NJ Tax Increase

o NJ Tax Increase:

On July 8, 2006 NJ Governor Corzine signed
into law 14 bills related to the 2007 fiscal year Appropriations Act L. 2006, A4706, effective 07/08/2006 adds a 4% surcharge on corporation business tax for years
ending in fiscal 2007, 2008 and 2009, and increases minimum tax under the
corporation business tax.  The law
also added a 1% tax on the purchase of commercial property valued at more than
$1M.  L. 2006, A4701,
effective 08/01/2006. The tax is 1% on the total value, not just the value in excess
of $1M. C.46:15-7.2 8.a.(b) The tax also applies to a “…transfer for
consideration in excess of $1,000,000 of a controlling interest in an entity
which possesses…a controlling interest in classified real property…” C.54:15C-1
3.a.(1). What if you sell the same $5M warehouse to a family trust in exchange
for an installment note? This is a common estate planning technique referred to
as a note sale to an intentionally defective grantor trust (“IDIGIT”)? Might
this common estate planning transactions now be subjected to a 1% tax?

o Cutting IRS Estate
Tax Auditors:

The IRS is
cutting 157 of its 345 attorneys that audit gift and estate tax returns. Could
this be that what George hasn’t done legislatively to repeal the estate tax,
he’s doing through the back door by undermining audit enforcement? The claim is
that fewer returns are being filed because of the increase in the exclusion
from $600,000 a few years ago to $2 million today. Obviously true, but the reality
is that only selected returns logically are the focus of audit attention: those
for decedent’s without a surviving spouse (so the marital deduction doesn’t
eliminate any tax), and those with hard to value assets like real estate and
businesses, especially those claiming discounts. While it’s hard to believe
that enforcement won’t be reduced, remaining agents will obviously continue to
focus their efforts on the returns most likely to yield big audit dollars. So a
grantor retained annuity trust (GRAT) transaction that can include a self
adjusting mechanism to avoid an audit adjustment may receive less attention
that a defective note sale to a grantor dynasty trust that could potentially
generate significant estate and GST tax. Plan accordingly.