Volumes

RECENT DEVELOPMENTS HAVE MADE LEASE TAX ACCOUNTING MORE COMPLEX

Abstract:

Recent accounting and tax developments have increased the tax accounting complexities for both lessees and lessors. ASU 2016-02 (subsequently codified as ASC 842), issued in 2016 by the Financial Accounting Standards Board, made substantial modifications to lease accounting under generally accepted accounting principles (GAAP), which have been widely adopted. While the Internal Revenue Code has not incorporated the GAAP changes, the Tax Cuts and Jobs Act of 2017 made substantive changes that can affect lease accounting for tax purposes. Little has been written about the interplay between the modified GAAP rules and the accounting treatment for tax purposes. Consequently, many tax practitioners are unprepared to properly account for the GAAP and tax accounting differences after the ASC 842 regime is implemented. This article explores aspects of lease accounting for operating leases from both a GAAP and tax perspective. For lessees and lessors, the GAAP changes affecting operating leases are analyzed, followed by a discussion of the operative tax rules.

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UNINTENDED CONSEQUENCES OF THE REPEAL OF § 958(b)(4) AND PROPOSED SOLUTIONS

Abstract:

The Tax Cuts and Jobs Act of 2017 repealed § 958(b)(4) (the Repeal), which prevented a U.S. person from constructively owning stock owned by a non-U.S. person in determining if a corporation is a controlled foreign corporation (CFC). After the Repeal, a U.S. corporation owned by a foreign corporation is considered to own stock in a foreign affiliate owned by the foreign parent. Thus, the foreign affiliate can be considered a CFC of the U.S. subsidiary even if the U.S. subsidiary does not own directly or indirectly any shares in the foreign affiliate. These changes caused unintended negative consequences for foreign multinational corporations with U.S. subsidiaries. Even though some measures have been taken to mitigate these consequences, issues remain. This article discusses problems caused by the Repeal that affect foreign corporations with U.S. subsidiaries and proposes solutions.

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Emi Fisher

ACCOUNTING FOR ADVANCE PAYMENTS IN ACQUISITIVE TRANSACTIONS

Abstract:

Receipt of an advance payment for goods or services generally results in taxation of the income at the time of receipt, but, in some circumstances, income recognition may be deferred. The advance payment also arguably creates a liability that is satisfied upon the recipient fulfilling its contractual obligation to deliver goods or perform services. A great deal of controversy surrounds the tax consequences of the assumption by a buyer of the obligation associated with an advance payment as part of the sale of assets that constitutes a trade or business. First, it is not clear under current authority what the tax consequences of the assumption of that liability by the buyer are. A second issue relates to whether and when the seller and the buyer should recognize income from an advance payment. The character of the obligation related to an advance payment and the tax consequences of transferring the obligation as part of an asset sale of a business are explored in this article. The article concludes that the uncertain tax consequences result from insufficient and inconsistent guidance and proposes alternatives the Department of the Treasury and the Internal Revenue Service should consider for issuing regulations.

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Rob Razani

TIMING OF INCOME RECOGNITION UNDER THE TCJA: PROPOSED REGULATIONS PROVIDE MUCH-NEEDED GUIDANCE

Abstract:

As part of the Tax Cuts and Jobs Act (TCJA), Congress enacted two new sections that address when revenue is recognized—§§ 451(b) and 451(c). These sections do not determine whether income is realized; instead, they determine the timing of income recognition under the taxpayer’s method of accounting. Revised § 451(b) changes the rules for the timing of income recognition under the all events test, and new § 451(c) generally codifies Revenue Procedure 2004-34 to allow certain taxpayers to defer income recognition for advance payments. Proposed reliance regulations implementing these two sections were issued in September 2019 and provide much-needed guidance to accrual method taxpayers. Part I of this article presents Proposed Regulation § 1.451-3, which addresses the timing of gross income recognition under § 451(b), and Part II describes the rules for reporting advance payments as income under § 451(c) in Proposed Regulation § 1.451-8. The article concludes by applauding the increased clarity the proposed regulations provide, while recognizing that a significant issue regarding cost offsets remains that should be addressed in final regulations.

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SELF-EMPLOYED HEALTH INSURANCE DEDUCTION: NICE TAX BREAK OR GROSS INEQUITY?

Abstract:

Equity, one of the basic principles of public finance, is often a consideration in discussions of tax policy or tax reform. Otherwise largely ignored, this paper considers the horizontal equity position of the self-employed health insurance deduction. Enacted by the Tax Reform Act of 1986, lawmakers intended for this deduction to bring more parity to the self-employed taxpayer and the employed taxpayer. However, an illustration comparing a self-employed taxpayer to an employed taxpayer in similar situations demonstrates that the two are taxed inequitably. This paper also illustrates a simple solution to bring more fairness to this deduction. 

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Joshua L. Simer & Andrew D. Almand

THE IRS CONTINUING EDUCATION PROVIDER SYSTEM: RELEVANT OR REDUNDANT?

Abstract:

Once a professional in any field has completed his basic educational requirements for qualification and obtained his professional credential, he is faced with the prospect of lifelong continuing education (CE). Enrolled Agents (EAs) and certain unenrolled tax return preparers must obtain CE from a provider listed in the Internal Revenue Service’s (IRS’s) CE Provider System. This article explores the history of the EA designation, the development of CE requirements for Certified Public Accountants and EAs, and the competing listings for CE providers of the IRS and the National Association of State Boards of Accountancy (NASBA). The redundancy of the two sets of CE providers is discussed, concluding that the NASBA listing is superior to the IRS’s listing and the CE Provider System should be eliminated. 

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Angela M. Storrs

THE IRS'S EFFORTS TO IMPROVE REPORTING OF TIP INCOME

Abstract:

The Treasury Inspector General for Tax Administration (TIGTA) concluded in a 2018 report that the Internal Revenue Service (IRS) is not fully addressing billions of dollars in tip income reporting noncompliance and is generally not enforcing the tip agreements it has in place. The IRS has limited resources and is having great difficulty in keeping up with the size and rapid growth in tipping industries, particularly the food and beverage industry. The IRS relies primarily on voluntary tip reporting agreements with businesses, rather than on employer tip audits, to combat nonreporting of tips. Despite a higher risk of noncompliance where no tip agreement exists, there is little incentive for busine­sses to enter into tip agreements with the IRS because the risk of a tip examination is very low. Following recommendations in the 2018 TIGTA report, the IRS agreed to focus more of its revenue agent resources on conducting audits instead of revising terms of low-risk tip agreements.

            This article provides a historical perspective of the steps taken by the IRS and Congress to increase tip reporting compliance and the ­­IRS’s efforts to quantify underreported tip income, an explanation of the current tip reporting rules, and a discussion of the adequacy of the current rules to address tip income reporting noncompliance.

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Masood Chotani

UNDERSTANDING THE QUALIFIED BUSINESS INCOME DEDUCTION

Abstract:

The Tax Cuts and Jobs Act of 2017 (TCJA) is likely the most significant tax legislation since 1986.1 While the legislation is comprehensive, one of its major features is corporate tax rate reduction. In order for unincorporated businesses to remain competitive, the TCJA allows certain unincorporated businesses to claim the qualified business income deduction. Virtually every unincorporated business will have to consider the implications of this deduction. The underlying rules governing the applicability and computation of the deduction are extensive and require a thorough understanding in order to be properly implemented by taxpayers and practitioners. Although the Department of the Treasury and the Internal Revenue Service have provided extensive guidance, many uncertainties remain. The deduction applies to tax years 2018 through 2025, but it is unsure whether it will become permanent. This article discusses the rationale for enacting these provisions, explains the provisions in detail, and concludes that implementation will be an ordeal for tax practitioners and the government.

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MAXIMIZING RETIREMENT AND ESTATE PLANNING WITH THE IC-DISC

Abstract:

The interest charge domestic international sales corporation (DISC or IC-DISC) is a congressionally sanctioned tax incentive. The IC-DISC has been a prominent income tax planning tool for U.S. export companies and their shareholders. According to a recent estimate by the Joint Committee on Taxation, total tax savings for taxpayers that take advantage of the IC-DISC program for the subsequent 10 years are expected to be $5.3 billion.1 Recent appellate cases have now opened the door for the use of the IC-DISC in retirement and estate planning.

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THE TAX CUTS AND JOBS ACT HURTS SINGLE PARENTS WITH CHILDREN PURSUING A COLLEGE EDUCATION

Abstract:

This article highlights some instances where the Tax Cuts and Jobs Act (TCJA) increased taxes for single parents at the moment their children are pursuing a college education. The article further recaps education credits that were saved (but not increased) by the TCJA and a deduction that was lost. The authors also discuss an implication of the TCJA that could cause the burden on families sending children to college to increase further. Finally, the article captures items that legislators could enact to relieve the additional burden on families with students pursuing a college education. Keywords: Trump Tax Plan; TCJA; College Education Tax Incentives

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AN EVALUATION OF A UNIVERSITY-BASED, PRO BONO TAX SERVICES PROGRAM FOR LOW-INCOME TAXPAYERS

Abstract:

The purpose of this study was to examine whether accounting students who provide pro bono representation to low-income taxpayers facing a dispute with the Internal Revenue Service (IRS) experience significant increases in motivation to offer pro bono representation of low-income taxpayers in the future and whether these students perceive an enhanced proficiency in relevant accounting clinical skills. The design for this study was a pretest/posttest, quasi-experimental research model. The treatment group (n=45) was comprised of accounting students enrolled in a service learning senior-level accounting course (federal tax procedure) where students are expected to represent low-income taxpayers facing a dispute with the IRS. The control group (n=33) was comprised of accounting students enrolled in a senior-level accounting elective course with no service learning component. 

Independent samples t-test and ANCOVAs were run, comparing treatment group students and control group students, based on posttest answers to questions regarding motivations for involvement in volunteer activities (while controlling for pretest scores). Results indicated that the treatment group reported significantly higher self-perceived competence in providing tax dispute resolution services than the control group. While results indicated that the students in the service learning project seemed to have gained competence in working with low-income taxpayers in tax dispute resolutions, as well as perceived enhanced proficiency in relevant key clinical skills, no significant differences between the two groups on any of the motivations to volunteer at posttest, after controlling for pretest scores, were detected. No significant differences were found between the two groups with regard to attitudes for helping others at posttest, after controlling for pretest scores. Furthermore, no significant differences were found between the two groups regarding self-efficacy toward service at posttest, after controlling for pretest scores. The results make a significant contribution to the literature by illustrating that mere exposure to a service learning experience in the context of tax dispute resolution does not necessarily cause students to experience significant gains in motivation to offer pro bono representation of low-income taxpayers in the future.

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PROPOSED COMPUTATIONAL FRAMEWORK FOR INTERNAL REVENUE CODE § 199A

Abstract:

Among the changes introduced by the Tax Cuts and Jobs Act (TCJA) is the addition of § 199A, which is effective for taxable years beginning after 2017 and before 2026. Section 199A allows individuals and certain other non-corporate taxpayers a deduction of up to 20 percent of “qualified business income” (QBI) from a partnership, sole proprietorship, or S corporation. Such taxpayers can also deduct under § 199A up to 20 percent of their aggregate qualified REIT dividends, qualified publicly traded partnership income, and qualified cooperative dividends. This deduction is intended to reduce the tax burden on flow-through business income such that the tax burden is closer to that imposed on corporate income at the reduced federal corporate income tax rate of 21 percent enacted by the TCJA. Given the numerous definitions and phase-ins and phase-outs in § 199A, however, the reduction of the tax burden comes at the cost of much complexity and uncertainty. This Article proposes a general framework, or step-by-step approach, for computation of the deduction under § 199A. 

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TO “NET VALUE” OR NOT TO “NET VALUE”? THAT IS THE QUESTION: A DISCUSSION OF THE PROPOSED NET VALUE REGULATIONS—THEIR PURPOSE, UTILITY, AND FUTURE

Abstract:

In decisions dating back to the 1940s, courts have held that certain transactions in which property exchanged does not have net positive value do not rise to the level of tax-free exchanges. On the other hand, in decisions going back almost as far, courts have blessed the character of other transactions as tax-free, despite the absence of net value in these exchanges. Over the last few decades, these apparently inconsistent rulings have led to controversial questions:

• When one or more parties to a reorganization is insolvent, does the reorganization fail to qualify as a tax-free transaction, despite meeting all mechanical requirements for such treatment under § 368?
• Does contribution of under-water property to a corporation by a shareholder qualify as a tax-free transaction under § 351?
• Does contribution of property to an insolvent corporation by a shareholder qualify as a tax-free transaction under § 351?
• Does the liquidation of an insolvent subsidiary qualify as a tax-free transaction under § 332? 

The question as to whether a transaction in any of the above situations is nontaxable arises from the fact that the underlying property in the exchange is burdened by liabilities that exceed its fair market value. Nonrecognition transactions are premised on “exchanges” that leave the taxpayer in substantially the same position as before the exchange. Courts have addressed whether a transaction in which something of net positive value is not given or received qualifies as an “exchange.”

In 2005, through proposed regulations, the Department of the Treasury and the Internal Revenue Service (IRS) took the position that transactions that do not involve exchanges of property with net positive value are not “exchanges” and thus do not qualify under nonrecognition provisions. Twelve years later, the proposed regulations were suddenly withdrawn.

This article explores court decisions on the application of corporate nonrecognition transactions involving insolvent entities and IRS rulings based on those decisions. More significantly, the article explores the proposed regulations on net value, their potential impact on various types of transactions, and the potential consequences of their withdrawal.

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TAX RETURN REFORM: ENTITY-SPECIFIC FIDUCIARY INCOME TAX RETURNS WOULD BRING SUBSTANCE TO THE FORM

Abstract:

The Tax Cuts and Jobs Act (the Act) is Congress’ most recent attempt to simplify our tax system. Even if the Act’s catch phrase promise to “file a return on a postcard” is more hyperbole than reality, it is a rallying cry for an equally important aspect of tax reform–tax return reform. Comprehensive tax reform can only be achieved through a combination of simplifying the Internal Revenue Code and the implementing tax forms. Tax forms and instructions are often poorly designed and disorganized, rendering time-efficient and accurately prepared returns problematic. This includes Form 1041, the two-page fiduciary income tax return for nine entities accompanied by 42 pages of disjointed instructions. On all levels, the form misses the mark because (1) too many entities subject to different tax rules use the form; (2) line items and instructions are not consistently sequential; (3) relevant guidance is not easily accessible to the tax return preparer as it is often scattered illogically throughout the instructions; and (4) the information provided in the instructions is often lacking, incomplete, and misleading. To address these inadequacies, this article advocates meaningful tax return reform by which the Internal Revenue Service (IRS) replaces the “one size fits all” Form 1041 with four entity-specific forms and accompanying instructions focused on each type of entity. If the IRS adopts the forms presented in conjunction with this article (or similar versions), the improved forms would be a boon to time-efficient, accurate tax return preparation–a worthy goal of tax return reform.

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AFTERMATH OF THE FIGHT OVER FIDUCIARY ACCESS TO DIGITAL ASSETS: THE REVISED UFADAA AND ITS IMPLICATIONS FOR LEGISLATORS AND PROFESSIONAL ADVISORS

Abstract:

What happens to your emails, social media accounts, domain names, online stores, blogs, and Bitcoins if you are not able to manage them? Digital accounts and digital assets, some of which have substantial financial value, are becoming more and more popular with each passing day. Unfortunately, legislators in many states have not addressed fiduciary access to digital assets should the account holder or owner become incapacitated or pass away. Even the few states that adopted such legislation prior to 2015 were years behind digital advancements, which limited the statutes’ effect on fiduciaries and estate administration. Recognizing this need, as well as the discrepancies in current legislation, the Uniform Law Commission drafted the original Uniform Fiduciary Access to Digital Assets Act (UFADAA) to grant fiduciaries access to digital assets. Major e-commerce companies, social media companies, email providers, and civil liberties groups (collectively referred to as the “Providers”), and their trade organization, NetChoice, opposed the original UFADAA by sending letters of opposition to state legislators that had introduced a bill on the topic. After drafting their own limited provision on fiduciary access to email communications, NetChoice entered into negotiations with the Uniform Law Commission.

The result of these negotiations is the Revised Uniform Fiduciary Access to Digital Assets Act (Revised UFADAA), released late in the 2015 legislative session. The Revised UFADAA maintains its applicability to a broad range of digital assets and fiduciaries, while at the same time addressing NetChoice concerns over potential violations of federal law and leeway for service providers. Some states adopted the Revised UFADAA in the 2016 legislative session; however, there are a number of states that are still ignoring fiduciary access to digital assets altogether. Even states that have adopted limited provisions have to consider the clarification and protections that the Revised UFADAA brings to both fiduciaries and Providers. If adopted, estate planners and tax advisors have to identify digital assets owned by clients and incorporate provisions of the statute into their clients’ planning. State adoption of the Revised UFADAA, along with incorporation of digital assets into traditional estate and tax planning, will prevent identity theft of clients, preserve estate assets, and ease estate administration. More importantly, this combination of legislator and professional advisor action will ensure that the digital asset owner’s intent is effectuated upon his or her incapacity or death.

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Hayley Donaldson

REVIVING TRANSFER PRICING ENFORCEMENT THROUGH FORMULARY APPORTIONMENT

Abstract:

The international tax system is fundamentally flawed and large multinational enterprises exploit these flaws to drastically reduce their effective tax rates. Data indicates that the most powerful tool for multinational enterprises to reduce their tax liabilities is arm’s-length transfer pricing. The arm’s-length standard is a relic forced upon the world until it became the norm for most countries. An attractive alternative to arm’s-length transfer pricing is transfer pricing based upon formulary methods. Though imperfect and maligned by the Treasury and practitioners, formulary apportionment goes a long way in alleviating the problems created under the arm’s-length standard, including its inability to address the intercompany pricing of intangibles.

The global financial crisis of 2007-2008 created a unique opportunity to address this flaw in the international tax system. In the wake of the crisis and through a slow economic recovery, politicians across the world grilled multinational enterprises for their exploitation of weaknesses in the international tax regime and called on the OECD to take action to strengthen it. In 2013, the OECD responded with an ambitious Action Plan and followed up with bold discussion drafts that hinted at an embrace of formulary methods when transactional methods proved insufficient. Disappointingly, the OECD backed away from this position in its final transfer pricing reports in 2015 due to immense pressure that largely came to the United States. The OECD’s final reports reaffirm its adherence to the arm’s-length standard and promulgated a watered-down version of country-by-country reporting. The door is closing fast for the OECD to make the changes necessary to address one of the greatest weaknesses of the current international tax regime.

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Paul A. Blay, Esq.

PEOS, CERTIFIED PEOS AND FEDERAL EMPLOYMENT TAXES - WHY THE IRS CERTIFICATION PROGRAM IS NOT ENOUGH

Abstract:

In December 2014, after nearly 15 years of lobbying efforts by Professional Employer Organizations (PEOs), the Small Business Efficiency Act (SBEA) was enacted into law. The SBEA authorizes the Internal Revenue Service (IRS) to create a certification program for PEOs and formally incorporates the role of certified PEOs into the federal employment tax regime. Proponents of the SBEA have generally lauded the legislation as substantially beneficial to client companies as it enables client companies to rely increasingly on PEOs to support growth. This article provides (1) an introduction to the typical PEO relationship and the current law that governs federal employment tax liability and filing requirements when a client company partners with an uncertified PEO, including identifying concerns with the current law and structure, (2) a summary of the SBEA and federal employment tax liability as it applies to certified PEOs, highlighting some of the benefits of the SBEA, (3) the identification of various and perhaps troublesome issues with respect to federal employment tax liability that remain after passage of the SBEA and implementation of the IRS PEO certification program, and finally (4) an outline of four steps that could be taken, alone or in combination, to address these issues by protecting client companies that utilize PEOs from unanticipated federal employment tax liability and reducing the opportunity for tax fraud on the part of PEOs.

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Elizabeth Lyon

NEW HEIGHTENED REPORTING REQUIREMENTS FOR FOREIGN FINANCIAL ACTIVITIES: WHAT EVERY FIDUCIARY SHOULD KNOW ABOUT A DECEDENT’S UNFULFILLED COMPLIANCE OBLIGATIONS

ABSTRACT

Given that reporting requirements for foreign transactions are at the highest level in history and the government’s own figures estimate that 98.7 percent of tax revenue lost to offshore sheltering is not recouped through Offshore Voluntary Disclosure Initiative (OVDI) programs, it can be deduced that the vast majority of cross-border transactions remain undisclosed. This paper explores whether, upon the death of a taxpayer, his/her unfulfilled obligation to file certain information returns with respect to foreign financial activities survives him/her. To the extent that another taxpayer, as fiduciary, inherits the decedent’s burden to file delinquent information returns, this paper outlines the ambiguity regarding the statutory authority of the Internal Revenue Service (IRS) to collect the liability for related civil penalties personally against the fiduciary. While the IRS believes it has the authority to do so, this paper suggests otherwise.
Through a factual scenario focused on Section 6048 of the Internal Revenue Code, this paper concludes that a taxpayer’s obligation to file information returns with respect to certain foreign financial activities survives him/her. The estate inherits this filing obligation as well as the liability for civil penalties due to the late filing. However, to the extent that the estate’s assets are prematurely distributed, there remains a genuine doubt about the IRS’s ability to use Section 6901 of the Internal Revenue Code in order to collect against a fiduciary, even in cases where the executor had notice of the claim before making a distribution.
It is important to understand that this paper specifically discusses the authority of the IRS under Title 26 to collect certain penalties against fiduciaries. This paper does not suggest that the U.S. Government at large, through another agency or pursuant to the authority of another title of the US Code, would not have the authority to so collect.

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Fabio Ambrosio

 LAND HO! NAVIGATING THE MURKY WATERS OF GUARANTEED LIFETIME INCOME AND THE ANNUITY SAFE HARBOR FOR 401(K) PLANS

ABSTRACT

Due to a collective federal goal of providing Americans with guaranteed sources of lifetime income, namely annuities, as a retirement income strategy, numerous regulations and proposed rules have been issued that allow the use of annuities in defined contribution retirement plans. Despite this goal, annuities are rarely offered to participants in a 401(k) plan. This can be explained, in part, by confusion in properly applying these rules to 401(k) plans. Because of the widespread belief that the “Annuity Safe Harbor” lacks well-defined and measurable standards, many retirement plan fiduciaries simply refuse to expose themselves to the greater risk of liability associated with annuities.
This article provides a compass to guide advisers and 401(k) plan fiduciaries safely into the Annuity Safe Harbor, specifically when selecting and monitoring annuity providers and products. First, the background of using annuities for retirement income is explored. Next, the article identifies obstacles to the selection and monitoring of annuity providers and products and provides an overview of recently issued federal regulations and proposed rules expanding the use of annuities in 401(k) plans. In light of impediments to guaranteed lifetime income for 401(k) participants, federal legislative and regulatory actions are proposed. Lastly, guidance is offered from industry experts and recent cases involving the breach of fiduciary duties.

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IT’S SUPER EFFECTIVE: SECTION 911 AS A POLICY SILVER BULLET

ABSTRACT

The United States is one of the few countries in the world that imposes tax on all of its citizens regardless of where they reside. U.S. citizens resident abroad must deal with the tax systems of both the United States and the country of their residence. The burden of so-called “worldwide taxation” is lessened by the Foreign Earned Income Exclusion, which allows U.S. citizens to exclude their actively earned income up to a cap. This paper explores the policy rationales that support the Foreign Earned Income Exception and recommends slight changes in the exclusion to further those policies.

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CANADA REVENUE AGENCY NOW TREATS U.S. LLPS AND LLLPS AS CORPORATIONS

ABSTRACT

In public pronouncements culminating in its answer to a question posed at the 2016 International Fiscal Association Roundtable, the Canada Revenue Agency (CRA) has taken the position that Florida and Delaware limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) will be treated by it as corporations for Canadian income tax purposes. As it is likely that the salient features of Florida and Delaware LLPs and LLLPs are comparable to those of similar partnerships in other U.S. states, this CRA position is expected to have a broad impact.

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NEW RULES FOR AUDITS OF PARTNERSHIP RETURNS

ABSTRACT

Effective for audits of partnership returns beginning after 2017, the IRS will use a centralized audit system that requires partnership adjustments to be determined at the partnership level and any tax attributable to the adjustments to be assessed and collected at the partnership level. These new rules allow for a small-partnership opt-out and an elective alternative to “push out” the audit adjustments made and tax paid to the partners. The audit process will be streamlined by limiting the right to notices and participation in the audit to one “partnership representative.” This article presents the new rules and existing guidance that consists of a report by the Joint Committee on Taxation and temporary regulations on an early opt-in to the rules prior to their effective date.

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Patient Protection and Affordable Care Act:

Implementation Issues for the Premium Tax Credit and Individual Mandate

ABSTRACT

Under  the  Patient  Protection  and  Affordable  Care  Act  (the “ACA”), will individuals in the U.S. have more options for obtaining affordable, comprehensive healthcare coverage? Or will there be an increase in healthcare costs under the ACA that will force individuals to forego  insurance  and  pay  the  penalty  or  to  enroll  in  a  government regulated marketplace—the “Exchanges”—to purchase a healthcare plan? The options for obtaining health insurance will be determined, in part, by how well the ACA’s mandates and its provision of benefits for qualifying individuals are administered by the IRS. The additional funding necessary to implement the ACA, and the short turn-around time required, are real concerns. There are also concerns about potential for fraud, and the U.S. Supreme Court is stepping in to determine the availability, under current law, of the premium tax credit for taxpayers purchasing insurance through a federally-facilitated Exchange. To understand the full effect of the ACA on the choices that individuals will make, one must not only understand how to assess the premium tax credit and individual mandate, but also the controversies that must be overcome for successful implementation.

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Lynn Mucenski-Keck & Kari A. Smoker

Trouble Never Comes Alone – Some Issues of Divorce and Taxation

ABSTRACT

Divorce is stressful enough to forget anything else while struggling through the emotions of the ruined life and lifestyle, accusations, and insults arguably results in one of the most intense stresses of modern life. This stress brings decreased income, reduction in property, and a lack of attention to matters other than the divorce itself, such as taxes. This article reviews some controversial and unexpected combinations and provides some tools for tax planning related to divorce issues. While presuming some understanding of tax law, this article stresses the tax law applications in different situations that family court judges create, usually without having considered tax ramifications. The latest United States Supreme Court decision added another layer of confusion and complications to the field of family law by allowing legally married same-sex persons (SSMPs) to be treated as married for federal income tax purposes. This article is treating the SSMP the same as any other married couple.

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Market Sourcing v. Cost of Performance: Potential Over or Under Reporting of State Tax Liabilities (Multi-state Service Providers)

Abstract:

The recent budget shortfalls have led states to pursue corporate tax dollars more aggressively. Taxpayers are aware that the state-tax enforcement, specifically on sales apportionment, is getting stricter these days. A CFO Tax Survey shows that approximately 16% of the 151 tax directors and finance executives said “apportionment and related issues were their biggest worry in terms of state taxation.”2 This issue is a major concern for multi-state companies, especially service-based businesses, because they are not protected under Public Law 86-272 (hereafter P.L. 86-272). According to P.L. 86-272, 15 U.S.C. 381-384, a state is restricted from “imposing a net income tax [and franchise tax measured by net income] on income derived within its borders from interstate commerce if the only business activity of the company within the state consists of the solicitation of orders for sales of tangible personal property ....” P.L. 86-272 further clarifies that the delivery of any type of service that is not conducted for the purpose of facilitating the solicitation of orders is not considered protected activities.

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Angelia Guna Wijaya

The Impact of Joyce & Finnigan on Multi-State Combined Groups with Intangible Sales

Abstract:

The California State Board of Equalization decisions of In the Matter of the Appeal of Joyce, Inc.(“Joyce”) and In the Matter of the Appeal of Finnigan Corporation (“Finnigan”) have had an impact that reaches far outside California. Joyce and Finnigan both addressed issues surrounding the calculation of a unitary group’s California sales apportionment factor numerator. Many states have adopted these decisions as the basis for the calculation of their own sales apportionment factors. Many companies consider the tax implications of these cases when making business decisions. Typically, the goal is to minimize the sales of tangible property apportioned to a particular state. Because Joyce, Inc. and Finnigan Corporation were themselves sellers of tangible property, the impact of these decisions on the sale of intangible property is not as widely discussed. However, it should be. This article will provide a brief background of the Joyce and Finnigan decisions and also discuss the general rules for sourcing sales of tangible and intangible property.

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Selena Walker

Provena Portends: Recent Denial Of Property Tax Exemption To Provena, An Illinois Nonprofit Hospital, Its Implications For California, And The Impact Of The Patient Protection And Affordable Care Act

Abstract:

This paper attempts to synthesize the recent decision denying the property tax exemption of a nonprofit hospital in Illinois (Provena) with the examinations of the net economic value provided by nonprofit hospitals in California, who benefited from property tax exemptions. Additionally, the ramifications of these diverse state legal environments are analyzed with respect to the recent enactment of section 501(r) of the Code and its increased disclosure requirements.

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Jonah Cohen

States Pushing The Boundaries In The Collection Of Unclaimed Property

Abstract:

It is no mystery that states are facing critical budget deficits and have been forced to look for ways to increase their cash flow without raising taxes. Consequently, many states are now turning their attention to the seizure of apparently unclaimed or abandoned intangible property held by a company presumably owed to another party. Every U.S. state, as well as Washington, DC, Puerto Rico, Guam, the Virgin Islands, and the most recent addition of the Northern Marianas Islands, have adopted some form of statutory escheat laws.  In lieu of adopting and modifying one of the Uniform Acts, a minority of jurisdictions have drafted their own statutes. 

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Michele Moloian

The Impact Of California’s Technology Transfer Agreement Statutes On Sales Tax In A Post-Nortel World

Abstract:

Apart from simply causing California Code Regulation §1507 to be amended, theNortel[1] decision is likely to have a direct and profound change on purchases of prewritten software (also referred to as “canned” or “off the shelf” software) in California.  At the same time, the changes brought on by the Nortel decision have created an environment filled with both uncertainty and opportunity for state and local tax practitioners in California. This article provides background information regarding the relevant law, explains what has changed, and provides guidance for practitioners on how to take advantage of the current opportunities that may only be available in the short term.

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Nikhil Bassi

State Taxation of Accounting Method Changes

Abstract:

Current standard apportionment adopted by states that impose a corporate income tax on multistate corporations may have a distortive effect when a corporation has IRC Section 481 income.  This paper proposes an alternate method of apportionment that preserves the intent of IRC Section 481 and conforms to the fair apportionment requirements of the US Constitution. 

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Robert Johnson, CPA, M.S.(Taxation), Seb Moosapoor, J.D.

The Complexity of the Adjusted Gross Income for an Estate or Trust

Abstract:

The computation of taxable income for an estate or trust is computed similarly to the computation for individuals. Thus, if an estate or trust has deductions that are limited by adjusted gross income they must determine the amount of adjusted gross income.  The purpose of this article is to discuss the complexity of computing the adjusted gross income for an estate or trust.

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Boyd C. Randall, J.D., Ph.D., Shannon L. Charles, Ph.D., Peter K. Yoho, Ph.D.

Elder Law and the Tax Practitioner How to Navigate the Murky Waters

Abstract:

Due to the income limitations of many elderly taxpayers, it is extremely important to minimize their tax burden through proper tax planning.  If properly planned, the majority of elderly clients’ everyday living expenses will likely be deductible for tax purposes as medical expenses. This paper focuses on the tax consequences arising from long term care and medical expenses, as well as from expenditures for Personal Service Contracts.

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Professor David L. Rice, Esq.

Drop and Swap: Can You Relax If The Police Aren't Looking For You?

Abstract:

The drop and swap transaction is an easy solution to a common scenario where a partnership holds a real estate investment that has appreciated over a long period of time, and the partners disagree over whether to exchange the old property into a new one or sell the property for cash and recognize the gain.

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David R. Chan

Section 6676 Erroneous Claim For Refund or Credit Penalty: The Penalty Has No Reasonable Basis

Abstract:

The new §6676 penalizes taxpayers for denial of certain income tax refund claims filed after May 25, 2007. Section 6676 imposes a new civil penalty equal to 20% of the “excessive amount,” unless the refund claim for the excessive amount has a reasonable basis.

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Sharyn M. Fisk, Esq., Heather Kim Lee, Esq.

The One-Two Punch: The Use of Trusts and LLCs in Asset Protection

Abstract:

Asset protection involves structures and techniques that make it more difficult and expensive for a creditor to reach a debtor’s assets.  The objective is to change the creditor’s economic analysis, making the pursuit so difficult and expensive that the creditor will either give up or be willing to negotiate on terms more favorable to the debtor.

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Jacob Stein, Esq.

Sweeping Changes in Bond Legislation Enhance the Benefits to Both Issuers and Purchasers of §144 and §54AA Bond Financing

Abstract:

Mid-sized entities are encouraged by the State’s Treasurer’s office to issue private activity bonds (PABs)   in order to finance construction and retro-fitting of existing property.

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Leslie Sobol, CPA, M.S.T.

IFRS Impact on State and Local Taxation

Abstract:

This article discusses the broad and sweeping effect that IFRS will have on all aspects of the tax lifecycle, including State and Local Taxation (SALT).

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Robert L. Hymers III, CPA, M.S.T.

Incentives By States to Encourage Intrastate Development of Entertainment Projects

Abstract:

Knowing how to properly report taxable income in every state is especially important today in the constantly changing environment of the movie production industry.

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Arkady Vaserfirer, CPA

The Application of Unrelated Business Income Tax (“UBIT”) to Exempt Organizations

Abstract:

The Code imposes a tax on unrelated business taxable income on organizations described in §401(a) and §501(c).  Additionally, some government entities (state colleges and universities) are subject to the unrelated business income tax.

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Nikhil Bassi, EA