Recent Developments

Surrogate Costs Not Deductible. It is not only the estate tax that presents tax challenges to GLBT couples. There are many income tax challenges as well. For example, a recent case held that the costs of hiring a surrogate to bear a child are not a deductible as a medical expense. Magdalin v. Commr., 96 TCM (CCH) 491 (2008) , aff'd without published opinion (1st Cir. 2010).

Who Pays the Estate Tax. Reality is that most estate planning is done by bank clerks. So if your bank clerk told you to set up the ownership (title) to a bank or brokerage account as Pay on Death (“POD”) to your named heir, who pays the estate tax? If your will doesn’t expressly make the POD beneficiary pay his or her fair share of tax, and your state law apportionment statute doesn’t address it (or perhaps there is none), they’re off the tax hook and the beneficiaries under your will (or intestacy if no will) are going to bear the cost. If we get a 55% federal estate tax rate next year, that’s a whopper. Estate of Sheppard v. Schleis, 2010 WI 32 (Wis. May 4, 2010).

Be Reasonable to have “Reasonable Cause”. The taxpayer had relied on his CPA to handle payroll tax payments and filings but the CPA never follow up. If a taxpayer can demonstrate that there was “reasonable cause” and not the taxpayer’s willful neglect. Penalties were imposed and the taxpayer argued that it had reasonable cause not to pay because it relied on its CPA. IRZC Sec. 6651(a)(1).  To avail itself of this leniency the taxpayer must demonstrate that it exercised ordinary business care and prudence. The court noted that a failure to file on a return timely is not excused by reliance on an agent. Penalty assessments were upheld. McNair Eye Center, Inc. v. Comr., TC Memo. 2010-81.

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