1804, 2018

Cryptocurrency Creating Taxpayer Conundrums

By |April 18th, 2018|Resource Library|0 Comments

As the tax season winds to a close, tax practitioners and taxpayers can once again begin the process of looking ahead. However, this tax filing season has left several questions unanswered. In particular, the treatment of certain cryptocurrency transactions have left taxpayers searching for answers without a clear path forward.

Generally, the basic tax treatment of cryptocurrency has been addressed. In Notice 2014-21, the IRS alerted taxpayers that cryptocurrency will be subject to the same laws surrounding other forms of property. Although this concept seems straightforward, the nature of cryptocurrency has already lead to several substantial complications. For instance, simply determining the value of a cryptocurrency at any given moment may depend greatly on the exchange you are looking at and, given the volatility of the market, the time of day.

Compounding these issues is the general lack of public understanding surrounding the taxability of cryptocurrency. In US v. Coinbase Inc., the […]

2703, 2018

Spending Bill Makes Major Changes to Captive Insurance Rules

By |March 27th, 2018|Resource Library|0 Comments

On March 23, the President signed into law H.R. 1625. This legislation, also known as the “Consolidated Appropriations Act, 2018,” provides appropriations for the Federal Government through Sept. 30, 2018. However, H.R. 1625 also retroactively amends IRC § 831(b), by making changes to the diversification requirements imposed by the PATH Act of 2015.

The Path Act, in addition to increasing the limitation on premiums under 831(b), also required taxpayers to pass one of two tests. For ease, we will call these: 1) the 20 Percent Test or 2) the Ownership Test. However, questions arose regarding both of these tests – thus resulting in changes under H.R. 1625.

The 20 Percent Test

Under the 20 Percent Test, no more than 20 percent of the annual net written premiums of the captive insurance company can be attributable to one policyholder. For purposes of this test, brother/sister corporations are considered to be one policyholder.

Questions arose […]

2603, 2018

2018 Dirty Dozen Announced, Captive Insurance Remains on the List

By |March 26th, 2018|Resource Library|0 Comments

On March 19, the Serviced announced 2018’s “Dirty Dozen.” This list, compiled annually, warns taxpayers to stay alert and avoid items that the IRS refers to as “common scams.” Micro-captives, included in the Dirty Dozen under IR-2018-62, appear on this list for the fourth consecutive year. The 2018 Dirty Dozen also includes: frivolous tax arguments, falsified income, falsely padding deductions and returns, improper claims for business credits, falsely inflated returns, identity theft, phone scams, phishing, fake charities, and return preparer fraud.

Although an important, and legally recognized, tool for managing the insurable risks of businesses, the tax laws surrounding micro-captives leave them susceptible for abuse. This reality has fueled the Service’s apprehension of micro-captive arrangements. Since their first appearance on the Dirty Dozen in 2015, 831(b) captives have faced ever increasing scrutiny. Since then, a high profile ruling regarding 831(b) captives has been issued in Avrahami v. Commissioner, and micro-captives have […]

1503, 2018

IRS Increases Interest in Bitcoin

By |March 15th, 2018|Resource Library|0 Comments

Beginning last year, the IRS has been looking at transactions involving cryptocurrency with an increased scrutiny. Taxpayers buying, selling, mining, or exchanging cryptocurrency should be aware of the interest the IRS has shown in the area, and the possible consequences for failing to report taxable gain stemming from its use.

The IRS investigation into cryptocurrency abuses began when a John Doe Summons was issued to Coinbase Inc. This summons required Coinbase to turn over large amounts of personal data on any user making a transaction with cryptocurrency between Jan. 1, 2013 and Dec. 31, 2015. Coinbase, the nation’s largest Bitcoin exchange, refused to submit to the summons. On March 16, 2017, Coinbase filed a petition in the Federal District Court for the Northern District of California to have the summons thrown out.

The IRS argued in support of their summons that the number of taxpayers reporting Bitcoin related items on electronically filed […]

2002, 2018

The Base Erosion Anti-Abuse Tax Cometh

By |February 20th, 2018|Resource Library|0 Comments

International tax reform has added a new corporate minimum tax on US companies operating abroad. Taxpayers making certain deductible payments to related foreign parties should be on the lookout for the new Base Erosion Anti-Abuse Tax (BEAT). The BEAT, designed to target businesses making “base erosion payments,” became effective Jan. 1, 2018 as part of the historic Tax Cuts and Jobs Act (TCJA). The tax is designed to act as a base erosion minimum tax, limiting the past practice of lowering US tax by making substantial payments to foreign related parties.

Corporations with average annual gross receipts of $500 million for the three tax years prior to the current tax year and a base erosion percentage of 3 percent or greater are subject to the BEAT. This does not include any corporation that is a RIC, REIT, or an S Corporation.

“Base erosion payments” are payments made by a taxpayer to a […]

2901, 2018

Medical Device Excise Tax Back In Effect for 2018

By |January 29th, 2018|Resource Library|0 Comments

Taxpayers manufacturing or importing certain medical devices would have seen an uptick in their tax liability this year, but for legislation signed by the President on Jan. 22. In addition to ending the government shutdown (at least for a few weeks), the Federal Register Printing Savings Act of 2017 (H.R. 195) also extends the moratorium on the Medical Device Excise Tax (MDET). The MDET, originally enacted as part of the Patient Protection and Affordable Care Act (ACA) on March 23, 2010, had a moratorium put in place by the Protecting Americans from Tax Hikes (PATH) Act. The moratorium was originally set to expire Jan. 1, 2018, but now that H.R. 195 has been signed into law, the moratorium has been extend until Dec. 31, 2019.

Enacted as part of the ACA, IRC § 4191 imposes an excise tax on the sale of specified medical devices. The tax equals 2.3 percent of […]

2501, 2018

California Issues Emergency Regulations Governing the OTA and CDTFA

By |January 25th, 2018|Resource Library|0 Comments

Emergency Regulations regarding the Office of Tax Appeals (OTA) and the California Department of Tax and Fee Administration (CDTFA) have recently been issued by the state of California. Effective July 1, 2017, the OTA and CDTFA absorbed many, but not all, of the functions of the California State Board of Equalization (SBOE). The SBOE, established by the California Constitution, will continue to administer the state’s property tax. However, the OTA and CDTFA will absorb the majority of the SBOE’s other powers, including the administration of the Sales and Use Tax and the ability to serve as the appeals function for the state’s corporate and individual income taxes.

Although many of the changes in the Dec. 26, 2017 Emergency Regulations are administrative in nature, such as the new address for filing appeals, several of the rules will have a significant impact on taxpayers. While these rules are temporary—final regulations must be issued […]

2401, 2018

The First Major Impact of Reform to be Felt Through Repatriation

By |January 24th, 2018|Resource Library|0 Comments

In the aftermath of the largest tax bill in decades, taxpayers and practitioners alike are now left to digest the resulting impact. While each of the hundreds of new pages of legislative text has its own importance, one method of analyzing the new law is to triage what should be addressed first.

One of the most significant reforms to come out of the Tax Cuts and Jobs Act (TCJA) is the change to the US international tax system. The TCJA provides for a transition from the world-wide system of taxation currently employed by the US, to a modified territorial system where income earned abroad no longer has the incentive to be left offshore as dividends paid to the US may be exempt from tax.

However, the new system also comes with a cost of entry in the form of IRC § 965. This is a mandatory (read: not elective), one-time charge against […]

1101, 2018

Tax Reform Takes Its Final Form

By |January 11th, 2018|Resource Library|0 Comments

Over the last several months Tax Reform has been one of the stories dominating the national headlines. Speculation on the impact and the final form of this legislation has been growing ever since the first version of the bill was introduce in the House of Representatives on November 2. Now, two months and five votes after the bill was first introduced, the completed legislation has been approved by Congress and signed by the President.

Although the ultimate impacts of this legislation won’t be known for several more years, tax professionals can now at the very least begin to familiarize themselves with the intricacies of the new law. Although the majority of the final provisions should be familiar to those of us who have been following the legislation through both the House and the Senate, several items from each have been dropped or amended by the Conference Committee.

Corporations and other businesses will […]

801, 2018

Coca-Cola Granted Summary Judgement on Foreign Tax Credits Issue

By |January 8th, 2018|Resource Library|0 Comments

On Dec. 14, 2015, Coca-Cola filed a petition in the U.S. Tax Court fighting a proposed $9.4 billion transfer pricing adjustment by the IRS. Among the many items being challenged by the Service are royalty payments made to Coca-Cola from a licensee in Mexico resulting in foreign tax credits (FTC). Now, two years to the day of Coca-Cola’s filing of their original petition, the Tax Court has granted Coca-Cola’s motion for Summary Judgement on the FTC issue. Although the overall case will continue, the Court ruled that Coca-Cola is entitled to the FTCs generated by the royalty payments made by the Mexico Licensee.

Background

In 2015, the IRS challenged Coca-Cola’s method of calculating its U.S. taxable income from several of its foreign affiliates for the 2007 through 2009 tax years. In addition to asserting that Coca-Cola undercharged seven foreign affiliates for intellectual property, the IRS also challenged income allocations from a Canadian […]

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