Category: News

Protection of personal information is an advantage gained when using  a trust. Whereas  a probated will is an announcement of an orderly succession of proprietary ownership to the world, and wills are available to anyone. Not everyone is comfortable with making that announcement and creating a record that could last centuries or even millennia. On the other hand, trusts can be secret, but even the secrecy they provide is not perfect. Disclosure is sometimes required as proof of ownership rights over an asset. However, California law accounts for that, and so California law permits a trust to be used for this purpose without being completely disclosed. For example, if a bank needs to know certain details of a trust in order to confirm ownership of an asset, Probate Code § 18100.5 ensures that the bank will know only what is necessary. It does so by allowing presentation of a “certification of trust” proving the trust’s existence, the trustee’s authority, the settlor’s identity, the manner of taking legal title, and other key trust terms. If this certification of trust is presented then there is no need to provide the full terms of the trust, so important information such as the identity of beneficiaries is not required to be disclosed.

If presented with a trust certification, then the requestor must accept that trust certification as if it were the actual trust instrument or potentially be liable for damages and attorney’s fees resulting from the refusal. Although there are some laws and regulations requiring financial institutions to ascertain into the identity of trusts heir beneficial ownership “as needed,” the required disclosures can be made without divulging the full trust instrument, thus maintaining the secrecy that the trust was intended to protect.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

An Incomplete Non-Grantor Trust (ING) is designed to be a separate taxpayer for income tax purposes which receives assets without gift tax consequences. No gift tax is incurred because the gift is “incomplete,” and the income is not taxable to the grantor because the ING is a non-grantor trust. However, the income generated from the trust assets is taxed to the trust. An ING’s income is taxed only on the federal level when the trust is in a state without an income tax.

States that tax income use tax codes mostly copied from the federal Internal Revenue Code (IRC). This allows an ING to work favorably in a state without a state income tax. For example, California taxes neither distributions from an ING established in Nevada nor the ING’s grantor in California. The ING’s distributions are not taxed by California because the ING is in Nevada. California does not tax the grantor because the IRC does not, and California follows the IRC regarding the tax treatment of trust grantors. Meanwhile, Nevada does not tax income at all. The Californian grantor would still be taxed on distributions received, but would have the authority to decide whether there would be a distribution.

Governor Newsom proposed an Anti-ING law in his 2023-2024 budget that would tax the net income of INGs, defeating the primary purpose for most INGs. Governor Newsom’s proposal bears few details, but the law would take retroactive effect to the beginning of 2023. There does not appear to be a bill adopting this proposal as of this writing on March 28, 2023.

Anti-ING laws are rare but not new. Rather soon after INGs became popular, New York conducted a study resulting in a new law targeting INGs, enacted in 2014. In 2020, the California Franchise Tax Board (FTB) proposed an Anti-ING law derived from New York’s creation. Both are simple (within a tax law context). They define an ING, proclaim it a grantor trust, and tax its net income to the grantor. Particularly as the FTB’s estimate of the increased annual revenue ($17 million) is the same as Governor Newsom’s estimate, his proposal will likely adopt the FTB’s 2020 suggestion. However, the governor has not disclosed the text of the proposed law.

Political parties are never monolithic. Yet Governor Newsom’s power over his party was seemingly demonstrated last year through his victory over Proposition 30’s multimillionaire tax. With well more than a sufficient number of Democrats for two-thirds majority votes in the Legislature, Governor Newsom may soon make California the second Anti-ING state.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

California experienced extreme weather recently. As a result, the Internal Revenue Service and its Californian equivalent, the Franchise Tax Board (FTB), extended the tax filing deadline for most (but not all) Californians. Whether an individual has been given more time to file is determined by the county that the individual resides in. This deadline extends the time to pay one’s taxes and file tax returns, which would normally be April 18. [“The due date is April 18, instead of April 15, because of the weekend and the District of Columbia’s Emancipation Day holiday, which falls on Monday, April 17.”] Both the FTB and the IRS extended the deadline to May 15. The IRS later extended the date to October 16, and the FTB announced on March 2 that its deadline will also be October 16. Please see the chart below for how each county is categorized.

“If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.”

We are currently living through the Information Age, harvesting, selling, and protecting information has become a significant undertaking both by private individuals and corporations, as well as by the government. One person who has huge amounts of information about you without your explicit consent is the reader of your Individual Master File. The Individual Master File (IMF) is the profile the IRS creates for every individual taxpayer, there is also a counterpart for legal entities called the Business Master File. Any taxpayer may learn about their IMF (or Business Master File) by requesting a “tax transcript.” This request may be made through Form 4506-T, by calling 800-908-9946, or by accessing it online. There are five transcript types and together they reveal what has been reported to the IRS (by the taxpayer and third parties) as well as what the IRS has done with that information. 

Unfortunately for anyone interested in learning what the IRS knows about them, the IMF is not always complete. In addition to the Master File, there is Non-Master File (NMF). The NMF is a special repository containing information beyond the IMF’s technological capacity (which is several decades old and uses magnetic tape records). This accounts for certain specialized circumstances, such as overdue child support or balances of $1 billion or more. Unfortunately, there is not an expedited process to access an NMF, nor is there even a website to visit or a phone number to call. Instead, a written request must be mailed to the Philadelphia IRS Campus (for individuals) or the Cincinnati IRS Campus (for businesses). The IRS is slowly transferring information to CADE 2, IMF’s replacement. However, this has not affected the process of obtaining transcripts so far. The IRS usually only gives transcripts redacted (“masked”) for personally identifiable information.

Ultimately, a significant amount of the difficulty of gaining anything from tax transcripts lies in reading them rather than retrieving them. They are replete with codes, and although these codes are accompanied by a description of two or three words, “sometimes these descriptions don’t adequately explain the account transaction,” according to the National Taxpayer Advocate. Complete understanding requires consulting Document 6209, an information systems guide nearly 400 pages long. Specifically, section 8 of Document 6209 discusses the thousands of possible codes for the IMF, some of which have multiple meanings or are redacted.

Aside from potentially satisfying idle curiosity, tax transcripts are useful to fill gaps in records held by taxpayers and to provide information trusted by banks to obtain a loan.

“If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.”

California issued $9.2 billion to 16.8 million residents to relieve the rising costs of inflation. The payment is known as the “Middle Class Tax Refund.” It has finally been determined that the payments will not constitute taxable income for either California or the federal government. California’s position was clear from the time the funding legislation was enacted on June 30, 2022. However, the IRS delayed its determination until February 10, 2023, well after the tax season started. The late timing received scathing criticism from the National Taxpayer Advocate.

The income threshold levels for the Middle Class Tax Refund are as follows:

If you have questions or concerns about how these new reports may affect you or your business, please contact the Burton Law Firm at 916-822-8700 or email info@lawburton.com for a consultation.

Arbitration is part of modern American life—even reading this likely required agreeing to at least one arbitration agreement, whether for the electronic device, its software license, or its internet connection. This results from the Federal Arbitration Act (FAA) that has been in effect since 1926. The core of FAA is just two sentences, one containing 91 words and the other containing 131 words. One of those sentences permits arbitration agreements for every “transaction involving commerce,” and the other defines “commerce” as “commerce among the several States or with foreign nations” but excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Recently, in 2019, California enacted AB 51, a law that pushes back on the proliferation of arbitration agreements by criminalizing the practice of requiring an arbitration agreement for employment. On February 15, 2023, the 9th Circuit found that AB 51 was preempted by the FAA, and therefore struck it down.

Perhaps no other law enacted by President Calvin Coolidge spurred such controversy and litigation. Even then, the litigation did not heat up for years after its passage. Until 1983, there were only 10 Supreme Court cases interpreting the FAA. Yet beginning in 1983, the past four decades have seen at least 58 such cases, including Circuit City Stores, Inc. v. Adams, which found that the FAA applied to employment contracts (except for transportation workers).

In finding that AB 51 was in fact preempted the court in Chamber of Commerce v. Bonta reviewed the history of AB 51. The court found that California has fought the Supreme Court over the FAA for decades, and that AB 51 was a continuation of that battle. The California Legislature attempted to avoid FAA preemption in the drafting of AB 51. The court in Chamber remarked that the attempt at avoiding preemption “[R]esulted in the oddity that an employer subject to criminal prosecution for requiring an employee to enter into an arbitration agreement could nevertheless enforce that agreement once it was executed.” According to the Supreme Court, the FAA effectively made arbitration agreements a protected class amongst its contractual peers—therefore states cannot discriminate against them. Indeed, Chamber reads like a civil rights case with searches through legislative history indicating hostility toward a protected class and how that protected class is affected by the statute’s burdens, whether on the law’s face or as applied. Finally, the court in Chamber concluded: “Because the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 is therefore preempted.”

A federal appellate opinion usually ends a case—but not always. In addition to appealing to the Supreme Court, the defeated party may petition the court to vacate its opinion and try again in a rehearing. Chamber was a rehearing that superseded its 2021 opinion that nullified only the enforcement mechanism of AB 51. The dissenter of the 2021 opinion (Judge Ikuta) became the majority author of the 2023 opinion, and the majority author of the 2021 opinion (Judge Lucero) became the dissenter of the 2023 opinion. Thereby reversing the result of the original case decided two years ago, and reinstating the previously struck down AB 51.

Chamber held that technicalities do not defend a state’s attempts to frustrate a federal statute. Or rather, it would if it stands without another rehearing by a panel, a rehearing that may come in the form of an en banc hearing (with all 29 judges), or the Supreme Court’s writ of certiorari for this 3-year-old case.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

Last autumn’s elections will increase the sales and use tax by an average of 0.78 percentage points for over 1.75 million people across over thirty municipalities, termed “districts” by the California Department of Tax and Fee Administration (CDTFA) which administers the sales and use tax. These changes will become effective on April 1, 2023. One can determine the applicable rate increase by their address through an online tool provided by the CDTFA and will be updated with the new tax rates when they become effective.

California’s sales and use tax usually has seven components, and the CDTFA offers a guide explaining how the funds for each are used. Six of these components are set by the state, 5 through the Revenue and Taxation Code, and 1 through Article XIII of the state constitution. These components create a statewide minimum tax rate of 7.25%. The 7th component may be established by districts through local elections and is known as the “district tax.” Such elections arise through a petition (an initiative) or an ordinance passed by the district government and then decided by the district’s voters (a referendum). An initiative requires only a simple majority, but a referendum requires a two-thirds majority vote. The maximum district tax for most municipalities is two percentage points as judged per county. If a city levies a 1% district tax, the county can only levy a 1% district tax within that city’s limits. The Legislature has granted exceptions to the 2% rule for certain large districts, resulting in rates as high as 10.75% for Alameda County, for example.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

Section 30D of the U.S. Code establishes a new clean vehicle tax credit of up to $7,500 (unindexed) and limits the price of applicable vehicles. The ceiling is $80,000 (unindexed)  for a “van,” “sport utility vehicle,” and “pickup truck,” while the price restriction is $55,000 (unindexed)  for “any other vehicle” that otherwise qualifies.[1] The price referred to by the section is the manufacturer suggested retail price.[2] The statute also requires the IRS to define these designations of vehicles “using criteria similar to that employed by the Environmental Protection Agency and the Department of the Energy to determine size and class of vehicles.”[3] At this time there is no regulation defining these terms, but the publication of the pertinent Notice of Proposed Rulemaking is scheduled for March of this year.

The IRS did release interim guidance on December 29, 2023. This interim guidance, Notice 2023-1, defined the vehicle designations by cross-citing to 40 CFR § 600.002 and serves as the operative rule until a more permanent decision is made. Notice 2023-16 changes the cross-citation to 40 CFR § 600.315-08(a) and is retroactive to January 1, 2023. The relevant FAQs were also updated. There is an otherwise comprehensive list of qualifying vehicles, but it is currently applicable only to vehicles “placed in service before January 1, 2023.” The IRS released a list of potentially qualifying manufacturers and models yet insists that the only way to be certain is through verifying the Vehicle Identification Number online. The new definitions effectively leave the task of classification of the vehicles to the Administrator of the EPA based on consumer expectations as part of the fuel economy label system.[4]

Last month, Elon Musk tweeted that the prior rules were “messed up” and advocated for new definitions during a meeting with Biden Administration officials last week. Other automakers lobbied for change as well.

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[1] § 30D(f)(11)(B).

[2] § 30D(f)(11)(A). 

[3] § 30D(f)(11)(C).

[4] Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[5] 40 CFR 600.315-08(a)(2)(iii) & (iv).

[6]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[7] 40 CFR 600.315-08(a)(2)(v)& (vi).

[8]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[9] 40 CFR 600.315-08(a)(2)(i)& (ii).

[10]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

[11] In full:

The Administrator will classify passenger automobiles by car line into one of the following classes based on interior volume index or seating capacity except for those passenger automobiles which the Administrator determines are most appropriately placed in a different classification or classed as special purpose vehicles as provided in paragraph (a)(3) of this section.

(i) Two seaters. A car line shall be classed as “Two Seater” if the majority of the vehicles in that car line have no more than two designated seating positions as such term is defined in the regulations of the National Highway Traffic Safety Administration, Department of Transportation (DOT), 49 CFR 571.3.

(ii) Minicompact cars. Interior volume index less than 85 cubic feet.

(iii) Subcompact cars. Interior volume index greater than or equal to 85 cubic feet but less than 100 cubic feet.

(iv) Compact cars. Interior volume index greater than or equal to 100 cubic feet but less than 110 cubic feet.

(v) Midsize cars. Interior volume index greater than or equal to 110 cubic feet but less than 120 cubic feet.

(vi) Large cars. Interior volume index greater than or equal to 120 cubic feet.

(vii) Small station wagons. Station wagons with interior volume index less than 130 cubic feet.

(viii) Midsize station wagons. Station wagons with interior volume index greater than or equal to 130 cubic feet but less than 160 cubic feet.

(ix) Large station wagons. Station wagons with interior volume index greater than or equal to 160 cubic feet. 40 CFR 600.315-08(a)(1).

[12]  Notice 2023-16 pursuant to 40 CFR 600.315-08(a)(3)(ii)

The foreign tax credit (“FTC”) is the primary vehicle for escaping double taxation often due on international income. It provides a credit for the taxes levied by foreign jurisdictions under a myriad of limitations. Several more limitations were added at the beginning of 2022 through regulations imposing a weight somewhat lightened by even more recent proposed regulations.

            The finalized 2022 regulations require a careful study of each foreign tax for its eligibility. In order to be eligible for FTC application, a tax must be on net gain rather than gross receipts. Business deductions of significant costs must be allowed unless the disallowance is for reasonable tax policy principles compatible with the Internal Revenue Code. Under current law, the entire tax may be barred from the FTC through the disallowance of a single cost category, such as interest, without sufficient cause. This is still true for the proposed regulations, yet each significant cost category needs to be only at least 75% recovered.

            An entirely new jurisdiction requirement was also added through the 2022 regulations: income that is taxed by a foreign country must be sufficiently attributable to the foreign country to benefit from the tax credit. This has generated considerable controversy among tax experts, and the IRS conceded there was no explicit statutory authority for this requirement. The commentators’ argument that this is beyond the IRS’s authority to promulgate may be tested in court under multiple theories in the coming months and years. The IRS remained firm in upholding its nexus creation theory to defend its position but also offered a relatively straightforward means for a tax on royalty income to qualify in the proposed regulations.

            Comments on the proposed regulations are welcome at this link. The IRS is not necessarily mandated to respond to every comment. However, it must address significant comments individually or collectively. 

If you have questions or concerns about how these new reports may affect you or your business, please contact the Burton Law Firm at 916-822-8700 or email info@lawburton.com for a consultation.

The year 2023 comes with many changes to California’s employment law and those changes can be organized generally into 6 distinct groups. This series of blog articles will overview new significant laws that will impact employers and employees. We begin with payroll matters here.

In 2017 the California minimum wage increased to $15.50 an hour due to SB 3. SB 3 also included a number of graduated wages increases each year, and this year is the last included in that schedule, with future increases limited to cost-of-living adjustments. Also, this is the first year the increased state minimum wage applies to all employers regardless of size. Municipalities may also set higher minimum wages if they elect to.

Last year’s SB-1162 increased California’s payroll reporting requirements for employers of 100 or more people. Previously, the federal government’s similar reporting requirement could be used to satisfy California’s version, however California now requires more data by categorizing employees by demographics and wage levels to a greater degree of specificity. SB-1162 also added regulations an employer’s hiring process by generally forbidding consideration of an applicant’s salary history and requiring disclosure of a position’s pay scale upon the request of an applicant.

The FAST Act has implications the minimum wage specifically for many fast-food restaurants but will be addressed in a separate blog post.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.