Monthly Archives: July 2015

IRS Procures a Document Scanner, Simplifies Section 83(b) Elections

Having procured a document scanner, IRS has eliminated the requirement that taxpayers enclose Internal Revenue Code Section 83(b) elections with their income tax returns. When a taxpayer receives property (such as stock or LLC interests in an employer) in exchange for services, the taxpayer normally recognizes the fair market market value of the property as ordinary (regular tax rate) income in the year the property is transferable or is vested (i.e., not subject to forfeiture). A taxpayer can, however, accelerate recognition of income by filing a Section 83(b) election with IRS within thirty days of receiving the property. By doing so, the taxpayer can recognize the property’s value as ordinary income when first granted (when the value may be low) and start his or her long-term capital gain holding period sooner (so the taxpayer is more likely to recognize lower-tax-rate long-term capital gain on a larger portion of gain when the property is later sold). Previously, a Section 83(b) election was valid only if a copy was enclosed with the taxpayer’s income tax return for the year of the election, in addition to filing the election within thirty days of receiving the property. IRS required this because they could not match originally-filed elections with taxpayer tax returns. The absolute rule unfortunately proved a frequent trap for unorganized taxpayers who forgot to include the elections with their tax returns, even though they timely filed original elections. In recent years, some commercial electronic tax filing services had difficulty creating a means for their customers to include Section 83(b) elections with electronically filed returns. This caused some taxpayers to file paper income tax returns just to make sure their Section 83(b) elections were valid. In response to concerns surrounding this issue, IRS created a document scanning process that enables the agency to better match Section 83(b) elections with taxpayer returns, obviating the need to include the elections with taxpayers’ income tax returns. Document scanning is not a new technology. It is disappointing that common sense did not prevail long ago. The taxpayer “trap” has existed for years, but the “fix” only came about when the process became an administrative hassle for IRS. Nevertheless, the new approach is a positive step in tax administration, and we welcome the change. Here is a link to the Proposed Treasury Regulations, effective January 1, 2015:

E. John Wagner, II

Applicable Federal Rates for August 2015

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 August 2015:

Short Term AFR (Loans with Terms <= 3 Years)                                          0.48%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                     1.82%

Long Term AFR (Loans with Terms >9 Years)                                              2.82%

7520 Rate (Used in many estate planning vehicles)                                     2.2%

Here is a link to the complete list of rates:

E. John Wagner, II

When is an Assessment from the DOR Not an Assessment?

Upon completion of a Florida tax audit, the Department of Revenue (“DOR”) will issue a Notice of Proposed Assessment (“NOPA”) to assess any additional tax, interest, and penalties. By its terms, the NOPA provides that it will become a “final assessment” within 60 days of issuance if it is not challenged by the taxpayer. At the end of an audit of Verizon, the DOR issued a NOPA within 60 days prior to the expiration of the statute of limitations. Verizon took the position that the NOPA did not constitute an assessment for statute of limitation purposes until 60 days after its issuance, and by that time the assessment was time barred because the statute of limitations expired. Verizon lost at the trial court on a summary judgment motion, but the First District Court of Appeal recently ruled for Verizon, in a unanimous decision, that a NOPA does not constitute an assessment for statute of limitations purposes because it’s not a “final” assessment. Here is a link to the opinion:

Michael J. Wilson

Florida Tax Legislation Provides a Hodgepodge of Tax Breaks Totaling Over $400 Million

Florida House Bill 33, which was enacted just a few weeks ago, provides a number of tax cuts and incentives. The bill’s key provisions include:

1. A $60,000 cap on the amount of sales tax paid on repairs of a vessel, which would apply to a repair costing in excess of $1 million;

2. An expansion of the number of sales tax exemptions for agricultural equipment, including aquacultural products and feed for aquacultural products, storage, equipment, irrigation equipment, trailers, and plant stakes;

3. Changed the corporate income tax credit program from a first-come first-served basis to a prorated credit and limited the target industries allowed to claim the credit;

4. An additional $14 million for the corporate income tax research and development tax credit program in 2016;

5. A sales tax exemption on admissions for gun club memberships;

6. An extension of the community contribution tax credit programs to June 30, 2018, and a $3 million increase in the tax credit cap for housing projects;

7. An additional $16.6 million to be spent in fiscal year 2015-2016 on the brownfields tax credit program;

8. A 1.73% Communications Services Tax reduction, which went into effect July 1; and

9. A 10-day back-to-school sales tax holiday from August 7 through August 16.

Michael J. Wilson

Florida Supreme Court Rules for Expedia: Only the Amount Paid by Online Travel Company to Secure Hotel Reservation is Subject to Bed Tax

In a closely watched case, the Florida Supreme Court recently ruled that the tourist development tax (aka the bed tax) is not applicable to the total monetary amount charged by online travel companies, like Expedia, to secure hotel reservations. Counties may only tax the actual amount paid by the online travel company to secure the hotel reservation. Several counties filed a declaratory judgment action against Expedia and other online travel companies. The counties were seeking to tax online travel companies for the total amount a customer pays for making a hotel reservation. Customers make reservations for a hotel on the online travel company’s website, and the price paid by the customer includes a “mark-up” that is greater than the amount paid by the online travel company to the hotel. The counties sought to tax the total amount paid by the customer to the online travel company for securing the hotel reservation. In analyzing the legislative history of the tax, the Court ruled that the tax is be imposed only on the lower amount that hotels receive from the online travel company for the rent of their rooms. A link to the case is here:

Michael J. Wilson