The Internal Revenue Service (IRS) has issued final regulations that may increase the amount of the gift tax exemption available to a surviving spouse.  Specifically, the IRS issued final regulations governing portability of a Deceased Spousal Unused Exclusion (DSUE) amount.  Generally, the tax code allows an exemption to the gift tax for a decedent’s estate.  The exemption amount is indexed for inflation and varies by year.  For example, for 2015, the exemption is $5,430,000 per person.  The new portability rules allow the estate of decedent to pass the unused portion of the decedent’s exclusion to a surviving spouse.  This election is made on the decedent’s estate’s tax return.

The practical impact of the new portability rules are that, if the first decedent spouse passes along a Deceased Spousal Unused Exclusion to the surviving spouse, then the surviving spouse will be able to claim a larger estate tax exemption when he or she dies.  The surviving spouse’s estate tax exemption will be his or her personal estate tax exemption, plus the transferred Deceased Spousal Unused Exclusion.  A Fox Rothschild LLP attorney may be able to help you decide whether or not these new rules apply to you and whether they should be factored into your estate plan.

The key provisions are located at 26 U.S.C. § 2010 and 26 U.S.C. § 2505.  The new regulations were enacted pursuant to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and were made permanent through the American Taxpayer Relief Act of 2012.  The new rules apply to the estates of married decedents who die on or after January 1, 2011.

Eric A. Bevan is an attorney with the law firm of Fox Rothschild LLP and a member of the firm’s Litigation, Financial Services Industry and Construction practice groups.  He represents clients in the resolution and litigation of complex commercial disputes, including federal and state court litigation as well as alternative dispute resolution methods such as private arbitration and mediation.  You can contact Eric at 561-804-4470 or ebevan@foxrothschild.com.

Taxes[1]

In the recent case of Coyle v. United States (In re Coyle), 524 B.R. 863 (Bankr. S.D. Fla. 2015)(http://www.flsb.uscourts.gov) the U.S. Bankruptcy Court for the Southern District of Florida (“Bankruptcy Court”) held that a debtor’s untimely Form 1040 for 2006 that was filed in 2010, after the Internal Revenue Service’s (“IRS”) assessment of her tax liability for 2006, was not an honest and good faith effort to comply with the tax laws, was not a “return”  as used in 11 U.S.C. §523(a)(1)(B).  Id. at 870.  Therefore, the debtor’s tax liability for 2006 was not dischargeable.  Id.  The Bankruptcy Court found that the test outlined in Beard v. Commissioner of Internal Revenue, 82 T.C. 766 (1984), aff’d, 793 F. 2d 139 (6th Cir. 1986) (“Beard”) for determination of whether a document submitted to the IRS by a taxpayer qualifies as a return should be applied with the issue being “whether, under the Beard test, a Form 1040 filed after an IRS assessment can never represent an ‘honest and reasonable attempt to satisfy the requirements of the tax law.’”  Id. at 868.  Citing Moroney v. U.S. (In re Moroney), 352 F. 3d 902, 906 (4th Cir. 2006), the Bankruptcy Court noted that “[t]he very essence of our system of taxation lies in the self-reporting and self-assessment of one’s tax liabilities”.  Id. at 869.  Accordingly, once “the IRS has completed the deficiency procedures and assessed a tax debt, it is too late for the taxpayer to satisfy his duty to report the amount already assessed and the form cannot function as a determination of the debt by the taxpayer.”  Id.