The Joint Committee co-chairs are U.S. Senator Patty Murray (D-WA) and Rep. Jeb Hensarling (R-TX). They issued a joint statement this week that indicated there were "serious discussions" underway.
The topics of discussion are focused on three areas. First, the committee is creating its rules of operation. Second, it is scheduling meetings. Third, committee members are reviewing the prior deficit discussions and work of other committees.
Editor's Note: There are three principal efforts by other committees that will be reviewed. The Fiscal Commission appointed by President Obama and co-chaired by Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles provided a starting point. Earlier this year, Vice President Biden chaired a bipartisan committee that continued discussions and negotiations. Finally, there were multiple proposals submitted during the negotiations between President Obama and Speaker John Boehner (R-OH). Therefore, there is no shortage of potential deficit solutions. The challenge will be for the Senators and Representatives who hold widely-different opinions to come to an agreement.
Estate Tax Refund Denied
In D. Charles Dicow v. United States et al.; No. 10-2151 (1st Circuit 19 Aug 2011), the Court determined that the executor was outside the required time limit in filing a suit for a refund.
Margaret Dicow passed away on January 15, 2003. Her federal estate tax was due on October 15, 2003. Prior to that date, Executor Charles Dicow filed IRS Form 4768 to request a six month extension for filing IRS Form 706 and sent a check for the estimated tax of $945,000. The Form 706 filing date was automatically extended until April 15, 2004.
On March 23, 2004, Executor Dicow filed a second request for an extension until October 15, 2004. He typed in capital letters "REQUEST FOR SECOND EXTENSION" at the top of that page.
The IRS noted internally that the extension was denied but did not inform Dicow.
The Form 706 was filed on September 30, 2004. Dicow requested a refund of $337,139.81. Even though the filing was late, the IRS paid the refund amount.
On September 10, 2007, Dicow filed an amended estate tax return and requested in an additional refund of $237,813.48.
On October 15, 2007, the IRS denied the additional requested refund. On May 14, 2009, Dicow filed an action in the U.S. District Court for the State of Massachusetts and requested a refund.
The District Court noted that Sec. 6511(b)(2)(A) indicated the IRS could issue a six-month extension. However, Reg. 20.6081-1 limited the IRS to one six-month extension. Relief was denied.
The 1st Circuit observed that Sec. 6511 specifies the period of limitation for an estate tax refund to be "within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires the later." The IRS position is that the regulation under that statute is appropriate.
The Court noted that the statute authorizes a reasonable extension of time. However, the provision in the statute that allows the IRS to extend for six months does not mandate that the IRS issue multiple extensions. Otherwise, the IRS would be permitting "unreasonable and illogical" extensions that could indefinitely postpone filing a return. Therefore, the Court determined that the IRS was limited to granting only one six-month extension.
Dicow also claimed that the IRS was subject to the doctrine of equitable estoppel. By failing to reply to the request for a second extension, Dicow claimed the IRS had "misrepresented" in a substantial manner and therefore is estopped from denying the claim.
However, the Court noted that equitable estoppel applies only if there is a "definite misrepresentation of fact." The failure of the IRS to affirmatively deny the extension does not meet that standard. Therefore, the refund request was untimely and was denied.
Appraisers' Requirements and Certification
The Pension Protection Act of 2006 created new standards for appraiser certification. Most appraisers are certified by the American Society of Appraisers (ASA), the Appraisers Association of America or they are a Member of the Appraisal Institute (MAI).
The ASA is a very respected appraisal organization. Their members must practice in the field for five years and then must complete a four-course program. The course covers the Uniform Standards of Professional Appraisal Practice (USPAP).
With several exceptions, gifts of property over $5,000 in value ($10,000 for closely-held stock) will require a qualified appraisal or the charitable deduction may be denied. Reg. 1.170A-13(c). Qualified appraisal exceptions include stock traded on a public exchange, inventory and vehicles sold by the donee without significant intervening use or material improvement. Sec. 170(f)(11)(A)(ii).
The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions). The qualified appraisal requirement applies to individual taxpayers, partnerships and corporations.
For gifts of art valued at over $20,000 or if the noncash gift deduction exceeds $500,000, the appraisal must be appended to the return. Sec. 170(f)(11)(D). If the appraised property is a home in a historic district, the appraisal must include photos of the four sides of the home, a $500 fee and an agreement with a qualified conservation charity. The historic easement appraisal must be submitted with the tax return. The agreement states under oath that the conservation charity is qualified to receive the easement and has the resources and commitment to enforce the agreement. Sec. 170(h)(4)(B)(ii). If a donor gives personal property "not in good used condition," valued over $500, an appraisal must also be appended to the tax return.
The appraisal document also should include the name, address and other applicable information about the appraiser. The appraiser must affirm that the appraisal was done on a specific date, that the property was valued as of the date of the gift, that the appraisal was done for income tax purposes and the appraisal must disclose the methodology used in deriving the property value. Reg. 1.170A-13(c)(3).
In addition to specific requirements for the appraiser, there may be substantial accuracy-related penalties. The appraiser will be qualified if he or she has an appraisal designation from a recognized organization, has otherwise met comparable education experience requirements, regularly performs and is paid for appraisals, has verifiable education and experience with the type of property appraised, has not been prohibited from practicing before the IRS and has not been excluded by Treasury regulations from serving as an appraiser. Sec. 170(f)(11)(E)(ii).
For real property gifts, the appraiser meets the required standards if he or she is licensed or certified for the type of real property by the appropriate state agency. Some state agencies have a separate certification for residential real estate and other types of real estate such as commercial real estate. In these states the appraiser must have the appropriate designation for the type of real estate gifted to charity. Notice 2006-96; 2006-46 IRB 1.
For gifts that are not real property, the appraiser must fulfill three requirements. He or she must have completed "college or professional-level coursework," must have two years of experience in buying, selling or valuing the type of gifted property and must thoroughly describe in the appraisal his or her education and qualifying experience.
Generally, appraisals will qualify if consistent with the Uniform Standards of Professional Appraisal Practice set forth by the Appraisal Standards Board of the Appraisal Foundation. Notice 2006-96, Section 3.03.
Appraisals must also include a statement that the appraiser recognizes that a substantial or gross valuation misstatement that he or she knew or reasonably should have known would be used on a tax document could lead to a civil penalty. Sec. 6695A(b). The appraiser penalties for incorrect appraisals are the greater of $1,000 or 10% of the understatement from a substantial or gross valuation misstatement, with a cap of 125% of the appraiser's gross income from the appraisal. Sec. 6695A(b). The IRS may also discipline appraisers after notice and a hearing. Disciplinary action may include suspending or barring an appraiser from preparing or presenting appraisals to the IRS.
Accuracy related penalties are applicable with specific floors. The substantial valuation misstatement floor is 150%. Sec. 6662(e)(1). The penalty for a substantial valuation misstatement is 20% of the underpayment. A gross valuation misstatement is 200% or more of correct value. Sec. 6662(h)(2)(A)(i). The penalty on a gross valuation misstatement is 40% of the underpayment. There is an exception for underpayments of $5,000 or less and a reasonable cause exception to the accuracy-related penalty for substantial valuation misstatements, but it does not apply in the case of gross valuation misstatements.
Applicable Federal Rate of 2.0% for September – Rev. Rul. 2011-20; 2011-36 IRB 1 (18 Aug. 2011)
The IRS has announced the Applicable Federal Rate (AFR) for September of 2011. The AFR under Sec. 7520 for the month of September will be 2.0%. The rates for August of 2.2% or July of 2.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2011, pooled income funds in existence less than three tax years must use a 2.8% deemed rate of return. Federal rates are available by clicking here.
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