The Shape of Tax to Come

A Tax & Estate Planning blog for 21st-century Texans

Switzerland To Allow Information Exchange In UBS Case

The agreement between the US and Switzerland regarding tax information from UBS accounts is moving to be the standard instead of the exception. Rather than being a one-time agreement between the two countries to share information, the US would have access to Swiss information on a more regular and continued basis.

According to the Federal Council, this process means that in any future appeals, the Court will then no longer be able to regard the UBS Agreement as merely a mutual agreement. Instead, it will stand as a treaty of the same status as the older and more general bilateral double taxation convention. Indeed, according to the general rules of interpretation, it would also take precedence over the latter. As a result, Switzerland will be in a position to provide treaty assistance not only in cases of tax fraud, but also in cases of continued and serious tax evasion.

The proposal to alter the tax treaty between the two countries is making its way to the Swiss Parliament, and the amendment process is expected to be completed in March. With the amendments in place, the information exchange is expected to begin more regularly in August 2010.

Read the full story here.

February 27, 2010 Posted by | Uncategorized | Leave a comment

PocketPhilanthropist Facilitates Charitable Giving

PocketPhilanthropist is an iPhone application that will facilitate charitable giving. Each week, the application will promote a different charity, and will allow users to make donations directly from their iPhone in amounts starting at $1.

“After witnessing the power of mobile donations for the current Haiti crisis, we’ve found that avenues for making donations should become increasingly simple and accessible,” said Nathan Moyer, co-founder of PocketPhilanthropist, Inc.

Read the full release here

Related: A few weeks ago, BMG CPAs released iDonatedIt, an iPhone application that allows users to easily track charitable gifts. You can read about it here.

February 23, 2010 Posted by | Uncategorized | Leave a comment

Where is the will? (And LOST preview)

One of the reasons to go through the effort of planning your estate is so that when something happens to you, those you leave behind will know exactly what to do. But all of the best planning in the world will be for naught if you haven’t made fining your documents easy.

The clip from tonight’s episode of LOST shows Jack searching through his father’s papers trying to find his will. Imagine how much easier this could have been if there were a folder marked “important papers.” Rather than having to sift through the mountains of paperwork looking for that will, everything could have been located in one folder.

It is important to let others know where your will is, as well as any other planning documents, such as health care directives, medical powers of attorney, organ donation forms, and guardian designations. The folder should also have a listing of any other property you own so that those left behind will know how much property they are looking for. By having a listing, they can more easily dispose of and distribute your assets as your plans requires. If you don’t have a listing of everything in your estate, your survivors will have that much more trouble guessing where your assets are located.

February 23, 2010 Posted by | Uncategorized | Leave a comment

Real Movement on the Estate Tax?

Talks between Senators Reid and McConnell might be moving towards a solution for the estate tax mess. While nothing is final yet, it seems that there is movement to return to the 2009 tax and exemption levels. Reid is trying to tie this in with a jobs bill so that it will force Republicans to get on board for that as well, but should they go for that? I think it might be a better play to have an estate tax-only bill that solves this mess, rather than trying to force everything through in a massive bill. After all, Congress barely does one thing correctly at a time, much less multiple things. Also, it would allow Democrats to lay some of the blame of the almost-certain-to-fail jobs portion of the bill on the Republicans if they vote for it.

Read the article from The Hill here

February 10, 2010 Posted by | Uncategorized | Leave a comment

WSJ: The President’s Priorities

President Obama released his proposed budget yesterday, and it is laden with new taxes. The Wall Street Journal has an opinion piece concerning the increased spending levels. While President Obama proposed a spending freeze, this budget is anything but frugal. We are looking at nearly $2 trillion dollars in increased taxes.

We now know why the White House leaked word of a three-year spending freeze on a few domestic accounts before this extravaganza was released. No one would have noticed such a slushy promise amid this glacier of spending. The budget reveals that overall federal outlays will reach $3.72 trillion in fiscal 2010, and keep rising to $3.834 trillion in 2011.

As a share of the economy, outlays will reach a post-World War II record of 25.4% this year. This is a new modern spending landmark, up from 21% of GDP as recently as fiscal 2008, and far above the 40-year average of 20.7%. . . .

And here you thought the “stimulus” was supposed to be temporary. This is also before the baby boomers retire and send Medicare and Social Security accounts soaring.

If this budget is Mr. Obama’s first clear demonstration of his long-term governing priorities, then it’s hard not conclude that this spending boom is deliberate. It is an effort to put in place programs and spending commitments that will require vast new tax increases and give the political class a claim on far more private American wealth.

Despite talk of “tough choices” in yesterday’s document, the Administration wants $25 billion in new spending for states for Medicaid, $100 billion for yet another jobs “stimulus,” big boosts in spending for low-income family programs, for health research, heating assistance and education. If Mr. Obama’s priorities become law, federal outlays will have grown an astonishing 29% since 2008.

Tax Increases

You can read the complete piece here.

February 2, 2010 Posted by | Uncategorized | Leave a comment

Citizens United: A Time-bomb for Non-profit Law?

The Supreme Court recently released Citizens United v. FEC, which held that the McCain-Feingold Act imposed an unconstitutional restriction upon First Amendment rights by restricting political speech by corporations. Citizens United was a non-profit organization that had its tax-exempt status revoked after releasing Hillary: The Movie. This represents a change in law by overturning decades-old precedent prohibiting corporate political speech, but is there is a legal time bomb for non-profits buried within the decision as well?

Congress enacted the non-profit provisions of the Internal Revenue Code to provide a subsidy to groups that provide benefits that the government is either unwilling or unable to provide. In exchange for relieving the government of those responsibilities, qualifying organizations are rewarded with non-profit status. The major benefit of non-profit status for organizations is that they are exempt from most federal taxes. This status also translates into exemption from many state and local taxes as well. Because the government is forgoing revenue by not taxing these groups, the government is in effect providing these groups with tax subsidy. Rather than directly spending money on the services offered by non-profits, the government subsidizes the actions by not imposing tax upon them, which is another form of government spending.

The Code offers many non-profit forms, and the most well-known is the § 501(c)(3) organization. To qualify as a § 501(c)(3) organization, the Code requires the following:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

26 U.S.C. § 501(c)(3)(emphasis added). While this does allow for some room for charities to lobby, it is an explicit ban upon political campaigning. If the non-profit is involved a political campaign, its tax-exempt status may be revoked. With the decision in Citizens United, does this mean that the restriction on campaign activity has been lifted?

The Supreme Court has previously upheld the restrictions on political speech imposed by § 501(c)(3). In Reagan v. Taxation Without Representation of Washington, the Court held that § 501(c)(3) did not abridge or restrict any First Amendment rights, nor did it regulate any First Amendment activities. While these groups had First Amendment protection, they were still bound by the restrictions imposed by the Code if they wished to maintain their tax-exempt status. Thus, the restrictions of § 501(c)(3) only applied if organizations wished to maintain their status. If they preferred to engage in political activity, then the Federal government merely would not pay for such activity with tax subsidy.

Given that holding, it would seem that the Supreme Court just found one of provisions of the Code unconstitutional as well as overruling itself. That answer is, however, incorrect.

Among other things, Citizens United was a § 501(c)(4) corporation. While also tax-exempt, it was subject to different requirements under the Code. Section 501(c)(4) organizations are defined in the Code as:
Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.

26 U.S.C. § 501(c)(4)(A). The definition does not include the same prohibition upon political campaign activity that § 501(c)(3) organizations are subject. Thus, § 501(c)(4) organizations have the ability to engage in political activity without jeopardizing their tax-exempt status. So while the Supreme Court has held that § 501(c)(4) organizations cannot be limited in their speech, § 501(c)(3) organizations can still limited in political speech under Reagan.

What does this mean? While § 501(c)(3) organizations are still prevented from engaging in political activity, there will be greater pressure for other non-profits to do so. For § 501(c)(3) organizations, this means setting up companion § 501(c)(4) organizations to engage in political activities. In fact, it is not at all uncommon for § 501(c)(3) organizations to set up sister § 501(c)(4) organizations to engage in any political campaign activity that might be useful or necessary. While the § 501(c)(3) will not be able to transfer any of the charitable contributions it receives to the § 501(c)(4), it will be able to solicit donations on behalf of the companion organization. This should result in greater political giving going to non-profits, § 501(c)(4) and § 527 organizations, and less money going directly to the political parties.

February 1, 2010 Posted by | Uncategorized | Leave a comment

Steven Colbert on the Estate Tax Repeal

Colbert, in his own fashion, gets to one of the main issues with the current estate tax. 
Is it better to have somebody die now and avoid paying the estate tax?  Based on what happened during the Clinton administration, it is not a far cry to expect that any change in the law will be made retroactive to January 1, 2010.

January 26, 2010 Posted by | Uncategorized | , , | Leave a comment

New York Times: Why Can’t the IRS Help Fill in the Blanks?:

For many taxpayers, filing out simple returns is still a major chore.  There has been a growing movement to have the IRS provide taxpayers with pre-filled returns to take much of the headache out of the return process.

Requiring taxpayers to file returns without being told what the government already knows makes as much sense “as if Visa sent customers a blank piece of paper, requiring that they assemble their receipts, list their purchases — and pay a fine if they forget one,” said Joseph Bankman, a professor at the Stanford Law School.

Many developed countries now offer taxpayers a return containing all information collected by the taxing authority — to “get the ball rolling by telling you what it knows,” Mr. Bankman says.

It’s a stunningly reasonable idea. When you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be? You’d have the chance to check whether the information was accurate, correct it as needed and add any pertinent details — that you’re newly married, for example, or have a new child — before sending it. Far better to discover problems early with the I.R.S., whose say matters more than third-party software’s best guess.

The I.R.S., however, isn’t rushing to offer returns that are already filled in. In the 2009 report to Congress of its Taxpayer Advocate Service, it noted that during the 2008 presidential campaign, Barack Obama proposed giving taxpayers “the option of pre-filled tax forms to verify, sign and return.” The report said “it is not feasible at this time” because the agency receives W-2 data from the Social Security Administration and 1099 data from financial institutions too late in the filing season, “much later than most eligible taxpayers would be willing to wait.”

January 24, 2010 Posted by | Uncategorized | , | Leave a comment

The Top Ten Reasons NOT to Prepare Your Will and Guardianship Paperwork

1.    You want your children’s future to be decided in a lengthy and costly courtroom battle.

2.    You would like to end up relaxing in bed for several years like Terry Schiavo as your family argues about what you wishes were while medical bills and lawyers’ fees spiral out of control.

3.    You know exactly how the Texas community property system works.

4.    You want the State of Texas to decide where you property goes when you die.

5.     You like paying lawyers to go to the courthouse every time your survivors want to deal with your assets.

6.    You don’t really care what happens to your body after your death.

7.    You are certain that your minor children will be ready to manage the full value of their inheritance within a few months of your death.

8.    In the event of an emergency, you don’t care if police, fire department, or paramedics know your blood type, your allergies, and whom to contact first.

9.    You are confident that the $69.00 will from LegalZoom perfectly provides for all of your bequests exactly as you wanted and in accordance with the Texas Probate Code thereby avoiding the excitement and family entertainment value of your will being contested.

10.    You are not concerned about your loved ones’ financial well-being after you’re gone.

I’ll be developing each of these topics in later entries.  For right now, it is enough that you are thinking about the consequences of not having this paperwork completed.

January 22, 2010 Posted by | Uncategorized | Leave a comment

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