Is Picasso Coming to Portland?

On Monday, May 11, 2015 Pablo Picasso’s oil painting, “Women of Algiers (Version O)” sold for an astonishing, and record breaking, $179.4 million, inclusive of buyer’s premium, at Christy’s in New York.  This surpasses the paltry $142 million paid for the previous record holder “Three Studies of Lucien Freud,”  by Francis Bacon, which was loaned to the Portland Art Museum for public display over 15 weeks last year.  As with so many things in life, there is an interesting tax wrinkle here.

We wait with baited breath to see if the Portland Art Museum or some other Oregon museum announces a public viewing of this masterpiece.  Elaine Wynn’s decision to display Francis Bacon’s triptych for 105 days in Oregon is hardly surprising given the slightly over 8% sales tax rate at her home in Las Vegas, Nevada.  If the first use of the property occurred in Las Vegas, the tab would have been north of $11 million.  However, Nevada (like many states that have a sales tax) considers that tangible personal property like a painting) is not taxable in Nevada if the property is first used outside of Nevada.  Many states will say that there is a presumption that the first use occurs in their jurisdiction if the property comes into the state within 90 days after the sale takes place.  So, if the first use occurs in Oregon, no sales tax may be incurred. In many respects, this is a win-win for the public and for the collector.  The viewing public gets to see some of the most expensive works of art sold at auction and the buyers get to take advantage of a sales tax break. 

Sales tax at the relatively standard rate of 8% on $179 million would be closer to $14.3 million in sales tax revenue.  Hopefully that’s enough to motivate the anonymous buyer to let it hang in Portland for a few months.

 

A Tax-Favored Solution for Individuals With Disabilities

On December 19, 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law, allowing each state to establish a new type of tax-favored savings account, known as the Section 529-ABLE account, for individuals with disabilities. Like a “529” college savings account, these new accounts will allow friends and family members of qualified beneficiaries to contribute up to the annual gift tax exclusion amount ($14,000 for 2015), per year into an ABLE account, for a maximum of $100,000. The contributions will not be deductible for income tax purposes, but the funds will be eligible for tax-free accumulation when used for qualified expenses.

Qualified Beneficiary: the ABLE Act allows only one 529-ABLE account per qualified beneficiary. An individual may qualify in one of two ways:

1. The individual receives disability benefits under the Social Security Disability Insurance (SSDI) program or the Supplemental Security Income (SSI) program, and the individual became disabled before reaching the age of 26; or

2. The individual meets the SSI criteria regarding significant functional limitations, which is certified by a licensed physician and that the disability occurred before the individual reached the age of 26.

Qualified Expenses: distributions from 529-ABLE accounts are not subject to income tax to the beneficiary, so long as they are used for qualified expenses. A “qualified expense” is any expense related to the qualified beneficiary as a result of living a life with disabilities. These include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management, and administrative services. In addition, the same reporting requirements for traditional “529” college savings plans apply to 529-ABLE accounts. If managed properly, distributions from a 529-ABLE account will not jeopardize eligibility for critical federal benefits.

To the extent funds are not used for qualified expenses for the qualified beneficiary, the growth would be taxed as ordinary income, plus a 10% penalty on the taxable portion.

Upon the death of the qualified beneficiary, any amounts in that account (after Medicaid reimbursements) would be distributed to the deceased beneficiary’s estate or to a designated beneficiary, subject to income tax on the investment earnings but no penalty.

With a full understanding of account features and benefits, individuals and families can use 529-ABLE accounts as another tool in planning for the lifetime needs of an individual with disabilities. If you have any questions about 529-ABLE accounts, please feel free to contact any of the estate planning attorneys with the firm.

Deadline Extended to December 31, 2014 for Charitable Distributions from IRAs

Congress has extended the qualified charitable distribution tax break for 2014. An eligible taxpayer may make a tax free charitable distribution directly from their IRA or Roth IRA to a qualified charitable organization. An eligible tax payer is an individual age 70½ or older and the aggregate contribution cannot exceed $100,000.

This tax break was set to expire at the end of 2013 but has now been extended to the end of 2014. Those interested in participating in the program must make a distribution to their designated public charity on or before December 31, 2014.

Additional Points to Consider:

• For eligible taxpayers who are married and file joint tax returns, their spouse can also have a qualified deduction and exclude up to $100,000.

• Any distribution in excess of the $100,000 cap must be included in income but may be taken as an itemized charitable deduction, subject to the usual AGI annual caps for contributions.

• Distributions must go directly to a public charity that is not a supporting organization.

• Written substantiation of each IRA rollover contribution from each recipient charity is required to benefit from the tax-free treatment.

Whether this charitable tax break will be extended through 2015 or made permanent will be for next year’s Congress to decide.

If you have any questions about this charitable contribution deadline extension, please call the charity that you are considering or contact Jeffrey M. Cheyne at jcheyne@samuelslaw.com.

Deadline to Amend Retirement Plans to Reflect Windsor Decision Approaching Fast

The deadline to amend retirement plans to reflect the Windsor decision is approaching fast. As of September 16, 2013, the IRS requires qualified retirement plans to treat a same-sex spouse as a spouse for plan purposes. In April of this year, the IRS specified that amendments to qualified plans are required by the end of 2014 if the plan’s definition of marriage is inconsistent with the Windsor decision.

DOMA Section 3 was enacted in 1996 and defined marriage between one man and one woman as husband and wife. In 2013, the Supreme Court decided, in U.S. v. Windsor, that Section 3 of DOMA was unconstitutional because it deprived same-sex spouses of equal protection. Revenue Ruling 2013-17 provided that taxpayers may rely on Windsor retroactively “with respect to any employee benefit plan or arrangement or any benefit provided thereunder only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income” under Code Sec. 106, Code Sec. 117(d), Code Sec. 119, Code Sec. 129 , or Code Sec. 132 based on an individual’s marital status.

In an IRS Notice, the IRS provided further guidance on the effect of Windsor on qualified retirement plans and plan amendments. The Notice stated that a plan must be amended in certain situations, including if its terms with respect to the requirements of Code Sec. 401(a) define a marital relationship by reference to Section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor. The deadline for adopting such amendments is generally December 31, 2014. Because the deadline to file amended returns is only two weeks away, retirement plans that have not already done so should change the terms of their plans so they are consistent with Windsor. Also, plans that have already amended their terms should make sure that they comply with any subsequently issued guidance.

IRS Telephone Scam – Don’t Fall for It!

Recently, I spoke with two clients who were almost victims of a pervasive telephone scam involving a person posing as an Internal Revenue Service agent.  In each instance, the caller demanded immediate same-day payment of thousands of dollars in order to prevent drastic enforcement measures as a result of alleged tax debts.  In one instance, the perpetrator actually threatened criminal arrest if the money was not paid the same day.  Luckily, in both instances the wannabe IRS agents failed in their attempted swindle as reasonable questions from both of my clients yielded answers that were both hostile and suspicious.

In a recent public notice, the IRS issued a consumer alert giving taxpayers additional tips to avoid these telephone scams.  The typical scam described in the alert is similar to that experienced by my clients.  In these situations, the scammer may know your name and address, and possibly other personal details such as the last four digits of the victim’s social security number.  Their caller ID may contain a false descriptor that references the IRS in some way.  In almost all instances, very serious enforcement actions – such as bank account levies or criminal arrest – will be threatened.  To avoid such consequences, the scammer seeks payment through some fast payment system, such as a temporary debit card or wire transfer.

In the recent alert, the IRS reminded taxpayers of the following five things the IRS will never do:

1. Call you about taxes you owe without first mailing you an official notice.

2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.

4. Ask for credit or debit card numbers over the phone.

5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If in doubt about an alleged communication from the IRS, you can always call the IRS at 1.800.829.1040 to ask more questions.  If you do receive a scam call, you can also file a complaint using the FTC Complaint Assistant.  Just follow that line, choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

Refund Opportunities and Joint Returns for Same Sex Couples

Several months ago, I wrote a quick post to alert our readers to potential refund opportunities if the Supreme Court found in favor of Ms. Edie Windsor’s argument that she should be entitled to receive a refund for estate taxes that she had to pay. Ms. Windsor had married her long-time fiancée, Thea Spyer in Canada before Ms. Spyer’s death in 2009. Earlier this week, in an historic opinion, the Supreme Court ruled that Section 3 of the federal Defense of Marriage Act (“DOMA”) is invalid. At the time of the original blog post, I encouraged taxpayers to consider filing protective refund claims if they were married and filing separately or as individuals due to DOMA. Although several federal agencies have issued statements in the last 24 hours, we have yet to receive guidance about when the IRS anticipates paying out the refunds it owes to taxpayers who filed protective refund claims for years as far back as 2009. The initial filing deadline for 2009 has passed; however, many of our clients do elect to extend the deadline to file their tax returns. So, if you filed your 2009 personal income tax return on extension, it may still be worthwhile to investigate whether filing a joint 2009 personal income tax return would allow you and your spouse to claim a refund.

Also, if you were married in a state that recognizes same sex marriage and have since moved to another state that does not (e.g., Oregon), a 1958 revenue ruling may support your filing a joint federal income tax return. In Rev. Rul. 58-66, the Internal Revenue Service looked at common law marriages to determine how the taxpayers should file their personal income tax return. In that ruling, it considered the situation of a couple that establishes a common law marriage in a jurisdiction that recognizes common law marriage. The couple later moves to a state that does not recognize common law marriage, where a ceremony is required to initiate the marital relationship. The IRS ruled that it would continue to recognize the couple as husband and wife. It’s important to note that there are some cases that look at the domicile jurisdiction of the taxpayer to determine whether they are entitled to file joint personal income tax returns. However, those tend to focus on whether a taxpayer’s divorce was final under state law by the last day of the tax year. So they may not apply to the case of a same sex couple who are married and have not gotten divorced in any jurisdiction.

The Supreme Court’s opinion in United States v. Windsor only addressed married, same sex taxpayers’ rights for federal purposes. I expect that we will see activity at the state level to evaluate whether the equal protection and due process arguments that Justice Kennedy articulated in Windsor are applicable to state tax filings and rights under the due process and equal protection clauses contained in most states’ constitutions. We also anticipate that the courts will be called upon address questions related to the full faith and credit clause (Article IV, Section 1) of the United States Constitution. This clause requires states to respect the “acts, records, and judicial proceedings” of other states. Specifically, to the extent that a marriage in one state is deemed valid, will another state be able to disregard that marriage?

It will be very interesting to see how these questions are answered and how the issues evolve. Stay tuned – we’ll update you as developments occur.
 

How United States v. Windsor Impacts Oregon Domestic Partners

United States v. Windsor struck down Section 3 of the Defense of Marriage Act and recognized the same sex marriage of Ms. Windsor and Ms. Spyer for the marital deduction for federal estate tax purposes. However, the still leaves wealthy families and estate planners with some questions.  It is clear from the decision that couples who are married in states that recognize same-sex marriage, among them Washington and California (based on Prop 8 decision), will now have access to the marital deduction under the federal estate tax, as well as a bevy of other federal benefits.  What is less clear is what happens if those couples move to a state like Oregon, which does not recognize same-sex marriage. 

Though same-sex Oregonians cannot legally marry in the state, they can chose to register as domestic partners, which gives them the tax and legal benefits of being married for Oregon purposes, but is not recognized by the federal government or Oregon as a marriage. It does not appear that the precedent set with Windsor applies to domestic partners, meaning that Oregonians in this position will receive the same benefits as if they were married for purposes of the Oregon estate tax, but not the federal estate tax.  The question remains how the federal government will treat same sex couples who are legally married in one state, say Washington, and move to a state that does not recognize same sex marriage. Are they still married for federal purposes but not for the state they now domiciled, or does the new state’s position on same sex marriage invalidate the marriage for federal purposes? 

In Oregon, if a same sex couple is married in Washington and moves to Oregon, the Washington marriage is not recognized by Oregon, but the couple can register as Domestic Partners. Does this registration and the fact that Oregon does not recognize same sex marriage terminate the marriage for federal purposes or does the couple receive the federal benefits because the marriage is valid in Washington and the couple received Oregon benefits because they are registered Domestic Partners? Hopefully this will be decided soon so our clients are not left wondering. 

Possible refund opportunity: Windsor v. United States

As many of our clients know, the United States Supreme Court is hearing two cases related to the federal Defense of Marriage Act (“DOMA”) next week. The high Court will hear oral arguments in Windsor v. United States on Wednesday, March 27, 2013. If the plaintiff, Edie Windsor, prevails, she will be entitled to a $363,000 refund (plus interest) of estate tax imposed on the estate of her spouse Thea Spyer, who died in 2009. Ms. Spyer’s estate incurred this tax expense because DOMA dictates that the one hundred percent spousal exemption under IRC section 2056(a) is unavailable to same sex couples.

The deadline to file individual income tax returns was on Wednesday, April 15 for 2009. Even if Ms. Windsor prevails and DOMA is ruled unconstitutional, we do not anticipate that the Court will issue an opinion before April 15, 2013, when the statute of limitations to file amended returns for tax year 2009 expires. Same sex couples who were legally married in 2009 under the laws of their state and would have been entitled to a tax refund in that year if they were eligible for the “married filing jointly” status, may consider filing a protective refund claim for that period. The IRS’s policy where there is ongoing litigation or the law is uncertain, is to collect the properly filed protective refund claims and either pay them or deny them when the law in the applicable area is settled. Even if Ms. Windsor does not prevail or if her case is dismissed on procedural grounds, such filings may eventually result in significant payments if DOMA is ultimately held unconstitutional. These refunds would be paid with interest calculated from the original due date of the return.

Through the force, higher taxes you will see.

A galaxy’s worth of nerds rejoiced when news broke that George Lucas sold the Star Wars franchise to Disney in October, 2012. More movies are on the way, and this nerd is excited about them. At the time of the sale, Mr. Lucas said that he always envisioned the Star Wars empire (no pun intended) would live on long after he was gone and that he felt he was leaving the franchise in good hands. What he was probably thinking was, “my CPA and my lawyer told me to do it.”

The Star Wars sale was closed in late-October, 2012, when there was a great deal of uncertainty in the tax world and the “fiscal cliff” was looming on the horizon. What was certain at the time was that the Bush era long term capital gain tax rate of 15% was set to expire at midnight on December 31st. It was widely expected that the tax rate on these gains, especially for individuals in the highest income tax brackets, would be the target of democratic lawmakers in the fiscal cliff negotiations. It was also known that the new Unearned Income Medicare Contribution tax of 3.8% would kick in for gains recognized by high-income taxpayers like Mr. Lucas, in January, 2013.    

So what did Mr. Lucas do? He sold in 2012 for just over $4 billion: $2 billion in cash and 40 million shares of Disney stock (valued at $2,000,800,000 on 10/31/2012). It is impossible to know the exact tax figures without information on Mr. Lucas’ tax basis in the Star Wars franchise at the time of the sale, but we can make some educated guesses. Mr. Lucas probably recognized close to $2 billion in gain in 2012 and he owes the IRS approximately $300 million in long term capital gains tax on receipt of this cash. Mr. Lucas will recognize (and be taxed on) gains on the Disney stock whenever he decides to sell his shares. It has been speculated that Mr. Lucas may donate the shares to charity which could reduce or eliminate the tax bill when the stock is sold.

Had Mr. Lucas waited to sell Star Wars until 2013, the $2 billion he received in cash would have been taxed at the new 20% rate agreed to under the American Taxpayer Relief Act of 2012, adding an additional $100 million to his capital gain tax bill. The 3.8% Medicare Contribution tax would have added another $75 million, bringing his total tax bill to about $475 million.

Whether this sale strategy was outlined by a CPA who was reading the Congressional tea leaves or Mr. Lucas turned to a more trusted source for his tax planning (“Through the force, the future – and rising taxes – you will see…”), the result is the same: Mr. Lucas probably saved close to $175 million in taxes by selling when he did. The gains from the sale will be going to educational charities, who will put the extra $175 million to good use. You can read more about Mr. Lucas’ charitable plans here:

http://www.hollywoodreporter.com/news/disney-deal-george-lucas-will-384947

The sale of the Star Wars franchise presents a good opportunity to analyze some of the effects that the American Taxpayer Relief Act of 2012 has on a high-income earning taxpayers. We will be discussing these recent changes to the income and estate tax calculations at a seminar in our office on March 7, 2013, at 7:30 am. A light breakfast will be served. If you would like to attend this complementary seminar, please RSVP to events@samuelslaw.com or 503-226-2966. May the force be with you.

Samuels Yoelin Kantor Seminar Series

COMPLIMENTARY SEMINAR SERIES

Samuels Yoelin Kantor LLP’s seminar series helps keep our clients and colleagues informed on recent developments and industry best practices. The seminars typically take place in our beautiful, state-of-the-art conference room on the 38th floor of the US Bancorp Tower. Seminars are complimentary. Participants qualify for (1) Continuing Professional Education (CPE) credit. To register, please use the links below or call us at 503-226-2966. Seating is limited, so be sure to contact us soon!


PLANNING FOR TAX LAW CHANGES FOR 2013 AND BEYOND

Thursday, March 7, 2013
7:30 – 9:00 A.M.
at Samuels Yoelin Kantor LLP offices
Light refreshments will be served


Presented by Glen Goland and Valerie Sasaki

Congress changed estate and income tax calculations dramatically when they passed the American Taxpayer Relief Act on December 33, 2012. The new legislation has given us some stability, as the new rates and tables are about as permanent as things get when dealing with our Congress. We will talk about these changes and discuss the impact the new tax structure has on the families and businesses that we advise.

Glen Goland utilizes his years of experience in the financial and legal sectors to create estate plans that work for his clients and efficiently administer trusts and estates. Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue.

To register for this seminar, contact events@samuelslaw.com or call us at 503-226-2966.


LITIGATING CONTESTED GUARDIANSHIPS

Thursday, March 21, 2013
7:30 – 9:00 A.M.
at Samuels Yoelin Kantor LLP offices
Light refreshments will be served

 

Presented by Victoria Blachly and Denise Gorrell

Guardianships are designed to protect those that cannot protect themselves. Two of our experienced fiduciary litigators, Victoria Blachly and Denise Gorrell, will discuss how trial attorneys balance the need to protect legal and civil rights with the need to protect impaired persons from harm. If you work with elderly clients or have aging family members, then this seminar will provide valuable information about evaluating potential guardianships, and how a fiduciary litigator prepares for a contested guardianship hearing. Learn about ideas for practical resolutions and the complexities that can develop when mental health and family conflict clash in the courtroom.
 

Victoria Blachly’s litigation experience focuses on fiduciary litigation for individual trustees, corporate trustees, beneficiaries, and personal representatives, including trust and estate litigation, will contests, trust disputes, undue influence, capacity cases, claims of fiduciary breach, financial elder abuse cases, petitioning for court instructions, and contested guardianship and conservatorship cases. Denise Gorrell focuses on real property and commercial law, as well fiduciary litigation. She frequently represents clients on real estate disputes, business dissolution, and trust contests.

To register for this seminar, contact events@samuelslaw.com or call us at 503-226-2966.