Background

In 2019, Congress added subsection (d) to 7508A, which granted an automatic extension for any “qualified taxpayer” in an area affected by a federally declared disaster. The extension began at “the earliest date of the incident specified in the declaration” and lasted to “the date which is 60 days after the latest incident so specified.” In 2021, Congress changed the language of subsection (d), which effectively changed the extension period to a maximum period of 60 days after the declaration was issued, not the end of the disaster itself. The 2025 amendment, and current version of the code, changed the extension time from 60 days after the declaration was issued to 120 days.

In the case of Kwong v. United States, the United States Court of Federal Claims effectively ruled that the 2019 version of section 7508A applies to all claims related to Covid-19 disasters because the 2021 amendment (and presumably the 2025 amendment) could only be applied to disasters declared after the amendment because the statute explicitly provided that it was only effective for disasters declared after the amendment was adopted.  As such, the court found that the extension period began on January 20, 2020, the start of the emergency declaration, and ended on July 10, 2023.

Implications of the Kwong Case

Under normal circumstances, taxpayers are subject to certain filing deadlines and failure to file by the applicable deadline will result in failure to file (and potentially failure to pay) penalties. The Code also imposes significant interest normally incurred from the applicable due date of the payment. The COVID disaster declaration granted an automatic extension for both filing tax returns and paying income tax. This is unique to the COVID declaration and does not normally occur in other federal disaster declarations.

This means that if a taxpayer filed a return late during the COVID disaster relief period believing the deadline was April 15^th, the taxpayer may be entitled to receive a refund of any interest and penalties paid during that period because their returns were not actually considered late as long as they were filed and any taxes were paid by July 10, 2023.

Remaining Uncertainty Around Kwong

The government appealed the Kwong decision on May 15, 2026, but as it currently stands, the relief period for qualified taxpayers to file timely refund claims may have extended to July 10, 2026. A refund claim is usually timely if the taxpayer files it within three years of the filing of a return or two years from the payment of taxes, whichever expires later. If the Kwong tolling period applies, taxpayers who filed returns or were required to file tax returns during the taxable years of 2019 through 2022, may be able to file a refund claim for any interest and penalties paid but only if the returns were filed before July 10, 2023 and the claim for refund is filed by July 10, 2026. Even though the Kwong case is currently being appealed and the case will likely not be finally resolved prior to the July 10, 2026 deadline, our recommendation is to file a protective claim for any refunds owed under these rules prior to the July 10, 2026 deadline.

There are many other legal issues to consider including whether a taxpayer is a “qualified taxpayer” entitled to extended relief, which is not addressed in this article. It is important for one to retain experienced tax counsel to navigate the refund process and to ensure one’s rights are protected.

For more information, or to seek counsel from our Taxation practice group, please reach out to request a consultation or call us at 216-696-1422.      

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McCarthy Lebit would like to thank law clerk Logan B. Kijewski for his work in assisting with the preparation of this legal advisory for The More Report.
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This information is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.

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The mailing date is critical in many legal contexts, particularly when a postmark serves as evidence that a document was properly and timely mailed. Most people recognize the importance of a postmark in connection with tax filings and payments to the IRS or state and local taxing authorities. However, the significance of a postmark extends well beyond tax matters and applies to a wide range of everyday situations in which formal proof of mailing can determine whether a legal deadline or obligation has been satisfied.

Under the new rules, if a person does not account for the additional time it may take for a mailing to receive a postmark, the item may be deemed late, potentially resulting in the waiver of important rights to which the mailing relates.

The presence of a postmark confirms that the USPS accepted custody of the mail piece and that the mail piece was in possession of the USPS on the identified date. As the Rule confirms, the postmark date does not necessarily indicate the first day the USPS had possession of the mail piece. Further, the evidence of a postmark does not imply that the USPS did not accept custody of the mail piece because the USPS does not postmark all mail in the ordinary course of operations.

A person mailing any time-sensitive item where a postmark is essential should consider doing the following to ensure the mailing was timely:

1. Requesting that the cashier at the retail (local) post office place a manual (local) postmark on the item to be mailed at the time the customer drops off the mail piece with the USPS;
2. Requesting a postage validation imprint (“PVI”) be placed on the mail, which indicates the date of acceptance; or
3. Purchasing a Certificate of Mailing or using Registered or Certified Mail to obtain a receipt that serves as evidence of mailing.

Any mail piece that is time sensitive, use either option 2 or option 3. Although it comes with a cost, it allows you to retain a record or proof of when the USPS first accepted possession of the mail piece.

If you have any questions regarding these changes or to seek counsel from our Taxation Group, please reach out to request a consultation or call us at 216-696-1422.

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This information is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.

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To the extent you are shopping at businesses with point-of-sale software, the businesses will automatically refrain from collecting sales tax during the appropriate period, both on in-person and online purchases. However, it is important to always check your receipts during this time to confirm!

What is the purpose of a sales tax holiday?

Many states that impose sales taxes offer sales tax holidays to stimulate consumer spending and provide financial relief to taxpayers from paying sales taxes on eligible purchases. Some states, such as Ohio, like to hold their sales tax holidays in August when consumers are doing their back-to-school shopping.

What types of purchases are tax-exempt during a sales tax holiday?

It is important to note that not all purchases are tax-exempt during Ohio’s sales tax holiday. Eligible purchases include purchases of almost all tangible personal property priced at $500 or less. Some examples of tax-exempt products under Ohio law include: (1) electronics; (2) clothing; (3) books; (4) home goods; (5) plants; (6) sporting goods; and (7) food and beverages. However, please note that this is not an exclusive list, and many other products may qualify as eligible products unless they are included in the list of excluded products below.

What types of purchases are NOT tax-exempt during a sales tax holiday?

Purchases of the following are not tax-exempt during the annual Ohio sales tax holiday: (1) watercraft or outboard motors; (2) motor vehicles; (3) alcoholic beverages; (4) tobacco products; (5) vapor products (i.e., vapes); and (6) products containing marijuana.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422. 

*Please note that Christine Townsend is licensed only in Massachusetts.

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Required minimum distributions (RMDs) are payments generally made by year end.  However, under the statutory provisions, individuals who turned 73 in calendar year 2024 are permitted to delay their first RMD until April 1, 2025.  The special rule applies to IRA owners and participants born after December 31, 1950.

The April 1 RMD deadline only applies to the first-year payment obligation. In subsequent years, the distribution must be made by December 31.

Taxpayers receiving their first required distribution for 2024 and 2025 (by April 1) must also take their second RMD required for calendar year 2025 by December 31, 2025.  Both distributions are taxable in calendar year 2025 and are reported on the individual’s 2025 income tax return.  (If a participant who turned 73 in 2024 and received their RMD in 2024, then this special double up rule is not applicable to them but rather they are only required to take the 2025 RMD by December 31, 2025.)

Note, there is a major exception for Roth IRAs that are not subject to the required minimum distribution rules.

The April 1 deadline applies to all traditional IRA owners as well as most employer retirement plan participants.  There is an exception for employer plans who may be able to delay their RMD under the special exception.  The exception applies to those participants that can delay until April 1 after retiring to receive distributions from their employer plan if the plan permits it.  This exception does not apply to 5% business owners or to participants in a SEP or Simple IRA plan.

Public school employees and certain tax-exempt organization staff with pre-1987 403(b) plan accruals should consult their employer, plan administrator, or provider for guidance on handling these accruals.

If you have any questions regarding these very complicated rules, or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422

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Implications of Tax Cuts and Jobs Act (TCJA)

A significant issue surrounding the Tax Cuts and Jobs Act (TCJA) is the expiration of many tax provisions at the end of the calendar year 2025, commonly referred to as the “Sunset.” Much of the financial press has concentrated on the potential impact of the Sunset on the federal estate tax exemption amount. The current federal estate tax exemption is $13.99 million per person for 2025. If the Sunset occurs, this exemption will be reduced to approximately $7 million per person starting in 2026.

Estate & Income Tax Plans for the Future

In addition to estate tax changes, there are a number of income tax changes that will be impacted by the Sunset.  The top individual income tax rate will increase from 37% to 39.6%. Additionally, the $10,000 exemption for the deduction for state and local taxes will expire.

Although it is premature to determine what Congress will do, it is advisable to consider how to address potential estate tax liability through transfers to family members or charities in calendar year 2025. High-net-worth clients who have not yet utilized the existing estate tax exemption should act promptly to utilize the exemption available in 2025, rather than delaying further. If Sunset occurs, clients who do not act may miss the opportunity to transfer significant value under the existing exemption amount.

Regarding income tax planning, consider whether there is a benefit to accelerate income in the calendar year 2025, if possible.

Congressional Uncertainty & Impact on Tax Policy

Of course, all of this depends upon what Congress and the new administration will pursue relating to tax policy in calendar year 2025. In May 2024, the nonpartisan Congressional Budget Office estimated that extending all of the provisions of TCJA adds $4.6 trillion to the deficit over 10 years (2025-2034). Even with Republican control of Congress, the narrow majority may lead some Congressional members to express concerns about the deficit impact of extending all provisions of the TCJA. This situation then leads to “pay for” discussions where tax measures would need to be offset by corresponding tax increases or spending reductions. All of this leads to great uncertainty as to the future of tax planning beyond 2025. Before the change in administrations, the Office of Tax Analysis in the Treasury released its estimates on January 10, 2025, detailing the tax breaks scheduled to Sunset.

Treasury’s first scenario estimated that if all of individual and estate tax provisions to TCJA are extended for an additional ten years, that cost would equate to a $4.2 trillion price tab. The $4.2 trillion estimate would rise to as much as $5.5 trillion depending on which business tax provisions of TCJA are extended.

Review Buy/Sell Agreement

Those persons who have active businesses and buy/sell agreements should review those agreements to confirm that the valuation mechanism reflects the current value of the business. Additionally, they should review the buy/sell arrangement itself. A review of the arrangement has taken a more prominent role in light of the Supreme Court’s decision last year regarding valuation of a business for estate tax purposes when business-owned life insurance was payable to the corporation to effectuate a buy/sell agreement. This type of arrangement is referred to as the “redemption agreement”. The case is Connelly v. United States. In this unanimous decision, the United States Supreme Court held that corporate-owned life insurance on the life of a deceased shareholder, acquired for the purpose of redeeming the deceased shareholder’s stock, increased the value of that stock.

In this particular case, two brothers entered into a buy/sell agreement. The buy/sell agreement was funded with life insurance owned by the corporation. The Internal Revenue Service, in valuing the business, increased the business’ valuation by the amount of life insurance that was payable to the corporation.

There are two approaches for a buy/sell agreement among business owners. The first is the redemption or entity purchase agreement, where the business itself is obligated to purchase the deceased owner’s stock. The alternative is what is referred to as the “cross purchase agreement,” where the obligation to purchase is among the business owners and not the business. In this case, an agreement funded by life insurance will not increase the value of the deceased’s ownership by including the life insurance the value of the business entity when the insurance proceeds are payable to the entity itself.

Update Beneficiary Designations

This is also the appropriate time for reviewing beneficiary designations. This relates to any assets that pass by way of beneficiary designations such as pension plan benefits, IRAs, annuities, and life insurance. Not only is it imperative that there be a primary beneficiary designated in any such account but also do not overlook contingent beneficiary designations as well.

New Rules for “Catch-Up” Contributions

Finally, a new rule in the qualified plan area, a “catch-up contribution.” This new rule permits individuals attaining ages 60-63 in 2025 to make a catch-up contribution of $11,250 to an employer plan, such as a 401(k) plan.

To learn more about tax planning considerations or to seek counsel from our Taxation or Trusts & Estates groups, please reach out to request a consultation or call us at 216-696-1422.

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Facts

Crown C Supply is a closely held corporation owned by two brothers, Michael and Thomas Connelly. Michael owned 77% of the shares, while Thomas owned 23% of the shares. In 2001, the brothers, desiring to maintain control over the corporation in the event either brother died, entered a “redemption” buy-sell arrangement funded with life insurance policies to redeem either owner. The buy-sell agreement granted either brother a right of first refusal in the event the other died, but the failure to exercise this right created an obligation on Crown C Supply to purchase the decedent’s shares. Crown C Supply acquired two life insurance policies, one on the life of each brother to fund the purchase of shares of a deceased shareholder. While the buy-sell agreement provided an appraisal mechanism to value the corporation’s shares at either shareholder’s death, the parties did not follow the terms of the agreement.  Thomas, on behalf of the corporation and also in his capacity as fiduciary of Michael’s estate, agreed on a price of $3 million for Michael’s shares, which was less than the $3.5 million of life insurance proceeds the corporation received.

Michael died in 2013, and under the buy-sell agreement, Thomas declined to exercise his right to buy Michael’s shares, triggering Crown C’s obligation to purchase the shares. The redemption price was to be based on an outside appraisal. Rather than securing the appraisal, Michael’s son and Thomas agreed that the value of Michael’s shares was $3 million. Crown C then used $3 million of the $3.5 million of insurance proceeds to purchase the deceased brother’s shares. Thomas, as executor of Michael’s estate, filed an estate tax return valuing the shares at $3 million.

The IRS challenged the estate’s $3 million valuation of Michael’s shares. The IRS’ position was that the life insurance policies were a corporate asset that increased Crown C Supply’s value prior to the redemption. Connelly’s position was that the buy-sell agreement created an offsetting obligation to purchase the estate’s shares, a net neutral, where the receipt of the life insurance proceeds would be offset by the corresponding obligation. Both the Eastern District of Missouri and 8th Circuit Court of Appeals agreed with the IRS that the life insurance proceeds increased Crown C Supply’s value prior to redemption. The Connellys filed and were granted certiorari by the Supreme Court.

Court’s Decision and Reasoning

The Court framed the issue presented as one of valuation: is life insurance that funds a buy-sell Agreement a corporate asset? Unanimously, the Court said yes. The Court reached this conclusion by reasoning that the redemption was not a liability that reduced corporate value. The Court held that life insurance was a corporate asset since no willing buyer or willing seller would pay a depressed value when Crown C Supply had an influx of cash from life insurance proceeds. Therefore, because the life insurance proceeds were payable to the corporation, the Court held that life insurance proceeds were a corporate asset that increased the corporation value of Crown C Supply.

Consequences of Connelly

It is very common in closely held corporations in order to provide for orderly succession to plan for the death of a shareholder to maintain control within a family or those who are active in the business.  The parties together with the corporation typically enter into a buy/sell agreement to address that contingency with many cases as in Connelly the corporation being obligated to purchase the deceased’s shares through a redemption buy/sell agreement to avoid economic hardship including sale of the businesses or critical operating assets to fund that obligation, life insurance is used as a funding mechanism to address the obligation.

Connelly raises two key issues with life insurance funded by buy/sell agreements: corporations with existing life insurance arrangements, and prospective planning. First, all buy/sell agreements should be reviewed.  Before taking any precipitous action consider if the current agreement is appropriate and if not consider the consequences of the buy/sell agreement.  For example, if businesses transfer life insurance policies, the transfer for value rules may apply to curtail the tax-free receipt of life insurance proceeds. Future arrangements involving life insurance could include a cross-purchase arrangement, or potentially a special purpose life insurance LLC. All these options for existing and future arrangements require intricate planning. Further, while Connelly may seem to have the biggest impact on life insurance funded redemption agreements with individuals who have taxable estates, all closely held businesses with life insurance funded redemption agreements are affected by Connelly.

Consulting with experienced tax and estate planning attorneys will assist you in the development of an effective strategy if life insurance is anticipated to be a funding mechanism in the purchase of a deceased owner’s shares. If you have questions on the implications of Connelly for your business, please reach out to request a consultation with our Wealth Management Team or call us at 216-696-1422.

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During the Holiday, Ohio suspends the collection of sales tax on sales of certain tangible property during the Holiday. Eligible property available for a sales tax exemption under the Holiday includes tangible personal property. The Holiday excludes, however, sales of watercraft motors, vehicles, alcohol, tobacco, vapes, and marijuana. Consumers are exempt from paying both sales and use tax during the Holiday if an item’s price is less than $500. For example, if a consumer purchases multiple items, each item is viewed as to the $500 limit. This means the total sale may be greater than $500, but because each individual item purchased was less than $500, no sales tax should be applied to those respective purchases—even on out-of-state.

All Ohio vendors doing business in Ohio participate in the Holiday. As such, consumers should not pay sales tax during that Week on eligible tangible personal property. Historically, Ohio used the Holiday for “back-to-school” programs. This year Ohio has expanded the Holiday timeline, increased the number of products available, and increased the exempt spending threshold.

While the Holiday is beneficial for consumers, businesses have compliance obligations during the Holiday. Businesses have a reporting obligation to report sales during the Week as exempt for Ohio tax purposes. And businesses may not take action to push items below the $500 threshold. While businesses may honor coupons and provide rebates during the Week, businesses may not push otherwise disqualified sales below the $500 threshold.

While the Week was extended this year, consumers may make exchanges and returns with businesses during the Week. Overall, only transactions occurring within the Week qualify for the Holiday; and transactions outside the Week are still subject to normal sales tax rules.

Consulting with an experienced tax attorney will assist businesses with compliance during the Holiday.

If you have questions related to this year’s sales tax holiday, have questions about tax compliance, or if you would like to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

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The Inflation Reduction Act purports to raise more than $700 billion in revenue, including more than $300 billion from new corporate tax regimes and $25 billion from reinstated Superfund taxes on petroleum products. Certain large U.S. corporations will now be subjected to a 15% tax on “adjusted financial statement income” (different from traditional adjusted taxable income) beginning next year. This new tax on financial statement income is not applicable to S-corporations, RICs or REITs, but rather applies to traditional C corporations with earnings in excess of $1 billion over an applicable 3-year period. Additionally, because of differences in book and tax income computations, it is possible those corporations may lose other deductions they have historically benefitted from in calculating their tax liabilities.

This new tax regime essentially constitutes a rebirth of the corporate alternative minimum tax (“AMT”) on the largest of corporations. In addition to the AMT, the bill also creates a new Internal Revenue Code Chapter 37 and Section 4501, imposing a new excise tax on publicly traded corporations taking shares into treasury. The tax liability under these new laws will equal 1% of the repurchased stock’s fair market value and is not deductible to the corporation paying the tax. The tax is, however, offset by the issuance of new stock in the same tax year, and is subject to certain other exceptions that may reduce or eliminate the tax.

Beyond its stated revenue objectives, the bill also addresses climate change by establishing plans to cut greenhouse gas emissions by 40% from 2005 levels. This constitutes the largest investment in fighting climate change ever promoted in the United States. The bill makes billions of dollars available to boost green energy industries, including incentives to accelerate the domestic production of solar panels and provides other benefits to electric car producers in the United States.

Finally, the Inflation Reduction Act of 2022 will allow for price negotiations of Medicare prescription drugs. Under this bill, pharmaceutical manufacturers will negotiate with the federal government to determine the maximum price for certain prescription drugs and insulin products. Failure of a pharmaceutical manufacturer to participate in these negotiations will force the manufacturer to pay an excise tax rate which will be applied to all sales by the manufacturer, producer, or importer of products. The tax rate will be initially set at 65% and will increase incrementally up to 95% if there is a failure to meet compliance standards. In addition, the bill provides a $2,000 cap on out-of-pocket drug costs for seniors enrolled in Medicare Part D.

If you have any questions about how this bill may impact you, or your business, please contact Kimon Karas or one of our tax and corporate attorneys to discuss by requesting a consultation or giving us a call at 216-696-1422.

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Wills

Wills are legal documents that govern the disposition of one’s property at death. The review of one’s will should include insuring that the named beneficiaries are appropriate. Also, it is important to review whether the executor named in the will is the proper person to administer the estate.

Trusts

If a trust is part of the estate plan, that document should be reviewed to confirm the beneficiaries named in the trust, as well as the designated trustee, is appropriate.

Financial Powers of Attorney

Perhaps the most important document to review is one’s financial power of attorney. This document names the agent to act and make property and financial decisions on one’s behalf while the principal is living. The common form of a financial power of attorney is the durable financial power of attorney. The durable financial power of attorney means that the designated agent continues to have authority to act for and on one’s behalf even if the principal becomes disabled. That is extremely important in these trying times.

Advanced Directives

Advanced directives are documents that designate health care decision makers and choices regarding life sustaining treatment. There are two forms of advance directives in Ohio, the health care power of attorney and the living will declaration. Similar to a financial power of attorney, the health care power of attorney designates an agent to make health care decisions if the principal is unable to do so. Furthermore, in a health care power of attorney the principal may leave specific instructions regarding health care treatment.

The living will declaration is a statement of one’s wishes regarding life sustaining treatment when a principal is in a terminal condition or permanently unconscious state.

It is important to review these documents as well to ensure that the agents named are proper and if special instructions were added to prior documents that those special instructions continue to be relevant.

Beneficiary Designations

Certain assets pass by way of beneficiary designations that permit those assets to be transferred to identified individuals. Examples include retirement plan benefits, IRAs, life insurance, annuities, deferred compensation or other forms of contractual arrangements and similar financial accounts. A review should include determining that the beneficiaries named are appropriate, including naming of contingent beneficiaries.

Conclusion

In these times it is paramount for individuals to review one’s estate planning documents to confirm that the documents are current and reflective of one’s current intentions. If your specific situation or intentions are not captured in your existing documents, changes should be made promptly. If you do not have documents addressing one or more of these important issues the time to act is now.
If you have questions, regarding your existing estate planning documents or whether you should prepare one or more of the identified documents, please call one of the estate planning attorneys at McCarthy Lebit at (216) 696-1422.

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