Buy-Out Insurance Owned by Corporation Does Not Increase Estate Tax Values

To provide liquidity to a decedent's estate, or to provide for succession of ownership, buy-sell agreements are often entered into obligating a corporation to buy the stock of a major stockholder at the death of that stockholder. This purchase obligation is often funded by the corporation purchasing a life insurance policy on the life of the shareholder. That way, when the shareholder dies, the corporation receives the life insurance proceeds and thus has the cash to purchase the stock.

Since the estate of the decedent shareholder is subject to estate tax based on the value of the stock, the question arises whether the value of the stock (which is based on the value of the assets of the corporation) should be increased to account for the life insurance proceeds payable to the corporation. There has been case law to the effect that such insurance is NOT included in the valuation computation, but in a recent case the Tax Court ruled that the insurance proceeds should be counted in determining the value of the corporation (and the stock of the decedent stockholder).

In a ruling favorable to taxpayers, the U.S. Eleventh Circuit Court of Appeals reversed the Tax Court and held that the insurance proceeds should not be taken into account. The Court noted that the value of the insurance payout was offset by the obligation of the corporation to purchase the shares, and thus should not impact valuation of the company or the shares. Estate of Blount v. Comm., 96 AFTR 2d 2005-XXXX, (10/31/2005 CA11).

Nonresident Wage Earners May Not Need to File a U.S. Income Tax Return

Generally, nonresident individuals of the U.S. who perform services in the U.S. are required to file a U.S. income tax return (Form 1040NR), regardless of the level of income arising from those services. The IRS has now announced it will amend its Regulations to eliminate the filing requirement for nonresident alien individuals who have U.S. source effectively connected wages in amount below amount of one Code Sec. 151 personal exemption (which is presently $3,200). This amendment will be effective for tax years beginning on or after 1/1/2006 and will apply even if the nonresident alien also has U.S. source fixed or determinable income if that tax liability thereon is fully satisfied by withholding by the payor of such fixed or determinable income (e.g., dividends and interest). Notice 2005-77.

Florida Filing Extensions for Hurricane Victims

Corporate Tax Returns: The Florida Department of Revenue has indicated that it will follow the special tax relief granted by the IRS for filing of corporate income tax returns. The Department will extend the due date for filing the Florida corporate income tax return and tax payments to March 15, 2006. The extended due date applies to taxpayers affected by Hurricane Katrina with original or extended due dates on or after August 29, 2005, taxpayers affected by Hurricane Rita with original or extended due dates on or after September 23, 2005, and taxpayers affected by Hurricane Wilma with original or extended due dates on or after October 23, 2005.

Intangible Tax Returns: The Florida Department of Revenue has extended the filing deadline for intangible taxes until January 18, 2006 for taxpayers with valid extensions in those counties in Florida designated disaster areas, which include: Broward, Miami-Dade, and Monroe Counties and any counties or parishes in Mississippi, Louisiana, Texas and/or Alabama.