Michael Gray, CPA's Tax and Business Insight
September 9, 2016
© 2016 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Autumn will soon be here.
- Family celebrations.
- Estimated tax payments are due September 15.
- Extended due date for most calendar year taxpayers except individuals is September 15.
- Watch September 30 deadline for inherited IRAs.
- Extended due date for individual income tax returns will soon be here.
- IRS issues proposed regulations that make estate planning for family businesses urgent.
- IRS grants automatic relief for some late IRA rollovers.
- IRS will now issue rulings for corporate spin offs and split ups.
- Watch deadlines for California property tax assessment appeals.
- Watch big penalties for failure to file S corporation and partnership income tax returns.
- Does your group need a speaker?
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly broadcast schedule.
- Visit our new article: Valley Speak.
- Follow me on social media!
- Do you have employee stock options?
- Do you have real estate tax issues?
- Check out my blog.
- PS Marché Aux Fleurs
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Princess Minerva enjoys holding court in her "throne" at The Old Spaghetti Factory. Autumn will soon be here.
Labor Day seems like the "unofficial" end of summer, but the first day of autumn this year is September 22. This year will be ending before we know it! Are you ready?
Family celebrations.
Holly Baker, who is my daughter, is celebrating her birthday this month. Kyan Baker, who is her son and my oldest grandchild is celebrating is twelfth birthday. Happy birthdays!
Estimated tax payments are due September 15.
The next due date for quarterly estimated tax payments is September 15. For most taxpayers, there is no California payment due because the first and second payments were "front loaded."
Extended due date for most calendar year taxpayers except individuals is September 15.
The extended due date for filing income tax returns of calendar year corporations, partnerships (including LLCs), estates and trusts is September 15. Be sure your tax return preparer has the information to complete your income tax returns.
Watch September 30 deadline for inherited IRAs.
For an IRA inherited when the owner was deceased during 2015, the designated beneficiaries must be established by September 30, 2016. In order to qualify for an extended payout over the life expectancy of one or more beneficiaries, all of the beneficiaries must be individuals or certain trusts. Otherwise, the account must be distributed within five years after death. A non-individual beneficiary, such as a charity, can be eliminated from consideration by distributing its share by September 30, 2016. See your tax advisor for details.
Extended due date for individual income tax returns will soon be here.
We are in the midst of a second tax season. The extended due date for 2015 individual income tax returns is Monday, October 17. If you haven't given the information to finish your income tax returns to your tax return preparer yet, do it now! To make your appointment, call Dawn Siemer Mondays, Wednesdays or Fridays at 408-918-3162.
IRS issues proposed regulations that make estate planning for family businesses urgent.
The IRS has issued proposed regulations attacking family businesses, including popular family limited partnerships and LLCs. These entities are widely used for succession planning and to secure favorable valuation benefits for lack of marketability and lack of control.
The proposed regulations do not apply to fractional ownership of real estate outside of a family corporation or family limited partnership.
The IRS is using a "lapsing rights" argument under Internal Revenue Code Section 2704 to create a deemed right of liquidation based on family control of the business and claim a minimum value of an interest based on the net value of the underlying assets, instead of a going concern value. Going concern value has historically been the basis of valuation, and can result in a much lower value of the business interest when the assets have been underperforming.
In addition, transfers during the three years before death or a gift would be disregarded. This would eliminate the ability to realize transfer tax savings from "death bed" transfers, even to unrelated persons.
The proposed regulations are extremely complex and hard to understand. If you have a family business and your family could potentially be subject to estate and gift taxes, you should consult with a qualified estate planning attorney now. Consider telling your representatives in Congress that you oppose the proposed regulations under Internal Revenue Code Section 2704.
The proposed regulations generally aren't effective until they are finalized, but the three-year rule could apply to certain transfers that are made before that date. A public hearing is scheduled for December 1, 2016, so the regulations won't be finalized until after that date.
(NPRM REG-163113-02, August 3, 2016.)
IRS grants automatic relief for some late IRS rollovers.
Generally a rollover from an IRA to another IRA or qualified plan must be completed within 60 days, or it's taxable. (Also, only one rollover is allowed during a twelve-month period.)
The IRS has the authority to extend the 60-day period. Now it has issued a procedure for taxpayers to certify in a letter to a plan administrator that the taxpayer meets the requirements for an automatic IRS approval for a late rollover.
The Revenue Procedure includes a list of acceptable reasons. Here are a few of them.
- An error was committed by the financial institution receiving the contribution or making the distribution;
- The distribution check was misplaced and never cashed;
- A member of the taxpayer's family died;
- The taxpayer or a member of the taxpayer's family was seriously ill.
See your tax advisor or read the Revenue Procedure for a complete list.
The taxpayer must resolve the issue within 30 days after discovering the problem.
(Revenue Procedure 2016-47)
IRS will now issue rulings for corporate spin offs and split ups.
The IRS hasn't issued rulings about the qualification of corporate spin offs and split ups under Internal Revenue Code Section 355 since 2003. Now it has announced that, effective August 26, 2016, it will issue rulings whether (1) a distribution was carried out for a corporate business purpose and (2) a transaction is not being used principally as a device for the distribution of earnings and profits of the distributing corporation, the controlled corporation, or both.
This is good news for corporations who need the assurance that a corporate division will be tax-free.
(Revenue Procedure 2016-45.)
Watch deadlines for California property tax assessment appeals.
The value for computing California property taxes is limited to fair market value on January 1. Occasionally, the county assessor will value a property higher than the fair market value. The property owner must appeal the assessed value by certain dates for the appeal to be valid.
The filing period for appeals in Alameda, Inyo, Kings, Placer, San Francisco, San Luis Obispo, Santa Clara, Sierra and Ventura Counties ends September 15, 2016.
For all other counties, the appeals period ends November 30, 2016.
For general information on filing and presenting an appeal, see BOE Publication 30, Residential Property Assessment Appeals.
Here is a web site with links to county assessor's offices: www.boe.ca.gov/proptaxes/assessors.htm.
(Spidell's California Taxletter, September 1, 2016, p.5. "Filing property tax assessment appeals."
Watch big penalties for failure to file S corporation and partnership income tax returns.
American Orthodontics Corp., a Wisconsin S corporation, didn't file a California income tax return for 2010. The corporation wasn't subject to corporate income tax in California under federal Public Law 86-272, but had six salespeople working in California during 2010.
The S corporation was found to be "doing business" in California and subject to the $800 minimum franchise tax.
The corporation later realized it was subject to the California minimum franchise tax and filed the tax return on June 15, 2012. At that time, they weren't yet contacted by the Franchise Tax Board that a tax return was required.
The corporation had 75 shareholders. The penalty for late filing is $18 per shareholder per month, for a maximum of twelve months. The Franchise Tax Board charged a $16,200 penalty.
The State Board of Equalization upheld the Franchise Tax Board and said the reasonable cause exception didn't apply. The company failed to demonstrate reliance on its tax advisors in failing to file the tax return. The penalty was charged in accordance with California's tax laws.
(Appeal of American Orthodontics Corp., California State Board of Equalization Case No. 711153, August 5, 2014.)
Does your group need a speaker?
We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as "How I created a public access television show broadcast on eleven Bay Area stations." To make arrangements, call Michael Gray at 408-918-3161.
Please share your good experiences with Michael Gray, CPA.
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Financial Insider Weekly broadcast schedule for September and October.
Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.
Here are the scheduled interviews for September and October:
- September 9, Michael Desmarais, attorney at law, "Why don't we just live together?"
- September 16 and 23, Michael Desmarais, attorney at law, "But my spouse agreed!"
- September 30, Craig Martin, CFP®, The Family Wealth Consulting Group, "The role of emotions in investing"
- October 7, Bill Neville, Certified IRA Services Professional, The Entrust Group, "Making real estate investments in your IRA or Roth account"
- October 14, Bill Neville, Certified IRA Services Professional, The Entrust Group, "Making alternative investments in your IRA or Roth account"
- October 21 and 28, Nancy Ross, Bauer Shepherd & Ross and Associates, "How a collaborative approach can make a divorce a less painful process"
Financial Insider Weekly is also broadcast as follows:
- Sundays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Sundays at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Sundays at 10:00 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Mondays at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Mondays at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
- Mondays at 7:30 p.m. on Comcast channel 15 in Saratoga
- Tuesdays at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Tuesdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Tuesdays at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill Broadcast on the internet at the same time as streaming video at www.mhat.tv
- Wednesdays at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Thursdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Fridays at 11:00 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola.
- Fridays at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Fridays at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Fridays at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, "public access TV"
- Fridays at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Saturdays at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Saturdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Saturdays at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
Past episodes are available at https://www.youtube.com/user/financialinsiderweek.
Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.
Hope you can watch or record the show. Please tell your friends about it!
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
Visit our new article!
- Valley Speak Book Review at www.profitadvisors.com/speak.shtml
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P.S.
My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at www.taxtrimmers.com/directions.shtml.
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