California Tax Attorney Blog

For the purpose of determining inheritance when there is no Will or other instrument disposing of property (called “intestate succession”) by, through, or from a person, California Probate Code Section 6450 provides that a relationship of parent and child exists in the following circumstances:

(a) The relationship of parent and child exists between a person and the person's natural parents, regardless of the marital status of the natural parents.

(b) The relationship of parent and child exists between an adopted person and the person's adopting parent or parents.

California Probate Code Section 6452 says that if a child is born out of wedlock, neither a natural parent nor a relative of that parent inherits from or through the child on the basis of the parent and child relationship between that parent and the child unless both of the following requirements are satisfied:

(a) The parent or a relative of the parent acknowledged the child.

(b) The parent or a relative of the parent contributed to the support or the care of the child.

For answers to this and other probate questions, please call Mitchell A. Port at (310) 559-5259.

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The IRS issued a revenue procedure which lists the various factors necessary to satisfy to obtain equitable relief as an innocent spouse.

If you have a tax problem, and believe that you maybe qualify for innocent spouse relief contact the Mitchell A. Port at (310) 559-5259.

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California tax lawyers and many of their clients are familiar with the advantages of accelerating charitable bequests into charitable remainder trusts: income for life for beneficiaries of the client’s choosing, capital gains tax savings, generous income tax charitable deductions and eventual support for important charitable causes. CRTs typically involve six-figure funding amounts, however, and come burdened with a variety of complexities and reporting requirements.

On the other hand, it is possible for clients age 60 and older to blend support for their charitable cause with a simple plan that will provide significant payments for life from gifts as small as $3,000 as well as large income tax deductions, potential capital gains tax savings and payments that are partly tax free. The technique that makes these benefits possible is a charitable gift annuity.

A gift annuity is a contract between a donor and a not-for-profit organization in which the donor exchanges cash or securities for an annuity for one or two recipients.

Immediate payment gift annuities have greatest appeal to older clients who are charitably motivated and wish to add a fixed income component to their portfolios. Both payout rates and deductions are high for this age group (the average gift annuity donor is age 77).

Gift annuities seem to have appeal for women. Women continue to live longer than men by roughly 5 years and so may have a greater interest in “an income that a person cannot outlive.”

Gift annuities also can be arranged to make payments for the lifetimes of two people, such as a husband and wife, brothers and sisters, parents and children or close friends.

Investors can use gift annuities to get investment profits and receive annual payments form the charitable organization that range from 5.5% to 10.5% depending on the age or ages of the persons receiving the payments. In general, 30 to 50% of a donor’s capital gain escapes capital gains tax completely. The remaining gain will be reported in small annual installments as part of the donor’s annuity payments and taxed at only 15% or possibly less.

Retirees who are unhappy with low CD returns can increase their spendable income with gift annuities and also enjoy payments that are partly tax-free. Capital gains savings are advantageous to investors who wish to move from equities into a fixed income arrangement.

Deferred payment gift annuities provide higher payout rates and larger charitable deductions, however, tax-free payments are smaller as a percentage of the annuity payment.

For other tax planning opportunities, call your tax lawyer. Call Mitchell A. Port at (310) 559-5259 for a tax consultation.

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The American Institute for Cancer Research has developed programs to assist California's tax lawyers and financial planners in providing their clients with accurate and current information related to charitable gifts. The Institute appreciates the role that California tax attorneys and financial planning professionals play in the consideration of charitable gifts by AICR supporters.

In the AICR's Estate Planners Corner: Services for Attorneys, Financial Professionals and Investment Advisors, it provides free publications and updates on a variety of tax and gift planning issues related to charitable gifts. Some of the publications include tax topics such as:

Minimizing Gift and Estate Taxes Through Charitable Trusts

Planning and Drafting Gifts and Trusts of Closely Held Stock

Selecting Assets for Charitable Gifts - Outright and in Trust

Supplementing Retirement Savings With Charitable Gifts

Charitable Remainder Trust Agreements Approved by the IRS

Minimizing Income Taxes and Transfer Taxes with Charitable Gift Annuities

Planning and Drafting Charitable Gifts and Trusts with Real Property

Planning and Drafting a Testamentary Charitable Remainder Trust

Planning and Drafting Charitable Lead Trusts

Administration and Investment Strategies for a Charitable Remainder Trust

For more detailed information on these estate planning topics, you are invited to call Mitchell A. Port, a tax attorney in Los Angeles, California, at (310) 559-5259.

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When you have a California living trust, generally the trust is revocable while you are alive. That means no one has the right to ask to see it and it's contents remain private. However, when either you or your spouse dies, a part or all of your California living trust becomes irrevocable. Once your trust becomes irrevocable, it's contents are no longer private and any beneficiary can request a copy of it. California Probate Code Section 16061.5(a) provides that:

"When a revocable trust or any portion of a revocable trust becomes irrevocable because of the death of one or more of the settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust, the trustee shall provide a true and complete copy of the terms of the irrevocable trust, or irrevocable portion of the trust, to any beneficiary of the trust who requests it and to any heir of a deceased settlor who requests it."

A California probate attorney may be helpful in this and other estate matters. For a consultation, call Mitchell A. Port at (310) 559-5259.

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Last week, California's governor approved a bill providing that on and after January 1, 2010, any instrument, whenever executed, that became irrevocable on or after January 1, 2001 the law regarding no contest clauses will change.

Existing law, in relation to wills, trusts, and other instruments, defines and regulates no contest clauses, which are provisions in otherwise valid instruments that, if enforced, penalize beneficiaries if the beneficiaries file a contest with the court. Existing law provides that a no contest clause in a will or a trust is generally enforceable and defines a "contest" and "direct contest" in this regard. Existing law provides that certain actions do not constitute a contest unless expressly identified in the no contest clause as a violation. Existing law exempts certain contests from the enforcement of the no contest clause under specified circumstances, including if there is reasonable cause to believe that instrument has been revoked. Existing law permits a beneficiary to apply to a court for a determination of whether a particular motion, petition, or other act by the beneficiary would be a contest within the terms of a no contest clause.

This bill, beginning January 1, 2010, would revise, recast, and clarify these provisions. The bill would limit the application of a no contest clause to specific contests. The bill would redefine "direct contest," and would provide that a no contest clause may be enforced against a direct contest only when it is brought without probable cause, which the bill would define for these purposes. The bill would delete the provisions regarding the authority of a beneficiary to apply to a court for a determination regarding a no contest clause, as described above.

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In May and June alone, taxpayers reported almost 700 separate phishing incidents to the IRS.

The most common scams involve tax refunds and, this year, economic stimulus payments. The Internal Revenue Service cautions taxpayers to be on the lookout for a new wave of scams using the IRS name in identity theft e-mails, or phishing, that have circulated during the last two months.

The IRS has an interesting news article where the full details are available.

Here is a part of the article:

How Scams Work

"To lure their victims, phishing scams use the name of a known institution, such as the IRS, to either offer a reward for taking a simple action, such as providing information, or threaten or imply an unpleasant consequence, such as losing a refund, for failing to take the requested action.

"The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.

"Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scammers to act quickly and cover their tracks before the victim becomes aware of the theft.

"People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records. In the meantime, victims may lose job opportunities or may be refused loans, education, housing or cars."

Topics in the article also include:

Refund e-Mail Scam

Tax Court Scam

Economic Stimulus Payments Scam

Company Report Scam

Substitute Form 1040 Fax Scam

What to Do

Do you have other tax problems with the IRS or California tax authorities? If so, speak with Mitchell A. Port, a tax attorney in Los Angeles, about your concerns.

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The Internal Revenue Service has a general questions and answers section you can read in detail here. Each year the IRS updates the answers to reflect the latest changes in tax regulations. These questions and answers came from taxpayers like you.

Frequently Asked Questions

1. IRS Procedures

1.1. General Procedural Questions

1.2. Address Changes

1.3. Amended Returns & Form 1040X

1.4. Code, Revenue Procedures, Regulations, Letter Rulings

1.5. Collection Procedural Questions

1.6. Copies & Transcripts

1.7. Extensions

1.8. Forms & Publications

1.9. Injured Spouse

1.10. Name Changes & Social Security Number Matching Issues

1.11. Notices & Letters

1.12. Refund Inquiries

1.13. Reporting Fraud

1.14. Signing the Return

1.15. W–2 - Additional, Incorrect, Lost, Non-receipt, Omitted

1.16. W–4 - Allowances, Excess FICA, Students, Withholding

2. Filing Requirements/Status/Dependents/Exemptions

2.1. Filing Requirements

2.2. Filing Status

2.3. Dependents & Exemptions

3. Itemized Deductions/Standard Deductions

3.1. Autos, Computers, Electronic Devices (Listed Property)

3.2. Education & Work-Related Expenses

3.3. Gifts & Charitable Contributions

3.4. Interest, Investment, Money Transactions (Alimony, Bad Debts, Applicable Federal Interest Rate, Gambling, Legal Fees, Loans, etc.)

3.5. 5. Medical, Nursing Home, Special Care Expenses

3.6. 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)

3.7. 7. Other Deduction Questions

4. Interest/Dividends/Other Types of Income

4.1. 1099–DIV Dividend Income

4.2. 1099–INT Interest Income

4.3. 1099–MISC, Independent Contractors, and Self-employed

4.4. 1099 Information Returns (All Other)

4.5. Alimony, Child Support, Court Awards, Damages

4.6. Employee Reimbursements, Form W–2, Wage Inquiries

4.7. Gifts & Inheritances

4.8. Grants, Scholarships, Student Loans, Work Study

4.9. Life Insurance & Disability Insurance Proceeds

4.10. Ministers' Compensation & Housing Allowance

4.11. Savings Bonds

4.12. Tips

5. Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

5.1. General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans

5.2. Rollovers

5.3. Types of Plans

5.4. Plan Operations

5.5. Plan Design

5.6. Correcting Plan Errors

6. Social Security Income

6.1. Back Payments

6.2. Regular & Disability Benefits

6.3. Survivors' Benefits

7. Child Care Credit/Other Credits

7.1. Child and Dependent Care Credit & Flexible Benefit Plans

7.2. Child Tax Credit

7.3. Credit for the Elderly or the Disabled

7.4. Hope & Life Time Learning Educational Credits

7.5. Other Credits

8. Earned Income Tax Credit

8.1. Qualifying Child Rules

8.2. Taxable & Nontaxable Income

8.3. Other EITC Issues

9. Estimated Tax

9.1. Businesses

9.2. Farmers & Fishermen

9.3. Individuals

9.4. Large Gains, Lump-sum Distributions, etc.

9.5. Penalty Questions

10. Capital Gains, Losses/Sale of Home

10.1. Property (Basis, Sale of Home, etc.)

10.2. Stocks (Options, Splits, Traders)

10.3. Mutual Funds (Costs, Distributions, etc.)

10.4. Losses (Homes, Stocks, Other Property)

11. Sale or Trade of Business, Depreciation, Rentals

11.1. Depreciation & Recapture

11.2. Rental Expenses versus Passive Activity Losses (PALs)

11.3. Personal Use of Business Property (Condo, Timeshare, etc.)

11.4. Sales, Trades, Exchanges

12. Small Business/Self-Employed/Other Business

12.1. Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation

12.2. Form 1099–MISC & Independent Contractors

12.3. Form W–2, FICA, Medicare, Tips, Employee Benefits

12.4. Form W–4 & Wage Withholding

12.5. Form SS–4 & Employer Identification Number (EIN)

12.6. Forms 941, 940, Employment Taxes

12.7. Income & Expenses

12.8. Schedule C & Schedule SE

12.9. Starting or Ending a Business

13. Aliens and U.S. Citizens Living Abroad

13.1. Canadian & U.S. Tax Issues

13.2. Exchange Rate

13.3. Foreign Income & Foreign Income Exclusion

13.4. Nonresident Alien - General

13.5. Nonresident Alien - Tax Withholding

13.6. Nonresident Alien - Students

13.7. U.S. Citizens Overseas

13.8. Other

14. Electronic Filing (e-file)

14.1. Age/Name/SSN Rejects, Errors, Correction Procedures

14.2. Amended Returns

14.3. Due Dates & Extension Dates for e-file

14.4. Forms W–2 & Other Attachments

15. Magnetic Media Filers

16. Other (Alternative Minimum Tax, Estates, Trusts, Tax Shelters, State Tax Inquiries)

17. Individual Retirement Arrangements (IRAs)

17.1. Distributions, Early Withdrawals, 10% Additional Tax

17.2. Rollovers

17.3. Roth IRA

17.4. Traditional IRA

Are you in tax trouble with any of these federal compliance procedures? Talk to a professional: talk with tax attorney Mitchell A. Port at 310.559.5259.

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As a California business person, have you asked yourself any of the questions below concerning employees and their tax for which you may be responsible in part? The IRS has the answers to these question on its website at IRS.gov.

Here are the questions:

As an employee, what happens if the IRS determines that I do not have adequate withholding?

If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?

If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?

As an employer who has received a modification letter (letter 2808C) from the WHC program, do I wait for another 60 days to change the marital status and/or number of allowances per the modification letter?

I have been directed to lock in an employee’s withholding. What happens if I do not lock in the employee’s withholding as directed?

As an employer, after I lock in withholding on an employee based on a lock-in letter from the IRS, what do I do if I receive a revised Form W-4 from the employee?

Our employees can submit or change their Forms W-4 on line. How can I prevent them from changing their Forms W-4 after they have been locked-in by the IRS?

What should I do if an employee submits a valid Form W-4 that appears to be claiming an incorrect withholding amount?

What do I do if an employee hands me a substitute Form W-4 developed by the employee?

I heard my employer no longer has to routinely submit Forms W-4 to the IRS. How will this affect me as an employee?

What if I don’t want to submit a Form W-4 to my employer?

What do I do if an employee hands me an official IRS Form W-4 that is clearly altered?

In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?

Tax problems? Would you like tax help? Tax compliance a problem? Want to settle with the IRS? Call Los Angeles tax attorney Mitchell A. Port at 310.559.5259.

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Hot news: Schwarzenegger signed a bill recently issued from the California legislature to protect pet trusts. Other blog posts on this topic include: "Estate Planning For Pets" from June 20, 2008, "California Estate Planning And Your Pets" from April 16, 2008, "No Kidding – A California Trust For Your Pet" from December 17, 2007

Under such trusts, a trustee pays a caretaker to ensure that the pets are housed, fed and otherwise maintained. Pet owners have to account for their pets during estate planning or the animal may not be cared for.

California Senate Bill 685 removes the discretion of trustees in fulfilling the trust. It also allows courts to appoint a caregiver if the trustee does not wish to arrange for the pet care.

You may see the full Los Angeles Times article on this subject.

If you want to speak with an estate planning attorney in California about a pet trust, call Mitchell A. Port at (310) 559-5259.

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Don’t have tax problems or need tax help at the moment? California’s taxpayers beware: the IRS continues to make progress in a number of key enforcement areas. The IRS is showing improvements in areas critical to maintaining a fair, efficient tax system while bringing billions of additional dollars into the Treasury.

The IRS enforcement efforts increased again in fiscal year 2007. For instance, during 2007 the IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.

Highlights of the enforcement and services numbers for fiscal year 2007, which ended on September 30, include:

Individuals

• Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.

• The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

• Audits of individuals with incomes of $1 million or more increased 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.

• Overall, the total individual returns audited increased by 7 percent. That’s the highest number since 1998.

• Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year.

• The IRS increased audits of individual returns with income of $100,000 or more, up 13.7 percent from last year’s total.

Businesses

In the business arena, the IRS continued efforts to review more returns of flow-through entities – partnerships and S Corporations. Our business numbers reflect that we have placed more emphasis in the growing area of these flow-through returns. While large corporate audits are down slightly, we have increased our focus on mid-market corporations – those with assets between $10 million and $50 million dollars. The IRS enforcement budget in 2007 was similar to the budget in 2006, and in times of flat budgets, the agency cannot increase activity across the board but must address the areas where there is growth and potential risk.

• Audits of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year.

• Audits of partnerships increased to 12,195 during 2007, up almost 25 percent.

• Audits of mid-market corporations increased to 4,473, up 6 percent from last year.

• Audits of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year.

• Although the audits of large corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up 14 percent.

Taxpayer Services

• More taxpayers chose to file electronically in 2007 than during the prior year, with 57 percent of individual tax filers choosing to e-file in 2007.

• More people visited the IRS internet site, IRS.gov. The IRS site was accessed more than 217 million times in 2007, up more than 10.5 percent.

• As in the prior year, the IRS accuracy was 91 percent on tax law questions answered through its toll-free telephone service.

For tax help with serious problems, call tax attorney Mitchell A. Port at (310) 559-5259.

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Sometimes the most difficult part of the estate planning meeting I have with my California clients concerns their choice of guardians for their minor children. Sometimes they are troubled about having too few people to choose from and at other times they are concerned about who they choose when their children are young may be different from those they would choose if their minor children were a bit older. Keep in mind that California law provides that the nomination of guardians is made in your Will (rather than in your living trust or durable powers of attorney).

A terrific blog post that may be helpful in choosing the appropriate guardian can be viewed by clicking here.

If you would like to discuss this and other California estate planning topics with a tax attorney located in Los Angeles, call Mitchell A. Port at (310) 559-5259.

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