Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 7/18/2012


WELCOME

In this newsletter you will find information on updates and changes in the law on both the Federal and State level. If you have any questions, please feel free to contact Andrew Sullivan at (504) 569-2900.

NON-TAX TIDBITS

BP Settlement – Do you have a claim?

The recently announced BP settlement has prompted numerous questions.  Many companies, landowners and professionals understandably have queries regarding their eligibility to participate in programs that compensate for economic losses and property damage.

The economic loss and property damage formulas are complicated, but they revolve around the classification and location of the business or property in certain “zones” in which causation may be easily proven or even presumed without evidence of legal causation.  Although certain oil and gas companies and moratoria-related losses are exempt from the BP spill settlement, companies may find that the right to recover from the settlement fund exists even though you may not have previously thought the loss was a result of the Deepwater Horizon oil spill.

If you believe that you or your company may have experienced any decline in revenue, or if your property received oil from the spill or the resulting cleanup, contact Baldwin Haspel Burke & Mayer.  Experienced attorneys are ready to assist you in answering any questions that you may have.

Call your BHBM attorney at 504.569.2900.

Preference Actions in Bankruptcy

If you received payments from a now bankrupt entity during the preference period, you may be subject to a Preference Action seeking recovery of all payments during that period. The preference period is most commonly 90 days prior to the date the bankruptcy was filed. While there are defenses, many businesses that receive a Preference Action fail to respond. This may be for a variety of reasons, but most commonly, many businesses do not realize that they have been served. These actions may be served by First Class Mail and there is national service and jurisdiction. Failure to respond to a Preference Action results in a default judgment, which may then be enforced against you. If you receive a pleading by mail from a bankruptcy court that seeks recovery of payments, please do not ignore it; rather, seek the advice of counsel promptly to avoid any unfortunate and expensive surprises down the road.

For more information, contact Lance Arnold at 504.585.7840.

FEDERAL TAX LAW UPDATES

Estate and Gift Tax Uncertainty

As a reminder, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, unified and increased the estate tax and gift tax exemptions to $5,000,000 for 2011, and reduced the estate tax and gift tax rates to thirty-five percent (35%). Based on inflation, the unified estate and gift tax exemption is set at $5,120,000 for 2012, with a thirty-five percent (35%) maximum tax rate. Unless Congress extends this legislation or enacts an alternative, beginning on January 1, 2013, the estate tax exemption and the gift tax exemption will decrease to $1,000,000 with a maximum tax rate of 55%.

New Temporary Regulations for Portability Election

IRC §2010(c) allows the estate of a decedent who is survived by a spouse to make a portability election, that allows the surviving spouse to use the decedent spouse’s unused estate tax exclusion amount for transfers during life and at death of the surviving spouse. Currently, the portability election applies to estates of decedents dying after 2010 and before 2013. 

The Treasury Department has recently promulgated temporary regulations under IRC §2010, which provide guidance on the requirements and application of the portability election. IRC §2010(c)(5)(A) and Temp. Treas. Reg. §20.2010-2T(a) provide that an executor must make a portability election by timely filing an estate tax return for the decedent spouse. Temp. Treas. Reg. §20.2010-2T(a) provides that the last return filed by the return due date, including any extensions actually granted, will supersede any previously-filed estate tax return. Further, a portability election is irrevocable once the due date (including any extensions actually granted) for the estate tax return has passed.

Under IRC §2010(c)(4), the deceased spousal unused exclusion amount is the lesser of: (i) the basic exclusion amount; or (ii) the excess of (x) the basic exclusion amount of the last such deceased spouse of such surviving spouse over (y) the amount with respect to which the tentative tax is determined under IRC §2001(b)(1) on the estate of such deceased spouse. This section clarifies that if there is more than one (1) surviving spouse, the amount of the unused exclusion available for the surviving spouse is based on the amount of the unused exclusion of the last decedent spouse. 

The new temporary regulations contain numerous examples and other guidance relating to the portability election for decedents dying after 2010 and before 2013. As the estate tax laws currently stand, the $1,000,000 lifetime exemption for decedents dying on January 1, 2013 is not portable.

Current Status of Health Care Laws

3.8% Medicare Surtax

On Thursday, June 28, 2012, the Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA) by a 5-4 decision. The PPACA and the accompanying Health Care and Education Reconciliation Act of 2010 (HCERA) impose a new 3.8% Medicare surtax on net investment income of certain individuals, estates and trusts under IRC §1411. The new surtax applies to: (i) married taxpayers filing a joint return with greater than $250,000 of income; (ii) individuals with greater than $200,000 of income; and, (iii) married taxpayers filing a separate return with greater than $125,000 of income.

For individuals, the new 3.8% tax applies to the lesser of: (i) the net investment income of the individual for such taxable year, or (ii) the excess of (x) the individual’s modified gross income for such taxable year, over (y) the threshold amount. For trusts and estates, the new 3.8% surtax applies to the lesser of: (i) the undistributed net investment income for such taxable year; or (ii) the excess of (x) the adjusted gross income for such taxable year, over (y) the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year.

For purposes of IRC §1411, net investment income includes capital gains (other than from disposition of property held in a trade or business), interest, dividends, annuities, royalties and rents (other than rents received in the ordinary course of business). There are certain other applicable exclusions contained in IRC §1411.

0.9% Increase in Employment Taxes

In addition to the new 3.8% Medicare surtax mentioned above, the PPACA and the HCERA includes a 0.9% increase in employment taxes for certain wage earners. Beginning in 2013, individual taxpayers earning more than $200,000 (married filing jointly-more than $250,000; married filing separately-more than $125,000) will be required to pay an additional 0.9% for the employee portion of the Medicare hospital insurance payroll tax rate. Currently, the rate is 1.45%, and this will increase to 2.35%.The employer portion of the Medicare hospital tax will remain at 1.45%. Self-employed individuals will also be subject to the 0.9% increase on earnings from self-employment that exceed the threshold based on the above thresholds.

New Regulations under IRC §367(d)

On July 13, 2012, the IRS issued Notice 2012-39, which provided that the Treasury Department will promulgate temporary regulations incorporating the guidance contained in Notice 2012-39. These new regulations will address the transfers of intangible property to a foreign corporation under IRC §367(d) and apply to transfers of intangible property occurring on or after July 13, 2012. Transfers by domestic taxpayers to foreign corporations of intangible property are heavily scrutinized by the IRS.

IRS Notice 2012-39 provides that the IRS and the Treasury Department are aware that certain taxpayers are engaging in transactions intended to repatriate earnings from foreign corporations without the appropriate recognition of income. IRS notice 2012-39 also solicits comments from taxpayers concerning the new regulations.

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