Applicable Federal Rates and Code Section 7520 Rate for September 2018 – Trending Up Again

Posted in Applicable Federal Rates (AFRs), Estate, Estate Planning, Estate Tax, Gifts, Internal Revenue Code, IRS, Legacy Planning, Tax Planning

The applicable federal rates (AFRs) under Internal Revenue Code (Code) Section 1274(d) and Code Section 7520 rate (7520 rate) for a particular month are published by the Internal Revenue Service (IRS) in a Revenue Ruling that is released around the 18th day of the immediately preceding month. Advance knowledge of the rates for the following month provides a window of opportunity for the quick or delayed implementation of income, gift, and estate-tax planning techniques in response to upward or downward trends. The effective implementation and management of interest-sensitive estate planning techniques also involves numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular circumstances, and should be undertaken only with the advice of competent tax counsel and financial advisors.

The IRS has issued Revenue Ruling 2018-23, which provides the AFRs and 7520 rate for September 2018. Revenue Ruling 2018-23 will appear in Internal Revenue Bulletin 2018-36 dated Sept. 4, 2018.

What is the Applicable AFR? The applicable AFR is the minimum acceptable or safe-harbor interest rate that must apply to loans between related parties (intra-family loans) to avoid adverse income or gift-tax consequences – based on the month in which the loan is made, how frequently interest is compounded, and the length or term of the loan.

AFRs Trending Up. Following a slight decrease in the mid-term and long-term rates in August 2018, AFRs increased across the board in September 2018 – making intra-family loans and installment sales to grantor trusts generally less attractive.

2018 AFRs. The AFRs for January through September 2018 are as follows, in reverse chronological order:

AFR ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
Short-Term AFRs – For demand notes and notes with a term of three years or less.
September 2018 2.51% 2.49% 2.48% 2.48%
August 2018 2.42% 2.41% 2.40% 2.40%
July 2018 2.38% 2.37% 2.36% 2.36%
June 2018 2.34% 2.33% 2.32% 2.32%
May 2018 2.18% 2.17% 2.16% 2.16%
April 2018 2.12% 2.11% 2.10% 2.10%
March 2018 1.96% 1.95% 1.95% 1.94%
February 2018 1.81% 1.80% 1.80% 1.79%
January 2018 1.68% 1.67% 1.67% 1.66%
Mid-Term AFRs – For notes with a term in excess of three years but no greater than nine years.
September 2018 2.86% 2.84% 2.83% 2.82%
August 2018 2.80% 2.78% 2.77% 2.76%
July 2018 2.87% 2.85% 2.84% 2.83%
June 2018 2.86% 2.84% 2.83% 2.82%
May 2018 2.69% 2.67% 2.66% 2.66%
April 2018 2.72% 2.70% 2.69% 2.68%
March 2018 2.57% 2.55% 2.54% 2.54%
February 2018 2.31% 2.30% 2.29% 2.29%
January 2018 2.18% 2.17% 2.16% 2.16%
Long-Term AFRs – For notes with a term in excess of nine years.
September 2018 3.02% 3.00% 2.99% 2.98%
August 2018 2.95% 2.93% 2.92% 2.91%
July 2018 3.06% 3.04% 3.03% 3.02%
June 2018 3.05% 3.03% 3.02% 3.01%
May 2018 2.94% 2.92% 2.91% 2.90%
April 2018 3.04% 3.02% 3.01% 3.00%
March 2018 2.88% 2.86% 2.85% 2.84%
February 2018 2.66% 2.64% 2.63% 2.63%
January 2018 2.59% 2.57% 2.56% 2.56%

Note that the “blended annual rate” under Code Section 7872(e)(2)(A) may be used to determine the interest on a demand loan (i.e., a loan which can be called in at any time) with a fixed principal amount outstanding for an entire year.

What is the 7520 Rate? The 7520 rate for the month in which a lifetime gift or testamentary transfer occurs is used to determine the gift or estate-tax value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest. In the case of a charitable life estate or remainder, however, the 7520 rate for the month in which the lifetime gift or testamentary transfer occurs or a rate for either of the two preceding months may be used to determine its income, gift, or estate-tax value. The 7520 rate is equal to 120% of the applicable mid-term rate using semi-annual compounding, adjusting the resulting rate to produce an equivalent yield for annual compounding, and then rounding it to the nearest two-tenths of a percent.

7520 Rate Trending Up. While the 7520 rate increased during the beginning of 2018 — making planning techniques like qualified personal residence trusts (QPRTs) and charitable remainder annuity trusts (CRATs) increasingly attractive. Conversely, grantor retained annuity trusts (GRATs) and charitable lead annuity trusts (CLATs) have become generally less attractive as a result of this upward trend – it has remained at 3.40% since June 2018.

2018 7520 Rates. The 7520 rates for January through September 2018 are as follows, in reverse chronological order:

7520 RATE
September 2018 3.40%
August 2018 3.40%
July 2018 3.40%
June 2018 3.40%
May 2018 3.20%
April 2018 3.20%
March 2018 3.00%
February 2018 2.80%
January 2018 2.60%

IRS Disclosure Rules for Some Exempt Organizations Changed

Posted in Internal Revenue Code, IRS

On July 17, 2018, the Treasury Department issued new guidance for certain tax exempt organizations. The guidance pertains to the disclosure of the names and addresses of donors to organizations exempt from federal income taxes under Section 501(c) of the Code, other than organizations exempt from taxes under Section 501(c)(3) (generally charities, religious organizations, and schools) or political organizations exempt under Section 527. Organizations to which the guidance applies will no longer be required to report the names and addresses of donors to the IRS, unless the IRS determines this information is required from a specific organization.

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Applicable Federal Rates and Code Section 7520 Rate for August 2018

Posted in Applicable Federal Rates (AFRs), Internal Revenue Code

The applicable federal rates (AFRs) under Internal Revenue Code (Code) Section 1274(d) and the Code Section 7520 rate (7520 rate) for a particular month are published by the Internal Revenue Service (IRS) in a Revenue Ruling that is released around the 18th day of the immediately preceding month. Advance knowledge of the rates for the future month provides a window of opportunity for the quick or delayed implementation of income, gift, and estate-tax planning techniques in response to upward or downward trends. The effective implementation and management of interest-sensitive estate planning techniques also involves numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular circumstances, and should be undertaken with the advice of competent tax counsel and financial advisors.

 

The IRS has issued Revenue Ruling 2018-21, which provides the AFRs and 7520 rate for August 2018.

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Supreme Court Internet Sales Tax Case Will Require Many Companies to File State Corporate Income Tax Returns – Even If They Are Not Subject to Sales Tax

Posted in Income Tax, State Tax

Although the sales tax collection obligation of online retailers was the focus of last month’s momentous U.S. Supreme Court case South Dakota v. Wayfair, it will also impact state corporate and income tax obligations. Companies may now be exposed to state income tax as a result of the Wayfair case and should examine their activities in the states and may wish to consider entering into a voluntary disclosure agreement with these states.

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Supreme Court’s Online Tax Decision Will Impact Cloud Computing and Software Industries

Posted in State Tax

On June 21, the U.S. Supreme Court decided South Dakota v. Wayfair, allowing states to tax online sales even if the retailer does not have a physical presence in the state. This decision, abandoning a 26 year-old precedent (based on a case heard 25 years before that) has shaken the retail industry. This case will create new challenges for online retailers, and is being welcomed by their brick and mortar competitors. The focus of this development has been on the online sale of goods, but it will also impact the software and cloud computing industries as well, forcing this sector of the economy to also face the changed online tax landscape.

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Greenberg Traurig Sponsors & Attends Fashion and Finance Ball

Posted in Event

Lucy Lee of GT’s Northern Virginia office was proud to sponsor and attend the Fashion and Finance Ball in New York on May 17, 2018.  The Fashion and Finance Ball benefits the Foundation Fighting Blindness, an organization driven to expand research that will help in providing preventions, treatments, and cures, for those affected by retinal degenerative diseases.  Hundreds of attendees, including service providers to top corporations, were able to raise over one million dollars to allocate to research.  

Guests Steve Alper (managing director of STIFEL and co-host of Gala), Lucy Lee (GT), Paul Kim (head trader and founder of Aventis Asset Management and vice-chair of Council of Korean Americans), James Lee (director of STIFEL), David Paterson (former governor of NY), and Ed Moldaver (managing director of STIFEL) supported the Foundation Fighting Blindness Fashion and Finance Ball.

Attending with GT’s Lucy Lee, Michael Heck (vice president of Morgan Stanley), Laura Lehmann, Paul Kim.

 

South Dakota v. Wayfair: Supreme Court Holds No Physical Presence Required for Online Retailer to be Required to Collect Sales Tax

Posted in State Tax

On June 21, 2018, the U.S. Supreme Court in South Dakota v. Wayfair, Inc., et al., decided (5-4 although not the usual liberal/conservative split) that an online retailer does not have to maintain a physical presence in a state in order to be required to collect the state’s sales and use tax. This opinion overturns the pre-internet era 1992 precedent of Quill v. North Dakota, finding that Quill was erroneously decided. This decision says that the doctrine of stare decisis cannot support upholding Quill, and that the internet revolution made the Court’s erroneous holding in Quill “all the more egregious and harmful.” The opinion says that a taxpayer cannot rely on stare decisis where the purpose is tax avoidance. Although the Court did not address whether this decision is retroactive, because the South Dakota law at issue is not retroactive, it did not limit its holding prospectively.

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Applicable Federal Rates and Code Section 7520 Rate for July 2018 – Upward Trend Continues

Posted in Estate Planning, Estate Tax, IRS

The applicable federal rates (AFRs) under Internal Revenue Code (Code) Section 1274(d) and the Code Section 7520 rate (7520 rate) for a particular month are published by the Internal Revenue Service (IRS) in a Revenue Ruling that is released around the 18th day of the immediately preceding month. Advance knowledge of the rates for the future month provides a window of opportunity for the quick or delayed implementation of income, gift, and estate-tax planning techniques in response to upward or downward trends. The effective implementation and management of interest-sensitive estate planning techniques also involves numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular circumstances and should be undertaken with the advice of competent tax counsel and financial advisors.

The IRS has issued Revenue Ruling 2018-19, which provides the AFRs and 7520 rate for July 2018. Revenue Ruling 2018-19 will be in Internal Revenue Bulletin 2018-27, dated July 2, 2018.

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Tax Relief Under Tax Cuts & Jobs Act? Not for Debtors.

Posted in Internal Revenue Code, Tax Cuts and Jobs Act

In December 2017, Congress passed and President Trump signed the Tax Cuts and Job Act of 2017 (TCJA).  Effective as of Jan. 1, 2018, the TCJA is a wide-ranging change to the Internal Revenue Code of 1986 (the Tax Code) affecting individual, corporate, and international taxation.

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Applicable Federal Rates and Code Section 7520 Rate for June 2018 – Trending Up

Posted in Applicable Federal Rates (AFRs), Internal Revenue Code

The applicable federal rates (AFRs) under Internal Revenue Code (Code) Section 1274(d) and the Code Section 7520 rate (7520 rate) for a particular month are published by the Internal Revenue Service (IRS) in a Revenue Ruling that is released around the 18th day of the immediately preceding month. Advance knowledge of the rates for the future month provides a window of opportunity for the quick or delayed implementation of income, gift, and estate-tax planning in response to upward or downward trends. The effective implementation and management of interest-sensitive estate planning techniques also involves numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular circumstances and should be undertaken with the advice of competent tax counsel and financial advisors.

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