1. 2016 FEDERAL TAX UPDATE SAMUEL A. DONALDSON GEORGIA STATE UNIVERSITY COLLEGE OF LAW ATLANTA, GA

2. T AXABLE I NCOME EXCEEDING 2016 F EDERAL I NCOME T AX R ATES FOR I NDIVIDUALS Single Joint Ordinary Income Adjusted Net Cap Gain & Qualified Dividends Medicare Surtax on Earned Income (including 1.45% employer contrib.) Medicare Surtax on Net Investment Income $0 10% 0% 2.9% 0% $9,275$18,55015% $37,650$75,30025% 15% $91,150$151,90028% $190,150$231,450 33% AGI over $200,000 AGI over $250,000 3.8% 3.8% $413,350 35% $415,050$466,95039.6%20% 2016 INDIVIDUAL INCOME TAX BRACKETS

3. PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (SIGNED DECEMBER 18, 2015)  22 PERMANENT EXTENSIONS  4 FOUR-YEAR EXTENSIONS (THROUGH 2019)  30 ONE-YEAR EXTENSIONS (THROUGH 2016)  VARIOUS OTHER PROVISIONS

4. PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (SIGNED DECEMBER 18, 2015) 22 PERMANENT EXTENSIONS  Deduction for state and local sales tax  Special rules for qualified conservation contributions  Charitable rollovers  Charitable contributions by S corporations  Exclusion of gain on qualified small business stock

5. PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (SIGNED DECEMBER 18, 2015) 22 PERMANENT EXTENSIONS (cont.)  Increased expensing limits for “§179 property” 4 FOUR-YEAR EXTENSIONS (THROUGH 2019)  50% bonus depreciation rules

6. PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (SIGNED DECEMBER 18, 2015) 30 ONE-YEAR EXTENSIONS (THROUGH 2016)  Exclusion of discharged debt on principal residence  Mortgage insurance treated as mortgage interest  Above-line deduction for higher education expenses  Shorter recovery periods for selected assets, industries

7. BASIS REPORTING AND DUTY OF CONSISTENCY  §6035(a)(1) requires executors of estates required to file a federal estate tax return to provide “a statement identifying the value of each interest in” property included in the decedent’s gross estate  Must be furnished within 30 days after Form 706  Failure to give statement to IRS and beneficiary triggers $250 penalty  §1014(f) says the basis in property acquired from a decedent cannot exceed the final value that has been “determined” for federal estate tax purposes.  New rules apply to property “with respect to which an estate tax return is filed” after July 31, 2015.

8. BASIS REPORTING AND DUTY OF CONSISTENCY Proposed Regulations (March 4, 2016)  §1014(f) applies to property that actually increases the estate’s liability for federal estate taxes  Provisions for “omitted property”  No §6035 reporting where Form 706 filed solely to make portability election or GSTT exemption allocation  Assets exempt from §6035 reporting: cash, IRD, tangible personal property for which an appraisal is not required, and property that will not be distributed to a beneficiary because of disposition by the estate in a taxable transaction

9. FEDERAL ESTATE AND GIFT TAXES TODAY  $5,000,000 exclusion, adjusted for inflation  $5,250,000 in 2013 -$5,430,000 in 2015  $5,340,000 in 2014-$5,450,000 in 2016  40% flat transfer tax rate  45% from 2007 – 2009  0% in 2010  35% in 2011 and 2012  Portability election now permanent  Deceased spousal unused exclusion (“DSUE”) amount “ports” to surviving spouse if deceased spouse’s estate timely files Form 706 9

10. SORTING COUPLES BY CUMULATIVE NET ESTATE BUCKET ONEBUCKET TWOBUCKET THREE

11. SORTING COUPLES BY CUMULATIVE NET ESTATE BUCKET ONE Up to $5.45 million BUCKET TWOBUCKET THREE

12. SORTING COUPLES BY CUMULATIVE NET ESTATE BUCKET ONE Up to $5.45 million BUCKET TWO $5.45 - $10.9 million BUCKET THREE

13. SORTING COUPLES BY CUMULATIVE NET ESTATE BUCKET ONE Up to $5.45 million BUCKET TWO $5.45 - $10.9 million BUCKET THREE $10.9+ million

14. SORTING COUPLES BY CUMULATIVE NET ESTATE  TRUST OR NO TRUST?  STEPPED-UP BASIS FOR EVERYTHING  Outright gift  Trust with general power of appointment  QTIP trust  PROTECTIVE PORTABILITY ELECTION BUCKET ONE Up to $5.45 million

15. SORTING COUPLES BY CUMULATIVE NET ESTATE  TRUST OR NO TRUST?  If NO TRUST (outright gift)  All to surviving spouse  Disclaimed amounts pass to credit shelter trust  If TRUST  Clayton QTIP  Clayton v. Commissioner, 976 F.2d 1486 (5 th Cir. 1992) BUCKET TWO $5.45 – 10.9 million

16. SORTING COUPLES BY CUMULATIVE NET ESTATE  KEEP CALM AND CARRY ON  Valuation discount planning  Charitable planning  BUSINESS SUCCESSION PLANNING FOR PASS-THROUGH ENTITIES BUCKET THREE $10.9+ million