In Estate of Valeria M. Miller v. Commissioner, T.C. Memo. 2009-119, the Tax Court determined that FLP discounts (of 35%) would be permitted for initial contributions to an FLP, but would be denied for deathbed additions (because they were simply a tax device with "no significant nontax purpose"). The most significant part of the decision is that the Tax Court concluded that the IRC Section 2036(a) exception for a bona fide sale for full and adequate consideration applied to the initial contribution of passive investments to the FLP.

The Miller case shows that a properly planned and executed FLP or FLLC (funded with passive investments) is still an effective wealth transfer strategy. However, President Obama's 2010 tax proposals would do away with such discounts in most cases.

For more information regarding this topic, please e-mail your requests to Julius H. Giarmarco, or call Julius at (248) 457-7200.

New Deposit Insurance Limits - The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

For more information visit www.fdic.gov.

FDIC Deposit Insurance Coverage Limits (Through December 31, 2013)

Single Accounts (owned by one person) $250,000 per owner

Joint Accounts (two or more persons) $250,000 per co-owner

IRAs and other Certain Retirement Accounts $250,000 per owner

Revocable Trust Accounts $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage is available with 6 or more beneficiaries subject to specific limitations and requirements)

Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association

Irrevocable Trust Accounts $250,000 for the non-contingent, ascertainable interest of each beneficiary

Employee Benefit Plan Accounts $250,000 for the non-contingent, ascertainable interest of each plan participant

Government Accounts $250,000 per official custodian

For more information regarding this topic, please e-mail your requests to Randall A. Denha, or call Randy at (248) 457-7205.

Kmart Michigan Property Services, LLC (KMPS) was a single member LLC solely owned by Kmart Corporation. KMPS was responsible for winding up the business affairs of Builders Square, its former subsidiary, whose assets were sold to a third party. KMPS filed a Single Business Tax (SBT) Return for the fiscal year ended January 28, 1998. At some point, the Department of Treasury audited KMPS for that fiscal year in connection with an audit of Kmart and determined that KMPS should not have filed a separate SBT Return. Rather, because it was a single member limited liability company, KMPS should have included its income, deductions, credits, assets and liabilities with those of Kmart, its parent corporation. As part of its Return, KMPS sought a refund. On March 2, 2005, an informal conference was held in which a referee heard arguments and determined that KMPS should not have filed an SBT Return and was not entitled to a refund for the tax year in issue.

KMPS filed an appeal with the Tax Tribunal. In finding for KMPS, the Tribunal stated that a limited liability company's federal tax status was not determinative of whether it satisfied the definition of "person" under the Single Business Tax Act (SBTA), since the SBTA filing requirements are independent of the Federal Tax Code and existed "long before the federal 'check the box' regulations" permitting a taxpayer to choose its entity status. The Tribunal held that KMPS did satisfy the definition of a "person" qualifying it to file a separate SBT Return for the period at issue.

On May 12, 2009, in the published case of Kmart Michigan Property Services, LLC v Department of
Treasury, Mich. Ct. App., Dkt. No. 282058, the Michigan Court of Appeals affirmed the Tax Tribunal and held that KMPS, LLC, a single member limited liability company, did not have to be treated as a disregarded entity for Michigan SBT purposes. The Court held that the fact that single member limited liability companies are disregarded for federal income tax purposes is not relevant to its determination for SBT purposes. The Court of Appeals held that the Michigan Department of Treasury's position, as outlined in Revenue Administrative Bulletin 1999-9, did not bind the Court and conflicted with the clear language of applicable SBT statutes.

There are two significant results from this published case. First, even though the Court of Appeals recognized that the Michigan Department of Treasury has the legal responsibility to collect taxes and enforce Michigan statutes, the Department's Revenue Administrative Bulletins are merely "interpretative statements" and do not have the force of a legal requirement on a taxpayer. Secondly, unless and until the Department of Treasury files an appeal, clients who treated their single member limited liability companies as disregarded entities for SBT purposes should consider filing protective refund claims if the statute of limitations for any tax year has not yet expired.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457-7218.

On May 11, 2009, the Treasury Department released its 2010 Revenue Proposals (popularly called the "Greenbook"). Some of the proposals will negatively effect estate planning, including the following:

• Estate and gift taxes would be extended at the same rates and exemption levels as in effect for calendar year 2009.



• A minimum ten-year term would be imposed on grantor retained annuity trusts (GRATs) created after the date of enactment. If enacted, the increased mortality risk will encourage donors to consider less "leveraged" gifts (such as installment sales to grantor trusts).



• A new category of "disregarded restrictions" for determining the value of any "entity" (i.e., limited partnerships, limited liability companies, corporations, etc.) for transfer tax purposes would be added. These restrictions would be prescribed in Treasury regulations - not against default state law (as is currently the case). The goal is to curb techniques designed to reduce transfer tax value, but not the economic benefit to the donees. This proposal would apply to transfers - lifetime and testamentary - made after the date of enactment.



• Consistency of valuation would be required for income tax basis and estate tax purposes. This would prevent an heir from claiming an income tax basis higher than the property's estate tax value. This proposal would be effective as of the date of enactment. Thus, no longer would an heir be able to claim a high valuation as his/her basis, when the estate claimed a discounted value for estate tax purposes.

The proposals are just that - proposals. They have to be reduced to statutory language and then considered by Congress. As these proposals make their way through Congress, we will keep you abreast of all developments.

For more information regarding this topic, please e-mail your requests to Julius H. Giarmarco, or call Julius at (248) 457-7200.

	Annual	Semi-Annual	Quarterly	Monthly
Short Term AFRs (Term 3 Years or Less)	0.82%	0.82%	0.82%	0.82%
Mid Term AFRs (Term More Than 3 Years and 9 Years or Less)	2.76%	2.74%	2.73%	2.72%
Long Term AFRs (Term More Than 9 Years)	4.36%	4.31%	4.29%	4.27%
Section 7520 Rate	3.4%