Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying
Statement 109. The 85% DRD is a one-time-only, temporary
benefit that applies solely to funds repatriated under a plan
for reinvestment in the U.S.
The timing issue
arises in connection with Accounting Principles Board Opinion
No. 23, Accounting for Income TaxesSpecial Areas,
which provides an exception to the rule that a company must
accrue income taxes on unremitted foreign investments when it
can overcome a presumption that the earnings will be
repatriated. FASB Statement No. 109 requires companies to
adjust deferred tax liabilities and assets to reflect law
changes for the period that includes the enactment date (Oct.
22, 2004).
According to the
proposed FSP, companies require additional time to analyze the
DRDs effect, because the new provision requires legislative
or regulatory clarification. The paper points out, however,
that the timing break does not give enterprises a free ride to
claim the repatriation exception; any company that did not
overcome the presumption of repatriation before the AJCAs
enactment must continue to presume repatriation of foreign
earnings while it is evaluating the new provision.
The repatriation paper also details the
information that a company must disclose during reporting
periods in which it is considering the effect of the DRD
provision. The required disclosures include the range of
reasonably possible amounts that may be repatriated, as well
as a status update on the companys evaluation of the provision.
|
|
