TaxConnections Spotlight Interview Part 2: Chuck Levun And Michael Cohen On Partnership Tax Planning Challenges, And Surprising Cases And Mistakes They Have Seen

ax Connections Spotlight Interview Part 2: Chuck Levun And Michael Cohen On Partnership Tax Planning Challenges, And Surprising Cases And Mistakes They Have Seen

For more than thirty-seven years, Charles R. Levun and Michael J. Cohen have been presenting the preeminent seminars on flow-through taxation. The two flagship Tax Forum programs are Fundamentals of Flow-Through® and Tax Planning Forum®.  Tax Forum is expanding its programs to include self-study (on-demand) training, as well as working on an additional course, which they will share with us soon.

Please read through Part 2 of this special interview, featuring Chuck Levun and Michael Cohen. Part 1 <add link> is focused on Tax Forum, its flow-through tax planning training programs, and the importance of education for CPAs, attorneys and other tax planning professionals.

To get a sense of how the Tax Forum programs are unique in the partnership, LLC and S Corporation tax training space, please register for Tax Forum’s complimentary webinar:

Avoiding Costly Mistakes: Four Essential Tax Concepts for the Non-Tax Business Attorney or CPA taking place on Thursday, May 16th at Noon CDT

Kat Jennings’ Question: Let’s jump right in …Do you see an increase in controversy in partnership taxation? Why or why not?

Michael Cohen’s Answer: For the most part, not yet. However, with the new budget for the IRS and the commitment to go after “large” partnerships, I would think that controversy will increase. However, for this commitment to be successful in shutting down “abusive” transactions, the partnership knowledge base of the IRS auditors will need to be expanded. I will note that virtually every year we have at least a half dozen IRS professionals attend either our Forum or Fundamentals courses.

Kat Jennings’ Question: What is the biggest challenge for partnerships going forward?

Chuck Levun’s Answer: Staying on top of developments is a biggie. There have been proposals floating around from Senator Wyden and others that would make substantive changes to some of the basic partnership principles. These changes are designed to hit perceived abuses of the partnership rules by large partnerships. Unfortunately, if enacted, they also would complicate life for the smaller partnerships, which are by far a large number of business entities and growing. Moreover, there are always new structuring techniques, new thought processes, etc. that are constantly being developed. Partnerships are such a dynamic area, given, as I said before, that partners have a tremendous amount of flexibility in structuring their transactions. It’s not like the S corporation arena where everything has to be shared on a pro rata basis, there can be only one class of stock, etc.

Kat Jennings’ Question: Tell us about any cases in partnership taxation that really surprised you.

Michael Cohen’s Answer: There are a number over our long careers. However, the recent Tax Court decision in Clark Raymond holding that partners in a CPA firm that left with their client lists were taxable at ordinary income rates on the value of those client lists, and the remaining “head honcho” received a corresponding ordinary deduction, might head up the list. While the decision is only a Tax Court Memorandum decision, which does not carry the same weight as a full Tax Court decision, it is troubling, as most tax professionals would have predicted that the client lists would have taken a zero basis in the hands of the CPAs who left with them, and they would not have had a taxable event (and, in the opinion of many tax professionals, the decision may be wrong). The case does illustrate the complexity of the partnership allocation rules and the uncertainties that can arise in the partnership tax arena.

Kat Jennings’ Question: What is the biggest mistake you often see partnerships make?

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Biden’s Proposal On Largest Capital Gains Tax In Over A Century

Biden's Proposal On Largest Capital Gains Tax In Over A Century

We want to repost this article since it is receiving a lot of attention. Time for tax professionals to make your commentary below to gain higher visibility! Please share this post with anyone you know interested in capital gains taxes, we believe this post will eventually surpass 10,000 views. With your help it could surpass 100,000 views by the end of the year!

Bidens 2025 budget proposal raises the top marginal rate on long term capital gains and qualified dividends to 44.6 percent.

The Biden administration has proposed the highest top capital gains tax in over a century.

According to Biden’s 2025 budget proposal the top marginal rate on long-term capital gains and qualified dividends would rise to 44.6%.

The proposal, which marks the highest tax increase since the creation of the capital gains tax in 1922, could significantly curtail the financial returns of investors in stocks and crypto.

“For example, a taxpayer with $1,100,000 in taxable income of which $200,000 is preferential capital income would have $100,000 of capital income taxed at the preferential rate and $100,000 taxed at ordinary rates,” the proposal states.

Additionally, the proposal when combined with state capital gains tax would exceed 50% in many (mostly blue) states and would not account for inflation’s erosion of purchasing power.

From Americans for Tax Reform:

Under the Biden proposal, the combined federal-state capital gains tax exceeds 50% in many states. California will face a combined federal-state rate of 59%, New Jersey 55.3%, Oregon at 54.5%, Minnesota at 54.4%, and New York state at 53.4%.

Worse, capital gains are not indexed to inflation. So Americans already get stuck paying tax on some “gains” that are not real. It is a tax on inflation, something created by Washington and then taxed by Washington. Biden’s high inflation makes this especially painful.

Many hard working couples who started a small business at age 25 who now wish to sell the business at age 65 will face the Biden proposed 44.6% top rate, plus state capital gains taxes. And much of that “gain” isn’t real due to inflation. But they’ll owe tax on it.

 

The advocacy group also noted that Biden’s tax proposal dwarfs Communist China’s top capital gains tax, which is 20%.

If that wasn’t enough, the 2025 budget also includes a second Death Tax that would essentially enforce a mandatory capital gains tax at death, an initiative that Congress tried and failed to implement in 1979 because it was “impossibly unworkable,” according to The New York Times.

“Almost immediately, however, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law’s effective date until 1980 while it struggled again with the issue.“

“Not only were there protests from people who expected the tax to fall on them — family businesses and farms, in particular — bankers and estate lawyers also complained that the rule was a nightmare of paperwork.“

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Webinar: Introduction To R&D & Form 6765

Webinar: Introduction To R&D & Form 6765
About
This course introduces attendees to the Research & Development Tax Credit under IRC § 41. Attendees will learn the history and evolution of the R&D Tax Credit since its inception in 1981. Attendees will further learn how to identify qualifying activities under the Four-Part Test as well as the types of qualified research expenses. Examples of developmental life cycles and case studies will be presented. Calculation methodologies will be presented for both income tax and payroll tax claims. The impact of IRC § 174 as well as proposed changes to the Form 6765 will be covered.
Date
Wednesday, May 8, 2024 · 8:00 a.m. Pacific Time (US & Canada) (GMT -7:00) 
Presenters
Jim Foster, J.D.
Director of Tax Controversy
Jim joined Source Advisors as the Director of Tax Controversy in 2022. He has worked in tax incentives such as the R&D tax credit, disaster relief credits, the Employee Retention Credit, and most recently § 174. Jim has been practicing in the general area of taxation and tax law for over fifteen years. In that time, he has produced numerous successful tax credit cases for his corporate clients. Further, he has had successful tax audits that range from IRS audits and appeals to state-level tax audits. Prior to joining Source Advisors, Jim worked at two national consulting firms. While in law school, Jim worked at a public accounting office where he helped the firm advance in and maintain double-digit growth. Jim received his Bachelor of Science in Political Science from Texas A&M University and his Juris Doctorate from South Texas College of Law Houston. He is a licensed attorney in the State of Texas.

 

Jordan Fazio

Senior Director, Detroit
Jordan joined Source Advisors in 2015 and is a Senior Director of R&D Tax Credit Consulting. His primary responsibilities include providing consulting to CPAs and taxpayers looking for guidance on R&D tax credits and managing R&D tax credit projects. His experience prior to Source Advisors includes eight years of market risk management, software development, and operations in OTC derivative markets. Jordan holds a Bachelor of Business Administration degree with a double major in Accounting and Finance from Grand Valley State University.

 

If you would like an introduction to Eric Larson, Jim Foster or Jim Foster, please make your request at this link:
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Retained Tax Executive Search Services: When You Need An Expert On A Tax Executive Search For Your Organization

Retained Tax Executive Search Services: When You Need An Expert On A Tax Executive Search For Your Organization

Kat Jennings provides internationally recognized executive search services for leading tax executives. Kat has been retained by organizations worldwide to locate tax executives with highly specialized tax knowledge and expertise. We have a thorough understanding of the tax business community and a proven record of stellar performances for clients. We are experts in high level tax search and provide a level of service you rarely experience with other firms. With the competition for highly trained tax executives at an all-time high due to tax reform, your organization is best served having a highly qualified tax executive search expert sourcing candidates for you.

TaxConnections will soon launch its executive search division under a new name to be announced to provide laser focus tax executive search services. Stay tuned for major announcement. If you have a current need for a tax executive, please contact kat@etsearch.com or call 502.512.4888 for executive search services.

In order to ensure privacy, tax executives generally do not respond to online ads or submit their resume to portals. Senior tax executives are not comfortable sending their private information into a resume portal to an unknown person only to receive an automated message. This places companies at a huge disadvantage when searching for a senior level tax executive.

In order to access the best pool of tax executive talent, a company greatly benefits working with a search consultant who has earned a high level of trust with tax executives. Over three decades, we have worked tirelessly to build relationships with tax executives most companies rarely have access to on a tax executive search. Here is a sample list of clients:

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Certificates Of Discharge From IRS Liens

Certificates Of Discharge From IRS Liens

I previously posted about the process for requesting the subordination of an IRS lien – that post can be found here.  However, as noted in that post, subordination is primarily useful in cases where a taxpayer intends to keep property (and thus any liens on that property would stay in place).  But what if a taxpayer wants to sell the property and use the proceeds to pay off all or part of an IRS liability?  The IRS requires these taxpayers to apply for a “certificate of discharge,” discussed further below.

Publication 783

 IRS Publication 783 lays out the process for applying for, and obtaining, a certificate of discharge. [1] Generally, Publication 783 states that taxpayers must complete and submit IRS Form 14135 and provide certain supporting documents.  The IRS will review the submission and make a determination, within its discretion, regarding whether to grant the certificate.

Form 14135

Like its counterpart for subordinating liens, Form 14135 is somewhat lengthy, and requires the taxpayer to attach a variety of documents related to the property at issue (including title, appraisal value, and lien information) as well as the proposed sale transaction (including purchaser information, escrow information, and the proposed sale terms). [2]

Additionally, the taxpayer must identify the statutory basis for requesting the certificate of discharge. [3] In this regard, Form 14135 presents the following options:

  1. 6325(b)(1)
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IRS Independent Office Of Appeals Forms Alternative Dispute Resolution Program Management Office

IRS Independent Office Of Appeals Forms Alternative Dispute Resolution Program Management Office

The Internal Revenue Service Independent Office of Appeals announced the formation of a new Alternative Dispute Resolution Program Management Office. This office will collaborate with the IRS Business Operating Divisions to help taxpayers resolve tax disputes earlier and more efficiently.

“This new office will revitalize existing programs and pilot new initiatives as part of IRS transformation efforts in alignment with the IRS Strategic Operating Plan,” said IRS Commissioner Daniel Werfel. “We’re committed to providing taxpayers who wish to resolve their issues without litigation a choice of early resolution options, and the Alternative Dispute Resolution Program Management Office will ensure taxpayers are aware of those options.”

For years, the IRS has offered ADR at various stages of the tax administrative process. While ADR can be a quicker, more collaborative and cost-effective approach to case resolution, use of the programs has declined in recent years.

By increasing awareness, changing and revitalizing existing programs and piloting new approaches, the IRS hopes to make its ADR programs, such as Fast Track Settlement, Fast Track Mediation, Rapid Appeals Process and Post-Appeals Mediation more attractive and accessible for all eligible parties.

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IRS Shifting More Attention Onto High Income Earners, Partnerships And Large Corporations Following Passage Of Inflation Reduction Act Funding

IRS Shifting More Attention Onto High Income Earners, Partnerships And Large Corporations Following Passage Of Inflation Reduction Act Funding

IRS Shifting More Attention Onto High Income Earners, Partnerships And Large Corporations Following Passage Of Inflation Reduction Act Funding

Learn How To Protect Your Clients With This Invitation To A Complimentary Partnership Tax Planning Strategy Session 

Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations, and promoters abusing the nation’s tax laws.

The effort, building off work following last August’s IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade. The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats, and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits.

The Inflation Reduction Act Funding Increases scrutiny on high-income, partnerships and corporations. The IRS states it will shift attention to wealthy from working class taxpayers; key changes coming to reduce burden on average taxpayers while using artificial intelligence and improved technology to identify sophisticated schemes to avoid taxes.

“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe,” said IRS Commissioner Danny Werfel.

Major Expansion In high-Income/High Wealth And Partnership Compliance Work

Prioritization of high-income cases. In the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS will intensify work on taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. Building off earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have dozens of Revenue Officers focusing on these high-end collection cases in FY 2024. The IRS is working to expand this effort, contacting about 1,600 taxpayers in this category that owe hundreds of millions of dollars in taxes.

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Exempt Non-resident Citizens From FBAR

Exempt Non-resident Citizens From FBAR

OMB Control No: 1506-0009 / ICR Reference No: 202403-1506-001 / Federal Register: 2024-06697
Reports of Foreign Financial Accounts Regulations and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

An earlier post alerted people to the opportunity to submit comments (due April 29, 2024) about whether the FBAR rules should be applied to the local accounts of Americans abroad. What follows is my comment …

Outline:

Treasury should explain precisely what it is about the status of U.S. citizenship (regardless of residence or connection to the United States) that creates a presumption of tax evasion, terrorism and money laundering.

The time has come for Treasury to recognize the obvious injustice and stop requiring an FBAR to report the “local” bank accounts of Americans abroad to the Financial Crimes Division of U.S. Treasury!!

Part I – Introduction and Context- Understanding The April 29, 2024 Deadline For FBAR Commentary Submissions
Part II – Comment: Statement Of Purpose
Part III – Looking For Mr. FBAR – Where are the rules found?
Part IV – Understanding FBAR: “U.S. Persons” are required to file an FBAR. Who is a “U.S. Person”?
Part V – FBAR and U.S. Citizens: The World of Mr. FBAR in 1970 is NOT The World Of Mr. FBAR 2024
Part VI – Non-application of the FBAR rules to U.S. citizens who reside in U.S. territories
Part VII – The application of FBAR to non-citizens who do NOT live in U.S. territories
Part VIII – Conclusion: If ALL U.S. citizens (regardless of connection to the United States) are to be subject to the FBAR requirement …

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What Is A TPR (Tangible Property Regulation) Study?

What Is A TPR (Tangible Property Regulation) Study?

A Tangible Property Regulation (TPR) study is an analysis that examines a company’s compliance with the Tangible Property Regulations. In this context, tangible property refers to real property such as land and improvements to land (e.g., site improvements and buildings), as well as personal property that can be felt or touched, and be physically relocated, such as furniture and equipment.

The main objective of a TPR study is to ensure that a company is in compliance with the final TPR regulations to accurately classify its costs, distinguishing between capital expenditures (which are typically depreciated over time), deductible expenses, and dispositions by a thorough review of taxpayers’ documentation. This strategic approach can result in significant tax savings, mitigate audit risk, and bolster overall tax planning strategies for businesses.

What Do TPR Studies Involve?

A TPR study is typically conducted by seasoned tax professionals or consultants who deeply understand the regulations. They meticulously examine a company’s financial and tax records, identify misclassifications, and recommend necessary adjustments to ensure compliance with the rules.

Such studies may involve:

Legal Analysis: Reviewing statutes, regulations, case law, and other legal materials related to tangible property.

Compliance Assessment: Assessing whether businesses or individuals comply with relevant Tangible Property Regulations.

Policy Evaluation: This involves evaluating taxpayer’s capitalization policy on treatment of expenditures and proposing potential revisions or improvements.

Impact Analysis: A TPR study aims to provide insight into tangible property’s legal framework and its implications for taxpayers to accelerate deductions or reduce tax compliance burdens.

When Should Businesses Consider Conducting a TPR Study?

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Interview Guide: Preparing For An Interview

Interview Guide: Preparing For An Interview

With three decades of experience preparing professionals for interviews, I want to teach you techniques and strategies that will help you excel at the interview process. Taking the time to plan-ahead and prepare for an interview is essential to your success. When you want to make a good impression, you must prepare for each interview thoughtfully in advance. Preparation is the key to successful interviews which lead to offers with companies. The primary purpose of this Interview Guide is twofold: 1) Prepare you for questions you should ask during the interview process and 2) Prepare you for questions you may be asked.

Preparation Prior To Interviews

Research the company prior to an interview and gather as much information as possible.  The interviewer(s) appreciate the fact you have done your homework on the company upfront. Your advance research demonstrates you have taken an interest in the company and are prepared to start a conversation with them. Research in advance also helps you to build a list of questions you will want to ask the people you meet in the company. Research the backgrounds of the key people who will be interviewing you; this enables you to discover if there are any similarities in your backgrounds or common ground on topics of discussion. Did you go to the same school, work for the same organization or type of firm, or enjoy the same sports or activities, etc.?

The more information you have about the company and people who will interview you, the quicker you can establish common ground during the interview. Each person who interviews you will view you through their own personal lens and they will be looking at what you may have in common with them. This is perfectly natural to do. The psychologist Donn Byrne was the first to develop a study that proved the impact of similarity on the early stages of relationships. His studies explain that most of us have a need for a logical and consistent view of the world. We tend to favor ideas and beliefs that support and reinforce that consistency.  Therefore, we are attracted to people more when they share our ideas and beliefs.

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IRS Form 1116: How To Claim The Foreign Tax Credit (With Examples)

IRS Form 1116: How To Claim The Foreign Tax Credit (With Examples)

When talking about US taxes and taxation of US citizens who live abroad, you may have heard of the Foreign Tax Credit. A U.S. citizen or resident alien who pays income taxes in another country can claim a tax credit against their U.S. federal income tax bill to avoid double taxation, ensuring they are not taxed twice on the same income. Double taxation refers to the situation where income is taxed both in the country where it is earned and again in the U.S. You can offset your US tax liability by claiming the foreign taxes paid to another country. This way, you can bring your tax owing down to zero.

WHAT IS FORM 1116 AND WHO NEEDS TO FILE IT?

You must complete Form 1116 in order to claim the foreign tax credit on your US tax return for foreign income tax paid. The form requests information about the country your foreign taxes were paid in, the value of foreign income tax paid, and the types of income.

Most of the US international tax experts prefer claiming a Foreign Tax Credit (Form 1116) on a client’s U.S. tax return rather than the Foreign Earned Income Exclusion

Read further to learn about how to file Form 1116 Foreign Tax Credit and why it is a better way to save money on your US expat taxes.

Related: Foreign Earned Income Exclusion vs. Foreign Tax Credit: which one is better? 

ADVANTAGES OF FOREIGN TAX CREDIT AND GENERAL RULES

Claiming the Foreign Tax Credit will not only bring your tax owing to zero, it will allow you to make tax-deductible IRA contributions, claim the additional child tax credit and carryforward those excess credits to future years. Individuals who pay foreign taxes may be eligible for significant benefits under the Foreign Tax Credit, highlighting the importance of understanding one’s legal obligations and opportunities when living abroad.

THE ADDITIONAL CHILD TAX CREDIT

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How Can A Nexus Review Provide Peace Of Mind?

How Can A Nexus Review Provide Peace Of Mind?

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

  • Where do you have nexus creating activities?
  • What are the rules? What are next steps?
  • When was nexus created? When should you begin filing?
  • How much retroactive exposure has been created? Can we help you reduce it?

    As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

    We are often asked these three questions:

    1.  Why Is A Nexus Review Important?
    2.  Which Activities Cause State Tax Issues?
    3.  Are We Out of Compliance or Being Audited?

      Why Is A Nexus Review Important?

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