The U.S. Supreme Court refused to review New York's rules for taxing individuals who work in New York but only live there part time. Two cases were involved, each of which involved intangible income from the sale of a closely held business located in New York. The individuals in both cases had a residence in New York but lived primarily in Connecticut. The individuals paid taxes on the income to both Connecticut and New York. New York refused to allow the individuals to claim a New York income tax credit for the taxes paid to Connecticut because the income was from economic activities in New York. Thus, the individuals were double taxed on the income. The taxpayers argued unsuccessfully that New York was discriminating against interstate commerce.
The Internal Revenue Service and its Security Summit partners today warned taxpayers and tax professionals about a new IRS impersonation scam campaign spreading nationally on email. Remember: the IRS does not send unsolicited emails and never emails taxpayers about the status of refunds.
The IRS this week detected this new scam as taxpayers began notifying email@example.com about unsolicited emails from IRS imposters. The email subject line may vary, but recent examples use the phrase "Automatic Income Tax Reminder" or "Electronic Tax Return Reminder."
For more information go to https://www.irs.gov/newsroom/security-summit-warns-of-new-irs-impersonation-email-scam-reminds-taxpayers-the-irs-does-not-send-unsolicited-emails
New YOrk case may go to the supreme court; could have major impact on connecticut residents who work in New york
The article below has an interesting article on a potential US Supreme Court case. If the Court agrees to review the case, the decision could have a major impact on Connecticut residents who work in New York or otherwise derive income from New York.
The Connecticut legislature has passed a version of the Uniform Trust Code, which includes a variation of the Uniform Trust Code, the Uniform Directed Trust Act, the Qualified Dispositions in Trust Act, and an extension of the rule against perpetuities to 800 years. The Governor is expected to sign the bill
The Uniform Directed Trust Act outlines the powers and obligations of parties administering directed trusts, which are trusts in which a party other than a trustee has a power over the trust's administration.
The Qualified Dispositions in Trust Act sets up a framework for creating self-settled asset protection trusts.
The change to the rule against perpetuities will extend the time that a Connecticut trust can last from 90 years to 800 years.
The changes will be effective January 1, 2020.
These are very exciting changes to Connecticut law. Once the changes are effective, they will permit a number of planning opportunities for Connecticut residents that previously were unavailable.
Connecticut lawmakers have passed a budget that increases taxes on restaurant meals and reduces the pass-through business tax credit which was designed to protect Connecticut taxpayers from the elimination of the federal deduction for state and local taxes. In addition, the state sales tax of 6.35% would apply to digital downloads of movies, music, books and video games. There is also a 2.25% tax on homes that sell for more than $2,500,000.
Last year, the legislature passed a law that was designed to help Connecticut taxpayers offset the loss of the federal deduction for sale and local taxes. The law imposed a tax on pass through entities which was offset by a corresponding personal income tax credit. The tax imposed on the pass-through entity would be deductible on the taxpayers’ federal income tax returns. The budget reduces the personal income tax credit.
The increased tax on restaurant meals consists of a 1% sales tax surcharge.
The proposed 2% capital gains surtax on high income taxpayers is not in the budget.
On May 20 Democratic legislators proposed a 2% surtax on the capital gains of taxpayers in Connecticut's highest income tax bracket, which is $500,000 for individuals and $1,000,000 for taxpayers filing jointly. The tax is opposed by Governor Lamont.
A California state senator has introduced a bill that would rollback the California estate tax exemption to the level that existed prior to the estate tax changes made by President Trump’s tax law. The rollback is estimated to raise over $1 Billion that would be earmarked for programs designed to combat income inequality. If the law is passed, it would have to be approved by California voters, because a 1982 ballot initiative banned a state estate tax.
An often-used asset protection strategy has been to swap exposed assets for long-term promissory notes. For example, a debtor owned real estate might sell the real estate to a family member. The purchase price would be paid by the family member giving a long-term promissory note to the debtor. Advocates of this strategy would argue that the sale of the real estate was not a transfer made to defraud the debtor’s creditors, because the debtor merely substituted one asset, the real estate, for another asset, the long-term promissory note. They argued that the debtor’s net worth was unchanged.
A recent decision by the US District Court for the District of Colorado determined that such a swap amounted to a fraudulent transfer that a creditor could overturn. Furthermore, the Court found that the debtor and her family members had engaged in a civil conspiracy.
In that case, the mother sold real estate to her daughters after a bank obtained a judgment against her and placed a lien on the real estate. The mother received a no interest, 15-year promissory note for the value of the real estate. Because the facts of this case are somewhat extreme because the debtor implemented the swap after the bank obtained a judgment and had begun collection activity, it is not clear whether the Court would have reached the same conclusion if the swap was undertaken before the creditor obtained a judgment. However, the Court’s analysis suggests that if a debtor swaps assets, especially with a family member, the Court would be willing to reach the same conclusion unless the debtor could prove that the actual fair market value of the long term promissory note was equal to the value of the real estate, taking into account the term of the promissory note, the note’s interest rate and the credit worthiness of the purchaser.
Governor Lamont's budget proposal for 2020 - 2022 would repeal the Connecticut gift tax. Gifts made within three years of the date of death would be added back to a decedent's taxable estate. If adopted, this change would give rise to numerous planning opportunities. We will keep a close eye on this.
NEW YORK EXECUTIVE BUDGET BILL WOULD IMPOSE TAX ON QTIP ASSETS FROM A 2010 ESTATE AND MAKE OTHER CHANGES
This is a follow up to my November 5, 2018 blog, in which a described a Surrogate Court’s decision that QTIP assets from a 2010 estate are not subject to New York estate tax upon the death of the surviving spouse. The Budget bill would amend New York tax law so that QTIP assets from a 2010 estate are subject to New York estate tax upon the death of the surviving spouse for deaths after April 1, 2019.
Also, the bill would extend the New York three-year gift add back until January 1, 2026. This would apply to the estates of individuals dying on or after January 1, 2019.
Mr. Hendel has been practicing wealth preservation planning for over thirty years.