06/19/2019
What Can Business Taxation Expertise Bring to Your Business?
The substantial complexity of many areas of US taxation must be carefully and thoughtfully navigated to obtain an engineered outcome for business clients. Otherwise, the chips just fall where they may.
For our business clients, completing a tax form is the simple part. Engineering the taxation attributes to align as planned is extremely complex work. For this reason, we retain the best tax research resources available and supplement with a full time in-house counsel to assist us with drafting documents for our clients to meet our tax design goals.
More specifically, the following topics are just a few of the extremely difficult to navigate areas of tax law. These topics require substantial expertise and knowledge the of many moving parts of income and losses, including multiple sources with comparable and non-compatible tax attributes all coming together on the owner’s personal tax returns. Examples include:
1. Passive vs. Non-Passive Income and Losses - Section 469(c)(7) non-elective and non-passive provision for so-called "real estate professionals". There is also the decision whether or not to elect aggregation measurement of hours within whipsaw exceptions, such as the 100 hour significant participation activities converting passive income to non-passive at the whim of the IRS.
2. Determining when it is appropriate under Reg 1.469-4 to make grouping elections of certain similar businesses, with or without vertical or horizontal economic links. Such elections may be necessary to deduct losses but could just as easily overshoot and work against taxpayers.
3. Section 199A 20% Qualified Business Income Deduction - Techniques such as pension and depreciation elections might keep a taxpayer under the taxable income threshold. Tax planning might show there is a necessity to spin-off qualified versus non-qualified business services. Related to this topic is re-arranging lease terms to meet the "trade or business" requirement. Some of those decisions depend upon which Federal Circuit the taxpayer resides. Likewise, partnerships with guaranteed payments need to grapple with re-writing their LLC Operating Agreements to restructure member interests, preferably with the same outcomes. Unlike pass-through entities, related party rents from C corporations are not automatically treated as qualifying income without significant trade or business tax attributes.
4. For pass-through entities with losses, Reg 1.704(b) allocations (to whom and the amount) rely heavily upon an in depth understanding of debt structures and where appropriate, changing those structures. In all cases, a partnership tax return should not be prepared without a thorough understanding of the entities partnership agreement.
5. Identifying businesses with tax attributes that would benefit from changes in method of accounting, now allowed under the Tax Cuts and Jobs Act (accrual basis business with gross income across all entities of less than $25 mil.)
6. Understanding the effect of State tax provisions upon businesses when addressing the above scenarios.
