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Posts Tagged ‘tax’

Donald Trump was elected the 45th President of the United States last night, and while I allow that to sink in for a bit, it’s also worth nothing that Republicans retained control over the House and Senate. As a result, the GOP has unfettered control over the future of tax policy, meaning we may be in for some big changes. What can you expect?

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

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I’ve got a confession to make. While I love to sell myself as a connoisseur of all things tax law, the truth is, I can’t stand dealing with state taxes. I’ve spent my entire career avoiding it at all costs. I find all the nexus and credits and allocation versus apportionment to be incomprehensible and largely annoying.

But I’ve got another confession to make. When a state tax court case contains the terms Larry Flynt, Hustler Club, and Beaver Bucks; well, it’s enough to make me drop whatever I’m doing on a Saturday night (read: nothing) and get writin’. So here goes…

Yesterday, the New York Supreme Court ruled that the state’s 4% “Amusement Tax” — which serves as a sales tax on strip club “purchases” among many other things, is not unconstitutional. Clearly, we’re going to need some background here. First, the facts.

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

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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.

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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.

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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.

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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.

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There are two basic types of business combinations – taxable and nontaxable.

Taxable Business Combinations (Asset Purchase):

In a taxable business combination, new tax bases for acquired assets and assumed liabilities are generally determined on the basis of the fair market value. The acquirer “steps up” the acquiree’s historical tax bases in the assets acquired and liabilities assumed to fair market value.  Under the U.S. federal income tax law (IRC Section 338), certain stock purchases can be treated as taxable business combinations if an election to treat the stock purchase as a taxable asset purchase is filed.

Both the seller and purchaser of a group of assets that makes up a trade or business generally must use Form 8594 to report the transaction and both must attach the form to their respective income tax returns.  The taxpayers are not required to file Form 8594 when a group of assets that makes up a trade or business is exchanged for like-kind property in a transaction to which section 1031 applies and when a partnership interest is transferred. For stock purchases treated as asset purchases under Sections 338(g) or 338(h)(10), the purchaser and seller must first file Form 8023, to make the 338 election.  Form 8883 is then filed by both the purchaser and the target to supply information relevant to the election.

There is no legal requirement that the target and acquiring company take consistent positions on their respective tax returns, and therefore each could in principle take a different position favorable to itself.  However, if they do so, the IRS is likely to discover this fact and protect itself by challenging the positions taken by both parties.  To avoid this result, acquisition agreements almost always provide that the parties will attempt to agree on an allocation of price among the assets within a relatively short time after the closing of the transaction. 

Non-Taxable Business Combinations (Stock Purchase):

In a nontaxable business combination, the acquirer assumes the historical tax basis of the acquired assets and assumed liabilities. In this case, the acquirer retains the “historic” or “carryover” tax bases in the acquiree’s assets and liabilities. Generally, stock acquisitions are treated as nontaxable business combinations (unless a Section 338 election is made). Nontaxable business combinations generally result in significantly more temporary differences than do taxable business combinations because of the carryover of the tax bases of the assets acquired and liabilities assumed. To substantiate the relevant tax bases of the acquired assets and assumed liabilities, the acquirer should review the acquired entity’s tax filings and related books and records. This information should be evaluated within the acquisition’s measurement period.

The non-taxable corporate reorganization Internal Revenue Code provisions are concerned with the form, rather than the substance, of the transaction.  Therefore, it is important to document that the correct procedures have been followed.  Regulation Section 1.368-3 sets forth which records are to be kept and which information needs to be filed with tax returns for the year that such a transaction is completed.  Each corporate party to a non-taxable reorganization must file a statement with its tax return for the year in which the reorganization occurred that contains the names and EINs of all parties, the date of the reorganization, the FMV of the assets and stock transferred, and the information concerning any related private letter rulings.  All parties must also maintain permanent records to substantiate the transaction.  While there are no statutory penalties for failure to comply with the reporting requirements, the IRS has argued that failure to comply with the requirements could indicate that a transaction was a sale and not a non-taxable reorganization.

Authored by Robert Cutolo

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