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Business Valuation, Growing Value And Liquidity Realization (Part I Of Book Series)

Michael Gilburd - Book on Business Valuation, Growing Value And Liquidity Realization

TaxConnections has recently received permission to post a series of articles from the book Business Valuation, Growing Value And Liquidity Realization written by Michael Gilburd. Over the past several decades, Michael has prepared valuations and assisted in debt and equity placements from tens of thousands to millions and hundreds of millions of dollars while working for major financial companies.

Introduction – Business Valuation, Growing Value And Liquidity Realization

Business Owners and Business Buyers: What’s the Right Value?

Most business owners have very little confidence in their own abilities to set market values for their most important assets. According to the International Business Brokers Association, most business owners simply don’t know where to turn for reliable advice in a buy or sell situation. Some turn to lawyers or accountants, others turn to stockbrokers or even friends, but the truth is that without formal training and industry standard modeling techniques, none of these professionals is qualified to set valuations on businesses of any kind. The key to protecting your assets and interests at any bargaining table is to know that your position is supported by leading edge methodologies executed with seasoned valuation expertise.
What is your business worth?
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The Taxation Of Capital Gains Of Nonresident Alien Students, Scholars and Employees Of Foreign Governments

Taxation Of Capital Gains For Foreigners

The capital gains income of: nonresident alien students, scholars, and employees of foreign governments and international organizations may be taxed in a different way than the capital gains income of other nonresident aliens.

The following discussion assumes that the capital gains in question are not effectively connected with the conduct of a trade or business in the United States.

Most foreign students, foreign scholars, and alien employees of foreign governments and of international organizations in the United States are considered to be “exempt individuals.” That is, they are exempt for extended periods of time from counting days of presence in the United States for the purposes of determining whether they are resident aliens of the United States.

Thus, most foreign students, foreign scholars, and the alien employees of foreign governments and of international organizations in the United States remain nonresident aliens in the United States for extended periods of time.

A flat tax of 30 percent was imposed on U.S. source capital gains in the hands of nonresident alien individuals physically present in the United States for 183 days or more during the taxable year. This 183-day rule bears no relation to the 183-day rule under the substantial presence test of IRC section 7701(b)(3).
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10 Reasonable Compensation Points To Discuss With Your Clients

10 Reasonable Compensation Points To Discuss With Clients

Without an accurate Reasonable Compensation figure, tax planning is just a guess.

1. Educate. Send an issue letter so your clients are thinking about Reasonable Compensation before you meet.

Most S Corp owners, once they understand the issue, will follow your advice as their Trusted Advisor. For those who don’t, sharing the issue letter will document your attempt to do so.
Download Issue letter HERE
2. Stress Test. Is your client’s Compensation figure Reasonable?

If it fails the stress test, it likely won’t survive a Reasonable Compensation challenge.
Download Stress Test HERE
3. Research. Provide an accurate, independent Reasonable Compensation Report to each shareholder-employee.

Research and documentation is now a “must have” with the passage of the TCJA.
4. Get Up-to-Date. Put Section 199A & the QBI on the meeting agenda.
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5 Benefits Of Negotiating An IRS Installment Agreement

5 Benefits Of Negotiating An IRS Installment Agreement

An IRS installment agreement is one of the best ways to resolve your tax debt problems. You can avoid most types of IRS collection actions and pay off several years of tax debt as long as you make your monthly payment.

Key Insights We Will Discuss:
Why IRS installment agreements are such a popular tax resolution option.
How an installment agreement protects you from IRS levies and liens
How you can modify your installment agreement should you need to

Benefit #1: Avoid IRS Levies
The IRS can seize your bank account or wages to collect back taxes. If you enter into a payment plan, the IRS will generally stop pursuing any type of levy as long as you make your monthly payments.

The one exception is a tax refund offset. The IRS may continue to seize your tax refund checks until your debt is paid off in full.

Benefit #2: Pay Off Several Years of Tax Debt
If you owe tax debt for several years, you may receive a separate set of notices for each year. You may become confused and overwhelmed when trying to figure out what you owe for each period in back taxes, penalties, and interest.

You can pay off multiple years of tax debt with one monthly payment. Before you start, have a tax attorney request your tax transcripts to determine how much you owe for each period.
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IRS Updates Guidance On Business Expense Deductions For Meals And Entertainment

IRS On Business Expense Deductions

The Internal Revenue Service issued proposed regulations on the business expense deduction for meals and entertainment following changes made by the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. It also limited the deduction for expenses related to food and beverages provided by employers to their employees.

These proposed regulations address the elimination of the deduction for expenditures related to entertainment, amusement or recreation activities and provide guidance to determine whether an activity is considered to be entertainment. The proposed regulations also address the limitation on the deduction of food and beverage expenses.

The proposed regulations affect taxpayers who pay or incur expenses for meals or entertainment. These proposed regulations generally follow Notice 2018-76 (PDF), issued on October 15, 2018, which provided transitional guidance on the deductibility of expenses for certain business meals.

Taxpayers affected by this change and other interested parties may submit comments on the proposed regulations. The IRS will hold a public hearing on these proposed regulations on April 7, 2020.

IR-2020-39

What If An S Corp Owner Can’t Afford To Pay Reasonable Compensation?

Reasonable Compensation S Corp

This is by far the number one question we receive, and the answer is both simple and complex. Why? Because the amount of Reasonable Compensation actually paid is tied to distributions, not profit or loss.

Depending on the company’s financial condition and business strategy, a shareholder-employee may be able to take Reasonable Compensation plus a distribution, just Reasonable Compensation, or neither. What the shareholder-employee can’t do take a distribution instead of Reasonable Compensation.

To help you better understand, let’s run through a few simple scenarios and then move onto some more advanced ones. Keep in mind the following:

Reasonable Compensation is defined by the IRS as: “The value that would ordinarily be paid for like services by like enterprises under like circumstances.” or the hypothetical “Replacement Cost” of the shareholder-employee.

Reasonable Compensation is based on the value of services provided (Hypothetical Replacement Cost), not profit, distributions or the amount the company can afford to pay.
Wages (Reasonable Compensation) should be paid BEFORE distributions are made.
A shareholder-employee can take wages (Reasonable Compensation) without taking a distribution, but not vice versa.
A shareholder-employee who does not want to take any Reasonable Compensation can refuse all compensation (distribution), and play ‘catch up’ in a later year.
Reasonable Compensation is derived from the value of the services provided, not the profit or loss of the business. While Reasonable Compensation has nothing to do with profit and loss, it does relate to Distributions. Why? Because the IRS guidelines for Reasonable Compensation state: The amount of reasonable compensation will never exceed the amounts received by the shareholder either directly or indirectly. It does not mention profit or loss at all but instead talks about ‘amounts received’ by the shareholder. It does not matter if the company is making or losing money; what matters is whether or not the S Corp owner is taking money (e.g. a distribution or other items of value) out of the S Corp.
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J5 Tax Chiefs Closing The Net On Global Tax Evasion

Global Tax Evasion

Leaders from five international tax organizations came together in Sydney, Australia, this week to review the J5’s progress in their fight against transnational tax crime and set priorities for the year ahead.

The Joint Chiefs of Global Tax Enforcement (J5) was formed in 2018 after a call to arms from the OECD Taskforce on Tax Crime and has been working together to gather information, share intelligence and conduct coordinated operations, making significant progress in each country’s fight against transnational tax crime.

The J5 includes the Australian Taxation Office (ATO), Her Majesty’s Revenue and Customs (HMRC) from the UK, Internal Revenue Service (IRS) Criminal Investigations from the US, the Canadian Revenue Agency (CRA) and the Dutch Fiscal Information and Investigation Service (FIOD).

Together, each country is better equipped in the fight against those who commit, promote and enable international tax crimes and money laundering.

Last month, the group executed a globally coordinated day of action against an international financial institution suspected of facilitating money laundering and tax evasion. Evidence, intelligence and information collection activities such as search warrants, interviews and subpoenas were undertaken in each country and significant information was obtained and shared as a result.
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The Taxpayer Advocacy Panel Is Now Recruiting Volunteers Of Citizens

National Taxpayer Advocate Recruiting Volunteers

The Taxpayer Advocate Service (TAS) is your voice at the IRS. We take this statement seriously, as demonstrated by the work we do to help taxpayers resolve their tax problems. We do more than resolve problems, however. Part of our mission is to recommend changes that will prevent problems in the future. And in keeping with that part of our mission, we provide oversight and support for the Taxpayer Advocacy Panel (TAP), a federal advisory committee made up of citizens that listens to taxpayers, identifies major taxpayer concerns, and makes recommendations for improving IRS customer service and customer satisfaction.

The panel, established in 2002, consists of about 75 volunteers. To the extent possible, TAP members come from all 50 states, the District of Columbia, and Puerto Rico. In addition, one member represents U.S. citizens working, living, or doing business abroad or in a U.S. territory other than Puerto Rico. To be a member of TAP, a person must be a U.S. citizen, be current with federal tax obligations, and pass a Federal Bureau of Investigation criminal background check. Members cannot be federally registered lobbyists. In addition, current Department of the Treasury and IRS employees cannot serve on the panel, and former Department of the Treasury or IRS employees and former TAP members must have a three-year separation from their service to be eligible for appointment. Tax practitioner applicants must be in good standing with the IRS (meaning not currently under suspension or disbarment).
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Affordable Care Act Reporting Requirements For Employers

Clifford Benjamin

The health care law contains tax provisions that affect employers. Two parts of the Affordable Care Act apply only to applicable large employers. These are the employer shared responsibility provisions and the employer information reporting provisions for offers of minimum essential coverage.

The size and structure of a workforce determines which parts of the law apply to which employers. Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees. Under the employer shared responsibility provision, ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum value. Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.

As such, calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates during the year. You will use information about the size of your workforce during 2019 to determine if your organization is an Applicable large employer (ALE) for 2020.
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Tax Manager – Investment Management (San Francisco, CA)

Tax Manager, San Francisco, CA

TaxConnections has been retained by a high net worth family and investment group to locate a Tax Manager in San Francisco, CA. It is an opportunity of a lifetime for a tax professional with the requisite skills! Our client has an unusually high retention rate and rarely does an opportunity come up with this investment group.

The Tax Manger will be responsible for assisting senior tax management with tax research and planning and all aspects of the tax compliance and forecasting for a very significant investment partnership and the related investment management entity. Individual must have a solid understanding of current tax laws including knowledge of investment partnership structures. Researching and communicating the tax consequences of current and proposed investments will be a part of the responsibilities of the successful candidate.
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IRS Increases Visits To High-Income Taxpayers Who Haven’t Filed Tax Returns

IRS Visits Taxpayer Homes

As part of a larger effort to ensure compliance and fairness, the Internal Revenue Service today announced that it will step up efforts to visit high-income taxpayers who in prior years have failed to timely file one or more of their tax returns.

Following the recent and ongoing hiring of additional enforcement personnel, IRS revenue officers across the country will increase face-to-face visits with high-income taxpayers who haven’t filed tax returns in 2018 or previous years. These visits are primarily aimed at informing these taxpayers of their tax filing and paying obligations and bringing these taxpayers into compliance.

“The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes,” said Paul Mamo, Director of Collection Operations, Small Business/Self Employed Division. “These visits focusing on high-income taxpayers will be taking place across the country. We want to ensure taxpayers know their options to get right with their taxes and avoid bigger issues later.”
For the current tax season, the IRS reminds taxpayers that everyone should file their 2019 tax return by the April 15 filing deadline regardless of whether they can pay in full. Six-month filing extensions are also available, although that does not extend the April deadline for paying any taxes owed.
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5 Ways The IRS Can Collect Delinquent Tax Debt

IRS Debt Collection

The IRS has a variety of methods it can use to collect delinquent tax debt. If you don’t voluntarily resolve your tax debt problems you may face IRS levies, wage garnishments, or other IRS enforced collection actions.

Key Insights We Will Discuss:
Ways the IRS can collect delinquent tax debt.
Your options when facing an imminent levy.
How to avoid each type of IRS collection action.

Bank Account Levies
The IRS can levy the entire balance in your bank account up to the amount you owe in back taxes, penalties, and interest. If you owe more than your bank account balance, the whole account can be seized.

Before a bank levy takes place, you’ll receive a Collection Due Process (CDP) notice. If you request a CDP hearing within 30 days, you can negotiate a deal to avoid the bank levy.
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