Treasury clarifies third-party transfers.Under IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 1041, taxpayers recognize no gain or loss on property transfers between spouses during marriage or related to a divorce. The section's intent is to treat spouses as a single economic unit and defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. (but not eliminate) any tax on appreciation until property is transferred to a third party outside the marital unit. Temporary regulations section 1041-1T(c), Q&A 9, describes three situations in which a transfer to a third party on a spouse's behalf may qualify for nonrecognition of gain under section 1041. This "on behalf of" standard creates much confusion and litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. when the transferred property is stock the transferor spouse redeemed incident to a divorce. In such redemptions the transferor spouse receives the proceeds, but the nontransferor spouse may be liable for the tax on any appreciation due to the constructive dividend constructive dividend A corporate payment to a stockholder that is characterized by the Internal Revenue Service as a dividend distribution even though the corporation calls it something else. rules. For example a spouse not involved in the business may get stock in a divorce and redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. those shares. He or she gets the proceeds and the nontransferor spouse gets the taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . On January 13, 2003, the Treasury Department issued regulations section 1.1041-2 addressing stock redemptions during marriage or incident to a divorce. The new regulations are limited to stock redemptions; other third-party transfers continue to fall under Q&A 9. Under the new regulations * Stock redemptions not resulting in a constructive dividend to the nontransferor spouse (under applicable tax law) will be treated as redemptions by the transferor spouse, who will be liable for any tax consequences. * Stock redemptions that do result in a constructive dividend to the nontransferor spouse will be treated as such, and that spouse will be liable for any tax consequences. The new regulations put third-party transfers under the constructive dividend rules and remove stock redemptions from Q&A 9 and the troublesome "on behalf of" standard. This assures only one spouse will be taxed, preventing the "whipsaw Whipsaw A condition where an investor's security transaction is quickly followed by an opposite reaction. Sometimes referred to as "being whipped". Notes: An example would be buying a stock and, shortly after, the stock falls substantially in price. " that occurred in Arnes. There, neither spouse was taxed when different courts heard the two cases (see "Avoiding Third-Party Transfers in a Divorce," Jof A, Jan.01, page 24). A special rule in regulations section 1.1041-2(c) gives spouses the option of treating the redemption as a constructive dividend to the nontransferor spouse or as a corporate redemption to the transferor spouse, thus allowing a couple to choose which spouse will be responsible for the tax consequences. The taxpayers can elect the special rule by stating in a divorce, separation or other written agreement how both spouses intend for the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. to treat the redemption. This agreement must supersede To obliterate, replace, make void, or useless. Supersede means to take the place of, as by reason of superior worth or right. A recently enacted statute that repeals an older law is said to supersede the prior legislation. any other that applies to the stock redemption. Both spouses must execute the agreement before the date on which the spouse responsible for the tax files his or her federal income tax return for the year of the redemption, but no later than the due date of the return (including extensions). The new regulation applies to stock redemptions on or after January 13, 2003, under agreements in effect after that date. It also applies to redemptions before that date if the spouses had executed a written agreement on or after August 3, 2001, that meets the requirements of regulations section 1.1041-2(c)(1) or (2). Observation. The new rules appear to have removed the uncertainty of the tax consequences of stock redemptions during marriage or in a divorce. If the spouses can't agree which one will be responsible for the taxes, the constructive dividend rules will apply. However, if they can reach an agreement and comply with the requirements of section 1.1041-2(c), they are free to choose which spouse will bear the tax burden. Are Education Appropriation Levels Appropriate? The percentage of state revenue devoted to supporting public colleges and universities fell over the last two decades. State revenue devoted to public colleges and universities 1977 6.7% 1989 4.9% 2000 4.5% Note: Table made from bar graph. Source: Tax Policy Center, www.taxpolicycenter.org. Prepared by Tina Quinn, 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. , PhD, associate professor of accountancy, Arkansas State University Arkansas State University, at Jonesboro; coeducational; chartered 1909; named State Agricultural and Mechanical College, 1925–33. In 1933 the school became Arkansas State College, and in 1967 it achieved university status and adopted its present name. , State University, and Rebecca Carr, CPA, instructor of accountancy and real estate, Arkansas State University. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion