Tax Connections Newsletter – Summer 2013
Robert Swenson

Cook County Use Tax Suspended

On July 24, 2013, the Cook County Circuit Court issued a preliminary injunction preventing the County from enforcing the Cook County Non-Titled Personal Property Use Tax.

In Judge Lopez Cepero’s closing comments, he noted that the County faces a steep uphill battle in seeking to dissolve the injunction.  While this does not spell the end of the litigation, the County may not enforce or collect the tax unless the injunction is lifted.  At this point, taxpayers are not obligated to file and pay the use tax.   Whether refunds will be issued immediately to those taxpayers who did pay the tax, which took effect April 1, 2013, has not been decided.

From the Cook County website, “Cook County will not be accepting payments for the Non-Titled Personal Property Use Tax while this injunction is in place.  Cook County notified the Court that it would address the Court’s concerns via a formal Motion to Reconsider the ruling on the preliminary injunction.  The Court has set a briefing schedule on the Motion to Reconsider and the matter is set for a hearing on September 10, 2013.  We look forward to the opportunity to further brief these issues to the circuit court in a timely manner.”

Please contact Rob Swenson at [email protected] or 312.670.7444 if you have any questions on this matter and we will keep you updated on the progress of this case.

Tax Tips

Is Time Running Out for GRATs?

The Grantor Retained Annuity Trust (GRAT) is an estate planning tool that can allow you to transfer substantial amounts of wealth to your children or other family members at a minimal gift tax cost. It’s even possible to design a “zeroed-out” GRAT that does away with gift taxes altogether.

To enjoy these benefits, however, you must survive the trust term.  For that reason, most people who take advantage of GRATs use shorter terms of two or three years.

Recent legislative proposals, if enacted, would limit the benefits of GRATs.  They would establish a ten-year minimum term and eliminate zeroed-out GRATs.  If you are considering using GRATs, act soon, in case their benefits are curtailed in the future.

Enhanced Tax Benefits for Conservation Easements

Taxpayers who grant qualifying conservation easements — which restrict development rights on their property — are entitled to deduct the value of those easements as charitable gifts.  Ordinarily, these deductions are limited to 30 percent of a donor’s adjusted gross income (AGI), with any excess carried forward for up to five years.  However,  in 2006, Congress temporarily increased these limits through the end of 2011 to, respectively, 50 percent of AGI (100 percent for certain farmers and ranchers) and 15 years.

The American Taxpayer Relief Act of 2012 reinstated these tax benefits retroactively to the beginning of 2012 and through the end of 2013.

Self-Directed IRAs: Handle with Care

A typical IRA holds publicly-traded stock, bonds, mutual funds and other conventional investments.  But some people use self-directed IRAs to hold “alternative” investments, such as real estate or closely-held business interests.  A recent U.S. Tax Court case illustrates the risk involved in this strategy.

In Peek v. Commissioner, two individuals used their IRAs to purchase a corporation they had formed.  They then used the cash from their IRAs, together with several loans, some of which they had personally guaranteed, to acquire a business. Later, the owners converted their IRAs into Roth IRAs and eventually sold the acquired business for a substantial profit.  The owners did not report this gain on their individual tax returns, because their interests in the business were held in Roth IRAs at the time of the sale.

The Tax Court held that the loan guarantees constituted an indirect extension of credit to the IRAs, which is a prohibited transaction. As a result, the IRAs were deemed terminated, and the owners became liable for income taxes on the gain.

Please contact Rob Swenson at [email protected] or 312.670.7444 if you have any questions on this matter and we will keep you updated on the progress of this case.

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Forward Thinking