By Casey S. Hale on 2/16/2021 12:42 PM

There is a widely held but misguided belief that a donor advised fund (“DAF”) is prohibited from making distributions to a private foundation. While the Pension Protection Act of 2006 imposed a myriad of restrictions on DAFs, it did not completely proscribe distributions from a DAF to a private foundation so long as the DAF sponsoring organization undertakes certain expenditure responsibility measures. Moreover, a DAF may make distributions to a private foundation even when a donor or donor advisor to the DAF is also a disqualified person with regard to the recipient private foundation.

Click here to read the complete White Paper.

By John Peiffer on 2/12/2021 10:50 AM

Last Friday, February 5, in a 6-3 decision, the U.S. Supreme Court ordered the State of California not to enforce its ban on indoor worship services for houses of worship in California counties in the so-called “purple tier”, instead mandating that indoor worship be permitted at 25% occupancy.  While this vindication of First Amendment rights is certainly welcome by persons of faith in California, it also comes with a responsibility to take precautions to reduce the spread of COVID-19.  Click here to read my overview of last week’s case, South Bay United Pentecostal Church v. Newsom, and some practical steps that churches and other houses of worship can implement to reduce the COVID-19 risk for worshippers.

By David Keligian on 6/29/2020 10:05 AM

Imagine playing in a competitive game where you know your opponent’s basic strategies and operating procedures. That’s a nice advantage, and one that taxpayers have with the Internal Revenue Service (“IRS”). Knowledge about IRS audit targets is actually pretty easy to come by, since the IRS announces them in a series of public communications. As far as IRS procedures, the IRS publishes them in exhaustive detail in the Internal Revenue Manual. This knowledge means you can lessen your chance of audit by following some fairly simple steps.

“I Have Nothing To Hide” Even if you believe you have no audit exposure, an audit can cost a great deal of professional time to successfully resolve. Professional time = fees and costs. I’ve also experienced many instances of agents proposing adjustments that made no sense. They were ultimately overturned, but that means time and money.

By David Keligian on 5/28/2020 3:39 PM

In his classic book “Think and Grow Rich”, Napoleon Hill said “Every failure brings with it the seed of an equivalent success”. Finding the “seed of equivalent success” seems difficult when we see valuations—regardless of asset class—collapsing before our eyes. With few exceptions, as the U.S. economy has been shut down, the COVID 19 pandemic has hurt business values, real estate values, and investment holdings alike.

However, for those of significant wealth, there is an opportunity to take advantage of the crisis. You can maximize tax savings by acting while asset values are still depressed. In part, this opportunity is based on the consensus view that given the government’s massive spending to avoid a financial collapse, taxes will increase.

In a recent Forbes interview, Leon Cooperman, Chairman of Omega Advisors and a billionaire investor, opined that the recent government intervention in the U.S. economy would result in more government regulation and higher taxes. With respect to the pending presidential election, Cooperman stated: “Regardless of who wins, taxes will have to be raised. Quickly, if Biden wins; slowly, if Trump wins—but taxes have to go up”.

By Casey S. Hale on 4/15/2020 9:30 AM
Yesterday, the Internal Revenue Service (the “Service”) issued an EO Update bulletin, which addressed nine topics relevant to tax-exempt organizations.
The first of those topics helped further clarify information contained in Notice 2020-23, which the Service issued on Friday, April 10, 2020. (In Notice 2020-23, the Service expanded the Covid-19 relief provided to affected taxpayers by, among other things, extending the filing deadline for Form 990-series returns as well as certain other forms and payments made by tax-exempt organizations.) In the bulletin, the Service explains that the recently authorized filing-deadline extension applies to several forms and tax payments required of tax-exempt organizations, including:
By David Keligian on 3/4/2019 11:59 AM
My last article dealt with the doctrine of “rescission”—the ability to go back in time to “re-do” a transaction for tax purposes. If you comply with the rescission requirements, you can fix anything as long as the fix occurs in the same tax year. But as pointed out in the article, once the tax year closes, you are stuck with the tax consequences for that year, even if you rescind the transaction in a later tax year.

This article addresses a little known provision of partnership tax law that blesses changing a partnership agreement after the close of a tax year, retroactively to the beginning of the prior tax year. You have until the original due date of the tax return for the partnership to amend the partnership agreement. This means that for the 2018 tax year, I can amend the partnership agreement for 2018 until March 15, 2019. Unfortunately, extending the partnership’s tax return doesn’t extend the deadline for amending the partnership agreement, but even so the rule is quite liberal.

Why is...
By David Keligian on 2/28/2019 1:53 PM
On occasion, I come across interesting ideas involving taxation. It will be fun to share some of these ideas, and I will be doing a few more articles about some quirky areas of the tax law. Those "quirks" can help you achieve some results that you would normally not think were possible.

The concept of "rescission" is one such topic. Many areas of taxation impose extremely specific requirements. For example, to benefit from a Section 1031 exchange, you need to identify a certain number of replacement properties, specifically and in writing, by the 45th day after you sell your old property. Identify too many replacement properties? You lose and have to pay the tax. Identify the properties on the 46th day? You lose and have to pay the tax. Don’t identify the properties correctly? You lose and have to pay the tax.

That’s why it’s surprising that the Internal Revenue Service ("IRS") has blessed the concept of "rescission". Think of rescission as a tax time machine that lets you go back in time and...
By David Keligian on 4/9/2018 9:12 AM
Most Californians with higher incomes and homes will probably end up with higher federal income taxes as a result of the new income tax bill. Our federal income tax law now imposes a $10,000 limit on federal deductions for state and local income taxes. For example, any person who owns a home in California with an assessed value of $1,000,000 will be limited in their federal income tax deductions for the California taxes on their home alone—regardless of how much state income tax they pay.

That makes a ballot initiative slated for the November 2018 California ballot especially painful. Named “The College For All Act of 2018”, it is an attempt to re-institute the estate tax in California. Unlike the federal estate tax rules, which were recently liberalized, the proposed California estate tax starts to kick in on estates of more than $3,500,000 at a 12% rate, increasing to a rate of 22% on estates of more than $5,490,000. The initiative, backed by the California Federation of Teachers, establishes priorities...
By David Keligian on 10/26/2017 2:49 PM
Regardless of your party affiliation, expecting Congress to enact rational tax reform is - - at least for individual income taxes - - like asking your dog to parallel park your car. You're foolish if you expect a good result. To paraphrase one observer's comment, you can't expect reform from those who deformed our income tax laws to begin with.

Let's talk about one of the first principles mentioned in the "Unified Framework for Fixing Our Broken Tax Code" (the "Framework"). The Framework is supposed to make the tax code simple, fair, and easy to understand. But fixes such as adding a "zero tax bracket", combining 7 tax brackets into 3, and eliminating most itemized deductions don't simply do anything for most taxpayers.

Most individual tax returns are filed with software that makes the number of brackets, or what itemized deductions are allowed, simple to address. The same point applies to repealing the alternative minimum tax ("AMT"). Again, most tax return software automatically generates AMT...
By David Keligian on 6/20/2017 12:35 PM
Although tax reform in general and estate tax repeal in particular have been sidetracked as a result of other issues facing the Trump administration, even if the estate tax is “repealed", it will not eliminate the possibility of taxes being due at death. That is because one of the long standing features of our estate tax law is the increase of a decedent's income tax basis in any assets that are included in their estate for estate tax purposes.

For example, under current law, if I own a piece of vacant land that cost me $1,000 and it has appreciated to $10,000,000 on my death, my estate would include an asset valued at $10,000,000 on which I would have to pay estate tax. However, for income tax purposes, my heirs could sell that property with a “stepped-up" income tax basis of $10,000,000, thus avoiding income taxes on the sale of the property at it’s date of death value.

For example, the estate tax previously was repealed for just one year in 2010. Anyone who died that year didn't pay estate...