Posted by Randy Myeroff, CPA

Many give pause at the end of each year to reflect on recent accomplishments. And while progress is certainly worthy of discussion, in some respects an “accomplishment” seems, to me, to indicate a conclusion of some sort. When I think about our firm and its progress over the past year, I think in terms of ongoing efforts that are driving sustainable improvement and momentum. Our sole focus every day at Cohen & Company is to provide more value to our clients. We need to be smarter, more creative, more responsive and completely in tune with what our clients need today, as well as what they may need in the future.

A prime example of an ongoing effort to understand and advocate for our clients’ needs is the role our  Partner and Co-technical Director Pat Piteo played as a member of the national task force that developed the new AICPA Financial Reporting Framework for Small- and Medium-Sized Entities. This effort, which came to fruition in 2013 but was years in the making, will have a significant impact on a number of privately held companies both locally and nationwide.

Continually improving and succeeding within our own firm walls is also an ongoing process that will inevitably result in our ability to identify even more opportunities for our clients moving forward. And 2013 certainly did result in some exciting initiatives for Cohen & Company. We hired more than 50 new associates, including those right out of school and loaded with enthusiasm, as well as experienced professionals that came to us with equal enthusiasm and remarkable expertise. Our three “pillars” of service — Cohen & Company’s private company accounting and tax practice, Cohen Fund Audit Services’ investment industry practice and Sequoia Financial Group’s wealth management practice — all made strides in leadership development, client acquisition and enhanced service offerings. In Akron, we doubled our physical footprint when we moved into our new office space.

Continuing the expansion of resources to our clients, in 2013 we saw top attendance at our CPE and other client-focused events. We significantly increased business and industry content provided to clients via our Never Miss Blog, and we published the second and third issues of our client-focused Taxonomics magazine.

In addition, throughout the year we were fortunate to receive some prestigious and humbling recognitions such as Weatherhead 100, NorthCoast 99 and Best Accounting Firms to Work For. We found great opportunities to serve our communities at Firestone Park YMCA, Boys and Girls Clubs of Lorain County, Cleveland Foodbank, Antrim Park, Northern Kettle Moraine State Forest, and Easter Seals Adult Day Center, among others.

This past year was truly one of increased momentum, which has us looking at 2014 with great excitement and optimism. We will continue to attract the best and the brightest professionals, collaborate with clients to identify valuable opportunities and find new ways to serve our communities. 

We want to hear from you! Comment below on this blog post or share it on social media.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Mike McGivney, CPA, MSA

As a follow-up to our December 23rd post on the final IRC § 1411 regulations, the 3.8% Net Investment Income (NII) tax also has a significant impact on those individuals who are real estate professionals for tax purposes under IRC § 469. The final regulations outline a safe harbor position that these individuals can take to potentially avoid this tax.

What We Knew Before
The 3.8% NII tax is imposed on net passive income when a taxpayer’s modified adjusted gross income (AGI) exceeds $250,000 for joint filers, $200,000 for individuals or $125,000 for married filing separately. Among other items of income, NII includes rental income that was not earned in the ordinary course of a trade or business. When IRC § 1411 was first passed, those taxpayers who met the requirements of being a real estate professional and had elected to group their activities to meet the material participation tests initially thought the tax would not be assessed on their rental income, since such an election allows a taxpayer to treat such income and loss as nonpassive for regular income tax purposes. However, when proposed regulations were issued on IRC § 1411, that thought process changed.

The proposed regulations added an additional requirement to have rental income excluded from NII –such income would have to be from the “ordinary course of a trade or business.” How does the tax code define this? Quite simply, it doesn’t. As a result, taxpayers would need to assess each real estate activity separately (despite any grouping elections) to determine if it met the ordinary course of a trade or business threshold. Taxpayers seeking to exclude rental income from their calculation of NII would need to take a position based solely on facts and circumstances that such income was not taxable as NII.

What We Know Now
Fortunately, the final regulations provide real estate professionals with the opportunity for a safe harbor to avoid the NII tax. If a real estate professional participated in a rental real estate activity or group of activities for either more than 500 hours per year or more than 500 hours in five of the last 10 years, any income from such rental activity or activities will be deemed to be from the ordinary course of a trade or business, thus allowing a taxpayer to avoid the additional NII tax on the income. It is important to note that while the requirements of being a real estate professional can be met through involvement in a broad range of real estate activities, only involvement in rental activities counts towards the 500-hour hurdle.

It’s also important to note that if the safe harbor test is not met, relief from the NII tax may be available by establishing that the real estate income is from the ordinary course of a trade or business. Unfortunately, the IRS has not defined this concept, nor do we expect them to in the near future.

By instituting the safe harbor, the IRS has removed a significant amount of uncertainty for real estate  professionals regarding the NII tax. As always, care should be taken to document hours spent on real estate activities should the IRS ever challenge your status as a real estate professional or the applicability of this tax.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Mike McGivney at mmcgivney@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Pat Piteo, CPA

An Auditor’s Wish List

I often speak at our firm’s annual CPE event to give clients an update on changes in the accounting industry. I also use the opportunity to go over what I call my “auditor’s wish list.” This is my list of items that clients can do prior to and during an audit or review that will make the process smoother, more efficient and less burdensome for CPAs and their clients. Consider these points before your next audit or review:

• Schedule a planning meeting.
• Request a list of information that will be required of your staff (and dates required).
• Make sure all significant accounts have been reconciled and analyzed, any adjustments identified and all requested information prepared.
• Ensure books are closed and the final trial balance is prepared with all adjusting entries posted prior to the audit or review start date.
• Communicate with your auditors how you prefer to handle open items, follow-up requests, etc.
• Schedule available time for when auditors are onsite. We will need to ask you additional questions during the audit to finish the fieldwork.
• Communicate expectations as to timing of draft financials, including any meetings, or bank or other user deadlines.
• Throughout the audit process, communicate any requests you have for improvements on your auditor’s end.
• Identify and discuss any changes, new programs and significant events with your accountants during the year or as part of the planning meeting.
• Understand the timing and review constraints of your auditors.

Meeting deadlines is an important part of the audit or review process. But producing a quality product is just as important to us. We strive to exceed our own high standards when it comes to quality as well as those defined by the AICPA, Ohio Accountancy Board and users of the financial statements. To maintain that level of quality, we employ a rigorous process that includes multiple levels of review, from the staff and manager assigned to fieldwork through the technical partner who remains separate from the main engagement team and provides a final objective review to ensure the report is technically accurate. All significant changes made during the process must run through the entire approval process before draft documents can be released to the client. So I tell clients to communicate realistic draft deadlines from the start so we can schedule our engagement to both meet your required deadlines and our robust internal quality controls.

Adhering to these tips prior to and throughout the process should make your next audit or review experience a much less stressful one!

We want to hear from you! We encourage you to comment below on this blog post, share it on social media, or contact Pat Piteo at ppiteo@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Kim Palmer, CPA, MT

(And why does it matter?)

When is a sale a sale? When does a deal really close? Is it when title transfer occurs? It’s not always that simple unfortunately. Title transfer is only one of the factors when determining whether a transaction is closed and a sale has been made. There have been tax cases in which title had transferred but the sale was not considered closed. The opposite is also true — a sale was considered closed before title had transferred. There are also a number of cases where the sale was considered closed but possession had never been transferred.

While a transaction qualifies as a sale or exchange if property is transferred in exchange for consideration, effectively, a sale occurs when the benefits and burdens of ownership transfer from buyer to seller. So, in addition to title transfer, the following factors are ones the courts have considered in determining whether a sale has in fact occurred.

• How the parties treat the transaction
• Which party pays the property taxes
• Which party bears the risk of loss or damages to the property
• Which party receives the profits from the operation and sale of the property
• Whether there is a fixed sales price
• The parties’ intent
• The extent of control the purchaser has over the property
• Which party is responsible to insure the property
• A right to improve/change the property without the seller’s consent
• Whether the purchaser assumes obligations of which the property is subject
• Whether right to possession is vested in the purchaser
• Side agreements and/or surrounding circumstances

So, why is the precise date a sale is considered a sale an important detail? Because there are a number of scenarios in which the timing of the deal closing could significantly impact the tax liability of the buyer or seller. With the wide ranges in tax rates (both in ordinary rates and in capital gains rates based on the taxpayer’s income level) and specific taxes that are only applicable at certain income levels (e.g., the net investment income tax under IRC Section 1411), the actual year of sale could result in significant tax savings or liabilities. For example, a taxpayer generally may plan to pay tax on capital gains at 15%, but if the sale closes during a year he has a substantial amount of additional income that puts him in a higher tax bracket, he could end up paying 20% on the capital gain plus 3.8% net investment income tax. That means approximately 10% of the sale proceeds would go toward taxes instead of into the seller’s pocket.

Another scenario in which the sale date becomes critical is in like-kind-exchange transactions. In a 1031 exchange, the seller has 45 days from the sale date to identify a replacement property and 180 days from the sale date to purchase a replacement. This is a tight time frame when trying to complete large real estate portfolio like-kind exchanges, and every day can make a difference. From the buyer’s standpoint, the sale date determines when the buyer can start depreciating the asset (assuming it is an asset subject to depreciation). If this is in a year in which the bonus depreciation provisions apply, this can become significant if trying to close the transaction by year-end.

Specific facts and circumstances will always dictate when a sale officially occurs, and there is no listing of safe harbors for a sale to be considered closed. But bringing your advisors into the process as early as possible can aid in careful transaction planning that will allow you to maximize any tax opportunities or mitigate tax liabilities.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Kim Palmer at kpalmer@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter. 

Posted by Jami Blake, CPA

On January 16, 2014, the Financial Accounting Standards Board (FASB) issued two updates to existing generally accepted accounting principles (GAAP). The updates are specific to private companies and provide alternatives for accounting in the areas of goodwill and interest rate swaps. Both alternatives will be effective for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. However, early adoption is permitted for both alternatives; and, if chosen, may impact financial statements being issued for the 2013 year.

These standards are yet another way FASB is attempting to address the needs of private companies, particularly to simplify the process and minimize the costs associated with the complexity of complying under current GAAP. As these standards were just recently released, there are still many questions about and nuances to applying them. And, of course, circumstances  can vary significantly from client to client. If you are interested in learning more about the new updates, potentially for your 2013 reports, contact Jami Blake at jblake@cohencpa.com or a member of your service team.

Read the in-depth “FASB in Focus” article to learn what FASB has to say.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter. 

Posted by Alane Boffa CPA, MT

Many auto dealerships these days are putting on a fresh face, remodeling their storefronts and showrooms to remain competitive as the auto industry and our economy continue to rebound. One of the main reasons now is the time to take on such a large and costly project is because auto manufacturers are strongly encouraging dealers to do so (whether they like it or not). Many manufacturers are offering cash incentives to modernize their showrooms under various factory image plans. Each plan has unique requirements and targets that must be met for a dealer to qualify. Generally, most dealership are complying and are therefore receiving the incentives, which reduce a remodel project’s cost to the dealership.

There are a couple key strategic tax opportunities that dealerships can take advantage of in combination with manufacturer incentives to really maximize savings:

1. InvestOhio. Under the current Ohio budget, tax credits are available for new equity investments made in Ohio companies. If structured properly, 10% of your remodel project costs can come back to you via state tax credits. Read our previous blog posts on the InvestOhio program. Already planning your remodel project?  If you have yet to start paying the contractor, there may still be time to structure it under the InvestOhio rules.
2. Cost Segregation Studies. The dealership building and its improvements are typically depreciated over 39 years. A cost segregation study helps to categorize the many aspects of the remodel into several other asset categories, which are depreciated over shorter lives. This can result in immediate tax deductions and more cash in your pocket. For dealerships that closed projects in 2013, a cost segregation study may still provide significant savings on the 2013 tax returns, if taken advantage of ASAP.

While cost segregation studies are here to stay, InvestOhio credits are only available as long as the funds set aside for the program lasts. Each manufacturer’s incentive plan has expiration dates as well, so now may be the best time to plan your dealership’s remodel.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Alane Boffa at aboffa@cohencpa.com or Neil Kaback at nkaback@cohencpa.com for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

YYPosted by Alane Boffa CPA, MT

Many auto dealerships these days are putting on a fresh face, remodeling their storefronts and showrooms to remain competitive as the auto industry and our economy continue to rebound. One of the main reasons now is the time to take on such a large and costly project is because auto manufacturers are strongly encouraging dealers to do so (whether they like it or not). Many manufacturers are offering cash incentives to modernize their showrooms under various factory image plans. Each plan has unique requirements and targets that must be met for a dealer to qualify. Generally, most dealership are complying and are therefore receiving the incentives, which reduce a remodel project’s cost to the dealership.

There are a couple key strategic tax opportunities that dealerships can take advantage of in combination with manufacturer incentives to really maximize savings:

1. InvestOhio. Under the current Ohio budget, tax credits are available for new equity investments made in Ohio companies. If structured properly, 10% of your remodel project costs can come back to you via state tax credits. Read our previous blog posts on the InvestOhio program. Already planning your remodel project?  If you have yet to start paying the contractor, there may still be time to structure it under the InvestOhio rules.
2. Cost Segregation Studies. The dealership building and its improvements are typically depreciated over 39 years. A cost segregation study helps to categorize the many aspects of the remodel into several other asset categories, which are depreciated over shorter lives. This can result in immediate tax deductions and more cash in your pocket. For dealerships that closed projects in 2013, a cost segregation study may still provide significant savings on the 2013 tax returns, if taken advantage of ASAP.

While cost segregation studies are here to stay, InvestOhio credits are only available as long as the funds set aside for the program lasts. Each manufacturer’s incentive plan has expiration dates as well, so now may be the best time to plan your dealership’s remodel.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Alane Boffa at aboffa@cohencpa.com or Neil Kaback at nkaback@cohencpa.com for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Angel Rice, CPA, MT, MAcc

We find that many businesses are not always aware of the potential requirement to file Form 5500 each year; the form details financial conditions, investments and operations of benefit plans, as required by ERISA and the IRS. The fact is, if you have more than 100 employees who participate in your health and welfare, or “fringe,” benefit plans, you are required to file annually.

Plan sponsors generally must file the return on the last day of the seventh month after their plan year ends, which is July 31 for plan years ending December 31. It is important to note that although there generally is a third party administrator (TPA) who files Form 5500 for a company’s retirement plans, there generally is not a TPA involved with welfare benefit plans. Therefore, unless you are filing Form 5500 on your own behalf or have communicated with your accountants, it is very likely that it is not being filed.

To ensure you meet the filing deadline, now is the time to contact your accounting team with the key information detailed below.

If you have filed Form 5500 for 2012 or prior years

• Talk with your advisors to discuss which benefits you offer through which insurance carriers, how many people participate in that benefit and if there have been any changes from prior years.
• Soon you should be receiving information from your insurance company in the form of a Schedule A for each benefit offered. Forward copies of any Schedule A’s as well as a copy of your wrap document, if you have one, to your service team as soon as possible.

If you have not filed Form 5500 for 2012 or prior years

• Do you offer health and welfare (fringe) benefits to your employees? If so, do you have more than 100 employees who participate? If the answers to both of these questions are “yes,” contact your service team and provide them with the information in the section above. Also inquire as to whether you may qualify for any voluntary compliance programs to minimize penalties from failing to file in previous years.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Angel Rice at arice@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Andrew Whitehair, CPA

March 6th deadline to use 65-day election strategy

The tax community has been bracing and planning for the implementation of the 3.8% Net Investment Income (NII) tax (aka Medicare Surtax) since it was introduced as part of the Affordable Care Act in 2010. Recently released final regulations clarify the implementation of the new tax (read our 12.23.13 blog post), but they also highlight the fact that the NII tax will disproportionately impact trusts and estates.

While the NII tax only applies to individual taxpayers with AGI in excess of $200,000 (single) and $250,000 (married filing joint), the tax applies to trusts and estates with AGI in excess of only $11,950 for 2013 and $12,150 for 2014. In addition to the NII tax, condensed trust tax brackets result in trusts — even those at the low AGI thresholds above — paying tax at the highest marginal income tax rate. While condensed brackets are nothing new, the implementation of the NII tax combined with an increase in the top marginal income tax rate from (35% to 39.6%) and an increase in the top tax rate used for qualified dividends and long-term capital gains rates (from 15% to 20%) add new importance to considering trust distributions.

It’s not too late… yet

Because the NII tax and new income tax rates apply for 2013, what can a trustee do now that 2013 is over? Fortunately, IRC Code Sec. 663(b) allows a trustee to treat amounts paid or credited to a beneficiary of an estate or complex trust within the first 65 days following the close of the tax year — March 6, 2014, for those on a calendar year — to be considered as paid or credited on the last day of the prior tax year. This election provides considerable flexibility to the fiduciary to maximize tax savings across the entire family unit.

For example, assume parents established a trust for the benefit of their adult daughter Sally. The trust agreement provides that income may be distributed or accumulated on behalf of Sally. In 2013, the trust and Sally both expect $50,000 each of investment income eligible for the reduced qualified dividends tax rate. Case #1 assumes no tax planning, and Case #2 shows the result if the trustee makes distributions to Sally, who is in a much lower tax bracket.

By making distributions from the trust, the combined family unit will pay approximately $2,500 less tax in this simplified illustration. Even if the trustee did not make a distribution before the end of the prior tax year, the trustee still has 65 days from the end of the tax year to make a distribution and treat it as if it were distributed in the prior tax year. There may be other reasons, such as creditor protection or estate tax planning, a trustee may not want to make distributions, even if they may result in a better tax outcome. However, beneficiary distributions along with a 65-day election can be an effective tax planning strategy in the right situation.
 

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Andy Whitehair at awhitehair@cohencpa.com or a member of your service team for further discussion. 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Paul Gregory, CPA

Ever attend a networking event to find that you are standing in the corner looking down at the ground and not wanting to engage with other attendees? You are not alone. Many of us are as uncomfortable approaching strangers as we are speaking in front of large audiences. I find this particularly true for those of us in the accounting profession! One tactic I often try is to seek out another person who is staring at the ground or looks uncomfortable. Chances are they do not have a large network and could be a great referral resource for you and your business. An added bonus is that you may make the person feel comfortable in a very uncomfortable situation and could introduce them to others you know at the event.

In addition to networking for your own gain, keep your clients in mind at the next event you attend. At Cohen & Company, we know that making business introductions is another way to provide value to our clients and show them we care. While an introduction may not always lead to additional business (but kudos to you if it does), it shows your client you have their best interests in mind and adds to the goodwill of the relationship. I try to get clients together at networking events to share stories and let them determine how they can help each other out.

A few basic pointers that have helped me over the years will hopefully add up to helping you find networking success:

1. Keep notes on the business cards of the people you meet; get to know them personally as well as professionally.
2. Find out what the person’s largest issues/pains are in their workplace/business and see if you can help.
3. Find a common ground with folks, personal or business, and begin building a relationship from there.
4. Use the six degrees of separation (think Kevin Bacon) and see what friends/business contacts you have in common.
5. Utilize the internet. Sites such as LinkedIn are extremely helpful to connect to others and to see connections you may have in common.
6. Stay in contact with the people you meet. The more you keep in contact, e.g., send a note with an article attached that’s relevant to their business, drop them an email seeing if they will be at the next industry association happy hour, etc., the greater the chance that professional and personal relationships will develop. People do business with people they enjoy being around.
7. Ask a client, prospect or referral source to join you at a networking event and play off the power of both of your connections and/or networking abilities.
8. Don’t be afraid to network with your friends, neighbors, the person sitting next to you at school events or other venues.

The more people you know, and even the smallest, yet frequent, interactions with them, the more chances you will have to cultivate new relationships that may uncover surprising opportunities!

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Paul Gregory at pgregory@cohencpa.com for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Dave Sobochan, CPA

The real estate industry should take notice. Representative Dave Camp released the proposed Tax Reform Bill of 2014. If enacted, this bill would create sweeping changes to the tax landscape, particularly as it relates to real estate businesses. Below is a summary of some of the proposed changes.

• Personal income tax brackets. These would change from the current seven tax brackets — 10, 15, 25, 28, 33, 35 and 39.6% — to three — 10, 25 and 35%. The proposed 35% rate would be composed of the 25% rate and an additional 10% tax on modified adjusted gross income in excess of $450,000 for joint filers and $400,000 for all other filers. The 35% bracket would not apply to qualified domestic manufacturing income.
• Corporate tax rates. These would gradually decrease from the current rate of 35% down to 25% by 2019.
• Capital gains rates. The maximum individual capital gains rates would be 24.8% (21% tax rate plus the 3.8% net investment income tax rate).
• Depreciation. The proposal would repeal MACRS and subject depreciable property to the Alternative Depreciation System (straight-line system) for property placed into service after 2016. Both residential and nonresidential property would have a useful life of 40 years under this system.
• Section 179. The proposal provides that the maximum amount a taxpayer may expense, for taxable years beginning after 2013, would be $250,000 of the cost of qualifying property placed in service for the taxable year. The $250,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000. The $250,000 and $800,000 amounts are indexed for inflation for taxable years beginning after 2014. The proposal also makes permanent the treatment of qualified real property as eligible section 179 property.
• Depreciation recapture (real estate). Depreciation deductions on real property after January 1, 2015, would be recaptured at ordinary income rates.
• Qualified environmental remediation expenses. These would be required to be capitalized and amortized over 40 years. Under current law, these expenses are capitalized to the cost of the land. Under pre-2013 tax law, the expenses were deductible.
• Tax-basis adjustments. Tax-basis adjustments under Section 754 due to a death or transfer of a partnership interest would be mandatory. Currently these adjustments are optional in most cases.

In addition, the following items would be repealed under the proposed bill:

• 179D deduction for commercial energy efficient property
• Domestic Production Activities Deduction (available to construction/architecture/engineering industries)
• Like-kind exchanges
• Historic tax credit
• Work Opportunity Tax Credit
• Alternative minimum tax
• Bonus depreciation
• 15-year depreciable lives for qualified leasehold, restaurant, retail improvements

Items not changed would include New Markets Tax Credit and the Production Tax Credit for wind/solar projects.

Regardless of the fate of this proposal, it is significant in that it could very well serve as the starting point for the massive tax reform process on the horizon. We will continue to monitor significant proposals as they are released.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Dave Sobochan at dsobochan@cohencpa.com for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

A simplified tax code, lower personal and corporate income tax rates condensed into fewer brackets, the elimination of preferred rates on capital gain and qualified dividends, fewer tax breaks — the list of sweeping changes in Representative Dave Camp’s 979-page plan for tax reform is long.

Camp, chairman of the Ways and Means Committee, is creating quite a buzz with his proposal, even though many believe it isn’t close to a passable piece of legislation. Cohen & Company Founder Ron Cohen comments that “both sides of the political aisle are going to oppose many of the provisions for their own partisan reasons.” He also reminds us of “The Norquist Pledge,” a document that a majority of Republican (and even a few Democrats) members of the House and Senate have signed to never vote for a piece of legislation that raises taxes in any way. Since the legislation currently on the table stands to increase taxes for some individuals, this serves as another example of the hurdles Congress will need to pass to enact real change.

However, the proposal seems to be accomplishing one important thing: it’s opening the door to serious discussion, with tangible details to debate. That’s the real impact of this proposal. It highlights just how far we have to go by starting a real conversation from which we can begin to see both the negatives and positives of various tax strategies. For example, the proposal addresses how FICA/self-employment tax can be applied differently. “The proposed sweeping changes to this area combined with lower tax rates could change the landscape for companies,” according to Tax Partner Mike Kolk, “adding incentives to add a C corporation into a business’s tax strategy or to bring more nonparticipating family members into company ownership where the tests for a reasonable wage for participating members is based on facts and circumstances and not an arbitrary 70/30 split.”

The particular details of this bill aside, some feel it is hard to imagine a serious debate on tax reform at all based on the recent dysfunction of Congress in general. As Tax Partner Tracy Monroe points out, “I am not sure if Congress can pass any piece of legislation right now.”

One thing is for sure: we are in for a long road ahead and many more discussions to come. Stay tuned…

Wonder how this proposal would affect the real estate industry? Read our blog post on the topic.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact a member of your service team to get their perspective.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Ray Polantz, CPA, MT

Generally, U.S. taxpayers who are carrying on business in Canada are required to calculate profits attributable to Canada and pay the related Canadian income tax. However, the U.S.-Canada income tax treaty provides some relief, as it sets forth a higher standard that must be met before becoming subject to the Canadian income tax.

The treaty provides that U.S. taxpayers must have a “permanent establishment” (PE) in Canada in order to be liable for Canadian income taxes. There are a number of activities that can create a PE. A classic example would be an office building or other fixed place of business. However, other activities can create a deemed PE, including a sales person with the ability to approve orders or an employee providing services for an aggregate of 183 days or more in any 12-month period. These activity-related PE provisions apply not only to employees but also to independent contractors such as consultants and service providers.    

Keep in mind that even if the treaty provides you with income tax relief for your Canadian business activities, it still may be necessary to file a Canadian income tax return to claim this treaty position — formally letting the Canadian Revenue Agency know that your business activities do not rise to the level that would create income tax liability.

So what happens if your activities do create a PE in Canada? You will be subject to Canadian income tax on attributable profits. However, income taxes paid to Canada are eligible for a foreign tax credit (dollar-for-dollar reduction) against U.S. tax, subject to certain limits. Proper planning can ensure this credit is maximized, thereby reducing worldwide taxes.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Ray Polantz at rpolantz@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Tony Bakale, CPA, MT

Industry professionals have had some time now to digest the recent IRS provisions in Revenue Procedure 2014-12, which provides a safe harbor for structuring investments in federal Historic Rehabilitation Tax Credits (HTCs) available under IRC Section 47 (read our 1.03.14 blog post). Some deals in progress may be able to be re-worked to fall within the safe harbor, while others may just be too far down the road to modify at this point. However, I think it is safe to say that any new deals going forward will be structured to meet the safe harbor requirements — or risk scaring off investors.

Deciphering Fuzzy Safe Harbor Requirements
There are many requirements that must be met to qualify for the safe harbor. Some are fairly mechanical and their impact can be modeled out. Others, not so much. Rev. Proc. 2014-12 contains what I will call some “soft and fuzzy provisions,” provisions that no one can ever truly feel confident they have met. One of these provisions, found in Section 4.02(c), states: “The value of the Investor’s Partnership interest may not be reduced through fees … that are unreasonable as compared to fees … for a real estate development project that does not qualify for section 47 rehabilitation credits …” Industry insiders are interpreting this to mean that fees, lease arrangements, etc. between the project, developer and any affiliates must be set at a “reasonable” arms-length amount as compared to what those fees would be in a non-HTC deal. Whenever the IRS uses terms of art such as “reasonable,” “substantially” or “fair,” you can bet those are the areas they will scrutinize in the future.

Consider a Third-Party Fairness Opinion
What can the participants in a safe harbor HTC deal do to help meet the requirements? Generally, the best course of action is to receive what is often referred to as a “fairness opinion.” That is, hire a third-party with industry knowledge, valuation and transfer pricing experience to issue an opinion, similar to a valuation report, that states the fees (e.g., lease rates) being charged are reasonable and comparable to non-HTC deals under the particular deal’s circumstances. This report should establish industry comparables based on both private and non-private deals that are relevant to the particular project. For example, if your opinion covers a master lease situation, are the terms reasonable based on comparables within your project’s region for the type of property subject to the master lease? If the opinion covers property management fees, an analysis should be provided that covers services provided, type of property comparables in the region and type of property. Property management fees for a retail mall will not be the same as property management fees for a commercial industrial building. A report should be specific for your situation and cover all fees charged by the developer and its affiliate. It is important that the issuer of the opinion has a thorough understanding of the project and some industry expertise.

Having a qualified third-party conduct a fairness opinion will, of course, add an additional layer of cost to the deal, but it is better to sleep at night then worry if your deal is going to implode sometime in the next three or four years.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Tony Bakale at tbakale@cohencpa.com to discuss options for obtaining a fairness opinion for your next HTC deal.
 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Andrew Whitehair, CPA/PFS

IRS issues new process and filing deadline

The concept of portability introduced via the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and made permanent in the American Taxpayer Relief Act (ATRA) of 2012 was a major win for taxpayers, particularly those with “smaller” estates. Portability allows the estate of a decedent who is survived by a spouse to transfer the decedent’s unused estate tax exemption to the surviving spouse.

But here’s the key: to elect portability, the executor is required to file an estate tax return within nine months of date of death (absent an extension) even if an estate tax return is not otherwise required.

Confused?  You’re not alone. A combination of changing laws (some of which were applied retroactively), late issued guidance from the IRS, and the new rules of portability left many advisors and executors of estates with decedents dying after 2010 struggling to take the appropriate action. As a result, many executors may have missed the opportunity to make a portability election, thus, potentially subjecting the surviving spouse to an unnecessary estate tax liability. To correct this mistake, taxpayers previously were required to request relief via an IRS private letter ruling and to pay a user fee of $10,000.

Fortunately, in Revenue Procedure 2014-18 issued on January 27, 2014, the IRS set forth a simplified method for certain taxpayers to obtain an extension so they can make a portability election without incurring the $10,000 user fee. The decedent must fall within the guidelines below for executors to make a late portability election under this new procedure. The decedent must:

1. have had a surviving spouse,
2. have died anytime from January 1, 2011, through December 31, 2013,
3. have been a citizen or resident of the United States on the date of death, and
4. not have been required to file (or actually did file) an estate tax return, i.e., the decedent does not qualify if the executor was required to file an estate tax return and failed to do so.

Under this new ruling, taxpayers have until December 31, 2014, to prepare and file Form 706 United States Estate Tax Return to make the portability election.

How it works
For example, husband and wife (both U.S. citizens) have a combined estate worth $10 million with $2 million in husband’s name and $8 million in wife’s name. In 2011, husband dies; his estate is well under the $5 million estate tax exclusion, so his estate would not owe estate tax. However, wife’s estate exceeds the $5 million estate tax exclusion, so upon her death, using current rates her estate would owe estate tax of approximately $1.2 million (in the absence of any other estate tax planning). Previously, taxpayers would need to implement an estate plan to avoid this negative result. However, portability allows husband’s estate to “port” his unused exemption ($3 million) to his wife. Wife would then have $8 million of total exemption ($5 million estate tax exemption plus $3 million of unused exemption) available at her death, which would be sufficient to offset the $8 million of value in her estate.

In this example, portability has the potential to save the combined estate a little over $1 million in taxes, but only if husband’s executor files Form 706 by the deadline. If the executor fails to file, husband’s estate would be a prime candidate for the relief provisions of Revenue Procedure 2014-18. Executor can now file the 2011 Form 706 by December 31, 2014, to elect to transfer the husband’s unused exemption to his wife. Wife is then free to use the additional estate tax exemption for current gifts or upon her death.

Who can benefit?
At a minimum, smaller estates with assets that have significantly appreciated since the death of the first spouse and estates of individuals who were in same-sex marriages (and thus unable to make a portability election under the law existing prior to the Windsor decision) are likely candidates for the relief offered under Revenue Procedure 2014-18. However, there are numerous situations in which a portability election may offer significant estate and gift tax savings for the surviving spouse.

A cautionary tale for 2014
No special procedure is available for estates of decedents who die after 2013 and miss the filing deadline. Therefore, it is imperative that executors of estates of individuals dying in 2014 carefully consider whether there is an opportunity for portability, and, if so, file Form 706 to elect portability by the initial deadline. Missing the election deadline for decedents dying in 2014 will mean reverting back to previous, more onerous and costly provisions of requesting relief via an IRS private letter ruling and paying a $10,000 user fee to port the remaining exemption.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Andy Whitehair at awhitehair@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Rich Wilson

The phrase “cloud computing” or “in the cloud” is definitely a hot topic these days. I am asked a lot of questions about cloud accounting, such as “how does it work?”; “is it secure?”; and “is there a real savings/benefit for my business?” The truth is, cloud accounting is easy to use, is secure and offers benefits to many different types of companies, ranging from start-ups to established businesses.

How does cloud accounting work?
Cloud accounting allows a company to perform its accounting functions — accounts payable/receivable, financial statement analysis, budgeting and forecasting, etc. — through cloud-based software, which simply means the software is stored and accessed online. Using the cloud offers many benefits:

• Accessibility. Software can be accessed from anywhere in the world, not just from your own computer, using any internet-based device.
• Scalability. The software grows with the business, eliminating the need to ever change accounting software programs.
• Customization. Various apps can be integrated into the software, thus allowing customization of the software to each company’s specific needs.
• Streamlined efficiencies. Using the cloud streamlines the business process, including areas such as bill payment and invoice creation.
• Security. Cloud applications offer total data recovery and security protection to keep your information safe.
• Cost benefits. There are a multitude of cost benefits, from purely monetary, to the long-term benefits of having the ability to make better business decisions, to time-value savings for business owners.

How can my business save using cloud accounting?
Let’s delve a little deeper into the cost benefits mentioned above.

Dollars In Your Pocket
The most obvious savings from cloud accounting solutions is from a dollar perspective. Many companies spend a significant amount of money on the software and internal staff necessary to perform their accounting functions. With cloud accounting solutions, companies often realize a monetary savings due to the streamlining of processes and the reallocation of staff. Businesses can also leverage the value of the cloud by opting to outsource some or all of their accounting needs. They engage a third party to perform daily bookkeeping activities and/or more strategic, CFO-type functions, which are made possible because of the cloud’s collaborative nature.

Better Data, Better Decisions
Many businesses rely on staff who devote only part of their time to the internal accounting function. Unfortunately, this can often lead to outdated information and, ultimately, can impact strategic business decisions:

• Inaccurate accounts receivables can lead to inaccurate cash forecasting and the delay of investments in expansion, inventory, fixed assets, etc.
• Misstated revenue, expenses, inventory, etc. can lead to unnecessarily high interest rates on bank loans.
• Misstated financial information can also lead to problems obtaining financing, thus eliminating opportunities for growth such as inventory purchases and facility expansion.
• Inaccurate sales numbers can lead to poor decisions regarding expansion or production changes.
• Overpayment or underpayment of taxes, such as sales and income tax, can lead to loss in available funds (overpayment) or unnecessary fees, interest charges or potential audits (underpayment).

Streamlined Processes
Cloud accounting is essential to streamlining business processes. With the use of cloud-based applications and processes, tasks that may have taken hours can be simplified to minutes, or those that may have taken days can be cut down to hours. To take full advantage of potential efficiencies, it helps to engage an outside accounting team. Together, you and your accountants can use the cloud to collaboratively look beyond the accounting function to see the business as a whole and tailor solutions to help streamline your operations. Some areas often ripe for improvement include accounts payable/receivable, payroll and inventory counts.

Time Value Savings
Many business owners just starting out tend to keep their own accounting records. In addition to the benefits described above, moving the accounting function to the cloud allows business owners to realize a true time-value savings. Using the cloud, in conjunction with a qualified accounting team, enables owners to spend less time on the accounting process and more time on growing the business and earning more revenue. This could be the most important savings yet.

Cloud accounting is an incredible way to help businesses grow and become more profitable, providing efficiencies and real cost savings in a secure, collaborative environment. Business owners receive accurate, real-time financial information that allows them to make well-informed financial decisions for their companies.

Learn more about the key benefits of cloud accounting and how Cohen & Company can add value to the process.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Rich Wilson at rwilson@cohencpa.com for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Mellissa Reed, CPA

Did you know there are numerous watchdog agencies, or charity evaluators, that analyze the information you report on your 990 and issue a “report card” as a result? Individual donors are becoming more educated and using such services when deciding which organizations they will support. While there are a few different agencies offering these services, Charity Navigator is the most widely used. Below is an overview of their process and evaluation criteria. 

Who is being graded? 
Organizations can fall under the microscope if they:

• Are granted tax-exempt status under section 501(c)(3) of the internal revenue code, for any charitable purpose.
• File a Form 990, and have seven or more years of Form 990s available.
• Depend on support from individual givers, meaning they actively solicit donations from the general public.
• Have public support in the amount of $500,000 or more and have total revenue more than $1 million.
• Are based in the United States. 

What information is used in the grading process?
Organizations are given a rating of 0-4 stars (with zero being very poor and four being excellent) in the categories of financial health, accountability and transparency, and overall. In 2013, a third category of results reporting has been added but not applied yet to all rated organizations. 

• Financial Health: This category includes seven key areas that assess an organization’s financial efficiency (program expenses, administrative expenses, fundraising expenses and fundraising efficiency) and capacity (primary revenue growth, program expense growth and working capital ratio) as compared to performances of similar organizations.
• Accountability & Transparency: This category evaluates whether the charity follows good governance and ethical best practices, and if the charity makes it easy for donors to find critical information about the organization. Here is where the governance questions you answer on your Form 990 will have an impact. While answering a question “no” may not have a specific and immediate impact, it will affect the scores awarded by watchdog agencies. These agencies will also use your organization’s website to determine how readily available certain information is to donors.

Based on the results from above, donor advisories are posted on the watchdog websites when serious concerns are raised about an organization.

Most of these watchdog agencies offer the public a searchable database of rated organizations, and the trend seems to be gaining in popularity in the donor community. It may be a good idea to check your organization’s report at one of the websites listed below to find out what information your donor pool is viewing and in what areas you may need to consider improvements.

Contact Mellissa Reed at mreed@cohencpa.com for more information or to discuss your nonprofit. For more details on ratings, what goes into each calculation and to view organization listings, visit Charity Navigator, BBB Wise Giving Reports or CharityWatch.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Ray Polantz, CPA, MT

Most foreign countries have a value-added tax (VAT) system in addition to their income tax system. VAT is an indirect consumption tax that is imposed on products and services at different stages of production. Businesses charge and collect VAT at each stage in the supply chain, with the tax ultimately being paid by the final consumer of the goods/services.

Canada’s version is the goods and services tax (GST) system. The GST applies to the sale of property and services in Canada. Certain Canadian provinces have a similar provincial sales tax that is combined with the GST to create a harmonized sales tax (HST) system in those provinces. Generally, the HST applies to the same base of property and services as the GST.

Almost everyone purchasing goods and services in Canada has to pay GST/HST. Registered businesses must charge and collect the tax on sales made in Canada, and remit these amounts to the Canadian Revenue Agency. They must also file returns on a regular basis in which they can claim credits (or dollar-for-dollar reductions) against their liability for GST/HST paid on purchases.

U.S. taxpayers doing business in Canada may be subject to the GST/HST regime as well. In addition to being charged GST/HST on Canadian purchases, U.S. businesses that have a “significant presence” in Canada will themselves be required to register for GST/HST and charge and collect the tax from their customers. This level of activity is higher than the “carrying on business” standard for income tax purposes. (Read “Doing Business in Canada: When Do you Owe Income Tax”)

Even if a U.S. taxpayer is not required to register for GST/HST, in certain situations it may be worthwhile to voluntarily register. Businesses who voluntarily register may have the opportunity to claim back the GST/HST taxes incurred and have these amounts refunded. But, as with any tax-related decision, consult with your advisors to ensure the amount of the potential refunds outweighs the total compliance costs.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Ray Polantz at rpolantz@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.
 

Posted by Marc Mazzella, CPA, MBA

On March 19, 2014, the Ohio Supreme Court ruled in Panther II Transportation, Inc. v. Village of Seville Board of Income Tax Review that municipalities cannot impose income tax on certain transportation companies. The decision was based on the Court’s interpretation of a state law that if a company is regulated by the Public Utilities Commission of Ohio (PUCO) and therefore pays the annual state tax to hold a certificate of public convenience, as was the case with Panther II Transportation, that state tax preempts any municipal tax (except for the general property tax).

Since most motor vehicle transportation companies, including trucking, transportation-for-hire and towing, in Ohio are regulated by the PUCO, this decision could mean refunds for those in the transportation industry who have paid city tax. Taxpayers regulated by the PUCO should consider filing refund claims for any open years.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Marc Mazzella at mmazzella@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Andrew Whitehair, CPA/PFS

A recently decided federal tax court case, Frank Aragona Trust v. Commissioner, held that a trust can qualify as a real estate professional under the IRC §469(c)(7) exception to the passive activity rules. Qualification as a real estate professional is important to trusts for two reasons:

1. real estate losses may be deductible as nonpassive losses, and
2. rental real estate income that is nonpassive can escape the additional 3.8% Medicare surtax imposed under IRC §1411. (Read our previous blog on a safe harbor for real estate professionals.)

Case Discussion
Previously, the IRS argued that a trust cannot qualify as a real estate professional under §469(c)(7)(B) because only individuals are capable of providing the “personal services” required in the regulations, and the IRS does not believe that trusts and estates fall into the definition of “individuals.” In Aragona, the IRS continued this line of reasoning, and further asserted that the real estate professional exception applies only to individuals and closely held C corporations, and that the legislation does not specifically include trusts.

Fortunately for taxpayers, the tax court took a broader view of the legislation and reasoned that, “if the trustees are individuals, and they work on a trade or business as part of their trustee duties, their work can be considered ‘work performed by an individual in connection with a trade or business.’” Furthermore, the tax court noted that the language chosen by Congress in drafting §469(c)(7) does not explicitly exclude trusts from qualifying for the exception.

Although Aragona addressed the issue of whether the real estate professional exception applies to trusts, it also touched on another important outstanding trust issue: how to determine whether a trust is materially participating in an activity. The IRS has long argued that only the activities of the trustees can be considered in determining whether a trust is materially participating, despite losing in court on this issue in Mattie K. Carter Trust v. United States.

In Aragona, the trustees were also employees of a wholly owned, disregarded entity engaged in managing most of the trust’s real estate properties. The tax court noted that the activities of the trustees, including their activities as employees, should be considered in determining whether the trust materially participated in its real estate operation. Unfortunately, the court did not rule on whether the activities of the trust’s non-trustee employees should be considered, and it did not address how to apply or whether to apply the personal service or 750-hour requirement in determining whether the trust qualifies for the real estate professional exception.

Now What?
Several lingering, open questions remain particularly in regards to how to determine material participation for a trust. This case seems to suggest that all trusts, even those not in real estate, may be able to count their trustee’s involvement as an employee for purposes of determining material participation in a business. However, this question and others may only be settled when and if final regulations under §469 are released for trusts. However, the Aragona case is clearly a win for taxpayers, and trusts with significant real estate operations should review their activities to determine whether the real estate professional exception may apply.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Andrew Whitehair at awhitehair@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.