Law Blog

DIGITAL ASSET REPORTING (CRYPTOCURRENCIES)

PER INFRASTRUCTURE INVESTMENT AND JOBS ACT OF 2021

INTRODUCTION:  The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.

EXISTING REPORTING RULES.  As you probably know, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions suc

In a recently released “Green Book” by the Biden Administration, proposed changes have been suggested for, among others, two major areas:

1. Capital gains taxation; and
2. The treatment of a property that is gifted or is transferred at death, which, for many years has received a “step-up” to fair market value at death - - but would as proposed result in the receipt of assets, by beneficiaries, due to someone’s death, as a tax realization event.

It is important to note that anything in the “Green Book” is, at this time, merely an administration proposal, and is not in any sense federal legislation that has proceeded through either house of Congress, or any committee.  Further, the information provided in this bl

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, is the latest major legislation that provides economic relief and stimulus, both tax and non-tax, during the Covid-19 pandemic.

Below are brief summaries of the key aspects of the tax provisions in ARPA.

Provisions Affecting Individuals

Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. The payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 (not 2022).

The maximum payments are $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent (which, unlike the first two stimulus payments,&nb

Introduction

Carried Interest arrangements, which are mainly used in partnership and LLC settings for private equity and alternative asset funds (to wit; hedge, real estate, energy, infrastructure, and fund of funds), have historically provided, to a management/marketing person, the ability to share in the net revenues as a partner, or member of a limited liability company (a “Carried Interest” held by a “Carried Partner”), without the Carried Partner actually contributing capital or property to the partnership, as a normal partner would. 

The word “partner” will be used in this discussion to include a member of a limited liability company and a partner in a partnership.

Carried Partners and their tax advisor

Business buildings generally have a 39-year depreciation period (27.5 years for residential rental properties).  However, some items of nonresidential business real property that are, seemingly, “part of the building” can, nevertheless, be depreciated over a far shorter period.

Generally, the speedier depreciation is available for items that service the machinery and equipment used in a building, but are not available for items that are used for the overall operation and maintenance of the building; to wit, “Faster Depreciation Items”.

Thus, for example, instead of being depreciated over a 39-year period, the costs of the building’s electrical system, to the extent that the

1. General Tax Filing and Payment Date extended from April 15, 2020 to July 15, 2020:
   
   Current Emergency Procedure.  Most taxpayers know that the Internal Revenue Service (“IRS”) issued permission, in separate notices during March, 2020, to allow taxpayers filing personal income tax returns, for 2019, and paying the balance of taxes shown on the return, a blanket extension to July 15, 2020 - - for filing and payment.  There will be no penalty and interest charged for filing and paying by July 15, 2020. For purposes of filing and paying 2019 taxes by July 15, 2020, it is not necessary to file with the IRS any extension application for a July 15, 2020 filing and payment. [IRS Notices 2020-18 and 2020-20].
   
   

Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers

Introduction:  For U.S. citizens, who maintain bank or financial accounts in a foreign country, there is a reporting and disclosure responsibility, under U.S. law, to identify the account and the average amount in the account during a particular reporting year.

The form to be filed (FinCEN Form 114) is an easily completed form, and its filing addresses an issue which, if ignored, can lead to significant penalties.

Typical Application:  Typically, the scenario applies, for example, to a U.S. citizen, living in Canada, who maintains all of his or her bank accounts in Canada.  The U.S. citizen may be completely unaware (i) that there is a U.S. repo

The Secure Act (Setting Every Community Up for Retirement Plan Enhancement), passed by Congress in late 2019, made changes that can affect distributions and tax burdens that impact beneficiaries of retirement plan assets, such as 401(k) plans and IRAs.

Currently, an individual, who is named as a beneficiary of a tax-deferred retirement account, can withdraw the required minimum distribution (RMD) over the beneficiary’s lifetime.  Since withdrawals from these accounts are often fully taxable as ordinary income, the ability to “stretch” the payments out over a lifetime minimizes the taxable income by distributing smaller taxable amounts each year.

The stretch may also prevent the beneficiary from being pushed into a higher tax bracket than if the dis

IRS has announced the 2020 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits, which are adjusted by reference to Code Sec. 415(d), are changed for 2020 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged.  [IRS Notice 2019-59]

The following plan limits are increased effective January 1, 2020:

Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) increases from $19,000 to $19,500 for 2020. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government’s Thrift Savings Plan.

Defined benefit plans

Generally, a surviving spouse may make a tax-free spousal rollover from a deceased spouse’s IRA only if the survivor is designated as the IRA’s beneficiary.  However, in a private letter ruling (PLR), IRS said this general rule didn’t apply – and a tax-free spousal rollover was OK – where the decedent failed to designate an IRS beneficiary, died without a will, and the surviving spouse was the administrator and sole heir to the decedent’s estate.

Background on surviving spouse’s IRA choices.  A surviving spouse designated as the beneficiary of an IRA need not leave the IRA in the decedent’s name.  The surviving spouse can either:

1. Roll over the decedent’s IRA into an IRA in the spouse’s n

In a private letter ruling, the Internal Revenue Service has concluded that a limited liability company (LLC)’s “S” corporation election was inadvertently terminated after its members adopted an amendment to the distribution provisions in the LLC’s operating agreement.  [PLR 201930023 / issued July 26, 2019]

Internal Revenue Code (“Code”) section 1361 defines a small business corporation (“S” corporation) as an eligible domestic corporation, which does not have:

1. More than 100 shareholders;
2. A shareholder who is not a U.S. resident individual (subject to certain exceptions); and
3. More than one class of stock.

A corporation is treated as havin

The Michigan Department of Treasury updated its guidance on the sales and use tax bad debt deduction for periods after September 30, 2009.  The revised release (Revenue Administrative Bulletin 2019-3) incorporates the Michigan Supreme Court’s 2018 decision in Ally Financial Inc. et. al. v. Department of Treasury.

In Ally Financial, the Court cla

2018 was a year of sweeping change. The enactment of the federal Tax Cuts & Jobs Act will dramatically affect many taxpayers, but time remains now to execute new strategies that will benefit you this tax year and in the future.

We examine a few actions you can still implement before the New Year to take advantage of the tax laws.

Many taxpayers feel that a Roth IRA offers several benefits over a traditional IRA. If you’re one of those people, and you meet the eligibility requirements, consider converting beaten-down stocks or mutual funds in a traditional IRA i

Noncorporate taxpayers take note. For tax years 2018 through 2025, the IRS allows you to claim an income tax deduction for “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship – as long as you meet certain requirements.

Sec. 199A of the Internal Revenue Code allows noncorporate taxpayers to deduct 20 percent of their QBI from the above pass-through entities, along with 20 percent of the

On August 1, 2018, the Michigan Department of Treasury issued a Revenue Administrative Bulletin describing the criteria for imposing sales and use tax on out-of-state and remote sellers. In light of the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, Michigan’s reach is now stronger than ever. 

 Under the Commerce Clause of the

Internal Revenue Service regulations provide that a taxpayer must capitalize an amount paid to facilitate an acquisition of a trade or business, which includes the process of investigating or otherwise pursuing the transaction. Other portions of the expense are currently deductible as ordinary and necessary business expenses. But what about an investment banker’s fee that is contingent upon the successful closing of the transaction?

According to the specific IRS provision, such a contingency fee is considered “an amount paid to facilitate the transaction except to the extent the taxp

For snowbirds who choose to head to warmer climes after enduring years of Michigan winters or for other Michigan business owners of companies that operate within the state but who reside in another state or country, the fact that you live elsewhere doesn’t protect you from the reach of Michigan taxes. How and where your business generates its income are critical considerations.

Michigan has enacted specific statutes that address the tax treatment of individuals who are equity holders of Michigan businesses or businesses that provide services in Michigan, but who live elsewhere other than Michigan.

According to the 

According to a recent and closely-watched decision from the North Carolina Supreme Court, it is unconstitutional for the state to tax a trust whose only connection to North Carolina was the residence of the beneficiary.

At issue in Kaestner 1992 Family Trust vs. North Carolina Department of Revenue was a trust that was created in New York and governed by New York law. At the time the trust was created, none of the beneficiaries resided in North Carolina, but later, Kimberly Rice Kaestner, a daughter of the settlor and a primary beneficiary of the trust, became a North Carolina resident.

The trust documents, financial books and recor

The tax reforms pushed by the Trump Administration and enacted by Congress in 2017 impacted several deductions that U.S. taxpayers have routinely claimed on their returns each year. Despite confusion regarding the scope of the Tax Cuts & Jobs Act (TCJA), the IRS has confirmed that mortgage and home equity loan interest is still deductible – with some changes.

A “qualified residence” is your main home, the place you live most of the time. It can be a house, condo, or cooperative apartment – as well as a house trailer, mobile home, or houseboat – as long as the home has toilet, cooking, and sleeping facilities.

A second home (no mo

It’s a fact of life in everyday business that companies take on debt to finance their operations and growth, and bonds are one type of debt instrument corporations use. Market influences and other forces can impact bond interest rates, but when a change in the federal corporate tax rate automatically changes a bond’s interest rate, is that a taxable event?

This precise question recently arose with a client when the 2017 Tax Cuts & Jobs Act (TCJA) lowered the corporate tax rate.

Some bonds and other debt instruments are structured so that their interest rates can be adjusted when the federal corporate tax rate changes. In some instances, the rate goes up or down automaticall