Tax Alert

• Publication year: 2021
• Author: By Michael Rosen-Prinz* and Francisco Garcia, Jr.**

TAX ALERT

By Michael Rosen-Prinz* and Francisco Garcia, Jr.**

This article summarizes selected developments in federal and state taxation law since the last Quarterly that may be of interest to trust and estate attorneys. "Code" refers to the Internal Revenue Code of 1986, as amended. "Tres. Reg." refers to any Treasury Regulation. "IRS" refers to the Internal Revenue Service.

I. FEDERAL ADMINISTRATIVE & LEGISLATIVE ACTIVITIES

A. Proposed Regulations - Requirements for foreign persons and foreign owned partnerships to benefit from qualified opportunity zones.

REG-121095-19 (April 12, 2021) 86 FR 19585

Treasury issued proposed regulations describing requirements that certain foreign persons and certain foreign-owned partnerships must meet to elect the Federal income tax benefits provided by section 1400Z-2 of the Code, dealing with Qualified Opportunity Zone (QOZ) investments and to reduce or eliminate withholding under sections 1445, 1446(a), or 1446(f) of the Code related to QOZ investments. Under existing law, taxpayers investing in QOZ Funds can defer and even exclude capital gain if they meet certain requirements. The proposed regulations require the foreign investor to obtain an eligibility certificate to defer gains and reduce or eliminate withholding taxes. The proposed regulations do not set forth the process to obtain an eligibility certificate but note that it will require that the foreign investor provide information about themselves and the transfer, enter into a deferral agreement, and provide security for the deferred gain amount. The proposed regulations would apply to tax years beginning after the date of publication, but taxpayers may rely on them for tax years beginning after December 31, 2019. Separately, the proposed regulations also provided additional flexibility for QOZ businesses to spend working capital in the event of a federally declared disaster.

B. Declination to Acquiesce in Schieber (Tax Court): Qualified Plans

Action on Decision 2021-01 (April 12, 2021) 2021-15 IRB 985

The IRS provided notice that the Commissioner does not acquiesce in the decision of Schieber v. Commissioner, T.C. Memo. 2017-32, T.C. Docket No. 21690-14.1, in which it was held that an interest in a defined benefit pension plan is not an asset under the insolvency exclusion of Code section 108.

C. Declination to Acquiesce in Machacek (6^th Circuit): Split-Dollar Life Insurance

Action on Decision 2021-02 (May 24, 2021) 2021-21 IRB 1156

The IRS provided notice that the Commissioner does not acquiesce in the decision of Machacek v. Commissioner, 906 F.3d 429 (6^th Cir. 2018), rev'g T.C. Memo. 2016-55, in which it was held that the economic benefits of a compensatory split dollar life insurance arrangement may be treated as a distribution with respect to stock under Code section 301.

D. Proposed Legislative Text Released by House Ways and Means Committee (September 13, 2021)

1. Key Income Tax Provisions

• Top marginal income tax rate increased to 39.6%. This rate applies to married individuals filing jointly with taxable income over $450,000 and unmarried individuals with taxable income over $400,000. This increase would be effective after December 31, 2021.
• New 3% surtax on an individual's modified adjusted gross income in excess of $5,000,000 ($2,500,000 for married individuals filing separately or $100,000 for estates or trusts). This surtax would go into effect after December 31, 2021.
• Capital gains tax rate increased to 25% for taxpayers in the highest ordinary income tax bracket. Would be effective September 14, 2021.
• Section 199A amended to set maximum allowable deduction at $500,000 in the case of a joint return and $400,000 for an individual return. Would be effective after December 31, 2021.
• Net investment income tax is expanded to cover net investment ordinary income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (for a single filer) or $500,00 (for a joint filer), as well as...