COVID-19: Changes in Federal Tax Law You Need to Know

In response to the COVID-19 pandemic, the last few weeks have seen an unprecedented series of legislative actions by Congress, as well as a number of significant administrative actions by the Internal Revenue Service. Here is a brief synopsis of federal tax extensions and changes due to COVID-19.

Federal Filing and Payment Deadlines Extended

Initially, the IRS only offered a payment deadline extension in response to COVID-19. However, after much pressure, the IRS in response has instead provided much more comprehensive relief to mostly taxpayers in the U.S.

All taxpayers refers to: individuals, trusts, estates, (some) partnerships, associations, companies (including LLCs), corporations, nonprofits, and more that have a filing date of April 15, 2020.

  • For all taxpayers who are required to file a federal income tax return and/or submit a federal income tax payment for the 2019 tax year, due on April 15, 2020, the due date for both filing and paying is extended to July 15, 2020. This applies to all taxpayers regardless of the amount of their federal tax obligation.
  • This applies to all filers of Forms 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS, 1041, 1041-N, 1041-QFT, 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF, 8960 and 8991.
  • For self-employed taxpayers, relief is also provided for making federal estimated income tax payments.
  • The period of April 15, 2020 through July 15, 2020 is considered disregarded for the purposes of calculation of any interest, penalty, or addition to tax for failure to file the income tax returns or pay the income tax owed. Interest, penalties and any additions of tax will begin to accrue again on July 16, 2020.
  • No extension is provided for the payment or deposit of any other type of federal tax- including federal estate and gift tax.
  • Important to note that any taxpayer returns that were due on March 16, 2020, which include Form 1065, 1065-B, Form 1066, and Form 1120-S, are not included in any of the COVID-19 extensions for both filing and payment. However, any timely filed extensions will still extend the due date six months as normal.
  • For fiscal year taxpayers, if their federal income tax return for the fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the extension date, the taxpayer’s filing due date is postponed to July 15, 2020.

For taxpayers that qualify for extension, no additional form is required for the July 15, 2020.  Any additional extension beyond July 15, 2020 will require filing Form 4868 as usually required.

Business Tax Credits

On March 18, 2020, President Trump signed into law the Families First Coronavirus Act which eases compliance burdens on businesses. Additional business credits were then signed into law through the Coronavirus, Aid, Relief and Economic Security Act (CARES) on March 27.

Payroll Sick Leave Credit

The Emergency Paid Sick Leave Act (EPSLA) requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (certain exceptions may apply to less than 50-employee businesses). The pay is up to $511 per day with a $5,110 overall limit for each employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee providing care for someone with the virus.

The employer is allowed to receive a tax credit against their 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of the Social Security (OASDI) payroll tax (commonly known as the Railroad Retirement tax). This credit amount tracks to the per-employee limits described above. This credit can also be increased by both the amount of expenses in connection with a qualified health plan if the expenses are excludible from employee income, and the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Any credit amounts earned in excess of the 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement tax are refundable. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Self-Employed Sick Leave Credit

Self-employed persons also qualify for a sick leave credit.  The credit treats the self-employed person as both the employer and employee for credit purposes. The $5,110 and $2,000 limits as described above in EPSLA, also apply here unless the self-employed person has insufficient self-employment income based on a formula. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Payroll Family Leave Credit

The Emergency Family and Medical Leave Expansion Act (EFMLEA) requires employers with fewer than 500 employees to provide both paid and unpaid leave. This leave occurs when an employee must take care of a minor child due to a COVID-19 related emergency. The first 10 days can be unpaid, but then paid leave is required, based on the employee’s pay rate and pay hours. The leave cannot exceed $200 a day or $10,000 total per employee.

The corresponding tax credit functions substantially similar to the payroll tax credit described above. The credit is against the same 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement Tax, and tracks to the $200 and $10,000 dollars employee limits described above.

Self-Employed Family Leave Credit

The Act also provided the self-employed a similar refundable income tax credit for family leave. The self-employed person is treated as both employer and employee for purposes of the credit. The credit is subject to a $10,000 limit, and may be reduced if there is insufficient self-employment income determined by formula.

Wage Exemption

Any wages paid as required sick leave payments for either EPSLA or EFMLEA are not considered wages for purposes of the employer’s 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} portion of the payroll tax, again often referred to as the Railroad Retirement Tax.

Employee Retention Credit for Employers

For eligible employers who have their operations fully or partially suspended as a result of government order, or who have experienced a greater than 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} reduction in quarterly receipts, measured on a year-over-year basis, the provision provides a refundable payroll tax credit for 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of wages to certain employees. Employers receiving Small Business Interruption Loans do not qualify for the credit. The qualifying wages depend on whether the employer has an average number of full-time employees in 2019 of 100 or fewer, if so, all employee wages are eligible.  If over 100 full-time employees, only the wages of furloughed employees or faced a reduction of hours as a result of employer’s closure or reduced gross receipts are eligible for the credit.

Other Changes in the Federal Tax Code

Recovery Rebates for Individuals

The CARES Act provides individuals with a refundable credit against income taxes they owe for the 2020 tax year equal to $1,200 ($2,400 for joint filers), not to exceed the tax liability for the year. Any taxpayer that has qualifying income (earned income, social security, and/or pension income), taxable income greater than zero, and gross income greater than the standard deduction, then the taxpayer is entitled to a refundable credit of at least $600 ($1,200 for joint filers), plus $500 per qualifying child. The phase-out begins at $75,000 ($150,000 for joint filers).

Payroll Tax Deferment

The CARES Act also allows employers and self-employed individuals to defer paying the employer portion of certain payroll taxes through the end of 2020. Half of the deferred amount of payroll taxes will be due December 31, 2021, and the remaining half will be due December 31, 2022. Any taxpayer receiving a Small Business Act Loan are excluded from this deferral program.

Deductibility of Interest Expenses Temporarily Increased

The Cares Act temporarily and retroactively increases the limitation of the deductibility of interest expense under Code Sec. 163(j)(1) from 30{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} to 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} for tax years 2019 and 2020.

Temporary Repeal of Taxable Income Limitation for Net Operating Losses (NOLs)

The Cares Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. This will apply to the 2018, 2019 and 2020 tax years, allowing taxpayers to file amended returns and receive refunds for those that qualify.

Net Operating Loss (NOL) Rule Changes

Any losses arising in 2018, 2019, and 2020 can be carried back to the five preceding years. For any NOLs arising in tax years before 2021, those carrybacks may offset 100 percent of income for the prior 5 years. An amended return may be filed to claim the benefit back to the 2013 tax year.

Cancellation of Indebtedness Income

For small businesses that receive certain loans from the government under the CARES act, any such forgiveness of the loan granted to these taxpayers shall not be considered income.

More Changes Likely to Come

As the situation develops, we will continue to document additional changes made at the federal level.

Michael D. Walker is a business, tax and estate planning attorney who has worked with individuals and small to medium-sized businesses for nearly 30 years. A careful listener, Michael skillfully guides his clients to meet the wide variety of legal challenges they face in our current complex world.

Nicholas Rogers - Attorney

 

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

Tax Reform Now: Five Actions to Consider Before December 31, 2017

Tax and Business

Congress officially passed the Tax Cuts and Jobs Act on December 20th. Despite conflicting reports on when President Trump will sign the Act, he will sign it. Here are five last-minute actions you should consider for tax planning before the New Year to minimize your 2017 and 2018 tax liability.

One: Make Your Oregon Fourth Quarter Estimated Tax Payment by December 31st

Individuals who pay quarterly state income taxes should consider making their fourth quarter payment by December 31st. The Act limits the deduction for state and local taxes to $10,000 unless the taxes are paid and accrued in carrying on a trade or business.  In Oregon, the fourth quarter estimated payment is due on January 16, 2018. Paying by December 31st assures that these individuals can maximize their 2017 state and local tax deduction one last time. Strongly consider this action if you receive substantial investment income or are self-employed. The final version of the Act only allows a deduction for payments made for tax years on or before 2017, so do not make an estimated payment for 2018 taxes.

Two: Give More to Your Favorite Charities

Give and you shall receive . . . more in 2017 than 2018. For itemizing taxpayers, charitable contributions are one of the most well-known and utilized deductions. The Act’s decease to the marginal tax rates and the doubling of the standard deduction means a charitable deduction claimed on a 2017 tax return will yield more tax savings than the identical deduction on future tax returns. If you expect your marginal tax rate to decrease, or if you itemize now but might not under the new law, consider talking to your tax advisor about how some last minute giving could be the best gift you receive this holiday season. If you do not have a charity in mind, consider donating to Oregon’s Campaign for Equal Justice, whose mission is to make equal access to justice a reality for all Oregonians.

Three: Pay Your Local Property Taxes in Full for 2017-2018

Starting in 2018, individuals will not be able deduct more than $10,000 of their state and local income taxes and their local property taxes. While Oregon allows property taxes to be paid in installments, to be assured an individual can deduct the maximum amount of property taxes paid for the 2017-2018 year, consider writing a check for the installments due in 2018 to your county before the year end. Check with your tax advisor if you are subject to the AMT. The AMT limits the amount of the property tax deduction.

Four:  Pay and Claim Those Unreimbursed Employee Expenses and Other Miscellaneous Deductions Now – Including Your Tax Preparation Fees and Certain Legal Fees

As of 2018, miscellaneous itemized deductions will become a deduction of the past. This includes the deduction for tax preparation expenses, certain legal fees, and unreimbursed employment expenses. Unreimbursed employment expenses can include everything from tools & supplies, union dues, expenses for work related travel, subscriptions to business journals, attending seminars and more. If you expect to pay these expenses next year you should consider paying for them before December 31st. Of course, if you are self-employed or own a business, you will still be able to deduct some of these expenses against business income under the new law. In short: Consider paying your CPA for 2017 tax advice and your 2017 tax filing by December 31st.

Five: Delay That Taxable Gift

Taxpayers considering gifts that would result in the payment of gift taxes or GST may want to wait until 2018. The exemptions for both double in 2018 and a delay in the timing of the gift could reduce or eliminate any tax liability incurred. However, do not hesitate to make that 2017 annual exclusion gift!

Stay Tuned

This article is the first in a series planned to address the numerous changes to tax law imposed by the Tax Cuts and Jobs Act. We strongly recommend you consult with your tax attorneys and tax advisors on the impact of the act on your 2017 taxes and to plan for future years.

Caitlin M. Wong brings her passion for tax law and her commitment to empowering others to her practice at Samuels Yoelin Kantor LLP. Caitlin has experience with all aspects of both federal and state taxation, including tax planning for companies as well as individuals, audits, appeals, tax court litigation, estate planning and trust and estate litigation.

Death of the Death Tax?

On January 10, 2017, Rep. Kristi Noem (R-S.D.) introduced H.R. 631, the “Death Tax Repeal Act of 2017.” While this bill resembles a similar bill that failed to become law in 2015, with the 2016 elections, the political landscape in Washington has changed considerably. In brief, H.R. 631 provides that:

  • The estate tax will be repealed for descendants dying on or after the date of enactment.
  • The generation-skipping transfer (GST) tax is repealed for GST transfers occurring on or after the date of enactment.
  • The gift tax is retained with its current lifetime exemption of $5.49 million, but its tax rate is reduced to 35% (down from 40%). The gift tax exemption amount will continue to be adjusted annually for inflation.
  • The special “anti-freezing” tax rules, also known as Chapter 14, are retained, presumably to maintain the overall effectiveness of the current gift tax system.
  • The estate tax will continue to be imposed on principal distributions from pre-existing qualified domestic trusts (also known as “QDOTs”) with respect to non-citizen decedents dying before the date of enactment, but only for the 10-year period following the date of enactment.

Notably absent from this bill is any reference to a change in the current system in which the tax basis of an appreciated asset received from a decedent’s estate is “stepped-up” to the fair market value of such asset on the decedent’s date of death. This system effectively eliminates the capital gains on the pre-death appreciation of the value of such inherited assets. In earlier reports, many speculated that this rule would be changed either to a carryover basis system (where inherited assets would retain the same tax basis of the decedent), or even the “Canadian system” (whereby capital gains would be immediately recognized on the appreciated assets of a decedent, with such a tax payable shortly after death).

H.R. 631 is unlikely to pass simply as a stand-alone piece of legislation. Rather, as Congress begins to assemble a larger tax reform bill later in 2017, many tax experts feel that it’s likely that such legislation will include provisions that will repeal the current estate tax rules. Whether the tax basis rules will be changed, and whether a tax reform bill ultimately passes, will ultimately depend upon the political and fiscal realities that arise as the legislative process moves forward.

If the New England Patriots can win the Super Bowl from 25 points down, then anything can happen in 2017!

Win Olympic Gold – And Pay for It

Olympic Gold

Olympic gold metals are assessed for income tax, but the real cost could be the estate taxes.

Every time the Olympics come around, there’s dozens of articles and posts about how Olympic medals are subject to income tax. The IRS considers all prize winnings, such as gambling or game show prizes, to be income and thus taxable. Olympic medals get lumped into this group (as do the cash bonuses they come with). Luckily for the athletes, their medals are valued at the time they are earned, essentially the value of the materials. A gold medal from Rio is estimated to be worth $564, a silver medal is estimated at $305, and a bronze medal has little intrinsic value. Since Olympic medalists generally treat their sport as a profession the value of the medal and related bonuses are likely to be offset with a deduction for the significant expenses that most athletes incur.

What people may fail to consider is the effect the medals will have on the Olympian’s estate taxes. Property in an estate is valued at the date of death, not the original value. And though Olympic medals have little intrinsic value, their sentimental value makes them worth far more. In 2013, one of Jesse Owens’ medals from the 1936 Olympics in Berlin sold for $1.47 million, the highest price ever paid for a piece of Olympic memorabilia. A boxer from Ukraine, Wladimir Klitschko, sold his medal for $1 million. Even a medal from an athlete who isn’t as well known may be valued upwards of $30,000. These values are included in a deceased Olympian’s estate and are potentially taxable.

Michael Phelps broke a 2100 year old Olympic record by winning 13 individual gold medals over the course of four Olympics (not to mention his 28 medals total.) The medals are worth quite a lot on the open market, even if Phelps is only initially taxed on their intrinsic value. When he dies, his estate will likely need to hire a specialized appraiser to determine the value and even then, it will only be an educated guess. Of course, since Michael Phelps is superhuman, he may never die, which would make this whole process simpler.

Happy Birthday – The Estate Tax Turns 100

Wishing a happy 100th birthday to the Estate Tax!

In 1916, Congress instituted the estate tax to boost U.S. revenues just in case we joined the fight in World War I. At the time, the top rate was 10% and the exemption was $50,000, which meant it affected less than 1% of estates. Proponents of the tax thought it was a reasonable way to raise money while its opponents in Congress thought it was a matter best left to the states.

The U.S. had imposed temporary taxes on estates to pay for earlier conflicts but they were always repealed. The reason this one lasted was the hope that it would preclude the establishment of an aristocracy in America by preventing concentrations of wealth. Presidents Theodore and Franklin Delano Roosevelt were both proponents, as well as Andrew Carnegie, despite the size of their own estates. One particularly extreme view was that of Senator Huey Long of Louisiana. He wanted to confiscate all fortunes that were greater than $8 million.

Now, the estate tax is 40% on assets owned at death above the exemption amount. For 2016, the exemption amount is $5.45 million. It’s estimated that only about 4,400 people will have taxable estates this year.

IRS Expands Relief for Missed Portability Elections for Surviving Spouses

On January 27, 2014, the IRS issued Rev. Proc. 2014-18 which provides a remedy for estate representatives who did not elect to combine the deceased spouse’s unused exclusion amount with the surviving spouse’s exclusion amount in a timely manner. As an example, assume the first spouse died in 2012 with an estate of $2,120,000. The Applicable Exclusion Amount (“AEA”) for 2012 was $5,120,000. Assume that his estate uses $2,120,000 of the deceased spouse’s AEA which leaves $3,000,000 remaining as the Deceased Spouse’s Unused Exclusion (“DSUE”). The executor of the estate can elect to combine the $3,000,000 DSUE amount with the surviving spouse’s AEA (currently 5,340,000 for 2014), giving the surviving spouse a total federal estate tax exclusion in 2014 of $8,340,000.

The relief provided by Rev. Proc. 2014-18 gives certain estates which did not file a federal estate tax return on a timely basis to now file a Form 706 Federal Estate tax return and make a delayed portability election.

Prior to January 27, 2014 the only option to remedy a late return was to request a private letter ruling with the Internal Revenue Service to seek permission to file a late return and pay a significant user-fee ($2,000 to $10,000). It is no longer necessary to seek private letter ruling or pay any user fees.

This relief is also available for the surviving spouse of a same-sex marriage. However, this relief is not available for domestic partners who are registered but not married in a state or county that had authorized same sex marriage.

If you are the surviving spouse and your spouse died after December 31, 2010 and prior to January 1, 2014 you should review this situation with your estate planning attorney and accountant to determine if filing of Form 706 Federal Estate Tax Return and making a portability election is possible and would be appropriate for you. The Federal Estate Tax return with the delayed portability election must be filed by December 31, 2014.

If you have any questions, feel free to contact any of the estate planning attorneys with the firm.

Michael Jackson’s tax bill: Off the Wall? Bad? Can they ‘Beat it’?

Michael Jackson spent over forty years singing, dancing and "weird-ing" his way to owning the title "King of Pop". Michael was six years old when he debuted as part of the Jackson 5 in 1964 and was 24 when he dropped the album "Thriller" and the ground-breaking videos for "Beat It", "Billy Jean" and "Thriller". Michael recoded 13 number-one singles and won 13 Grammy Awards during his prolific career and "Thriller" remains the best-selling album of all time. Sadly, Michael died of acute propofol and benzodiazepine intoxication on June 25, 2009. He was 50 years old.

An estate tax return was due for the estate of Michael Jackson on March 29, 2010 (which was probably extended to September 29, 2010). This return listed the assets owned by Mr. Jackson at the time of his death and included valuations on each asset. As you can imagine, Mr. Jackson’s estate probably owned some things that many of us will own when we die: bank accounts, automobiles, real estate, etc. Mr. Jackson also owned some things that were unique to his celebrity status and his profession: recording rights, rights to his likeness and image, his endorsement deals with Pepsi and other corporate sponsors, etc.

The Internal Revenue Service has charged the Jackson estate with undervaluing the assets on the estate tax return, as the estate reported a taxable estate of $7 million. The IRS has sent the estate a tax deficiency notice for $702 million ($505.1 million in taxes and $196.9 million in penalties). The primary arguments surround the estate’s valuation of Mr. Jackson’s likeness and image (valued by the estate at $2,105 and by the IRS at $434 million) and the value of some of Mr. Jackson’s recording contracts owned by "MJ/ATV Publishing Trust Interest in New Horizon Trust II" (valued at $469 million by the IRS and not listed on the estate tax return.)

Most of the audits we come across on estate tax returns feature disagreements over the valuation of assets. When filing these returns, it is often wise to obtain a written appraisal of real property and business interests and then discuss the valuations of these assets (for return purposes) with a tax professional. The IRS has provided a good deal of guidance when it comes to properly valuing assets, following this guidance may save the taxpayer’s family from the headaches (and financial costs) of an IRS audit and appeal.

It is uncommon that the IRS disagrees with tax assessments by over $900 million, as is the case with Mr. Jackson’s estate. It will be interesting to see how the arguments over the value of Mr. Jackson’s assets plays out on TMZ and it will be equally interesting to see the justifications used by the estate and the IRS regarding the valuation of Michael’s likeness.

Two final notes about Michael Jackson: First, today would have been his 55th birthday, so happy birthday Michael. Second, it looks like he has got some new music on the way:

http://www.youtube.com/watch?v=76VC2Dsy1SU

James Gandolfini’s estate: Disaster or well-executed plan?

I recently read an article about the “disasterous” estate tax planning done by the attorneys for late James Gandolfini. The article pointed out that the actor left the majority of his $70 million estate to his children, family and friends; while “only” leaving his wife 20%. The crux of the article was that, by allowing 80% of assets to pass to people other than his spouse, the estate will unnecessarily pay tax on about $50 million. (The $50 million that would have otherwise been passed tax-free if Mr. Gandolfini had left everything to his wife). The tax bill is reportedly going to be in the neighborhood of $30 million.

$30 million is a substantial check to write to the government; but to assess whether the estate plan is a “disaster”, we need to dig a little deeper. James Gandolfini was married twice and he had a child with each wife: Michael, born in 2000, and Liliana, born in 2012. He met his second wife in 2006 and they were married in 2008. Mr. Gandolfini’s mother was a lunch lady and his father a mason and custodian. He did not land his first acting job until he was 26 and his life changed forever when he landed the role of gangster Tony Soprano in 1999 then became a millionaire many times over at the age of 40.

James Gandolfini’s life was far from ordinary, but the issues that his attorneys had to deal with in preparing his estate plan were very common: multiple marriages, children with different spouses and the unique challenges presented by first-generation wealth. It is not uncommon or “disastrous” for people to pass assets to their loved ones knowing there will be an estate tax to pay as a result, due to the unique nature of the beneficiaries and the assets. What is important is that potential taxes are laid out ahead of time to allow the individual to make informed decisions. Sometimes it is worth the tax bill for someone to pass assets outside of the “traditional” family map of everything-to-the-surviving-spouse.

In Mr. Gandolfini’s case, he chose to establish trusts for the benefit of his children at his death so that he could provide for the children’s well-being immediately and so that he could have some control over how (and when) assets are distributed. He also chose to leave substantial amounts to his sisters and friends. These choices cost the estate tens of millions of dollars in taxes, but that may have been a choice Mr. Gandolfini made. Only he and his lawyers know if the result was “disastrous” or exactly as planned.

It is worth noting that Mr. Gandolfini could have left the assets in trust for his wife’s benefit, then provided for the distribution of these assets to his beneficiaries on upon her death. This strategy is fairly common. In this case, however, Mr. Gandolfini’s surviving spouse is only 45 years old and that hypothetical distribution to the kids may not take place for thirty or forty years. Mr. Gandolfini may also have been advised to transfer some of his assets during his lifetime, at this point it is not clear whether any sort of plan was in place.

Properly executed planning documents can help parents protect their children from themselves and from creditors and predators. Our firm will be hosting a seminar to discuss the planning challenges that families face when planning for minor children. We will talk about the red flags that parents should be looking out for and then discuss the legal and financial variables that emerge when we add a child to the mix. The seminar will be held from 7:30-9 AM on July 25, 2013. To register for this seminar, please contact us at events@samuelslaw.com or 503-226-2966. Space is limited, so be sure to contact us soon.

How the Estate Tax Brought Down the Defense of Marriage Act

Today the U.S. Supreme Court ruled that Section 3 of the Defense of Marriage Act (“DOMA”) violates the Equal Protection clause of the 5th Amendment to the U.S. Constitution.  The opinion of the court in United States v. Windsor, written by Justice Kennedy, states that “DOMA seeks to injure the very class New York seeks to protect. By doing so it violates basic due process and equal protection principles applicable to the Federal Government.”  The decision marks a historic moment in the national debate over same-sex marriage and will likely be the focus of much discourse.  But there is one important issue that may otherwise fall through the cracks: this was a case about the federal estate tax.

Edith Windsor met her wife Thea Spyer in 1963 and the two became engaged four years later, never knowing whether they would legally be able to wed.  They registered as domestic partners in 1993 in their home state of New York and were finally married in Toronto, Canada in 2007.  Ms. Spyer passed away in 2009 and left her entire estate to Ms. Windsor.  If Ms. Spyer had been a man, the entire bequest to Ms. Windsor would have passed tax free, under the marital deduction to the federal estate tax.  However, when Ms. Windsor filed for the marital deduction, the Internal Revenue Service disallowed it, saying that under DOMA Ms. Windsor and Ms. Spyer were not in a recognized marriage and could not have the benefit of the marital deduction.  The IRS assessed a $363,053 tax on Ms. Spyer’s estate, she paid the tax, and sued the government for a refund.  Today, Edith Windsor not only gets the satisfaction of having her 44 year relationship finally recognized by the federal government, but she also gets a refund of the estate tax paid in 2009, plus interest. 

Many questions remain that will be sorted out in the coming days, months (and probably years) – by the courts, Congress, and the Executive Branch. For couples in same-sex marriages (currently recognized by 12 states, and the District of Columbia) however, in addition to federal tax consequences, today’s ruling provides access to a significant number of federal law benefits. These benefits include Social Security survivor benefits, benefits under federal employee health plans, and veteran’s benefits. 

Oregon Inheritance Tax Return Filing Deadline Extended for Some 2010 Estates

 — But Not The Tax Due Date

As a result of Congress passing the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 in December 2010, the Oregon Legislature had to act expeditiously to determine which 2010 federal tax changes Oregon would adopt. As part of this review the 2010 Oregon Inheritance Tax return (“OIT return”) filing requirements for some 2010 decedents were changed to follow the federal filing requirements. Thus, if a decedent died after December 31, 2009, and before December 17, 2010, with property taxable in Oregon and a federal estate tax return is required, the due date for the OIT return is extended to the same date the federal estate tax is due.

Generally, this means that for 2010 decedents who died before December 17, 2010 with gross estates valued over $5 million, the extended filing deadline is September 19, 2011, for an OIT return (Form IT-1), plus six additional months if a timely extension request is applied for. For 2010 decedents with gross estates under $5 million, the 2010 OIT return remains due nine months after the date of decedent’s death. For 2010 decedents dying after December 16, 2010, the filing requirements remain unchanged and the OIT returns are due nine months following the date of decedent’s death.

Because of the revenue shortfalls, the Oregon Legislature did not extend the Oregon Inheritance Tax due date. Oregon Inheritance Taxes remain due and payable nine months after the date of the decedent’s death. Also, any penalties and interest must be calculated based on nine months after the date of the decedent’s death irrespective of the filing extension. The filing extension provision, tax due date, penalty and interest changes are contained in Section 33 of SB 301. (http://www.leg.state.or.us/11reg/measpdf/sb0300.dir/sb0301.en.pdf)

The Governor signed SB 301 on March 9, 2011, but it will not become law until the 91st day after the close of the legislative session. After SB 301 becomes law, Section 33 will be retroactive to estates of decedents who died after December 31, 2009. A representative from the Oregon Department of Revenue has confirmed that the Department will currently follow the intent of the new law and allow the filing deadline extension for 2010 returns.

If you are working with an estate that may be eligible for this filing extension, consider contacting the Oregon Department of Revenue to confirm the estate’s eligibility for these changes. Please note these changes in the law do not address the filing deadline for estates over $5 million that elect not to pay any federal estate tax and instead elect a modified carryover basis and file the Form 8939 information return in lieu of the federal estate tax return.