With the temporary regulations on portability set to expire at the end of June, 2015, the IRS issued the final regulations on the portability election under IRC §2010 in TD 9725.  These regulations generally apply to estates of decedents dying on or after June 12, 2015 and gifts made on or after that date.

Generally the portability rules are one of the most significant developments in the area of estate taxation since the introduction of the unlimited marital deduction for transfer tax purposes in the Economic Recovery Tax Act of 1981 and, when combined with the significantly increased unified credit, significantly modifies the issues to be decided when a couple establishes an estate plan. 

The IRS announced a change in policy regarding estate tax closing letters in their web pages.  On the page labeled “Frequently Asked Questions on Estate Taxes” (FAQ) the IRS announced that for estate returns filed on or after June 1, 2015 the IRS will no longer automatically issue closing letters.

For returns filed after June 1, 2015 the IRS will only provide closing letters if requested by the taxpayer.  The FAQ does not contain information about how taxpayers are to initiate such requests or details of the process, including whether the IRS plans to charge a user fee for obtaining such a letter.

The Eighth Circuit, in the case of Heckman v. Commissioner, Docket No. 14-3251, affirming TC Memo 2014-131, held that a taxpayer did not escape the six year statute of limitations for assessments when the taxpayer claimed the IRS had been made aware of the underlying issues during an examination of the retirement plan from which the taxable distribution arose.  The IRS, per the taxpayer, became aware of the existence of the distribution during that exam prior to the expiration of the standard three-year statute of limitations.   But the Eighth Circuit found that the IRS was not required to pursue needles in the haystack of information that might otherwise be vaguely available to the agency.

The plan in question as an employee stock ownership plan which, during the examination in question, had its status as a qualified plan revoked.  The plan in question had not filed a Form 5500 for 2001-2003, a fact the IRS did not notice until April 2007 during an unrelated examination.

Reversing the Tax Court, the Eighth Circuit in the case of Ibrahim v. Commissioner, Docket No. 14-2070, reversing and remanding TC Memo 2014-8, the Eighth Circuit found that filing as “head of household” by a taxpayer did not qualify as filing a “separate return” for purposes of IRC §6013(b)(2)(B).

IRC §6013(b) generally provides that a married taxpayer that had previously filed a “separate return” can revise their filing and, with the consent of their spouse, file a married filing joint return.  However such an option is not available if the taxpayer had previously filed a “separate return,” received a notice of deficiency and filed a petition before the Tax Court. [IRC §6013(b)(2)(B)]

In the case of Slone v. Commissioner, TC Memo 2012-57, vacated and remanded,  CA9, 2015 TNT 110-18, No. 12-72464, 12-72495, 12-72496, and 12-72497 the Tax Court rejected the IRS’s argument of substance over form in attempting to recast a sale of a corporation’s stock, following the sale of its assets, as a liquidating distribution to which transferee liability could attach under IRC §6901.  But, on appeal, the Ninth Circuit found that Tax Court had not properly considered the issue and sent the matter back to the Tax Court.

In the case in question the corporation had sold the assets of the corporation to a third party.  Following that sale of assets, the corporation was contacted by another entity that expressed an interest in buying the stock of the corporation.  The sale of the stock to that entity was completed prior to the corporation making any distribution to the old shareholders and before the year end for a the tax return that would have been filed for the year of the sale of the assets.

An IRA-based rollover as a business startup style transaction produced disastrous consequences for the individual whose rollover was involved in the case of Ellis v. Commissioner, TC Memo 2013-245, affirmed CA8, 115 AFTR 2d ¶2015-805, No. 14-1310.

The issues in the case was whether the taxpayer had engaged in a prohibited transaction under IRC §4975 as part of his use of funds received from his previous employer’s 401(k) plan to have his IRA start a used car business.  If an IRA engages in a prohibited transaction, the entire balance of the account is deemed distributed to the IRA beneficiary and tax is triggered.

The IRS under IRC §408(d)(3)(l) has the authority to waive the 60 day period for the rollover of funds from one IRA account to another and, in Revenue Procedure 2003-16 one of the reasons enumerated by the IRS for granting such relief is if the taxpayer is prevented from completing the rollover due to medical issues.

So the taxpayer in PLR 201523025 should have been in good shape.  After taking a distribution that he planned to roll over to improve his return from one IRA account the taxpayer suffered a medical injury at work and was put on medical leave.  That leave period expired after the end of the 60 day period.  As well, he was caring for his disabled spouse at the time.  The IRS has quite often granted relief based on such facts.