I’m not here to provide color or commentary on much of the debate; after all, I have no idea whether Hillary Clinton can fix Obamacare, or whether Donald Trump’s policy of “sneak attacks” is enough to overcome ISIS, or whether either party has a clue on how to handle immigration.

But I know tax law. And for that reason, I felt compelled to correct one very important — and very LOUD — assertion Republican candidate Trump made during last night’s debate about Democratic candidate Hillary Clinton’s tax proposal.

Continue reading on Forbes.com.


Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

Hey, have you heard about Donald Trump? You know, the guy who is accused of not paying his creditors, repeatedly making racist and sexist comments, and stealing Christmas from 1981 to 1985? On, and who also happens to be one of the last two applicants for the most important job in the world? Well, someone released three pages of one of Trump’s tax returns from 20 years ago, a violation of privacy which aside from angering Trump, had the unexpected effect of transforming the overwhelming majority of Americans into experts on the tax law.

Continue reading on Forbes.com.


Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

If you’ve worked in the tax preparation world for any measure of time, you’ve assuredly run into the following conundrum:

My client is a member in an LLC. Is his/her share of the LLC’s income subject to self-employment income?

At that point, you went one of two directions:

  1. Opened up your tax research software/hard copy Code/Google machine, or
  2. Said “screw it, I’ll exclude it,” and went on with your life. (Ed note: this is the option you took).

Continue reading on Forbes.com.


Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

But while it may not drive ratings, tax policy deserves its time in the spotlight this evening. Through an unfortunate turn of events, however, I will not be able to moderate tonight’s debate, with that unfortunate turn of events being that no one has asked me to moderate the debate. But if they had, you could be damn sure that aside from being the most disapproving, condescending moderator since the principal in Billy Madison, I’d get to the bottom of these ten tax questions that must be answered.

Continue reading on Forbes.com.


Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

On Friday, July 31, 2015, President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”), which extended funding to the Highway Trust Fund (“HTF”) for an additional three months.
This Act contains several important tax provisions, including modified due dates for several common tax returns, overruling of the Supreme Court’s Home Concrete decision, required additional information on mortgage information statements, and required consistent basis reporting between estates and beneficiaries.
Tax Return Due Date Modifications

The Act sets new due dates for partnership and C corporation returns, as well as FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), and several other IRS information returns.

Partnership Returns

The new due date is March 15 (for calendar-year partnerships) and the 15th day of the third month following the close of the fiscal year (for fiscal-year partnerships). Currently, these returns are due on April 15 for calendar-year partnerships. The Act directs the IRS to allow a maximum extension of six months for Forms 1065, U.S. Return of Partnership Income.

C Corporations

The new due date is the 15th day of the fourth month following the close of the corporation’s year. Currently, these returns are due on the 15th day of the third month following the close of the corporation’s year.

Corporations will be allowed a six-month extension, except that calendar-year corporations would get a five-month extension until 2026 and corporations with a June 30 year end would get a seven-month extension until 2026.

The new due dates will apply to returns for tax years beginning after December 31, 2015. However, for C corporations with fiscal years ending on June 30, the new due dates will not apply until tax years beginning after December 31, 2025.

Other Forms Affected

The new Act directs the IRS to modify its regulations to allow the following maximum extensions:

5 and 1/2 months on Form 1041, U.S. Income Tax Return for Estates and Trusts;
3 and 1/2 months on Form 5500, Annual Return/Report of Employee Benefit Plan;
6 months on Form 990, Return of Organization Exempt From Income Tax, Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, Form 5227, Split-Interest Trust Information Return, Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction, Form 8870, Information Return for Transfers Associated With Certain Personal Benefit Contracts, and Form 3520-A, Annual Information Return of a Foreign Trust With a U.S. Owner.
The due date for Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, will be April 15 for calendar-year filers, with a maximum six-month extension.

FinCEN 114 (former FBAR)

The due date for FinCEN Form 114 is changed from June 30 to April 15, and for the first time taxpayers will be allowed a six-month extension to October 15.

Additional Information on Mortgage Interest Related Returns

The Act amends Sec. 6050H to require new information on the mortgage information statements that are required to be sent to individuals who pay more than $600 in mortgage interest in a year. These statements will now be required to report the outstanding principal on the mortgage at the beginning of the calendar year, the address of the property securing the mortgage, and the mortgage origination date. This change applies to returns and statements due after December 31, 2016.

Changes Related to Basis Reporting Between Estate and Beneficiaries

The Act amends Sec. 1014 to mandate that anyone inheriting property from a decedent cannot treat the property as having a higher basis than the basis reported by the estate for estate tax purposes. It also creates a new Sec. 6035, which requires executors of estates that are required to file an estate tax return to furnish information returns to the IRS and payee statements to any person acquiring an interest in property from the estate. These statements will identify the value of each interest in property acquired from the estate as reported on the estate tax return. The new basis reporting provisions apply to property with respect to which an estate tax return is filed after the date of enactment.

The Home Concrete Case is Overruled

In Home Concrete & Supply, LLC, 132 S. Ct. 1836 (2012), the Supreme Court held that the extended six-year statute of limitation under Sec. 6501(e)(1)(A), which applies when a taxpayer “omits from gross income an amount properly includible” in excess of 25% of gross income, does not apply when a taxpayer overstates its basis in property it has sold.

In response to this decision, the Act amends Sec. 6501(e)(1)(B) to add this language: “An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” The change applies to returns filed after the date of enactment as well as previously filed returns that are still open under Sec. 6501 (determined without regard to the amendments made by the Act).

If you have any questions, please contact your WithumSmith+Brown professional, a member of WS+B’s National Tax Services Group or email us at taxbriefs@withum.com.

Snapshot of NBCUniversal Settlement

This past month NBCUniversal, which is a unit of Comcast Corp, settled $6.4 million dollar class-action lawsuit with a number of unpaid interns who had worked on Saturday Night Live.  Specifically, the allegation was that NBCUniversal violated labor laws by misclassifying the plaintiffs as “non-employee interns” rather than “employees”, thus denying benefits such as minimum wage, overtime pay, social security contributions, and unemployment insurance.

The settlement still must be approved by a judge, but of the settlement amount: $1.18 million would go to the plaintiffs’ attorneys; $10,000 would go to lead plaintiff Monet Eliastam as a service payment; five other plaintiffs would receive service payments; and the remaining interns would receive an average settlement payment of $505.

Fair Labor Standards Act

Pursuant to the Fair Labor Standards Act (“FLSA”), internships in the for-profit private sector will most often be viewed as employment, unless certain requirements related to “trainees” are met.  The distinction is that interns in the for-profit private sector who qualify as “employees” typically must be paid at least minimum wage and provided overtime compensation, whereas qualifying internships or training programs may be offered without compensation.

The determination of whether an internship or training program meets this compensation exclusion depends upon all of the facts and circumstances of each such program, but the following six criteria must be applied when making this determination:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern. 

Recent Trend in Litigation

There has been a recent trend in this type of litigation.  Last June a New York Federal Court held that unpaid interns of Fox Searchlight Pictures Inc. were “employees” pursuant to the FLSA.  The court reasoned that the functionality of NBCUniversal’s internship program was not that of a unique education to the intern.  Instead it was the employer who received the immediate benefit of the interns’ work, while the interns’ experience mirrored that of any other employee of the company (simply providing them knowledge of how a production office functions).

Additionally, a number of similar class-action suits have been brought against other large companies such as Atlantic Recording, Bad Boy Entertainment, Condé Nast Publications, Donna Karan, Fox Entertainment Group, Gawker Media, Sony, Universal Music Group, Viacom, and Warner Music Group.

What the Future Holds

The ultimate result could be these larger companies having to weigh the costs of: (a) creating policies, supervising, and operating an appropriately qualified internship program where pay is not required; versus (b) simply classifying interns as employees and paying them at least minimum wage.

However, with certain companies already believing in compensating interns and looking at them as potential future assets, those employers who have been taking advantage of free labor may be forced to compete fairly if they want to attract young talent.

If the threat of litigation and a cracking down in FLSA compliance results in paid internships becoming the norm rather than optional, why would interns seek out positions where the only benefit they receive is on-the-job training and exposure to a certain industry?  Many companies have exploited interns for free labor, while said interns, craving experience and resume firepower, have had to endure paying expenses such as commuting, local housing, meals, or course credit out of their own pockets.  The bottom line is that interns deserve to be adequately compensated for the work that they perform, and it appears that enforcing this notion just might come to fruition.

Authored by CJ Stroh

The IRS recently took a shot across the bow of limited partners of investment management companies with respect to the application of self-employment tax (or, SE tax, for short).  In fact, the ruling could potentially affect limited partners (including LLC / LLP partners) in every industry.  While this tax issue has been fought on several levels over the past 20 or more years, it had gone dormant since 1997.  Now, an IRS Chief Counsel Advice (ILM 201436049 (05/20/2014)), released on September 5, 2014, (the “ILM”) demonstrates that the IRS may be ready to renew the fight.

Currently, limited partners of limited partnerships and shareholders of Subchapter S corporations routinely take the position that their distributive shares of entity profits are exempt from SE tax.  The uncapped Medicare hospital insurance portion of the SE tax for high income taxpayers is now 3.8%, thanks to a 0.9% increase brought in at the close of 2012 to match up with the new Net Investment Income tax.  In the S corporation world this tax exemption is tempered by a requirement to pay reasonable compensation to S corporation shareholders (the compensation, unlike stock distributions, is subject to SE tax). In the world of limited partnerships the SE tax exemption does not extend to guaranteed payments for services which, for partners, are akin to salary.

The ILM deals with a fairly large investment management company (likely in New York City based on its structure), which acts as an investment manager for a family of funds (each treated as a separate limited partnership).  The IRS did not attack the allocations to the GP which held the profits interest in each underlying fund.  The Service was interested in only the management company and its treatment of the management fee income.  The management company in the ILM was structured as a limited liability company or LLC which was treated as a partnership for tax purposes.  It was stated that the LLC was a successor to a previous management company that was organized as an S corporation (this fact was not material to the analysis but did help explain why the management company was taking the tax positions it was). Each partner in the management company received a salary (erroneously reported on a Form W-2) and guaranteed payments, both of which were subject to SE tax.  In addition, each partner received allocations of partnership profits which were not subject to SE tax.  Some of the partners were investment managers but others were legal, human resources, information technology services and other infrastructure personnel.  

The IRS pointed out that Section 1402(a)(13), which exempts limited partners from SE tax, was enacted in 1977 prior to the proliferation of LLCs.  It also cited case precedent indicating that LLC members were not limited partners and were not entitled to the benefits of Section 1402(a)(13).  However, the Service went much further and pointed to the legislative history of the statute to advocate that the statute was not intended to shield limited partners from SE tax to the extent they were providing services to the partnership.  Rather, the Service claims, the statute was merely intended to exempt passive investors from SE tax.  The ILM also cites extensively to Renkemeyer vs Commissioner, 136 T.C. 137 (2011), in which the Tax Court unsurprisingly found that partners in a law firm formed as a limited liability partnership were subject to SE tax on their earnings.  The Tax Court also utilized broad language and cited to the intent of the statute and its related legislative history.  The ILM ultimately found that every partner of the management company was subject to SE tax on their allocations of earnings because the “Partners’ earnings are not in the nature of a return on a capital investment … [but rather]… are a direct result of the services rendered on behalf of Management Company by its Partners.”


This fight over SE tax related to limited partners and LLC members began in the early 1990s.  In 1994, Treasury issued proposed regulations that would have exempted LLC members from SE tax but only if the member lacked authority to make management decisions necessary to conduct the business of the LLC.  In January of 1997, Treasury withdrew the regulations and re-proposed new regulations.  The 1997 regulations would treat individuals as limited partners and able to take advantage of the SE tax exclusion unless the individual (i) had personal liability for the debts of the partnership, (ii) had authority to contract on behalf of the partnership, or (iii) participated in the activities of the partnership for more than 500 hours during the taxable year.  Importantly, the 1997 proposed regulations were not limited to LLC members.  Rather, it would have changed the SE tax situation for all partnerships.

Shortly after the 1997 proposal, Steve Forbes called the proposed regulations, “a major tax increase by a stealth regulatory decree.”  Others soon joined in a national campaign to kill the regulatory proposal including the then Speaker of the House, Newt Gingrich and radio talk-show host, Rush Limbaugh.  In June 1997, the Senate passed a nonbinding resolution declaring the proposed regulations outside the scope of Treasury’s authority, urging Treasury and the IRS to withdraw the proposal.  Congress ultimately imposed a 12-month moratorium on Treasury’s authority to issue guidance regarding the definition of “limited partner” for purposes of Section 1402(a)(13).  Since that time Treasury and the IRS have remained silent on the issue.

Fourteen years later, the Renkemeyer decision threatened to open the debate again but since the IRS agreed with the decision and such decision was limited to LLC members within a very specific (and egregious) fact pattern, the argument remained dormant.  Now, seventeen years after Congress thrashed the IRS for overstepping its bounds with regards to limited partners they are at it again.  

In June 2014, Curtis Wilson, IRS associate chief counsel (passthroughs and special industries), said that the IRS had been thinking about the extent to which individuals who are limited partners under state law might be prohibited from relying on the SE tax exemption.  Additionally, in the 2014-2015 joint Treasury-IRS priority guidance plan released August 26, 2014, the agencies announced they would tackle guidance on the application of Section 1402(a)(13) to limited liability companies.   

The ILM is a clear indication that the Service has decided to go back on the attack against limited partner / LLC member utilization of the Section 1402(a)(13) exemption from SE tax.  This may be another act of regulatory fiat that Congress will once again quash, as in 1997, but let the taxpayer beware.  The IRS is of the opinion that active LPs should pay SE tax on their full allocation of management fee income.  Management companies may be better off as S corporations which have a different statutory genesis for their SE tax exemption.  But, of course, this begs the question.  Why should different forms of passthrough entities receive different SE tax results?  Stay tuned on this issue.

Authored by Anthony J. Tuths, JD, LLM, Partner