Plan Now to Maximize Your Medicare Coverage

ST C LAIR

Plan To Build WealthSM

PERSONAL � BUSINESS � ESTATE

Presented by

St. Clair CPA Solutionsand its subsidiaries

St. Clair CPAs, P.C.CPA Financial Group, LLC

www.cpasolutions.net

An independent member of BKR International

Fall � 2016

Solutions

Professionally Speaking

Please welcome our newestmembers of the firm!

In September, Tax Compliance Manager

Angela M. Ducker, CPA, Accounting

Associate Owen Hoxie, and

Administrative Assistant Jeanette Cloud

joined the team in our New Jersey office.

Our Pennsylvania office is also growing

with the recent addition of Accounting

Associates Tammy Han, Steve Cox, and

Kevin Kubicek,as well as Administrative

Assistant Michele De Silva.

Turning 65? It’s a major milestone that often comes with bigcelebrations and big decisions. One of the most importantdecisions you’ll have to make concerns your Medicarecoverage. Planning how to maximize Medicare now can youhelp you avoid potential future consequences, as certaindecisions now may eliminate other options when you mostneed them.

WHAT YOU NEED TO KNOW:

1. Your initial enrollment period lasts seven months,spanning the period beginning three months before themonth in which you turn 65 and ending three monthsafter your birthday month. Some people who meetcertain requirements are automatically eligible forMedicare Part A and Part B, but don’t assume you’re oneof them without consulting a specialist or carefullyreading the rules at Medicare.gov.

Plan Now to Maximize YourMedicare CoverageBy Kristen Druger

Continued on page 7

Proposed Regulations TargetTransfers of FLP Interests

Dear Clients and Friends

Understanding YourMedicare Options

What Baby Boomers Need toKnow about Medicare Parts,

Plans and MediGap

Lunch ‘n Learnwith MedicareSpecialistKristen Druger

CHOOSE:

Wednesday, November 9in our PA office

Thursday, November 10 in our NJ office

11:30 am to 1:00 pm

The Art & Science ofBusiness Valuations

presented by

Frank Merenda,ASA, CVA, CMEA,

BCA, MSCHE

Tuesday, November 15 9:00 to 11:00 am

9:00-9:30 amLight breakfast & networking

9:30-11:00 amProgram with Q&A

LOCATION:

Greater Philadelphia Chamberof Commerce Mars DrinksEmpowerment Room,

200 S. Broad St., Suite 700,Philadelphia, PA 19102

REGISTER NOWFOR OUR COMPLIMENTARY EDUCATIONAL EVENTS

MORE INFORMATIONAND REGISTRATION

ON PAGE 2

Continued on page 7

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28 South Centre Street � Merchantville, NJ 08109 � (P) 856.482.5600 � ( F ) 856.665.3618 � 101West Elm Street, Suite 500 � Conshohocken, PA 19428 � (P) 610.862.1998 � ( F) 610.862.3200The financial professionals of CPA Financial Group are Registered Representatives and Investment Adviser Representatives with/and offer securities andadvisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Tax and accounting services offeredby St. Clair CPA Solutions are separate and unrelated to Commonwealth.

Many high-net-worth individualshave successfully used familylimited partnerships (FLPs) andother family-owned entities totransfer wealth to the nextgeneration often at substantialdiscounts from the fair marketvalue of the underlying assets.But recently proposedregulations threaten the valuation discounts that have madethese estate planning tools so advantageous.

ST CLAIR

The financial professionals of CPA Financial Group are Registered Representatives and Investment Adviser Representatives with/and offer securities andadvisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Tax and accounting services offeredby St. Clair CPA Solutions are separate and unrelated to Commonwealth.

28 South Centre Street � Merchantville, NJ 08109 � (P) 856.482.5600 � ( F ) 856.665.3618 � 101West Elm Street, Suite 500 � Conshohocken, PA 19428 � (P) 610.862.1998 � ( F) 610.862.3200

Fall � 2016

Solutions2

� Plan Now to Maximize Your Medicare Coverage ........1

� Proposed Regulations Target Transfersof FLP Interests ..................................................................1

� Introducing EAC Valuations, LLC: Meet our strategic partner for Business Valuations and Appraisals .............................4

� ‘Tis the Season for Gifting................................................4

� Charitable Donations: An Alternative to TaxableRequired Distributions......................................................5

� Protect Your Accounts from Identity Theft and Fraud ...6

In This Issue

Understanding Your Medicare OptionsWhat Baby Boomers Need to Know about

Medicare Parts, Plans and MediGap

Lunch ‘n Learn with Medicare Specialist Kristen Druger

CHOOSE:

Wednesday, November 9 | 11:30 am - 1 pm in our PA office

Thursday, November 10 | 11:30 am - 1 pm in our NJ office

What do you know about your Medicare options?

December 7th is the deadline to enroll in Medicare

Advantage or Part C: what does this mean for you?

Most “baby boomers” will face Medicare decisions with littleunderstanding of the differences between Medicare Parts, Plansand MediGap —yet there are benefits and pitfalls that you shouldknow about before enrolling. St. Clair CPA Solutions presents thisprogram to help our clients and friends protect their assets byunderstanding how Medicare relates to healthcare coverage. Withhealthcare expenses rising, this is information that everyoneapproaching or eligible for Medicare needs to know.

Visit our website Community page to REGISTER online forthis educational event. There is no charge to attend, but

advance registration is required.

Kristen Druger is a licensed agent who has extensive training inMedicare Supplemental Insurance, Health Insurance, Long TermCare, Life Insurance, Annuities and Disability programs since2005. Kristen meets personally with clients to understand andassess each individual’s needs for Medicare services. Clients andcolleagues turn to Kristen for professional leadership, guided byher lifelong dedication to integrity and service. She is licensed inPA, NY, NJ, VA, MD, and DE.

The Art & Science of Business Valuationspresented by Frank Merenda, ASA, CVA, CMEA, BCA, MSCHE

Tuesday, November 15 | 9:00 to 11:00 am

9:00-9:30 am - Light breakfast & networking

9:30-11:00 am - Program with Q&A

LOCATION:

Greater Philadelphia Chamber of Commerce Mars Drinks Empowerment Room,

200 S. Broad Street, Suite 700, Philadelphia, PA 19102

What is a Business Valuation and why would you need one?

Join us at this informative presentation to learn how a BusinessValuation may benefit your business and estate, how value is definedand calculated, who performs a Business Valuation, and more.

REGISTER NOW ON OUR COMMUNITY PAGEThese events are presented free of charge. Advance

registration is required. Your guests are welcome to attend.For registration assistance, please contact Marsha Brown at

610-862-1998 or [email protected].

Wishing all of our clients and friends a

HappyThanksgiving �

Season’sGreetings

Wishing all of our clients and friends a

HappyThanksgiving �

Season’sGreetings

ST CLAIR



Fall � 2016

Solutions3

Proposed Regulations Target Transfers of FLP Interests, CONT.

How an FLP Works

To execute an FLP strategy, you contribute assets — such asmarketable securities, real estate and private business interests— to a limited partnership. In exchange, you receive generaland limited partner interests.

Over time, you gift, sell or otherwise transfer interests to familymembers and anyone else you wish (even charitableorganizations). For gift tax purposes, the limited partnerinterests may be valued at a discount from the partnership’sunderlying assets because limited partners can’t control theFLP’s day-to-day activities and the interests may be difficultto sell.

This can provide substantial tax savings. For example, underfederal tax law, you can exclude certain gifts of up to $14,000per recipient each year without depleting any of your lifetimegift and estate tax exemption. So, if discounts total, say, 30%,in 2016 you can gift an FLP interest that worth as much as$20,000 before discounts (based on the net asset value of thepartnership’s assets) tax-free because the discounted fair marketvalue doesn’t exceed the $14,000 gift tax annual exclusion.

Important note: An FLP must be established for a legitimatebusiness purpose, such as efficient asset management andprotection from creditors, to qualify for valuation discounts.Partnerships set up exclusively to minimize gift and estatetaxes won’t pass IRS muster.

Valuation of a Limited Partner Interest

Hiring a professional businessappraiser is critical whenusing this estate planningtool. The valuation processbegins by determining thepartnership’s net asset value,which is the combined fairmarket value of its assets on acontrolling, marketable basisminus any liabilities.

If the partnership holds stocks, bonds or other marketablesecurities, you can simply find out the assets’ values frombrokerage statements or public market data on the Internet.

Alternatively, you can use areal estate appraiser if thepartnership manages aportfolio of properties, such asstrip malls or farmland. And,of course, a business appraisercan be hired to determine thevalue of private businessinterests owned by the FLP.

Business appraisers are alsoneeded for the next step invaluing a limited partner interest: quantifying the discountsfor lack of control and marketability that apply to thepartnership’s net asset value. These discounts are separatefrom one another and from any discounts taken at the assetlevel (for instance, if discounts were taken on a privatebusiness interest that was contributed to the FLP).

The size of partnership-level discounts varies depending onnumerous factors, such as:

u The nature and composition of the partnership’sunderlying assets,

u Historical and expected income distributions,

u Current market conditions,

u Partnership agreement rights and restrictions,

u State laws, and

u Relevant legal precedent.

Limited partners lack control over partnership affairs, whichtypically warrants a discount for lack of control from net assetvalue. In addition, FLP interests aren’t sold on the publicmarkets and may be subject to various transfer restrictionsunder the partnership agreement, which warrants a discountfor lack of marketability. Combined, these discounts oftenreduce the value of limited partner interests by 40% or more,depending on the nature of the FLP.

This estate planning tool may seem too good to be true — and,indeed, FLPs have come under IRS attack on numerousoccasions.

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Continued on page 8

For Young & Growing Businesses For Mature or Public Companies

Introducing EAC Valuations, LLC: Meet our strategic partner for Business Valuations and Appraisals

On January 2, 2013, Congress passed the American TaxpayerRelief Act of 2012 which extended favorable legislation relatingto federal estate and gift taxes. You can still take advantage ofthe gift tax exemption for 2016 by making your gift before year-end. Is gifting a good strategy for your financial situation?

Gift Tax

The Act continued the gift tax exemption of $5 million (2016adjustment for inflation: $5.45 million) and provides for amaximum gift tax rate of 40%. These extended provisions allowmarried couples to make lifetime gifts valuing up to $10.9million without incurring federal gift tax. As with the EstateTax, had the Act not been approved, the gift tax exemptionwould have decreased from $5 million to $1 million, and themaximum estate tax rate would have increased to 55%. Inaddition, the gift tax annual exclusion amount for 2013 to 2016has increased to $14,000, up from $13,000 in 2012.

What do these extensions mean forsmall or private business owners?

It means that the time to protect the future of your heirs and yourbusiness is now! Just because Congress has extended the Bush-eragift tax exemptions does not mean they won’t be a candidate for thechopping block in the future. Gifting stock and/or real estate to yournext of kin now can shield them from a huge tax bill in the future.Just remember, when gifting non-cash assets, the IRS requires aqualified appraisal to determine the value of the asset being gifted.

Gifting strategies to consider every year

For small or private business owners, individuals, and investorswith an eye on reducing taxes, there are certain gifting vehicles thatmake it possible to pass assets to the next generation or to thecharities of their choice, tax free. These strategies include:

‘Tis the Season for Gifting

Would you benefit from a business valuation or appraisal? Please contact us to discuss your situation, or contact EAC Valuations directly at610.687.5855. Learn more at www.eacvaluations.com. �

BUSINESS VALUATION KEY DRIVERS

u Estate Planning

u Restructuring

u Key Person Insurance

u Succession Planning

u Buy/Sell Agreements

u 409A Compensation

u Shareholder Agreements

u Partnership Dissolution

u SBA/Bank Financing

u Sale of Business

St. Clair CPA Solutions has proudly served closely-heldbusinesses for more than 30 years. As tax and financial advisors,we understand the importance of an independent, professionalbusiness valuation, which may be required in relation to an eventsuch as a restructuring or sale, or used as a proven financial planningtool for businesses of all sizes. The best time to consider a businessvaluation is before you actually need it: often as much as five years inadvance of an anticipated transformational event. To assist our businessclients in securing a reliable valuation, we recommend our strategicpartner, EAC Valuations, LLC, which is conveniently located in ouroffice building at 101 W. Elm Street, Suite 500, Conshohocken, PA.

EAC Valuations is a trusted, full-service appraisal firm thatsince 1971 has completed more than 14,000 defensiblevaluation reports and appraisals for businesses across Americaand around the world, for clients ranging from privately-held

manufacturing and services companies to multi-national Fortune 100corporations. Its highly qualified, certified and experiencedappraisers provide quality reports that meet IRS, FASB, IFRS, USPAPand FIRREA requirements for a wide variety of appraisal needs.Clients in various industries turn to EAC Valuations for appraisals ofindustrial and commercial real estate, machinery and equipment,intangible assets, and complete business enterprise valuations.

u Corporate Planningu ASC 350 Goodwill Impairment Testingu Mergers and Acquisitionsu Privatization/Recapitalization of Companyu Public Offeringu Restructuring/Bankruptcy

ST CLAIRFall � 2016

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IRA Charitable Donations: An Alternative to Taxable Required DistributionsYou can make cash donations to IRS-approved charities out ofyour IRA using so-called “qualified charitable distributions”(QCDs). This strategy may be advantageous for high-net-worthindividuals who have reached age 70 1/2. It expired at the end of2014, but QCDs were made permanent for 2015 and beyond underthe Protecting Americans from Tax Hikes (PATH) Act of 2015.

To take maximum advantage of this strategy for 2016, you’llneed to replace some or all of this year’s IRA requiredminimum distributions (RMDs) with tax-advantaged QCDs.Here are more details.

QCD Basics

QCDs can be taken out of traditional IRAs, and they’re exemptfrom federal income taxes. In contrast, other traditional IRAdistributions are taxable (either wholly or partially dependingon whether you’ve made any nondeductible contributions overthe years).

Unlike regular charitable donations, QCDs can’t be claimed asitemized deductions. That’s OK, because the tax-free treatmentof QCDs equates to a 100% deduction — because you’ll neverbe taxed on those amounts. Additionally, you don’t have toworry about any of the restrictions that apply to itemizedcharitable write-offs under the federal tax code.

A QCD must meet the following requirements:

u It must be distributed from an IRA.

u The distribution can’t occur before the IRA owner orbeneficiary reaches age 70 1/2.

u It must meet the IRS requirements for a 100%deductible charitable donation. If you receive anybenefits that would be subtracted from a donationunder the regular charitable deduction rules — such asfree tickets to an event — the distribution can’t be aQCD. This is an important pitfall to watch out for.

u It must be a distribution that would otherwise betaxable. A distribution from a Roth IRA can meet thisrequirement if it’s not a qualified (meaning tax-free)distribution. However, making QCDs out of Roth IRAsis generally not advisable for reasons explained later.

Important note: You can also use the QCD strategy on an IRAinherited from the deceased original account owner if you’vereached age 70 1/2.

Annual Limit

There’s a $100,000 limit ontotal QCDs for any one year.But if you and your spouseboth have IRAs set up in yourrespective names, each of youis entitled to a separate$100,000 annual QCD limit, fora combined total of $200,000.

Tax-Saving Advantages

QCDs offer several potential tax-saving advantages:

1. They’re not included in your adjusted gross income(AGI). This lowers the odds that you’ll be affected byvarious unfavorable AGI-based rules. For example, ahigher AGI can cause more of your Social Securitybenefits to be taxed, less of your rental estate losses to bedeductible and more of your investment income to behit with the 3.8% net investment income tax. QCDs arealso exempt from the rule that says your itemizedcharitable write-offs can’t exceed 50% of your AGI. (Anyitemized charitable deductions that are donationsdisallowed by the 50%-of-AGI limitation can be carriedforward for up to five years.)

2. They qualify as RMDs if they’re taken from traditionalIRAs. So, you can arrange to donate all or part of your2016 RMDs (up to the $100,000 limit) that you wouldotherwise be forced to receive before year end and paytaxes on.

3. They reduce your taxable estate, though this is less ofan issue for most folks now that the federal estate taxexemption has been permanently increased. (Theinflation-adjusted exemption for 2016 is $5.45 million.)

In addition, suppose you’ve made nondeductible contributionsto one or more of your traditional IRAs over the years. If so, yourIRA balances consist of a taxable layer (from deductiblecontributions and account earnings) and a nontaxable layer (fromthose nondeductible contributions). QCDs are treated as comingfirst from the taxable layer. Any nontaxable amounts remain inyour accounts. In subsequent tax years, those nontaxable amountscan be withdrawn tax-free by you or your heirs.

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Solutions6



From mobile apps to the Internet, technology has transformedour lives. It facilitates financial transactions and the transmissionof information. But it also brings risks. There are weekly news

stories about sensitivepersonal data beinghacked online and soldon the black market.

Thieves use personaldata to access accounts,open new ones,complete fraudulent

transactions, file phony tax returns and obtain access to personalcontacts. In addition, many fraud scams are perpetrated throughthe Internet, often from foreign locations, which makes it harderfor authorities to prosecute.

Risk Factors

Here are seven questions to help gauge whether you’re at riskfor online fraud or identity theft:

1. Do you shop online or using mobile apps?

2. Do you pay bills online or with mobile payment apps?

3. Do you use Facebook, Instagram or other social media sites?

4. Do you use the same password or personalidentification number (PIN) for multiple accounts?

5. Do you carry your Social Security card in your wallet?

6. Do you wait until the last minute to file your tax return?

7. Have you given up personal information — such asyour birthday, phone number, postal or email address,or Social Security number — for entry into asweepstakes contest or to receive a free gift card?

If you answered “yes” to any of these questions, you’recompletely normal. But you’re also at risk for online fraud, andyou should take precautionary measures to protect your identityand your accounts. This doesn’t mean you have to avoid usingtechnology. You just need to be smarter about security.

S P E C I A L R E P O R T

Protect Your Accounts from Identity Theft and Fraud

Do You Review Your Statements Each Month?

With the prevalence of automated bill payment, many busy consumers

don’t bother to review their monthly bank or credit card statements

anymore. Or they may review only those charges above a certain amount.

But a recent indictment by the Federal Trade Commission highlights how

important it is to review every line item on your statements.

In March, a Nevada grand jury indicted a British man living in Las Vegas,

Nevada, on 39 counts of wire fraud, aggravated identity theft and money

laundering for withdrawing money from victims’ bank accounts without

authorization. He used the money to buy five airplanes, two cars, multiple

tractors, five all-terrain vehicles and even a fire truck.

Here’s how this scam allegedly worked. According to the indictment, from

2008 through 2013, the man operated a third-party payment processing

company that specialized in creating remotely created checks (RCCs).

Also known as demand drafts, RCCs are checks created by third-party

payees, rather than the account holders. In place of a signature, an RCC

contains a typed statement claiming that the check was authorized by the

account holder. On behalf of its merchant clients, the company created

and deposited RCCs drawn on the consumers’ bank accounts.

These legitimate transactions provided access to thousands of accounts.

To gain access to additional accounts, the perpetrator purchased “lead

lists” that contained detailed personal and financial data of thousands

more consumers.

In 2013, he established a phony online business that purported to help

consumers find online payday loans. Then, he allegedly used the payday

loan company to create and deposit more than 750,000 RCCs totaling

more than $22 million. Most of the victims never visited the phony payday

loan company’s website. Instead, the fraudster made unauthorized

charges using personal data obtained from the payment processing

company and lead lists.

About half of the fraudulent RCCs were returned by the account holders’

banks — often because consumers noticed an unauthorized $30 charge

on their bank statements and disputed it. But the victims never noticed

the charges and, therefore, didn’t dispute them. When the perpetrator

ran out of new accounts to charge, he repeated the scam against

accounts he already charged.

The bottom line: Take a couple of minutes to review your bank and credit

card statements every month. If you’ve gone “paperless” but you don’t

remember to log in to check your account online, contact your bank or

credit card company and request old-fashioned paper copies again.

Continued on page 10

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2. You will have to choose the type of basic planyou want:Medicare (choose your own providers and pay fee-for-service) or Medicare Advantage (comprehensive servicesdelivered through a medical provider network like anHMO or PPO; often include prescription drug coverage).

3. You may also wish to purchase supplemental plans suchas Medigap to help cover deductibles and copayments,and/or Medicare Part D for prescription drugs: bothrequire additional monthly premium payments.

It’s common for many people turning 65 to choose a MedicareAdvantage (MA) plan, as on the surface it seems less expensive ona monthly basis. But as people age, the onset of medical conditionsmay require prescription drugs and/or specialists who are notcovered in the MA provider network. Although it is possible toswitch plans down the road, there are limitations and repercussionsthat may vary by state.

A Medicare specialist canhelp you understand theshort-and long-term costsassociated with the variousoptions available to you,including offers from yourpresent healthcare insuranceprovider.

Remember that when once you enroll in Medicare, you mayno longer contribute to a Health Savings Account (HSA). Inyour 65th birthday year, the maximum contribution you maymake to your HSA is prorated based on the period before your65th birthday. Contributing more than the allowable amountmay incur tax consequences. Consult your tax advisor toensure that you don’t make excess contributions, which couldbe classified as taxable income.

When it comes to making Medicare decisions, as Benjamin Franklinsaid, “An ounce of prevention is worth a pound of cure.” �

Plan Now to Maximize Your Medicare Coverage, CONT.

‘Tis the Season for Gifting, CONT.

u Annual exclusion gifting. The annual exclusionincreased from $13,000 in 2012 to $14,000 in 2013.This means that you can gift $14,000 per individual,or $28,000 for a married couple, to as manyindividuals as you would like, without reducingyour lifetime exemption. The $14,000 does not haveto be a cash gift. Stock gifts are an acceptableexemption when properly appraised and reported.

u Making tax-smart charitable contributions.Donating long-term appreciated securities may be aparticularly tax-savvy strategy. As a general rule,donations of long-term appreciated securities (eitherstocks or mutual funds) directly to a qualifiedcharity may be deductible at their fair market valueon the date of contribution, and you don’t paycapital gains taxes on them. Again, when donatingstocks or mutual funds, a business valuation isrequired to verify the value of the non-cash asset.

Do not let a good idea go to waste!

If it was a good idea to gift and avoid the tax in 2012, it is stilla good idea today. Consult with us about what makes sense foryour situation. EAC so we can provide you with a defensible,worry-free valuation.

EAC Valuations, LLC, is a full-service appraisal firm and a strategic

partner of St. Clair CPA Solutions. Frank Merenda and his staff have

provided a wide variety of valuations, including Business Enterprise and

Business Equity valuations for Gift and Estate Planning, Financing,

Buy/Sell Agreements, Deferred Compensation and Corporate Planning.

They have also provided Fair Value (Purchase Price Allocations for

GAAP and IRS) appraisals for Intangible Assets and Fair Market Value

appraisals of Real Estate, Inventory, and Equipment for Property Tax,

Insurance and Financing. Frank is highly experienced and will allow

time for your questions. This program will be very valuable for all

business owners. Learn more at www.eacvaluations.com. �

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Fall � 2016

Solutions8

Proposed Regulations Target Transfers of FLP Interests, CONT.How the IRS Attacks FLPs

Regardless of how expertly a limited partner interest is valued, anFLP will crumble under IRS scrutiny if it isn’t properly structuredand carefully administered. An FLP generally won’t pass IRSmuster if, for example, the general partner has contributedsubstantially all of his or her personal assets to the partnership, paidpersonal expenses directly from the partnership’s bank account ormade death-bed transfers.

So far, the IRS’s most effective line of attack has been InternalRevenue Code Section 2036, “Transfers with retained life estate.”Citing Sec. 2036(a), the IRS may claim that a donor retained ongoingeconomic benefit — either express or implied — in thepartnership’s assets. If the IRS is successful, it can assess gift andestate taxes on the full value of the partnership’s underlying assets.In other words, the IRS can specifically exclude valuation discountsfor lack of control and marketability if the general partners retain anongoing economic benefit in the assets.

The IRS has had only limited success under Sec. 2036, however.The U.S. Tax Court has upheld valuation discounts for dozens ofcarefully administered FLPs that were set up for bona fide, nontaxbusiness purposes.

Proposed Changes

Now the IRS is proposing changes to Sec. 2704, “Treatment ofcertain lapsing rights and restrictions,” which could substantiallyreduce (or even eliminate) valuation discounts for certain family-entity interests. The proposed regulations, issued on August 2,address the treatment of certain lapsing rights and restrictions onliquidations in determining the value of the transferred interests.

More specifically, the proposed regs include provisions to:

u Amend existing rules on what constitutes control of alimited liability company or other entity or arrangementthat isn’t a corporation, partnership or limited partnership,

u Address death-bed transfers (made within three years ofthe transferor’s death), and

u Modify what’s considered an “applicable restriction” byeliminating a comparison to the liquidation limitations ofstate law.

Under existing tax law, an applicable restriction is “a limitation onthe ability to liquidate the entity (in whole or in part) that is morerestrictive than the limitations that would apply under the Statelaw generally applicable to the entity in the absence of therestriction.” The IRS is proposing that restrictions imposed on alimited partner’s ability to liquidate his or her interest be ignored,irrespective of whether those restrictions are imposed by thepartnership agreement or state law.

The proposed regs also add a new class of “disregarded restrictions”that would be ignored if, after the transfer, the restriction will lapseor may be removed, without regard to certain interests held bynonfamily members by the transferor or the transferor’s family.Restrictions that defer the payment of liquidation proceeds for morethan six months or permit payment in any manner other than cashor other property also would be disregarded under the proposal.

Additionally, the proposed regs address FLPs that include charitiesand other unrelated parties as partners in an effort to preservevaluation discounts. Under the proposal, the existence of such aninterest would be disregarded unless it’s “economically substantialand longstanding.” If all nonfamily interests are disregarded, theentity is treated as if it’s controlled by the family.

When to Consider Transfer Restrictions

Here’s a typical example of a situation where transfer restrictionsmay be disregarded under the proposal: Suppose Adam creates anFLP. Adam owns a 98% limited partner interest, and his daughters,Abby and Anna, each own a 1% general partner interest.

Under the partnership agreement, the FLP will dissolve andliquidate on June 30, 2066, or by the earlier agreement of all thepartners. It otherwise prohibits the withdrawal of a limited partner.Under applicable local law, a limited partner may withdraw from

Continued on page 9

QCDs from Roth IRAs

Should you make QCDs from Roth IRAs? Generally, theanswer is no. That’s because you (and your heirs) canwithdraw funds from a Roth IRA without owing federalincome taxes. The catch is that at least one of your Rothaccounts must have been open for five years or more.

Also, for original account owners (as opposed to accountbeneficiaries), Roth IRAs aren’t subject to the RMD rules untilafter you die. The bottom line: It’s generally best to leave yourRoth balances untouched rather than taking money out forQCDs, because the tax rules for Roth IRAs are so favorable.

Plan Ahead

The QCD strategy can be a smart tax move for high-net-worthindividuals over 70 1/2 years old. If you’re interested in thisopportunity, don’t wait until year end to act. Summer is timefor mid-year tax planning, including arranging with your IRAtrustee or custodian for QCDs to replace your 2016 RMDs.

Could QCDs Work for You?

High-net-worth senior citizens who can afford to donatemoney from their retirement accounts may benefit tax-wise from taking qualified charitable distributions(QCDs) if they match at least one of these profiles:

1. You don’t itemize deductions. Only people whoitemize benefit tax-wise from regular charitabledonations. Using QCDs provides a way for peoplewho don’t itemize to gain a tax benefit from makingcharitable donations.

2. You itemize, but part of your charitable deductionwould be phased out based on your adjusted grossincome (AGI) or delayed by the 50%-of-AGI restriction.

3. You want to avoid being taxed on requiredminimum distributions (RMDs) that you must takefrom your IRAs. �

IRA Charitable Donations: An Alternative to Taxable Required Distributions, CONT.

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Fall � 2016

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a limited partnership at the time, or on the occurrence of events,specified in the partnership agreement. Under the partnershipagreement, the approval of all partners is required to amend theagreement. None of these provisions is mandated by state law.

Adam subsequently transfers a 33% limited partner interest to eachdaughter. Under the proposed regs, would the transfer restrictionsbe considered when deciding on the valuation discounts for thelimited partner interests?

By prohibiting the withdrawal of a limited partner, the partnershipagreement imposes a restriction on the partner’s ability to liquidatehis or her interest in the partnership that is not required by law andthat may be removed by the transferor and members of thetransferor’s family, acting collectively, by agreeing to amend thepartnership agreement. Therefore, under the proposed changes toSec. 2704, the restriction on a limited partner’s ability to liquidatethat partner’s interest would be disregarded in determining thevalue of each 33% limited partner interest.

These proposed regulations won’t go into effect unless and untilthey’re finalized. (Unlike many IRS proposals, it’s not effective

immediately or retroactively.) The Treasury is now collectingfeedback to discuss at its public hearing on December 1, 2016. Eventhen, any changes won’t into effect until 30 days after the Treasuryfinalizes the regulations.

So, there may still be time to set up an FLP (or similar family-controlled entity) and still be grandfathered from any new rules.But caution and diligence is the name of the game — as always,excessive discounts, do-it-yourself appraisals and other aggressiveestate planning tactics are likely to attract IRS scrutiny.

Uphill Battle?

Many practitioners predict these controversial proposedregulations face an uphill battle against taxpayers and theiradvisors. Regardless of whether the changes are finalized asthey are, modified or abandoned, the estate planning benefitsof FLPs and other family-owned entities could be significantlyreduced in the future. In light of these developments, it may beprudent to meet with your estate planning team — includingyour attorney, tax advisor and valuation professional — beforeyear end to discuss your estate plan. �

Proposed Regulations Target Transfers of FLP Interests, CONT.


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Even if you answer “no” to all ofthese questions, you’re not safe fromidentity theft and fraud. Just aboutanyone’s personal information maybe stolen from paper tax records,medical and death documents, loanapplications, or their employer’spayroll files. Then the thief may go

online to anonymously use your personal data for illicit gain. Eitherway, technology provides opportunities for creative thieves tocommit fraud.

Simple Protection Efforts

You don’t have to be especially tech-savvy to thwart these scams.Simply putting your Social Security card in a secure location inyour home, installing antivirus software on your personalcomputer, downloading the latest updates for the apps on yoursmart device and turning down free offers in exchange fordisclosing personal information are steps in the right direction.

In addition, the Federal Trade Commission offers theserecommendations to safeguard your personal and financial datafrom unauthorized hacking:

Be alert to impersonators. Don’t give out personalinformation — including names and addresses, accountnumbers or biometric data, such as eye color or height —over the Internet unless you initiated the contact or knowthe person or company you’re dealing with.

If a company that claims to have an account with yousends an email asking for personal information, don’t clickon links in the message. Instead, type the company nameinto your Web browser, go to its site and contact themthrough customer service. Or call the customer servicenumber listed on your account statement (not in the email)and ask whether the company really sent the request.

Safely dispose of technology equipment. Before youdispose of a computer, get rid of all the personalinformation it stores. Use a wipe utility program tooverwrite the entire hard drive. Likewise, check yourowner’s manual or the manufacturer’s website beforethrowing or giving away a mobile device. You want tomake sure all of your personal information — includingphone books, voicemails, Internet search history, photosand passwords — is permanently erased.

Encrypt your data. Guard online transactions withencryption software that scrambles information you sendover the Internet. A “lock” icon on the status bar of yourInternet browser means your information is safe when it’stransmitted. Look for the lock before you send personal orfinancial information online.

Keep passwords private and complex. Use strongpasswords with your credit, bank and other accounts.Instead of using your mother’s maiden name or birth date,think of a special phrase and use the first letter of each wordas your password. For example, “I want to go to Australia”could become “!W2go2Au.” Combine symbols, numbers,and upper and lower case letters. Use long passwords.

Limit your social networking footprint. If you post toomuch information about yourself and your family onsocial media sites, an identity thief can find details aboutyour life and then use them to answer “challenge”questions on your accounts — or to access your moneyand personal information. Consider limiting access to yournetworking or profile page to a small group of people.

Tax Scams

The IRS also warns taxpayers about tax fraud scams. Tax-relatedidentity theft typically occurs when someone uses stolen personalinformation to file a tax return and claim a fraudulent refund.Often, victims are unaware that their data has been stolen untilthey receive letters from the IRS stating that returns had alreadybeen filed using their Social Security numbers.

Try to file early in the tax filing season — before an identity thiefbeats you to it. Also, if you receive a notice from the IRS, respondimmediately to the name and number printed on the notice orletter. If you believe someone may have used your Social Securitynumber fraudulently, you’ll need to fill out IRS Form 14039,“Identity Theft Affidavit.” �

S P E C I A L R E P O R T

Protect Your Accounts from Identity Theft and Fraud, CONT.

Call for HelpDishonest individuals are continually finding clever new ways to

exploit technology for their personal gain. Forensic accounting

and financial advisers can be valuable resources to help

safeguard your data and investigate losses when fraud strikes.

Plan Now to Maximize Your Medicare Coverage

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