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An Overview of the Risks and Possibilities of Related Party Exchanges
IRC § 1031 exchanges have the ability to confer substantial financial benefits to taxpayers. Although taxpayers may use § 1031 to place themselves in a superior economic position, taxpayers may not exploit this section in an abusive manner. Taxpayers can use exchanges to give themselves different types of benefits, but one of the primary benefits is the deferral of federal income tax. When conducted correctly, 1031 exchanges are regarded as a form of legitimate tax avoidance. One of the main issues involved with these transactions is determining the boundaries between abusive tax avoidance and non-abusive tax avoidance. In the context of “related party exchanges” – i.e. those transactions which involve subsection 1031(f) – this issue shows up in a relatively complex fashion, because the related party rules are not well understood by most practitioners. Furthermore, determining abusive tax avoidance with related party exchanges is difficult because of the scarcity of case law. Based on the case law which we have, and on the other authoritative references, we can put together a reasonable overview of the risks of related party exchanges. This overview should prove useful when providing expert counsel to taxpayers seeking to conduct this type of transaction. For direct exchanges, the 2-year ownership rule found in 1031(f)(1)(C) should be used as the dominant source of guidance. For “indirect exchanges,” taxpayers must be aware of the higher levels of risk involved, as there is a greater possibility of abusive tax avoidance. To read more click here!
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CURRENT EDITION
An Analysis of the OBBBA’s Trump Accounts (Part 2)
In part one of this series, I went over the basics of the new retirement accounts for minors, Trump Accounts, which were created as part of the One Big Beautiful Bill Act (OBBBA). Trump Accounts allow the Government, Charitable Organizations, Parents, and others to contribute to a child’s savings, usually on an after-tax basis. These accounts then transition to a traditional individual retirement account (IRA) when the child turns 18. Although the contribution limits act like non-deductible traditional IRA contributions and have a contribution limit of only $5,000 per year, they do not have the same earned income requirements that traditional IRA contributions have. This means that children are able to accumulate savings even without earned income. This article presents several scenarios to examine how Trump Accounts may play into an overall savings strategy for children.
Another Tax-Smart Way to Save for Retirement
Most clients are familiar with the well-known accounts to save for retirement, such as the 401(k) and IRA. Some clients might be able to supplement those with a lesser-known vehicle as well. A life insurance retirement plan (LIRP) is a type of permanent life policy with a cash value basically funded by overpaying premiums. The money can eventually be taken as a tax-free loan against the policy for anything from medical expenses and long-term care to supplemental retirement income to, for the wealthy, the payment of taxes on large estates.
Taxes & Taxidermy: Rampaging Through The Tax Code On The Back Of A Stuffed Rhinoceros
Is the taxidermy fee for a stuffed bear deductible? If so, should I depreciate it? What would the basis and class life be for depreciation? Those are real questions asked in a group chat with some colleagues. Of course my answer was “It depends.” And, like all good tax professionals, I proceeded to ask a series of follow-up questions. And, like a good writer, that got me to thinking about all of the tax-related case law surrounding taxidermy and what it can teach us—it’s more than one might think.
SIMPLIFIED TAX STRATEGIES &
PRACTICAL IMPLEMENTATION
Think Outside the Tax Box provides tax reduction strategies along with practical
implementation advice in order to reduce your clients’ federal tax bill with ease.
