IRS PTIN System Online Again

The IRS Preparer Tax Identification Number (PTIN) system was restored online effective February 2, 2013.  It had been "down" after January 18, 2013, due to litigation in federal court.  See: PA EE&F Law Blog posting IRS PTIN Registration System is "Down" (01/28/13).

According to an online notice updated by the IRS on February 4, 2013, upon request of the IRS, the legal stay was narrowed to permit continued operation of the system to register paid tax preparers.

On Friday, Feb. 1, the court modified its order to clarify that the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). Consistent with this modification, the IRS has reopened the online PTIN system.

The IRS continues to have confidence in the scope of its authority to administer this program and is working with the Department of Justice to address all options, including a planned appeal.

Please continue to check this site for additional information as it becomes available.

For a concise history of the conflict over the IRS PTIN system, which remains ongoing, see: Court Upholds Injunction; IRS Revives PTIN System, by Terri Eyden, posted on Accounting Web (02/06/13).

IRS PTIN Registration System is "Down"

The Internal Revenue Service's Tax Professionals system presently is "down" due to litigation.  [Note:  See "Update" at end of posting, below (02/06/13)]

According to the IRS Statement on Court Ruling Related to Return Preparers, updated as of January 25, 2013, a litigation stay is the reason:

As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. On Wednesday, Jan. 23, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days.

The IRS is continuing to evaluate the scope of the court's order in determining consistent next steps. Please continue to check this site as additional information becomes available.

The federal litigation, which was filed by individual plaintiffs in 2012, regarding required payment to the IRS of annual fees charged to professional tax preparers, was referenced in a mid-summer posting by Michael Kohn on Accounting Today, entitled Appeals Court Upholds PTIN Fee (06/13/12). The Federal Appeals Court upheld such fees:

A federal appeals court has upheld a lower court ruling dismissing the complaint of a tax preparer who argued that the Treasury Department and the Internal Revenue Service did not have the right to charge an annual fee for a Preparer Tax Identification Number.

The case involved Jesse Brannen III, a tax attorney and CPA in White, Ga. Brannen sued the Treasury Department, claiming that it exceeded its statutory authority when it began charging a $64.25 fees for issuing a PTIN and an annual renewal fee of $63. * * *  

Earlier this year, an advocacy group called the Institute for Justice filed suit against the IRS on behalf of three other tax preparers challenging the IRS’s licensing requirements (see Tax Preparers Sue IRS over New Requirements). * * *

The stay dated January 18, 2013, was issued by the trial court in the same case, Loving v. Internal Revenue Service, Civil Action No. 12-385 (See also: Memorandum Opinion, both unofficial links), filed in the U.S. District Court for the District of Columbia.  That litigation had also questioned the IRS' authority to compel annual continuing education and testing of certain federal income preparers.

But the issue of PTIN fees may be revisited in another federal jurisdiction, according to a press release issued today, entitled Atlanta Attorney/CPA Files Lawsuit Challenging PTIN User Fees (01/28/13).

On January 25, 2013, Allen Buckley, an Atlanta attorney/CPA filed suit in the U.S. District Court for the Eastern District of Tennessee, challenging charging of user fees by the U.S. Treasury Department to issue and annually renew Preparer Tax Identification Numbers ("PTINs").

Beginning in 2010, after the IRS recommended the tax return preparation industry be regulated in a new manner not approved by Congress, regulations were issued to implement IRS's recommendations. One of the regulations included the requirement that a PTIN be obtained, and that fees be charged for issuance and annual renewal of the PTIN. The IRS's recommendation called for renewal every three years, but the regulations provided for annual renewal. The initial fee is $64.25 and the annual renewal fee is $63.

The suit seeks a declaratory judgment that charging of fees for initial issuance of a PTIN and annual renewal thereof is unlawful, and also asks for a permanent injunction, preventing the Treasury Department from charging issuance and renewal fees.

Allen Buckley said: "The user fee statute is the basis for charging of fees. Numerous requirements exist for the user fee statute to be used to charge fees, including requirements that the fees are paid voluntarily and a special benefit is received by the payer. Neither of these requirements has been met in this case." * * *

With the IRS PTIN system "down", if a professional tax preparer is not currently registered or renewed, can one register anew or re-register with the IRS willingly for the year 2013?  How?

Recently, federal estate tax forms and federal transfer tax laws have been in flux.  Now federal tax professional preparer requirements for 2013 are too. 

Update: 02/06/13:

The IRS Preparer Tax Identification Number (PTIN) system was restored online effective February 2, 2013. It had been "down" after January 18, 2013, due to litigation in federal court. For an update, see: PA EE&F Law Blog posting IRS PTIN System Online Again (02/06/13).

"Tax Talk Today" Online

Browsing through the Trusts & Estates website recently, I noted a useful learning service regarding federal tax laws and return preparation, available on the Internet: Tax Talk Today.

Sponsored by the Internal Revenue Service, Tax Talk Today is a live Internet program featuring industry tax experts and professionals and top representatives from the IRS.

Each program features discussions, real time interaction and the opportunity for viewers to participate in the discussion by e-mailing questions directly to the studio. Late-breaking news from the IRS may augment or pre-empt original programming, making Tax Talk Today a primary you heard it here first source of news about IRS initiatives, rules and decisions.

In addition to the Live webcast, the FREE programs are available for up to 12 months through Tax Talk Today archives, as audio Podcasts or on DVD (perfect for conducting group viewings or for staff training).

This service began in 2001 as a public service of the IRS, according to "Website of the Month: Tax Talk Today" (2004), by  Susan B. Anders, posted by The CPA Journal, published by the New York State Society of CPAs.  Since 2009, the presentations have been produced by Tax Talk Today, Inc., a private company in Bethesda, MD, with content provided by tax-related companies in coordination with the IRS .

Tax Talk Today is promoted as a free service for those "auditing" presentations -- that is, those who do not expect to receive certified professional education credits.  Without payment (but still with a required online registration), you can replay any presentation, either live or archived, over an Internet-connected device.  Also, you can read the word-for-word transcripts of any past session, including any post-presentation supplemental materials.

Free of charge, viewers can tune in to each program and watch live, in addition to watching for up to 12 months by going to the Archives, or listening to the Audio Podcasts.

Earning CPE credit requires a purchase.* * *

The topics are varied, current, and important for tax professionals.  Past presentations are archived for a year, so listening or retrieving materials can be done conveniently.

Examples of archived presentations in 2011 instructive for a trust and estates lawyer, an accountant/preparer, or a consumer interested in this federal tax principles and procedures, include:

• Individuals: Complex Tax Issues Reviewed (09/13/11)
• Small Business Filings – Expenses, Credits & Recordkeeping (07/12/11) 
• Family Filing – Do’s and Don’ts (06/14/11)
• Ethics - Circular 230 Update (05/10/11)
• 2010 Individual Tax Law Update: Changes In A Complex and Uncertain Time (01/11/11)

To watch a presentation or access transcripts of past sessions, you must first provide an email address and create a password, then reply to an automated message sent to that email address.  When you log in for the first time, you must complete a registration form with basic information.

All that is simple.  Far harder is recalling what email address and password you supplied originally -- so keep both with your tax records.

"Our office thinks these tax talk sessions are a great idea.

An easy way of getting information out."
-- A Tax Talk Today participant

IRS Issues Revised 706 Instructions & Preparer Requirements

On September 22, 2011, the IRS issued revised Instructions for the recently-finalized Form 706, according to Vincent F. Lackner, Jr., Esq., who sent an email to customers of The Lackner Group, Inc. today.  

As a software developer, he has tracked the development of that form and its instructions carefully.

Early yesterday [09/22/11] evening, the IRS authorized a final draft of the US 706 Instructions for 2011 for release to the general public.

Please feel free to download it from the following link and to circulate it to interested parties:  www.lacknergroup.com/Draft_11i706.pdf

The IRS's ability to post new forms and instructions to its website has been temporarily interrupted due to scheduled maintenance. When it is again able to post to its website next Wednesday morning (9/28/2011), the "Draft" watermark will be removed from this version.

The key change in these instructions relates to the portability of an unused exclusion amount for a married couple from the 1st estate to the 2nd estate. This feature is currently available only for 2011 and 2012 estates. * * *

Once finalized, those Form 706 Instructions should be updated on the IRS Online Instructions for Forms web page.

Vince also sent a detailed comparison of prior Form 706 Instructions and the latest issuance, which relates to the revised Form 706, issued on September 8, 2011.  See: PA EE&F Law Blog postings Revised IRS 706 Form Released (09/12/11) and 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/11).

Vince emphasized an important point regarding filing of a Form 706 under certain circumstances:

Even for a married 2011 decedent with a gross estate of $5m or less (there are about 950,000 of these annually), you would need to file a timely and complete 706 in the 1st estate in order to preserve the unused exclusion amount for the 2nd estate.

You might consider filing an extension request (Form 4768) to gain more time to analyze this issue pending the IRS' release of the final 706 Instructions for 2011 sometime next week. * * *

Separately, on September 21, 2011, the IRS issued a Press Release entitled IRS Issues Guidance to Further Implement Return Preparer Oversight, IR-2011-96, which provided "clarification for tax return preparers about when to renew their preparer tax identification numbers (PTINs), how suitability testing will be conducted, and when the continuing education requirement will begin."

Key points include:

• The return preparer initiative requires anyone who is paid to prepare all or substantially all of any federal tax return or claim for refund to register with the IRS and obtain a PTIN. PTINs must now be renewed on a calendar year basis. 
• Certain preparers (individuals who are not attorneys, certified public accountants, or enrolled agents) also must pass a competency examination, undergo a suitability check and complete continuing education courses annually. 
• The IRS will designate individuals who meet these requirements as a Registered Tax Return Preparer, who will be authorized to prepare federal tax returns and claims for refunds and to represent their clients during an IRS examination of a tax return or claim for refund that the individual signed as the paid tax return preparer.
• All PTIN holders must renew their numbers using the online PTIN application or paper Form W-12 and pay the required fee ($64.25 for 2012) after Oct. 15 and before Jan. 1 annually.
• Certain tax return preparers who must pass a suitability check will have to provide their fingerprints so that a Federal Bureau of Investigation database search can be conducted. Generally, the fingerprint requirement will affect those preparers who currently have provisional PTINs.
• Attorneys, certified public accountants, enrolled agents, enrolled retirement plan agent and enrolled actuaries also are expected to be exempt from the fingerprinting requirement at this time.  However, these individuals also must answer all the suitability questions asked on the PTIN application, such as whether they have been convicted of a felony in the previous 10 years.

Also on September 21, 2011, the IRS published proposed regulations (REG-116284-11) that would establish user fees for fingerprinting and taking the competency examination. 

As proposed, the IRS portion of the fingerprinting fee would be $33, and the IRS portion of the testing fee would be $27. These user fees are in addition to any fees charged by the third-party vendors administering the programs. The fees to be charged by third-party vendors are not being announced at this time, but the total fees, including the IRS user fees, are expected to be between $60 and $90 for fingerprinting and $100 and $125 for testing.

For IRS guidance regarding its PTIN program, visit www.IRS.gov/ptin.  You can watch an introductory video here (01/11).

2010 Decedent Estates Granted Federal Filing & Payment Relief

The IRS has relented on next week's (September 19th) earliest filing and payment deadlines for some 2010 estates, otherwise anticipated by Section 301(d) of the Tax Relief Act and enforced by the IRS' prior Notice 2011-66, released on August 5, 2011.

That Act states that for decedents who died after December 31, 2009, and before December 17, 2010, the time for filing the estate tax return and the payment of estate tax “shall not be earlier than the date which is 9 months after the date of the enactment of this Act.” Thus, the earliest due date could be September 19, 2011, depending upon the date of death.

The new taxpayer (and tax preparer) relief is described in a September 13, 2011 Press Release, which appeared online today on the IRS Newsroom:

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

IR-2011-91, Sept. 13, 2011 — The IRS announced that large estates of people who died in 2010 will have until early next year to file various returns and pay any estate taxes due.

This is the brief, complete text of that Press Release, with links:

The Internal Revenue Service announced today 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. Revised versions of the estate tax forms are now available on IRS.gov, and the carryover basis form will be released this fall.

The IRS is providing the following relief:

• 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.

• 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 Form 706 or Form 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.

• 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 today on IRS.gov.

Revised IRS 706 Form Released

On September 8, 2011, the IRS released its long-awaited, really final Form 706 United States Estate (and Generation Skipping Transfer) Tax Return (PDF 2.52 MB, 28 pages) for decedents dying in 2010, along with revised (July 2011) Instructions (PDF 441K, 48 pages).  The Form 706 is in a fillable PDF format that applies to decedents who died in 2010.

Why is this the "really" final form?  Because the IRS issued an initial July 2011 form on September 3, 2011, then revised it somewhat, and reissued it again on September 8, 2011.  See:  Estate Taxes Are Back! Are You Prepared? (09/12/11) by Julie Garber, posted on the Wills & Estates section of About.com.

Vince Lackner, of The Lackner Group, explained at least some of the errors made in the initial version:

The IRS released the final version of the 706 for 2010 at 1:05 am this past Saturday morning (September 3, 2011). This version of the 706 is included in the current 6-in-1 [software] update. * * * 

Yesterday we brought two issues to the attention of the IRS. As a result, it will be re-posting the 706 within the next 12 hours:

    (1) The "penalties of perjury" statement at the bottom of Page 1 should not have the second sentence ("...property...situated in the United States"). This was evidently a copy/paste from the 706-NA, and will be removed by the IRS. We contemplated this change in the update currently posted on our website. * * *

    (2) Schedule F (Question #1 at the top) should no longer have a reference to "collections whose artistic or collectible value combined at date of death exceeded $10,000." There appears to have been no statutory or regulatory authority for this additional reporting threshold (Reg. 20.2031-6(b)). This reference was removed from the instructions for Schedule F, but inadvertently left on Schedule F itself. * * *

The "What's New" section of the July 2011 revised Instructions summarizes the updates from the prior form:

• Use this revision of Form 706 only for the estates of decedents dying in calendar year 2010.

• The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Act) included several provisions affecting the 2010 Form 706. They are:
• a. Executors of estates of decedents who died in 2010 may make a special election to apply modified carryover basis treatment (within the meaning of section 1022) under section 301 of the Act. If the special election is made, the estate will not be subject to federal estate tax and Form 706 should not be filed. See Notice 2011-66, 2011-35 I.R.B. 184 (http://www.irs.gov/pub/irs-irbs/ irb11-35.pdf) and Form 8939 and its instructions for further information on the time and manner of making the special election.
• b. For decedents dying between January 1, 2010, and December 16, 2010, the due date for Form 706 is September 19, 2011.
• c. The applicable exclusion amount is $5,000,000 (a credit equivalent of $1,730,800).
• d. The maximum estate tax rate is 35%.
• e. The applicable rate for generation-skipping transfers is zero.
• f. Prior gifts must be calculated at the rate in effect at the decedent’s date of death.

• Various dollar amounts and limitations relevant to Form 706 are indexed for inflation. For decedents dying in 2010, the following amounts are applicable:
• a. The ceiling on special-use valuation is $1,000,000.
• b. The amount used in computing the 2% portion of estate tax payable in installments is $1,340,000. The IRS will publish amounts for future years in annual revenue procedures.

• Executors must provide documentation of their status.

The need for the 706 form to be revised in compliance with applicable law and in advance of a firm upcoming deadline, is explained in Alert: IRS Releases Final Form 706 and Instructions With Respect to 2010 Deaths (09/09/11), by Kerry L. Spindler, Esq,of Goulston & Storrs, PC, posted by the Boston Bar Association Trusts & Estates Section:

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules.

This notwithstanding, TRA § 301(c) permits the executor or administrator of a 2010 estate to elect into EGTRRA’s zero estate tax/modified carry-over basis rules. This election (a § 1022 Election) will be made on a timely filed Form 8939 (see IRS Notice 2011-66).

This Form 706 is to be used only with respect to decedents who died during calendar year 2010 where the executor or administrator is not making a § 1022 Election. * * *

An excellent summary regarding the new form and its crucial filing deadline was posted by the Journal of Accountancy in Estate Tax Form, Instructions Finalized for 2010; Due Sept. 19 (09/08/11).

The American Institute of Certified Public Accountants, in its August 8, 2011 letter to the Department of the Treasury and the IRS (Doc, 4 pages, with links to sources), has requested extension of, or relief from, the looming deadlines for filing and tax payment, which could occur as early as September 19, 2011.

Update: 2011-09-13:

The IRS has granted relief in application of filing and payment deadlines.  See: PA EE&F Law Blog posting 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/2011).

Tax Relief Enacted

As announced in a host of media publications today, December 17, 2010, we have a new federal tax act, representing a political compromise and a temporary Congressional consensus -- but not a long-term solution -- on crucial pending income, estate/gift/generation-skipping, and social security tax issues (among other subjects).

For example, on "Estate of Confusion" (a Forbes Blog) in its posting today entitled "House Passes The Middle Class Tax Relief Act of 2010, H.R. 4853", Hani Sarjii highlighted the compromise, and concluded that "the reform of the estate tax is only temporary."

On December 16, 2010, the United States House of Representatives passed H.R. 4853, the Middle Class Tax Relief Act of 2010. The vote was 277 in favor and 148 against.  The bill will now go to President Obama’s desk to be signed into law.

H.R. 4853 is a compromise between President Obama and Republicans. It will extend the Bush Tax cuts and provide temporary estate tax reform: an estate tax rate of 35% and a $5 million exemption for individuals, for two years.

H.R. 4853 is going to change estate planning.  * * * Also, H.R. 4853 will not end estate tax uncertainty. * * *

C-SPAN reports that "The President is set to sign in to law the Middle Class Tax Relief Act of 2010 (H.R. 4853) later this afternoon [3:50 p.m]."  See also: Bloomberg News, House Passes Tax-Cut Extension, Sends Bill to Obama  (12/17/2010, with video).

My intention now is not to summarize the law, but to list a few resources online for a reader to explore and research initially.

Professor Paul L. Caron lists excellent links -- including a shorter summary (PDF, 3 pages) and a longer summary (PDF, 12 pages) -- regarding the new federal tax law in his posting President Obama Signs Tax Package Into Law (12/17/10) on the Tax Prof Blog.  [Update:  See also: More on the Obama-GOP Tax Bill (12/19/2010).]

For a running reference on the political developments leading to the new law, see: Thompson Reuters Tax Watch and its Archive covering the period November and December, 2010.  See also: Blog posting entitled Are We Having Fun Yet? (12/13/2010), by William (Bill) D. Pargaman, Esq., of Austin, TX, who prepared a tentative summary of the pending legislation as of December 9, 2010.

Descriptions about the underlying bill and its amendments are set forth by The Library of Congress (Thomas).  See also: Open Congress, which lists news articles and blog postings related to it, and which also sets forth the text of the House-approved bill.

The U.S. Senate's Committee on Finance posted links on a webpage entitled S.A.4753: The Reid-McConnell Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, as follows:

• Summary of The Reid-McConnell Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 [PDF, 485 KB, 12 pages] (12/10/10).

• JCT Estimated Budgetary Effects of the Reid-McConnell Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 [PDF, 28.8 KB, 9 pages] (12/10/10).

• Legislative Text of The Reid-McConnell Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 [PDF, 137.6 KB, 74 pages] (12/13/10).
  

BNA also provides a link to that last item above -- the final text of H.R. 4853, as amended numerous times -- being the "Senate Amendment to the House Amendment to the Senate Amendment."

Update: 2010-12-20:

In an article entitled CCH First to Offer Comprehensive Coverage of 2010 Tax Relief Legislation (12/20/2010), posted by the Centre County Times (State College, PA), a link leads to a Special Report -- CCH Tax Briefing, dated December 17, 2010, entitled President Signs Two-Year Extension Of Bush-Era Tax Cuts, Payroll Tax Relief, Estate Tax Compromise (PDF, 11 pages):

Congress has approved and the President quickly signed a mulibillion dollar tax cut package, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) (H.R. 4853). The new law follows through on the framework agreed to December 6 by President Obama and GOP leaders in Congress. The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years. The bill also provides for an AMT “patch,” a one-year payroll tax cut, 100 percent bonus depreciation through 2011 and 50 percent bonus depreciation for 2012, a top federal estate tax rate of 35 percent with a $5 million exclusion, and more. * * *

This is an excellent resource, which was posted publicly (and quickly!) for professionals and the public.  I commend CCH for doing so.  It should be a timely and trustworthy summary.

The Heat is On: Federal Estate Tax Reform Brews

Congress returned from its Spring Recess on April 20, 2009, and now confronts many significant issues. Among them is federal estate tax reform, presently sent to House and Senate Conference Committee negotiations in anticipation of acceptable legislation.

On April 9, 2009, Web CPA posted an article entitled "Estate Tax Planning for 2009 and Beyond" by Jonathan M. Forster and Jennifer M. Smith, who summarized the pressing need for federal legislation, and updated the political situation just before that Spring Recess:

Senate Finance Committee Chairman Max Baucus, D-Mont., unveiled a proposal last month to make permanent key features of the 2009 estate tax rules. President Obama also has voiced support for freezing 2009 rates and exemptions. * * *

The Senate version of the budget plan passed by Congress last Thursday included a bipartisan amendment that raises the estate tax exemption by $1.5 million to $5 million for individuals and $10 million for couples, and cuts the maximum rate from 45 to 35 percent.

However, the House version, which was also approved Thursday, maintains the estate tax at 2009 levels. Under the House version, which preserves Obama’s proposal, individual heirs would be able to exempt $3.5 million from taxes, while couples could exempt $7 million. Amounts above the exemption cutoff would be taxed at 45 percent.

A conference committee will resolve the differences between the House and Senate versions after Congress returns from recess later this month. * * *

Reconsideration of federal estate, gift, and generation-skipping tax legislation now occurs in a vastly different setting than in the past. These taxes are no longer viewed in a segregated philosophical debate, but have become a component of far-larger economic issues involving federal spending and revenue, and financial structure realignments.

The Washington Post, in its article published April 3, 2009, "After Recess, a packed agenda for Congress" by Ben Pershing, described the storm-like environment affecting all federal tax legislation:

First off will be a budget conference report, which the House and Senate will have to negotiate and pass after both chambers approve their own versions this week.

Ratifying the budget will let the Appropriations Committee get to work on spending bills, and Pelosi said action on those measures "will be a good part of how we go forward in May and June."

Pelosi hopes to have most or all appropriations bills through the House by June 30.* * *

So the "heat is on." Opinions are being tossed into the brewing concoction, before it will be served to taxpayers.

Academics weigh in. For example, see: Estate tax reform (04/08/09) posted by Professor Gerry Beyer on his Wills, Trusts & Estates Prof Blog, announcing that "Lily Batchelder (Professor of Law, NYU Law) has written a new article entitled Estate Tax Reform: Issues and Options, Tax Notes, Feb. 2, 2009."

Poll-takers and public interest groups weigh in. See: "Public Opinion on Taxes" (updated 04/10/09; PDF, 85 pages) posted by the American Enterprise Institute, which tracked public opinion on taxation since April, 2003; "Poll: Tax Code Complex, Needs Reform; Federal Incomes Taxes 'Too High'" (04/09/09) posted by The Tax Foundation; and "Independent Sector Issues Statement On Reform of the Estate Tax" (03/31/09) posted by the Independent Sector.

And newspapers weigh in. See, for example, Editorial, "The Forgotten Rich" (04/02/09) published in The New York Times; and Editorial, "Our view on rewarding the well-born: What deficits or wealth gap? Congress eyes estate-tax cut" (04/26/09) published in USA Today.

Need we even mention the private interest groups and lobbyists?

The brew is coming to a boil.

The heat is on, on the street
Inside your head, on every beat
And the beat's so loud, deep inside
The pressure's high, just to stay alive
'Cause the heat is on

* * *
The shadows are on the darker side
Behind those doors, it's a wilder ride
You can make a break, you can win or lose
That's a chance you take, when the heat's on you
When the heat is on

-- Song, "The Heat is On"
by Glenn Frey

New Attempts to Abolish PA Inheritance Tax

Pennsylvania's "death" taxes are again targeted for phase-out by some mid-state legislators. But given the grim economy both nationwide and statewide, their chances for success appear dim.

On February 28, 2009, the York [PA] Daily Record & Sunday News reported, in its article entitled 'Death tax' targeted by mid-state lawmakers, by Richard Fellinger, that "a] group of midstate House Republicans are trying to kill the so-called death tax -- or at least cripple it."

Rep. Will Tallman, R-Hanover, has sponsored a bill to eliminate the state inheritance tax this year. The tax is levied on taxable assets that change hands after someone's death.

Meanwhile, Rep. RoseMarie Swanger, R-Lebanon, is preparing to re-introduce a bill that would phase out the tax over the next several years. And Rep. Dan Moul, R-Adams, is pushing a bill that would exclude heirs from paying the tax on estates worth less than $250,000.

Tallman said the tax has to go because it puts a heavy burden on the families of farmers and small business owners after an owner dies.

"What is happening is we are really impairing the ability of businesses or farms to be transitioned to family members," Tallman said. * * * [Links added.]

Not mentioned in the article are other House and Senate bills also introduced in the 2009-2010 Legislative Session with similar long-term phase-out and repeal effects.

The Pennsylvania Farm Bureau lists "Reduction or Elimination of State Inheritance Tax on Farms " as one of its ten key legislative concerns affecting farmers in the Commonwealth.

Pennsylvania’s inheritance tax imposes significant burdens on the ability of farm families to financially manage the transition of farms between generations.

Unlike federal estate tax, state inheritance tax laws essentially impose tax on the first dollar of value of an estate passing from a deceased family member to another family member.

Children who receive a $500,000 farm through death of the parent will be required to pay $22,500 in inheritance taxes.

Payment of the tax is required to be made in cash. If the farm business does not have available cash, the farm family will need to sell off farm assets to pay the tax, with no guarantees that the family will receive a price from the sales of assets that equals what these assets are truly worth.

If land needs to be sold to pay for the tax, succeeding generations will receive farms that are less productive and are less likely to be viable in the future. * * *

That calculation ignores availability of the special rules applying to the valuation of farmland, which are described on page 9 in the Instructions to Schedule A of the REV-1500 (PA Inheritance Tax Return for a Resident Decedent) regarding "Special Farm Use Valuation."

Under Section 9122 of the Inheritance and Estate Tax Act of 1991, land devoted to agricultural use, agriculture reserve or forest reserve may be eligible for preferential assessment measured by particular use, rather than by fair market value. assessments.

If you elect to use this method of valuation, the special use valuation under the Pennsylvania Farmland and Forest Land Assessment Act of 1974, 72 P.S. §5490.1, et. seq. must be reported. You will also be required to submit fair market value appraisals of the residential property, farm outbuildings and agricultural property so that a proper valuation may be made if the special use is discontinued or if the property does not meet all requirements. * * *

Pennsylvania's "Special Farm Use Valuation" provisions differ from the special valuation rules for farms under the Federal Estate Tax. See: Pamphlet, The Pennsylvania Inheritance Tax in Comparison with the Federal Estate Tax (PDF, 2 pages) published & posted by the Pennsylvania Institute of Certified Public Accountants.

But this already-available valuation advantage is not the reason why termination of the Pennsylvania Inheritance Tax likely will not occur any time soon. State budget concerns likely will rule instead, as in the past. See: PA EE&F Law Blog postings "House Passes Bill Abolishing PA Death Taxes" (01/18/08) and "Repeal PA Inheritance Tax?" (11/16/06).

This continuing reality was noted in the recent York Daily article:

As unpopular as the tax is with some conservatives, eliminating it will be a challenge with state revenues on the decline. Gov. Ed Rendell has predicted a $2.3 billion budget shortfall this year.

Last year the inheritance tax brought in $828 million for the state, and this year it was projected to raise $849 million, but collections are down.

As of Jan. 31, the state collected $450 million from the inheritance tax, which is $46.9 million below estimate, according to the Revenue Department.

Swanger introduced her bill to phase out the tax last term, but it languished. She acknowledged it's a longshot this year with the state facing revenue problems.

"But it's something my constituents want done away with, so I'm willing to introduce it," she said. * * *

These are the presently pending House or Senate bills that would affect application of the Pennsylvania Inheritance Tax and the Pennsylvania Estate Tax:

• Senate Bill 80, introduced by Senator ALLOWAY

• House Bill 175, introduced by Representative MOUL

• House Bill 374, introduced by Representative TALLMAN

• House Bill 423, introduced by Representative PETRI

• House Bill 635, introduced by Representative SWANGER

Also noteworthy is House Bill 577, introduced by Representative ADOLPH , which would exempt certain disabled persons from payment of PA Inheritance Tax.

Steelers and Estate Tax

With the Super Bowl scheduled to be played on Sunday evening, February 1, 2009, sports fans worldwide will focus on the Arizona Cardinals and the PITTSBURGH STEELERS -- you know, that football team from PENNSYLVANIA.

Both teams are family-controlled. Owners in both families face a significant hurdle: Payment of Federal Estate Tax. Complex estate planning is in order so that the games can go on.

According to Wikipedia, "the Arizona Cardinals, founded in 1898, hold the distinction of being the oldest continuously run professional American football club in the United States." The team's history divides into the Chicago years (1898–1959), the St. Louis years (1960–1987), and the Arizona years (1988–Present). The Cardinals' current coach, Ken Whisenhunt, was hired away from the Pittsburgh Steelers -- where he served as offensive coordinator -- on January 14, 2007.

Also according to Wikipedia, "[f]ounded in 1933, the Steelers are the oldest and most championed franchise in the AFC [American Football Conference]."

The team will appear in its seventh Super Bowl on February 1st 2009 and is one of three teams to have won the Super Bowl five times.

No team has played more conference championship games and Pittsburgh has hosted more conference championship games than any other NFL franchise.

From 1974 to 1979 the franchise became the first NFL franchise to win four Super Bowl titles in six seasons, a feat which is yet to be matched.

The 2005 team was the first sixth-seeded team in NFL history to advance to a conference championship game; they went on to win the game, followed by their latest Super Bowl victory on February 5, 2006. * * *

When these two powerhouse teams meet on Sunday evening, will you be thinking about estate planning, among the many other aspects of the game? There would be reasons.

On July 11, 2008, the Pittsburgh Tribune Review published an article entitled "Estate tax threatens NFL's old guard of owners" by Kevin Gorman & Mike Prisuta, who mentioned both teams when reporting about the concentrated family ownership of the Pittsburgh Steelers that will present problems one day when subject to federal estate tax:

There have been a dozen changes of NFL ownership since 1994, with three involving family estates.

With four of the five Rooney brothers -- Art Jr., Timothy, Patrick and John -- seeking to divest their combined 64 percent interest in the club (Steelers president Dan Rooney also owns a 16-percent share), the estate-tax issue could play a prominent role in any decision. * * *

It's an issue that many longtime NFL owners will eventually have to address. The Bidwill family has owned the Cardinals as long as the Rooneys have owned the Steelers, since 1933.

The key is for family-owned teams to find loopholes in the transference of NFL ownership, which has allowed the Mara and Tisch families to maintain control of the New York Giants, and the Chicago Bears to remain in the Halas/McCaskey families. * * *

Estate planning and family cooperation were concerns of "the Chief," Art Rooney, when he wrote a letter dated March 18, 1987, to his five sons. According to a New York Times "Freakonomics" blog posting entitled "Art Rooney Saw the Steelers’ Future" by Stephen J. Dubner, the Chief (as "Dad") wrote:

Time is starting to run out on me. I am concerned, just as you are, about my Will, particularly my Stock in the football club. I would like to reach some kind of an understanding so that there will be no questions or complications regarding my estate. * * *

Matters of ownership, cooperation, and estate planning came to a head in 2008 for the Steelers, as noted in a blog posting entitled "Death, Taxes and NFL Football (Go Steelers!)" by Julie Garber posted Wednesday August 6, 2008 by About.com:

Having grown up in Pittsburgh, the recent news that my beloved Pittsburgh Steelers are on the verge of being sold to an outside third party did not sit well with me.

This fifth oldest NFL franchise was purchased by Arthur Joseph Rooney in 1933 for a mere $2,500 and is still controlled today by a majority of Rooney family members.

According to a 2007 Forbes.com article, the fair market value of the team is now estimated at well over $900,000,000 and this has put the five sons of Arthur Joseph Rooney at odds over the future of the team. It seems that one son, Daniel, wants to keep the team, but the other four sons want to cash out and focus on other businesses.

Recently stepping into the middle of this family feud is a potential buyer named Stanley Druckenmiller, a billionaire Pittsburgh businessman with very deep pockets. * * *

The death tax threat to the Steelers football franchise was discounted, however, in an article entitled "Estate taxes pose little threat to Steelers ownership" (08/10/08) by Mark Roth, published in the Pittsburgh Post-Gazette.

As the Rooney family prepares to meet with NFL Commissioner Roger Goodell to discuss a possible ownership change in the Steelers, the federal estate tax may turn out to be the least important factor affecting the team's future, tax experts and some family members say.

On the surface, the estate tax seems daunting -- 45 percent on all estates above $2 million in value. With the Rooneys' 80 percent share of the franchise being valued at $800 million or more on the open market, that would seem to make the family liable for hundreds of millions of dollars in tax liabilities.

In reality, though, few estates pay the full estate tax rate, and there is almost no evidence that any family-owned enterprises have had to dissolve or sell out because of the federal tax, said Ben Harris, a senior research associate at the Tax Policy Center in Washington, D.C., a joint operation of the Brookings Institution and Urban Institute. * * *

Before the general election in November, 2008, levy of a succession tax on National Football League team franchises had become a "political football" kicked by the candidates, according to "NFL owners have rooting interest in election --McCain estate-tax plan would save some owners millions" by David Sweet, posted on MSNBC.

Democrat Barack Obama and Republican John McCain may obfuscate on some issues, but they are clear where they stand on the estate tax, which is levied on well-off citizens after they die.

Obama favors a 45 percent top rate after a $3.5 million exemption, while McCain embraces a 15 percent top rate and a $5 million exemption.

As the value of NFL franchises continues to soar — thanks to new stadiums, labor peace, billion-dollar television contracts and other factors — the estate tax has become a primary concern, especially as owners enter their 70s and 80s.* * *

At least for the Steelers, by early December 2008, the ownership and transfer issues appear to have been resolved, according to a posting on Sports Business Daily, "NFL Franchise Notes: Steelers Ownership Deal Nearly Finished" (12/02/08) citing a KDKA report:

CBS' Andy Sheehan cited sources as saying that details surrounding the Steelers ownership transition "should be settled by this weekend."

The sources indicated that Steelers investors Tim, Art Jr., Patrick and John Rooney, each of whom is selling all or part of his 16% ownership stake in the franchise, and their brother, Steelers Chair Dan Rooney, will stay in Pittsburgh following Sunday's Cowboys-Steelers game for a Monday board meeting, at which they "plan to ratify the deal."

Sources indicated that the deal "affixes a value to the team" of between $750-800M. In compliance with NFL rules, Tim and Patrick Rooney will "completely divest themselves of the team," as they both operate race tracks, while Art Jr. and John Rooney also will "sell shares to Dan but retain a smaller stake."

In order to purchase the shares, PNC is "loaning Dan Rooney an undisclosed sum".

With that now resolved, you can focus on Super Bowl XLIII game-play.

Go Steelers!!!

“Estate taxes make every one of us nervous.
If there’s an owner who isn’t, he has his head in the sand.”

-- Dan Rooney, quoted by Bloomberg News (2000)

Update: 02/01/09 @ 10:30 pm:

In a nerve-shattering, topsy-turvy, "incredible game" that demonstrated the tenacity, skill, focus, and passion of the titans on both teams, the Pittsburgh Steelers won the Super Bowl, 27-23.

The game will be remembered not only as the Steelers' sixth Super Bowl victory (a record), but also for the plays at the ends of the first half and the second half, which likely made football history.

Post-game, the Vince Lombardi Trophy was presented by Pennsylvania native, Pro Football Hall of Famer Joe Namath, to Club representative Dan Rooney, in the presence of transfixed fans.

"Both teams, when they were down,
kept fightin' and comin' back."
-- John Madden
ESPN TV sports commentator, immediately post-game

"Anything's possible."
-- Ben Roethlisberger
Quarterback for the Pittsburgh Steelers, interviewed post-game

"If you believe together you can accomplish things, you can be successful."
--Ken Whisenhunt
Head Coach of the Phoenix Cardinals, interviewed post-game

Federal Estate Tax: Get Ready to Rumble!

On January 27, 2009, the Center on Budget and Policy Proposals posted an article entitled "Congress Should Not Weaken Estate Tax Beyond 2009 Parameters", by Chye-Ching Huang, who reported:

Senate Finance Committee Chairman Max Baucus reportedly plans to unveil a proposal in coming weeks to make permanent key features of the estate tax that are in place in 2009.

This will launch a major congressional debate. * * *

Reform of the federal estate, gift, and generation-skipping tax system have been debated routinely since the last enactment in 2001. In October, 2007, CBPP prepared its "Issues Surrounding the Federal Estate Tax" slide show presentation (11 slides), which summarized its concerns long-term.

The current article notes that, "[i]n his campaign, President Obama called for addressing this matter by making the 2009 estate-tax parameters permanent."

Consistent with its prior presentations, CCPP argues forcefully -- using updated data and projections, and considering six legislative scenarios -- against reducing rates and thresholds below those now applicable in 2009.

These are the summarized reasons advocated by CCPP:

• Making the 2009 parameters permanent would be very expensive, costing $609 billion over the first decade in which its effects would be fully felt (2012-2021). Going further would not be fiscally responsible.

• Under the 2009 parameters, the estates of fewer than three of every 1,000 people who die will owe any estate tax whatsoever; there is no need to shrink this tiny fraction further.

• While going beyond the 2009 rules would benefit only a very small number of wealthy individuals, millions of middle- and low-income Americans likely would eventually bear a significant share of the costs, in the form of higher taxes and lower government benefits. Millions of ordinary Americans could end up with a lower standard of living so that some of the nation’s wealthiest individuals could escape much or all of the estate tax.

• The few estates that are taxable under the 2009 rules would be taxed much more lightly than is commonly understood. In 2011, taxable estates would owe less than one-fifth of their value in tax, on average.

• Under the 2009 estate tax parameters, almost no small business and farm estates would owe any estate tax — just 140 such estates in the entire nation would be taxable in 2011, for example. Moreover, it is extremely unlikely that any taxable estates would have to be liquidated to pay the tax under the 2009 estate tax parameters.

• A meaningful estate tax is an important incentive for charitable giving. Shrinking the tax beyond its 2009 level would weaken this incentive, likely producing a drop in donations.

Read the article for the detailed analysis under each scenario.

The article's conclusion recognizes that maintenance of the 2009 status quo into the future would represent a compromise already:

Estate-tax legislation is necessary and is likely to be considered in 2009.

Repeal of the estate tax would be fiscally irresponsible, costing $1.3 trillion over the decade from 2012 through 2021.

Making the 2009 estate tax parameters permanent would be very costly itself but would be a much more responsible approach. Under it, the estates of 997 of every 1,000 Americans who die would be entirely tax free in 2011; for 99.7 percent of Americans who die, there would be no estate tax at all.

Going farther than this, especially in the face of the grave long-term fiscal problems the nation faces and the array of significant unmet needs, would be exceedingly difficult to justify.

Congressional debate and some enactment is crucial to avoid the "mayhem" anticipated by The Tax Foundation in its posting on December 31, 2008, entitled "365 Days until Estate Tax Mayhem Begins" by Gerald Prante:

Beginning [January 1, 2009], the federal estate tax will have a rate of 45 percent combined with a generous exemption level of $3.5 million. That's until Dec. 31, 2009.

On Jan. 1, 2010, the federal estate tax rate is scheduled to be zero. That's until Dec. 31, 2010.

On Jan. 1, 2011, the federal estate tax rate is scheduled to be 55 percent with an exemption level of only $1 million. * * *

The Tax Foundation views the FET system far less favorably, stating: "Studies routinely find that estate taxes discourage entrepreneurship and lead to large tax compliance costs." Its prior postings under the heading Estate and Gift Taxes stretch back to 1969.

These two organizations are among perhaps thousands that have taken a position on reform of the FET system. This is the year when those divergent viewpoints will be resolved in Congress in the political process and then enacted long-term.

To examine proposals pending before Congress, see: "Four Pending Federal Estate Tax Bills" (01/16/09) posted by Greg Herman-Giddens on the North Carolina Estate Planning Blog. For background regarding prior proposals, read past postings on this PA EE&F Law Blog under the heading "Federal Estate Tax."

"Let's get ready to rumble!"

-- Trademarked catchphrase owned & used by
American boxing & Professional Wrestling announcer Michael Buffer.

IRS Implements Final Return Preparer Regs

On December 22, 2008, the Internal Revenue Service published Treasury Decision 9436, which finalized "Tax Return Preparer Penalties Under Sections 6694 and 6695."

TD 9436 contains final regulations implementing amendments to the tax return preparer penalties under sections 6694 and 6695 of the Internal Revenue Code (Code) and related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments to the Code made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.

The final regulations affect tax return preparers and provide guidance regarding the amended provisions.

These regulations are effective on December 22, 2008. * * *

These regulations are the culmination of a long process conducted by the IRS, through successive statutory enactments and periodic administrative regulations (temporary, proposed, or final).

In addition to new standards of preparation of federal tax returns, a preparer will also be required to generate more "paperwork", according to the Paperwork Reduction Act Summary, provided in T.D. 9436:

This information is necessary

• to make the record of the name, taxpayer identification number, and principal place of work of each tax return preparer,
• [to] make each return or claim for refund prepared available for inspection by the Commissioner of Internal Revenue, and
• to document that the tax return preparer advised the taxpayer of the penalty standards applicable to the taxpayer in order for the tax return preparer to avoid penalties under section 6694.

The collection of information is required to comply with the provisions of section 8246 of the Small Business and Work Opportunity Tax Act of 2007 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. [Links & formatting added.]

Find updated information (summaries and legislative text) regarding the 2007 Tax Act and the 2008 Tax Act posted on the Legislation page of the website of the U.S. Senate Finance Committee.

The scheduled publication of T.D. 9436 in the Federal Register followed its announcement on December 16, 2008, by the IRS, together with related guidance regarding return preparer penalties:

• T.D. 9436 (PDF, 211 pages) -- Final regulations under IRC §§ 6694 and 6695A
• Notice 2009-5 (PDF, 10 pages) -- Interim guidance on the application of T.D. 9436
• Rev. Proc. 2009-11 (PDF, 22 pages) -- List of forms subject to the return preparer penalties

See also: Updated Guidance Concerning Tax Return Preparer Penalties Released (T.D. 9436; Notice 2009-5; Rev. Proc. 2009-11) posted 12/16/08 by CCH; and "IRS Revises Tax Return Preparer Penalty Regulations" (12/17/08) posted by WebCPA.

According to the "Background" section of T.D. 9436, the 2007 Tax Act had changed the standards affecting tax preparers on both disclosed positions and undisclosed positions:

The 2007 Act's amendments to section 6694 also changed the standards of conduct that tax return preparers must meet in order to avoid imposition of penalties in the event that a return prepared results in an understatement of tax.

For undisclosed positions, the 2007 Act replaced the "realistic possibility'' standard with a standard requiring the tax return preparer to have a "reasonable belief that the position would more likely than not be sustained on its merits.''

For disclosed positions, the 2007 Act replaced the "not-frivolous'' standard with a standard requiring the tax return preparer to have a "reasonable basis'' for the tax treatment of the position. * * * [Formatting added.]

The 2008 Tax Act further altered the standards regarding tax returns with undisclosed positions or for tax shelters:

On October 3, 2008, section 506 of the 2008 Act modified the standards of conduct that tax return preparers must meet in order to avoid imposition of the section 6694(a) penalty.

Specifically, the 2008 Act changed the standard for undisclosed positions from "reasonable belief that the position more likely than not will be sustained on the
merits'' to "substantial authority for the position.''

The 2008 Act maintained the "reasonable basis'' standard for disclosed positions.

If a position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, it must be "reasonable to believe that the position more likely than not will be sustained on the merits.'' * * * [Formatting added.]

T.D. 9436 was based upon proposed regulations recently published. See: PA EE&F Law Blog posting "IRS Proposes Final Preparer Penalty Regs"(07/02/08).

There were some changes reflecting public comments, as explained under its heading "Summary of Comments and Explanation of Revisions."

T.D. 9436 also provides "interim guidance" regarding new provisions in the 2008 Tax Act. Those interim regulations will be finalized through future federal rule-making procedures.

After consideration of the public comments and the amendments made by the 2008 Act, the proposed regulations are adopted as revised by this Treasury decision.

Section 1.6694-2 of these final regulations does not provide substantive guidance reflecting amendments to the Code made by the 2008 Act.

Rather, the Treasury Department and the IRS are reserving Sec. 1.6694-2(c) in these final regulations and are simultaneously issuing a notice in the Internal Revenue Bulletin providing interim guidance on the amendments to the Code made by the 2008 Act.* * * [Formatting added.]

Few accountants, attorneys, or tax preparation officers remain unfamiliar with these substantial duties and significant penalties involving returns they sign as "preparer" for filing with the IRS.

In 2009, many taxpayers will learn from their tax preparers that the rules of the game for tax returns have changed.

 Estimated total annual [paperwork] reporting burden:
10,679,320 hours.
    Estimated average annual burden per respondent:
15.6 hours.
-- Internal Revenue Service, T.D. 9436 (12/22/08)