Category Archives: Estate Planning, Tax Savings, Inheritance Taxes

Executor’s Post-Death Elections to Reduce Taxes

The basic goal of post-death tax planning for estates is to reduce taxes for the decedent’s estate and the beneficiaries. An executor has many opportunities available for making the right elections that will have a direct impact on the overall tax liability of the estate and beneficiaries. The failure to exploit these opportunities could result in the executor’s liability to the estate and beneficiaries for the lost tax savings. A few of the many elections are discussed below. Continue reading


Protecting IRA Benefits from the Beneficiary’s Creditors and Other Predators

On June 12, 2014, the United States Supreme Court held in Clark v. Rameker that “inherited IRAs” are not retirement funds in the Bankruptcy Code and are, therefore, not exempt from the claims of the IRA beneficiary’s creditors in bankruptcy. An “inherited IRA” is an IRA that is bequeathed by the IRA owner to the intended beneficiary of that IRA.

In Clark, the Supreme Court ruled that assets in an “inherited IRA” are not retirement funds for three reasons: first, the holder of an inherited IRA cannot contribute additional funds to the account; second, holders of inherited IRAs are required to receive distributions from the accounts regardless of their age; and third, the holder of an inherited IRA can withdraw the entire balance of the account at any time regardless of age and use the funds for any purpose without a 10% premature distribution penalty.  These reasons underlie the notion that the funds in the inherited IRA represent contributions made by the IRA owner for the IRA owner’s retirement, not for the retirement of the beneficiary. Continue reading


IRS Releases Streamlined Form 1023-EZ for Small Organizations Seeking 501(c)(3) Status

On July 1, 2014 the Internal Revenue Service issued Form 1023-EZ, a streamlined version of the Form 1023, to make it easier for small organizations to apply for tax exempt status under Internal Revenue Code (“Code”) Section 501(c)(3). Form 1023-EZ, which must be filed electronically, is only three pages long compared to the 26-page Form 1023. Eligible organizations filing Form 1023-EZ pay a user fee of $400.

A partial list of the requirements for filing the new Form 1023-EZ include the following:

  1. Projected annual gross receipts must not exceed $50,000 per year for the next three years.
  2. Annual gross receipts for the previous three years must not have exceeded $50,000 per year.
  3. Total assets must not exceed $250,000.

The remainder of the requirements, which list types of organizations that may not file Form 1023-EZ but must file the longer Form 1023, are set forth in the instructions to Form 1023-EZ available at the IRS website. Continue reading


IRS Expands Streamlined Program for Reporting Offshore Accounts of U.S. Taxpayers

U.S. citizens and resident aliens are required to report worldwide income from all sources including foreign accounts and pay taxes on that income. Failure to report the existence of those foreign accounts on Schedule B of their tax returns or pay taxes on the income from those accounts may lead to civil and criminal penalties. Beginning in 2009, the Internal Revenue Service (IRS) introduced the first of several settlement programs known as the Offshore Voluntary Disclosure Program (OVDP), offering taxpayers the chance to pay back taxes and interest for 2003 to 2008 and pay a penalty of 20% of the highest aggregate balance in the account during 2003 to 2008. Those taxpayers who came forward timely to enter into the program avoided criminal prosecution. The IRS introduced a second OVDP in 2011 for the period 2003 to 2010 and imposed a higher 25% penalty.  In 2012, the IRS introduced a third OVDP, raising the maximum penalty from 25% to 27.5%, but set no deadline for entering the program.

The IRS has published significant changes in its 2012 OVDP and has expanded the streamlined filing procedures program to help U.S. taxpayers both at home and abroad come into compliance with their U.S. tax obligations. The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful. Continue reading


Procedure for Reinstatement of Tax-Exempt Status Under Rev. Proc. 2014-11

Earlier this year the IRS issued Revenue Procedure 2014-11 telling organizations how they can apply for reinstatement of tax-exempt status if their exemption was automatically revoked for failure to file required annual returns or notices for three consecutive years.    The published guidance provides three different procedures for organizations to apply for retroactive reinstatement of tax-exempt status.

1. Streamlined Retroactive Reinstatement for Small Organizations Within 15 Months of Revocation. First, organizations may seek reinstatement under the Streamlined Retroactive Reinstatement Process if the organization (1) was eligible to file either Form 990-EZ or Form 990-N, for each of the three consecutive years that it failed to file, (2) has previously not had its exemption automatically revoked, and (3) files Form 1023 or Form 1024 for retroactive reinstatement not later than 15 months after the date of revocation.

2. Retroactive Reinstatement Within 15 Months of Revocation. Second, organizations not eligible to use the Streamlined Process under # 1 above may apply for retroactive reinstatement if (1) it files Form 1023 or Form 1024 no later than 15 months after the date of revocation, (2) includes a statement that it had reasonable cause for failure to file an annual return or notice for at least one of the three consecutive years that it failed to file, (3) files properly completed and executed paper annual returns for all taxable years in the consecutive three-year period for which the organization was required, and failed, to file annual returns, and (4) includes a statement with Form 1023 or Form 1024 confirming that it has filed the annual returns required in step (3).

3. Retroactive Reinstatement More Than 15 Months After Revocation.  Third, an organization that applies for reinstatement more than 15 months after its revocation date may have its exempt status retroactively reinstated only if it satisfies all the requirements for the procedure in # 2 immediately above and provides a statement of reasonable cause for all three consecutive years it failed to file the annual returns.

Penalty Relief

The IRS will not impose penalties for failure to file the required annual returns for the three consecutive taxable years if (1) the organization’s application is approved, (2) it satisfies all the requirements of reinstatement, and (3) the organization is retroactively reinstated.

If your organization has had its tax-exempt status revoked, you should consult a professional for guidance.

Dennis M. Haase, Esq. has 30 years’ experience in forming and advising tax-exempt organizations.  Please call me at 973-744-0073 or email me at for a consultation.