Estate Litigation – Father Held Not to Have Abandoned Son and Therefore Entitled to a Share of His Deceased Son’s Estate

Estate Litigation – Father Held Not to Have Abandoned Son and Therefore Entitled to a Share of His Deceased Son’s Estate A father, who had very little contact with his child for nine years prior to the child's death, was not deemed to have "abandoned" him or "willfully forsaken" him. Thus he was not barred from a share of the child's estate. The case was one of first impression in New Jersey and the New Jersey Appellate Division in In the Matter of the Estate of Michael Fisher II, __ N.J. Super. __, 2015 WL 8484786 (N.J. App. Div. 2015) reversed the lower court’s ruling which had determined that the father had, in fact, abandoned his son and was therefore excluded from sharing the son’s estate. There were facts that pointed toward abandonment such as, the father moved away, was late with child support payments and failed to attend court-ordered counseling in order to have his visitation rights reinstated. However, the Appellate Court held that these facts alone were insufficient to declare abandonment of the child. At issue were essentially the proceeds from a wrongful death lawsuit against the child’s cardiologist who allowed him to play hockey though he had a congenital heart defect. But the court required that the father “clearly manifested a settled purpose to permanently forego all parental duties and relinquish all parental claims to the child. That purpose was not demonstrated here." N.J.S.A. 3B:5-4.1 states that one can be held to have given up parental rights when he "abandoned" or was "willfully forsaking the decedent." The standard applied required was that “through his or her unambiguous and intentional conduct, has clearly manifested a settled purpose to permanently forego all parental duties and relinquish all parental claims to the child,” Since the father paid $37,000 in child support, had one face-to-face meeting and had exchanged some messages on Facebook, those facts precluded a finding of abandonment.

What do you do when dad wants to leave everything in his estate to you but you know your brother is going to contest the will?

What do you do when dad wants to leave everything in his estate to you but you know your brother is going to contest the will? When a will is contested because family members don’t agree with how a family member’s estate is being parceled out, it can get ugly . . . and very expensive – and gut wrenching to see the fight through to resolution. No one really wants to engage in that kind of battle, especially when you are grieving, but there are steps that beneficiaries can take now before their parent or other family member passes to preclude protracted conflict. There are purposeful steps now that one can take to at least reduce the pain of the process later. First step is to have a will drawn. But, don’t make the mistakes that many others have made in getting Dad to do a new will. Here are some do’s and don’ts: Don’t use your own attorney – suggest that your Dad hire his own attorney to draft his will; if your father has his own lawyer that does not also represent you, then use him or have him recommend the estate planning lawyer; Don’t rely on the family attorney that could possibly be unduly influenced by family members who also have business affairs with him or her. Don’t be in the room with your Dad if your other siblings are not when they are discussing the will. You never want to be accused of influencing the process. Do suggest that the will signing be videotaped to demonstrate that Dad was of sound mind and judgement at the time. Do suggest that dad say in his will that he is excluding someone from the will but do not say why. Do take steps to include your brother in activities with your Dad. Keeping them apart is a hallmark indication of undue influence. Make sure that Dad includes your brother in invitations and even invite her to family functions that you are throwing. Do make sure to remember that the will is just one part of the estate planning process. But many assets such as joint accounts go to loved ones outside of the probate process. Thus if there are joint accounts between your Dad and brother, remember to remind him to go to the bank or financial institution to change the designation. Of course, be certain not to attend or to drive him to the bank. Do remember to check beneficiary designations as annuities, IRA’s and 401(k)’s pass to the designated beneficiary rather than through his will. Do remember to make sure that the insurance is paid how your father would want. If he included your brother way back when, make sure he calls to have the change of beneficiary handled. Of course, don’t be on the call and don’t act as the witness on the change of beneficiary form. Plan now to avoid the costly and challenging ordeal that would otherwise result from a poorly planned estate. Jay J. Freireich, Esq. is a member of the wills, trusts and estates practice group at Brach Eichler LLC in Roseland, N.J. Contact him at jfreireich@bracheichler.com .

IRS EXPLAINS DEDUCTIBILITY OF BUSINESS DONATIONS TO ENTITIES WHERE PERCENTAGE OF SALES PROMOTION ARE DONATED

IRS EXPLAINS DEDUCTIBILITY OF BUSINESS DONATIONS TO ENTITIES WHERE PERCENTAGE OF SALES PROMOTION ARE DONATED The Internal Revenue Service just issued Chief Counsel Advice 201543013 (“CCA”) which discusses deductibility of payments to charities and non-charities where a business advertises that it will give a certain percentage of its sales to organizations devoted to a particular cause, such as environmental conservation or eradicating hunger. The CCA addresses not only charities described in Code §170 but also non-Code §170(c) organizations, and even for-profit entities with a social mission included in their corporate bylaws. But specifically rejected was recipients engaged in political activity. A question not answered explicitly was who gets the donation, the customer who bought the product at full price leading the business to pay the charity, or the business itself? While the CCA does not answer the question, it does not appear that the funds are donated by the customers. Normally, a business expense deduction is not permitted for contributions to charities. But under this plan which is directly related to the taxpayer's business and is made with a "reasonable expectation of financial return commensurate with" the amount transferred, the payment is deductible as a business expense rather than a charitable contribution under Code §162(b) and Treas. Regs. §1.162-15(a) and §1.170A-2(c)(5)). Under the percentage of sales plan, the Taxpayer appears to have acted with the reasonable belief that it would enhance and increase its business. The CCA went on to permit as a business deduction the payments to organizations not described in Code §170. The CCA reiterated for that type of organization that Taxpayer had a reasonable expectation of commensurate financial return from the donations it is making through the promotion. The only exception is for donations to lobbying organizations under Code §162(e)(1). No business expense deduction is allowed for amounts paid in connection with influencing legislation or participation or intervention in any political campaign on behalf of, or in opposition to, any candidate for public office. Conclusion: Donating a percentage of sales to charity leads to the business being entitled to a deduction for the payment to charity as a business expense.

Autism Spectrum Disorder No Excuse For Late Filing and Payment Penalty Abatement

Autism Spectrum Disorder No Excuse For Late Filing and Payment Penalty Abatement In Poppe v. Comm., TCM 2015-205 (2015), the taxpayer’s autism spectrum disorder (“ASD”) was held not to constitute reasonable cause for failure to file and pay. The Taxpayer was an active day trader. He argued that he had reasonable cause for failing to timely file his return because, as a result of his ASD, he became "despondent" from all of the money he had lost and could not organize himself to timely file a tax return. The Tax Court in its memorandum decision rejected that argument. First, the Court did provide that reasonable cause may exist if a taxpayer's or a family member's illness or incapacity prevents the taxpayer from filing his or her tax return. But the Tax Court went further to state that if the taxpayer is able to continue his or her business affairs despite the illness or incapacity, the excuse will not be sustained. In Poppe, the Taxpayer’s mental condition did not prevent him from engaging in activities that required a high degree of concentration and ability to analyze and organize information. Poppe's work station as a day trader was equipped with six monitors showing the status of his trades. He was able to collect, analyze, and organize information on which to base his trades. Thus, the Court reasoned, if he could attend to his affairs despite his ASD, he could file and pay his taxes timely. The Court did not state that ASD is no excuse generally. But under the facts and circumstances in Poppe, the Court would not sustain the excuse. Had the Taxpayer been so overcome by his ASD that he could not attend to his business affairs, the ASD would have provided reasonable cause for penalty abatement.

IRS Determines Year Taxpayer Had Theft loss From Ponzi Scheme

IRS Determines Year Taxpayer Had Theft loss From Ponzi Scheme The IRS Chief Counsel’s office released a legal memorandum - ILM 201511018 - which sets forth the proper year a taxpayer can claim a theft loss deduction when victim of a Ponzi scheme. I.R.C. §165(a) permits a deduction for losses sustained during the tax year (and not compensated by insurance or otherwise). A loss arising from criminal fraud or embezzlement in a transaction entered into for profit is a theft loss, not a capital loss, under §165. Pursuant to §165(e) any loss arising from a theft is deemed sustained in the tax year a taxpayer discovers the loss. But the Regulations state that if, in the year of discovery, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss for which reimbursement may be received is sustained until the tax year in which it can be ascertained with reasonable certainty whether or not the reimbursement will be received. Whether a reasonable prospect of recovery exists is a question of fact to be determined upon examination of all facts and circumstances. Treas. Reg. §1.165-8(a)(2) and 1.165-1(d). Rev. Proc. 2009-20 provides a safe harbor under these schemes for the timing and amount of the theft loss in Ponzi schemes which are defined as a fraudulent arrangement in which a party (the lead figure) receives cash or property from investors; purports to earn income for the investors; reports income amounts to the investors that are partially or wholly fictitious; makes payments, if any, of purported income or principal to some investors from amounts that other investors invested in the fraudulent arrangement; and appropriates some or all of the investors' cash or property. Where the lead figure is indicted, Rev. Proc. 2009-20 states that a taxpayer's discovery year is the tax year of the investor in which the indictment, information, or complaint is filed. And if the lead figure died, then Rev. Proc. 2011-58 provides the discovery year as the later of the civil claim becoming public, a receiver appointed or funds frozen or the death of the lead figure. In ILM 201511018, the Internal Revenue Service determined that the year of discovery was the year when: (1) the civil complaint was filed by the Agency that alleged facts that comprise substantially all of the elements of a specified fraudulent arrangement conducted by the lead figures; (2) one of the lead figures died before being criminally charged; and (3) a receiver was appointed with respect to the arrangement. While these Ponzi schemes are becoming all too frequent, at least the Government is easing the path for taking the loss as a deductible theft.

District Court affirms FBAR penalties but disallows FBAR late payment penalty and interest

District Court affirms FBAR penalties but disallows FBAR late payment penalty and interest In Moore v U.S., 2015 WL4508688, 116 AFTR 2d ¶ 2015-5094 (W.D. Wa. 7/24/2015), a district court found that the Taxpayer did not provide an adequate explanation for not imposing FBAR penalties, so those penalties were affirmed. But, the Court also found that tacking on additional late payment penalties was excessive. As a result, the court disallowed IRS's assessment of interest and late payment penalties with respect to the original FBAR penalties and treated the FBAR penalty as if it were assessed on the date of the judgment imposing the penalties. Background. The Bank Secrecy Act (BSA) provides that the Treasury Department has the authority to collect information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the U.S. Taxpayers are required to file a Form 114, Report of Foreign Bank and Financial Accounts (FBAR) if the values of the foreign financial accounts (“FFA”) exceed $10,000. For non-willful violations, the maximum civil penalty is $10,000 per failure. (31 CFR 5321(5)(b)(i)) However, no penalty is imposed if the violation was due to reasonable cause. (For willful violations, in addition to possible criminal penalties, the maximum civil penalty is the greater of $100,000 or 50% of the FFA per year) In Moore, the Court affirmed the imposition of the non-willful penalties of $10,000 per year for four years since the IRS demonstrated that its decision to assess FBAR penalties of $10,000 for each year for four years was not arbitrary, not capricious, and not an abuse of its discretion. However, the IRS's conduct in seeking further late payment penalties and interest on those FBAR penalties, was determined to be arbitrary since the IRS disclosed no adequate basis for its decision to assess the penalties until the litigation forced its hand. The IRS had even promised not to assess penalties in an earlier communication until an internal appeal was exhausted. Thus any late fee or interest that IRS attempted to tack on to the FBAR penalties was void. The government had to treat the FBAR penalties as if they were first assessed on the date of the court's order. In addressing FBAR penalties, taxpayers are well served to consult with tax counsel prior to making disclosures.

Third Circuit holds that the IRS can compel production of foreign bank records over a Fifth Amendment assertion

Third Circuit holds that the IRS can compel production of foreign bank records over a Fifth Amendment assertion The Court of Appeals for the Third Circuit in U.S. v. Chabot, 2015 WL 4385279 (3rd Cir. 2015) affirmed a New Jersey District Court decision and held that the "required records" exception to the Fifth Amendment privilege against self-incrimination applies to allow the IRS to enforce a summons of foreign bank account records. Background 31 CFR 1014.420 requires a taxpayer to file a Report of Foreign Bank and Financial Accounts (“FBAR”) to report financial accounts in foreign countries where the aggregate of such accounts exceeds $10,000. The Fifth Amendment states that "[no] person... shall be compelled in any criminal case to be a witness against himself." An individual may claim this privilege if compelled to produce self-incriminating, "testimonial communications." The act of producing documents may trigger the Fifth Amendment privilege. Fisher v. U.S., 425 U.S. 391 (1976). But there is an exception to the 5th Amendment called the “required records exception.” This exception states that when records are required to be maintained for a legitimate purpose, the 5th amendment does not apply to such records. In Shapiro v. U.S., 335 U.S. 1 (1948), the Supreme Court held that the Fifth Amendment privilege is not abrogated by requiring that taxpayers maintain records as long as the records closely served the purpose of a valid, civil regulation. As set forth in Grosso v. U.S., 390 U.S. 62 (1968), three prongs must be met to fall within the required records exception: (1) the reporting or recordkeeping scheme must have an essentially regulatory purpose; (2) a person must customarily keep the records that the scheme requires him to keep; and (3) the records must have "public aspects." The Chabot case. IRS issued summonses to Mr. and Mrs. Chabot requesting documents required to be maintained under 31 CFR 1014.420. The Chabots refused claiming the 5th Amendment privilege. The New Jersey District Court ruled that the summonses were proper under the required records exception and the Third Circuit just affirmed. The Third Circuit analyzed the three Grosso prongs and determined all three were met. Conclusion For anyone still holding assets abroad without disclosing them, be aware that the IRS may obtain the records through summons enforcement. As such, such taxpayers should consult counsel and strongly consider entering into either the offshore voluntary disclosure program or the streamlined program.