Tax Law Commons^™

Complexity Cubed: Partnerships, Interest, And The Proposed Regs, Walter D. Schwidetzky

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New section 163(j) strictly limits business interest expense (BIE) deductions to large (and possibly not-so-large) taxpayers. Generally, BIEs may only be deducted to the extent that they do not exceed 30 percent of adjusted taxable income plus business interest income. Section 163(j)(4) requires partnerships to calculate this limitation at the partnership level. In this report, I focus on how section 163(j) applies to partnerships. Given my focus, I leave to others a more comprehensive review of section 163(j) as a totality,1 as well as the coverage of S corporations. I will tend to give fairly short shrift to the portions …

In Defense Of The Pip Regulations, Walter D. Schwidetzky

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The section 704(b) allocation Regulations contain a highly complex safe harbor, the substantial economic effect rules. If an allocation fails to comply with the safe harbor, it will only survive scrutiny if it is in accordance with the "partners' interests in the partnership" (PIP). Given the complexity of the safe harbor, one might expect the PIP Regulations to be similarly complex, but nothing could be further from the truth. The PIP Regulations are, by tax standards, concise and straightforward. Some have argued that the PIP Regulations do not provide enough guidance, and that a more complex and comprehensive set of …

Tax Treatment Of Legal Fees Under 2017 Tax Cuts And Jobs Act, Fred B. Brown

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This article describes the deductibility of legal fees for federal income tax purposes after the 2017 Tax Cuts and Jobs Act, and provides a recommendation for reforming the current rules.

The Negative Capital Account Maze, Walter D. Schwidetzky

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Outside Hubert I and Hubert II, there has been little discussion of negative capital accounts in the tax context and almost no discussion in the nontax context. Nontax law, however, is critically important. This report provides an integrated discussion of the application of tax and nontax law to negative capital accounts.

One of the challenges in writing this report is that it requires a discussion of both the at-risk rules of section 465 and the debt allocation rules of section 752. Complex issues involving sections 465 and 752 and their interaction are worthy of their own articles. Indeed, others have …

Partnership Tax Allocations: The Basics, Walter D. Schwidetzky

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This article endeavors to help practitioners who are not partnership tax allocation experts identify when they should consult with those with that expertise. The partnership-allocation Treasury Regulations have been called "a creation of prodigious complexity ... essentially impenetrable to all but those with the time, talent, and determination to become thoroughly prepared experts on the subject." This article is written for those, to date at least, without that time and determination. At the same time, the article provides an introduction to the partnership tax allocation rules for those contemplating making the requisite investment of time and determination.

The term "partnership," …

Temporary And Proposed Section 752 Regulations: Progress Or Regress?, Walter D. Schwidetzky

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In October, 2016, the Internal Revenue Service issued temporary and proposed regulations under Internal Revenue Code Sections 752 and 704 (“the 2016 Regulations”). The author reviews and analyzes these regulations, and concludes that the 2016 Regulations properly deny economic risk of loss for unduly remote bottom dollar guarantees. He also concludes, however, that the IRS exceeded its regulatory authority when it also denied economic risk of loss on bottom-dollar guarantees where the risk to the guarantor was not remote. In addition, he observes that the 2016 Regulations lead to an inappropriate disjuncture with Section 465 and create rules that are …

Toward A Reality-Based Estate Tax, Wendy C. Gerzog

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Currently, the estate tax does not accurately value the property and transactions that it is meant to cover. Additionally, the marital and charitable deductions do not reflect actual associated transfers, instead skewing their benefits away from their purported beneficiaries. This Article proposes reforming the estate tax by eliminating these sources of unreality and distortion, and to make the current estate tax a reality-based tax. Through six specific proposals, the Article identifies solutions to the problems associated with testamentary transfers, puts forth alternative methods of valuation to prevent gaming of transfer taxes, and offers significant modifications to two deduction provisions.

Permitting Abused Spouses To Claim The Earned Income Tax Credit In Separate Returns, Fred B. Brown

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The earned income tax credit (EITC) is a refundable tax credit for federal income tax purposes that is generally available to lowincome taxpayers who have income from either employment or selfemployment. The EITC is currently the largest government program providing aid to low-income individuals. The subsidy provided by the EITC is of particular importance to individuals subjected to domestic abuse, given that such individuals are often impoverished, and the EITC can provide them with the financial resources necessary to improve, endure, or leave an abusive relationship.

Despite the importance of the EITC, married individuals subjected to domestic abuse face serious …

A Simpler Verifiable Gift Tax, Wendy G. Gerzog

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The purpose of this article is to propose a simpler verifiable gift tax, to reassert basic principles of transfer taxes, to encourage simple, outright gifts, and to eliminate some of the major abuses in the current gift tax regime. To accomplish these goals, the proposed tax would simplify gift completion rules, adopt a hard-to-complete rule of transfer taxation, reduce the annual exclusion while expanding the consumption exclusion, and employ loss of preference inducements to increase gift tax compliance.

Land-Value Taxation As A Method Of Encouraging Growth In Baltimore, Michael Safko

University of Baltimore Journal of Land and Development

The events that occurred last May have left many residents of Baltimore wondering what can be done to rebuild their city better than it was before.1 One particular suggestion is the elimination of all current property taxes along with the implementation of a land-value tax (LVT).2 An LVT would tax property owners based on the unimproved land they own, rather than on the improvements and structures that have been built on the land.3 The argument follows that this method of taxation would incentivize property owners to develop their land, rather than leave it undeveloped so they can pay less in …

Community Development Vs. Economic Development: Residential Segregation, Tax Credits, And The Lack Of Economic Development In Baltimore's Black Neighborhoods, Jennifer Nwachukwu

University of Baltimore Journal of Land and Development

In 1967, the National Advisory Commission on Civil Disorders penned one of the most famous statements about race in America: “Our nation is moving toward two societies, one black, one white— separate and unequal.”2 For the city of Baltimore, MD, that statement rings true even in 2013. Outsiders think of Baltimore through the lens of HBO’s The Wire. Those who are from Baltimore or live in the city likely would say that driving through Baltimore is like driving through two different cities—nice areas with shops, restaurants, and beautiful architecture; and “not so nice” areas with blocks of dilapidated buildings and …

Here To Stay Or A Flash In The Pan? How Zoning And Property Laws May Affect Airbnb In Baltimore And The Nation, Michael Schultes

University of Baltimore Journal of Land and Development

The advent of the Internet, smartphones, and social media has shrunk the world to the point where a person in Baltimore can connect with someone in Botswana with only the click of a finger. Whether it be a social media post or business e-mail, eight thousand miles can feel more like eight feet with how quickly we can connect and converse with people around the globe. The use of these information technology tools and inventions to store, retrieve, transmit, and manipulate data has transformed the way we learn, the way we communicate, and the way we do business. This newfound …

Integrating Subchapters K And S And Beyond, Walter D. Schwidetzky

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This Article builds upon a similar, lengthier effort that I published in the Tax Lawyer in 2009. While there is overlap, this Article contains much new material. Important case law and tax proposals from the House Ways and Means Committee have come out in the interim. Due to space limitations, unlike my Tax Lawyer effort, this Article attempts to avoid prolixity. It assumes the reader has good knowledge of both Subchapters S and K and the tax entity selection process. If you are not that reader, a review of my Tax Lawyer article or Professor Mann's article in this symposium …

Alms To The Rich: The Facade Easement Deduction, Wendy G. Gerzog

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This article presents the case for repeal of the façade easement deduction. Proponents of this benefit argue that the deduction encourages historic preservation by reimbursing property owners for relinquishing their right to alter the façade of their property in a way inconsistent with that conservation goal; however, this article shows that there are many reasons to urge its repeal: the revenue loss, the small number of beneficiaries, the financial demographics of that group of beneficiaries; the dubious industries that are supported by the deduction; and the continual marked overvaluation and abuse despite Congressional, court, and administrative review and expense.

After …

Federalism And Phantom Economic Rights In Nfib V. Sibelius, Matthew Lindsay

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Few predicted that the constitutional fate of the Patient Protection and Affordable Care Act would turn on Congress’ power to lay and collect taxes. Yet in NFIB v. Sebelius, the Supreme Court upheld the centerpiece of the Act — the minimum coverage provision (MCP), commonly known as the “individual mandate” — as a tax. The unexpected basis of the Court’s holding has deflected attention from what may prove to be the decision’s more constitutionally consequential feature: that a majority of the Court agreed that Congress lacked authority under the Commerce Clause to penalize people who decline to purchase health insurance. …

What's Wrong With A Federal Inheritance Tax?, Wendy G. Gerzog

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Scholars have proposed a federal inheritance tax as an alternative to the current federal transfer tax, but there are serious flaws with that idea. In existing inheritance tax systems, those problems include: (1) different tax rates and exemptions based on the decedent’s relationship to the beneficiary; (2) the lack of a tax on lifetime gratuitous transfers, including gifts with retained interests or control; and (3) the persistence of most current valuation distortion abuses. In any inheritance tax model, moreover, there would be significantly decreased compliance rates and increased administrative costs because by focusing on the transferees instead of the transferor, …

Pass-Through Entity Reform: Is A Major Overhaul Necessary?, Walter D. Schwidetzky

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No abstract provided.

Van Alen: A Reasonable Consistency, Wendy G. Gerzog

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In Van Alen, the Tax Court held that the duty of consistency required that two of the decedent’s children use the section 2032A basis valuation figures to determine gain on the sale of their interest in the decedent’s ranch, which was left to them in trust. The siblings had argued that their stepmother erroneously completed their father’s estate tax return.

Comments: The Illegal Immigrant Tax: Evaluating State Remittance Taxes Under The Dormant Commerce Clause And The Equal Protection Clause, Meredith Cipriano

University of Baltimore Law Review

No abstract provided.

Graev: Conditional Facade Easement, Wendy G. Gerzog

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In Graev v. Commissioner, the Tax Court decided whether the taxpayers’ donations of a facade easement and cash contributions were conditional gifts and therefore disallowable as charitable deductions under the requirements of the regulations. The court reviewed the facts to determine whether the condition was allowed because it was “so remote as to be negligible.” The taxpayers argued that case law at the time of the donation allowed for a donation of between 10 and 15 percent of the value of the property, and that they had deducted a value constituting 11 percent of the property’s appraised value; that the …

Koons: Interest Deduction And Flp Valuation Practice Pointers, Wendy G. Gerzog

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The Tax Court's Koons decision explains the rules for allowing an estate to deduct interest payments, and it details how the court arrived at a determination of the value of a family limited liability company interest.

Valuing Fractional Interests In Art For Estate Tax Purposes, Wendy G. Gerzog

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It is difficult to value fractional interests in art because there is virtually no market in those interests. Nevertheless, the Tax Court in Estate of Elkins valued the decedent’s fractional interests in multiple artworks, which the decedent and his children highly cherished. First, the court addressed the restricted agreements under section 2703 and then the court determined the value of decedent’s interests in the art.

When Sommers Are Winters: Do Blanks Denote Revocability?, Wendy G. Gerzog

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In Sommers, ruling on both parties’ motions for partial summary judgment, the Tax Court dealt with claims of issue preclusion and collateral estoppel, equitable apportionment, the completion of gifts of limited liability company interests, and retained powers that would cause estate tax inclusion.

Two aspects of Sommers held particular interest for me. The first is that the parties appear to be arguing their opponent’s conventional position. The second is that the court grappled with whether the blanks left in the gift documents were immaterial to gift completion; however, the court did not address whether the decedent’s completed gifts qualified for …

Wimmer Wins Flp Annual Exclusions, Wendy G. Gerzog

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In Wimmer, the Tax Court held that the income stream from a taxpayer’s gifts of family limited partnership interests was eligible for the annual exclusion. By comparing the income interest in the partnership’s dividend paying marketable securities to the income interest in a trust, the court made Wimmer a winner. But does the opinion logically lead to that conclusion?

Not All Defined Value Clauses Are Equal, Wendy G. Gerzog

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Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Facade Easement: Inexpert Valuation, Wendy G. Gerzog

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The article discusses the recent Dunlap decision, which involved facade easement transfers to the National Architectural Trust, a qualified charity that preserves building easements across the country, although most are in New York City. Although allowing a deduction for their cash contributions to NAT to enforce the easement and not finding any penalties applicable, the Tax Court held that despite two valuation reports written by accepted valuation experts, the taxpayers had not established any value for their easement.

Wandering Far Afield With Defined Value Clauses, Wendy G. Gerzog

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The Wandry decision extends the application of defined value clauses beyond those family limited partnership cases that transfer any excess value to a charity. In Wandry, the Tax Court reads Procter narrowly and ignores the fundamental rationale of Robinette.

Defined Value Clauses And Fair Market Value, Wendy G. Gerzog

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In Hendrix the Tax Court considered the issues of whether defined value clauses were the result of arm’s-length transactions and whether they were void as against public policy. The underlying dispute was whether the taxpayers’ transfers of the John H. Hendrix Co. stock were valued at fair market value. With a decision favoring the taxpayers, the defined value clauses in both McCord and Hendrix impede the accurate valuation of taxable gifts to family members and of deductible charitable gifts.

Boomer-Ang Eldercare: Deductible Claim?, Wendy G. Gerzog

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In this article, Gerzog discusses Estate of Olivo, in which the Tax Court determined the deductibility under section 2053 of a claim against the decedent’s estate for eldercare services provided by a family member.

Flp Loss, But Crummey Win, Wendy G. Gerzog

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In Turner the Tax Court determined that section 2036 applied to the decedent’s transfers of assets to his family limited partnership but that the insurance premiums he paid indirectly to his insurance trust qualified for the annual exclusion.