This month, Nina Krauthamer and Wooyoung Lee look briefly at two recent developments in tax. The first addresses pied-à-terre homes in New York City. Following tax policies adopted by certain cities in Canada, a yearly property tax surcharge will be imposed on New York City homes worth $5 million or more when (i) the home is not used as a primary residence for the owner or for a family member or (ii) is not rented out on full-time basis to an individual who uses the unit as a primary residence. The second development is reported by an anonymous source in contact with an unnamed immigration lawyer. According to the source, the I.R.S. is considering a change to Form 1040 (U.S. Individual Income Tax Return) to add two check boxes to the form. One will be used to indicate (a) whether the resident filer is or is not a U.S. citizen. The second will be used to identify w

In May, the I.R.S. announced a settlement offer for partnerships involved in disputes concerning “syndicated conservation easements.” The dispute involves the value of charitable deductions claimed in regard to the grant of an easement that prevents the owner from developing land. An easement is a legal right that allows one party to use a specific portion of someone else’s property for a specific, limited purpose without actually owning the land. The grant purportedly becomes a tax shelter when (i) multiple unrelated investors (ii) pool their money in a partnership or syndicate (iii) that is formed to acquire various parcels of undeveloped land (iv) for the principal purpose of contributing development rights to a land trust, (v) that allows the investors to claim charitable contribution deductions at purportedly inflated values far in excess of the investment in the land. In their article, Stanley C. Ruchelman and Wooyoung Lee explain the history of this typically U.S. centric tax shelter to readers outside the U.S.

“Q.S.B.S.” is a tax related acronym in the U.S. for Qualified Small Business Stock. When a start-up corporation meets certain conditions enumerated in Code §1202, noncorporate investors are offered the opportunity to derive tax-free capital gains by holding the investment for a period of time prior to a liquidity event. The greater of $10 million of gain or 10 times the taxpayer’s basis in the Q.S.B.S. – referred to as “basis loading – may be exempt from tax on exit. The tax benefit can be enhanced by creating multiple irrevocable nongrantor trusts, each formed for the benefit of a specific family member. Each trust is entitled to its own capital gain exemption, so long as the multiple trust rule of Code §643(f) is not triggered. Under that rule, multiple trusts having (i) the same grantor, (ii) substantially the same primary beneficiaries, and (iii) an income tax avoidance purpose are treated as a single trust.. Among savvy investors, the tax plan is known as “stacking.” In her article, Galia Antebi reports that Treasury Assistant Secretary for Tax Policy Kenneth Kies recently signaled that Treasury does not like stacking. The bad news is that forthcoming Q.S.B.S. guidance is expected to limit taxpayers’ ability to multiply the benefit. The good news is that basis loading is not a target – at least for now.

When individuals consider moving their tax residence to Italy, the first conversation almost always begins with a specific question. How will I be taxed in Italy? It is a question that comes most naturally to clients who have read about Italy’s special regimes. But is it the only question that should be considered? In her article, Giada Mazzola, Senior Counsel at Caldara & Associati in Milan, cautions that an adviser who treats the first conversation as a tax-rate conversation will produce an answer that may be technically correct, but may be problematic for practical reasons related to the way the client chooses to live. A more useful approach is one that asks the five questions that all begin with the letter “W” – Who? What? When? Where? and Why? An adviser will be able to fashion a tax plan and a life plan that meets the needs of the client over the long haul only when those five questions are asked by the adviser and answered by the client (i) fully, (ii) completely, and (iii) honestly.