On April 17, the IRS issued a second round of proposed regulations addressing qualification as a Qualified Opportunity Zone (QOZ) Fund and related issues. This latest guidance addresses several unanswered questions and creates added flexibility, which should expand the ability to form QOZ Funds.

The regulations clarified that a QOZ Fund can be an operating business such as a start-up company operating out of a QOZ.  A tech company can be formed in a QOZ and qualify even if its customers span the world as long as it is principally operated in the zone as determined under certain guidelines in the regulations.  The regulations also clarified that QOZ fund status is maintained even if the space occupied by the fund straddles over into a non-zone as long as the majority of the property is in the zone.

The regulations also made real estate development more viable with a QOZ Fund.  Under prior guidance, the purchase of an existing building in the zone required the fund to make “substantial improvements” to the property.  Substantial improvements required the fund to invest more than the purchase price of the building into improvements to the property, which must be completed within 30 months.  This latest guidance relaxes that rule and provides that the purchase of abandoned, dilapidated or run-down property in the zone that has been vacant or unused for at least five years should not be subject to this substantial improvement requirement.  The rules were also relaxed for purchases of land.

The IRS also clarified that the ownership and operation, including leasing of real property, can be an eligible active trade or business.  However, the IRS indicated that the ownership and leasing of property pursuant to a triple net lease is likely problematic because such activities generally are not considered an active trade or business eligible for QOZ Fund status.  Properly structuring leases and real estate activities will be important to insure qualification as a QOZ Fund.

From the investor’s perspective, a QOZ Fund passing at death raised many issues that were unclear under prior guidance. The IRS addressed these concerns and indicated a transfer at death will not trigger gain inclusion nor will a transfer by the estate to a beneficiary. The IRS also indicated the next generation can step in the shoes of the decedent and get QOZ tax benefits.  Furthermore, the recipient of the QOZ interest can tack the holding period of the decedent, which will make it easier to exclude gain on a sale of the QOZ interest held for at least ten years at the time of sale.  However, the normal step-up in tax basis for property received from a decedent does not apply to eliminate any deferred gain from being taxable.

The regulations allow a taxpayer who has a capital gain to buy an eligible interest in the fund from an existing investor or the fund itself.  The regulations recognize that a partner may contribute property rather than cash to a QOZ Fund.  In that case, the regulations provide that tax-free roll-over of capital gain is generally limited to the tax-basis of the contributed property.  Also, the original legislation allowed the investor to elect to not be subject to tax if they sold their QOZ investment after holding it for 10 years or more.  The latest guidance extends this exclusion to sales by the QOZ Fund of property held for at least 10 years.

The regulations recognized that a sale of QOZ property by the fund itself may cause loss of QOZ Fund status.  In response, the regulations allow the fund to sell QOZ business assets and then reinvest in new QOZ business assets within 12 months and still retain QOZ Fund status.  However, any taxable gain on the sale is still recognized at the time of sale and the partners of the fund will have to pay tax on their share of that taxable gain.  The regulations also give a QOZ fund more time to invest cash contributed by its investors without jeopardizing QOZ fund status.

Finally, distribution of refinancing proceeds may be allowed to be made tax-free up to the partner’s basis for their partnership interest, though there are potential concerns under the regulations that it could be treated as a disguised sale.  As a result, care in structuring debt financed distributions is needed, which may require waiting two years from the capital contribution to the fund.

The bottom line is that the IRS was very responsive in making a QOZ Fund a more viable planning option.  Let us know how we can help your creation of a fund or investment in a fund.

On April 12, 2019, New Jersey enacted the “Aid in Dying for the Terminally Ill Act.”  (P.L. 2019, Ch. 59).  The bill authorizes an adult resident of New Jersey, who has capacity and whose attending physician has determined to be “terminally ill,” to obtain self-administered medication to terminate his or her own life.  The new law will go into effect on August 1, 2019.  It makes New Jersey the eighth state, plus the District of Columbia, to allow for the prescription of medication to end one’s own life.

The capacity required to make such requests is the capacity to make health care decisions and communicate them to a health care provider.  The law requires such patients that are determined to be “terminally ill” to make two oral and one written request to his or her attending physician for medication that can be self-administered to end his or her own life.  The oral requests must be at least 15 days apart, while the written request may be made at any time after the initial oral request.  The written request must be signed by the patient and at least two witnesses, one of whom is not either (a) related to the patient by blood or marriage, (b) entitled to any portion of the patient’s estate, or (c) an owner, operator or employee at the health care facility where the patient is being treated.  Forty-eight hours must elapse after such written request before the attending physician can write the prescription.

Upon receipt of the oral and written requests, the attending physician is required to consult with a second physician who has both examined the patient and reviewed the patient’s medical records. The attending physician must also (a) allow the patient the opportunity to rescind the request, (b) inform the patient of the risks and alternatives to the medication, (c) refer the patient for counseling, if appropriate, and (d) recommend that the patient notify his or her next of kin of the request.  Any rescission by the patient can be made regardless of his or her mental state.

If the attending or consulting physician believes that the patient may not be capable, the physician must refer the patient to a mental health care professional (i.e. psychiatrist, psychologist or licensed clinical social worker) to determine whether the patient is capable.  If such a referral is made, no medication can be prescribed to the patient until the attending physician has been notified in writing from the mental health care professional that the patient is capable.

It is important to note that the patient’s guardian, conservator or health care representative is not authorized to make or rescind the request for such self-administered medication, other than to communicate the patient’s decisions if requested by the patient.  In addition, the law specifically states that such a request by a patient is not grounds, in and of itself, to bring a proceeding for the appointment of a guardian of such patient.

Annuities are a common tool for investment, financial and estate planning and asset protection.  An annuity is simply a contract between a person and an insurance company in which the person makes a lump sum payment to the insurance company in exchange for regular disbursements of money that start either immediately or at some definite time in the future.    At its core, an annuity is really a form of investment or insurance that entitles the investor to a series of annual payments.

Closely related to annuities are life insurance policies.   Like annuities, life insurance policies are contracts of insurance but, unlike annuities, life insurance is specifically intended to pay death benefits to designated beneficiaries.   The policyholder pays premiums to an insurance company which issues a life insurance policy guaranteeing payment of the purchased death benefit to the named beneficiaries once the insured passes away.

Since I have long represented persons and companies with respect to debt collection and judgment enforcement, I have been asked numerous times through the years whether a judgment creditor, i.e., one who has a monetary judgment in her favor against someone, can collect on that judgment from either an annuity or the cash surrender or proceeds of a life insurance policy purchased by the judgment debtor.  The answer, at least in Florida, is a pretty emphatic “no.”

Florida Statutes Sec. 222.13(1) provides:

(1) Whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise. Notwithstanding the foregoing, whenever the insurance, by designation or otherwise, is payable to the insured or to the insured’s estate or to his or her executors, administrators, or assigns, the insurance proceeds shall become a part of the insured’s estate for all purposes and shall be administered by the personal representative of the estate of the insured in accordance with the probate laws of the state in like manner as other assets of the insured’s.

Similarly, Florida Statutes Sec. 222.14 states

The cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor.

The above law is very clear.  Someone holding a judgment that remains outstanding must look to sources other than annuities or the cash surrender or proceeds of life insurance policies—unless the life insurance policy specifically provides otherwise—in order to enforce that judgment.

Since the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, 138 S.Ct. 2080 (2018), this past summer reversing its long-standing “physical presence” nexus test under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), businesses with contacts in New York have not had guidance on New York’s sales tax requirements going forward.

Pre-Wayfair ambiguity existed as to whether New York could enforce the collection of sales tax purely based on “economic nexus” against non-resident businesses despite a statute it already had on its books for 28 years because that statute arguably violated the U.S. Constitution under Quill.  Post-Wayfair, New York has now issued clear guidance that it will start enforcing this existing statute immediately and, based on its reputation of having the most advanced audit programs in the country, New York means business.

As discussed in our prior article analyzing Wayfair, for 25 years Quill had required physical presence by an out-of-state business for a state to impose an obligation to charge and collect sales tax from residents of that state.  In recent decades, pressure began to mount because of perceived unfairness to brick-and-mortar businesses and the proliferation of the online marketplace depriving states of much-needed revenue.  This culminated in several state campaigns to “Kill Quill.”

To challenge the Quill physical presence test in the Supreme Court, South Dakota and other states intentionally passed an “economic nexus” law requiring out-of-state sellers to collect sales tax if they derive revenue over a certain dollar threshold, or conduct a certain number of transactions in the state, without the requirement of having any physical presence in the state.  In South Dakota’s case, it was more than $100,000 of gross revenue derived from the state or more than 200 transactions conducted in the state in the prior or current calendar year.

While some states like New York passed similar laws before the decision in Wayfair, New Jersey did not pass one until after Wayfair was decided.  In fact, New Jersey was the first state post-Wayfair to pass its own statute on November 1, 2018 that exactly mimicked the requirements of the South Dakota statute.  In total, more than half of the U.S. states have now adopted similar economic nexus statutes.

New York enacted an economic nexus statute back in 1990 in Tax Law § 1101(b)(8)(iv) and regulations under NYCRR 20 §526.10(a)(6), requiring a vendor to remit sales tax if it: (a) conducts more than $300,000 of sales of tangible personal property delivered to New York, and (b) conducts more than 100 sales of tangible personal property in the state during the immediately preceding four sales tax quarters.  However, because the Quill constitutional physical presence test conflicted with this economic nexus law, New York sat quietly waiting to enforce it for the past almost 30 years.

Now post-Wayfair, while states like New Jersey passed new economic nexus legislation, practitioners started wondering what will New York do?  Will it enforce its long-standing but dormant economic nexus law, albeit not completely mirroring the thresholds in the South Dakota law expressly blessed by the Supreme Court?  Alternatively, will it, like other states, pass new legislation identical to South Dakota’s?

This week, on January 15, 2019, New York issued Notice N-19-1 and resolved these questions.  The Notice states, “Due to [Wayfair], certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective.”  As a result, it is anticipated that New York will begin to aggressively audit out-of-state businesses, similar to the wide nets cast by Washington and California to pull in substantial revenue from out-of-state sellers.

Note that the economic nexus thresholds supplement the physical nexus requirement that will continue to apply to New York businesses that fall under those thresholds.

It is not clear whether enforcement will be retroactive back to June 21, 2018 (the date of the Wayfair decision), some other date that New York may determine, or only effective as of the date of Notice N-19-1, or January 15, 2019.  There will also be nuances of calculating the amount of receipts and transactions to determine if an out-of-state business falls below or above the thresholds during the 4-quarter look-back period.  For example, is a monthly subscription to the “Book of the Month Club” by a New York resident one transaction or twelve?  The Notice indicated additional guidance will be forthcoming.

What is clear is that any businesses that did not believe they faced sales tax obligations in New York because they did not have physical nexus cannot operate under that illusion anymore.  If an out-of-state business has exposure, it can take preemptive action and seek a limited look-back period and avoid penalties by participating in New York’s voluntary disclosure program.

If you operate a business and are concerned about past or prospective compliance with laws in New York or other states, you should not hesitate to contact a competent tax professional to seek advice on how to best address these issues.


On March 31, 2014, broad changes were made to the New York estate and gift tax laws.  In addition to increasing the New York basic exclusion amount for taxable estates, a New York estate tax “cliff” was introduced that phases out the New York basic exclusion amount for taxable estates between 100% and 105% of the exclusion amount.  As a result, taxable estates that exceed 105% of the New York basic exclusion amount will lose the benefits of the exclusion entirely.

In 2019, the New York basic exclusion for taxable estates is $5,740,000 per person.  In addition, as of January 1, 2019, taxable gifts made within three (3) years of death are no longer included in a New York decedent’s estate for estate tax purposes.  The combination “cliff” and elimination of the three-year look back has created a valuable gifting opportunity available to New Yorkers.

Below is a chart indicating various New York taxable estates, the amount of New York State estate tax due, the amount that would ultimately pass to beneficiaries, the total benefit from gifting, and the generated savings (i.e. the amount that would be saved in taxes that exceeds the amount that would be gifted).

New York State Taxable Estate New York State
Estate Tax
Applicable Credit Total Passing to Bene-ficiaries Without Gifting Amount Gifted Total Passing to Bene-ficiaries With Gifting Total Benefit from Gifting Generated Savings
(Savings From Taxes Less Gift)
$5,740,000 $0 $479,600 $5,740,000 $0 $5,740,000 $0 $0
$5,740,100 $219 $479,393 $5,739,881 $100 $5,740,100 $219 $119
$5,750,000 $25,170 $455,630 $5,724,830 $10,000 $5,750,000 $25,170 $15,170
$5,800,000 $146,746 $340,054 $5,653,254 $60,000 $5,800,000 $146,746 $86,746
$5,850,000 $259,774 $233,026 $5,590,226 $110,000 $5,850,000 $259,774 $149,774
$5,900,000 $356,804 $141,996 $5,543,196 $160,000 $5,900,000 $356,804 $196,804
$5,950,000 $434,397 $70,403 $5,515,603 $210,000 $5,950,000 $434,397 $224,397
$6,000,000 $493,493 $17,307 $5,506,507 $260,000 $6,000,000 $493,493 $233,493
$6,001,960 $495,709 $15,326 $5,506,251 $261,960 $6,001,960 $495,709 $233,749
$6,027,000 $514,040 $0 $5,512,960 $287,000 $6,027,000 $514,040 $227,040
$6,100,000 $522,800 $0 $5,577,200 $360,000 $6,100,000 $522,800 $162,800
$6,150,000 $529,200 $0 $5,620,800 $410,000 $6,150,000 $529,200 $119,200
$6,200,000 $535,600 $0 $5,664,400 $460,000 $6,200,000 $535,600 $75,600
$6,250,000 $542,000 $0 $5,708,000 $510,000 $6,250,000 $542,000 $32,000
$6,286,697 $546,697 $0 $5,740,000 $546,697 $6,286,697 $546,697 $0
$6,300,000 $548,400 $0 $5,751,600 $560,000 $6,300,000 $548,400 $0
$6,400,000 $561,200 $0 $5,838,800 $660,000 $6,400,000 $561,200 $0
$6,500,000 $574,000 $0 $5,926,000 $760,000 $6,500,000 $574,000 $0
$6,600,000 $586,800 $0 $6,013,200 $860,000 $6,600,000 $586,800 $0
$6,700,000 $599,600 $0 $6,100,400 $960,000 $6,700,000 $599,600 $0
$6,800,000 $612,400 $0 $6,187,600 $1,060,000 $6,800,000 $612,400 $0
$6,900,000 $625,200 $0 $6,274,800 $1,160,000 $6,900,000 $625,200 $0
$7,000,000 $638,000 $0 $6,362,000 $1,260,000 $7,000,000 $638,000 $0
$7,500,000 $705,200 $0 $6,794,800 $1,760,000 $7,500,000 $705,200 $0
$8,000,000 $773,200 $0 $7,226,800 $2,260,000 $8,000,000 $773,200 $0
$8,500,000 $844,400 $0 $7,655,600 $2,760,000 $8,500,000 $844,400 $0
$9,000,000 $916,400 $0 $8,083,600 $3,260,000 $9,000,000 $916,400 $0
$9,500,000 $991,600 $0 $8,508,400 $3,760,000 $9,500,000 $991,600 $0
$10,000,000 $1,067,600 $0 $8,932,400 $4,260,000 $10,000,000 $1,067,600 $0

As detailed in the above chart, the beneficiaries of a New York decedent in 2019 with a taxable estate of $5,740,100 would actually receive less in assets than if the decedent died with an estate of $5,740,000. If such decedent had gifted $100 the day before he/she died, his/her beneficiaries would have received an additional $119 in assets.  The total benefit in this case would therefore be $219 (which equals the estate tax that would have been due to New York State on his/her death).  These potential savings increase exponentially as the taxable estate increases.  In fact, a New York decedent in 2019 with a $6,001,960 taxable estate could save $495,709 by gifting $261,960 the day before he/she died.  The result is a realization of $233,749 in generated savings.

Lifetime gifting, as described above, not only permanently removes such gifted assets from the donor’s taxable estate without any loss to the ultimate amount inherited by his/her beneficiaries, but also eliminates the future appreciation on such gifted assets from the donor’s taxable estate.  With the 2019 federal estate exemption of $11,400,000 ($22,800,000 for married couples), many New Yorkers could take advantage of this gifting opportunity.

The gifting described above works best when done with cash or cash equivalents.  Using highly appreciated assets for such gifting may offset any gains achieved from such gifting as a result of the loss of a stepped-up cost basis in such assets on the donor’s death.  Individuals should always consult with a tax professional prior to any lifetime gifting to ensure that such gifting would not result in adverse gift or income tax consequences.

Note: On January 15, 2019, Gov. Andrew Cuomo released his proposed 2019 Executive Budget which would revise the New York Tax Law to reinstate the three-year look back for taxable gifts made within three (3) years of death in a New York decedent’s estate for estate tax purposes for gifts made before December 31, 2025.