They say that the devil is in the details, and that is proving true for the Obama definition of the “rich” (those families that earn more than $250,000) and the plan to fix the budget. The IRS provided some detail to the Obama plan last December when it published a proposed regulation that would increase the Medicare tax to 3.8% and impose the tax on the rich through their trusts and estates. The NFDA and ICCFA have been trying to get their respective members’ attention because the proposed regulation specifically includes their business trusts as ‘rich’ that are be subject to the Medicare tax.
Sometimes it may seem that associations cry wolf to reinforce to the membership the need for the association. But, the proposed IRS regulation is somewhat unique in that it specifically identifies Section 685 qualified funeral trusts and Section 642 endowed care trusts as those which will be subject to the Medicare Tax. As both associations point out in comments submitted to the IRS, the proposal reflects how little the Service understands the purposes of these trusts.
To see each association’s comments click the following hyperlinks:NFDA ICCFA
There is a legitimate risk to qualified funeral trusts that do not make individual account allocations for composite filings. We would have thought most fiduciaries prepared QFTs in such a manner, but the Service’s comments from a few years ago suggests otherwise. And, what about those preneed trusts that have not taken the Section 685 election?
Even though the Service’s rationale for application of tax to Section 642 endowed care trusts is tenuous, these trusts lack the individual accounting ‘out’ that can save the QFT.