Updating Business Names with the IRS

Every business has a name, and sometimes, that name needs to be changed. If the business operates through a legal entity, such as a corporation or LLC, then an amendment to the formation document must be filed with the state in which the entity has been formed in order to legally change the business name.

Doing this, however, does not change the business name on IRS records, meaning the name associated with the unique employer identification number for the business. The easiest way to update the IRS's records with the new business name is simply to use the new name when filing the business's annual tax return and check the box at the top of the front page of the form indicating that the business name has changed. There is no need to reference the old business name on the tax return.

But what if the business needs to change its name prior to the next tax return filing season, or what if the business is a disregarded entity that doesn't file a tax return? The IRS's instructions say to write them a letter; however, the instructions do not indicate what the letter should say, and they leave out an important step.

The most important items to include in a business name-change letter to the IRS are as follows: The EIN number for the business, the old business name, as well as the business address, all of which must match the current IRS records. The letter should explain that the business name has changed, state the new business name, and request that confirmation be sent once the IRS has updated its records.

The letter must be signed by the business owner or corporate officer that appears in IRS records as an authorized individual. According to some IRS agents I've spoken with, even an agent of the business that has a valid Form 2848 on file may not have sufficient authority to sign the name-change letter.

Finally, the business name-change letter should include a copy of the stamp-filed document with the state that effectuated the name change. This is not mentioned as a requirement on the IRS's website, but failure to include this document can result in the IRS declining to make the name change. Sole proprietorships or general partnerships obviously cannot include such a document, but all other business entities should do so. Name change letters currently take about six weeks to be processed; don't wait that long only to have the IRS request additional information.

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Estate Planning with Gun Trusts

Gun trusts are in the news this week due to President Obama's executive actions addressing gun violence and new regulations published by the ATF. Despite the fact that purchasing a firearm through a gun trust will be more onerous under the new regulations, the gun trust will remain an important planning tool for persons that own certain firearms.

By way of background, the key federal laws regulating firearms are the National Firearms Act of 1934 (NFA) and the Gun Control Act of 1968 (GCA). Title II of the GCA incorporates provisions of the NFA and regulates certain "dangerous weapons," such as machine guns, that are often referred to as "Title II firearms" or "NFA firearms." NFA firearms are subject to strict registration, transfer, and tax requirements. See Lee-ford Tritt, Dispatches from the Trenches of America's Great Gun Trust Wars, 108 Nw. U. L. Rev. 743 (2014).

Prior to the new regulations, individual applicants could not legally acquire an NFA firearm without completing a transfer form, having it signed by the chief law enforcement officer (CLEO) of the locality where the applicant is located, and providing their photograph and fingerprints with the transfer form. An individual could avoid these requirements by acquiring the firearm through a gun trust (or other entity) as long as the trust had legal existence and the trustee signed the transfer form.

The new ATF regulations eliminate the requirement that the transfer forms be signed by a CLEO but requires all "responsible persons" with respect to a gun trust to submit photographs and fingerprints. In other words, it is now easier for an individual to acquire a NFA firearm but more onerous for a gun trust or other entity.

Nevertheless, a key advantage of titling NFA firearms in a gun trust remains, which is that "more than one person may legally possess" the gun. Otherwise, a household member of an individual NFA firearm owner who knows about the gun and has the ability to access it could be in constructive possession and thereby be committing a federal crime. The laws governing NFA firearms provide for severe criminal penalties that could arise unexpectedly; talk with an attorney familiar with gun laws and gun trusts whenever an NFA firearm is acquired.

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50 States' Small Estate Affidavit Forms

All states have a simplified procedure of some kind for transferring the property of a decedent with few assets. For a great summary of these laws, see Joseph N. Blumberg's article, A Survey of Small Estate Procedures Across the Country.

The majority of states allow title to certain property to be transferred by sworn affidavit, without the need for any court intervention or supervision. My objective here is to provide a link to a small estate affidavit form from an authoritative source for each of these states. Where I wasn't able to locate such a form, I included a link to that state's statute or a helpful website. For states that require court intervention or supervision, I tried to do the same thing, but clearly many of these states don't have such a form, and in none of these states would any form be sufficient by itself.

For all states, I hoped at a minimum to include a link to some useful resource for transferring assets from small estates. This post will be updated as better sources become available; please comment below if you come across broken links or better forms or resources than what I currently have:

Alabama*	Illinois	Montana	Rhode Island*
Alaska	Indiana^	Nebraska	South Carolina
Arizona^	Iowa	Nevada	South Dakota
Arkansas*	Kansas	New Hampshire*	Tennessee*^
California	Kentucky*	New Jersey*	Texas*^
Colorado	Louisiana#	New Mexico^	Utah
Connecticut*	Maine	New York*	Vermont*
Delaware	Maryland*	North Carolina^#	Virginia^
District of Columbia*	Massachusetts#	North Dakota	Washington
Florida*	Michigan	Ohio*	West Virginia*
Georgia^#	Minnesota	Oklahoma^#	Wisconsin
Hawaii	Mississippi	Oregon^#	Wyoming#
Idaho^	Missouri*^	Pennsylvania#

* Affidavit insufficient by itself; a court process of some kind is required.
^ A county-specific form is linked.
# Affidavit may be insufficient; see state statute. State is deemed an "Affidavit Anomaly" by Joseph N. Blumberg due to uniqueness.

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Help with State Income Tax Audits

Just as the IRS conducts tax audits, so do the states. If you become involved in a state tax audit, keep in mind that Internal Revenue Code Section 6103 authorizes the IRS to share tax information with state governments for tax administration purposes. Among the information exchanged between the IRS and state taxation authorities is individual and business return information. One of the procedures that state taxing authorities use in selecting returns for audit is comparing the information (or the lack thereof) reported on an individual's federal income tax return with what is reported on their state income tax return.

With this in mind, one of the first steps in dealing with a state income tax audit is to gather all information on your account with the IRS. Basic information is readily available on a taxpayer's tax return transcript, a copy of which can be easily obtained through the IRS's Get Transcript webpage. Keep in mind that it will take around 10 days to receive your transcript. As mentioned below, this could potentially be different than the information on your tax return.

Once you have a copy of your IRS transcript, compare income and expense items with the corresponding items under review by your state tax commission. Many states use federal AGI as a key figure in the calculation of state income tax liability, so a difference in federal AGI reported by the IRS and federal AGI reported on your state income tax return could have triggered the audit.

If there are discrepancies, consider why that might be the case. Did you file your federal return but forget to file your state return (or vice versa)? Did the IRS make changes to your tax return? I've even seen a case of a false IRS return filed by a third party engaging in federal refund fraud that triggered a state income tax audit. Of course, you should always talk with a tax professional at the very earliest sign of an audit. With the right information and good advice, you can make any necessary changes to your returns and arrive at a fair resolution of your state income tax audit.

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Comparison of DAPT Statutes

The law has long allowed individuals to establish spendthrift trusts for the benefit of third-party beneficiaries and thereby remove the trust assets from the reach of creditors. However, until relatively recently, the law did not allow individuals to establish spendthrift trusts for their own benefit and successfully remove trust assets from the reach of their own creditors.

Alaska became the first domestic jurisdiction to allow this type of planning by passing an asset protection trust enabling statute in 1997. A Domestic Asset Protection Trust (DAPT) allows an individual to transfer assets to a trust, remain a beneficiary of the trust while removing the assets from the reach of creditors, and also achieve numerous tax planning objectives.

DAPTs offer significant protection for individuals residing in states that have adopted DAPT legislation. Whether a trustor residing in a jurisdiction that has not adopted DAPT legislation can form a trust pursuant to the laws of a foreign DAPT jurisdiction and successfully protect their assets from creditors has not been adequately settled by the courts.

A number of factors must be weighed in determining which jurisdiction a trustor should select as the situs for their DAPT. An excellent resource for comparing the provisions of the various DAPT statutes is David G. Shaftel's Comparison of the Domestic Asset Protection Trust Statutes. Sixteen states have passed DAPT enabling laws, the latest being Mississippi in 2014, and Mr. Shaftel's chart compares and contrasts the applicable laws in each of these jurisdictions.

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Powers of Attorney and Third Parties

A Durable Power of Attorney is an important estate planning tool that allows whomever you name in the document to act on your behalf and manage your affairs, even if you are incapacitated. A power of attorney can be effective immediately upon signing or can "spring" into effectiveness upon your disability.

Financial institutions have become sensitive to potential liability for power of attorney abuse, whereby a power of attorney is secured under suspicious circumstances by the agent and/or used for the agent's own personal benefit. Agents and their attorneys or advisers should consider the following questions about a power of attorney document:

Is the agent specifically authorized to take the desired actions? A financial institution may be "within its rights not to permit the attorney-in-fact to take a requested action unless the specific authority to take such action is included in the power of attorney." Accordingly, some shorter-form powers of attorney may be insufficient.

Will the agent's authority be restricted? For example, some financial institutions, as a matter of policy, do not allow agents online access to the principal's accounts even if the principal did their banking online. Financial institutions will, quite reasonably, be extremely reluctant to add an agent as an account owner or change pay-on-death designations.

Is the power of attorney still in effect? Financial institutions may be wary of old power of attorney documents, or those signed in other states, and may require the agent to sign an affidavit of some kind warranting that the document is in effect, such as this form from Fidelity.

Was the power of attorney validly executed? The financial institution will probably want the document to be notarized, even if not required by law, to give it some assurance that the principal was competent when signing. An agent purporting to act for an incapacitated principal may be questioned if the document was signed very recently. Thus, the document should not be too old or too new. Finally, many financial institutions will require an original document, rather than a copy. Keeping the foregoing questions in mind will help ensure that a power of attorney is honored by third parties.

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Nonprofits Reference Chart

Section 501(c)(3) of the Internal Revenue Code is only one of nearly three dozen Code sections that provide for tax-exempt status for certain organizations. The IRS has an good chart, located at this link, summarizing those other sections and organizations. At the same time, there are numerous sub-categories of 501(c)(3) organizations. The purpose of this post is to supplement the IRS's chart with a list of distinct tax-exempt entities that fall under 501(c)(3). The organizations described below apply for tax-exempt status with IRS Form 1023 and can receive contributions which are tax-deductible to the donor:

Code Sections	Description
509(a)	All 501(c)(3) organizations are private nonoperating foundations unless described in another line on this chart
509(a)(1) and 170(b)(1)(A)(i)	A church or a convention or association of churches
509(a)(1) and 170(b)(1)(A)(ii)	A school, meaning an educational organization with regular faculty, curriculum, and enrolled body students in attendance
509(a)(1) and 170(b)(1)(A)(iii)	A hospital providing medical or hospital care, medical education or medical research
509(a)(1) and 170(b)(1)(A)(iv)	An organization operated for the benefit of a college or university that is owned or operated by a governmental unit
509(a)(1) and 170(b)(1)(A)(v)	Certain governmental units
509(a)(1) and 170(b)(1)(A)(vi)	An organization that receives a substantial part of its financial support in the form of contributions from publicly supported organizations, from a governmental unit, or from the general public
509(a)(2)	An organization that normally receives not more than one-third of its financial support from gross investment income and receives more than one-third of its financial support from contributions, membership fees, and gross receipts from activities related to its exempt functions
509(a)(3)(B)(i)	Type I supporting organization, which must be operated, supervised, or controlled by one or more 509(a)(1) or (2) organizations
509(a)(3)(B)(ii)	Type II supporting organization, which must be supervised or controlled in connection with one or more 509(a)(1) or (2) organizations
509(a)(3)(B)(iii)	Type III supporting organization, which must be operated in connection with one or more 509(a)(1) or (2) organizations
509(a)(4)	An organization which is organized and operated exclusively for testing for public safety
170(b)(1)(A)(vii) and 170(b)(1)(F)(i)	A private operating foundation
170(b)(1)(A)(vii) and 170(b)(1)(F)(ii)	A private nonoperating conduit foundation
170(b)(1)(A)(vii) and 170(b)(1)(F)(iii)	A common fund foundation

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