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Archive for John Dundon

Improving IRS Communication Efforts

Improving IRS Communication Efforts

Harrison Smith and Justin Abold-LaBreche are improving IRS communication efforts.  As Co-Directors of the IRS Enterprise Digitalization and Case Management Office with experience across multiple IRS offices, they spearhead efforts to modernize systems, simplify business processes, and empower employees to rapidly resolve issues in simplified digital environments.

The Enterprise Digitalization & Case Management Office, created in July 2020, addresses the need to modernize and consolidate many OLD systems, business processes and policies.  They rise to the challenge of implementing digitalization and case management initiatives and improve the experience of IRS employees and taxpayers alike with the resources that congress has allocated.

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What Parents Should Know About Taxes On Custodial Accounts

What Parents Should Know About Taxes On Custodial Accounts
If your child turns 21 and is still a full-time student, the account can still get hit with taxes.

My daughter is about to turn 21 and will be able to control the custodial account we established for her years ago. Will she qualify for the 0% capital-gains rate if she sells shares after she has control of the account? She is in college, and my wife and I claim her as a dependent. J.D., New Hartford, N.Y.

Your daughter should wait until she is 24 or supporting herself to sell most of the stock, recommends John Dundon, an enrolled agent in Englewood, Colo. At that point, the gains will be taxed at her own (likely lower) rate.

Have a question? Contact John Dundon, EA, Taxpayer Advocacy Services, Colorado

Liquidating Distribution Of A Partner’s Interest In A Partnership

Liquidating Distribution Of A Partners Interest In A Partnership

In the plethora of files across my desk over the years, navigating compliance issues for liquidating distributions of a partner’s interest in a partnership have 3 buzzworthy considerations to avoid unwanted scrutiny.

  1. Calculating the recognized gain or loss from a cash or property distribution in liquidation of the partnership interest
  2. Substantiating the partner’s basis in property received in liquidation.
  3. Correctly determining the character and holding period of the property distributed.

When it comes to calculating the recognized gain or loss from a liquidating distribution IRS Revenue Agents are trained to determine whether the distributions were:

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Colorado Sales Tax Nexus And Destination Sourcing Rules

Colorado Sales Tax Nexus And Destination Sourcing Rules

The Colorado General Assembly adopted SB21-282, which extends the small business exception to destination sourcing requirements. This exception applies only to businesses with less than $100,000 in retail sales.

As of February, 1st 2022 however, all retailers must apply the destination sourcing rules when calculating, collecting and remitting Colorado sales tax.  Basically, sales tax is calculated based on the buyer’s address when the taxable product (or service) is delivered and could involve multiple home rule taxing municipalities as well the Colorado Department of Revenue.

It is also used when a product or service has a lease/rental agreement with periodic recurring payments. The Department does not have the authority to grant exceptions to these rules.

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Tax Fairness For Coloradans

The Tax Fairness for Coloradans package – is coal dead in Colorado? This is one of many questions arising out of HB21-1311 (Income Tax) and HB21-1312 (Insurance Premium Property Sales Severance Tax), combined legislation that expanded tax credits for working families and small businesses but hurt the coal industry. Each passed with a 41-23 vote and were signed into law by Governor Polis. The first bill expands eligibility for the state earned income tax credit and essentially doubles funding for the Colorado Child Tax Credit. “Modernizing” or as some like to quip “social engineering” the Colorado tax code is either way a topic to be avoided at extended family reunions. The second bill focuses on a property sales severance tax increasing the number of businesses that will be exempt from business personal property tax and is just plain smart legislation for most all Colorado business owners, except the coal industry of course.  Coal is dead anyhow, right? Well, we will see I suppose.  The bill phases-out the 50% tax credit for coal produced from underground mines & lignitic coal.  It also phases out the exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022. So why keep digging? Nevertheless kudos to Rep. Emily Sirota (D-Denver), Rep. Mike Weissman (D-Aurora), Sen. Chris Hansen (D-Denver) and Sen. Dominick Moreno (D-Commerce City) for skillfully sponsoring and shepherding both bills across the threshold and into Governor Polis’ office. A relatively broad but debatable interpretation of the Colorado Department of Revenue’s 2020 Tax Profile & Expenditure Report required bi-annually as per §39-21-303, C.R.S. indicates that these bills collectively should eliminate several loopholes in the state tax code that were not “creating jobs, boosting the economy, or making Colorado more competitive with other states or benefiting Colorado.”  That aside what is not debatable is that this tax reform will create more jobs for tax accountants. So maybe, just maybe, coal miners and related industry professionals can transition into tax accountants.  Read on… DETAILS ON HB21-1311 – INCOME TAX NEIGHBORHOOD BARBEQUE BANTER Imposes a cap for taxpayers with adjusted gross incomes equal to or exceeding $400,000 on certain federal itemized deductions. Limits the deduction for contributions made to 529 plans, Disallows full federal deduction for food and beverage expenses at restaurants. Limits the capital gains subtraction. Allows a subtraction from Colorado taxable income in amounts related to repealing the cap on the deduction for certain social security income. Increases the earned income tax credit to 20% in 2022 and 25% in 2023. Allows a child tax credit in the state regardless of the federal requirement that a qualifying child must have a social security number. DEEPER DIVE Allows a temporary income tax credit for a business equal to a percentage of the conversion costs to convert the business to a worker-owned coop, an employee stock ownership plan, or an employee ownership trust. Modifies the computation of the corporate income tax receipts factor (increasing it) to make it more ‘congruent’ with combined reporting. Prevents corporations from using tax shelters in foreign jurisdictions for the purpose of tax avoidance. Clarifies that certain captive insurance companies are not exempt from income tax. Repeals, for social security income that is included in federal taxable income only, the cap on the deduction for pension and annuity income received. Extends the limit on the federal deduction allowed under section 199A of the internal revenue code. DETAILS ON HB21-1312 – INSURANCE PREMIUM PROPERTY SALES SEVERANCE TAX NEIGHBORHOOD BARBEQUE BANTER Phases-out the 50% tax credit for coal produced from underground mines & lignitic coal and exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022. Requires personal property tax to be based on the property’s value in use as defined by a property tax administrator. Increases the per-schedule exemption for business personal property tax from $7,900 to $50,000. Codifies the definition of tangible personal property to include digital goods, including amounts charged for mainframe computer access, photocopying, packing & crating. DEEPER DIVE Disallows the sales tax vendor fees for retailers who report total taxable sales greater than $1 million in the tax period. Requires a company to have a minimum percentage of its total domestic workforce in the state in order for the company to be deemed to maintain a home office or regional home office. This percentages are: 2% for 2022 25% for 2023 5% for 2024 onward. Narrows the tax exemption for annuities considerations to those that are purchased in connection with a qualified retirement plan, a Roth 401(k), or an individual retirement account. Authorizes the commissioner of insurance to appoint an independent examiner to conduct examinations. So, if you’ve made it this far what do you think, is coal dead in Colorado?  I say probably not right away, but yeah.  For more on this or tax changes to the Colorado Revised Statutes, contact me directly.  My team and I are here to serve. Have a question? Contact John Dundon II, EA, Colorado.
The Tax Fairness for Coloradans package – is coal dead in Colorado?

This is one of many questions arising out of HB21-1311 (Income Tax) and HB21-1312 (Insurance Premium Property Sales Severance Tax), combined legislation that expanded tax credits for working families and small businesses but hurt the coal industry. Each passed with a 41-23 vote and were signed into law by Governor Polis.

The first bill expands eligibility for the state earned income tax credit and essentially doubles funding for the Colorado Child Tax Credit. “Modernizing” or as some like to quip “social engineering” the Colorado tax code is either way a topic to be avoided at extended family reunions.

The second bill focuses on a property sales severance tax increasing the number of businesses that will be exempt from business personal property tax and is just plain smart legislation for most all Colorado business owners, except the coal industry of course.  Coal is dead anyhow, right?

Well, we will see I suppose.  The bill phases-out the 50% tax credit for coal produced from underground mines & lignitic coal.  It also phases out the exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022. So why keep digging?

Nevertheless kudos to Rep. Emily Sirota (D-Denver), Rep. Mike Weissman (D-Aurora), Sen. Chris Hansen (D-Denver) and Sen. Dominick Moreno (D-Commerce City) for skillfully sponsoring and shepherding both bills across the threshold and into Governor Polis’ office.

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The Tax Fairness For Coloradans Package

The Tax Fairness For Coloradans Package
The Tax Fairness for Coloradans package – is coal dead in Colorado?

This is one of many questions arising out of HB21-1311 (Income Tax) and HB21-1312 (Insurance Premium Property Sales Severance Tax), combined legislation that expanded tax credits for working families and small businesses but hurt the coal industry. Each passed with a 41-23 vote and were signed into law by Governor Polis.

The first bill expands eligibility for the state earned income tax credit and essentially doubles funding for the Colorado Child Tax Credit. “Modernizing” or as some like to quip “social engineering” the Colorado tax code is either way a topic to be avoided at extended family reunions.

The second bill focuses on a property sales severance tax increasing the number of businesses that will be exempt from business personal property tax and is just plain smart legislation for most all Colorado business owners, except the coal industry of course.  Coal is dead anyhow, right?

Well, we will see I suppose.  The bill phases-out the 50% tax credit for coal produced from underground mines & lignitic coal.  It also phases out the exemptions for the severance tax on the first 300,000 tons of coal produced (each quarter) starting in 2022. So why keep digging?

Nevertheless kudos to Rep. Emily Sirota (D-Denver), Rep. Mike Weissman (D-Aurora), Sen. Chris Hansen (D-Denver) and Sen. Dominick Moreno (D-Commerce City) for skillfully sponsoring and shepherding both bills across the threshold and into Governor Polis’ office.

Read more

Liquidating Distributions Of A Partner’s Interest In A Partnership

Liquidating Distributions Of A Partner's Interest In A Partnership

In the plethora of files across my desk over the years, navigating compliance issues for liquidating distributions of a partner’s interest in a partnership have 3 buzzworthy considerations to avoid unwanted scrutiny.

  1. Calculating the recognized gain or loss from a cash or property distribution in liquidation of the partnership interest
  2. Substantiating the partner’s basis in property received in liquidation.
  3. Correctly determining the character and holding period of the property distributed.

When it comes to calculating the recognized gain or loss from a liquidating distribution IRS Revenue Agents are trained to determine whether the distributions were:

  • Current in the tax period
  • Part of a disguised sale
  • A distributive share of partnership income
  • A guaranteed payment
  • An exchange for partnership property.

Lessons learned –

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What Is A Specified Service Trade Business?

John Dundon - Specified Service Trade Business

(This Blog Is Reposted As One Of Our Most Popular Requests)

When not riding my mountain bike in the Rocky Mountains I tend to hang out with tax nerds … pretty much all the time, to the extent that tax nerds actually ‘hang out’ that is.  At one of our most recent ‘meetups’ (think band camp without the instruments) we had a lot of fun indulging in freshly picked peaches & poking holes in the bizarrely nuanced albeit new ‘concept’ (if you will) of what a Specified Service Trade or Business (SSTB) is ‘proposed to be’ according to our esteemed ‘rule-writers’ from the US Treasury.

Worth noting is that there were a LOT of smart people in the room, many of whom spent their entire adult lives reading and writing about (as well as applying) the US Tax Code/Regulations. 

We all generally agreed that no business wants to be deemed a SSTB (as the acronym alone sounds like a disease) and that as a result there will be all sorts of skulduggery rearing its ugly head in the not too distant future from US Taxpayers and perhaps our beloved federal government alike.

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R&D Tax Credits – IRS Form 8974, IRS Form 6765, IRS Form 3800 And The Tax Cuts And Jobs Act

John Dundon: R&D Tax Credits

Hold On! Resist the urge to gloss over the title so fast! Do whatever it takes to clear your head and FOCUS for 6,000 words or so on R&D Tax Credits – IRS Forms 897467653800 & the TCJA.

Understanding the tax reporting and compliance procedures of this very interesting tax credit is GOOD BUSINESS for 3 VERY IMPORTANT Reasons:

  1. MONEY – Taxpayers Save BIG
  2. OPPORTUNITY – More Taxpayers Qualify
  3. TIMING – Applicable statues changing in 2022
Money

Since becoming law in 1981 the R&D tax credit has proven to be quite a valuable tax planning tool yielding billions of dollars in federal and state benefits for LARGE US businesses with big compliance budgets.

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One Of TaxConnections Most Read Blogs In 2020: Why TurboTax Sucks And Intuit Is Evil

John Dundon: Why TurboTax Sucks And Intuit Is Evil

We often receive requests to read a blog written by TaxConnections Member John Dundon. We appreciate the research John did to bring these issues to light and encourage anyone to tell us their stories by leaving a comment below.

Why TurboTax Sucks & Intuit is Evil can be distilled down to the simple fact that corporate america has lost its soul and this particular company is simply following along into the abyss.

There once was a time when board members of large publicly traded corporations actually understood and were deeply concerned about balancing the needs of their main constituencies; customers, employees, shareholders and the communities they were polluting. Those days are LONG gone.

Today’s corporations are concerned about 1 constituency – the shareholder. As such it is a horribly dysfunctional time for workers and customers alike. Presently all we can do is take solace in the belief that lopsided disrespect for people and communities will eventually – one day – bite short term thinking parasites where it hurts most.

In the mean time those of us in the trenches must continue to call out nefarious behavior as it presents itself. With that these are the 3 main reasons why TurboTax SUCKS and Intuit is EVIL.
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Your Stimulus Check Questions Answered

Stimulus Payment Questions Answered By John Dundon

The CARES Act (H.R. 748) has now been passed by Congress and signed by the President. This is like raw meat for tax geeks. I dropped everything, sequestered myself, and read until my eyes watered. Here are some of the most frequently asked questions that my most valuable clients are asking and my best efforts at answering them. DISCLAIMER – I PRESENTLY believe the answers to be true based on the text of the bill and some educated conversations with mentors and other tax geeks. Please contact me directly for clarifications.

The stimulus payments being sent out are REALLY advanced tax credits. I believe eligibility will be based on 2020 taxable income, but the advance payments being sent out will be based on 2019 adjusted gross income (AGI). If you have not filed for 2019, it will be based on 2018 AGI.

It is easy to speculate that if someone doesn’t receive an advanced payment now they will be able to claim the credit on their 2020 tax return as long as they qualify based on the current year. But that is still speculation.

The payments are up to $1200 per adult and an additional amount up to $500 per qualifying child generally a child under the age of 17 at the end of the tax year.

Taxpayers who filed tax returns in 2019 or 2018 and meet the eligibility criteria, and/or who received Forms SSA-1099 or RRB-1099 for 2019 will get the payments.
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Tax Implications Of Converting An LLC To A Corporation

Converting An LLC To A C Corporation

(Per visitor request this is an excellent article we are re-posting from TaxConnections Member John Dundon)

Recently a husband/wife owned 3 LLC’s that each successfully elected to be treated as S-corporations for federal income tax purposes by filing IRS Form 2553 – Election by a Small Business Corporation. Subsequently this great couple found themselves entertaining a rather complicated buyout offer of all 3 of their LLCs. This post addresses the tax implications of converting an LLC to a Corporation as part of a buyout strategy…

Their fundamental question:

Can the LLCs do a tax deferred corporate reorganization under IRC 351-368?

The husband/wife were concerned that their LLCs electing S corporation status might not be able to engage in a corporate reorganization because the LLC’s were comprised of ‘member interests’ and they did not have any “stock” – which is a key term in IRC 368 governing statute.

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