Private annuity transactions shut down.Private annuities (and private annuity trusts A private annuity trust (PAT) enables the owner(s) of highly appreciated assets, such as real estate, a business, collectables or an investment portfolio, to be sold without incurring current taxation. ), with their controversial, claimed deferred-or-avoided tax treatment, have been proliferating in various parts of the country over the past few years, especially in high-end real estate markets. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. is now putting an end to such preferential treatment. The Service recently issued proposed regulations (REG-141901-05, 10/18/06) and IR 2006-161, generally effective for transactions completed after Oct. 17, 2006. The new rules apply the same tax treatment to exchanges of real estate or other appreciated property for an annuity, regardless of whether private, commercial or secured. Estate planners and others using private annuities will now (or, as discussed below, starting in six months) have to calculate the tax on the annuity's fair market value and recognize gain at the time of the exchange (similar to selling the asset outright, but without the cash to pay the tax). The new guidance declares obsolete Rev. Rul. 69-74, which some taxpayers had (inappropriately, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Treasury) relied on to defer or avoid tax. Charitable gift annuities are not affected by the proposed guidance. Because many legitimate estate planning Estate Planning The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death. Notes: Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the (and closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people. In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist. business-succession-planning) transactions may be in process (and are done for nontax reasons), the effective date is postponed for six months (until April 17, 2006) for "plain vanilla Refers to the bare minimum of functions that are known to be available in an application or system. Contrast with bells and whistles. " family-style annuities (which, according to Treasury, pose the least likelihood of abuse). Practitioners and taxpayers who had been planning on using private annuities to transfer assets and spread out the capital gain taxes over many years (as the annuity payments came out of the trust) should consider the new rules' effect and other options for selling and transferring appreciated property. Those clients, and estate planners with delayed-effective-date, plain-vanilla annuities, need to complete their transactions in the next few months, to obtain the tax benefits under the old rules. The AICPA AICPA See American Institute of Certified Public Accountants (AICPA). Tax Division's Trust, Estate, and Gift Tax Technical Resource Panel is considering commenting on this guidance; if you have any thoughts or would like to participate on a task force drafting such comments, please contact Eileen Sherr at esherr@aicpa.org. For more details on the proposed regulations, see Ratner, Tax Clinic, "Service Issues Prop. Regs. on Exchanges for Annuities," p.11, this issue. by Eileen Sherr, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , MT, AICPA TechnicaI Manager--Taxation, Washington, DC |
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