Webinar Slides: Eye on Washington - Quarterly Business Tax Update Q1 2016
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#cbizmhmwebinar 1 CBIZ & MHM Executive Education Series™ Eye on Washington: Quarterly Tax Update (1st Quarter 2016) Steve Henley, Don Reiser and Bill Smith April 28 and May 3, 2016
Webinar Slides: Eye on Washington - Quarterly Business Tax Update Q1 2016
1. #cbizmhmwebinar 1 CBIZ & MHM Executive Education Series
Eye on Washington: Quarterly Tax Update (1st Quarter 2016) Steve
Henley, Don Reiser and Bill Smith April 28 and May 3, 2016
2. #cbizmhmwebinar 2 About Us Together, CBIZ & MHM are a
Top Ten accounting provider Offices in most major markets Tax,
audit and attest* and advisory services Over 2,900 professionals
nationwide A member of Kreston International A global network of
independent accounting firms
3. #cbizmhmwebinar 3 Before We Get Started To view this webinar
in full screen mode, click on view options in the upper right hand
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4. #cbizmhmwebinar 4 CPE Credit This webinar is eligible for
CPE credit. To receive credit, you will need to answer periodic
participation markers throughout the webinar. External participants
will receive their CPE certificate via email immediately following
the webinar.
5. #cbizmhmwebinar 5 Disclaimer The information in this
Executive Education Series course is a brief summary and may not
include all the details relevant to your situation. Please contact
your service provider to further discuss the impact on your
business.
6. CBIZ & MHM 6 Presenters Steve has 30 years experience in
serving the tax needs of clients in a variety of industries
including retail, distribution and manufacturing, services,
technology and communications. In serving as lead tax engagement
executive, Steves focus is identifying and executing value creating
strategies to meet the needs of his clients in a variety of
technical areas, such as revenue recognition, acceleration of
deductions, research and experimentation credits, state and local
tax minimization, M&A tax structures, international tax
planning and tax implications of compensation programs.
770.858.4443 [email protected] Stephen C. Henley, CPA National Tax
Practice Leader
7. #cbizmhmwebinar 7 Don Reiser serves as the National Leader
of the International Tax Practice for CBIZ. He has more than 30
years experience providing international tax consulting services to
public and privately-held U.S. and foreign-based corporations as
well as foreign individuals and businesses investing in the United
States. Working closely with clients that span a variety of
industries, Don addresses a broad range of domestic and foreign tax
matters. 212.790.5724 [email protected] Don Reiser Managing
Director
8. #cbizmhmwebinar 8 Bill Smith is a managing director in the
CBIZ National Tax Office. Bill monitors federal tax legislation and
consults nationally on a broad range of foreign and domestic tax
services for businesses and individuals. He is frequently sought
after by a myriad of media outlets to comment on the changing tax
environment and its effects on companies and individuals. He has
authored numerous tax articles, edits the CBIZ MHM InTouch
newsletter and federal Tax Alerts, and lectures on a broad range of
tax topics across the country. 301.951.3636 [email protected]
William M. Smith, Esq. Managing Director, CBIZ National Tax
Office
11. #cbizmhmwebinar 11 Obama 2017 Budget Revenue Raisers Long
term capital gain rate increased from 20% to 24.2% (with 3.8% NIIT,
would be 28%) Estate and gift rates and exemptions returned to
2009: 45% top rate; $3.5 million exemption for estates and $1
million for gifts Buffett rule: high income taxpayers subject to
30% minimum rate Cap charitable deduction benefit at 28% Tax
carried interests as ordinary income Limit 1031 deferral to $1
million
12. #cbizmhmwebinar 12 Obama 2017 Budget Business provisions
Repeal LIFO accounting Enhanced and simplified research incentives
beyond changes made by the PATH Act Addition of tax incentives for
designated Promise Zones; and Additional tax credits for
investments in qualified property used in a qualifying advanced
energy manufacturing project
13. #cbizmhmwebinar 13 Obama 2017 Budget Net Investment Income
Tax definition expanded Gross income and gain from any trades or
businesses of an individual that is not otherwise subject to
employment taxes Soften Cadillac Tax Increase the excise tax
threshold to the greater of the current law threshold or a "gold
plan average premium." Credit for hiring Community College grads
One-time credit of $5,000 for each qualified employee hired
full-time and certified as having earned a degree from an eligible
post-secondary institution.
14. #cbizmhmwebinar 14 House of Representatives on Tax Reform
House Republicans held a task force meeting March 1 to help create
consensus around tax proposals. Met again on March 23 plan a
hearing for April 13 on proposals to alter income-based taxation.
International tax changes are being crafted by Boustany and a
broader overhaul of the Code is expected from Rep. James B. Renacci
(R-Ohio), also a House Ways and Means Committee member. April 13:
Brady says timeline has changed no fixed time to release drafts
Republicans shooting for blueprint for broader tax overhaul by
convention in mid-July
15. #cbizmhmwebinar 15 Republican Candidates Tax Plans Donald
Trump Ted Cruz John Kasich Corporate Tax Top rate of 15%. 16% flat
tax on net business sales (gross sales minus expenses and capital
expenditures). Maximum rate of 28% or less. Double the R&D
credit for small business (under $20 million). All investment in
plant and equipment expensed instead of depreciated. Pass-Through
Entities No business income taxed at a rate higher than 15%. 10%
flat tax on individuals Pass-through income capped at 28% rate. All
investment in plant and equipment expensed instead of
depreciated.
16. #cbizmhmwebinar 16 Republican Candidates Tax Plans Donald
Trump Ted Cruz John Kasich Payroll Taxes No provision Eliminate No
provision Individual Tax Single and earn less than $25,000, or
married and jointly earn less than $50,000, no income tax. All
others: four brackets 0%, 10%, 20% and 25%. No marriage penalty 10%
flat tax. Payroll tax eliminated. Family of four pays no tax on
first $36,000 of income. Three brackets with top rate of 28%.
Capital gains taxed at 15%. Increase EIC by 10%.
17. #cbizmhmwebinar 17 Republican Candidates Tax Plans Donald
Trump Ted Cruz John Kasich Exemptions, Deductions and Credits 10%
bracket: keep all deductions. 20% bracket: keep most deductions.
25% bracket: keep fewer deductions. Charitable giving and mortgage
interest deductions will remain unchanged for all taxpayers.
Increase the Personal Exemption Phaseout and the Pease Limitation
on itemized deductions. $10,000 standard deduction and $4,000
personal exemption. Home mortgage deduction capped at $500,000.
Expands Child Tax Credit and expands EITC. Keep mortage interest
and charitable contributions at current levels. Repeal other
deductions. Alternative Minimum Tax Repeal Repeal No provision
Estate Tax Repeal Repeal Repeal Net Investment Income Tax Repeal
Repeal Repeal
18. #cbizmhmwebinar 18 Republican Candidates Tax Plans Donald
Trump Ted Cruz John Kasich International Tax A one-time deemed
repatriation of corporate cash held overseas at a 10% tax rate. End
the deferral of taxes on corporate income earned abroad. Foreign
tax credit will remain in place. A one-time deemed repatriation of
corporate cash held overseas at a 10% tax rate. Only income earned
in the United States will be taxed by the United States. Overseas
deferred earnings will face a one time tax at a low rate.
Affordable Care Act Repeal and replace Repeal No provision
19. #cbizmhmwebinar 19 Democratic Candidates Tax Plans
Corporate Tax Pass-Through Entities Hillary Clinton Bernie Sanders
No change to rate structures. Provide tax credits for businesses
that invest in community development and infrastructure. Provide
tax credits for businesses that hire apprentices or share profits
with employees. No major changes No change No provisions other than
changes to individual rates.
20. #cbizmhmwebinar 20 Democratic Candidates Tax Plans Hillary
Clinton Bernie Sanders Payroll Taxes No provision Enact a new 6.2
percent payroll tax paid by employers on the same tax base as the
current Medicare hospital insurance (HI) payroll tax. Extend the
Social Security payroll tax (combined employee and employer rate of
12.4 percent) to earnings over $250,000. Enact a new 0.2 percent
payroll tax paid by both employees and employers on the same tax
base as the current Social Security payroll tax.
21. #cbizmhmwebinar 21 Democratic Candidates Tax Plans Hillary
Clinton Bernie Sanders Individual Tax Tax carried interests as
ordinary income. Enact Buffet Rule 30% minimum tax on high income
(>$1 million AGI) indviduals. Surcharge of 4% on AGI over $5
million. Extend the current college tuition tax credit. Sliding
scale benefit of long term capital gains; must hold 6 years for
full benefit. Maximum rate of 28%, plus 2.2% surtax on all income.
Surtaxes on higher AGI: 9% between $200K-$500K (marginal rate:
37%); 15% between $500k - $2 million (marginal rate: 43%); 20%
between $2 mllion - $10 million (marginal rate: 48%) and 24% over
$10 million (marginal rate: 52%). Capital gains and qualified
dividend preferred rates apply only to those in 28% bracket or
below.
22. #cbizmhmwebinar 22 Democratic Candidates Tax Plans Hillary
Clinton Bernie Sanders Exemptions, Deductions and Credits Limit
value of most deductions to 28%. Eliminate tax benefits for
contributions to qualified plans once assets sufficent to fund
specified annuity amount. Repeal PEP and Pease phaseouts of
exemptions and itemized deductions. Alternative Minimum Tax No
change Repeal
23. #cbizmhmwebinar 23 Democratic Candidates Tax Plans Hillary
Clinton Bernie Sanders Estate Tax Permanently reduce the tax
threshold for estates to $3.5 million ($7 million for married
couples) with no adjustment for future inflation, increase the top
tax rate to 45 percent, and set the lifetime gift tax exemption at
$1 million. Permanently reduce the tax threshold for estates to
$3.5 million ($7 million for married couples) with no adjustment
for future inflation. Rates: 45% up to $10 million; 50% up to $50
million; 55% over $50 million, and 10% surtax over $500 million
individuals/$1 billion couples. Net Investment Income Tax No change
Increase from 3.8% to 10%.
24. #cbizmhmwebinar 24 Democratic Candidates Tax Plans Hillary
Clinton Bernie Sanders International Tax Levy an exit tax on
unrepatriated earnings. Tax US controlled foreign entities as US
corporations. End deferral of tax on controlled foreign
subsidiaries. Impose a per country limitation on the foreign tax
credit. Affordable Care Act Strengthen Repeal most provisions,
including employer and employee penalties; Cadillac tax; and excise
tax on health insurers.
25. #cbizmhmwebinar 25 ADMINISTRATIVE UPDATE
26. #cbizmhmwebinar 26 Transitional Relief For Certifying
Targeted Group Members For Work Opportunity Tax Credit Employers
claiming the work opportunity tax credit (WOTC) for targeted
workers have been granted an extension of time to no later than
June 29, 2016-- to submit Form 8850, Pre- Screening Notice and
Certification Request for the Work Opportunity Credit, to its
Designated Local Agency (DLA). Workers, hired January 1, 2015,
through May 31, 2016, who are members of groups targeted by the
WOTC provisions as listed under Code Sec. 51(c) prior to the PATH
Act; Workers, hired on or after January 1, 2016, and on or before
May 31, 2016, who are qualified long-term unemployment recipients.
Long-term unemployment recipients only became members targeted by
the WOTC under the PATH Act for hires after 2015.
27. #cbizmhmwebinar 27 JUDICIAL UPDATE
28. #cbizmhmwebinar 28 Brinks Gilson & Lione v Commr, T.C.
Memo. 2016-20 Law Firm established as corporation Cash method of
accounting The law firm had 65 shareholder attorneys, who were
entitled to dividends as and when declared by the board. For at
least 10 years before and including the years in issue, however,
petitioner had not paid a dividend. The board intended the sum of
the shareholder attorneys' yearend bonuses (bonus pool) to exhaust
book income. Law firm had invested capital, measured by the book
value of its shareholders' equity, of about $8 million at the end
of 2007 and about $9.3 million at the end of 2008 Law firm conceded
portion should be non-deductible dividends, and court held
corporation liable for penalties.
29. #cbizmhmwebinar 29 Polowniak v Commr, T.C. Memo. 2016-31
Taxpayer sole shareholder of S Corporation (SCo) Taxpayer set up
what his attorney called a Roth IRAs and privately owned Roth IRA
corporations (PIRAC) transaction New Roth IRA would purchase the
stock of a new corporation (Newco) treated as C Corporation Newco
engages in transactions with pre-existing wholly owned S
Corporation Taxpayer was Newcos sole employee, and entered into
consulting agreement with SCo for 75% of revenue from one client
Court held substance, not form, controlled. Held that taxpayer had
excess contributions to Roth IRA, subject to excise tax and
penalties.
30. #cbizmhmwebinar 30 Stuller v. U.S. (7th Cir.) H and W owned
several Steak n Shake franchises Bred horses Lived in Illinois but
bought property in Tennessee for their horses From 1994 to 2009, it
lost money every year except 1997, when its annual profit was
$1,500. From 1999 to 2005, its annual losses ranged between around
$130,000 to around $170,000 per year. During this time, LSA was
only able to continue operating because it received around $1.5
million in interest-free loans from the taxpayers, which were not
repaid.
31. #cbizmhmwebinar 31 Stuller v. U.S. (7th Cir.) Section 183
permits tax deductions for losses from S corp activities engaged in
for profit (i.e., business losses). Treasury Regulation 1.1832(b)
provides a non-exclusive list of relevant factors for determining
whether an activity is engaged in for profit, including: (1) the
manner in which the taxpayer carries on the activity; (2) the
expertise of the taxpayer or his advisors; (3) the time and effort
expended by the taxpayer; (4) the expectation that assets may
appreciate in value; (5) the taxpayer's success in other similar or
dissimilar activities; (6) the taxpayer's history of income or
losses; (7) the amount of occasional profits, if any; (8) the
financial status of the taxpayer; (9) elements of personal pleasure
or recreation.
32. #cbizmhmwebinar 32 Stuller v. U.S. (7th Cir.) No one factor
is determinative; instead, all relevant facts and circumstances are
to be taken into account. In considering whether an operation was a
business activity engaged in for profit, more weight is given to
objective facts than a taxpayer's statement of intent. District
court applied all of the factors and found that there was no intent
to make a profit. Court of appeals affirmed: kept minimal records
for tax purposes despite consistent and significant annual losses,
taxpayer did not change its operating methods or adopt any new
techniques that would significantly turn around its finances no
evidence that taxpayers consulted with any experts regarding
methods for running a profitable horse-breeding enterprise
substantial income from sources losses from the activity generate
substantial tax benefits personal or recreational elements
involved
33. #cbizmhmwebinar 33 Adkins v. U.S. (Cl. Ct.) Taxpayer
inadvertently invested in a so-called pump and dump scheme. The
promoters purchased large blocks of stock in various companies;
encouraging customers to purchase these stocks, artificially
inflating the stocks' prices; and then, once the price of a
particular stock was sufficiently inflated, selling the stock that
it owned, resulting in gains for the company and, due to the
subsequent decline in the stock price to a normal, uninflated
level, losses for the company's customers. Promoters were indicted
for violating federal securities laws in 2004. Taxpayer lost more
than $2 million in the scheme. Taxpayer claimed that the theft
occurred in 2004 for purposes of deducting the theft losses.
Taxpayer discovered loss in 2002 and filed an arbitration claim
against the promoters.
34. #cbizmhmwebinar 34 Adkins v. U.S. (Cl. Ct.) Taxpayer had to
delay the deduction until the year in which it could be ascertained
with reasonable certainty whether or not the taxpayer would receive
reimbursement of the losses from the arbitration claim. Taxpayer
interpreted 2004 indictment as indicator that Feds would take
everything, making any chance of recover in arbitration impossible.
There are at least three ways in which a taxpayer can ascertain
with reasonable certainty whether he will receive reimbursement for
his loss from a claim: settling the claim, adjudicating the claim,
and abandoning the claim (must produce objective evidence of
abandonment). Taxpayer did not formally withdraw his arbitration
claim until 2008. Taxpayer supplied no objective evidence that he
abandoned his claim in 2004.
35. #cbizmhmwebinar 35 INTERNATIONAL UPDATE
36. #cbizmhmwebinar 36 Proposed Regulations Under Section 385
On April 4. 2016, the U.S. Treasury Department issued proposed
regulations under Section 385 that, if finalized, would treat
certain debt instruments between related parties as stock for
federal income tax purposes Issued at the same time as temporary
regulations under Section 7874 on inversion transactions, but much
broader in scope Generally applies only to debt between members of
an expanded affiliated group (EAG)80% threshold
37. #cbizmhmwebinar 37 Proposed Regulations Under Section 385
Automatically Treat Debt as Stock in Certain Cases Debt instrument
issued by a corporation to a member of its EAG in one of the
following transactions: In a distribution with respect to the
issuers stock In exchange for stock of an EAG member (other than in
an exempt exchange) In exchange for property in an asset
reorganization Debt issued by a corporation to a member of its EAG
with the principal purpose of funding any of the three transactions
listed above Certain exceptions apply Applies to debt instruments
issued after April 4, 2016
38. #cbizmhmwebinar 38 Proposed Regulations Under Section 385
Treat Instrument as Part Debt and Part Equity Proposed regulations
authorize the IRS (but not taxpayers) to treat a single
related-party debt instrument as part debt and part equity Applies
to debt between members of a modified expanded group--50% threshold
Applies to debt instruments issued after final regulations are
published
39. #cbizmhmwebinar 39 Proposed Regulations Under Section 385
Documentation Requirements New contemporaneous documentation
requirements must be satisfied in order to treat the related-party
debt instrument as debt for federal income tax purposes Only
applies to large taxpayer groups One of more members of the EAG is
publicly traded The audited financial statement of any member of
the EAG reports total assets of more than $100 million or annual
total revenue of more than $50 million Written documentation must
establish the following: The issuers binding obligation to repay
the sums advanced on demand or on fixed dates The holders right to
enforce the terms of the obligation A reasonable expectation of the
issuers ability to repay the debt The existence of an ongoing
genuine debtor-creditor relationship
40. #cbizmhmwebinar 40 Proposed Regulations Under Section 385
Timing Documentation of first three debt characteristics must be
prepared no later than 30 days after the debt is issued
Documentation of ongoing debtor-creditor relationship must be
prepared no later than 120 days after the due date of each
principal or interest payment and the date of each default or
acceleration event Applies to debt instruments issued after final
regulations are published
41. #cbizmhmwebinar 41 U.S. Model Income Tax Treaty On February
17, 2016, the U.S. Treasury Department published a revised U.S.
Model Income Tax treaty that will serve as the baseline text that
Treasury will use in negotiating tax treaties Intended to more
clearly implement Treasury Departments policy that tax treaties
should eliminate double taxation without creating opportunities for
non-taxation or reduced taxation through evasion or avoidance
Denies treaty benefits for certain related party payments of
interest, royalties or guarantee fees if the recipient benefits
from a special tax regime Exclusive list of circumstances under
which a statute, regulation or administrative practice will be
treated as a special tax regime Exception if recipient country
imposes an effective tax rate on such income less than the lesser
of (i) 15% or (II) 60% of the general corporate rate
applicable
42. #cbizmhmwebinar 42 U.S. Model Income Tax Treaty Denies
treaty benefits for income attributable to a triangular permanent
establishment (PE) in situations where the income is either subject
to a low aggregate effective tax rate, or the residence country
does not tax the income attributable to the PE and the third
country does not have a tax treaty with the source country Broader
provision than existing triangular branch provisions in some U.S.
treaties Denies treaty benefits for U.S. withholding taxes on
payments of dividends, interest, royalties and guarantee fees made
by an expatriated entity (as defined under the inversion rules) to
a related foreign person within 10 years after the expatriation
transaction
43. #cbizmhmwebinar 43 U.S. Model Income Tax Treaty Contains a
number of significant changes to the limitation on benefits (LOB)
article that make it more difficult for third country residents to
qualify for treaty benefits Narrowed active trade or business and
derivative benefit tests Incorporates several recommendations from
the Base Erosion and Profit Splitting (BEPS) project: A rule
intended to protect against contract splitting abuses of the
12-month PE establishment threshold for building sites or
construction or installation projects A 12-month ownership and
residency requirement to obtain a 5% withholdng rate for direct
dividends
44. #cbizmhmwebinar 44 U.S. Model Income Tax Treaty However,
the 2016 Model Treaty does not adopt other BEPS recommendations
regarding the PE threshold No change in the existing dependent and
independent agent provisions or the auxiliary and preparatory
activities exemption Contains rules requiring that certain disputes
between tax authorities be resolved through mandatory binding
arbitration based on a last-best offer arbitration approach
45. #cbizmhmwebinar 45 ? QUESTIONS
46. #cbizmhmwebinar 46 If You Enjoyed This Webinar Upcoming
Courses: 5/11 & 6/1: Unclaimed, Unidentified but Undeniable - A
Primer on Managing your Abandoned Property 5/12 & 5/19: Revenue
Recognition Update for the Construction Industry 6/28 & 7/6:
Key International Tax Considerations - Mid-Year Update Recent
Publications: Transfer Pricing Quarterly Update: First Quarter 2016
FBAR Filing Reminders for the Upcoming June 30 Deadline IRS Updates
Premium Tax Credit Table, Required Contribution Percentage
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