Indeed, the accountants in Overland Park and across the nation are just starting to do the math, after the IRS staked out its position in a new “technical advice memorandum” (see TAM 201317010). Forbes has weighed in on the consequences of this new TAM in an article titled “Tough IRS Position Means More Trusts Will Get Hit With New ObamaCare 3.8% Tax.”
Cutting to the chase, the new 3.8% ObamaCare surtax hits investment income, and trusts that own interests in pass-through entities are construed as "passively active" (a bitter oxymoron in accounting-speak) and thereby produce investment income to tax.
To make matters worse, such trusts see the tax kick in at a much lower income rate than for individual taxpayers. And, to further complicate things, such trusts are not often designed to be “active” entities, and a complex plan might involve various trusts with various holding interests in companies, and might be targeted at various levels. As you can see, things can get complicated really fast.
Like most matters on the tax (and political) front, it remains to be seen how the year and the tax battle will be played out. Nevertheless, you should keep an eye on Washington, D.C., and a hand on your wallet.
Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.
Reference: Forbes (April 29, 2013) “Tough IRS Position Means More Trusts Will Get Hit With New ObamaCare 3.8% Tax”