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Duly Noted

Another IRS Crummey Challenge Fails. The Internal Revenue Service has lived with Crummey trusts for nearly 50 years, but it has never liked them. Now another attempt to challenge the gift-tax-saving device has failed. Named for a 1968 Tax Court case, Crummey powers allow gifts made in trust to qualify for the annual gift tax exclusion by granting beneficiaries a temporary power to withdraw the exclusion amount, which is currently $14,000. Israel and Irna Mikel claimed 60 annual exclusions apiece for the large gifts they made to a trust in 2007. The IRS contended that because beneficiaries risked losing all benefits of the trust if they challenged the trustees, these withdrawal powers were illusory. It denied the exclusions and assessed nearly $269,000 in taxes and another $67,000 in penalties. The Tax Court, however, found that the withdrawal powers were genuine even in the case of the trust’s many beneficiaries who were minors. Although they won their case, the Mikels did not succeed in claiming litigation costs from the IRS. The court found that their trust was “not a paragon of draftsmanship” and that the ambiguities sufficiently justified the IRS challenge. Mikel v. Commissioner, T.C. Memo 2015-64.

South Carolina Storm Victims Get Relief. Historic rainfall swamped parts of South Carolina in the opening days of October, just weeks before the final deadline for individuals to file 2014 tax returns. The flooding and extensive road closures also disrupted business in many areas. As it often does after federal disaster declarations, the Internal Revenue Service extended filing deadlines and granted relief from penalties and interest for late filing and payment of certain taxes. For most individual and business tax filings and estimated taxes that were due between Oct. 1, 2015, and Feb. 16, 2016, the agency extended filing deadlines until Feb. 16. Payroll deposits due between Oct. 1 and Oct. 16 were extended to Oct. 16. The relief applies to individuals who live in the affected areas or businesses with their principal places of business there. The disaster declaration and IRS relief applies to eight counties. SC-2015-71.

Texas Repeals An Untaxing Tax. Texas repealed its estate tax effective Sept. 1, 2015, but there was less to this action than might meet the eye. The tax had not generated any revenue for the state in a decade. It was designed merely to pick up any money available as a credit against federal estate taxes, but the federal credit was eliminated in 2005. Still, backers trumpeted the move as an assurance that the state tax will not return even if federal law changes. In that case, however, the tax money will simply go to Washington rather than to Austin. SB 752.

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