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Victory for Goodwill, Mass. Tax Amnesty, Thank You Points Taxable

Saul Brenner, CPA, J.D., LL.M. 09.29.2014 | eVisor

Trusts and Estates

Victory for Personal Goodwill in Value of an Estate

In a decision important to both estate valuations and sales of businesses, the Tax Court gave a serious thumbs up to the significance of “personal goodwill”.1

In the case, the deceased owned, in a trust, 100% of a cable uplinking company that had one customer, a religious broadcasting network managed by the deceased man’s son.  Upon the death of the father, the son became president of the uplinking company.  The estate initially valued the company’s stock at $9.3 million. At first, the IRS came in sharply higher at $92.2 million.  In support of the $9.3 million value, the estate argued that the success of the uplinking company turned substantially on the “personal goodwill” of the son and his relationship with the board members of its one and only client, the broadcasting network.  Further, a potential buyer for the uplinking company would be required to retain the son because there was no noncompete agreement.

The Tax Court agreed that the $9.3 value established by the estate properly took into account the son’s personal goodwill and that the estate had correctly used the income approach in valuing the company. 

1 T.C. Memo 2014-155 Estate of Franklin Z. Adell, Deceased, Kevin R. Adell, Temporary Co-Personal Representative, Petitioner v. Commissioner of Internal Revenue, Respondent.   

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 or sbrenner@berdonllp.com.

State Tax

Brief Window for Massachusetts Tax Amnesty

The Massachusetts Department of Revenue has instituted a limited two-month Tax Amnesty Program during the months of September and October, 2014.  Eligible taxpayers can resolve outstanding liabilities by paying only the tax and interest owed.  The Department will waive all associated penalties. 

Taxpayers with unpaid and self-assessed tax liabilities stated on a bill issued by the Commissioner on or before July 1, 2014, or taxpayers previously assessed a tax liability by the Commissioner on or before July 1, 2014, are eligible to participate. Eligible tax types include personal income tax and most non-corporate business taxes.  For a complete list of eligible tax types, click here

Beginning September 1, 2014, qualifying taxpayers began receiving Tax Amnesty Notices indicating the applicable tax period(s).  Taxpayers must pay the “Amnesty Balance Due” in full for each tax period listed on the notice by October 31, 2014.  If the tax and interest due are paid in full, the unpaid penalties, along with any interest associated with such penalties, will be waived.  The pardoned amount will be reflected on the notice as an “Amnesty Savings.”

Tax payments can be made through the Department’s Web Services for Income application, Web File for Business application, or in the form of a check or money order made payable to the Commonwealth of Massachusetts.  Taxpayers should include the bill number from the “Tax Amnesty Notice” with their payment.

If you believe you are eligible, but have not received a Tax Amnesty Notice, please contact your Berdon advisor or Wayne Berkowitz at 212.331.7465 | wberkowitz@berdonllp.com

Federal Tax

Airline Tickets Redeemed with Points Held Taxable 

The Tax Court has agreed with the IRS in its attempt to tax an airline ticket redeemed with “Thank You Points” issued when opening a Citibank account1.

In 2012, Citibank began to issue 1099-MISC forms to customers who received frequent flyer miles via its Thank You Points promotion for opening an account. This would make those customers responsible for paying the taxes.  Not all banks agreed with Citibank’s position and the IRS had, in the past, not established any enforcement program targeting frequent flyer miles.  But, change may be in the wind. The recent Tax Court decision held that the petitioners “must include in their gross income the value of the airline ticket received in redemption of 'thank you' award points.”

1 143 T.C. No. 5 Parimal H. Shankar and Malti S. Trivedi, Petitioners v. Commissioner of Internal Revenue, Respondent. Docket No. 24414-12, 8.26.14

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 or sbrenner@berdonllp.com.

Truncated Taxpayer ID Numbers to Help Fight Fraud

Built on a 2013 IRS pilot program, truncated taxpayer identification numbers (TTINs) can now be used on payee statements and certain other documents according to new regulations. 1

TTINs X-out the first 5 digits of your Social Security number, individual taxpayer identification number, adoption taxpayer identification number, and under the new regulations, your employer identification number. TTINs can now be used on both electronic and paper payee statements.  The use of TTINs would apply for the Form 1099, 1098, and 5498 series, but not 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes.

Specifically, you can truncate numbers on payee statements. However, you cannot truncate on forms filed with the IRS, such as Form 3520, Annual Return ToReport Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A Annual Information Return of Foreign Trust With a U.S. Owner as well as Form W-2, Wage and Tax Statement.

Previously TTINs could only be used with the authorization of the IRS.  

1 T.D. 9675

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 or sbrenner@berdonllp.com.