June 18, 2019

HB 13-1246: Allowing Property Tax Exemptions for Property Used for Charitable Purposes

On March 4, 2013, Rep. Lois Court and Sen. Pat Steadman introduced HB 13-1246 – Concerning Modifications in Connection with Current Property Tax Exemptions for Nonprofit Organizations. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Tax exempt property acquired by nonprofit housing provider for low-income housing: Current law allows a property tax exemption for real property acquired by a nonprofit housing provider upon which the provider intends to construct or rehabilitate housing to be sold to a low-income applicant. The bill modifies the property tax exemption by also allowing it to apply to real property acquired by a nonprofit housing provider that the provider intends to sell to a low-income applicant for the purpose of constructing or rehabilitating housing for the low-income applicant’s residential use.

In addition, the bill changes the criteria to qualify as a low-income applicant from an individual or family whose total median income is no greater than 60 percent of the area median income to an individual or family whose total median income is no greater than 80 percent of the area median income.

Waiver of filing deadline for annual report from owners of tax-exempt property: An owner of property that is exempt from property tax as determined by the property tax administrator is required to file an annual report to the state board of equalization (state board) regarding the tax-exempt property. Currently, the state board may waive the filing deadline for the annual report under certain circumstances. The bill allows the state board to determine a deadline for the property owner to file the report when granting the waiver and specifies that the waiver is invalid after the date established by the state board.

Effective date of property tax exemptions when a public official has made an error: The property tax administrator is currently authorized to grant a property tax exemption for certain types of property. The property tax administrator may grant the exemption back to Jan. 1 of the year preceding the year in which the application was filed, but no earlier. The bill allows the state board to authorize the property tax administrator to make an exemption effective earlier than is currently allowed when the property has been added back to the tax roll as omitted property and would otherwise have met all criteria for exemption during the time that it was omitted.

On March 27, the House gave final approval to the bill on 3rd Reading; the bill has not been assigned to a committee in the Senate.

Since this summary, the bill has been assigned to the Finance Committee in the Senate.

The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset (Part 2)

Editor’s Note: This is Part 2 of a 3-Part series. Click here for Part 1.

By Merry H. Balson and Laurie A. Hunter

How does the 2012 Tax Act affect estate planning?

Lifetime Gifts. Many clients who were concerned that sunset would cause the estate tax exemption to decrease from $5 million to $1 million made gifts before the end of 2012 to use all or part of the $5 million exemption. Those who did not make end of year gifts in 2012 (and those who did but did not fully use their exemption equivalent) are given another chance to make such gifts because the historically high exemptions are still in effect. Completed irrevocable gifts can remove future appreciation from the donors’ estates, as well as give trust beneficiaries other benefits of irrevocable trusts generally, such as creditor protection and protection from claims of divorcing spouses (in certain circumstances). In addition, if only one spouse made a gift to an irrevocable trust for the benefit of the other spouse, but because of the “reciprocal trust rule” the other spouse did not make a similar gift, that spouse may now wish to consider, after the passage of time, making a gift of their own.

Keep in mind that the downside of making gifts still applies: no stepped up basis on death. Instead, the gifted assets have a “carryover basis” from the donor.

Continued Use of Family or Credit Shelter Trusts. There are a number of reasons an estate planner should continue to discuss the use of family trusts or credit shelter trusts in estate plans instead of relying solely on portability of the first spouse’s unused exemption. First, future appreciation of assets in the family trust will pass estate tax free. Second, income from the family trust can accumulate outside the surviving spouse’s estate. Third, the family trust can be designed to provide creditor protection for the surviving spouse. Fourth, assets in the family trust can avoid claims of a new spouse to the trust assets either at the surviving spouse’s death or divorce. Finally, the family trust can provide a vehicle for an independent trustee to administer the assets, especially in the case of a blended family.

Addressing Portability Election in Planning Documents. With the permanence of portability, practitioners who are not already doing so should consider the extent to which the portability election should be addressed in wills and trusts. The documents could require the personal representative to elect portability on a timely filed estate tax return or could merely authorize the personal representative to do so. Additionally, consider addressing who should bear the cost of the estate return preparation, particularly where the return is being filed solely to elect portability. Furthermore, issues relating to the portability election may also be a subject for negotiation in premarital or postmaritial agreements.

Income Tax Changes in the 2012 Tax Act. In addition to the estate and gift tax provisions, there are numerous income tax provisions in the 2012 Tax Act. The following is a summary of some of those provisions affecting individuals:

  • Tax rates stay the same for most taxpayers. Individuals will have an increased tax rate (back to Clinton-era rates) if they have taxable income over $400,000, and married filing jointly taxable income is over $450,000. The top tax rate will be 39.6%.[1]
  • Payroll tax rate returns to 2010 level. The 2% reduction in the social security payroll tax has expired.[2] Withholding will increase for all taxpayers back to the 2010 level.
  • Long-Term Capital Gains rates stay at 0% (for 10% and 15% rate taxpayers) and 15% (for up to 35% rate taxpayers). For those in the new 39.6% rate, the capital gain rate will be 20%.[3] Qualified dividend rates stay at the same rates as long-term capital gains.[4]
  • Alternative Minimum Tax changes are made “permanent” so that the income levels are $50,600 for single taxpayers and $78,750 for married filing jointly, and these levels are indexed for inflation.[5] Previously, these changes had to be adopted every year.
  • Personal exemptions will be reduced because the suspended phaseout is again in effect. For $250,000 single taxpayers or for $300,000 for married filing jointly, the personal exemption will be reduced by 2% for each $2,500 over the threshold.[6] These levels will be adjusted for inflation.
  • The limits on itemized deductions that had been suspended will again apply so that for the same threshold for the personal exemption levels discussed above, the total amount of itemized deductions will be reduced by 3% of the amount by which the taxpayer’s income exceeds the threshold, but not more than 80%.[7]
  • Trusts and Estates reach the highest tax rate (now 39.6%) at roughly $12,000 in taxable income, so trusts in particular may be subject to the higher income tax rate, the higher capital gains rate and the new 3.8% surtax on investment income mentioned below.[8]

To be continued…

Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at mbalson@wadeash.com or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at lhunter@wadeash.com or 303-329-2227.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

 


[1] Rev. Proc. 2013-15, Sec. 1.01, 2013-5 IRS 444 (January 11, 2013).

[2] Pub.L. 112-240, Sec. 101 (a-b), H.R. 8, 126 Stat. 2313 (2013).

[3] Pub.L. 112-240, Sec. 102(b), H.R. 8, 126 Stat. 2313 (2013).

[4] Pub.L. 112-240, Sec. 102(a), H.R. 8, 126 Stat. 2313 (2013).

[5] Pub.L. 112-240, Sec. 104, H.R. 8, 126 Stat. 2313 (2013).

[6] Pub.L. 112-240, Sec. 101(b), H.R. 8, 126 Stat. 2313 (2013).

[7] Id.

[8] Id.

Colorado Court of Appeals: City’s Arguments for Taxation Engendered Reasonable Doubts and Must Be Resolved in City’s Favor

The Colorado Court of Appeals issued its opinion in City of Golden v. Aramark Educational Services, LLC on Thursday, March 28, 2013.

Sales Tax Assessment—Summary Judgment.

Plaintiffs, the City of Golden (Golden) and Jeff Hansen, in his official capacity as Golden’s Finance Director, appealed the district court’s summary judgment in favor of defendant, Aramark Education Services, LLC (Aramark). The summary judgment was reversed and the case was remanded to the district court to reinstate the assessment.

The Colorado School of Mines (CSM) and Aramark entered into a Food Services Management Agreement (FSMA) in which they agreed that Aramark would be the exclusive operator of the food service facilities in the CSM Student Center, including the residential dining hall and the Food Court, the I-Club, and other facilities. Aramark operated the Slate Café, the I-Club, the Food Court, Java City, Mines Park Convenience Store, and CSM concessions.

No CSM representative ever handles or takes possession of food either before or after it reaches those facilities. Aramark provided food that generally fell into one of six categories for purposes of this case. Golden levies a sales tax on all sales of tangible property that occur in Golden, including food, unless specifically exempted under the Golden Municipal Code (GMC). Aramark only collects and remits sales tax on CSM campus food sales made with cash, checks, credit, or debit cards. Aramark argued that other sales (as parts of meal plans or added to ID cards) were exempt under the GMC for (1) wholesale sales and (2) direct sales to state institutions “in their governmental capacities only.” Golden disagreed that these were exempt and assessed sales tax.

Aramark protested and received a hearing before Golden’s Finance Director, who upheld the assessment. Aramark appealed to the Colorado Department of Revenue, which reversed. Golden appealed to the Denver District Court and on cross-motions for summary judgment, the district court entered summary judgment in Aramark’s favor. Golden appealed.

The Court of Appeals began by noting the presumption that taxation is the rule and exemption from taxation is the rare exception. All reasonable doubts are resolved against the exemption.

Golden argued that Aramark’s food sales on the CSM campus are wholesale sales. Aramark countered that it sells the food to CSM on a wholesale basis and CSM resells the food to its students, faculty, staff, and guests. The Court held that when individuals purchase food from Aramark-operated food service facilities on CSM’s campus, Aramark is making retail sales to the customers, which are subject to Golden’s sales tax. However, on the issue of when the food is provided as part of a CSM meal plan, a summer conference or summer camp meal plan, or using “Munch Money,” the issue is much closer. However, because Golden’s arguments have sufficient merit to engender reasonable doubts, the issue was resolved in Golden’s favor.

Golden also argued that it was error to conclude that Aramark was exempt from Golden’s sales tax under the GMC’s “governmental capacity” exemption. Such a sale must be a “direct sale” to a department or institution of the State of Colorado. CSM is an institution of the State of Colorado, but it is less clear whether Aramark directly sells its food to CSM. Regardless, the Court concluded that the sales do not qualify because they were not made to CSM in its “governmental capacity only.” CSM has the power to rent, lease, maintain, operate, and purchase buildings and facilities for dining. Aramark does not sell food to CSM in its capacity of doing those things.

The Court additionally found that the sales were made to CSM in both its governmental and proprietary capacities. It was purchasing food in its governmental capacity of educating students, as well as for the private advantage of the faculty and for itself as a legal entity. The summary judgment was reversed and the case was remanded with instructions to reinstate the tax assessment.

Summary and full case available here.

HB 13-1183: Imposing a Cap on the Amount of Tax Exemption that May Be Claimed for Donations of Conservation Easements

On January 31, 2013, Rep. Claire Levy and Sen. Kent Lambert introduced HB 13-1183 – Concerning the Imposition of a Cap of 45 Million Dollars on the Total Amount of State Income Tax Credits that May Be Claimed by All Taxpayers Each Year for the Donation of a Conservation Easement in GrossThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Taxpayers are allowed to claim a state income tax credit for donating a conservation easement. Current law caps the total amount of credits that may be claimed by all taxpayers each year for a three-year period. The amount of the cap is $22 million for 2011 and 2012 and $34 million for 2013. Credits that exceed the amount allowed for each year are placed on a wait list for a future year.

The bill extends the cap for 2014 and later years and increases the annual amount of the cap for these years to $45 million. Clarifying amendments on the process of administering the cap are made. On March 15, the House approved the bill on 2nd Reading; the bill is scheduled for 3rd and final Reading in the House on Monday, March 18.

Since this summary, the bill passed the 3rd Reading in the House.

Colorado Court of Appeals: Board of Assessment Appeals Did Not Abuse Discretion in Accepting Assessor’s Property Valuation

The Colorado Court of Appeals issued its opinion in CTS Investments, LLC v. Garfield County Board of Equalization on Thursday, March 14, 2013.

Property Tax Valuation—Evidentiary Issues before the Board of Assessment Appeals.

In this property tax case, petitioner CTS Investments, LLC (CTS) appealed the order of the Board of Assessment Appeals (BAA) denying its petition challenging the valuation placed on its property by respondent Garfield County Board of Equalization (BOE) for the 2011 tax year. The order was affirmed.

CTS owns two parcels of vacant land in Garfield County. One comprises 10.766 acres, and the other comprises 61.26 acres. Both are located within the 640-acre Castle Valley Ranch Planned Unit Development in the town of New Castle.

For the 2011 tax year, the BOE valued the 10.766 acre property at $307,800 (or roughly $28,500 per acre), and the 61.26 acre property at $1,836,480 (or roughly $30,000 per acre). CTS asserted to the BAA that the property should be valued at approximately $2,200 per acre. Its argument was based in part on the sale of an adjoining property in April 2010. In that transaction, GMAC ResCap sold to CVR Investors, Inc. approximately 120 acres of vacant land and thirteen finished townhome lots for $700,000 (CVR sale). The property had been acquired by GMAC through foreclosure of a loan to Village Homes. Village Homes had purchased the property from CTS in 2007 and 2008 for approximately $8.9 million. The loan to Village Homes at the time of the foreclosure had an outstanding principal balance of more than $10 million.

CTS asserted that the CVR sale was the most comparable sale. The county assessor excluded the sale from her appraisal because it was not an “arm’s length transaction,” due to her opinion that GMAC was under duress when it sold the property. The assessor testified that she looked at four comparable sales and adjusted them as required by statute for time, size, and location. Her comparable sales were completed before the applicable one-and-a-half-year base period. She did this because she concluded there were no comparable sales during the base period. CTS presented its tax consultant, whose valuation included the CVR sale.

The BAA denied CTS’s petition. Its order stated that it found the assessor’s valuation more persuasive and that it agreed with the exclusion of the CVR sale because it did not meet the definition of an arm’s-length transaction. However, the order did not include the BAA’s reasoning for that ruling.

On appeal, the Court of Appeals considered CTS’s objection to the introduction of various articles attached to the assessor’s appraisal discussing the financial status of GMAC. The assessor’s decision not to consider the CVR sale an arm’s-length transaction was based partially on these articles, which came from general and financial news outlets. All but one of the articles included the author’s name, none referenced the CVR sale, and some of the articles made the same or similar assertions. Therefore, the Court inferred that the authors were not biased concerning the parties to the transaction. In addition, CTS had sufficient access to the statements before the BAA hearing, because it had been included in the assessors’ report, which had been issued at least eight months before the BAA hearing began. Furthermore, much of the information contained in the articles already had been admitted without objection through the assessor’s testimony.Given these facts, the Court concluded that the BAA did not abuse its discretion in admitting the articles.

CTS then argued that by not considering the CVR sale, the BAA refused to compile a representative body of comparable sales and therefore erred as a matter of law. The Court first stated that whether the CVR sale was not an arm’s length transaction and therefore appropriately excluded was a matter of fact, not law. Although the record presented conflicting evidence on this issue, there was enough support for the BAA’s finding that the Court would not reverse it on appeal.

CTS asserted that reversal was appropriate because the BAA order did not specify why it credited the assessor’s conclusion that the CVR sale was not an arm’s length transaction. The Court stated that although the better practice is for the BAA to make findings and provide its reasoning for its ruling, its findings may be express or implied and its decision need only be supported by the record.

Finally, CTS asserted there was no competent evidence in the record to support the BAA’s valuation of the property. A reviewing court may set aside a decision of the BAA only if there is no supporting competent evidence or the decision reflects a failure to abide by the statutory scheme for calculating property tax assessments. Here, there was ample competent evidence in the record to support the BAA’s decision.

Summary and full case available here.

HB 13-1142: Modifying Four Tax Credit Programs Under the Urban and Rural Enterprise Zone Act

On January 18, 2013, Rep. Dickey Hullinghorst and Sen. Rollie Heath introduced HB 13-1142 – Concerning Reforms to the “Urban and Rural Enterprise Zone Act.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill:

  • Commencing Jan. 1, 2014, requires the director of the Colorado office of economic development and the Colorado economic development commission (commission) to review the enterprise zone designations at least once every 10 years to ensure that the existing zones continue to meet the statutory criteria to qualify as an enterprise zone.
  • For credits certified on or after Jan. 1, 2014, limits the amount of an income tax credit that may be claimed in an income tax year for qualified investments in an enterprise zone to the sum of the taxpayer’s actual tax liability for the income tax year up to $5,000, plus 50 percent of any portion of the tax liability for the income tax year that exceeds $5,000 up to a maximum of $1 million.
  • Allows a taxpayer to appeal to the commission for a credit in excess of the $1 million limit.
  • Requires the commission to annually post information regarding certified investment tax credits on its web site or the Colorado office of economic development’s web site.
  • Increases the income tax credit for investments made in a qualified job training program in an enterprise zone for income tax years commencing on and after Jan. 1, 2014, from 10 percent of the total investment to 12 percent.
  • Increases the income tax credit for establishing a new business facility in an enterprise zone for income tax years commencing on and after Jan. 1, 2014, from $500 for each new business facility employee to $1,100.
  • Increases the income tax credit for each new business facility employee in an enterprise zone who is insured under a health insurance plan or program provided through his or her employer for income tax years commencing on and after Jan. 1, 2014, from $200 per such employee to $1,000.
  • On Feb. 28, the Finance Committee took testimony and delayed action on the bill to a future date.

    U.S. District Court Strikes Down IRS’s Registered Tax Return Preparer Regulations

    TramLeBy Tram Le

    On Jan. 18, 2013, the U.S. District Court for the District of Columbia issued a decision enjoining the IRS from enforcing its new registered tax return preparer program. See Loving v. IRS, No. 12-385, 2013 WL 204667 (D.D.C. Jan. 18, 2013).

    In 2011, the IRS issued final regulations requiring all paid tax return preparers, who were not otherwise regulated by the IRS, to comply with Circular No. 230. Specifically, the regulations required tax return preparers who are not attorneys, CPAs or enrolled agents to pass a qualifying exam, pay an annual fee, and take 15 hours of continuing education courses each year.

    In promulgating the regulations, the IRS relied on 31 U.S.C. Sec. 330, which gave them the authority to regulate individuals who “practice” before it.

    Factual and Procedural History

    Three paid tax return preparers, who were not previously regulated, filed suit against the IRS in federal court. The individuals argued that the IRS had no authority under 31 U.S.C. Sec. 330 to regulate tax return preparers who only prepare and sign tax returns, and file claims for refund and other documents with the IRS.

    The tax return preparers claimed that the new IRS regulations would likely cause them to lose customers and close their business due to the increased costs and burdens associated with compliance. Therefore, they sought for injunctive and declaratory relief and moved for summary judgment.

    Issue and Decision

    The issue before the court was whether all paid tax return preparers are “representatives” who “practice” before the IRS under 31 U.S.C. Sec. 330 and therefore, are properly subject to the new IRS regulations. In deciding the case, the court applied the two prong Chevron test. Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). The first step asks whether “the intent of Congress is clear.” Under this test, if the intent is clear, then the court “must give effect to the unambiguously expressed intent of Congress” and does not need to address the second step.

    In this case, the court found that the intent of Congress was clear under 31 U.S.C. Sec. 330 and preparers who are limited to preparing and signing tax returns and claims for refund, and other documents to the IRS are not “representatives” who “practice” before the IRS.

    The court reasoned that under 31 U.S.C. Sec. 330(a)(2)(D), the definition of “practice of representatives” does not include tax return preparation. The court equates “practice” as advising and assisting taxpayers in presenting their cases. The court stated that merely filing a tax return would never in its normal usage be described as “presenting a case.”

    The court also reasoned that the IRS’s interpretation of 31 U.S.C. Sec. 330 would displace an existing statutory scheme that regulates penalties on tax return preparers. The court referred to Title 26 of the U.S. Code, which provides for a “careful, regimented schedule of penalties for misdeeds by tax-return preparers.” For example, a tax return preparer would be subject to a fine of $50 (with an annual maximum of $25,000) for failing to sign a return without reasonable cause under 26 U.S.C. Sec. 6695(c). If tax return preparers were subject to 31 U.S.C. Sec. 330, the IRS would have a considerable amount of discretion to impose penalties ranging from $0 and the “gross income derived (or to be derived) from the conduct giving rise to the penalty.”

    Furthermore, the court stated that a federal penalty provision pursuant to 26 U.S.C. Sec. 7407, which remedies abusive practice by tax return preparers, would be irrelevant under the IRS’s interpretation.

    The court held that the statute was not ambiguous based on the plain language and does not clearly cover individuals who prepare and sign tax returns, file claims for refund and other documents to the IRS. Since the regulations failed under the first prong of the Chevron test, the court did not consider the second prong. As such, the court granted a declaratory judgment and permanent injunctive relief, enjoining the IRS from enforcing its new regulations.

    Appeal of Ruling

    In response to the district court’s decision, the IRS filed a motion to suspend the permanent injunction against the tax return preparer regulations. On Feb. 1, 2013, the court denied the IRS’s motion. However, the court agreed to modify the ruling to clarify that IRS could continue its Preparer Tax Identification Number (PTIN) program and was not required to close its testing and continuing-education centers.

    Tram Le, CPA, Esq., LL.M. – SALT Consultant – Golden, CO – With more than six years of government financial and forensic auditing experience, Tram has developed and implemented audit procedures for forensic audits and assisted in investigations of fraud, waste and abuse such as improper payments. Tram is a CPA and a licensed attorney.  She received a joint JD/LL.M. in taxation from the University of Denver. Tram is currently developing knowledge and expertise in State and Local Tax (SALT). She focuses on variety of state and local sales and income/franchise tax issues and assists with protesting and the representation of clients at administrative appeals and appeals meetings. She writes for the CBA Taxation Section newsletter, where this article originally appeared.

    The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

    HB 13-1042: Providing a State Income Tax Deduction to Marijuana Businesses That Are Precluded from Claiming a Federal Deduction

    On January 9, 2013, Rep. Daniel Kagan and Sen. Lucia Guzman introduced HB 13-1047 – Concerning a State Income Tax Deduction for a Taxpayer Who is Prohibited from Claiming a Federal Income Tax Deduction by Section 280e of the Internal Revenue Code Because Marijuana is a Controlled Substance under Federal Law. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

    The starting point for determining state income tax liability is federal taxable income. This number is adjusted for additions and subtractions (deductions) that are used to determine Colorado taxable income, which amount is multiplied by the state’s 4.63 percent income tax rate.

    Section 280E of the internal revenue code (section 280E) prohibits a trade or business that is illegally trafficking controlled substances from claiming any federal income tax deductions. This increases federal taxable income and, consequently, state income tax liability.

    The bill allows a taxpayer who is licensed under the “Colorado Medical Marijuana Code” or under regulations promulgated by the department of revenue pursuant to amendment 64 to claim a state income tax deduction for an expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed by section 280E because marijuana is a controlled substance under federal law. Taxpayers eligible for this deduction include medical marijuana centers, optional premises cultivation operations, medical marijuana-infused product manufacturers, marijuana cultivation facilities, marijuana testing facilities, marijuana product manufacturing facilities, and retail marijuana stores. On Feb. 6, the Finance Committee amended the bill and sent it to the Appropriations Committee for consideration of the fiscal impact on the state.

    HB 13-1009: Clarification of Statute of Limitations for All Refunds of Overpaid Sales and Use Taxes

    On Wednesday, January 9, Rep. Brian DelGrosso and Sen. Cheri Jahn introduced HB 13-1009 – Concerning the Deadline for an Application for a Refund for Overpaid State Sales and Use TaxThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

    The bill requires a person who overpays the state sales and use tax to apply for the refund within three years after the date of purchase. Assigned to the Finance Committee.

    New Tax Law for a New Year

    JenniferMSpitzBy Jennifer M. Spitz

    On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (ATRA). ATRA extends much of the prior tax laws, by extending tax acts passed in 2001 and 2010. ATRA also makes some changes to prior law. Much of ATRA is permanent, meaning it is not scheduled to expire. Select highlights of ATRA of particular interest to trust and estate attorneys, including changes to some key exemptions and rates, are summarized below.

    2013 Tax Act 01 18 13

    Portability: The 2010 tax act included a provision allowing a surviving spouse to utilize the unused estate tax exclusion amount of the first spouse to die, if a timely election is made. This concept is referred to as portability. ATRA extends portability. The IRS has issued Treasury Regulations clarifying some aspects of portability. Also ATRA included a technical correction to make clear there is no “privity” requirement.

    GST Tax: ATRA extends the generation-skipping transfer tax benefits that have been in place since 2001, such as qualified severances, automatic allocation of GST exemption to certain lifetime transfers, and 9100 relief.

    Clawback: During 2011 and 2012 there was much discussion about whether there would be a “clawback” if the gift and estate tax exclusion amount dropped from the $5,120,000 amount applicable in 2012 to a lower amount in 2013. Since the exclusion amount did not drop, the clawback issue is moot.

    IRAs:  ATRA reinstates the ability for certain individuals to make tax-free distributions to charity from individual retirement plans. ATRA includes special transition rules in light of the fact that this benefit was not extended until after December 31, 2012. This provision of ATRA is not permanent. It applies to years 2012 and 2013, and then expires.

    Colorado Estate Tax: With the passage of ATRA, the state death tax credit is still repealed. C.R.S. § 39-23.5-103(1) imposes a Colorado estate tax equal to the state death tax credit. Since there is no credit, Colorado continues to impose no estate tax. However, about half of the states do impose estate tax, and many of those states have an estate tax exclusion amount much lower than the federal level.

    Jennifer M. Spitz practices law in Longmont, Colorado with Stover & Spitz LLC, a Tier 1 Trust and Estates law firm, as recognized by U.S. News Best Law Firms. Jennifer primarily practices in the areas of estate planning, probate and trust administration. She is a graduate of the University of Colorado School of Law. She is a Fellow of the American College of Trust and Estate Council (ACTEC) and is listed in The Best Lawyers in America® and Colorado Super Lawyers.  Jennifer is very active in the Trust and Estate Section of the Colorado Bar Association, including recently serving as the Section’s Chair.

    The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

    Colorado Court of Appeals: Lot With No Residential Improvements Can Still Qualify as Residential Land for Property Taxation

    The Colorado Court of Appeals issued its opinion in Fifield v. Pitkin County Board of Commissioners on Thursday, November 8, 2012.

    Nonresidential Classification for Tax Purposes—CRS § 39-1-102(14.4)(a).

    Petitioners James and Betsy Fifield (taxpayers) appealed from an order of the Board of Assessment Appeals (BAA) denying their petition challenging the nonresidential classification of their property for the 2008 and 2009 tax years. The order was vacated and the case was remanded for further proceedings.

    In 2007, taxpayers divided their Pitkin County property into two contiguous residential lots, both of which they own. Lot 1 contains their home. Lot 2 has no buildings or structures, but has a paved road and utility line. The road is the only access to taxpayers’ home and also serves a neighboring subdivision.

    The assessor classified Lot 2 as vacant land for tax years 2008 and 2009. Taxpayers petitioned the BAA to reclassify Lot 2 as residential land for those tax years. The BAA denied the petition, holding that there was no residential improvement on Lot 2 and thus it was not residential land.

    The Court of Appeals held that it was error for the BAA to require that Lot 2 contain a residential improvement to qualify as residential land. CRS §39-1-102(14.4)(a) defines “residential land” as “a parcel or contiguous parcels of land under common ownership upon which residential improvements are located and that is used as a unit in conjunction with the residential improvements located thereon.” Based on this plain language, the Court concluded that residential land must contain a residential dwelling unit and be used as a unit in conjunction with the residential improvements on the residential land. Here, taxpayers’ residential land consists of those portions of Lot 1 and Lot 2 that were used as a unit in conjunction with the home on Lot 1. The case was remanded to the BAA to determine what portions of Lot 1 and Lot 2 were used as a unit in conjunction with a residential improvement for tax years 2008 and 2009, and thus were entitled to residential classification.

    Summary and full case available here.

    Tenth Circuit: Case Involving Tax Status of Land as Indian Country or Federal Land Should Have Been Dismissed Without Prejudice

    The Tenth Circuit Court of Appeals issued its opinion in Northern Arapaho Tribe v. Harnsberger on Thursday, October 18, 2012.

    Plaintiff-Appellant, the Northern Arapaho Tribe (“Appellant” or “Northern Arapaho”), sued various state and county officials in Wyoming, seeking an injunction against the state’s imposition of certain vehicle and excise taxes in an area that Appellant contends is Indian country. Appellant claimed that the state may not tax its members in Indian country, and that the Indian country status of the land was conclusively established by an earlier decision of the Wyoming Supreme Court. The district court dismissed the action with prejudice for failure to join a party under Federal Rule of Civil Procedure 12(b)(7) after determining that two absent entities—the Eastern Shoshone Tribe (“Eastern Shoshone”) and the United States—were necessary parties who could not feasibly be joined, and in whose absence the action could not proceed. The district court also concluded that the Indian country status of the land had not been conclusively determined by the earlier state litigation. Appellant appeals both determinations.

    The Tenth Circuit agreed that the dismissal of the action was proper because the Eastern Shoshone was a necessary party  that could not feasibly be joined.  The Court explained that the Eastern Shoshone had an interest in the litigation that could be harmed by the proceeding in its absence, and proceeding in the absence of the Easter Shoshone would also place the State of Wyoming at a substantial risk of incurring multiple inconsistent obligations. The Eastern Shoshone was therefore required to be joined under Rule 19(a).  The Tenth Circuit also found that the district court correctly held that the Eastern Shoshone is a sovereign and is therefore immune from suit, so therefore could not be feasibly joined.

    However, the Court VACATED the judgment and remanded with instructions to dismiss without prejudice, since the district court’s disposition was not an adjudication on the merits. Finally, the Court also DENIED as moot Appellant’s Rule 27.2(A) motion for summary disposition or remand.