Recent Developments

Estates, Trusts and Tax Matters Partner (TMP).  Partnerships (including LLCs taxed as partnerships) with more than 10 partners are subject to consolidated audit procedures. IRC Sec. 6221. Partnerships/LLCs can designate a single partner as the TMP to receive notice and make certain decisions. Treas. Reg. Sec. 301.6231. The TMP acts on behalf of the partners in dealing with the IRS in a unified partnership proceeding. The TMP is the general partner the partnership designates as such on its return (Form 1065). If no designation is made the general partner with the largest profits interest is the TMP. If the GP dies the remaining partners with a majority interest in a partnership can designate a TMP. Treas. Reg. Sec. 301.6231(a)(7)-1(f). In a recent IRS field advice the GP/TMP of multiple LLCs treated as partnerships died.  The IRS determined that the partnerships could select the trust to which the majority of property passed as the new TMP, provided the trust is the general partner in each of the partnerships at the time of designation. FAA 20103001F.

NY Trust Change Sign of Things to Come. States remain hungry for revenues. Who better to tax than a non-resident individual or trust.  NY taxes the income of any NY resident trust.  This generally includes a trust established under the Will of a NY domiciliary, an inter-vivos trust by a NY domiciliary. A NY resident trust doesn’t pay tax if: (i) none of the trustees are NY domiciliaries, (ii) no trust assets are located in NY, and (iii) the trust doesn’t have NY source income. NY resident trusts that are exempt from tax must now file NY income tax returns. This isn’t a tax increase but a clear effort to catch non-filers who owe many. TSB-M-10(5)I, 7/23/10. This and other trust taxation/situs issues will be discussed at PLI’s “41st Annual Estate Planning Institute,” on September 13-14, 2010 in NYC. Call 212-824-5700 for info.

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