Be aware of IRS Tax Scams

This is the time of the year when people are confronted with all kinds of Tax scams all with the goal of obtaining personal information about you. Be aware that the IRS never initiates a contact with a taxpayer by phone; the first contact is always in writing. A newer scam involves a call from a purported IRS agent calling to verify information in your tax return with the pretense of expediting your tax refund. The IRS does not contact taxpayers in this way. IRS commissioner John Koskinen has stated “These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns; Don’t be fooled. The IRS won’t be calling you out of the blue, asking you to verify your personal tax information.” Be very wary as we have seen instances where people are caught off guard when receiving very official sounding calls.


March 16, 2016


‘Too Big To Fail’ Is Still A Concern

Federal Reserve Bank of New York President William Dudley stated that large banks and regulators have made important progress toward ending the “too big to fail” perception, but that more work is required to make sure that any failure could be done in an orderly manner without taxpayer assistance. Mr. Dudley went on to mention a recently proposed Fed rule which would require banks to add more loss absorbing debt to their balance sheet to lessen the likelihood of financial system contagion. Mr. Dudley also said firms need to simplify complex legal structures and be able to prove that they can obtain funding to remain open during a bankruptcy, while regulators should adopt rules regarding banks’ derivative contracts with nonbank counterparties which would make it more difficult for non-banks to immediately close out contracts in times of stress.1 Although we are seven years removed from the financial crisis, the perception of “too big to fail” is still very much alive and many believe continues to pose a significant risk to our financial system. It will be interesting to see if banks and regulators can finally agree on a framework that removes the risk of future taxpayer-funded bailouts.

Wall Street Journal – Fed’s Dudley: Work Remains on ‘Too Big To Fail’

Negative Inventories?

As of October 28, 2015, according to the Federal Reserve Bank of New York, large U.S. banks reported holding negative $1.4 billion of investment-grade corporate bonds maturing in at least 13 months. Since the New York Fed began accumulating and reporting this data since the spring of 2013, this is the first time that inventories have turned negative. Prior to new capital and leverage rules, banks used to hold a lot more bonds in order to fill orders from clients; however, these new rules have made it more costly for firms to hold those corporate bonds, thus forcing some firms to completely exit the market. Is this a sign to come regarding the liquidity of corporate bond markets or just a byproduct of the artificially low interest rate environment?

Fed’s Yellen Suggesting Live Possibility for December Liftoff

Federal Reserve Chairwoman Janet Yellen stated that the Fed may raise short term rates at its December meeting, but stressed that no final decision has been made. She also added that they expect the U.S. economy to grow enough to realize further improvements in the labor market and a return to 2% target inflation over the medium term. The Fed has also emphasized that any move will be done at a gradual and measured pace. Overall, the Fed’s more hawkish tone as of late has resulted in a 52% probability of a December rate increase as measured by fed-funds futures.1 Place close attention to the next two employment reports that will be released prior to the December Fed meeting as they will certainly influence policy decision as to whether we have rate liftoff in 2015.

Wall Street Journal – Fed’s Yellen: December is ‘Live Possibility’ for First Rate Increase


1 + 1 = 2 now, in China

On Thursday, October 29, 2015, China announced that it will formally end its one-child policy, initially established in 1980, citing demographic problems in the world’s second-largest economy. However, formally ending the one-child policy does not give Chinese families free reign. Instead, families are now allowed to have two children, if they choose. However, many demographers are still urging Beijing to lift birth restrictions entirely, citing China’s fertility is below the replacement level of 1.17 in 2013. This move marked a significant shift for China, once worried about a surging population, as the country now faces an aging demographic that will eventually cause a labor-shortage in the following years.

Debt and Growth Concerns Overshadow Budget Success

The good news that the U.S. budget deficit is lower than before the 2008 financial crisis has taken a backseat to concerns about economic growth and the nation’s debt load. Of particular concern are the costs set to rise later this decade from an increase in health care spending and retirement benefits for baby boomers. Although the deficit is at its lowest level since 2007, the U.S. has added $8 trillion in debt. This represents a 140% increase which has nearly doubled the debt-to-GDP ratio (which stands around 73%). To date, the increased debt load hasn’t widened deficits due to an ultra-low interest environment which resulted in debt-service costs falling to 1.3% of GDP in 2014. Some analysts worry that new concerns will emerge given the presidential campaign rhetoric. Republicans are pushing for tax cuts while democrats are touting free college tuition and expanding social benefits both of which are likely to increase the deficit.1 Keep an eye out over the coming months to see if presidential candidates from either side of the aisle can bring forth plans to reduce future deficits rather than proposals that would increase them.

1Wall Street Journal; Debt, Growth Concerns Rain on Deficit Parade 

How Low Can They Go?

The 10-year U.S. Treasury yield dropped from its 2015 peak of 2.5%, recorded in June, to below 2% in Wednesday’s afternoon trading as a result of poor U.S. economic data coupled with increased worries over a slowdown in China. As a concern, U.S. retail sales only rose 0.1% last month, compared to forecasted estimates of 0.2%. Additionally, the producer-price index, which measures the price a company receives for its goods or services, fell 0.5% in September. Finally, plunging commodity prices coupled with low to stagnant inflation boosted demand for Treasury debt. Given the lackluster economic data received thus far, many are predicting the Federal Reserve will have to push back its 2015 intended rate hike to the first part of 2016.

Voices: Lyle Wolberg, on Extending the Fiduciary Standard

President Obama backs DOJ plan to impose stricter standards on brokers who advise on retirement investments


Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Lyle Wolberg is partner and senior adviser at Telemus Capital in Southfield, Mich.

Changes are afoot in the retirement account investment arena. President Obama has asked the Department of Labor to develop stricter standards for brokers and others who advise clients on retirement investments.

To Read the Full article click here.


Posted by Wall Street Journal, see the original article here.

Large Capital Gains and Tax Shock

Whenever you are dealing with a large sales transaction (sale of a business, large stock sale, etc.) taxes are a key driver. This is more true today than ever, due to changes in the tax laws. The impact of higher income on the limitation of tax deductions, the surtax, higher capital gain taxes all resulting in gains being taxed at an effective tax rate of nearly 25% versus 15% not that long ago.

Advance planning can potentially reduce the tax impact by considering tax strategies including: 

         Use of charitable trusts to reduce the overall tax impact and timing of recognition

         Consideration of installment sales to defer taxes

         Family trust sales

         1031 (like-kind exchanges) to defer taxability

         Finally do “deferred sales trusts” make sense and are they viable?

Overarching Takeaways

It is important to understand that these tax deferral strategies are complex and could have significant tax risk if not properly structured. One of today’s hot topics is the “Deferred Sales Trust” transaction which is gaining interest due to the current higher effective tax rates. These trusts need to be considered in light of numerous risks including validity of the trust, the transaction, changing future tax rates, and transaction costs. Essentially these transactions are structured in a way that allows a complete sale with all sales proceeds being realized but allowing the seller to use the installment method to spread out the tax while still knowing that the proceeds are secure.