Florida Sales Tax on Commercial Real Property Leases Reduced Beginning January 2019

Posted in Florida, GT Alert, Real Estate

As commercial real property owners in Florida are likely aware, the Sunshine State imposes its sales tax on rental payments for the lease of real property. The general 6 percent state-level tax was reduced to 5.8 percent for 2018. The legislature passed a law to further reduce the state-level rate to 5.7 percent for occupancy periods beginning on or after Jan. 1, 2019. There is no reduction in the local option surtax that many Florida counties impose. Property owners should be aware of this reduction for lease payments related to periods starting next year.

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

Posted in Applicable Federal Rates (AFRs), Internal Revenue Code, IRS, Legacy Planning, Uncategorized

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 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 2018-30, which provides the AFRs and 7520 rate for December 2018. Revenue Ruling 2018-30 appeared in Internal Revenue Bulletin 2018-49, dated Dec. 3, 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 for October 2018, AFRs increased across the board for November and again for December 2018, making intra-family loans and installment sales to grantor trusts generally less attractive.

December AFRs Summary. The AFRs for December 2018 are as follows:

AFR ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
Short-Term 2.76% 2.74% 2.73% 2.72%
Mid-Term 3.07% 3.05% 3.04% 3.03%
Long-Term 3.31% 3.28% 3.27% 3.26%

2018 Historical AFRs. The AFRs for January through December 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.
December 2018 2.76% 2.74% 2.73% 2.72%
November 2018 2.70% 2.68% 2.67% 2.67%
October 2018 2.55% 2.53% 2.52% 2.52%
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.
December 2018 3.07% 3.05% 3.04% 3.03%
November 2018 3.04% 3.02% 3.01% 3.00%
October 2018 2.83% 2.81% 2.80% 2.79%
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.
December 2018 3.31% 3.28% 3.27% 3.26%
November 2018 3.22% 3.19% 3.18% 3.17%
October 2018 2.99% 2.97% 2.96% 2.95%
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 for December 2018. The 7520 rate for December 2018 is 3.6%.

7520 Rate Trending Up. The 7520 rate increased steadily during the beginning of 2018, remained at 3.40% for June 2018 to October 2018, and increased to 3.6% for November 2018 and December 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.

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

7520 RATE
December 2018 3.60%
November 2018 3.60%
October 2018 3.40%
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%

Proposed Regulations on the Interest Deduction Limitation Under Section 163(j) of the Internal Revenue Code

Posted in GT Alert, IRS, Tax Cuts and Jobs Act

On Nov. 26, 2018, the IRS issued proposed regulations under the Internal Revenue Code (IRC) § 163(j) enacted by the Tax Cuts and Jobs Act of 2017 (the Proposed Regulations). Generally, IRC § 163(j) limits certain taxpayers’ business interest expense deduction to the sum of (i) the taxpayer’s current year business interest income, (ii) 30 percent of the taxpayer’s adjusted taxable income (ATI) from a trade or business, and (iii) certain floor plan financing interest expense.  Any disallowed business interest expense (i.e., excess business interest expense) can be carried forward indefinitely and treated as business interest expense in future years. Taxpayers with average annual gross receipts of 25 million or less, tested for the three taxable years immediately preceding the current taxable year, are not subject to the above limitations.  In addition, certain activities (referred to as “excepted trades or businesses”) are excluded from the definition of a trade or business for purposes of IRC § 163(j).  Such activities include (i) the trade or business of providing services as an employee; (ii) certain electing real property businesses; (iii) certain farming businesses; and (iv) certain regulated utility businesses.1

The Proposed Regulations are 439 pages long and are divided into eleven sections.  Below is a high-level summary of key provisions of the proposed regulations.

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1 IRC § 163(j)(7).

IRS Releases New Voluntary Disclosure Procedures for Post 9-28-2018 Offshore and Domestic Disclosures

Posted in GT Alert, IRS

On Nov. 29, 2018, the IRS released a memorandum with new procedures for all voluntary disclosures following the end of the Offshore Voluntary Disclosure Program (OVDP) on Sept. 28, 2018. The new voluntary disclosure procedures apply to both domestic and offshore voluntary disclosures.

What’s Changed?

Background

OVDP was initiated in 2009 and designed to bring taxpayers with undisclosed foreign income, accounts, and assets into compliance for U.S. income tax purposes. Taxpayers who were eligible to participate in OVDP and made timely voluntary disclosures were provided the opportunity to receive protection from criminal liability and to resolve their civil tax and penalty obligations on a standardized penalty framework.

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IRS Issues Proposed Section 956 Regulations Relating to Foreign Subsidiary Guarantees and Stock Pledges

Posted in Code Section 956, controlled foreign corporation, Income Tax, Internal Revenue Code, International Tax, IRS, Tax Cuts and Jobs Act, Tax Planning

The Internal Revenue Service recently issued proposed regulations under Section 956 of the Internal Revenue Code (IRC) that may allow foreign subsidiaries of U.S. multinational corporate borrowers to provide additional credit support to lenders without resulting in adverse U.S. federal income tax consequences. Although the proposed regulations may be relied upon by taxpayers for taxable years beginning after Dec. 31, 2017, detailed analysis should be conducted prior to eliminating or modifying the standard limitations on foreign subsidiary pledges and guarantees from credit agreements.

Click here to read the full GT Alert.

New Jersey Tax Amnesty

Posted in amnesty, Estate, Estate Tax, Income Tax, New Jersey, Sales Tax, State Tax

Just in time for the holidays, the New Jersey Division of Taxation announced a tax amnesty program. Taking a “carrot and stick” approach, the Division of Taxation said that it would take amnesty applications from Nov. 15, 2018, through Jan. 15, 2019, for outstanding liabilities for taxes administered and collected by the New Jersey Division of Taxation based upon tax returns due after Feb. 1, 2009, (the end date of the previous amnesty) and before Sept. 1, 2017. The New Jersey taxes eligible include:

  • Personal income tax (including income taxes owed by non-residents)
  • Corporation income tax
  • Sales and use tax
  • Withholding taxes
  • Estate and inheritance taxes

Click here to read the full GT Alert.

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

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

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 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 involve numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular circumstances. This should be undertaken only with the advice of competent tax counsel and financial advisors.

The IRS has issued Revenue Ruling 2018-28, which provides the AFRs and 7520 rate for November 2018. Revenue Ruling 2018-28 will appear in Internal Revenue Bulletin 2018-45 dated Nov. 5, 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 for October 2018, AFRs for November 2018 increased across the board, making intra-family loans and installment sales to grantor trusts generally less attractive.

November AFRs Summary. The AFRs for November 2018 are as follows:

AFR ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
Short-Term 2.70% 2.68% 2.67% 2.67%
Mid-Term 3.04% 3.02% 3.01% 3.00%
Long-Term 3.22% 3.19% 3.18% 3.17%

2018 Historical AFRs. In reverse chronological order, the AFRs for January through November 2018 are as follows:

AFR ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
Short-Term AFRs – For demand notes and notes with a term of three years or less.
November 2018 2.70% 2.68% 2.67% 2.67%
October 2018 2.55% 2.53% 2.52% 2.52%
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.
November 2018 3.04% 3.02% 3.01% 3.00%
October 2018 2.83% 2.81% 2.80% 2.79%
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.
November 2018 3.22% 3.19% 3.18% 3.17%
October 2018 2.99% 2.97% 2.96% 2.95%
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 that 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 percent 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 for November 2019. The 7520 rate for November 2018 is 3.6 percent.

7520 Rate Trending Up. The 7520 rate increased steadily during the beginning of 2018, remained at 3.40 percent for June 2018 to October 2018, and increased to 3.6 percent for November 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.

2018 7520 Rates. In reverse chronological order, the 7520 rates for January through November 2018 are as follows:

7520 RATE
November 2018 3.60%
October 2018 3.40%
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%

I Won the Lottery! What Do I Do Now?

Posted in Estate Planning, Income Tax, Inheritance Rights, Investing, IRS, Legacy Planning, lottery, State Tax, Tax Planning, Trusts

Greenberg Traurig’s private client/high net worth team has the experience to advise mega-lottery winners. Our attorneys have worked with individuals who have won some of the biggest lottery awards in the United States.

Our approach to advising lottery winner clients is based on three basic principles:

  1. Family privacy, security, and freedom from publicity
  2. Tax and estate planning
  3. Financial planning

In most instances we are the initial point of contact for our lottery winner clients. The first step is to assess the family situation and to explain to the clients what their options are:

  1. When do I turn in my lottery ticket, and how do I protect it before doing so?
  2. What are the client’s security concerns?
  3. Are there minor children?
  4. Which family member purchased the lottery ticket?
  5. Do the clients have an estate plan in place?

The next step is to assemble the team of advisors:

  1. Accountants
  2. Financial Advisors
  3. Security Advisors

Turning in Your Lottery Ticket

In most states such as California, the name of the lottery winner must be disclosed. For this reason, the timing of turning in the lottery ticket is important. If the award is in the millions, it is important to minimize the publicity once the ticket is surrendered. Most states provide that the lottery winner must surrender the winning ticket within twelve months. This provides ample time for the winner and the members of the winner’s family to take the steps described above.

For rewards in the tens of millions, it is important to select the right financial advisor. Greenberg Traurig’s team has worked with most of the major financial institutions in the United States. We generally recommend a “beauty contest,” i.e., setting up meetings with a select number of such financial institutions so that the lottery winner clients can learn about financial planning options as well as to assess the level of comfort that they have with the members of the team(s) that will provide financial and investment advice. For example, a “balanced portfolio,” i.e., a mix of bonds and equities, is usually considered where the lottery award is in the tens of millions.

We can answer many of the questions that winners might have either in person of via teleconference. We can also meet with the individual winner(s) and members of their families for an initial consultation.

Qualified Opportunity Zone Proposed Regulation Release

Posted in Opportunity Zones

On Friday, October 19, the United States Department of the Treasury released (i) proposed regulations related to investment in Qualified Opportunity Zones and Qualified Opportunity Funds and (ii) Revenue Ruling 2018-29 related to the treatment of land under the program.  The issuance of this highly anticipated regulation and guidance will be critical to investors, Qualified Opportunity Fund managers, and project sponsors involved in real estate, venture capital, operating business, and project finance in Qualified Opportunity Zones.  We have been working extensively with clients with this new tax incentive and will be releasing analysis and webinars in the near future describing the impact of these new regulations and Revenue Ruling.

Please find the link to the published proposed regulations below:

https://www.irs.gov/pub/irs-drop/reg-115420-18.pdf

International Tax Survival Guide: Countdown to Common Reporting Obligations for Global Individuals

Posted in International Tax

The due date for filing 2017 U.S. federal income tax returns for individuals who have requested an extension is Oct. 15, 2018. With only one month left until the deadline, we have prepared a countdown of 10 common tax reporting obligations that may be relevant to global individuals with cross-border assets or activities.

10, 9, 8, 7: Information Returns Relating to Offshore Entities

10. Form 5471

Form 5471 is used by U.S. persons who are officers, directors, or shareholders in certain foreign corporations, including controlled foreign corporations (CFCs), to satisfy the reporting requirements of sections 6038 (reporting with respect to certain foreign corporations) and 6046 (returns relating to organizations and reorganizations of foreign corporations).

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