Hot news: Schwarzenegger signed a bill recently issued from the California legislature to protect pet trusts. Other blog posts on this topic include: "Estate Planning For Pets" from June 20, 2008, "California Estate Planning And Your Pets" from April 16, 2008, "No Kidding – A California Trust For Your Pet" from December 17, 2007

Under such trusts, a trustee pays a caretaker to ensure that the pets are housed, fed and otherwise maintained. Pet owners have to account for their pets during estate planning or the animal may not be cared for.

California Senate Bill 685 removes the discretion of trustees in fulfilling the trust. It also allows courts to appoint a caregiver if the trustee does not wish to arrange for the pet care.

You may see the full Los Angeles Times article on this subject.

If you want to speak with an estate planning attorney in California about a pet trust, call Mitchell A. Port at (310) 559-5259.

Don’t have tax problems or need tax help at the moment? California’s taxpayers beware: the IRS continues to make progress in a number of key enforcement areas. The IRS is showing improvements in areas critical to maintaining a fair, efficient tax system while bringing billions of additional dollars into the Treasury.

The IRS enforcement efforts increased again in fiscal year 2007. For instance, during 2007 the IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.

Highlights of the enforcement and services numbers for fiscal year 2007, which ended on September 30, include:

Individuals

• Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.

• The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

• Audits of individuals with incomes of $1 million or more increased 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.

• Overall, the total individual returns audited increased by 7 percent. That’s the highest number since 1998.

• Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year.

• The IRS increased audits of individual returns with income of $100,000 or more, up 13.7 percent from last year’s total.

Businesses

In the business arena, the IRS continued efforts to review more returns of flow-through entities – partnerships and S Corporations. Our business numbers reflect that we have placed more emphasis in the growing area of these flow-through returns. While large corporate audits are down slightly, we have increased our focus on mid-market corporations – those with assets between $10 million and $50 million dollars. The IRS enforcement budget in 2007 was similar to the budget in 2006, and in times of flat budgets, the agency cannot increase activity across the board but must address the areas where there is growth and potential risk.

• Audits of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year.

• Audits of partnerships increased to 12,195 during 2007, up almost 25 percent.

• Audits of mid-market corporations increased to 4,473, up 6 percent from last year.

• Audits of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year.

• Although the audits of large corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up 14 percent.

Taxpayer Services

• More taxpayers chose to file electronically in 2007 than during the prior year, with 57 percent of individual tax filers choosing to e-file in 2007.

• More people visited the IRS internet site, IRS.gov. The IRS site was accessed more than 217 million times in 2007, up more than 10.5 percent.

• As in the prior year, the IRS accuracy was 91 percent on tax law questions answered through its toll-free telephone service.

For tax help with serious problems, call tax attorney Mitchell A. Port at (310) 559-5259.

Sometimes the most difficult part of the estate planning meeting I have with my California clients concerns their choice of guardians for their minor children. Sometimes they are troubled about having too few people to choose from and at other times they are concerned about who they choose when their children are young may be different from those they would choose if their minor children were a bit older. Keep in mind that California law provides that the nomination of guardians is made in your Will (rather than in your living trust or durable powers of attorney).

A terrific blog post that may be helpful in choosing the appropriate guardian can be viewed by clicking here.

If you would like to discuss this and other California estate planning topics with a tax attorney located in Los Angeles, call Mitchell A. Port at (310) 559-5259.

In almost every situation, the IRS never abates interest on unpaid taxes since the thinking is that not paying tax is like getting a loan which the IRS is not about to make interest-free.

But in a U.S. Tax Court case decided last week, the Court held that the IRS has the authority to abate interest. The sole issue for decision was whether the IRS’s decision not to abate interest with respect to the taxpayer’s income tax liability was an abuse of discretion.

The relevant part of the Select Steel, Inc. case was the Court's explanation for its decision that was as follows:

If, as part of a section 6330 proceeding, a taxpayer makes a request for abatement of interest, the Court has jurisdiction over the request for abatement of interest that is the subject of the Commissioner’s collection activities. Katz v. Commissioner, 115 T.C. 329, 340-341 (2000).

Under section 6404(e)(1), as in effect for petitioner’s 1994 fiscal year, the Commissioner may abate part or all of an assessment of interest on any deficiency or payment of income taxes to the extent that the deficiency in payment is attributable in whole or in part to any error or delay by an officer or employee of the IRS in performing a ministerial act.

Although Congress amended section 6404(e)(1) in 1996 to permit the Commissioner to abate interest with respect to “unreasonable” error or delay resulting from “managerial” or ministerial acts, the amendment applies only to interest accruing with respect to deficiencies for taxable years beginning after July 30, 1996.

The term “ministerial act” means a procedural or mechanical act that does not involve the exercise of judgment or discretion and occurs during the processing of a taxpayer’s case after all the prerequisites to the act, such as conferences and review by supervisors, have taken place. Corson v. Commissioner, 123 T.C. 202, 207 (2004).

A decision concerning the proper application of Federal tax law is not a ministerial act. Id. An error or delay in performing a ministerial act is taken into account only if it is in no significant aspect attributable to the taxpayer and only if it occurs after the IRS has contacted the taxpayer in writing with respect to the deficiency or payment. Sec. 6404(e)(1).

Section 6404(e) is intended to apply only “in instances where failure to abate interest would be widely perceived as grossly unfair.” H. Rept. 99-426, at 844 (1985), 1986-3 C.B. (Vol. 2) 1, 844. Section 6404(h)(1) authorizes the Court to decide whether the Commissioner’s failure to abate interest was an abuse of discretion and, if so, to order an abatement. See Jones v. Commissioner, T.C. Memo. 2008-56.

Generally, the taxpayer must prove that the Commissioner’s discretion was exercised arbitrarily, capriciously, or without sound basis in fact or law. Lee v. Commissioner, 113 T.C. 145, 149 (1999); Woodral v. Commissioner, 112 T.C. 19, 23 (1999). However, “The Commissioner is in the best position to know what actions were taken by Internal Revenue Service officers and employees during the period for which petitioners’ abatement request was made and during any subsequent inquiry based upon that request.” Jacobs v. Commissioner, T.C. Memo. 2000-123.

Do you have a similar situation and believe that interest should be eliminated? Do you have other tax problems you want to discuss with a California tax attorney? Call Mitchell A. Port at (310) 559-5259.

In an announcement made on July 1, 2008, the Internal Revenue Service determined that the deadline for extension requests filed by partnerships, including those formed in California, will be shortened by one month. For partnerships whose year ends on or after September 30, 2008, a calendar-year partnership requesting an extension on Form 7004 to file a partnership tax return (Form 1065) will have an extension granted to September 15th instead of to October 15th as it used to be.

The reason is that partnerships must issue K-1 forms when their Form 1065 is filed. Until now, a partner (who needs the K-1 form to file his own individual income tax return) might get the K-1 form after his or her own extended deadline.

That problem is avoided by having the partnership deadline end a month earlier. Partners will now have at least a month before their own extended deadline in which to incorporate their K-1 forms.

An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.

Reasons Why a Husband and Wife Might Want to Make the Election Not to be Treated as a Partnership

Because a business jointly owned and operated by a married couple is generally treated as a partnership for Federal tax purposes, the spouses must comply with filing and record keeping requirements imposed on partnerships and their partners. Married co-owners failing to file properly as a partnership may have been reporting on a Schedule C in the name of one spouse, so that only one spouse received credit for social security and Medicare coverage purposes. The election permits certain married co-owners to avoid filing partnership returns, if each spouse separately reports a share of all of the businesses’ items of income, gain, loss, deduction, and credit. Under the election, both spouses will receive credit for social security and Medicare coverage purposes.

The rest of this article is available at www.irs.gov. It continues with a discussion of these business topics:

Definition of a Qualified Joint Venture

How to Make the Election to be Treated as a Qualified Joint Venture

A Business Owned and Operated by the Spouses Through a Limited Liability Company Does not Qualify for the Election

How to Report Federal Income Tax as a Qualified Joint Venture (Including Self-employment Tax)

In General, Spouses Do NOT Need an Employer Identification Number (EIN) for the Qualified Joint Venture

What to do if the Spouses Already Have an EIN for the Partnership

How to Handle Requests From the IRS for a Partnership Return from the Spouses for Tax Years for Which the Election is in Effect

If the Spouses Elect to be Treated as a Qualified Joint Venture, How Do They Report and Pay Federal Employment Taxes?

Duration that the Election Remains in Effect

Also, take a look at Husband and Wife Business.

For help from a California business attorney on these and other topics, call Mitchell A. Port at (310) 559.5259.

California's Durable Power Of Attorney for property management and personal affairs is used when you become incapacitated for any reason (e.g., Alzheimer’s, stroke, heart attack, auto accident causing a coma, etc.). It should be part of your basic California estate plan. The contents of the power of attorney ought to cover most, if not all, of the following items

1.1. Real Property Transactions.
(a) Acquisition.

(b) Transfer.

(c) Mortgages.

(d) Management.

(e) Improvements.

(f) Reorganizations.

(g) Change in Form of Title.

(h) Public Use.

1.2. Tangible Personal Property Transactions.
(a) Acquisition.

(b) Transfer.

(c) Security Interests.

(d) Management.

1.3. Stock and Bond Transactions.
(a) Acquisition and Transfer.

(b) Evidence of Ownership.

(c) Voting.

1.4. Commodity and Option Transactions.
(a) Acquisition and Transfer.

(b) Accounts.

1.5. Banking and Other Financial Institution Transactions.
(a) Existing Accounts.

(b) Opening of Accounts.

(c) Establishing and Closing Safe Deposit Boxes.

(d) Contracting Services.

(e) Making Withdrawals.

(f) Receiving Financial Statements.

(g) Entering Safe Deposit Boxes.

(h) Borrowing Money.

(i) Checks, Drafts, and Negotiable or Nonnegotiable Paper.

(j) Receiving Negotiable or Nonnegotiable Instruments.

(k) Letters of Credit, Credit Cards, and Travelers Checks.

(l) Extensions to Pay.

1.6. Business Operating Transactions.
(a) Operation and Transfer.

(b) Partnerships.

(c) Bonds, Shares, and Other Instruments.

(d) Sole Proprietorship.

(e) Expansion.

(f) Reorganization.

(g) Sale or Liquidation.

(h) Buy Out Agreements.

(i) Reports.

(j) Taxes.

1.7. Insurance and Annuity Transactions.
(a) Existing Personal Coverage.

(b) Procuring New Coverage.

(c) Paying Premiums for New Coverage.

(d) Beneficiary Designation.

(e) Borrowing.

(f) Surrendering.

(g) Elections.

(h) Manner of Paying Premiums.

(i) Conversion.

(j) Beneficiary Change.

(k) Governmental Aid.

(l) Transfer.

(m) Taxes.

1.8. Retirement Plan Transactions.
(a) Select Payment Options.

(b) Beneficiary Designations.

(c) Voluntary Contributions.

(d) Investment Powers.

(e) Rollovers.

(f) Borrow, Buy, and Sell.

(g) Waiver of Spousal Rights.

1.9. Estate, Trust, or Other Beneficiary Transactions.
(a) Payments.

(b) Claims.

(c) Participation in Proceedings.

(d) Removal of Fiduciary.

(e) Investments and Disbursements.

(f) Transfer to Revocable Trust.

(g) Contingent Interests.

(h) Probate Code Section 13502 or 13503 Election.

1.10. Power to Create, Modify, or Revoke Trusts for My Benefit and Benefit of My Dependents.

1.11. Resignation From Fiduciary Positions.

1.12. Claims and Litigation.
(a) Actions.

(b) Intervention and Interpleader.

(c) Provisional Remedies, Enforcement of Judgments, and Participation in Proceedings.

(d) Settlement.

(e) Procedure.

(f) Bankruptcy.

(g) Payments.

1.13. Tax Matters.
(a) Preparation and Filing of Documents.

(b) Paying and Contesting Amounts.

(c) Exercising Elections.

(d) Acting in Tax Matters.

1.14. Personal and Family Maintenance.
(a) Support.

(b) Domestic Help, Travel, and Necessities.

(c) Medical Care.

(d) Transportation.

(e) Charge Accounts.

(f) Church and Organization Affiliations.

(g) Religious or Spiritual Needs.

(h) Pets.

(i) Funeral and Burial.

1.15. Gifts.
(a) Attorney in Fact's Discretion.

(b) Gifts to Attorney in Fact Limited to "5 or 5" Amount.

(c) Payment of Gift Tax.

(d) Gift Splitting.

1.16. Government Benefits.
(a) Execution of Vouchers.

(b) Possession of Property.

(c) Benefits.

(d) Actions.

(e) Receipt of Proceeds.

1.17. Nomination of Conservator.

1.18. Incidental Powers.
(a) Claims.

(b) Contracts.

(c) Execution, Acknowledgment, and Delivery.

(d) Actions.

(e) Court Assistance.

(f) Employment.

(g) Recordkeeping.

(h) Preparation and Filing of Documents.

(i) Other Lawful Acts.

1.19. Restrictions on Property Management Powers.
(a) Trusts.

(b) Obligations of Attorney in Fact.

(c) Insurance on Life of Attorney in Fact.

2.1. Determination of Incapacity.

2.2. Capacity Regained.

2.3. Reimbursement for Costs and Expenses.

2.4. Compensation.

2.5. Notice to Third Party as to Amount of Compensation.

2.6. Reliance by Third Parties.

2.7. Ratification.

2.8. Exculpation of My Attorney in Fact.

2.9. Revocation and Amendment.

To find out more about estate planning, call California tax attorney Mitchell A. Port at (310) 559-5259.

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

Tax planning for family wealth transfers and California-based family owned businesses is complex and requires input from qualified advisors. Self-study may also be important: A resource for family business executives includes Fambiz.com.

That site covers topics in depth such as:

Asset Protection

Estate Planning

Family Business Trends

Inter-generational Issues

Shareholder Agreements

Strategic Planning

Succession

Tax Issues

Transfer of Ownership

Valuation

Women in Family Business

Use the Family Business Search engine to find a multitude of articles that can be searched by subject. A great resource for owners and executives of California's family businesses.

To talk to a California attorney about these and other business succession topics, call Mitchell A. Port at 310.559.5259.

Californians making gifts often believe the federal gift tax is paid by the recipient/beneficiary. Unfortunately, it is the one making the gift who pays the tax. Tax free gifts are possible, however.

An estate planning attorney in Florida, David M. Goldman, has a good article on the taxation of gifts and how to make tax free gifts. Those of us living in Los Angeles County, Orange County, Santa Barbara County, Ventura County and throughout California come within the rules explained in Mr. Goldman's article.

To discuss tax free gifts, taxable but tax efficient gifts or other estate planning topics, please call Mitchell A. Port, an estate planning attorney, at (310) 559-5259.

GRATs
Grantor Retained Annuity Trusts can "leverage" your Applicable Credit and allow you to gift more at less tax cost.

QPRTs
How a Qualified Personal Residence Trust can save gift and estate taxes.

FLPs/LLCs
Using Family Limited Partnerships and Limited Liability Companies to facilitate estate planning.

Intentionally Defective Grantor Trusts
IDGTs used as an estate freezing device. You create a trust which is defective for income tax purposes (but not for estate and gift tax purposes) for the benefit of children and/or grandchildren. You sell assets (stock in a closely held or family business, real estate, marketable securities, limited partnership interests) to the trust in exchange for an installment note with interest. IDGT works best if the sold assets are subject to discounts in determining their fair market value and if it is expected that the sold assets will appreciate in value at a rate greater than the interest rate payable on the note.

Charitable Trusts
A charitable remainder unitrust or annuity trust can provide income and estate tax benefits, avoid capital gains tax and provide funds for research, helping the needy or other philanthropic goals.

Private Foundations
Private foundations can be a philanthropic legacy for wealthy donors.

To discuss these and other estate planning techniques, call Mitchell A. Port, a California tax attorney in Los Angeles, at (310) 559-5259.

The "Property & Probate" online magazine of the American Bar Association published an article by attorney Stephanie B. Casteel of Atlanta, Georgia, entitled "Estate Planning for Pets".

Estate planning topics include:

Traditional Estate Planning Options

Outright Gifts

Traditional Trusts

Fiduciaries
Terms
Distributions
Funding
Remainderman
Identification of Animal

Euthanasia

Charitable Remainder Trust

Statutory Pet Trusts

Federal Law and Tax Consequences

Income Tax
Estate Tax

Here's an interesting excerpt from the article:

"Pets are valuable members of a client’s family, as illustrated by Leona Helmsley’s $12 million bequest to a trust for her dog, and it is important for the practitioner to address the care of the client’s pets in the event of his or her earlier death. Regardless of whether the client’s jurisdiction has enacted legislation allowing the creation of statutory pet trusts, clients may make outright bequests of their pets to a trusted caregiver or establish a traditional trust for their pets’ care. Many states are enacting statutes recognizing and enforcing trusts the beneficiaries of which are pets. Accordingly, it is important for practitioners to consider the available estate planning techniques and the factors that contribute to a plan that ensures the care and protection of a client’s pets."

If you would like to set up a trust like this, please call attorney Mitchell A. Port at (310) 559-5259 to discuss it.

California probate law says that if the person who died left property worth $100,000 or less, then the proper person may claim the property without using the probate court in Los Angeles County, Ventura County, Santa Barbara County, Orange County or any other county throughtout California.

Here is what the California Probate Code provides to avoid probate:

If the gross value of the decedent's real and personal property in this state does not exceed one hundred thousand dollars ($100,000) and if 40 days have elapsed since the death of the decedent, the successor of the decedent may, without procuring letters of administration or awaiting probate of the will, do any of the following with respect to one or more particular items of property:

(a) Collect any particular item of property that is money due the decedent.

(b) Receive any particular item of property that is tangible personal property of the decedent.

(c) Have any particular item of property that is evidence of a debt, obligation, interest, right, security, or chose in action belonging to the decedent transferred, whether or not secured by a
lien on real property.

Of the many probates I work on as a probate lawyer in Los Angeles County, Ventura County, Santa Barbara County and Orange County, California, I often am asked before starting work what can my client look forward to spend for the entire matter.

California probate costs are fairly standard since the procedures are uniform throughout the State. Other articles on this subject include:

"Los Angeles Times Discusses Estate Planning And Probate"

"California Probate Court - Court Rules"

"California Probate Costs"

Here's a breakdown:

The cost to file for probate is $320 no matter what is the value of the estate. Before the law changed in March, 2008 when the California Court of Appeal issued its ruling in the Estate of Pierre P. Claeyssens, eight different incremental amounts were charged as filing fees and the schedule can be found here.

Next, a publication fee is charged by the local newspaper where the decedent died which announces the person’s death and how interested persons can contact the attorney, executor or administrator. The cost to run legal notice depends on the area, but fees can generally be between $350 to $500.

An appraisal by a court-appointed independent third party (a probate referee) is necessary if there are real property or other non-cash assets in the estate. The probate referee ordinarily charges 1/10 of 1% of the appraised value in each case plus miscellaneous charges (e.g., mileage, photos).

Often a bond must be posted by the executor or administrator to insure that if the value of the probate property declines as a result of the executor’s or administrator’s misconduct, a bond will make the estate whole again. Obtaining such a probate bond can be costly and depends on the value of the property subject to the bond. If there is a Will and if it waives the bond requirement, then the California Probate Court will often - but not always - waive the bond.

The costs of paying the mortgage, property taxes and homeowner's insurance for the real property need to be paid as well so as to avoid foreclosure by the lender or the imposition of a lien by the local tax authority.

Attorney's fees are also based on the value of the gross estate. The fee is calculated based on a statutory formula. The fees are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and 1/2% of the next $15,000,000. For estates larger than $25,000,000, the court will determine the fee.

The fee for the executor or administrator is the same fee based on the same rate as attorney's fees are calculated. Fee discounts are subject to the probate attorney's, executor's or administrator's discretion.

To discuss this and other probate questions, call Mitchell A. Port at 310.559.5259.

I read an ad and it went something like this:

"There's really no difference between law firms."

Many people believe that Los Angeles law firms are pretty much the same. I don't. I believe that what separates me from the pack is not what I do, but how I do it - aggressive not conservative, team player and not a one-man-band, problem solver not just a legal practitioner. My clients clearly understand and value this difference. How can I help you? Contact Mitchell A. Port at (310) 559-5259.

I liked this because it describes me and my practice. If you need help with probate, Wills, living trusts, powers of attorney, tax problems or business transactions, please call me for your consultation.