Freeman Law | TaxConnections

23 Feb 2021

How Will States Deal With Budgetary Issues?

As we begin a new year, new issues arise for states. As states are dealing with budgets for the year, spending has increased and tax revenue have decreased. The COVID-19 pandemic has changed our lives, the way we work, shop and interact with others.

A few states are seeing their residents, like California, New York and New Jersey, all high tax jurisdictions, moving to and becoming permeant residents of Florida, Texas, and Nevada, all states with low taxes or no state tax on companies or individuals.

How will states deal with these budgetary issues? Decrease spending? Increase tax rates? Expand the tax base? Tax out-of-state companies and Individuals? Increase tax credits and incentives, to attract investment? My guess, all the above, except for decreases to spending.

Written by George Rendziperis, J.D. | Posted in Freeman Law • State Budgets

17 Feb 2021

State And Local Tax: Controlling Interest Transfer Tax

Do you own an entity that holds real estate? Are you thinking about selling real estate? Are you considering selling the real estate asset or selling the entity that owns the real estate?

Generally, a real estate transfer tax is imposed on documents that convey an interest in real estate from one person to another person. The transfer tax, generally, is imposed on the recordation of a deed and is based on the consideration paid or the fair market value of the property (the “Real Estate Transfer Tax”).

Taxpayers utilized loopholes to avoid paying the Real Estate Transfer Tax, by selling the entity that owns the real estate instead of selling the real estate itself. Approximately 17 states have closed such loopholes.

Written by George Rendziperis, J.D. | Posted in Freeman Law • State And Local Tax

16 Feb 2021

So You Made Money On GameStop, Now What? A Primer On Capital Gains

The GameStop stock saga will undoubtedly go down in history as one of the most mystifying market events Wall Street has ever seen. Indeed, the markets have seen a massive influx of new retail investors into the space. But many of these investors have not previously participated in the market.[1] As noted by CNBC:

There were 3.7 million downloads of Robinhood in January, according to app market intelligence firm SensorTower, even with the millennial-favored stock trading app’s unpopular decision to put trading restrictions on a handful of stocks during GameStop’s climb. After the GameStop drama in February, downloads are still tracking strongly with 1.8 million month-to-date.[2]

Written by Ryan Dean | Posted in Capital Gains • Freeman Law • Texas

16 Feb 2021

Recent Tax Court Decision: Economic Substance And The Step Transaction Doctrine

A recent Tax Court case illustrates the reach of the economic substance doctrine and the step transaction doctrine. For the benefit of our readers, we have briefed the case below:

Complex Media, Inc. v. Comm’r, T.C. Memo. 2021-14 | February 10, 2021 | Halpern, J. | Dkt. Nos. 13368-15 and 19898-17

Opinion

Short Summary: Taxpayer-corporation (Corp.) acquired the assets of a business from a third-party partnership (P’ship). In exchange for the transferred assets, Corp. issued approximately 5 million shares of common stock. Immediately thereafter, Corp. redeemed 1.875 million of the common shares held by P’ship in exchange for $2.7 million in cash and Corp’s obligation to make an additional payment of $300,000 a year later. P’ship paid the cash and assigned its right to the additional payment to one of its partners in redemption of that partner’s interest in P’ship. Corp. claimed an increased basis of $3 million in intangible assets it acquired from P’ship and amortized that additional basis under I.R.C. § 197(a). The IRS disallowed the deductions under I.R.C. § 197(a).

Written by Matthew Roberts | Posted in Freeman Law • IRC Section 197 • IRC Section 351 • Step Transaction Doctrine • Texas

12 Feb 2021

Why State And Local Tax Due Diligence Is Important

Why is State and Local Tax (SALT) due diligence important in mergers and acquisitions? Someone else’s issues may be your headache and cost you a lot of money!

What is due diligence? Due diligence is the process of identifying and analyzing the risk associated with acquiring a business or selling a business. Tax risk, particularly state and local tax, is a key part of that analysis.

There are many different types of taxes that businesses should take into consideration when doing due diligence, such as property taxes; sales and use taxes; gross receipts taxes; income taxes; and franchise taxes. Each of these tax types have unique rules and implications, and state and local jurisdictions apply those taxes in different ways. It can get complex quickly based on where a company is doing business.

Written by George Rendziperis, J.D. | Posted in Freeman Law • State And Local Tax Due Diligence • Texas

11 Feb 2021

SALT ALERT: Apportionment Rules Change

Texas has updated its rules regarding the sourcing of revenue for apportionment purposes. The Comptroller has indicated that the change in the rules reflects statutory changes, court decisions, current guidance, update definitions and improve readability.

The amendments bring both favorable and adverse changes for taxpayers subject to the Texas Margins Tax, with changes to the sourcing provisions for receipts from services, including advertising services, transportation services and internet hosting, and receipts from sales of computer hardware and digital products, capital assets and investments, interests in single-member limited liability companies (SMLLCs) and sales of securities through an exchange.

Services

Written by George Rendziperis, J.D. | Posted in Apportionment Rules Change • SALT (State And Local Tax)

10 Feb 2021

Substitute Return Penalties Are Valid – Llanos v. Commissioner

Comedian Jerry Seinfeld one said, “The IRS! They’re like the Mafia, they can take anything they want!” It’s a sentiment probably shared by most U.S. citizens—much to the chagrin of taxpayers. As many now, the Internal Revenue Service is not limited in simply administering the Internal Revenue Code or collecting taxes from individuals. The Service’s power reaches farther than that. Its power also includes filing substitute tax returns on behalf of taxpayers—a veritable correction called upon when a voluntary tax system is not so voluntary. Additionally, the IRS also has the power to assess additions to tax and penalties in various circumstances. As the Ninth Circuit recently affirmed, the IRS has the power to assess such additions to tax and penalties on substitute tax returns it files on behalf of taxpayers.

Section 6651 Penalties, Generally

Generally, the Internal Revenue Service may assess certain additions to tax for failure to file tax returns or failure to pay taxes. Section 6651 prescribes the various situations and penalty amounts that is may assess as follows:

Written by Zachary Montgomery | Posted in Freeman Law • Substitute Tax Return Penalties • Texas

09 Feb 2021

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

The Tax Court’s recent decision in Sells shows that the IRS is continuing to aggressively pursue conservation easement deductions where it believes the transaction is overly aggressive. However, the case also demonstrates potential defenses against proposed penalties.

Sells v. Comm’r, T.C. Memo. 2021-12, January 28, 2021 | Holmes, J. | Dkt. Nos. 6267-12, 6801-12, 6835-12, 6836-12, 6837-12, 6838-12, 19246-12, 13553-13

Opinion

Short Summary: In August 2002, Burnish Bush Farms, LLC was formed with eight members—each a 12.5% owner. Later, Mr. and Mrs. Moses sold mountainous land to Burnish Bush for $1.4 million. In 2003, Burnish Bush deeded a conservation easement on the acres that it owned to Chattoawah Open Land Trust, Inc. The conservation deed contained various provisions, including an extinguishment-proceeds clause.

Written by Jason Freeman | Posted in Conservation Easement • Freeman Law • Texas

05 Feb 2021

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

Sells v. Comm’r, T.C. Memo. 2021-12, January 28, 2021 | Holmes, J. | Dkt. Nos. 6267-12, 6801-12, 6835-12, 6836-12, 6837-12, 6838-12, 19246-12, 13553-13

Opinion

Burnish Bush filed a Form 1065, U.S. Return of Partnership Income. Attached to the Form 1065 was Form 8283, Noncash Charitable Contributions. On page 2 of this form Burnish Bush reported the donation of the conservation easement to COLT as a noncash charitable contribution with a value of less than $5.4 million. Burnish Bush attached a “qualified appraisal” to the return. The IRS audited the return, disallowed the charitable contribution, and proposed penalties.

Written by Jason Freeman | Posted in Conservation Easement Decision

04 Feb 2021

Tax Treaties: United States And Germany

Quick Summary. Located in Central Europe, Germany has the largest economy of all European nations. Germany is a federal parliamentary republic with legislative power exercised by the Bundestag and Bundesrat. It government is founded in its 1949 constitution, the Grundgesetz. Germany is comprised of 16 provinces with a capital at Berlin.

Effective July 1, 2020, Germany has implemented information exchange provisions pursuant to the EU-Directive (DAC 6 – (EU) 2018/822) for mandatory automatic exchange of information related to cross-border arrangements. Germany has introduced legislation to adopt in German law EU Anti-Tax Avoidance Directive (EU-ATAD – (EU) 2016/1164 and ATAD II – (EU) 2017/952), a measure that introduced controlled foreign corporation (CFC) rules and hybrid mismatch rules.

Written by Jason Freeman | Posted in Tax Treaties: United States And Germany

03 Feb 2021

COVID-19 Relief? Think Again! – Corporate Charitable Contributions For Disaster Relief

Since the COVID-19 pandemic hit the United States in early 2020, relief efforts have taken many forms—personal services, legislative efforts, volunteer hours, and even charitable contributions. Yes, when both people and corporations were in the midst of struggles, individuals and companies still made contributions throughout society. Although one hopes charitable contributions are not made for the primary reason of obtaining tax deductions, it is an added benefit that both individual and corporate taxpayers can enjoy under the Internal Revenue Code. That tax benefit was recently enhanced by federal legislation in December 2020 for corporate taxpayers. However, is the “enhancement” as helpful or sweeping as it seems?

Corporate Charitable Contributions, Generally

Generally, corporations cannot deduct charitable contributions that exceed 10 percent of their taxable income for a given tax year. Section 170 of the Internal Revenue Code provides, in part, the following: “The total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B) or (C) applies) shall not exceed 10 percent of the taxpayer’s taxable income.”[1]

For purposes of Section 170(b), “taxable income” is computed without regard to the following:

Written by Zachary Montgomery | Posted in Corporate Charitable Contributions • Disaster Relief • Freeman Law

03 Feb 2021

How To Successfully Request IRS Penalty Relief

Federal tax penalties have always been an IRS priority. But, perhaps more so today than three decades ago. For example, in 1987, the IRS reported that it had assessed penalties of approximately $14 billion. Compare that figure with fiscal year 2019—a year in which the IRS assessed over $40 billion in penalties. The number of penalty assessments (and corresponding government revenue) against taxpayers is only expected to grow in the near future.

IRS priority alone, however, has not been the sole cause of the staggering rise in penalties. Indeed, congressional action has only buttressed this phenomenon. In 1955, the Internal Revenue Code (the “Code”) housed approximately 14 penalties. Today, the number of penalties hovers closer to 150. Put simply, the IRS has an arsenal of various statutory provisions to use and penalize unwanted taxpayer conduct, from the late filing of a return or information return to the late payment of tax or even the negligent filing of a return.

Written by Matthew Roberts | Posted in Freeman Law • Request IRS Relief • Texas