In Memory of our Founder: Ralph Gano Miller

Our founding partner, Ralph Gano Miller, died on December 19, 2016, after complications from a sudden illness. For 90 years Ralph lived a truly remarkable life, and he will be missed by all who knew him.

Ralph was a San Diego native. His father, Ralph Gano Miller, Sr., was co-owner of United Water Taxis and later owned the local sportfishing business H&M Landing. Ralph attended Cathedral grammar school and St. Augustine High School before enrolling at Stanford University at the very young age of 16.

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Attempt to Pass Infrastructure Bill Fails

 

by DeEtte L. Loeffler, J.D., LL.M., Taxation

California’s last ditch effort to adopt legislation to pay for critical infrastructure repairs failed in late November. California needs to spend about $140 billion on road and other repairs. Democrats, who will have a supermajority in 2017, expect to be able to adopt this critical legislation. However, Governor Jerry Brown and moderate Democrats have consistently resisted tax hikes. Californians already pay the highest tax rates in the nation, and additional taxes are unlikely to be popular, even if the funds are used for essential infrastructure repairs.

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Repatriation of Overseas Profits Appears More Likely

 

by DeEtte L. Loeffler, J.D., LL.M., Taxation

In 2016, Congress appeared to be agreement over imposing a one-time tax on offshore corporate profits which are brought back to the US (i.e., “repatriated”). They could not, however, agree on how to spend the tax funds once received. In 2017, with a single party in control of Congress and the White House, agreement appears more likely. President-elect Trump has proposed a one-time 10% tax on cash and a 4% tax on other earnings. Whether this tax will take the form of a “deemed repatriation”, a transition tax (to force funding of infrastructure) or a tax holiday is currently unclear.

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Democrats Propose Extensions of Certain Expiring Tax Credits

 

by DeEtte L. Loeffler, J.D., LL.M., Taxation

On mid-November, Democrats in the House proposed extensions for some of the expiring federal tax credits, including the energy efficient commercial buildings credit, the alternate fuel refueling property credit, the biodiesel and renewable fuel credit, the fuel cell motor vehicle credit, the energy efficient new (and existing) home credits, the qualified microturbine credit, the mine rescue training credit, certain film and television credits, the qualified tuition credit, and the mortgage insurance premium credit. We anticipate more bills will be introduced in early 2017, but are unable to predict which credits may be renewed under the new legislature.

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“Cadillac Tax” on Health Care Plans Likely to Be Repealed

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by DeEtte L. Loeffler, J.D., LL.M., Taxation

When the Affordable Care Act (aka “Obamacare”) was enacted, it included a punitive 40% excise tax to be imposed on employers who provided employees with high quality health care plans. This “Cadillac Tax” would be imposed on employers for every dollar spent by them (or by employees) above a certain level and would not be deductible by the employer. The tax was originally meant to go into effect in 2018, but was postponed to 2020. President-elect Trump has indicated this tax will be repealed and, with a Republican-controlled House and Senate, this seems likely.

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Personal Revival Trusts – From Science Fiction to Reality

Usually when a Trustor creates a Trust, there is intent to leave the estate to living beneficiaries or active entities. A recent surge in media focus has put a spotlight on the cryogenic preservation process. Some individuals are creating Personal Revival Trusts (“PRT”s) which name them as both the Trustor and as the future Beneficiary. Legal challenges aresurfacing in the structure, enforcement, and termination of PRTs as the popularity and science behind cryogenics seemingly advances.

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Biodiesel Credit Set to Expire

 

by DeEtte L. Loeffler, J.D., LL.M., Taxation

The federal $1 per gallon tax credit for biodiesel is set to expire on December 31, 2016. Loss of this credit may harm California’s eight biodiesel producers, including San Diego’s New Leaf Biofuel. Democrats in the House of Representatives have introduced legislation to extend the credit for an additional 2 years. However, a simple extension of the existing tax credits may be inadequate, due to increasing competition by foreign producers. In addition, such credits may face a difficult renewal process given President-elect Trump’s public statements in support of increased oil drilling and questioning the scientific accuracy of climate change research.

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A Major Tax Policy Failure for California

States usually use tax legislation as a way to either raise revenue or to encourage (or discourage) certain behaviors in taxpayers.  Legislation adopted by California voters in 2016 fails on both counts by encouraging the smoking of marijuana over cigarettes and decreasing tax revenues from the sale of the marijuana. How did this happen?  You can blame the use of propositions to make tax policy, as these bits of legislation are not required to be coordinated.

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Partnerships: Planning for the Unexpected

 If you own a small business, whether a partnership, limited liability company, or an S corporation, you will likely chose your partners carefully and would prefer not to add new partners without your prior consent. Changes in partners can be sudden (for example, as the result of a death) or gradual (for example, due to the diminishing interest or capacity of a partner).  Whatever the reason for the change, you want to be prepared for it so that it will not unduly impact the business and its value.

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Netflix Tax?

 

By DeEtte L. Loeffler, J.D., L.LM, Taxation

Californians are watching less cable. Therefore, the state is seeing less revenue from the currently-instated cable tax. Major cities in California, such as Pasadena and Sacramento, are currently brainstorming ways to tax subscribers of video steaming services such as Netflix or Hulu. Using existing utility tax codes, these cities would attempt to expand the reach to streaming media subscribers. Critics of this effort argue that the government is submitting taxpayers to double taxation, because most users already pay a tax for Internet access.

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IRS Will Not Challenge AQ Trusts

Revenue Procedure 2016-49, a highly anticipated ruling, was released September 27, 2016. The IRS has announced it will not challenge QTIP elections made for trusts when the election is not required in order to reduce the decedent’s taxable estate so long as the estate also makes a portability election under IRC Section 2010(c)(5)(A).  This is good news for estate planners and their clients who will no longer run the risk of having their preferred planning disregarded.

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Governor Vetoes Diaper Tax Bill

 

By DeEtte L. Loeffler, J.D., L.LM, Taxation

In an attempt to balance the budget, Governor Jerry Brown decided to veto Assembly Bill 1561 and Assembly Bill 717 that would have repealed taxes on feminine hygiene products and diapers. This action has outraged many advocacy groups, because less essential products (such as candy) are exempted from sales tax. Brown justified his actions in individual veto messages. The main reason was that California would lose $45 million in revenue if these two Bills became law.

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A Comparison of Presidential Candidates' Tax Plans

It is difficult in this current environment to obtain truly neutral analysis of anything, including the tax proposals of the leading presidential candidates, Hillary Clinton and Donald Trump. The Tax Policy Center has been accused of using “old modeling” that supports Democratic positions, while the Tax Foundation has been accused of using modeling designed to support the Republican positions. Modeling, as you know, is an imperfect science because it requires the modeler to use assumptions about how individuals and businesses will respond to increases in taxes, decreases in taxes,  the introduction of new taxes, and/or the elimination of old ones. This article is intended to be neutral, but we cannot guarantee the accuracy of the information on which it is based. Information has been collected from the Tax Policy Center, the Tax Foundation, and the public websites of both candidates. We hope this information is helpful to you.

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Private Collection Agencies to be Pursuing Federal Tax Debt

 

By DeEtte L. Loeffler, J.D., L.LM, Taxation

Starting next spring, the IRS will no longer be actively working on accounts that owe federal taxes. Four private collection agencies have been selected to take over these accounts. Under the Fair Debt Collection Practices Act, these contractors will be required respect the rights of taxpayers. These companies will not take any money personally. They are required to direct people to pay overdue taxes online at www.IRS.gov or send checks made payable to the U.S. Treasury directly to the IRS. Taxpayer advocates have expressed concerns that private bill collectors will not work cooperatively with taxpayers to settle debts.

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Financial Aid Filing Starts Three Months Early

 

By DeEtte L. Loeffler, J.D., L.LM, Taxation

The filing date for the Free Application for Federal Student Aid (FAFSA) starts on October 1, 2016. The filing period usually begins on January 1st, but the government has decided to give students a longer time period to apply for financial assistance. In order to potentially receive grants and loans in 2017, students must provide information from the 2015 or 2016 tax year. The deadline to file is June 30, 2017.

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Community Property Interests Disregarded with IRAs

In PLR 201623001, the IRS refused to allow a surviving spouse to roll over a portion of the deceased spouse’s IRAs that had been “assigned” to her by the couple’s son. The son was the sole beneficiary named on the beneficiary designation forms. This family lived in a “community property” state. Thus, the surviving spouse claimed that she had a “community property” interest in her deceased spouse’s three IRAs. The son, the decedent’s estate, and the local state court accepted the claim. The IRS denied the request to have the assigned funds treated as a spousal rollover based on the community property claim. The IRS based its decision on IRC section 408(g) which states: “This section shall be applied without regard to any community property laws.”

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California Newspapers May Get a Tax Break

 

By DeEtte L. Loeffler, J.D., L.LM, Taxation

After months of negotiations between the Board of Equalization and publishers, California has agreed to reduce the sales tax imposed on newspapers starting in October. The new regulation would give newspapers at least a 53 percent tax break on subscriptions, because the majority of newspapers today reflect digital content (which is not taxable). Newspapers were exempt from sales tax for almost 50 years until the legislature imposed in July 15, 1991 a way of addressing a budget deficit. In 2015, California collected an estimated $50 million in revenue from this tax. Californians are unlikely to see any cost savings from this change, because the savings will likely be allocated to paying off debts and rising production costs.

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