Probate & Trust Law Section Conference Manual ... - Minnesota CLE

one percentage point for each $2,000 (or fraction thereof) of AGI above $15,000
(increased from $10,000). ATRA made the higher expense levels and credit
percentages permanent.
x. Adoption Credit and Adoption Assistance Exclusion. Generally, a taxpayer is
allowed a nonrefundable credit against tax for qualified adoption expenses paid
or incurred by a taxpayer subject to a maximum credit amount per eligible child.
The adoption credit and exclusion have been permanently extended at $12,970
(phasing out between $194,580 and $234,580) in 2013. The credit can also be
allowed against the alternative minimum tax.
xi. Child Tax Credit. The $1,000 child tax credit has been permanently extended
(without inflation adjustments).
xii. Expansion of Hope Credit. Taxpayers are allowed to claim a nonrefundable
credit, the Hope Credit, for qualified tuition and related expenses incurred for
the first two years of post-secondary education. The expansion was the
American Opportunity tax credit. The allowable modified credit was increased
to $2,500 per eligible student per year for qualified tuition and related expenses
paid for each of the first four years of the student’s post-secondary education in
a degree or certificate program. The modified credit rate is 100 percent of the
first $2,000 of qualified tuition and related expenses, and 25 percent on the
next $2,000 of qualified tuition and related expenses. The credit has been
extended through 2017.
xiii. Credit for Employer Provided Child Care. ATRA permanently extended the child
care tax credit equal to 25% of qualifying expenses for employee child care and
10% of qualified expenses for child-care resource and referral services.
B. Selected Case Law Developments
a. Tax Basis in Stock – Insurance Company Demutualization.
i. Dorrance v. U.S. 110 AFTR 2d 2012-5167 DC AZ, 2012. The IRS issued Rev. Rul.
71-233 and Rev. Rul. 74-277 establishing the position that a policyholder
receives a zero tax basis in the stock they received when a mutual insurance
company converts to a publicly traded company (“demutualization”).
ii. Subsequently, the US Court of Federal Claims disagreed with the IRS finding that
stock received by the taxpayer is based on the fair market value on the date the
stock was issued.
iii. The Federal District Court in the Dorrance case denied the IRS’s petition for
summary judgment since the taxpayer met their burden illustrating that some
of the insurance premium paid should be allocated to the mutual insurance
rights that was exchanged for the stock. A future court proceeding will
determine the proper allocation of insurance premiums to the basis of the
issued stock.
b. Like Kind Exchange – Rental Converted to Residence.
i. Reesink v. Comm. TC Memo 2012-118. Section 1031(a)(1) allows a taxpayer to
exchange property that is held for productive use in a trade or business or held
for investment for similar property. However, a taxpayer may not defer gain
when one of the properties is held for personal or vacation property.
ii. Rev. Proc. 2008-16 provides certain safe harbor rules related to rental
properties that has some elements of personal use.