Tag Archives: Sarasota

Applicable Federal Rates for October 2018

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of-money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for October 2018:

Short Term AFR (Loans with Terms <= 3 Years)                                          2.55%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                    2.83%

Long Term AFR (Loans with Terms >9 Years)                                              2.99%

7520 Rate (Used in many estate planning vehicles)                                    3.4%

Here is a link to the complete list of rates.

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

Applicable Federal Rates for September 2018

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of-money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for September 2018:

Short Term AFR (Loans with Terms <= 3 Years)                                          2.51%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                   2.86%

Long Term AFR (Loans with Terms >9 Years)                                             3.02%

7520 Rate (Used in many estate planning vehicles)                                    3.4%

Here is a link to the complete list of rates.

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

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

IRS Issues Small Business Tax Reform Regulations, Clarifies Combinations of Business Entities

The tax reform legislation Congress passed in December left many details unanswered, especially regarding the small business tax benefit giving some businesses a twenty percent deduction against their income if the businesses satisfy certain employee payroll and property ownership thresholds. On August 8, the Internal Revenue Service issued proposed regulations attempting to address many of the open questions.

One of the biggest questions was whether taxpayers can treat employee payroll and property owned across multiple business entities (like corporation and limited liability companies) as a single combined business for the purpose of satisfying the employee payroll and property ownership tests.

For most types of businesses, the regulations generally would allow aggregation of property and payroll amongst different entities (such as partnerships and S corporations) if the same group of persons own the majority of the business for the majority of the year, the entities satisfy certain integration and interdependence tests, and the taxpayers follow specified filing procedures.

Those rules will not apply to most professional businesses, which are subject to limitations in the use of the small business deduction. These businesses are subject to rules forcing aggregation of income to prevent circumvention of the deduction limitations.

The rules are not fully binding until finalized, but IRS will apply the anti-abuse rules retroactively. Taxpayers can rely on these proposed rules until they are finalized.

We will provide more perspective on these important new rules soon. In the meantime, for more details, you can read the proposed regulations at irs.gov.

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

Tax Cuts and Job Act – Estate Planning Update

The Tax Cuts and Jobs Act, with a clear emphasis on job creation, introduced major tax changes for businesses. However, it also included a doubling of the exemption amount for federal estate, gift, and generation-skipping transfer tax purposes. With the increased exemption expected to sunset on December 31, 2025, or earlier, now is the time for persons with taxable estates to consider how best to use and lock-in the increased exemption. For those persons safely under the current and prior exemption, care needs to be taken that their current documents do not result in a misallocation of assets where such allocation is tied to the exemption amount.

A recent presentation given to the FICPA explores these issues as well as other changes that may affect estate planning and administration.

Daniel L. Tullidge
dtullidge@williamsparker.com
(941) 329-6627

Business Tax Changes Under the Tax Cuts and Jobs Act

The Tax Act passed at the end of 2017 brought with it a number of changes to how businesses both big and small are to be taxed moving forward. While the most visible change has been the lowering of the corporate tax rate to a flat 21 percent rate, most businesses should be able to find additional benefits from changes in how business equipment is to be depreciated, how net operating losses can be carried forward into future years, and what improvements to non-residential real property are eligible for an immediate deduction.

A recent presentation given to FICPA discusses the aspects of the Tax Act, other than the Qualified Business Income Deduction, which are most likely to affect the tax savings of your business.

Jamie E. Koepsel
jkoepsel@williamsparker.com
(941) 552-2562

Join Us: FICPA’s The Tax Cuts and Jobs Act CPE Seminar May 1

Williams Parker will lead a discussion on the Tax Cuts and Jobs Act tomorrow for the FICPA Gulf Coast Chapter at the Sarasota Yacht Club. Beginning at 8:30 a.m., the seminar will focus on the new carried interest rules, the new Section 199A qualified business income deduction, changes in the estate and gift tax and certain international provisions, and updates on tax controversy and IRS practice and procedure. Presenting on these topics will be attorneys from our Estate Planning, Corporate, and Tax practices. Three CPE credits will be provided.

John Wagner is a board certified tax attorney and chair of Williams Parker’s Corporate and Tax practices. He represents executives, entrepreneurs, and real estate investors in tax, transactional, capital raising, estate planning, and estate administration matters.

Michael Wilson is a board certified tax attorney with Williams Parker in Sarasota. He practices tax, corporate, and business law handling sophisticated tax planning and tax controversy matters and advising clients on their most significant business transactions.

Jamie Koepsel is a corporate and tax attorney with Williams Parker in Sarasota. His experience includes handling federal and state tax issues for individual and business clients.

Daniel Tullidge is a trusts and estates attorney with Williams Parker in Sarasota. He focuses on taxation, estate planning, and estate and trust administration.

Nicholas Gard is a corporate and tax attorney with Williams Parker in Sarasota. His experience includes work on a variety of tax matters, including federal tax litigation, tax disputes with the Internal Revenue Service at the examination and appeals levels, and international tax issues involving tax treaties, transfer pricing, and cross-border investments and business operations.

When:
Tuesday, May 1, 2018
8:30 – 11:30 a.m.
(Add to calendar)

Where:
Sarasota Yacht Club
1100 John Ringling Blvd, Sarasota, FL 34236

Breakfast and CPE credits will be provided. 

Register now at FICPA.org or by phone at (800) 342-3197.

We look forward to seeing you tomorrow as we share technical information, new developments, and practical advice on the Tax Cuts and Jobs Act.

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