Visiting the Committees

• Publication year: 2018

Visiting the Committees

Commentary and Updates by the Committees

COMPENSATION AND BENEFITS COMMITTEE

The Compensation and Benefits Committee provides a forum for members of the Taxation Section to learn and discuss issues relating to executive compensation, tax-qualified retirement plans, and health and welfare benefit arrangements. Membership in the Committee is open to employee benefit practitioners and Taxation Section members, and the participation of members of the Labor and Employment Law Section is encouraged. The Committee strives to include in discussions high-level members of the Internal Revenue Service, U.S. Department of Labor Employee Benefit Security Administration, and California Franchise Tax Board.

Committee Activities

The Compensation and Benefits Committee schedules quarterly conference calls for all members interested in the topics that affect compensation and benefits. Members interested in participating, providing comments, or for more information regarding upcoming meetings and events should contact the Committee Chair, Colleen Hart, at chart@proskauer.com.

CORPORATE AND PASS-THROUGH ENTITIES COMMITTEE

The Corporate and Pass-Through Entities Committee focuses on issues faced by corporate taxpayers and provides opportunities for practitioners and corporate tax counsel to maintain a level of expertise in the field of corporate tax law, expand their professional contacts, and serve the profession, the public and the legal system. Membership in the Committee offers practitioners information on developments with respect to corporate and business tax and a greater voice on developments in such legislation.

Committee Activities

Normally, the Committee holds quarterly meetings via teleconference and interested members of the Tax Section are welcome to participate. In addition, members and other interested parties are welcome to submit articles for Quick Points on Corporate and/or Pass-through topics of general interest to the members of the Taxation Section. For more information regarding upcoming meetings and events should contact the Committee Co-Chairs, Aaron Johnson, at (916) 441-2430 or ajohnson@wilkefleury.com, or Cameron Hess at (916) 920-5286 or chess@wkblaw.com.

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ESTATE AND GIFT TAX COMMITTEE

The Estate and Gift Tax Committee is comprised of attorneys throughout the State of California who devote a significant portion of their practice to understanding the evolving areas of estate and gift tax planning, drafting, compliance, and controversy work. One of the primary functions of the Committee is to provide valuable, informative, high quality continuing education programs on behalf of the Taxation Section.

If you are interested in becoming a member or submitting a topic on which to speak or write, please contact the Estate and Gift Tax Committee Chair, Abby Feinman, at (310) 788-4722, abby.feinman@kattenlaw.com, or Vice Chair, Alison Merino, at (408) 293-3616 or amerino@rpllawfirm.com.

Committee Activities

The Committee holds meetings at least quarterly via teleconference. We also welcome any member or other interested party who would like to write on a topic-to submit a brief article for Quick Points. This article can be any estate and gift topic of general interest to the members of the Taxation Section. Also, if you are interested in speaking at an event, or have a topic that you believe would be of interest to the members, we welcome input.

Quick Point

IRC Section 199A, the Deduction for Qualified Business Income of Pass-Through Entities, for Trusts and Estates

The Tax Cuts and Jobs Act, H.R. 1, enacted as "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018," P.L. 115-97 (the "Act"), which was signed into law on December 22, 2017 fundamentally changed many aspects of U.S. tax law. Changes to the taxation of trusts and estates are mostly effective for the tax years beginning in 2018 and ending in 2025.

The new IRC Section 199A provides for a 20-percent deduction of net "qualified business income" to any taxpayer except one that is a corporation. The Conference Agreement expressly provides that trusts and estates are eligible for this 20-percent deduction. H.R. Rep. No. 115-466, 115th Cong., 1^st Sess. (2017), p. 502. The rules for apportioning between fiduciaries and beneficiaries of any W-2 wages and unadjusted basis of qualified property under the limitation based on W-2 wages and capital are similar to the rules that were in effect under the IRC section 199 in December 1, 2017. Id.

Guidance will be needed on how the IRC Sec. 199A deduction applies to two common estate planning vehicles.

First, Charitable Remainder Trusts ("CRTs") may be impacted by this deduction. There is an excise tax of 100% on any unrelated business taxable income (UBTI) that a CRT receives. Under Treas. Reg. Sec. 1.512(a)-1(a), UBTI means, "gross income derived from any unrelated trade or business regularly carried on, less those deductions allowed by chapter 1 of the Code which are directly connected with the carrying on of such trade or business." IRC Sec. 199A is found in chapter 1. Therefore, if the IRC Sec. 199A deduction meets the proximate and primary relationship requirements, then this deduction may apply to lessen a CRT's excise tax on UBTI.

Second, Electing Small Business Trusts ("ESBTs") may encounter an issue with IRC Sec. 199A. There is a question whether ESBTs are entitled to this new deduction. Under IRC. Sec. 641(c)(2) deductions available to ESBTs are listed, but the list does not include IRC Sec. 199A. If the new IRC Sec. 199A deduction is applicable, the portion of the ESBT that owns S corporation stock may claim that IRC Sec. 199A deduction. The IRC Sec. 199A 20-percent deduction and the Tax Reform rate reduction could reduce the amount of tax payable by an ESBT on S corporation income from the prior maximum of 39.6% to an effective rate of 29.6% for tax years beginning in 2018.

Whether and how IRC Sec. 199A applies to CRTs and ESBTs are some of the issues on which the IRS and Treasury have signaled they will provide guidance in the future.

— Emily Graham, Los Angeles

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INCOME AND OTHER TAXES COMMITTEE

The Income and Other Taxes Committee provides an outlet for its members to actively participate in the Taxation Section with respect to issues relating primarily to federal income taxation. The Committee's mission is to (i) promote dialogue and maintain the expertise of its members through the annual provision of continuing education with respect to recent developments on various income (and other) tax issues; and (ii) provide a networking forum for members to expand their professional contacts.

Committee Activities

The 2018 Annual Income Tax Seminar was a big success and well-received by attendees. The event took place on Friday, June 22, 2018, at Golden Gate University in San Francisco, and Chapman University in Orange. This year's event was co-sponsored by the California Lawyer's Association and CalCPA.

The Income and Other Taxes Committee would like to thank our speakers for their excellent presentations: Patrick Martin, Procopio, Cory, Hargreaves & Savitch, LLP, William Skinner, Fenwick & West, Agustin Ceballos, Seltzer Caplan McMahon Vitek, Artemiza Q. Schumacher, Rivera & Schumacher, APC, Kristen Kane and Jackie Zumaeta, Office of Tax Appeals, Basil J. Boutris, Vaught &Boutris, Matthew Carlson, Wagner Kirkman Blaine Klomparens and Youmans, LLP, Kevan McLaughlin, McLaughlin Legal, Edward J. McIntyre, Attorney at Law, Mark Morris and Michael C. Friedman, LevitZacks, Christopher A. Karachale, Hanson Bridgett, Tracy Hom, Realize CPA, Lisa Nelson, Law Offices of A. Lavar Taylor, LLP, Aaron T. Vaughan, KPMG, and Annette Nellen, Director of MST program at San Jose State University.

The Committee Chair would also like to thank Committee members Brian Katusian, Seltzer Caplan McMahon Vitek, Matthew Carlson, Wagner Kirkman Blaine Klomparens and Youmans, LLP, Michael Laisné, Franchise Tax Board, and Kristina Robledo from the California Lawyer's Association for their hard work in making the seminar a success!

Please contact the Committee Chair, Veronica Long, at veronica.long@ftb.ca.gov for information on joining the Income and Other Taxes Committee.

Quick Points

Franchise Tax Board Issues FTB Notice 2018-02 Regarding Requests by Taxpayers for Oral Presentations to its Staff Pertaining to Staff-Initiated Proposed Alternative Apportionment

On May 24, 2018, the Franchise Tax Board (FTB) issued FTB Notice 2018-02 titled: California Revenue and Taxation Code Section 25137—Oral Presentations Pertaining to Staff-Initiated Proposed Alternative Apportionment. The purpose of FTB 2018-02 is to inform taxpayers and their representatives that they may request to give oral presentations to FTB staff when the FTB's staff proposes alternative apportionment under California Revenue and Taxation Code (RTC) section 25137. FTB Notice 2018-02 is a supplement to FTB Legal Notice 2017-05 allowing taxpayers and their representatives to request to give oral presentations to FTB staff related to RTC section 25137 petitions made by the taxpayer. Before FTB Legal Notice 2018-02, the taxpayers and their representatives could not make an oral presentation prior to the FTB making a decision on the appropriateness of staff-proposed variances to the standard applicable apportionment formula. The FTB staff proposes such a variance when the staff believes the standard applicable formula is not a fair reflection of the taxpayer's activity in California. The taxpayer or its representatives will be sent a notification that FTB staff is...