Tax, Trusts & Estates Law Monitor : Estate Planning Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Gift Tax & Trust Issues

With many taxpayers receiving their W-2s in the past 2 weeks, 2011 income tax returns are now squarely on the radar screen. With that in mind, we wanted to note the following:

• For those early filers, due to the late enactment of the 2010 tax law (December 17), the IRS has not been able to process all of the law changes into its computers. As a result, the IRS announced it will begin to process tax returns with itemized deductions no earlier than February 14.
• Taxpayers have additional time to file their returns this year. Tax returns are due April 18th due to an April 16th holiday in the District of Columbia (Emancipation Day, observed on April 15th). Because the IRS follows the District of Columbia holiday calendar, the due date is Monday, April 18th. This includes the due date for gift tax returns.
• As a result of The Emergency Economic Stabilization Act of 2008, new cost basis reporting rules are in effect as of January 1, 2011. The new law requires brokerage firms and mutual fund companies to report a taxpayer’s adjusted cost basis for specified securities to the IRS on Form 1099-B and whether the holding periods for the securities are short term or long term. The rules are phased in over a three-year period. Stocks acquired after January 1, 2011 will be required to be tracked, mutual funds acquired after January 1, 2012 will be required to be tracked, and bonds and options acquired after January 1, 2013 will be required to be tracked.

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One component of the 2010 Tax Act enacted on December 17th that did not receive widespread attention was the extension of the direct IRA charitable rollover rules for 2010 and 2011. This provision permits taxpayers 70 ½ and older to donate up to $100,000 directly from their IRAs to public charities without having to account for the distributions as taxable income. Due to the late enactment in 2010, taxpayers are given until January 31, 2011 to make 2010 charitable contributions directly from their IRAs if they so desire. Taxpayers are not permitted to roll back their previously distributed 2010 distributions to their IRAs to take advantage of this provision, nor are taxpayers permitted to undo their 2010 distributions to charity. This provision was first enacted in 2006, but expired at the end of 2009. It is now extended until December 31, 2011.

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This week, the Senate considered the House’s version of the Small Business Jobs Tax Relief Act of 2010. Going into the hearings, there was considerable speculation that the Senate was going to pass its bill with the GRAT restrictions in place, meaning the minimum term for GRATs would be 10 years, and the remainder interests of any GRATs would have to have a value greater than zero.

The speculation was incorrect. The Senate’s version of the House Bill currently does not contain the GRAT restrictions, so for now, short term GRATs remain a viable technique. The House bill and the Senate version of the bill will ultimately have to reconciled. It is unclear whether the GRAT restrictions will be included. Thus, if you are planning to implement a short term GRAT, it is advisable to do it as soon as possible due to the uncertainty of the legislation.

We will continue to advise you on GRAT legislation as it happens.
 

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For the first time in almost 100 years, a federal estate tax does not exist.  On January 1, the federal estate and generation skipping transfer taxes were eliminated, but only for one year.  Click here to read about the current legislative uncertainty.

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