Cavanaugh – Deduction Denied for CEO Misconduct Settlement Payments

In Cavanaugh v. Commissioner, the Fifth Circuit Court of Appeals addressed the deductibility of settlement payments made by a corporation to avoid liability arising from the misconduct of a shareholder-employee. Affirming the Tax Court ruling from 2012, the Fifth Circuit held that the settlement payments at issue in Cavanaugh were not deductible under IRC § 162(a) because the…
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Court Finds IRS’ Attempt to Foreclose on Trust Property Plausible

Are assets transferred by your parents into a trust for your benefit subject to your tax liabilities? In general, no, provided the trust has the proper spendthrift language. Longstanding common law has recognized spendthrift clauses in trusts which restrain voluntary alienation of trust assets, thereby preventing a beneficiary’s creditors from reaching trust assets to satisfy…
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Asset Protection Trust Protects Assets from Income Tax Liabilities

In the recent Tax Court opinion, Campbell v. Commissioner, T.C. Memo 2019-4, the Court held that assets in a self-settled offshore asset protection trust were not includable in assets collectible by the IRS to satisfy the taxpayer’s assessed income tax liabilities. The case involved John Campbell’s request for an Offer in Compromise, offering $12,603 to…
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2019 Heckerling Takeaways – Gray Edmondson

Whenever I attend a large conference, I try to take some time afterwards to consider the most important takeaways. Having just returned from the 53rd Annual Heckerling Institute of Estate Planning which was held from January 14-19, 2019, I spent the last week reviewing the conference materials and my notes. From this, I have compiled…
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Wendell Falls Again: Taxpayer Denied Second Bite at Easement

Original Tax Court Opinion I have previously written about the case of Wendell Falls Development, LLC v. Comm’r, T.C. Memo 2018-45. In that case, the Tax Court denied a charitable conservation easement deduction relating to a 125-acre parcel that was part of a total 1,280-acre development outside of Raleigh, North Carolina. I noted that the…
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Asset Protection: Is Your LLC Creditor-Protected?

Background In the recent case of Golfwood Square, LLC v. O’Malley, 2018 WL 4370875 (Ill.App., Unpublished, Sept. 11, 2018), the Appellate Court of Illinois held that a creditor could reach assets of a subsidiary LLC to satisfy debts of its parent company’s owner. This is an important case to review in evaluating how to operate…
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The Importance of Being a “Trade or Business”

Introduction In tax planning, it always has been important to determine whether an activity qualifies as a “trade or business.” There are a number of consequences. An important consequence is being able to deduct “ordinary and necessary” business expenses under Sec. 162. Others are the applicability of the 3.8% net investment income tax, hobby loss…
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Where Does Your Trust Reside? State Income Tax Implications

Where does your trust reside? Does it reside in more than one state? Does it reside nowhere? What are the implications of a trust’s residence? One important implication is how the trust will be taxed for state income tax purposes. With a varied approach to the income taxation of trusts among the states, it is…
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Case in Review: Cahill and Changes in the Family Estate Planning Landscape

The Tax Court has recently issued an opinion addressing several significant estate planning issues. In Estate of Cahill, T.C. Memo 2018-84, the Tax Court reviewed an inter-generational split-dollar arrangement under IRC §§2036, 2038, and 2703 (among other provisions). While this case may not break new ground in those areas, it shows the trend of the…
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