Tag Archives: Attorney

FINAL OPPORTUNITY TO FILE – 2018 Florida Annual Uniform Business Reports

The deadline to file a 2018 Florida Annual Uniform Business Report for your Corporation, Limited Liability Company, Limited Partnership, or Limited Liability Limited Partnership to maintain its active status with the State of Florida was Tuesday, May 1, 2018.  If you have not already filed a Florida Annual Report for your entity for 2018, you may still do so to avoid the administrative dissolution of the entity by filing the report by the close of business on Friday, September 21, 2018, and paying a $400 late fee in addition to the standard filing fee.  Failure to file a 2018 Florida Annual Report by Friday, September 21, 2018, for an entity will result in the entity’s administrative dissolution or revocation on September 28, 2018.  Entities that are administratively dissolved or revoked may be reinstated; however, such reinstatement will require the submission of a reinstatement application, as well as the payment of a reinstatement fee and the standard annual report fee.

Even if a third party, like Cross Street Corporate Services, LLC, serves as your entity’s registered agent, it is your responsibility to file the Annual Report with the State of Florida.  Annual Reports should be electronically filed at the Florida Department of State’s website: www.sunbiz.org.  If you need assistance, please contact us.

You may disregard this notice if your entity was formed in 2018 or has already filed a Florida Annual Report for 2018.

James-Allen McPheeters
jamcpheeters@williamsparker.com
941-329-6623

199A Regulations Address Specified Service Trades or Businesses with Other Business Elements

In a prior blog post, we addressed rules in the proposed regulations for the treatment of a trade or business that is not a specified service trades or business (“SSTB”) but has some relatively small elements that are attributable to the performance of services in a field that would qualify as an SSTB. The topic of this post is the rules for the treatment of an SSTB that has some incidental or relatively small non-SSTB elements, which are contained in Section 1.199A-5(c)(3).

Under these rules, if a non-SSTB has (1) 50% or more common ownership with an SSTB, (2) shares expenses, such as shared wages or overhead expenses, with the SSTB, and (3) gross receipts that are no more than 5% of the total combined (SSTB and non-SSTB) gross receipts, then the non-SSTB will be treated as part of the SSTB for Section 199A purposes. Common ownership is determined by applying the related party rules in Sections 267(b) and 707(b).

The proposed regulations provide an example where a dermatologist provides medical services to patients and also sells skin care products to patients. The same employees and office space are used for the medical services and the sale of skin care products. The gross receipts of the skin care product sales do not exceed 5% of the combined gross receipts. Under the rule, the sale of the skin care products (which is not an SSTB) will be treated as incident to, and part of, the medical service SSTB. Therefore, the qualified business income, w-2 wages, and any unadjusted basis of qualified property attributable to the skin care products business will not be eligible for Section 199A purposes unless the dermatologist is under the taxable income thresholds specified in Section 199A.

The proposed regulations do not address a scenario where the gross receipts of the skin care products business were, for example, 6% of the total combined gross receipts. Presumably, the skin care products business would then be considered a separate trade or business (a non-SSTB) from the dermatology practice, which would be an SSTB. A potential gotcha is for a business that is an SSTB that is entrepreneurial and tries to expand into a business that is not a SSTB. For example, consider a financial services business that starts-up a business to create personal budgeting and retirement software and that uses some of the employees and office space of the financial services business. Unless and until either (1) the gross receipts of the software start-up exceeds 5% of the combined gross receipts or (2) there are no longer any shared expenses, then the software business will be treated as a part of the financial services SSTB.

View the proposed regulations. 

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

199A Proposed Regulations Address Businesses with De Minimis Specified Service Trade or Business Elements

The proposed Section 199A regulations contain rules for the treatment of a trade or business that is not a specified service trades or business (“SSTB”) but has some relatively small elements that are attributable to the performance of services in a field that would qualify as an SSTB. These rules are contained in Section 1.199A-5(c)(1), and the SSTB issue is important because, with some exceptions based upon income level, income from an SSTB is not eligible for the Section 199A deduction.

Under these rules, if a non-SSTB has some relatively small elements that are SSTB services, then the SSTB services will not taint the treatment of the overall business. Specifically, the rule provides that for a trade or business with gross receipts of $25M or less for a taxable year (before application of the aggregation rules), the trade or business will not be treated as an SSTB if less than 10% of its gross receipts are attributable to an SSTB. If the gross receipts of the trade or business are more than $25M, then the 10% threshold is dropped to 5%. For example, if an eye glass store had $10M total gross receipts, and $9.5M of such gross receipts were attributable to the sale of eye glasses, and $0.5M of the gross receipts attributable to eye examinations performed by ophthalmologists, then the entire trade or business would be considered a non-SSTB for purposes of the Section 199A deduction.

The regulations do not address a scenario where, for example, $2M of the gross receipts were attributable to eye examinations. In that scenario, will the entire $10M business be treated as an SSTB? That does not seem like it should be the correct answer. A better answer would be that the eye glass and eye exam activities are treated as two separate trades or business for Section 199A purposes.

In interesting scenario is if the individual taxpayer operated the eye glass ($9.5M of gross receipts) and eye exam ($0.50M of gross receipts) businesses in separate entities. In that case, the eye glass business would be a non-SSTB, and the eye exam business would be an SSTB (and thus not eligible for the Section 199A deduction). However, a tax planning opportunity may exist to merge the two entities, and then take advantage of the aggregation rule to “cleanse” the eye exam business of its SSTB taint by having it become a de minimis part of the eye glass business under the aggregation rules.

View the proposed regulations. 

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

For Want of a Nail? How Long-Term Capital Gain Eligibility Can Turn on a Single Piece of Paper

An old proverb teaches that the absence of a horseshoe nail can cause the downfall of a kingdom. A recent Tax Court cases suggest a real estate owner’s eligibility for long-term capital gain can turn on something just as trivial:  a single piece of paper.

The Sugar Land case involved real estate businesspersons who, though various entities, held some land for investment purposes and other land for development purposes. During 2008, they decided to abandon development plans for raw land they originally intended to develop. In 2008, they executed an owner resolution expressing their change of intent. Their land holding company subsequently sold most of the property to an unrelated homebuilder in three transactions in 2011 and 2012. The company then sold substantially all the remaining property to related entities in four transactions spanning 2012 through 2016. The related entities developed that land for resale.

The IRS asserted that the 2012 sales should have generated ordinary income instead of long-term capital gain. Despite several factors militating against capital gain eligibility—including nearby development activity by related entities–the Tax Court found that the sales qualified as long-term capital gain. The court identified the 2008 owner resolution as the critical factor showing their intent.

The Sugar Land opinion is a bookend to the Fargo case we discussed in 2015. In Fargo, the Tax Court held that a taxpayer who held land without developing it for over a decade recognized ordinary income on its sale. The court reasoned that the long holding period did not overcome the absence of an owner resolution or other documentation evidencing the abandonment of the owner’s original development plan. The taxpayer could not recognize long-term capital gain.

Lesson learned? Silly or not, documenting the non-development intent for holding raw land can make a big difference in the income tax bill when the property is sold. If you want long-term capital gain, take a few minutes to make sure the owners execute a contemporaneous resolution or governing documents expressing the intent to hold the property for investment, not development. Otherwise you might tell a tale of losing your own financial kingdom, for want of just one piece of paper.

Helpful Resources:

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Williams Parker to Participate in International Trade Symposium at Port Manatee

On Thursday, February 22, 2018, Williams Parker will be participating in an International Trade Symposium organized by the International Trade Hub at Port Manatee hosting an association of trade commissioners from Chile, Colombia, Costa Rica, Ecuador, Spain, Guatemala, Honduras, Mexico, Peru, Uruguay, Dominican Republic, Brazil, Argentina, and Canada. These trade commissioners cooperate to expand and facilitate the international commercial relations with Florida and are mainly based in Miami. Following the symposium at Port Manatee, a luncheon will take place at the Manatee Chamber of Commerce featuring a brief presentation by Williams Parker attorney Jamie Koepsel regarding the international aspects of the recent tax legislation.

If you are in the retail industry or simply interested in international trade and want to learn more about how you can expand your business to international markets, you may want to consider participating in the event. A great number of the trade commissioners have already confirmed their participation in the event. Establishing relationships with the trade commissioners will be valuable to your business growth plans. The trade commissioners will help you navigate the markets and cultures of the countries where you want to do business.

Please contact Williams Parker attorney Juliana Ferro for more information.

Tax Savings Estimator: Qualified Business Income Deduction

If you own a business taxed as a sole proprietorship, partnership, or S corporation, the new Section 199A Qualified Business Income Deduction offers one of the biggest potential tax benefits under the recently-enacted Tax Cuts and Jobs Act. It allows you to deduct up to twenty percent of your business income. If your income exceeds $157,500 ($315,000 for a married joint filer), the deduction is limited by filters tied to your company’s employee payroll and depreciable property ownership. There are other restrictions, but for most business owners our calculator offers a useful, simplified estimate of tax savings from the new deduction.

Curious whether you should change the tax status of your company? Read our analysis here: Should You Reform Your Business for Tax Reform?

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Planning to Live Beyond 2025? How You Can Still Enjoy Estate Tax Reform’s Sunset Special

The just-enacted Tax Cuts and Jobs Act doubles the federal estate, gift, and generation-skipping transfer lifetime tax exemptions through 2025. The exemptions revert to their pre-Act levels on January 1, 2026. Ignoring inflation adjustments, the combined exemptions for a married couple will then fall from over $22 million to $11 million. At the 40% Federal transfer tax rate, a 2026 sunset will increase a married couple’s estate tax by $4.4 million.

Do you want to avoid $4.4 million of estate tax, even if you plan to celebrate the 2026 New Year amongst the living?

A married couple can permanently harvest the increased exemptions by gifting assets with value up to the full $22 million exemption amount before 2026. If you gift into a generation-skipping trust, the exempted assets can pass through many generations free of transfer tax. With valuation discounts for lack of control and lack of marketability still fully available, family business assets are particularly attractive for gifting.

A taxpayer can not use the increased exemption until he or she first make gifts exhausting his or her pre-Act exemption. An individual does not create an additional tax benefit until he or she first gifts about $5.5 million worth of property. A couple does not capture the full additional benefit until they give away property worth over $22 million.

These ordering rules create an obstacle for many, who can not afford to give away that much property. Married taxpayers in that situation may consider funding “Spousal Lifetime Access Trusts.” Each spouse gifts assets to a trust for the other spouse, leaving the gifted assets available to the beneficiary spouse for his or her lifetime. When the beneficiary spouse dies, the remaining trust assets pass to children or other beneficiaries free of estate tax. Persons who created such trusts shortly before 2013, when another legislative sunset almost reduced the lifetime exemptions, can fund their existing trusts with additional gifts.

Many families will wait until 2026 is closer before taking action. Families with sufficient wealth to afford substantial gifting, who also expect estate tax liability even with the increased exemptions, should consider gifting sooner, to remove appreciation in the gifted assets before 2026 from their future taxable estates.

For more information regarding the Tax Cuts and Jobs Act, follow these links:

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Williams Parker Convinces IRS to Waive $224,640 Penalty Asserted Against Client

An LLC taxed as a partnership with 128 partners failed to file its partnership tax return electronically, resulting in the IRS asserting a penalty of $224,640 under IRC section 6698(a)(1). Partnerships with more than 100 partners are required to file their tax returns electronically under IRC section 6011(e). Williams Parker represented the partnership in connection with a penalty waiver request pursuant to IRS Announcement 2002-3, 2002-1 CB 305 (Jan. 14, 2002). Shareholder Mike Wilson at Williams Parker convinced the IRS that the partnership was entitled to a penalty waiver under the criteria of the Announcement, and therefore the IRS withdrew the entire $226,640 penalty. Information regarding the Announcement criteria and related guidance can be found at irs.gov.

What’s Not to Like About the Proposed Tax Rate Reductions for Small Businesses?

If you run a small business (or even a large closely-held business) taxed as an S corporation or partnership, don’t get too excited about the tax rate reduction headlines in Congress’ latest tax reform proposals.

The House bill touts a 25% tax rate for business income from these entities. Passive investors would enjoy the 25% rate on all business income, which may encourage more investment and lower equity financing costs.  But for an entrepreneur actively involved in the business, the lower rate only applies to 30% of annual income from the business, or to annual business income up to approximately eight percent of adjusted tax basis (roughly, the un-deducted investment amount) in the business assets.  So the House bill is friendly to passive investors, and offers only limited benefits to traditional entrepreneurial small business operators.

The Senate proposal touts a 17.4% deduction against S corporation and partnership business income, but limits that deduction to 50% of the amount the individual taxpayer business owner receives in wages.  In other words, you have to pick up a dollar of income tax at the full individual tax rate and pay employment taxes on that amount, to enjoy the reduced tax rate on fifty cents of non-wage income.  This mix is not much different than the House’s 70% wage income-to-reduced-tax-rate business income ratio.

Like the House plan, the Senate small business tax rate proposal limits benefits to entrepreneurs.  Unlike the House bill, the Senate does little for passive investors, who may have a hard time justifying high wages to bolster their deduction.

The proposed 20% tax rate for traditional C corporation income is more straightforward than the S corporation and partnership tax rate proposals.  This may cause some small businesses to consider converting to C corporation status (the tax status of many larger companies and the vast majority of publicly-traded companies).  But in so doing the businesses (including, especially, Florida businesses) may become subject to state income taxes they otherwise avoid.  Further, any cash removed from the business will either be subject to the full individual tax rates or to a 23.4% dividend tax.  Finally, when the business is sold, the seller may receive a lower price (because the buyer can’t depreciate the purchased assets) or pay tax at an effective tax rate significantly higher than received or paid by the seller of a business structured as a S corporation or partnership.  So while taking advantage of the 20% C corporation tax rate may seem desirable to a growing business that reinvests its profits, the business owner may suffer a significant detriment upon a business sale and pay a higher tax rate on cash removed from the business in the meantime.

Conceivably, if you operate a small business, some flavor of the House and Senate proposals could reduce your tax liability.  There are some clean wins.  For example, both bills would allow many small businesses to immediately deduct much larger volumes of annual asset purchases, rather than take depreciation deductions over time. But if enacted, the tax rate proposals will not make life more simple or reduce difficult choices.

Changes to business tax rates are just the tip of the tax reform iceberg. The bills would make significant changes to many other areas of the tax law.  More to come…

Here is a link to a summary of the House bill: https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf

Here is link to a summary of the Senate bill: https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman’s%20Mark.pdf

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Section 1059A – A Trap for the Unwary?

Our community is near multiple major ports, including Port Manatee and the Port of Tampa.  Taxpayers that import goods through these ports should be aware of U.S. tax issues that can arise from their actions.  U.S. taxpayers that import goods from related parties outside the United States have several tax rules to consider in setting their transfer prices and reporting income, including the transfer pricing regimes in both the importing and exporting jurisdictions.  Among the U.S. tax rules that such importers must consider is a lesser-known Internal Revenue Code section, Section 1059A.

Section 1059A provides that the maximum amount a U.S. taxpayer may claim as basis in inventory goods imported from a related party is the amount that was determined for customs purposes when the goods were imported.  The statute is designed to prevent taxpayers from claiming low values for customs purposes (reducing the amount of U.S. customs duties owed) and high values for transfer pricing purposes (reducing the amount of U.S. taxable income).

A trap for the unwary can occur when related parties retroactively modify their intercompany pricing after goods are imported.  For example, a U.S. company may increase the amount paid for an imported good at the end of the year in order to satisfy the arm’s length standard for transfer pricing purposes.  This additional amount is generally be subject to customs duties, but reporting additional customs duties can fall through the cracks if a company’s personnel responsible for tax and customs compliance do not communicate regarding the adjustment.  In addition, even where additional amounts are reported for customs purposes, the timing of an upward adjustment in the customs price could prevent taxpayers from including the adjustment in the basis of the inventory for tax purposes if the adjustment is made after the customs value has been “finally-determined” (generally, 314 days after the date of entry).  These issues may frequently arise when taxpayers retroactively adjust transfer prices in accordance with Advance Pricing Agreements.

In recent years, practitioners have called for better coordination between the Internal Revenue Service and U.S. Customs and Border Protection along with reforms to eliminate the potential whipsaw of Section 1059A.  It remains to be seen whether current tax reform proposals will reach this issue.

Nicholas A. Gard
ngard@williamsparker.com
(941) 552-2563