The 10 year statute of limitation for collection after assessment may be extended by an offer in compromise

The United States District Court in Nevada case of U.S. v. Booher, 108 AFTR 2d 2011-5113 highlights the fact that the IRS may pursue collection against a taxpayer even though it began after the 10-year time period generally allowed by law.  The general rule under Section 6502 of the Internal Revenue Code requires the IRS to begin a civil action to collect federal tax within 10 years after assessment or such assessment is released.

However, Booher reminds us that under Section 6331(i)(5) the 10 year statute of limitations period is suspended during the time that an offer in compromise (OIC) is pending. In Booher the OICs filed extended the limitation period beyond the general 10 year period.  Booher reminds us to obtain transcripts of account for taxpayers to ascertain whether or not the 10 year period has expired before taking action.  Such transcripts will show the existence of OICs and the duration of their pendency.

Defined Value Gifts Approved by Ninth Circuit

The U.S. 9th Circuit Court of Appeals in Estate of Petter v. CIR, ___ F.3d ___, 2011 WL 3332532 (9th Cir. Aug. 4, 2011), just affirmed the United States Tax Court, holding that a taxpayer is not liable for transfer tax in a defined value gift scenario.  The taxpayer in Petter claimed a charitable deduction for the value of a charity's share of a gift of interests in an LLC, where the gift documents transferred to the donor's children a fixed dollar amount of the interests as finally valued for tax purposes, and gave the balance to charity. The court also held that the taxpayer was entitled to a charitable deduction for the value of the additional assets transferred to charity upon the donees' final determination of the value of the LLC interests.
This affirmance gives planners more assurance that this type of planning opportunity will pass muster with the courts.

Senate Bill Proposes to Eliminate Short Term GRATs

A Senate Bill - S.1286, 112th Cong., 1st Sess. (June 28, 2011) - was introduced by Senator Robert B. Casey (D-Pa.) which would set a minimum term for all grantor retained annuity trusts (GRATs) at 10 years. The bill would also prevent any decreasing annuity payment GRATs during the first 10 years, and would require that the remainder interest have a value greater than zero on the date the trust is created. The bill would make these changes retroactively to all transfers made after December 31, 2010. 

Previously, short term GRATs of two years in duration, decreasing term GRATs and so called zero out GRATs were used effectively to save estate taxes.

This bill highlights the fact that we should move diligently to perform estate planning now.