The Ins and Outs of the Personal Residence Trust

The Ins and Outs of the Personal Residence Trust

New Castle Business Ledger
by Nancy F. Blumberg, CPA, CFP
Simon Master & Sidlow, P.A.

Transferring family wealth has been limited by legislation so that many traditional estate planning techniques are no longer available.However, one of the remaining techniques which involves your personal residence has become increasingly popular.The use of a grant or retained interest trust has the potential to save you substantial estate taxes.

You can transfer your wealth to your children or others and retain the use of your home for a fixed number of years.By using a qualified personal residence trust (QPRT) you can avoid estate and gift taxes on any future appreciation in the value of your home and you can make this transfer as a relatively small taxable gift.The value of your gift is the value of the future interest of your residence.This will depend on the current value of the home, the current interest rates and the number of years you wish to retain your interest in the home.A QPRT can be used for your personal residence as well as a vacation home. More…

Meeting The Challenge of an IRS Audit

Meeting The Challenge of an IRS Audit

New Castle Business Ledger
by John H. Sterling, CPA
Simon Master & Sidlow, P.A.

You have been selected to be audited by the IRS. After the initial shock has subsided, there are constructive ways to meet the audit challenge.

First, reread the audit notice and determine what the agent really wants. Focus on the items or amounts the agent is questioning.Then secure the appropriate documents to support your reporting. Always organize your materials before meeting with the agent.Having good records will generally speed up the audit process.

Once at the IRS office, be calm and cooperative.Answer questions honestly, but do not add more than the agent is questioning. Remember to bring copies of items the auditor has asked you to supply.

If you are not sure how to approach the audit, it is advisable to consult with a tax professional.Tax professionals can help you address the agent’s questions and may accompany you to the audit.

If you and the agent cannot agree on proposed adjustments, the case may be appealed.Many cases that reach this level are settled without litigation. Appeals officers are encouraged to settle cases except in situations where IRS policy prohibits such a compromise.

While everyone has a chance to be selected for an audit, IRS scrutiny of business returns has increased at the expense of individual return review. “The audit rate for individuals has fallen by 40% over the last 6 years, while the business return audit rate has more than doubled.The number of employment tax returns has also shown dramatic growth over the same period.The 1993 individual audit rate was slightly less than 1%.”