CASCPA Dev

外国人房屋买卖扣税

1980年美国国税局发行了一个外国人的不动产缴税条例。正常情况下外国人在美国投资房产，房产抛售出去的时候需要扣税。根据房子的金额和买卖双方的不同情况需要扣不同金额的税金。从2016年2月17日起，扣税税率从10%调整到了15%。这个条款严重的影响到了在拉斯维加斯投资房产的中国投资人。

举个例子，万先生（中国公民，也没有美国绿卡）在拉斯维加斯地区投资了一个房子，几年后万先生需要把这个房子卖了，假设万先生的房子卖给了吴先生（他的国籍没有关系），以50万美金的价格成交了。这个时候问题来了，国税局需要扣税了。税率为15%（7.5万美金）。当万先生的房子成交的时候，吴先生或者吴先生的委托人或者经纪人需要把这7.5万美金扣下来，附上政府的表格一起提交给国税局。如果吴先生没有扣下税款或者没有及时跟国税局汇报的话，一经国税局查出来，吴先生需要承担责任。那么万先生被国税局扣下来的钱要怎么拿回来呢？万先生需要做一个退税报告从而拿回来一部分的钱或者全部的钱。

当然在一些特定情况下，国税局的这个扣税是可以豁免的。比如说房屋的成交价格少于30万美金，并且买家买房的主要目的是自己居住。买家要做保证书。还有就是比如果卖方有给买家提供豁免证书，证明自己卖房税务责任低于扣税的话也是可以不用扣税或少扣税的。卖家需要在结算前得到税局的豁免书。其中的豁免证书可以自己或者委托会计师找国税局申请。用8288b表.国税局用90天审批，卖家必须有税号， 有良好报税记录才可获得豁免书。

张百瑞注册会计师

cpabarryz.com

By Robin Gerofsky Kaptzan, Esq.

Almost  three years ago, before the pandemic, China made a bold move forward by opening its economy to foreign investors with the launching a new Foreign Investment Law of the People’s Republic of China (“FIL”). The FIL replaced key laws in existence since the 1980s for joint ventures and wholly foreign-owned enterprises. The groundbreaking legislative offered foreign investors greater business opportunities in China and met China’s goal of creating a business platform on par with the global economy. The government’s goal was clear: all investments in China – domestic and foreign – are to be treated equally. 

The FIL, which previously focused on regulatory obligations, allows for greater flexibility to foreign investors when entering the China market by removing significant mandatory provisions from the articles of association. For a company currently operating in China, related regulations were adopted allowing a five-year transition period for existing foreign-invested enterprises, requiring compliance on or before by December 31, 2024. Many new companies have enjoyed the benefit of the FIL but many businesses that were established before the FIL was enacted have not yet focused on this deadline but should to take advantage of the FIL’s benefits and become compliant. A few key changes were: 

• a shareholders’ board is the top governing authority, not the board of directors; 
• the board of supervisors is to monitor directors and senior managers acts, not the shareholders; 
• the proportion of a joint venture foreign investment is now a negotiable term; 
• key decisions are now negotiable terms, and not protected by a mandatory veto power to the joint venture partner; 
• the registered capital amount is a negotiable term, not a specific right base on a formula; and 
• the distribution of liquidation income is according to the shareholders’ proportionate investment.

The PRC government provided five years for compliance as time is needed to appreciate the changes and integrate them into the company. Recommendations for Foreign Investors before opening a new business or to manage an existing one are:

• Have a deep and clear understanding of an investor’s rights and obligations regarding the abandoned mandatory principles and new ones allowing flexibility. 
• Inquire with the local government about its sentiment on certain issues.
• Consider how the articles of association could be drafted or revised to a) influence the company’s operation in and out of China, and b) give flexibility (or not) in the event of a corporate change. 
• Evaluate the big picture (global effect), including re-structuring.
• Rely on a reputable consultant (after a background check), and not an unknown agent, for guidance and to artfully represent or negotiate for you.
• Focus on the potential mismatch and confusion in the new law and its co-existence with other laws until December 31, 2024.
• Understand what benefits have been afforded to you under the FIL and take advantage of them.

Although the FIL was enacted with some inherent uncertainty, with some still existing, companies must consider the benefits and include in their planning compliance by the deadline, now, not in two years.

By now you have probably heard that on June 21, 2018, the Supreme Court issued a ruling in the case, South Dakota v. Wayfair.  Historically, nexus, the minimum connection a business must have with a state to be required to abide by that state’s sales and use tax laws had been determined using a physical presence test.  However, in addition to a physical presence test, the Supreme Court’s decision upheld an economic test now called “economic nexus”.

The South Dakota v. Wayfair decision upheld South Dakota’s law stating that if a business sold more than $100,000 in goods or services into a state or engaged in 200 or more separate transactions that the business had nexus with South Dakota and therefore, must abide by South Dakota’s sales and use tax laws.  This is monumental change in the world of sales tax and many states quickly passed laws to capitalize on this change.

So why is this your last warning?  Because now it has been more than 3 years since the decision and 3 years is how long a typical audit covers.  States like South Dakota who have had a valid economic nexus law on their books for 3 full years have started conducting full audits on many, many more businesses than they have been able to in the past.

Furthermore, because of the pandemic, many states are in need of additional revenue.  If they can obtain funds from out-of-state businesses, it would be helpful to their own in-state businesses and their residents.  Many out-of-state vendors are going to be seeing increased audits going forward and it would not be surprising to see states initiate those audits at their first opportunity.

The first thing we recommend is that you stratify your clients’ annual sales by State.  In any state where your client has done more than $100,000 in annual sales you should have a plan in place on how to deal with nexus.  Perhaps its time for a Voluntary Disclosure or Quiet Registration.  A voluntary disclosure is when you go to the state and work out a settlement for a client tax problem which is UNKNOWN to the state.  Generally, you get penalty and interest waivers and limited lookbacks.  Or you can just register (quietly) for only prospective taxes and hope the State doesn’t catch any prior problems.

Written by Mark L. Stone, CPA.  Managing Partner of Sales Tax Defense LLC, 2000 Deer Park Ave., Deer Park, NY  11729.  mstone@SalesTaxDefense.com   631-491-1500 x 11

Karen Tenenbaum, Esq., LL.M. (Tax), CPA and Moshe Zupnick, Law Clerk

High inflation in 2022 propelled the IRS to make some changes to the Offer in Compromise (OIC) program. In April, the agency updated the Collection Financial Standards used to determine a taxpayer’s reasonable collection potential (RCP) and revised the documentation certain taxpayers must provide when applying for an OIC. Complying with these provisions is essential to ensuring an appropriate offer is made and expediting approval. 

Increased Collection Financial Standards

An OIC allows a taxpayer to settle a tax debt for less than the full amount owed. Generally, the IRS will not accept a taxpayer’s offer unless it is equal to what the IRS would reasonably be able to collect from the taxpayer. The RCP is the sum of the net equity of assets along with a twelve or twenty-four month multiple of the taxpayer’s monthly discretionary income. Monthly discretionary income is calculated by deducting the taxpayer’s allowable necessary monthly expenses from the taxpayer’s monthly household income. The Collection Financial Standards set forth the amount allowed for necessary monthly expenses for food, clothing, housing, utilities, out-of-pocket healthcare, transportation, and other miscellaneous items. The amount varies based on the taxpayer’s age, geographic location, and family size. 

As of April 25, 2022, the IRS has raised these standards to address the high inflation rate. The new allowances have increased as follows:

• • Food, Clothing, and Other Items: Most categories are up 8% or 15%.

• Out-of-Pocket Healthcare: These have increased by 10% for those under 65 and 8% for those over 65.

• House and Utilities: There is no national standard, however, local rates are on the IRS website. New York, Nassau, and Suffolk counties have increased their standards by 7%.
• Transportation: Public transportation expenses and vehicle ownership costs are up 12% and 10% respectively. There are no national standards for vehicle operating expenses, but New York local rates are up 14%.

The IRS website has details on the specific allowance amounts.

No Withholding of Tax Refund

Importantly, the IRS took another step to benefit taxpayers suffering in this economy. Previously, the IRS had a policy of withholding a taxpayer’s tax refund through the year in which the taxpayer’s OIC was accepted. This meant that if a taxpayer had an offer accepted in 2021 for a tax debt from 2018, the taxpayer would not receive their 2021 refund. This has changed and taxpayers can now get their current year’s refund. 

Additional Documentation for OICs for Taxpayers with Businesses

The IRS is now requesting additional financial information from certain taxpayers. Previously, if a taxpayer with an ownership interest in a business had a tax debt that was strictly personal (e.g., 1040 income), the taxpayer only had to submit Form 433-A (OIC), Form 656, and all relevant documentation. That same taxpayer now must also submit Form 433-B along with the business’s profit and loss information for six to twelve months prior to submitting the OIC, bank statements, loan statements, notes, accounts receivable, and other pertinent documentation. 

Conclusion

Staying abreast of changes is critical to determining whether your client qualifies for an OIC and if so, calculating the appropriate amount of the offer so it is accepted by the IRS. 

Karen Tenenbaum, Esq., LL.M. (Tax), CPA is the Founder and Managing Partner of Tenenbaum Law, P.C. (www.litaxattorney.com), a tax law firm in Melville, N.Y., which focuses its practice on the resolution of IRS and New York State tax controversies. Karen can be reached at ktenenbaum@litaxattorney.com and 631-465-5000. 

Moshe Zupnick is a law clerk at Tenenbaum Law, P.C., where he represents individuals and business entities in tax controversy matters involving Federal and New York State audit and collection issues. Moshe can be reached at mzupnick@litaxattorney.com and 631-465-5000.

By: Robert S. Barnett, JD, MS (Taxation), CPA and Gregory L. Matalon, JD

Abridged and edited from the original article published in the New York Law Journal

Introduction

Each U. S. Citizen and U. S. Resident (ex. Green Card Holder) is entitled to a combined Federal estate and gift tax exemption of $12,060,000 in 2022.  Prior to 2010, after a spouse died, complex planning and use of trusts was often necessary to utilize the first deceased spouse’s Federal estate exemption.  The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides an alternative solution.  The 2010 Act allows for the “portability” of the deceased spouse’s unused Federal estate and gift tax exemption, effective for decedents dying after December 31, 2010.

In essence, portability allows the surviving spouse to utilize the available unused federal estate and gift exemption from the deceased spouse, without the use of complicated trusts and other planning mechanics.   

In order for the surviving spouse to utilize the remaining exemption of the first deceased spouse (“Deceased Spousal Unused Exclusion” or “DSUE”), the Executor of the decedent’s estate must elect portability of DSUE on a timely filed federal estate tax return (Form 706). Treas. Reg. § 20.2010-2 states that the timely filed election is made by filing Form 706 within nine months after the decedent’s date of death, or on the last day for the required filing if a proper extension of time has been obtained. The regulations state that the Form 706 must be accurately prepared; however, if Form 706 is being filed solely for the purpose of electing portability, special rules allow for streamline reporting with respect to transfers which are deductible under the marital deduction and/or charitable deduction provisions.  Many estates will be able to utilize this streamlined reporting and are only required to report the description, ownership, and beneficiary of such property along with the executor’s best estimate of date of death value.  The simplified reporting allows for a cost-effective method of preparing Form 706.

Late Filing Relief

The IRS recently issued Rev. Proc. 2022-32 which extends the relief period to five years from the date of death to file Form 706 to elect portability; estates that are otherwise required to file Form 706 cannot obtain such relief. The IRS has stated that the purpose of this new procedure is to reduce the number of private letter ruling requests, thereby alleviating the burden on the IRS and taxpayers. Under this simplified method, the executor similarly makes the portability election by filing a complete and properly prepared Form 706 on or before the fifth anniversary of the decedent’s date of death and placing on the top of the Form 706 “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER SEC. 2010(c)(5)(A)”.  This procedure is extremely beneficial and will save the time and expense of filing a private letter ruling request. Decedents who were citizens or residents of the United States on the date of death are eligible to use this simplified method, provided the gross estate plus adjusted taxable gifts was below the federal exemption. No user fee is required for returns filed under the Revenue Procedure, thereby making a late portability election cost-effective for taxpayers.  

Estates that have not elected portability on a timely filed Form 706 or by utilizing Rev. Proc 2017-34 (which provided a two-year relief period and is no longer effective due to Rev. Proc 2022-32) should consider filing under the new guidance.  This expanded procedure is also not available if the executor filed a prior Form 706; because in such event, the executor will either have elected portability of the DSUE or will have affirmatively opted out of the portability election in accordance with Treas. Reg. § 20.2010-2(a)(3)(i).

Gregory L. Matalon (gmatalon@cbmslaw.com) is a Trusts and Estates partner at Capell Barnett Matalon & Schoenfeld LLP (www.cbmslaw.com), with offices in Manhattan and on Long Island.

Robert S. Barnett (rbarnett@cbmslaw.com) is a Tax and Business partner at Capell Barnett Matalon & Schoenfeld LLP (www.cbmslaw.com), with offices in Manhattan and on Long Island.

Limited Liability Companies and Foreign Investors: Killer, Saver & Surprise Potential $25,000 Tax Penalties

Author: M. Andy Wang, E.A. & M.S. in Taxation

Historically, when foreign investors consider entering the U.S. market, they usually tend to follow the advice of local counsel in their home jurisdiction or a U.S. corporate attorney who suggests that they launch their U.S. business operations by setting up a U.S. Limited Liability Company (“LLC”). However, too often, before setting up a U.S. LLC, they fail to obtain proper advice from a seasoned international tax accountant and/or tax attorney to guide them as to the potential negative tax implications of operating a U.S. business through a wholly-owned U.S LLC that is treated as a “disregarded entity” (defined below) or a multi-member owned LLC that is treated as a pass-through partnership for U.S. federal income tax purposes. Admittedly, forming a U.S. LLC may be the easiest entity to set up when starting a new U.S. business endeavor, especially as this structure has many benefits, such as low initial formation costs, no board of directors requirement, it provides business owners (called members) with limited liability protection, one level of taxation instead of two, etc. However, these benefits alone should not be the deciding factor to open a U.S. LLC versus and corporation (such as what is called a “C Corp”), until the tax implications are considered, which include the landscape of the U.S. federal income tax laws that have changed significantly since 2017. Under the Trump administration, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted, which primarily focused on U.S. international tax laws. Under the TCJA, as a US business owner, you may find that a U.S. C Corp has additional tax benefits that do not apply to a US LLC that is treated as a disregarded or pass-through entity.

Additionally, many foreign investors are unaware of the U.S. filing obligations of Form 5472, which is an Information Return required by a 25% foreign owner of a U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business via a wholly-owned U.S. LLC that is treated as a disregarded entity. Investors often ask: Who is required to file Form 5472? How does a business determine the U.S. shareholder status? Who are the foreign investors? In general, a foreign investor is not:

• a U.S. citizen, 
• a U.S. permanent resident (i.e., a green card holder), 
• a domestic corporation or partnership, or 
• someone who has spent enough time in the U.S. to pass what is known as the “substantial presence test.”

A single-member LLC is a disregarded entity for U.S. federal income tax purposes under Treasury Regulation sections 301.7701-2 and 301.7701-3, which means that the entity is not treated as separate and distinct from its owner for U.S. federal income tax purposes, so it is as if the entity, at least for such tax purposes, does not exist. According to the Form 5472 instructions, for tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. disregarded entity is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under Section 6038A that apply to 25% foreign-owned domestic corporations. Therefore, since 2017, a foreign-owned U.S. disregarded entity may be required to file Form 5472 for each year during which the foreign-owned U.S. disregarded entity has “Reportable Transactions”, hereinafter defined, with any related party. In general, the Form 5472 instructions state that a “Reportable Transaction” is any type of transaction listed in Part IV (for example, sales, rents, etc.) for which monetary consideration was the sole consideration paid or received during the reporting corporation’s tax year. The regulation also added a very tricky point that even tax practitioners often omit — The instructions to Form 5472 state that Reportable Transactions of a reporting corporation that is a foreign-owned U.S. disregarded entity also include transactions paid or received in connection with the formation, dissolution, acquisition, and disposition of the entity, as well as contributions to and distributions from the entity. Upon the formation of a U.S. business, foreign investors will likely pay for the legal advice or initial set-up costs that may be treated as an initial contribution to the newly formed LLC. Thus, foreign investors may have filing obligations in the formation year, which is often omitted from the advice received. This most often comes as a huge surprise to foreign investors setting up their U.S. operations, who face a substantial $25,000 tax penalty for their unintentional failure to file the Form 5472. Criminal penalties under sections 7203, 7206, and 7207 also may apply for failure to submit information or for filing false or fraudulent information.

We live in a worldwide tax reporting web. The U.S. and the OECD countries have put tremendous efforts into cracking down on global tax non-compliance issues to track offenders and mitigate tax evasion. Without engaging competent U.S. international tax professionals to provide proper tax planning advice, it’s very easy to fall into an unforeseen tax trap. If you are experiencing this issue, you may want to consider changing the default entity classification of an LLC to be treated as a U.S. C Corp by making what is known in tax parlance as a “Check-the-Box” (“CTB”) election on Form 8832, which is a tax concept that could solve this problem potentially.

As is identified in the Chart below, TCJA added several new tax laws and new opportunities for tax planning purposes. Unlike U.S. disregarded or pass-through LLC entities, U.S. LLCs that make a CTB election to be treated as a US C Corporation may be eligible for a foreign-derived intangible income (“FDII”) deduction when the U.S. C Corporations sell goods and/or provides services to foreign customers. The deduction reduces the effective tax rate on certain income to 13.125% compared to the statutory corporate tax rate, which is a flat 21%. The FDII computation is complicated. Nevertheless, it may provide additional tax benefits, which complicates the decision-making process regarding the pros and cons of operating in the U.S. or a foreign country via a disregarded or pass-through U.S. LLC.                                      

Note: The computation chart is from the Tax Adviser.com

In conclusion, it cannot be stressed enough that the choice of legal entity has significant tax complications for both U.S. and foreign investors, and it is undeniable that many global companies still benefit from having an LLC somewhere in their overall organizational structure. However, where the LLC fits in the overall structure must be carefully considered and certainly should not be viewed as the only answer when seeking to set up U.S. business operations. Although the U.S. tax laws have become increasingly more complicated, creating challenges, if properly advised, there are also ample tax planning opportunities. Therefore, it is most important when embarking on a business in the United States to choose a seasoned U.S. international tax professional who can help you navigate the complex U.S. tax regime, mitigate the many tax pitfalls that foreign investors face, and maximize tax efficiencies for your global operations.

———-

M. Andy Wang is a Tax Principal at Zahn Law Group, LLP and Andesi Global Tax LLC, with which both firms are affiliated. Andy is an E.A. and received his Master of Science in Taxation degree from Fordham University. He has more than 15 years of international tax experience servicing various industries. Andy advises clients on a variety of international and domestic tax issues, including foreign tax credits, repatriation planning, income tax treaty planning, U.S. FATCA & withholding tax rules, and U.S. Subpart F income rules. He has spent extensive time providing global clients with solutions in dealing with matters related to the Tax Cuts and Jobs Act. Please contact him at awang@zahnlawgroup.com for comments or to suggest an idea for another article.

I have a special occasion coming up and want to buy a new suit to wear. The truth of the matter is that I do not need a new suit. I bought two new suits about four years ago and probably wore each one two or three times. Also, since COVID started I haven’t even worn a suit and perhaps a sports jacket maybe twice and no ties at all, yet I want to get a new suit to mark my special occasion.

Sometimes things need to be freshened up, renamed or dressed a little differently. That is what is happening somewhat in accounting. I see a lot of the “old” things being revived in different suits. Here are some examples.

• Client Accounting Services (CAS). This is the performance of outsourced accounting and bookkeeping services for clients. We’ve always done this. For many clients it makes no sense to have these functions in house as it pulls energy away from their core mission. This is not a new concept, but larger accounting firms have awakened to this and some smart digital and robotic providers of support are promoting it intelligently. My father did this when he started working in 1930. He called it “trying to make a living.”
• Bundling services. This is a new term for what almost every small accounting firm has been offering forever. Bundling services is where everything a client needs is packaged together and there is a single agreed upon price for the year. Bundling also includes unlimited phone calls and the typical consulting or advisory services such clients need. BTW, out of the 46,000 United States accounting firms, 45,000 could easily be classified as small with 20 or fewer people in the practice. My father did this too, to try to make his living.
• Subscription model. Fancy name for getting paid a monthly fee automatically. Been there; Done that; and still doing it. It just never had a name.
• Choice pricing models. This is where a prospective client is offered a choice of three or more levels of services. Early on, maybe three levels weren’t offered, but there have always been at least two. A basic and a premium level, but they weren’t given those names. Clients were presented with a proposal to coincide with their expressed needs and then given an added choice of a stepped-up service that included everything the client really needed. Occasionally a third level was provided which included some unlikely services with a higher price that guaranteed the client would not be charged at the prevailing rates for such services such as a tax audit that might occur…or might not.  
• Value pricing. This is a model where the client and accountant discuss the services the client needs and the value of those services to the client and a price decided upon. This sounds like every negotiated fee for every client since time immemorial. A hindrance to this is something called competition and the fact that a half dozen other accountants in a ten-mile radius would likely offer the same services for a similar fee, without the added feature of the “value to the client.” There are some situations where one accountant might be able to provide a superior benefit and a value price should be charged, but most of the services for deliverables is pretty much standardized. Don’t think I am suggesting that all accountants are providing the same service, because they do not. There should be a premium for experience and ability to apply that to the client’s situations and exposure to out of the ordinary or complicated transactions that should result in a “value price” but that is outside the normal range of the professional relationship. Also, in my case there is the “Ed Mendlowitz” factor and that creates added value.
• Advisory services. This is the new word used for the hand-holding smaller accounting firms routinely provide to their clients. There are some outside the box advisory services some accounting firms perform that command premium prices and provide superior value and these are rightfully classified as advisory services. However, from what I’ve seen these are not offered by many firms and except for some smaller firms that have a high concentration and expertise in an industry or niche, the true advisory services are probably limited to the top 100 or 150 firms. Further, the smaller accounting firms with boots on the ground are hands on with their clients are usually the first person clients turn to when there is a problem and these likely fall under the umbrella of the bundled package. 
• Millennials are different. They might be, but not in the context it is used. Millennials that want to be accountants are no different than whatever entry level accountants were called when Luca Pacioli gave us his rules of double entry bookkeeping. The blame placed on a lack of performance or responsiveness on new accountants is a poor excuse for inadequate, improper, careless and thoughtless staff management and training. Get over it and make the necessary investment your staff need to get revved up.
• Tax season workload compression. This is a real issue but is continually mismanaged by firms, and I’ve seen this mismanagement accelerate since I started. There are some easy remedies such as calling clients pre year end to find out about any unusual things that occurred that needs tax reporting and then working on that before tax season gets hot and heavy; or staff training for what they actually would be working on and not the complete updates that have more than half of stuff they will not be doing and for which they do not have a clue for. There are more but just these two could relieve some of the stress and pressure. However, the feedback I get is that firms are “too busy” to make any changes. Duh?

There are more but this is a good short list of the “new” that is really “old.” Like an old suit – it still fits and feels good. I find many firms that keep repeating what doesn’t work and who look for excuses, fancy names and sometimes buy a new suit to make themselves think that that represents a change forward.

Perennial best principles

There is no doubt that the accounting and business world is completely different today than when I started; however, there are more similarities than might be imagined. 

The techniques we use are completely different. When I started, I used a slide rule to obtain percentages, today they are almost automatic with the software we use. When I started, a big thrill was getting a new pad of accounting paper with a brand new never used sheet of pencil carbon paper. Today neither exists and pencils are also a relic (except if you do crossword puzzles and make sure you have a good eraser on it). 

However, the underlying business principles are still the same. Following are ten best principles that have been constant since I started my career, and probably for many years before then.

1. Be courteous: Respect other people’s points of view. Listen to them. Let them have their say. Listening doesn’t mean agreeing with them but hear them out. I also have a simple rule that says that the more you let others talk to you, the smarter they think you are. Further, follow the golden rule by treating others as you would want to be treated. It might be a cliché, but it is an important way to act with others. 
2. Clients pay your salary: The sales mantra is that the client is always right works except when they want you to compromise your values, OR when they hire you to help them go in a different direction and then insist on following the old ways they are comfortable with. In those cases you are being engaged to express your opinions and to clearly articulate what you mean that will cause positive forward action, so do that! Clients that constantly say they want change and do not make any changes might not always be a good fit for you.
3. Clients pay your salary Redux: They cannot pay your salary if you do not bill promptly or if you do not ask for payment when your invoices creep into the past due area. Clients also need a clear understanding of what you would be doing and not doing and the price. Open ended prices are not clear, leave doubt, put you in a position of possible combat every time an invoice is received by your client or having a client hold back calling because they picture that interaction being moderated by a cash register.
4. Staff create leverage so you could grow: Staff need to be trained, need to understand how they could grow and given that opportunity, need to buy into your culture of superior client service, need to be held accountable for sub-par performance, need to be noticed and made to feel appreciated for superior performance, and paid fairly. They also need to be made proud of their growth and your firm.
5. Your practice needs to grow: Growth comes from three sources. New clients. Added services to existing clients. Acquiring other practices. Satisfied clients engage your firm for added services and refer new clients. Anything else needs extra marketing efforts which divert energies that could be better applied to existing clients. If your firm has a model that includes adding practices, that is a different strategy and pushes your practice into a “corporate” mode. Know what you want and then proceed toward it, but I do not think all three can be done simultaneously by too many firms.
6. Develop a strategic plan: Figure out where you want to be in five years and compare that to where you likely would be if you do not make any changes. To me, that is the start of your strategic plan.
7. Meet all due dates: Due dates are promises. Do not lie. Keep your promises. If you do not believe you can meet a due date, let the client (or whomever you made the promise to) know before then, not afterwards.
8. Strengthen your brand: You have a brand whether you realize it or not. Articulate it in everything you do, and how you represent your firm and not just how you want to look to outsiders, but how you operate among yourselves.
9. You are in a business: Businesses need clear leadership, management, direction, processes and systems, and profitability. Your actions should be aligned with this. This also means partner buy-in and no separate systems or procedures for some partners.
10. Availability: Be available to your clients. Respond promptly to their calls, emails and texts and initiate calls, check-ins and meetings. Great responses to crisis score big while heading off crises does not give you extra credit, but a continuous pattern of calm under your watch will elevate you to trusted advisor status. 

Nothing here is new but these are as relevant and important today as they ever were. If you agree with me, try adopting some or all of these as your best principles.

Brief bio:

Edward Mendlowitz, CPA is emeritus partner with Withum, he is one of Accounting Today’s 100 Most Influential People, an adjunct professor at Fairleigh Dickinson University and Baruch College and the author of 30 books.

A foreign “person” disposing of an interest in U.S. real property may be subject to the Foreign Investment in Real Property Tax Act (FIRPTA) tax withholding rules. For these purposes, “person” can mean an individual, a business, or certain trusts.

Do you meet the requirements?

The following three factors will determine the applicability of FIRPTA withholding:

1. The transferor is a foreign person. The presence of a taxpayer identification number (TIN) or a Social Security number (SSN) has no bearing on whether the seller is a foreign person or a U.S. person.  For someone who is neither a U.S. citizen nor a green card holder, the “substantial presence test” is used to determine whether the individual is a foreign person or not. 
2. There has been a disposition. For purposes of FIRPTA, a disposition includes a sale or exchange, liquidation, redemption, distribution, capital contribution, and gift.
3. The asset being disposed of is a U.S. Real Property Interest (USRPI). This includes a direct ownership interest in U.S. real property and U.S. real property holding corporations (USRPHC). 

How is the FIRPTA withholding tax determined?

If, based on the requirements above, FIRPTA applies, upon the disposition of the USRPI, you will be subject to a 15% FIRPTA tax withholding of the amount realized (generally the total consideration received by the seller, including cash, other property received, and liabilities assumed by the buyer) on the disposition unless an exception to withholding applies. If the amount realized on the disposition of a USRPI is $300,000 or less and the buyer intends to use the USRPI as a personal residence, the FIRPTA withholding does not apply.   Additionally, in cases where the property is acquired as a personal residence for a price of $1 million or less, the withholding tax rate is reduced to 10%. 

In cases where FIRPTA applies, the buyer acts as the withholding agent and is responsible for filing Form 8288 and Form 8288-A with the IRS to report and remit the amount withheld by the 20th day following the date of transfer.  The tax is typically withheld from the closing proceeds.

How do you claim a credit for the amount withheld?

Foreign transferors of USRPI are subject to U.S. tax on the disposition.  In general, the FIRPTA withholding will likely be greater than the U.S. federal income tax liability.  Transferors are able to claim a credit against their U.S. tax liability for the amount of FIRPTA withholding.  Upon receipt of Form 8288 and Form 8288-A, the IRS will provide the transferor with a stamped Copy B of Form 8288-A, which must be attached to the filed U.S. income tax return (such as Form 1040-NR or 1120-F).

Final Thoughts

While the intention of FIRPTA is to treat foreign persons the same as U.S. persons who transfer USRPI, a foreign transferor can apply for a withholding certificate to reduce or eliminate FIRPTA withholding on dispositions of USRPIs. In cases where the foreign transferor is not able to obtain a withholding certificate on or before the closing date of the disposition, a request for an early refund can be made instead of waiting to file the annual income tax return. Historically, the IRS responded to these applications within 90 days. However, due to COVID backlogs, the process has been taking much longer.

If you have any questions, please contact April (Hong) Peng from WilkinGuttenplan via apeng@wgcpas.com.  

April (Hong) Peng

WilkinGuttenplan

732.846.3000

The current tax laws contain potential benefits available for US companies that export their goods.  The interest-charge domestic international sales corporation (IC-DISC) rules and the foreign-derived intangible income (FDII) rules provide significant income tax advantages for US business owners, especially those who manufacture goods in the US and sell those goods outside the country. 

How does an IC-DISC work? 

The IC-DISC is a separate entity created and earns a deemed commission from the US taxpayer (the manufacturer), who receives income from its export transactions. While the commission is fully deductible by the US taxpayer, the IC-DISC pays no taxes at the corporate level. The IC-DISC shareholders pay tax on dividends received by the IC-DISC at the lower capital gains tax rate when the IC-DISC revenue is distributed. These benefits are available to US taxpayers that are individuals, C corporations, S corporations, partnerships, or LLCs. 

To illustrate, let’s suppose an S corporation manufactures goods and sells them for $5 million to customers outside the US and pays $200,000 in commissions to its IC-DISC. Assume the owners are in the highest federal tax bracket of 37% and the highest capital gains tax rate of 23.8% (the highest federal capital gains rate of 20% plus an additional 3.8% of net investment income tax). Further, for purposes of this illustration, assume that the owners are not taking the qualified business income deduction (QBID). 

The S corporation can deduct $200,000 in commissions paid to the IC-DISC, resulting in tax savings to its owners of $74,000 (37%*$200,000). The owners will pay a federal tax of $47,600 (23.8%*$200,000) on qualified distributions from the IC-DISC. The net savings is $26,400 ($74,000- $47,600), or 13.2% of the commissions paid.  

How does the FDII incentive work? 

The FDII deduction, introduced by the 2017 Tax Cuts and Jobs Act, provides a valuable tax break to US corporate exporters of goods and services. This benefit only applies to taxpayers organized as C corporations. The calculation of the FDII deduction is rather complex. However, a corporation can claim a 37.5% deduction of the excess of the net income from export sales over a fixed return on the tangible depreciable assets, resulting in an effective tax rate of 13.125%, compared with a 21% corporate tax rate from January 1, 2017, to December 31, 2025, after which the deduction is reduced to 21.875%, resulting in an effective tax rate of 16.406%. 

The impact of TCJA and the Biden administration 

C corporations can claim the benefits of both the IC-DISC and the FDII incentive in the same tax year. The benefit of utilizing an IC-DISC has diminished for non-C corporation taxpayers after the introduction of the QBID.  

President Biden’s proposed tax plan will affect the advantage of the IC-DISC for high-income earners. The proposed increase in the individual ordinary income tax rates would widen the “spread” between ordinary and dividend tax rates, which will increase the value of IC-DISC. However, if the top tax rate on the dividend tax rate is raised, the benefit of IC-DISC would be diminished, possibly even eliminated. 

If you have any questions about these strategies or any other matter, please contact April Peng from WilkinGuttenplan via apeng@wgcpas.com.  

April (Hong) Peng

WilkinGuttenplan

732.846.3000

Trusts are great tools for many reasons.

There are mainly two types of trust, revocable & irrevocable.

When a revocable trust is funded by a grantor, the assets continue to be treated as the grantor’s own, for tax purposes.

There are three parties involved when forming a trust: the Grantor, the Trustee, and the Beneficiary(ies).

Revocable trust

Since probate is a costly and lengthy process, one of the main purposes of setting up a revocable trust is to avoid estate probate when the grantor passes away. 

When a revocable trust is funded by a grantor, the assets continue to be treated as the grantor’s own for tax purposes; therefore, there is NO gift tax to file.  Upon the grantor’s death, the trust assets are included in the grantor’s estate and receives a step-up basis equal to the fair market value (FMV) at death. This is a big tax benefit for beneficiaries to save taxes when they sell the inherited properties at no or low capital gain after grantor’s death.

Irrevocable trust

There are three main reasons for irrevocable trusts:

1. 1. Minimizing the estate tax
   2. Help those with disabilities and special needs, to qualify for government benefits

• Asset protection

For legal purposes, there are different types of irrevocable trusts.

For tax purposes, trusts are filed as either a Simple trust, Complex trust or Grantor trust.

For a Simple trust, all the income must be distributed to the beneficiaries annually; the trust fund must not payout any of its corpus/principal and cannot make charitable contributions.

A Complex trust, (unlike a Simple trust), can distribute both income and principal assets to beneficiaries and can make charitable donations. 

In general, a trust must file a tax return and a Schedule K-1 will be generated.  K-1 income flows through and taxed to the beneficiaries.

Grantor trusts are considered a disregarded entity for income tax purposes. Therefore, any taxable income or deduction earned or incurred by the trust will be taxed on the grantor’s tax return.

In general, contributing assets to Irrevocable trusts requires the grantor to file a gift tax return if the gift is “complete”.  In some cases, funding assets to the trust are incomplete gifts, for example, when the grantor still has a power of appointment, and then there is no need to file a gift tax return. 

When preparing trust tax returns, understanding trust documents created by an attorney is important to determine the correct type of trust to file as well as to determine if the transferring assets are a complete gift or not.

By Paul Mei, CPA @ Mei CPA PC  1714 86th Street 2nd FL, Brooklyn NY 11214 T: 718-975-3363

www.meicpa.com , info@meicpa.com