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Archive for David Ellis

Tax Aspects Of Dividing Stock Options In Divorce

Tax Aspects Of Dividing Stock Options In Divorce

Mr. Kochansky Meets Revenue Ruling 2002-22

Richard W. Kochansky was a medical malpractice attorney who divorced his wife, Carol, in 1985. As part of their property settlement Richard agreed that he would share the contingent fee in a medical malpractice suit he was pursuing.

Little did he know that his agreement to share his prospective earnings with his soon to be former spouse would, more than a decade later, become part of a landmark revenue ruling that would determine how Silicon Valley royalty would be taxed on millions (perhaps billions) of dollars in stock options.

The general rule of dividing property between spouses in a divorce is governed by IRC Section 1041, which states that such transfers are as tax free gifts between the spouses with mandatory non-recognition of gain or loss. There is a carryover of basis and holding period to the transferee spouse. If and when the transferee spouse disposes of the property, he or she will recognize gain or loss as if he or she had owned the property from inception, and there is no tax effect on the transferor spouse.

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Death And Taxes: When The Wealthy Unexpectantly Perish

Death And Taxes: When The Wealthy Unexpectantly Perish

“Let me tell you about the very rich. They are different from you and me.” ~The Rich Boy, by F. Scott Fitzgerald, 1926.

If there is one absolute certainty in life, it is one day all of us will have our last day. The unfortunate reality is that death does not just come calling for the aged and infirm. Every day in the United States thousands of people die from causes that are not natural, such as auto accidents, accidental poisoning (mostly drug and alcohol related), falls, drowning, boating and aircraft accidents, and even animal attacks. Some years ago, not far from this author’s home in Southern California a jogger was killed by a mountain lion. Not long after this incident, another runner was killed by an alligator in Florida. In fact, Florida seems to have more than its share of gruesome unnatural deaths. In 2013, Jeffrey Bush, a 37-year-old resident of Hillsborough County, Florida, was at home in bed, and a giant sink hole swallowed the entire house—with him in it. They never found the body.

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Radio Show Host Talks His Way To A Win In Tax Court On Employment Status: Employee V. Independent Contractor

Radio Show Host Talks His Way To A Win In Tax Court On Employment Status

A radio show host demonstrated that he could talk as well in tax court as he could in front of a microphone. At issue was the question of whether or not a person can be an employee as well as an independent contractor simultaneously with the same employer.

During 2007, Juan A. Ramirez was employed by Univision as an on-air talent and program director for radio station KXTN in San Antonio, Texas. In addition, to hosting a five-hour, six days a week radio program, his contract also called for him to perform various other duties.

These duties included working as an announcer at the radio station, attending staff meetings, and promoting the station in general by making off air appearances. For those services, Mr. Ramirez received a base salary, bonuses and stock options in Univision, the parent company of KXTN. Ramirez’s employment agreement stated that his work was subject to the control of Univision and that he was to live up to Univision’s professional standards in all aspects.

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Post-Tax Cuts And Jobs Act (TCJA) Alimony

Post-Tax Cuts And Jobs Act (TCJA) Alimony

More than three years have passed since the Tax Cuts and Jobs Act (TCJA) fundamentally changed how alimony is treated for federal tax purposes, yet confusion still reigns among many family law and tax professionals.  One of the most common questions in this author’s experience is “Does modifying an alimony agreement that was in place prior to the TCJA cause alimony to become not taxable to the recipient spouse and not deductible for the payor spouse?”   This question is frequently followed up with “Did we have to have the final decree of divorce or separation in place on or before December 31, 2018, to achieve deductibility for the payor spouse and income inclusion for the recipient spouse?

Although to the best of this author’s knowledge there has been no tax litigation to date on either of the above questions, a close look at the law as written, and subsequent IRS unofficial guidance would seem to indicate that the answer to both questions is “no”.

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The Case Of The Secret Divorce And The Not So Innocent Spouse

Question:

What do a weekend trip to Mexico, a sneaky spouse, and a tax protest letter have in common?

Answer:

They are all components of a taxpayer’s losing plea for tax relief in front of the California State Board of Equalization.*

THE FACTS

Charles and Vickie Sine filed a joint California resident tax return (Form 540) for tax year 2005.  It subsequently came to the attention of the Franchise Tax Board that they had Read more

Start 2015 Tax Planning Now! Part 4 (Final)

Tax Code Changes Create Challenges

How do you work and coordinate with attorneys and financial planners?

We make it a point to communicate with the client’s attorney and financial planner anytime we see anything of financial or legal significance that has happened or is likely to happen. For example, in some cases, by combining the estate and gift tax exemption with the proper use of certain irrevocable trust, millions of dollars in estate and gift taxes may be avoided. If we see that a client may potentially benefit from this type of strategy, we will work closely with his/her attorney and financial planner to implement a plan.

 

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Start 2015 Tax Planning Now! Part 3

Tax Code Changes Create Challenges

Inheritance taxes and estate planning are a growing concern for affluent baby boomers. What are some of the major issues?

In addition to the double step-up in basis on community property discussed above, the baby boom generation will benefit from some of the most generous estate tax loopholes in history. For example, married couples have complete spousal exemption from estate and gift tax when transferring property to each other. This has not always been the case.

For 2015, every person has a lifetime net gift and estate tax exemption up to $5.43 million. Considering that the top gift and estate tax rate is 40%, this exemption represents an Read more

Start 2015 Tax Planning Now! Part 2

Tax Code Changes Create Challenges

What should partners who married under California’s Equal Marriage Law be concerned about or plan for in terms of taxes?

Same sex marriage is now recognized in California. This means, from a tax perspective, same sex married couples face the same issues as opposite sex couples. They are also eligible to take advantage of what we call the “biggest tax loophole of all time” – the double step-up in basis on community property.

This is a section of the tax code that stipulates when property is held as community property and one spouse dies, the appreciation on the property is not taxed to the Read more

Start 2015 Tax Planning Now! Part 1

Tax Code Changes Create Challenges

What should small business owners focus on for 2015 tax planning?

An  important,  yet  often  overlooked,  issue  for small business owners is the choice of the form of entity under which they operate. For 2015, this will become critical as Congress contemplates major changes to  the  tax  code.  Currently, the maximum   corporate federal tax  rate  is  generally  less  than the maximum individual tax rate. This has led many business owners to consider converting their sole proprietorships and pass through entities (such as S corporations and LLCs) into C corporations, which are taxed at the lower corporate rate. Caution must be exercised before making this change, Read more