2 WITNESS RULE FOR LEASES [FLORIDA]

In a recent Florida case, a landlord and tenant entered into a 10 year lease. Each signed the lease, but no witnesses signed. The landlord sought to void the lease because the signatures of the parties were not witnessed by two witnesses.

Fla.Stats. §689.01 reads in part "How real estate conveyed.--No estate or interest of freehold, or for a term of more than 1 year, or any uncertain interest of, in or out of any messuages, lands, tenements or hereditaments shall be created, made, granted, transferred or released in any other manner than by instrument in writing, signed in the presence of two subscribing witnesses by the party creating, making, granting, conveying, transferring or releasing such estate, interest, or term of more than 1 year, or by the party's lawfully authorized agent, unless by will and testament, or other testamentary appointment, duly made according to law; and no estate or interest, either of freehold, or of term of more than 1 year, or any uncertain interest of, in, to, or out of any messuages, lands, tenements or hereditaments, shall be assigned or surrendered unless it be by instrument signed in the presence of two subscribing witnesses by the party so assigning or surrendering, or by the party's lawfully authorized agent, or by the act and operation of law."

At first reading, there is no mention of a lease in the statute. However, since a lease is considered a transfer of an interest in land, the statute applies and leases for more than 1 year require two signatures.

The case does not make new law on this issue, but since it is a nonobvious issue, it bears mentioning, especially for those that don't practice regularly in the real estate area.

The case also held that the 2 witness requirement was not overridden by Fla.Stats. §608.4235, which authorizes a transfer of an interest in real property by a limited liability company on the signature of any member and makes no mention of required witnesses.

Skylake Insurance Agency, Inc. v. NMB Plaza, LLC, 3rd DCA, Case No. 3D07-454, October 28, 2009

LEGISLATION FINALLY PASSED TO AVOID REPEAL OF ESTATE TAXES

Since the early days of George Bush, Jr.’s administration, 2010 has been out there as the year in which there will be no federal estate tax. Also since that time, we have been predicting for our clients that this would never come to pass, and that sometime before then the repeal would be repealed, and higher unified credit and lower maximum tax rates would be made permanent.

Politics being what they are, what Congress had 8 years to deal with is now on the front burner, with only a few weeks left in 2009 to take action. Of course, Congress could act sometime in 2010 on a retroactive basis to the change the law, but many in Congress are adverse to retroactive tax legislation on major issues.

For the first time, legislation has cleared at least one house of Congress to repeal the repeal. Last Friday, the House of Representatives passed a bill that would repeal the repeal of estate taxes in 2010, make permanent the $3.5 million unified credit applicable in 2009, and also make permanent the 2009 maximum federal estate tax rate of 45%. The legislation would also repeal the one year of carryover basis that is presently in the law for 2010.

The Senate has not yet passed a corresponding bill. Issues likely to arise in the Senate include the amount of the unified credit equivalent, whether to index that credit for inflation, the maximum tax rate, bringing the gift tax unified credit back in line with the estate tax unified credit, and portability of the unified credit between spouses.

Whether any bill will clear both houses of Congress before year end is anyone’s guess.

IRS REFUSES TO GIVE UP ON OVERSTATED BASIS STATUTE OF LIMITATIONS ISSUES

We have previously reviewed two cases that have held that a reduction in gain arising from an erroneous overstated tax basis in an asset is NOT an omission from gross income that can give rise to an extended six year statute of limitations for gross income omissions of 25% or more. Salman Ranch Ltd. et al. v. U.S., 104 AFTR 2d ¶ 2009-5190 (CA FC 7/30/2009); Bakersfield Energy Partners, LP, Robert Shore, Steven Fisher, Gregory Miles and Scott McMillan, Partners other than the Tax Matters Partner, 128 TC No. 17 (2007). Nonetheless, the IRS has refused to be cowed by these decisions.

In September, the IRS issued new Temporary Regulations that will treat such basis overstatements as omissions from gross income for this purpose (Reg. § 301.6501(e)-1T(a)(1) ,  Reg. § 1.6229(c)(2)-1T(a)(1) ,  T.D. 9466, 09/24/2009).  The IRS has further signaled its enthusiasm for this issue by issuing a directive to IRS attorneys litigating these issues to contact the Office of Associate Chief Counsel (Procedure and Administration) to coordinate responses to the issue in light of the new Temporary Regulations.

Apparently, the IRS intends to pursue these issues, even in jurisdictions with court decisions hostile to the IRS’ position. The Temporary Regulations were crafted to take advantage of language in cases that had previously ruled in favor of the IRS on the issue. Whether the adoption of Temporary Regulations will now convince courts in those jurisdictions that were previously hostile to the IRS’ position remains to be seen.

Chief Counsel Notice 2010-001