weiss berzowski brady llp's 31st annual tax and business seminar

31st AnnualTax and Business SeminarSeptember 18th, 2013The Wisconsin Club,

Milwaukee, WI

Welcome toWeiss

Berzowski Brady’s

Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, any U.S. federal tax advice contained in these materials is not intended or written to be used, and cannot be used, for the purposes of

(i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Weiss Berzowski Brady31st Annual Tax and Business

SeminarSeptember 18, 2013

Representations, Warranties and Indemnities in the Business Sale ContextDavid J. Roettgers

Weiss Berzowski Brady31st Annual Tax and

Business SeminarSeptember 18, 2013

Generally – Types of Transactions• Sale of stock

• The buyer acquires the stock or membership interest in the selling entity.

• All the liabilities of the transferring entities pass through to the buyer of the business. As a result the representations, warranties and periods of indemnification may be more carefully scrutinized.



Generally – Types of Transactions

• Sale of Assets• The entity sells all or substantially all of the

assets and the buyer assumes only certain liabilities.

• This is the most prevalent type of transaction. In this situation the buyer is able to limit liability and protects itself against the liabilities of the seller. As a result the representations, warranties and indemnifications may be less carefully scrutinized.



Generally – Types of Transactions

• Mergers• All of assets and all of the liabilities of two or

more entities are combined into a single entity.

• The liabilities of each merger participant will carry over to the new entity. The seller, however, does continue to be an owner in the new entity.



Generally – What are Representations and Warranties

• Representations Defined• Representations are statements made by a seller

regarding the condition of the seller. These statements cover all financial and nonfinancial aspects of the business.

•Warranties Defined• Warranties are seller’s promises to the buyer that the

representations are true and, if they are not, buyer may be entitled to recover damages for the breach.



Generally – Types of Representations and Warranties

• Financial statements• Employee related representations• Customer relationships/contracts• Compliance with laws• Intellectual property• Environmental• Undisclosed liabilities• Litigation



Generally – What is Indemnification• Definition – general

• Indemnification is an agreement between the parties whereby one party (typically the seller) agrees to reimburse the other (typically the buyer) for any losses they incur as a result of the breach of the representations and warranties.

• Things to consider• Survival• Term• Baskets• Caps• Escrows



Representations and Warranties – Protecting Myself

• Qualifiers• Material Adverse Effect• Knowledge Qualifiers




• Material Adverse Effect (“MAE”) sample language• - “material adverse effect” means any result,

occurrence, fact, change, event or effect that has, or could reasonably be expected to have, materially adverse effect on the business, assets, liabilities, capitalization, condition (financial or otherwise), results of operations or prospects of seller.”




• Material Adverse Effect• Issues related to MAE definition

• - “reasonably expected to have”• - “prospects”




• MAE Carve outs• - “…..except to the extent resulting from:”

• acts of war, sabotage or terrorism, military action

• any changes in federal, state or local laws including rules and regulations thereof.

• any changes in accounting rules or principals including changes in GAAP or other accounting standards

• changes in general economic conditions whether local, domestic or foreign.




• MAE Carve outs (continued)• - “….. Except to the extent resulting from:”

• announcement of the transactions contemplated herein

• any other action required by this agreement or

• any changes in the general financial market (provided that any such event, change or action does not effect the seller in a substantially disproportionate manner).



Representations and Warranties – Protecting Myself• Knowledge Qualifiers

• Actual knowledge• - “knowledge means the actual knowledge of the owner,

directors, officers, etc.??”• Constructive knowledge

• - “any person knows or should have known”

Optional language: • - “knowledge the seller would have had after

reasonable inquiry of a person reasonably expect to have knowledge”



Examples – Undisclosed liabilities

“Seller has no liability except for the liabilities reflected or reserved against on the latest balance sheet of the company except for those liabilities incurred in the ordinary course of business since the date of such interim balance sheet.”

“Seller has no liability of the type or nature required to be disclosed in the balance sheet prepared in accordance with GAAP except for liabilities reflected…..”

“Seller has no liability of the type or nature required to be disclosed in the balance sheet prepared in accordance with GAAP or which could not reasonably be expected to have, individually or in the aggregate, a materially adverse effect, except for liabilities ….”



Examples – Compliance with laws:

“Business has been and is being conducted in compliance with all applicable federal, state and local laws, rules and regulations.”

“To the sellers knowledge the business has been and is currently being conducted in compliance with all applicable federal, state, and local laws, rules and regulations.”

“To the sellers knowledge the business has been and is currently being conducted in compliance with all applicable federal, state and local laws, rules and regulations except to the extent such violation could not reasonably expect it to have, individually or in the aggregate, a materially adverse effect.”



Indemnification

Negotiation points• “Sandbagging”• Survival period• Baskets• CAPS



Indemnification

“Sandbagging”• Sandbagging refers to a seller’s liability for

breach of a representation or warranty if the buyer had knowledge of the breach prior to closing.

• Anti-sandbagging refers to a provision that limits a seller’s liability if the buyer knew of the breach before closing.



Indemnification

Survival Time for a Claim• Survival is the time period after closing

which a buyer may make a claim • The survival time varies on a deal by deal

basis and on the type of representation and warranty, i.e., “fundamental representations”, tax representation or fraud or intentional misrepresentations.



Indemnification

Baskets• A basket is the threshold amount that must be

reached before a seller becomes liable to the buyer for breach of the agreement.



Indemnification

Deductible: • “Seller shall not be liable to indemnify the buyer for any

losses until the aggregate amount of the losses exceeds $___ and only to the extent the losses exceed $____.”

First Dollar: • “Seller shall not be required to indemnify buyer for

losses unless the aggregate amount of the losses exceed $___, in which event seller shall be responsible for the amount of all losses, regardless of the deductible.



Indemnification

Baskets• Carve outs to baskets may also be negotiated • Often times there is no basket in the event of certain

types of breaches such as fraud, taxes, environmental, etc.



IndemnificationCAPS• A cap is a maximum amount a buyer may

recover from a seller for claims of indemnifications.



Indemnification• Alternatives

• Unlimited• Amount of the purchase price• A percentage of the purchase price• The escrowed amount, if any

• Fundamental representations, tax representations, intentional breaches, fraud may increase/have an increased cap.



What’s Fair is Fair, But is the Marketplace Fairness Act

Mark W. Siler



Overview• What is the Marketplace Fairness Act

• Why is this a hot topic• Current Law and Conditions

• Quill v. North Dakota• State Budgets

• The Bill• Common Misconceptions• Supporters and Detractors – Who and Why• Chances of Passing and Steps for Preparation



What is the Marketplace Fairness Act

• Simply, it is legislation which grants states the authority to compel remote sellers (more on this in a minute), no matter where they are located, to collect sales tax at the time of a sale transaction and remit it to the proper state.

• It is NOT an “internet sales tax”• It is not federal legislation which enacts a tax – it

allows states to enact a tax on remote sellers • It does NOT only apply to internet sellers – it allows

states to enact laws which capture all remote sellers including catalog sellers and brick and mortar stores



Current Law and Conditions• Quill Corp. v. North Dakota 504 U.S. 298

(1992).• The nexus standard for sales and use tax is set

forth in this case• Due process nexus analysis turns on whether

an individual’s connections with a state are substantial enough to justify the state’s exercise of power over him. Therefore, notice and fair warning are the touchstones of the due process nexus analysis




(1992).• The Supreme Court outlined the different nexus

requirements to satisfy the Commerce Clause• According to the Supreme Court, the Commerce

Clause and its nexus requirement are not about fairness for the individual taxpayer, but by structural concerns about the effects of state regulation of the national economy

• The substantial nexus requirement is a means for limiting state burdens on interstate commerce




(1992).• The Supreme Court ruled that the North Dakota

law was too onerous on interstate commerce• There are 6,000 taxing jurisdictions in the U.S.

with the authority to impose the same collection and filing obligation

• This would create a huge record keeping and compliance burden on businesses



Current Law and Conditions• States are looking for any new revenue

they can bring in. • States are increasingly frustrated that they can’t

collect sales tax on products shipped into the state

• Some have even gone so far as to pass legislation requiring remote sellers to collect sales taxes



The Bill• Passed the Senate in May with bipartisan

support.• Sponsorship by 30 Senators from both parties• House version has 67 sponsors and again has

bipartisan support• It has support from 26 Governors – 13

Republicans, 12 Democrats and 1 Independent• The only surprise with this is that there are not

more supporters – the purpose of the bill is to give states more power to collect money



The Bill• Authorization to Require Collection of Sale

and Use Taxes.• Two methods

• Streamlined Sales and Use Tax Agreement• Alternative Method



The Bill• Streamlined Sales and Use Tax Agreement

• Members states under the Streamlined Sales and Use Tax Agreement are all authorized to require remote sellers to collect and remit sales and use tax with respect to remote sales sourced to the Member state • This means sales which are delivered into the state

• Exceptions • Must meet simplification requirements set forth in the

law• Small seller exception



The Bill• Streamlined Sales and Use Tax Agreement

• Full Member States – Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, Wyoming

• Associate Member States – Ohio, Tennessee• 180 days’ notice of intent to exercise authority

under the act



The Bill• Alternative Method

• Non-Member states may require sellers to collect and remit sales and use taxes with respect to remote sales sourced to that state

• Authority shall commence no earlier than the first day of the calendar quarter that is at least 6 months after passing laws that meet certain requirements



The Bill• Alternative Method

• Those laws must:• Specify the tax or taxes to which such authority and

simplification requirements apply • Specify the products and services otherwise subject

to the tax or taxes identified by the state in question to which the law does not apply



The Bill• Simplification Requirements.

• The State must provide:• A single entity within the state responsible for

all state and local sales and use tax administration, return processing and audits for remote sales sourced to the state

• A single audit of a remote seller for all state and local taxing jurisdictions within the state

• A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration




• The State may not require a remote seller to file sales and use tax returns any more frequently than returns are required for non-remote sellers

• The State must provide a uniform sales and use tax base among the state and local taxing jurisdiction

• Source remote sales to the location where the item sold is received by the purchaser based on the location indicated by the instructions for delivery furnished by the purchaser




• The State must provide:• Information indicating the taxability of products

and services along with any product and service exemptions from sales and use tax in the state and a rates and boundaries database

• Free software for remote sellers that calculates sales and use tax due, that files sales and use tax returns and is updated to reflect rate changes

• Certification procedures for software providers• Certification procedures for software providers



The Bill• Small Seller Exception.

• A state can only require a remote seller to collect sales and use taxes if the remote seller has gross receipts from remote sales of over $1,000,000 in a calendar year

• There are aggregation rules that may combine remote sellers with certain ownership relationships



The Bill• Other Limitations.

• Does not subject remote sellers to franchise, income, occupation or other types of taxes

• No effect on nexus• No effect on seller choice• Licensing and regulatory requirements• No new taxes • No impact on intrastate sales



Common Misconceptions• Important note: It is very difficult to find

unbiased coverage of this bill. • This bill will implement a new sales tax.

• Not true - Each state must take steps to pass its own tax legislation



Common Misconceptions• This bill will implement a new sales tax.

• Example of Biased coverage: From the website marketplacefairness.org• Question: Won’t this raise my taxes? Is this a new tax?• Answer: No. Consumers are required under existing

state laws to pay sales and use taxes on the goods they purchase, but online sellers simply are not required to collect the tax in the same way that local businesses do – which puts local businesses at a disadvantage. Consumers can be audited and charged with penalties for failing to pay sales and use taxes, but too often states are unable to enforce this requirement



Common Misconceptions• This bill will implement a new sales tax.

• Who is behind marketplacefairness.org? TaxCloud – a producer of sales tax compliance software



Common Misconceptions• It only impacts internet sales.

• Not true - It impacts all remote sales. These can be sales by brick and mortar stores

• It applies to your business if you have over $1,000,000 in sales. • This is not completely true although it is repeated

in many places, but it is $1,000,000 in REMOTE sales

• Sales in any state where you have nexus will not be counted



Common Misconceptions• You must comply with all 9,600 (note the

updated number) taxing jurisdiction.• This is actually true, but the functioning of the

bill creates a sort of safe harbor for retailers using compliance software



Supporters and Detractors – Who and Why?

• The bill has wide support across several fronts.• Many large retailers support the bill. These include

Amazon.com• These include mostly large, brick and mortar stores who

already have nexus in most if not all states • Most state and local entities support the bill

• A new revenue stream• The local groups want the revenue and think it will help their property

tax base

• Local chambers of commerce support the bill• Most are made up of small, local, brick and mortar stores



Supporters and Detractors – Who and Why?

• The opposition is from just as diverse a group.• American Association of Attorney CPA’s• American Catalog Mailers Association• eMainStreet Alliance• ebay, Inc.



Chances of Passing and Steps for Preparation

• Timing is the difficult question here. The bill has and will remain controversial because it is painted as a new tax. However, as long as states need new revenue streams it is likely they will push for the passage of some type of sales tax law reform. Most commentators believe that passage of some sales tax nexus reform legislation will pass in the near future.




• With the political and economic situation we currently have, there has never been more support for a bill of this type.

• It is also important to note that many local groups are worried about property tax base. They want a level playing field for brick and mortar stores because they don’t want empty storefronts.




• Steps to help clients prepare for the law:• Determine where your client is already in compliance with

sales tax requirements and where your client is making sales without paying sales tax

• Review internal accounting systems to be sure your client is tracking the information required, especially shipping instructions which will determine sourcing

• Sample and test compliance software before it is actually needed

• Be ready for angry customer calls, emails and reviews



The Net Investment Income TaxSteven M. Szymanski



Overview• Section 1411 of the Internal Revenue

Code was enacted as part of the Health Care and Education Reconciliation Act of 2010.

• Section 1411 is effective for taxable years beginning after December 31, 2012.



Overview• Section 1411 imposes a 3.8% tax on the net investment

income of individuals, estates and trusts with income above certain statutory threshold amounts.

• Section 1411 does not apply to a nonresident alien.• On November 20, 2012, the IRS and Treasury issued

Proposed Regulations with respect to Section 1411.• The Proposed Regulations may be relied upon by

taxpayers until they are finalized.



Section 1411 – The Net Investment Income Tax• Net Investment Income Tax for Individuals.

Section 1411 imposes a 3.8% tax on the lesser of: (1) an individual taxpayer’s “net investment income” for the tax year, or (2) the excess, if any, of (a) the individual taxpayer’s modified adjusted gross income for the tax year over (b) the statutory threshold amount.



Section 1411 – The Net Investment Income Tax• Statutory Threshold Amounts.

• For taxpayers filing a joint return, the statutory threshold is $250,000.

• For a married taxpayer filing a separate return, the statutory threshold is $125,000.

• For any other instance, the statutory threshold is $200,000.



Section 1411 – The Net Investment Income Tax• Definition of Net Investment Income.

Section 1411 defines “net investment income” as “investment income” less any deductions properly allocable to the income.



Section 1411 – The Net Investment Income Tax

• Investment Income includes, without limitation, the following items:• Gross income from interest, dividends, annuities,

royalties, and rents (other than those derived in the ordinary course of an active trade or business);

• Net gains from dispositions related to passive activities;

• Income from pass-through entities in which the taxpayer does not materially participate (within the meaning of Section 469); and

• Income from the investment of working capital.




• Exclusions from Investment Income. • Income that is taxed under the Self-Employment Contribution Act. • Amounts paid by an employer to an employee that are treated as

wages. • Any distribution from the following plans or arrangements:

• a qualified pension, stock bonus, or profit sharing plan under Section 401(a)

• a qualified annuity plan under Section 403(a)• a tax-sheltered annuity under Section 403(b)• an individual retirement account under Section 408• a Roth IRA under Section 408A• a deferred compensation plan or a state and local government

or a tax-exempt organization under Section 457(b)



Section 1411 – The Net Investment Income Tax• Ordinary Course Exception For Interest,

Dividends, Etc.. Interest, dividends, annuities, royalties and rents are not included in net investment income if they are “derived in the ordinary course of an active trade or business.”

• The ordinary course exception consists of a two-pronged test: (1) the passive activity test and (2) the trade or business test.




• The Passive Activity Test. In order for an item of income to be excluded from net investment income, the item must be derived in a trade or business that is neither:• a passive activity (within the meaning of

Section 469) nor • a business which involves the trading of

financial instruments or commodities.




• The Passive Activity Test. • In analyzing the passive activity test, the question

arises at what level is the passive determination made, individual or entity.• In the case of an individual who is engaged in a business

directly or through a disregarded entity, the passive determination is made at the individual level.




• The Passive Activity Test. • In the case of an individual, estate or trust that owns an

interest in a pass-through entity, the determination of whether an item of income allocated to the individual, estate or trust from the pass-through entity is made in the following manner: The determination of whether the trade or business from which the

income is derived is a passive activity with respect to the taxpayer is determined at the taxpayer level.

The determination of whether the trade or business from which the income is derived is a trade or business involved in the trading of financial instruments or commodities is made at the entity level.




• The Trade or Business Test. • In order for an item of income to be excluded

from net investment income, the item must be derived in a trade or business.

• The Proposed Regulations do not define a “trade or business.” Rather, they reference Section 162 regulations and case law for precedent on whether a trade or business exists.



Section 1411 – The Net Investment Income Tax• Section 469 Reference. Section 1411

incorporates by reference the passive activity rules of Section 469.



Section 1411 – The Net Investment Income Tax• Passive activity

• A passive activity is any activity that involves the conduct of a trade or business and which the taxpayer does not materially participate.

• Material participation is defined as a taxpayer being involved in the trade or business on a regular, continuous and substantial basis.




• The Temporary Regulations for Section 469 provide seven safe harbors for material participation.




• Rental activities are presumed to be per se passive activities, unless an exception applies. Because of this presumption, rents and net gain from real estate presumptively constitute net investment income. Consequently, it is imperative to find an exception to the per se presumption. The available exceptions include:

• Real estate professional status.• Grouping rules.• Rules that recharacterize passive income as nonpassive.




• Impact of Real Estate Professional Rule. If a taxpayer qualifies as a real estate professional, the per se treatment of a rental activity as passive no longer applies. The taxpayer is allowed to test for material participation and may use the grouping rules to lump various activities into a single activity in order to satisfy material participation.




• Real Estate Professional Rule. A taxpayer may qualify as a real estate professional for a tax year if:

• more than one-half of the personal services performed in trades or businesses by the taxpayer during such year are performed in “real property trades or businesses” in which the taxpayer materially participates

• the taxpayer performs more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participates.

• “Real property trades or businesses” means any real property development, redevelopment, construction, reconstruction, conversion, rental, operation, management, leasing, or brokerage trade or business.




• Grouping Rules. • The Section 469 Regulations provide rules

which allow a taxpayer to group a taxpayer’s trade or business activities and rental activities for purposes of applying the passive activity loss rules.

• The grouping rules allow one or more trade or business activities to be treated as a single activity if the activities constitute an “appropriate economic unit” for the measurement of gain or loss.




• Whether a grouping of activities constitute an “appropriate economic unit” depends on the relevant facts and circumstances.

• Factors. • Similarities and differences in types of trades

and businesses.• The extent of common control.• The extent of common ownership.• Geographic location.• Interdependencies between and among the

activities.




• Passive Income Recharacterization Rules • Self-rental rule. • Nondepreciable property rule. • Substantially appreciated property rule.



Section 1411 – The Net Investment Income Tax• Net Gains from Dispositions Related to

Passive Activities. • Generally, an interest in a partnership or S

corporation is not considered property held in a trade or business.

• Therefore, gain or loss from a sale of a partnership or S corporation interest will be subject to the net investment income tax.



Section 1411 – The Net Investment Income Tax• Net Gains from Dispositions Related to

Passive Activities. • Gain from the disposition of a partnership or S

corporation interest will only be taken into account for net investment income tax purposes to the extent of the net gain which would be taken into account by the taxpayer if all of the assets of the partnership/S corporation were sold at fair market value immediately prior to such disposition.




• The Proposed Regulations set forth a four-step process for this deemed sale:• The partnership or S corporation is deemed to

sell all of its properties at fair market value for cash immediately prior to the disposition of the partnership or S corporation interest.

• The partnership or S corporation determines the gain or loss on each property deemed to have been sold by comparing each property’s fair market value and adjusted basis.




• The gains and losses computed for each property are allocated to the transferor taxpayer, complying with the allocation provisions of Sections 704(b), 704(c), and 743(b) and the regulations thereunder.

• Gains and losses attributable to non-passive trade or businesses and that are not in the trade or business of trading financial instruments or commodities are netted together to compute a net gain or loss. Net gains (negative adjustments) are subtracted from the total gain or loss on disposition of the partnership or S corporation interest, and net losses (positive adjustments) are added to the total gain or loss on disposition of the partnership or S corporation interest.



Section 1411 – The Net Investment Income Tax• Income from the Investment of Working

Capital. • Gross income and net gain attributable to the

investment of working capital is not derived in the ordinary course of a trade or business.

• As a result, the gross income and net gain derived from working capital is subject to the net investment income tax.



Elections to Consider• Regrouping of Activities Election.

• The Proposed Regulations provide taxpayers with a “fresh start” with respect to activity groupings for taxpayers subject to Section 1411.

• Taxpayers subject to Section 1411 can regroup previous regroupings.

• The regrouping must be made for the first tax year beginning after December 31, 2013, in which the taxpayer is subject to the net investment income tax (determined without regard to the effect of the regrouping).

• Taxpayers may also regroup their activities for a tax year that begins during 2013 if they would be subject to the net investment income tax without regard to the effect of the regrouping.



Elections to Consider• Regrouping of Activities Election.

• A taxpayer choosing not to regroup its activities under the Proposed Regulations will not be precluded from regrouping its activities once the Proposed Regulations are finalized.

• Taxpayers must disclose details regarding any regrouping in a written statement attached to their original income tax return in the year of the regrouping.



Elections to Consider• Installment Sale Election

• Installment sales of partnership or S corporation interests are subject to the net investment income tax.

• The Proposed Regulations provide for an adjustment to gain or loss from a disposition of a partnership or S corporation interest for purposes of determining the net investment income tax

• The adjustment is calculated in the year of the disposition. Consequently, the adjustment is not available for pre-Section 1411 installment sales. This results in the full amount of the gain on the installment sale proceeds received in tax years beginning after December 31, 2012 being taxable as net investment income.



Elections to Consider• Installment Sale Election

• Taxpayers may make an election to installment sales gains that are attributable to pre-effective date dispositions in order to adjust gains on installment sales and limit application of the net investment income tax.



Estate Tax Portability – Finally a Permanent Estate Planning Tool

Nancy M. Bonniwell



What is Estate Tax Portability?

• Surviving spouse’s ability to use a predeceased spouse’s unused gift and estate tax exemption.

• Purpose of portability: simplify estate planning for married couples.

Weiss Berzowski Brady31st Annual Tax and Business Seminar

September 18, 2013

Computing the DSUE Amount• DSUE amount is equal to the lesser

of:• Basic exclusion amount in the year of

the spouse’s deathor

• Last deceased spouse’s remaining exclusion


September 18, 2013

The Portability Election is Not Automatic

• Portability election is made by the executor on a timely filed estate tax return. • File within 9 months of the date of death, plus

extensions.• Return is filed by the executor of the estate or any

person in possession of the deceased spouse’s property.

• Once made, the election is irrevocable.


September 18, 2013

The Portability Election is Not Automatic

• An estate tax return is required even if the estate’s value is below the filing threshold.

• Opting out of portability: check the box or do not file a return.

• No statute of limitations for the DSUE amount.


September 18, 2013

Properly Prepared Estate Tax Return• “Estimate” the fair market value of the

assets to the nearest $250,000 for assets that qualify for the marital deduction or charitable deduction.

• Appraisals not required.• Good faith and due diligence are

required.


September 18, 2013

Properly Prepared Estate Tax Return• The exception to the above relief does

not apply if:• Partial QTIP election.• A partial interest in property to each of the

surviving spouse and a third party.• Formula bequests.• Alternate valuation or valuation of farm or

other real property.• Due diligence is not exercised.


September 18, 2013

Who Is the Last Spouse to Die?The following examples illustrate how estate tax portability works:

Example 1• Husband 1 dies. He has $2 million of unused estate tax

exemption. He made taxable transfers of $3 million. • Husband 1’s estate tax return permits Wife to use

Husband 1’s deceased spousal unused exclusion amount.

• As of Husband 1’s death, Wife has made no taxable gifts.

• Wife’s applicable exclusion amount is $7 million (her $5 million basic exclusion amount plus $2 million DSUE.)


September 18, 2013

Who Is the Last Spouse to Die?Example 2• Same facts as in Example 1• Wife subsequently marries Husband 2. • Husband 2 predeceases Wife. He made $4

million in taxable transfers and has no taxable estate.

• Husband 2’s estate tax return permits Wife to use Husband 2’s DSUE amount: $1 million

• Wife’s applicable exclusion amount is $6 million (her $5 million basic exclusion amount plus $1 million DSUE.)


September 18, 2013

Who Is the Last Spouse to Die?Example 3 • Same facts as in Examples 1 and 2, except…• Wife predeceases Husband 2. • Wife’s applicable exclusion amount is $7 million (her $5 million

exclusion plus $2 million DSUE amount from Husband 1). • Wife has a taxable estate of $3 million. Wife’s estate tax return

permits Husband 2 to use Wife’s amount: $4 million (Wife’s $7 million DSUE exclusion amount less her $3 million taxable estate).

• Husband 2’s applicable exclusion amount is $9 million (his $5 million exclusion plus $4 million from Wife).

(Examples 1, 2 and 3 from Joint Committee on Taxation’s General Explanation of Tax Legislation Enacted in the 111th Congress)


September 18, 2013

Considerations in Making the DSUE Election

Advantages• Simplicity. • Basis Adjustment. • Large Retirement Accounts. • State Estate Tax.• Additional Planning for the Wealthy.


September 18, 2013


Disadvantages (on outright distribution)• Wasted GST Exemption. • No Creditor Protection. • No Spendthrift Protection. • DSUE amount transferred to the

surviving spouse is not indexed for inflation.


September 18, 2013


Disadvantages• Death of Second Spouse.• Estate Tax Return Must Be Filed. • Estate Tax Burden is Controlled by

Surviving Spouse.


September 18, 2013

Question

&Answer



Fifteen Minute Break from

ProgrammingPlease feel free to stretch,

grab a beverage.



Recent Wisconsin Supreme Court Business DecisionsJacqueline L. Messler



Beidel v. Sideline SoftwareFacts:• Dispute over whether Sideline Software owed

Beidel under the terms of the stock repurchase agreement after Beidel was fired, and if so, how much money

• Fantasy football software • Beidel was the minority shareholder in Sideline.

Originally Hall and Beidel were the only 2 shareholders. Then Austin joined. Austin and Beidel did not get along.



Beidel v. Sideline SoftwareFacts:• Sideline wanted to fire Beidel, but wanted to

wait until stock price agreement expired. Instead of firing, reduced duties.

• Stock repurchase agreement-- shareholders agreed on the price of shares in effect for 1 year. If no agreement at end of 1 year, would stay in effect for 2 years. After two years, if no agreement, sold shares would be valued at FMV.



Beidel v. Sideline SoftwareFacts:• Agreement gave shareholders put option if

terminated• Beidel attempted to exercise put option, but

Sideline claimed Beidel had not been terminated

• Beidel sought specific performance of the put option, argued actual termination and constructive termination



Beidel v. Sideline SoftwareIssue:• Whether Beidel is entitled to specific

performance of the repurchase of his shares at the stipulated price after Sideline refused to honor Beidel's attempted exercise of his put?



Beidel v. Sideline SoftwareSupreme Court Holding:• Specific performance was an available remedy;

the stock repurchase agreement said specific performance was available

• Good Faith and Fair Dealing.• On remand, the circuit court will consider whether

Sideline's actions violated the duty of good faith and fair dealing that is implied in every contract

• Court decides in equity. Range of factors, consider whether specific performance is unduly burdensome.



Beidel v. Sideline SoftwareBroader Points:• Buy-sell arrangements are important in most

closely held situations• Such arrangements are important for both

majority and minority owners• Buy-sell arrangements must be tailored to the

specific situation; too often, “off the shelf” agreement text is used



Beidel v. Sideline SoftwareBroader Points:• Each potential triggering event (e.g., death,

termination of employment, disability, and separation or death of a marital property owner) and potential situations in which it may arise for the particular situation must be considered

• Valuation methods must be carefully considered; formula, annual agreement, financial statement based and appraisal methods may all be considered; and, combinations of those methods can be considered



Beidel v. Sideline SoftwareBroader Points:• In potential owner-deadlock situations,

“Solomon’s Choice” provisions should be considered

• If sale of the business is possible, drag along and come along rights should be considered

• Minority and majority owner interests may differ substantially; evaluating representation issues is important



Park Bank v. Roger WestburgFacts:• Westburgs start manufacturing business,

Zaddo, making advertising displays. Loan from Park Bank to Zaddo. Westburgs executed personal guarantees.

• Westburgs guaranteed payment of Zaddo's obligations. Westburgs also granted a security interest in their deposit accounts or other amounts Park Bank owed to the Westburgs.



Park Bank v. Roger WestburgFacts:• 1 year later, Park Bank alleges Zaddo is in

default. Alleged misconduct by Park Bank, also froze securities account.

• Zaddo goes into receivership, land foreclosed. Park Bank brings an action to collect on the guarantees.

• The Westburgs bring affirmative defenses and counterclaims alleging that Park Bank forced Zaddo into default and Park Bank wrongly froze the Westburgs' securities account.



Park Bank v. Roger WestburgIssue:• Whether the Westburgs' status of guarantors

gives them standing to raise affirmative defenses and counterclaims that Zaddo was injured?



Park Bank v. Roger WestburgSupreme Court Holding:• Rule

• Direct vs. Derivative. In a derivative action, a shareholder “assumes the mantle of the corporation itself to right wrongs committed by those temporarily in control” of the corporation. Derivative claims belong to the corporation, not the complaining individual. • Rose v. Schantz- corporate (derivative) vs. individual

(direct). Where the injury to the corporation is the primary injury and any injury to a shareholder is secondary, the shareholder may not bring a direct action, and is instead limited to commencing a derivative action. Even though value of shareholders' stock may suffer.



Park Bank v. Roger WestburgSupreme Court Holding:• Rule

• Same action may cause direct and derivative injuries.• Any difference because claimants are guarantors?

No. Guarantors are treated no differently from creditors in determining whether the guarantor may bring a derivative action. Apply general rule--guarantors may not maintain a derivative action.



Park Bank v. Roger WestburgSupreme Court Holding:• Application

• Zaddo was primarily injured by allegedly being forced into receivership and any alleged resulting injury to the Westburgs occurred as a result of Zaddo's alleged injury.

• But freezing securities account is direct injury. However, the Westburgs did not plead any damages associated with that action.



Park Bank v. Roger WestburgBroader Points:• Case illustrates the significance of decisions to personally

guarantee bank obligations, mortgage properties to secure bank obligations, or provide other security, such as interests in bank accounts, for those obligations; those decisions must be carefully evaluated, particularly if the guarantor does not control all business decisions

• General default provisions are often not negotiable with a lender, but must be understood by guarantors; loan covenants, on the other hand, are typically the subject of negotiation and must also be understood by guarantors



Park Bank v. Roger WestburgBroader Points:• Case illustrates that a guarantor may not enjoy all rights

the debtor enjoys; typical guaranty document text often emphasizes this by use of “unconditionally” text in the document

• Bank guaranties are typically written as guaranties of payment, not merely of collection; thus, guarantors should recognize that a lender need not exhaust remedies against the obligor or collateral before seeking payment from the guarantor



Park Bank v. Roger WestburgBroader Points:• Guaranties are typically unlimited, limited, or of

a specific transaction; guarantors should understand the difference and negotiate for proper document language based on the circumstances



United Concrete v. Red-D-Mix Construction

Facts:• United installed concrete for homeowners.

United was supplied its concrete by Red-D-Mix. Two parties had a prior business relationship, but stopped because of bleed water problem, causing concrete to crack.

• Began relationship again, United sought specific guarantees from Red-D-Mix that it had fixed bleed water problem.




Facts:• United put in driveways, homeowners

complained. United approached all homeowners, got an assignment of claims from them, brought action against Red-D-Mix. In own name and for homeowners.




Issue 1:• Whether a claim for misrepresentation under

Wis. Stat. § 100.18 is a question of fact or law?• Follow standard summary judgment procedure. • It can be a question of a law if no genuine issue of

material fact. Can be a question for factfinder if questions of fact.




Issue 2:• Whether claim that bleed water problem can be

fixed is puffery?• Puffery- the exaggerations reasonably to be expected

of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined.

• Examples. American TV- Products were the finest. Teitsworth- Product was masterpiece, premium quality.

• This was first Supreme Court case where statement under a Wis. Stat. § 100.18 claim was not puffery.




Issue 3:• Whether United may litigate the homeowner’s

claims against Red-D-Mix through assignments?• Linden answers the question definitively. United tried to

distinguish because subcontractor/general/homeowner vs. supplier/installer/ customer. In Linden, the Supreme Court held that the economic loss doctrine prevents a homeowner from suing a subcontractor in tort for purely economic loss.




Issue 3:• Brief Overview – Economic loss doctrine

• A judicially created doctrine that bars purchasers of goods from recovering solely economic losses (damage to the product itself) from manufacturers under tort theory. Instead, the buyer who purchases defective goods looks to the contract for remedies.

• Applies to commercial transactions. Sunnyslope Grading. Applies to consumer transactions, example purchase of car. State Farm v. Ford.




Issue 3:• Main Exceptions/Limitations

• Does not apply to service contracts. Cease. If contract is for goods and services, look at predominant purpose of contract. Linden.

• "Other property." Damages other than to product itself are not covered by the doctrine, such as personal injury or damage to other property. Linden.

• "Fraud in the inducement." Tort remedies allowed when buyer is induced into the contract by fraud. Kaloti.

• Dangerous products. Tort remedies may be allowed when product is inherently dangerous, such as asbestos-based materials. Northridge.




Issue 3:• The claims United asserted against Red–D–

Mix through the assignments squarely fit within the class of lawsuits governed by Linden.

• United had a contract with Red–D–Mix, and contracts with the homeowners. No contract existed between Red–D–Mix and the homeowners. Here, the damages were to the installed concrete itself, and there were no physical injuries or personal harm. In short, the three parties stood in the same position as those discussed in Linden.




Broader Points:• Sellers open themselves up to Wis. Stat. § 100.18

misrepresentation claim if court can determine that a seller's statement about a product is false

• Trend of expansion of economic loss doctrine• Important for purchasers of products to negotiate

contractual remedies or insure against defective products; economic loss doctrine may prohibit tort remedies



Wisconsin Manufacturing & Agriculture Credit

Wisconsin Department of Revenue

Nate WeberSeptember 18, 2013

127

History• Created by 2011 Act 32 (2011-13 Budget)• Originally known as Qualified Production

Activities credit• 2011 Act 232 made technical changes• 2013 Act 20 made further technical changes• Credit begins January 1, 2013

128

http://docs.legis.wi.gov/2011/related/acts/32

http://docs.legis.wi.gov/2011/related/acts/232

https://docs.legis.wisconsin.gov/2013/related/acts/20/1345hm

Brief Summary• Credit applies against taxes on income from

manufacturing and agriculture activity in Wisconsin• Phased in over four years:

Tax year 2013 = 1.875%Tax year 2014 = 3.750%Tax year 2015 = 5.526%Tax year 2016 and beyond = 7.500%

• Offsets top tax rates of 7.90% (corporate income tax) and 7.65% (individual income tax)

129

Who May Compute Credit• Individual• Corporation• Estate or Trust• Partnership*• Limited Liability Company*• Tax-option (S) Corporations* *These entities cannot claim the credit but the eligibility for and the computation of the credit are based on the entity's business operations. The beneficiaries, partners, shareholders, & members can claim the credit. 130

Who Cannot Claim Credit• Insurance Companies• Partnerships*• Limited Liability Companies treated as

partnerships*• Tax-option (S) Corporations*

*These entities cannot claim the credit but the eligibility for and the computation of the credit are based on the entities business operations. The beneficiaries, partners, members, & shareholders can claim the credit.

131

Requirements to Claim Credit• Property must be assessed as manufacturing

or agricultural • Must produce qualified production activities

income from that property• Property must be located in Wisconsin

132

Manufacturing Assessments

• Performed by DOR's Manufacturing Bureau• Application to verify assessment:

https://ww2.revenue.wi.gov/RETRWebRolls/application

• Regional office contacts: http://www.revenue.wi.gov/forms/manuf/pa-750R.pdf

• General questions: [email protected]

133

mailto:[email protected]

https://ww2.revenue.wi.gov/RETRWebRolls/application

http://www.revenue.wi.gov/forms/manuf/pa-750R.pdf


Agricultural Assessments• Performed by local assessors• Local assessor contact list:

http://www.revenue.wi.gov/training/assess/assrlist.pdf

• Both manufacturing and agricultural property assessments must be reviewed each year

134

http://www.revenue.wi.gov/training/assess/assrlist.pdf

Nonqualifying Activities• Income from film production• Income from producing, transmitting, or distributing electricity,

natural gas, or potable water• Income from constructing real property (except that income

from producing materials which become real property can qualify)

• Income from engineering or architectural services performed with respect to constructing real property

• Income from the sale of food and beverages prepared by the claimant at a retail establishment

• Income from the lease, rental, license, sale, exchange, or other disposition of land 135

Miscellaneous Provisions• Use Schedule MA to claim credit• Nonrefundable – 15 year carryforward• Credit computed is income in the year after

the year the credit is claimed• Credit is not shareable with other combined

group members

136

Computation of CreditProduction gross receipts1

Less: Cost of goods sold2

Direct costs3

Indirect Costs4 multiplied by production gross receipts factor5

= Qualified production activities income6

Multiplied by manufacturing property factor7 or agriculture property factor8

= Eligible qualified production activities income9

Multiplied by credit rate in effect for the taxable year10

Total credit

137

Definitions

1 Production gross receipts are the receipts from the lease, rental, license, sale, exchange, or other disposition of qualified production property1a.

138

Definitions

1a Qualified production property means:• Tangible personal property manufactured in

whole or part on property assessed as manufacturing under s. 70.995

• Tangible personal property produced, grown, or extracted in whole or part on property assessed as agricultural under s. 70.32(2)(a)4

139

https://docs.legis.wisconsin.gov/statutes/statutes/70/995



Definitions

2 Cost of goods sold are the production costs associated with the production gross receipts.

140

Definitions

3 Direct costs are the costs associated with the production gross receipts and include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible under section 162 of the Internal Revenue Code and identified as direct costs in the claimant's managerial or cost accounting records.

141

http://143.231.180.80/view.xhtml?req=granuleid:USC-prelim-title26-section162&num=0&edition=prelim


Definitions4 Indirect costs are the costs associated with the production gross receipts and include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible under section 162 of the Internal Revenue Code, other than cost of goods sold and direct costs, and identified as indirect costs in the claimant's managerial or cost accounting records.

142




Definitions5 The production gross receipts factor is a fraction consisting of the production gross receipts (numerator) divided by the gross income from all sources except those specifically excluded under the Internal Revenue Code or excluded under Wisconsin law (denominator). Items included in the denominator include: gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital and business assets, gross income from pass- through entities, and all other gross receipts that are included in income before apportionment. 143

Definitions6 Qualified production activities income does not include any of the following:• Income from film production• Income from producing, transmitting, or distributing electricity,

natural gas, or potable water• Income from constructing real property• Income from engineering or architectural services performed

with respect to constructing real property• Income from the sale of food and beverages prepared by the

claimant at a retail establishment• Income from the lease, rental, license, sale, exchange, or other

disposition of land 144

Definitions• 7 The manufacturing property factor is the average value of the claimant's real

and personal property assessed under s. 70.995, Wis. Stats., that is owned or rented and used in Wisconsin by the claimant to manufacture qualified production property (numerator), divided by the average value of all the claimant's real and personal property owned or rented during the taxable year and used by the claimant to manufacture qualified production property (denominator).

• Qualified production property is tangible personal property manufactured in whole or in part by the claimant on property that is assessed as manufacturing property under s. 70.995, Wis. Stats.

• The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rent paid by the claimant, less any annual rental received by the claimant for sub-rentals, multiplied by 8.

• The average value of the property is determined by averaging the values at the beginning and ending of the taxable year. 145



Definitions• 8 The agriculture property factor is the average value of the claimant's real

property and improvements assessed under s. 70.32(2)(a)4., Wis. Stats., that is owned or rented and used in Wisconsin by the claimant during the taxable year to produce, grow, or extract qualified production property (numerator) divided by the average value of all the claimant's real property and improvements owned or rented during the taxable year and used by the claimant to produce, grow, or extract qualified production property.

• Qualified production property is tangible personal property produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats.

• The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rental paid by the claimant, less any annual rental received by the claimant from sub-rentals, multiplied by 8.

• The average value of the property is determined by averaging the values at the beginning and ending of the taxable year.

146

https://docs.legis.wisconsin.gov/statutes/statutes/70/32/2/a/4



Definitions9 The amount of eligible qualified production activities income that a corporation may claim in computing the credit is the lesser of the following:

– The eligible qualified production activities income determined using the computation above

– Income apportioned to this state under s. 71.25 (5), (6), and (6m)

– Income determined to be taxable under s. 71.255 (2)

Note: For individual taxpayers the credit may only offset the tax imposed by the business operations used to compute the credit

147

https://docs.legis.wisconsin.gov/statutes/statutes/71/IV/25/5

https://docs.legis.wisconsin.gov/statutes/statutes/71/IV/25/6m

https://docs.legis.wisconsin.gov/statutes/statutes/71/IV/25/6

https://docs.legis.wisconsin.gov/statutes/statutes/71/IV/255/

Definitions10 The manufacturing and agriculture credit rate is as follows:• 1.875% for 2013 taxable year• 3.750% for 2014 taxable year• 5.526% for 2015 taxable year• 7.500% for 2016 taxable year and beyond

148

Company ABC - Example

$500,000 (Production gross receipts)1


$200,000 (Direct costs)3

$125,000 X 100% (Indirect Costs4 X production gross receipts factor)5

= $175,000 (Qualified production activities income)6

x 70% (manufacturing property factor7 or agriculture property factor)8

= $122,500 (Eligible qualified production activities income)9

x 7.5% (Multiplied by credit rate in effect for the taxable year 2016)10

= $ 9,188 (Total credit)

• ABC Company manufactures products partially on property assessed as manufacturing that is located in Wisconsin.

149

ABC Example – 2016 Tax Return

$175,000 Taxable income (only mfg. income)X 7.9% Corporate tax rate $ 13,825 Gross tax 9,188 Manufacturing & Agriculture Credit $ 4,637 Net tax

150

Company XYZ - Example

$500,000 (Production gross receipts)1


$200,000 (Direct costs)3

$125,000 X 100% (Indirect Costs4 X production gross receipts factor)5

= $175,000 (Qualified production activities income)6

x 100% (manufacturing property factor7 or agriculture property factor)8

= $175,000 (Eligible qualified production activities income)9

x 7.5% (Multiplied by credit rate in effect for the taxable year 2016)10

= $13,125 (Total credit)

• XYZ Company manufactures products entirely on property assessed as manufacturing that is located in Wisconsin.

151

XYZ Example – 2016 Tax Return

$175,000 Taxable income (only mfg. income)X 7.9% Corporate tax rate $ 13,825 Gross tax 13,125 Manufacturing & Agriculture Credit $ 700 Net tax

152

XYZ Example – 2016 Tax Return$200,000 Taxable income (includes other income)X 7.9% Corporate tax rate $ 15,800 Gross tax 13,571 Manufacturing & Agriculture Credit* $ 2,229 Net tax *Production gross receipts factor in slide 25 is 95.24% ($500,000/$525,000)

153

Resources• Fact Sheet #1107

(http://www.revenue.wi.gov/taxpro/fact/manufandagr.pdf)

• Common Questions (http://www.revenue.wi.gov/faqs/ise/manufagr.html)

• Wisconsin Tax Bulletin #172, 175, 179, & 180 (http://www.revenue.wi.gov/ise/wtb/index.html)

• For More Information or Questions Contact: (608) 266-2772 or email questions to: [email protected]

154

http://www.revenue.wi.gov/ise/wtb/index.html


http://www.revenue.wi.gov/faqs/ise/manufagr.html

http://www.revenue.wi.gov/taxpro/fact/manufandagr.pdf

http://www.revenue.wi.gov/ise/wtb/index.html

Questions?

155

The Tax Man Cometh: What are the IRS, Dept. of Revenue and Local Authorities up to in Audits, Appeals and Collections

Robert B. Teuber



Internal Revenue Service

• The Post Scandal IRS• Image Problem

• Tax Exempt Organizations• Training Videos• Conference Spending


September 18, 2013

Internal Revenue Service• Audit Selection – Fairness Review

• Reviewing the criteria used to choose which small businesses, business entities and individuals will be selected for audit.

• Announced review came on the heels of the Tea-Party controversy. In response, the acting Commissioner stated that “It is rare or virtually non-existent that the political activity of an entity would be relevant in terms of any increased scrutiny that we would provide.”

• In 2011, of 1.65 million returns filed, small business audits consisted of .2 percent of all audits and 1.3 percent of all small business returns filed.

• 62 percent of S Corp audits in 2011 were closed without a change in revenue.


September 18, 2013


• IRS Still Using Prohibited Terms• In the wake of the scandals, the IRS took steps to

avoid using certain terms on the BOLO list. However, as recently as the end of August, the Treasury Inspector General found that the IRS was still using prohibited terms to permanently label taxpayers as “Tax Protesters” or “Constitutionally Challenged.”

• Performance Evaluations• The IRS is not supposed to use tax enforcement

records for employee performance evaluations. However, the Treasury Inspector General identified a number of instances in which “corrective action” was necessary.


September 18, 2013

Internal Revenue ServiceCurrent Activity at the IRS

• Same Sex Marriage• The IRS will now recognize legal same-sex marriages for all federal

tax purposes regardless of the state of domicile.• Ruling does not apply to domestic partnerships or civil unions.

• Filing Issues• Complications arise for taxpayers at the state level where

domiciled in states that do not recognize same-sex marriages.• Must file “married filing jointly” or “married filing separately.”• Amended returns are permitted provided any refund claims are

made within the applicable statute of limitations.• Wisconsin filing requirements likely requires 5 prepared tax

returns.


September 18, 2013

Internal Revenue ServiceFATCA/FBARS – The current state of foreign accounts

• News releases• The IRS continues to release a considerable

amount of information concerning taxpayers that have been prosecuted for unreported income held through foreign accounts.

• Almost daily more information is released concerning FATCA agreements with new nations or foreign banks.


September 18, 2013

Internal Revenue ServiceFATCA/FBARS – The current state of foreign accounts• Voluntary, quiet and noisy disclosures of previously unreported

foreign accounts – each approach should be carefully considered based on the facts and circumstances facing the client. As the penalties can be significant, the practitioner must be sure to fully advise the client of the potential consequences.

• Summonses• The number of summonses issued by the IRS, in audit and collections,

appears to be on the rise.• Summonses are not self-enforcing.

• Foreign Bank Accounts and the Required Records Doctrine – where it comes to foreign bank accounts, the government is having tremendous success in overcoming 5th Amendment objections concerning the production of records.


September 18, 2013


Collection Matters• Installment Agreements

• Liabilities of under $50,000 – automatic debit installment agreements paid over 72 months can avoid the filing of tax liens and expedite the resolution of outstanding liabilities.

• Lien withdrawals – lien withdrawals (in lieu of releases) are available following the resolution of a tax liability.


September 18, 2013

Internal Revenue ServiceCollection Matters• Offers in Compromise

• Modifications to financial analysis – the IRS has changed how its standard expense categories are applied. The changes now allow for consideration of federally subsidized student loans, the payment of state tax obligations and the increases in the amount of asset value exemptions.

• Changes to payment period – The maximum period over which a compromise can now be paid is now limited to two years.

• No compromise will be allowed if the IRS determines an Installment Agreement could pay the liability in full.

• Incentivizing bad behavior?• Increase in filing fees?

• Collection Due Process Hearings – The IRS has issued guidance concerning the timeliness of CDP requests mailed to incorrect addresses.


September 18, 2013

Wisconsin Department Of RevenueAudits

• Sales Tax Audits – The WDOR continues to aggressively pursue Sales and Use Tax liabilities.

• Trust Fund Taxes• Many cases coming out of the Wisconsin Tax Appeals

Commission appear to be related to personal liability imposed on the failure to pay Sales/Use Taxes.

• Statute of Limitations – In the case Rashaed v. WDOR – the taxpayer argued that a four year statute of limitations should apply to the imposition of personal liability under Wis. Stats. Sec 77.60(9).• The taxpayer lost at both the TAC and Circuit Court levels on the factual

issues and the argument that Wis. Stats. sec. 77.60(9) was unconstitutional

• The case is currently on appeal to the Wisconsin Court of Appeals.


September 18, 2013

Wisconsin Department Of RevenueAudits

• Powers of Attorney – Mass Confusion at the WDOR• The Department of Revenue is rejecting Powers of Attorney that

do not include phone numbers and firm names.• In some instances, agents are attempting to bypass

representatives.• Many agents have different interpretations on the requirements

with which to comply.• There appears to be strict, but unclear, guidance concerning

Powers of Attorney.


September 18, 2013

Wisconsin Department Of RevenueCollections• Interest Rate Changes

• 2013 Wisconsin Act 20 (the budget bill) reduced interest rates on tax overpayments from 9 percent to 3 percent for refunds paid on or after July 2, 2013.

• Regardless of whether the refund was for periods arising or requested prior to this date, the new interest rate applies.

• The interest rates charged to taxpayers (12 percent rate on assessed taxes and 18 percent rate if delinquent) remain unchanged.

• Out of State Taxpayers


September 18, 2013

Real Property Tax Assessments

• What are municipalities doing with property values?

• Are assessors making changes at Open Book?

• Are Boards of Review making changes?


September 18, 2013

Drafting Flexible Estate PlansAfter The American Taxpayer Relief ActRandy S. Nelson



The New Normal

• EGT exemption $5,250,000• GST exemption $5,250,000• Portability of EGT exemption• Unlimited marital deduction• Longer life expectancies



Life Expectancies at Age 65

• Male – age 83• Female – age 85• 1 of 4 live past 90• 1 of 10 live past 95



Estate PlanningUnder the New Normal

• Flexibility in tax planning• Non-tax benefits of trusts

• Asset protection• Controlling the disposition of assets on survivor’s death



Flexible Estate Plans

• All to spouse with contingent bypass trust

• All to QTIP trust• Optimum marital deduction with QTIPed bypass trust



Contingent Bypass Trust Plan

• All to spouse • Spouse may disclaim to bypass trust

• Deadline – 9 months after death



Advantages

• Simplicity – bypass trust is only used if needed

• Many options in structuring dispositive provisions of bypass trust

• Spouse makes the post-death decision



Disadvantages

• No extension on 9 month deadline

• Spouse makes the post-death decision

• No income tax basis adjustment to bypass trust assets on survivor’s death



Disadvantages (cont’d)• Technical requirement – spouse may not have already accepted the economic benefits of disclaimed assets

• Spouse may not change the disposition of bypass trust assets on survivor’s death



QTIP Trust Plan

• All to QTIP trust• May make full, partial, or no QTIP election

• Deadline – 9 months after death but can extend for 6 more months



Advantages• Simplicity – all going to one trust• Extension permits 15 month

deadline• Spouse may be given power to

change the disposition of QTIP trust assets on survivor’s death



Advantages (cont’d)• Executor makes the post-death decision

• May preserve deceased spouse’s GST exemption with reverse QTIP election

• To extent of QTIP election, income tax basis of QTIP trust assets is adjusted again on survivor’s death



Disadvantages• Have QTIP trust even if not needed• Spouse is the only permitted

lifetime beneficiary of QTIP trust• All QTIP trust income must be paid

to spouse even if not needed



OMD with QTIPed Bypass Trust Plan

• Decedent’s assets up to the exempt amount go to a QTIP trust

• Balance goes to spouse• May make full, partial, or no QTIP election



OMD with QTIPed Bypass Trust Plan (cont’d)

• Variation on QTIP trust plan with a limit on QTIP trust

• Similar advantages and disadvantages



Protection of Assets

• Trusts can protect assets for benefit of spouse and/or children

• Applies to bypass trust and QTIP trust



Objective is Protection from:

• Divorce• Creditors• Undue influence of new spouse, child, caregiver, etc.



Protection of Assets (cont’d)• At a minimum provides vehicle for tracing inherited assets

• Selection of trustee or co-trustee may have a big impact

• May limit survivor’s power to change the disposition of trust assets on survivor’s death



Specialized Trusts for

Specialized Assets

Philip J. Miller



One Easy Step to Getting a Contract Enforced

Sandy Swartzberg



Sandy invites you to visit his blog:Conversations-With-Sam.com

Did I Say That? When An Email May Become A

Binding ContractNeal S. Krokosky



Why is it Always Important to Get a

Survey When Purchasing

PropertyAnn K. Chandler



usiness Considerations in

light of the Repeal of the Wisconsin

Bulk Sales LawJames S. Swiderski



Question

&Answer



Thank you for attending our

31st AnnualTax and Business Seminar

Please join us in the adjoining bar

area for cocktails, hors d’œuvres

and conversation.

