By: John J. Eagan and L. Stephen Bowers
The Tax Cuts and Jobs Act (2017 Tax Act) limited the deduction of state and local taxes to $10,000 for individuals. Several states, including Connecticut, New Jersey and Maryland, have passed legislation that imposed income tax on a pass-through entity (PTE) such as on an S corporation, a partnership or a limited liability company taxed as a partnership. The PTE deducts the income tax, which then reduces the taxable income allocable to the PTE shareholders and partners. The PTE shareholders and partners then typically receive a credit on their state income tax returns for their share of the taxes paid by the PTE. (more…)
By: Marc S. Casarino, Lori S. Smith and Jeremy M. Miller
The Delaware Court of Chancery recently made news when it ruled that Delaware law, not California law, applied to a minority shareholder’s request to inspect the books and records of a Delaware corporation with its principal place of business in California. In Juul Labs, Inc. v. Daniel Grove [1], the principal substantive issue was whether Daniel Grove (Grove) waived his inspection rights concerning Juul Labs, Inc., a Delaware corporation (Juul Labs), with its principal place of business in San Francisco, California. Grove contended, among other things, that California Corporations Code Section 1601 applied, which expressly permits inspection rights of a corporation with its principal place of business in California, irrespective of the corporation’s domicile. [2] Juul Labs argued that Grove allegedly waived his inspection rights under certain private option and investor agreements, the California law is not applicable and Section 220 of the Delaware General Corporation Law applies,[3] and the exclusive forum selection clause in Juul Labs’ certificate of incorporation must be enforced.
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By: Carl Koerner
There is an old joke that a camel is a horse that has been designed by a committee. We all know that it isn’t true. In fact, camels are horses that have been bred for maximum tax efficiency. Tax efficiency is the benign term that we use for the tortured process of restructuring a business arrangement to minimize taxes—all taxes, including income, sales, estate, gross receipts, federal, state, city and foreign. When you realize how many taxes there are and how many jurisdictions impose them, the camel design looks pretty sleek. (more…)
By: Franca Tavella
On June 11, 2019, the IRS issued final regulations that will prohibit taxpayers from using state programs to sidestep state and local tax (SALT) deduction limitations. The SALT deduction, which has been in existence for over 100 years, has historically allowed high-income taxpayers to deduct certain state and local property, income and sales taxes on their federal tax returns without limitation. However, the Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000 per return for single filers, head of household filers, and married taxpayers filing jointly (the cap for married taxpayers filing separately is $5,000). As a result, states with relatively higher tax burdens – such as New York, Connecticut and New Jersey – developed various programs to help their residents circumvent the $10,000 SALT cap. For example, a taxpayer in New York could contribute to a charitable fund created by the State for educational or other purposes in return for a state income tax credit and the ability to separately deduct the entire charitable contribution on their federal tax return.
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By: Franca Tavella
On June 21, 2018, the United States Supreme Court decided South Dakota v. Wayfair Inc., et al., which upheld South Dakota’s economic nexus law allowing the state to impose sales tax upon online retailers who sell goods into South Dakota but do not have a physical nexus with that state – i.e., property or employees in the state. In doing this, the Supreme Court overruled the physical presence requirement set forth in Quill Corporation v. North Dakota in 1992.
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By: William Hussey
While April 15th is the due date by which most taxpayers have to file and pay any taxes due for 2018, April 16th marks “Tax Freedom Day” for United States taxpayers this year. Tax Freedom Day is the date each on which U.S. economic output equals the aggregate federal, state and local taxes (some $5.2 trillion) due to all the governmental entities that impose them. So, it is time to celebrate as we are now (largely) working for ourselves for the rest of the year! (more…)
By: John Eagan
The Internal Revenue Service (IRS) recently issued significant guidance regarding the implementation of the 2017 Tax Act provisions involving opportunity zones and the potential for both capital gain deferral and capital gain exclusion for investments related to these zones. Under the 2017 Tax Act, certain low-income communities can be designated as “qualified opportunity zones” and, after a nomination process, the IRS announced that more than 8,700 communities in all 50 states, the District of Columbia and five U.S. territories (American Samoa, Guam, Puerto Rico, the Northern Mariana Islands and the U.S. Virgin Islands) received the designation. (more…)
By: Carl Koerner
The Tax Cut and Jobs Act of 2017 (TCJA) is the most comprehensive restructuring of the tax law in over 30 years. For anyone in business today, it is likely that the law will include both tax gains and tax losses. In order to optimize the tax benefits of the new law, and minimize the tax burdens, business leaders have begun to rethink how their businesses are organized, capitalized and structured. The immediate “knee jerk” reaction is to think tactically. Should we switch to a pass through entity? Is it better to be taxed as a “C” corporation? But that type of narrow analysis is a lost opportunity. A better New Year’s Resolution is to use this legislation to encourage deeper analysis and strategic thinking. (more…)
By: Kevin Koscil and Carlos Piñeiro
A controlled foreign corporation (CFC) is a foreign corporation that is more than 50% owned by shareholders who: (a) are U.S. citizens or residents, domestic entities, or U.S. trusts and estates; and (b) own 10% or more of the foreign corporation’s voting power. Under current law, a pledge of a CFC’s assets in certain loan transactions triggers a deemed distribution to the U.S. shareholders of the CFC for U.S. income tax purposes. This rule applies whether the pledge of the CFC’s assets is direct or indirect, meaning that a pledge of CFC stock could implicate a deemed distribution. Under a safe harbor rule, however, a pledge of less than two-thirds of the CFC’s stock (measured by voting power) will not be considered an indirect pledge of the CFC’s assets.
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By: William Hussey
Since the release of Republican tax reform principles on September 27th by the so-called “Big Six,” both the U.S. House of Representatives and Senate have passed budget resolutions which clear a path forward for federal tax reform. As was widely anticipated, the House adopted the Senate budget resolution on October 26, 2017, and thus avoids the need to go to conference to work out the differences between the two chambers’ versions. The now joint resolution allows Congress as a whole to pass tax reform measures along party lines with a simple majority vote. The resolution also allows for tax cut measures to add up to $1.5 trillion to the federal deficit over a decade. However, the details of specific tax reform measures remain shrouded in a fog of ambiguity.
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