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You make the callBy: NATP Research
September 29, 2022

Question: Your client’s spouse, a U.S. citizen, passed away in February 2022. The deceased spouse’s gross estate is estimated to be valued around $4 or $5 million, which is under the current exclusion amount ($12.06 million for decedents passing in 2022). You are aware that the basic exclusion amount is set to return to $5 million (adjusted for inflation) for tax years beginning on or after Jan. 1, 2026. Therefore, you want to recommend that the surviving spouse file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, to transfer the deceased spouse’s unused exclusion (DSUE) amount to the surviving spouse (i.e., to make a portability election). Form 706 is a long, complicated form, with six distinct parts in the body, and more than a dozen accompanying Schedules that may be required. If the surviving spouse is only filing Form 706 to elect portability, must the entire form (plus schedules) be completed?

Answer: Generally, yes. However, regulations provide some relief for estates that are electing to transfer DSUE and are not otherwise required to file Form 706 because they are below the filing threshold.

Under Reg. §20.2010-2(a)(7), executors of estates not otherwise required to file Form 706 will not need to report the value of property qualifying for the marital or charitable deduction. Such executors can instead estimate the total value of the property eligible for the marital or charitable deduction. This estimate must be based on good faith, and due diligence must be exercised in determining the value of all assets includable in the gross estate.

Property qualifying for this simplified reporting is listed and described on the appropriate schedule of Form 706. However, a specific dollar value is not reported either on the schedule or on Lines 1 through 9 of the recapitulation in Form 706, Part 5. The total estimated value of these assets is reported on Form 706, Part 5, Lines 10 and 23, based on a range of dollar values provided in the Form 706 instructions.

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You make the callBy: NATP Research
September 22, 2022

Question: Your client moved overseas and is asking you to prepare his tax return. The client is a U.S. citizen now living in France. Should you file a Form 1040, U.S. Individual Income Tax Return, or Form 1040-NR, U.S. Nonresident Alien Income Tax Return?

Answer: You will file Form 1040, U.S. Individual Income Tax Return. Form 1040-NR is for individuals who are nonresident aliens. Form 1040 is for U.S. citizens or resident aliens regardless of whether they reside inside or outside the U.S.

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You make the callBy: NATP Research
September 15, 2022

Question: Dr. Erickson’s medical practice has an EIN with her business manager listed as the responsible party. Medicare payments are linked to that EIN and the practice runs smoothly using the EIN. When the business manager parted ways with the practice, Dr. Erickson thought she could just change the responsible party linked to the EIN from the business manager’s name to hers. Can Dr. Erickson change the responsible party for the EIN?

Answer: Yes. The IRS allows employers to change the responsible party by filing Form 8822-B, Yes. The IRS allows employers to change the responsible party by filing Form 8822-B, Change of Address or Responsible Party - Business, mailed to the address in the instructions (do not attach to a tax return). A responsible party controls, manages or directs the funds and assets of the business. This form will properly notify the IRS that the responsible party for the business’s EIN is now Dr. Erickson. She will list both the old and new information on the form to reflect the change. Form 8822-B should be filed within 60 days of when the transfer occurs. If Dr. Erickson had purchased or inherited the business a sole proprietorship, however, she would have had to get an entirely new EIN., mailed to the address in the instructions (do not attach to a tax return). A responsible party controls, manages or directs the funds and assets of the business. This form will properly notify the IRS that the responsible party for the business’s EIN is now Dr. Erickson. She will list both the old and new information on the form to reflect the change. Form 8822-B should be filed within 60 days of when the transfer occurs. If Dr. Erickson had purchased or inherited the business a sole proprietorship, however, she would have had to get an entirely new EIN.

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You make the callBy: NATP Research
September 8, 2022

Question: Asha and Malik have been married several years with three school-age children. Due to COVID-19 complications, Asha died in mid-June 2021. Malik does not wish to file married filing joint (MFJ) as the surviving spouse for Asha’s 2021 final tax return. If Asha’s 2021 final tax return uses the filing status of married filing separate (MFS), can the 2021 final return claim their children as qualifying dependents based on the period when Asha was alive?

Answer: No. Asha’s final Form 1040, U.S. Individual Income Tax Return, may not claim the children as qualifying dependents because they do not meet all of the dependency tests.

In general, the requirements of filing a return where the taxpayer has not been in existence for the entire taxable year are the same as filing a return for a taxable year of 12 months ending on the last day of the short period [Reg §1.443-1(a)(2)].

To claim children on the decedent’s MFS return, the children need to meet the requirements of the support and residency tests for more than half the calendar year, not the partial year Asha was alive during the tax year (§152). The full calendar year is the test period, not the partial year that the decedent was alive. Even if the decedent had income after death used to support the children for the balance of the calendar year, that income could not be used to meet the test because the estate and decedent are considered different taxpayers by IRS so it would be the estate furnishing support, not the decedent.

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You make the callBy: NATP Research
September 1, 2022

Question: Mark is serving in the military on active duty in a combat zone. He has received $50,000 of qualified nontaxable combat pay and plans to contribute to an individual retirement account (IRA). Although the combat pay is nontaxable, must he include it as compensation when determining the compensation-based limitations of his contribution to the IRA?

Answer: Yes. Although qualified combat pay is excluded from income under §112, for purposes of determining the compensation-based limit on contributions to an IRA under §219(b)(1)(B), the nontaxable combat pay is included in compensation. Therefore, a military taxpayer’s IRA contribution is the lesser of the dollar limit for an IRA deduction for the tax year, or the amount of combat pay excluded from income under §112 plus taxable compensation for the tax year.

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