Monthly Archives: January 2015

Applicable Federal Rates for February 2015

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of–money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for February 2015:

Short Term AFR (Loans with Terms <= 3 Years)                                          0.48%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                     1.70%

Long Term AFR (Loans with Terms >9 Years)                                              2.41%

7520 Rate (Used in many estate planning vehicles)                                     2.0%

Here is a link to the complete list of rates: http://www.irs.gov/pub/irs-drop/rr-15-03.pdf

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Can Developers Recognize Long-Term Capital Gain By Selling Land They Don’t Own? Maybe, at Least in Florida, Georgia, and Alabama

Reversing the US Tax Court, the US Court of Appeals for the Eleventh Circuit recently held that a real estate developer recognized long-term capital gain when he sold contractual purchase rights in real estate, even though the developer previously intended to develop and resell the underlying real estate as condominiums. The Court found that contractual purchase rights could be a capital asset even though the real estate itself would have become ordinary income generating inventory property had the developer closed the purchase contract instead of selling it. As a result, the developer’s effective tax rate was probably reduced by approximately 20%.

The case bolsters some capital gain preservation tax strategies. It does not, however, provide a blank check to lock in capital gain tax rates by trading in contracts rather than land. A few warnings:

First, the circumstances of the sale deviated from the developer’s original plan. While the Court’s reasoning is not entirely clear, the Court observed that the developer did not originally intend to sell the contractual rights. Instead, the developer originally intended to close on the contract, purchase the real estate, and develop condominiums for resale. The tax result could be different if the developer planned all along to sell the purchase contract itself.

Second, the Eleventh Circuit is a federal appellate court immediately below the Supreme Court, with jurisdiction over Florida, Alabama, and Georgia. It is unlikely the Supreme Court will hear this case. While other federal courts with jurisdiction elsewhere might find the Eleventh Circuit’s decision persuasive, they could reach different conclusions. The Tax Court reached a different conclusion in the same case. The Eleventh Circuit’s conclusion is most helpful to taxpayers subject to the Eleventh Circuit’s appellate jurisdiction. Other taxpayers face greater risks relying on the Eleventh Circuit’s decision.

Here is a link to the Eleventh Circuit’s opinion in Long v. Commissioner:
http://media.ca11.uscourts.gov/opinions/pub/files/201410288.pdf

Here is a link to the Tax Court’s decision in the same case, which the Eleventh Circuit reversed on this issue:
http://www.ustaxcourt.gov/InOpHistoric/longmemo.morrison.TCM.WPD.pdf

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Applicable Federal Rates for January 2015

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of–money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for January 2015:

Short Term AFR (Loans with Terms <= 3 Years)                                          0.41%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                     1.75%

Long Term AFR (Loans with Terms >9 Years)                                              2.67%

7520 Rate (Used in many estate planning vehicles)                                     2.2%

Here is a link to the complete list of rates: http://www.irs.gov/pub/irs-drop/rr-15-01.pdf

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037