Recent Developments

529 College Savings and
Qualified Tuition Plans (QTPs). 529 plans are ubiquitous in the planning world.
But don’t let the fact that they are so common lull you into thinking there
aren’t technical pitfalls. You can contribute up to $12,000 per year per person
to such plans, and even front load five years at one time to accelerate the tax
benefits. But to take advantage of this 5-year up front gift you have to meet
several requirements. A recent Private Letter Ruling 200743001 provides some
insight into these rules. In the ruling Grandma gave substantial funds to eight
separate QTP accounts, one for each of her grandchildren. All of the gifts were
reported on Grandma’s Gift Tax Return, Form 709.  Grandma attached a statement to the return indicating her
intent to prorate each contribution over the 5-year period. However, Grandma
failed to check the box on Line B of Schedule A to make the election under
section 529(c)(2)(B) to treat each gift as ratably made over the 5-year period.
The IRS concluded that an attachment to Grandma’s gift tax return for the year
contained sufficient information to constitute substantial compliance with the
requirements for making the election for 5-year front loading under Code Section
529(c)(2)(B). The IRS was forgiving because literal compliance with all the
nuances of making an election is not always necessary. Hewlett Packard Co.
v. Comr., 67 T.C. 736 (1977),
acq. in result, 1979-1 C.B. 1.  When the election is properly made the gifts to the QTP would
be treated as if made ratably over 5 years beginning with the year of the gift.
Anything more than 5 x the annual gift amount ($60,000) is treated as a taxable
gift in the year made.

S corporations remain a common form of
business entity. The rules to qualify, in spite of recent simplifications,
remain complex. But when you slip up on forming an S corporation and miss the
deadlines the IRS will give you some flexibility to fix the problem.  If a corporation makes the S election after
the 15th day of the 3rd month of the tax year it won’t be effective, but if the
request for relief is filed within 24 months of the due date of the election
the IRS may forgive the oversight if the taxpayer acted reasonably and in good
faith, and the grant of relief will not prejudice the interests of the IRS.  Rev. Proc. 2007-62, 2007-41 IRB 786.