Written by David Wheeler Newman Treasury Secretary Steven Mnuchin announced that individual taxpayers may defer payment of tax bills up to $1 million for ninety days, interest and penalty free, as part of a coronavirus stimulus bill announced by the administration on March 17. According to the Secretary, the $1 million limit is intended to provide relief to small businesses and pass-through entities like partnerships … Continue reading Federal Tax Payments May Be Delayed 90 Days
Internal Revenue Code section 6751(b) provides that no penalty shall be assessed under the Code unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination, or such higher level official as the Secretary of the Treasury may designate. This section defines penalty as any addition to tax or any additional amount. The requirement for prior written approval does not apply to penalties for failure to file a return or pay tax, or to penalties that are automatically calculated through electronic means, but does apply to negligence and substantial understatement penalties, as well as the “responsible party” penalty for failure to withhold or remit payroll taxes.
Tax legislation that was included in the massive spending bill signed by the President included provisions affecting the charitable sector. We previously reported on one provision involving the reviled nonprofit parking tax and on another provision granting temporary tax benefits for donations targeting disaster relief. Another provision will be good news for private foundations and their advisors.
Tax legislation that was included in the massive spending bill signed by the President included provisions affecting the charitable sector. We previously reported on one provision that will be welcomed across the sector. Another provision will be good news for donors making charitable contributions for disaster relief.
The Taxpayer Certainty and Disaster Relief Tax Act signed into law on December 20 includes various tax provisions intended to mitigate a portion of the enormous financial cost of recent hurricanes, tornadoes, forest fires, earthquakes and other natural disasters. Included was an enhanced tax benefit for donors making charitable contributions to organizations providing disaster relief.
Christmas came early for the nonprofit community when Congress repealed the hugely unpopular tax on parking and other transportation employee benefits.
The 2017 Tax Cuts and Jobs Act added a provision to the Internal Revenue Code that had no friends in the charitable sector: section 512(a)(7) made transportation fringe benefits including parking and public transit benefits, provided by nonprofit employers, subject to the unrelated business income tax (UBIT). Not only did this provision defy logic by taxing expenses rather than income, it forced the filing of an income tax return (Form 990-T) upon thousands of nonprofits that before 2018 had only filed a Form 990 informational return, but not a 990-T, not to mention countless churches that don’t even need to file the Form 990.
We regularly assist clients with worker classification audits that are conducted by both the Internal Revenue Service (the “IRS”) and the California Employment Development Department (the “EDD”). It appears that these types of audits may be occurring with greater frequency than in the past. Waiting until after the IRS or the EDD comes calling to review the status of these workers is not a good option.
There are two categories of workers- employees and independent contractors. From the perspective of a business, classifying a worker as an independent contractor is usually less expensive and entails fewer administrative burdens than classifying a worker as an employee. This is because various tax obligations (such as withholding and remitting income and employment taxes) are triggered when a worker is classified as an employee. In addition, if a worker is an employee he or she may be eligible for certain fringe benefits such as paid vacation, health insurance, and retirement plan participation. Moreover, labor laws impose numerous obligations on a business when it hires an employee. These tax and administrative requirements do not need to be satisfied when engaging an independent contractor. Continue reading “Are you rEDDy for the Audit?”
Wealthy Californians, and more importantly, their children and grandchildren, can pop that champagne. The bill that would have imposed a California gift, estate, and generation skipping transfer tax appears to be dead – – at least for now. It will not get a floor vote in the California Legislature. Absent a floor vote, the California bill will not obtain the required approval of the California Legislature to put it on the November 2020 ballot. Continue reading “Wealthy Californians (and their Children) Can Breathe a Sigh of Relief”
MSK private clients sometimes move from California, the state with the highest maximum individual income tax rate in the US – 13.3%! — to states like Nevada and Wyoming that have no income tax at all. Some of these clients are income beneficiaries of large charitable remainder trusts. How are distributions from those CRTs taxed once the income beneficiaries are no longer California residents?
First things first: remember how CRT distributions are characterized for tax purposes. Under Internal Revenue Code §664, distributions are treated as coming first, from the current and accumulated ordinary income of the trust (Tier One); second, from capital gains (Tier Two); third, from tax-exempt interest (Tier Three); and fourth, from corpus (Tier Four). Within each tier, distributions are treated as coming first from income taxed at a higher rate – for example, gain from the sale of collectibles, taxable at 28% before gain from the sale of stock, taxable at 20%. This requires careful record keeping by the trustee, to track the various types of trust receipts in the various sub-tiers, especially for NIMCRUTs that may make no distributions for several years. Continue reading “A Movable Feast”
The IRS has in a recent news release (IR-2019-23) reiterated its warning that individuals who owe federal taxes may not be able to renew their passport or obtain a new passport.
As we recently reported, taxpayers who have a “seriously delinquent tax debt” may be prevented from obtaining a new passport or renewing a current passport. This means that, if someone owes taxes to the federal government, he or she might be unable to travel outside of the U.S. Continue reading “Don’t Let the IRS Yank Your Passport”
We are often asked whether a new limited liability company (“LLC”) that will be active in California should be organized in California or Delaware. In the next several posts we will explore different topics relating to this threshold question, since an LLC operating in California may have its internal affairs governed by Delaware law if it is organized and properly maintained under Delaware law. And while the answer depends on the facts of each case, there are important common factors that all parties involved in this decision making process must carefully consider.
One of the most important factors in picking between California and Delaware are the default voting rights given to members in California that cannot be waived or altered by agreement. These fundamental voting rights shift a certain amount of power and control away from the managers, who are often the founders or initial investors, and towards the other members. Continue reading “Is the West Coast the Best Coast?”
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