Zachary Montgomery | TaxConnections

06 Jan 2021

A Second Class Of Stock May Not Jeopardize Your S Election

On Christmas Eve, while Santa was packing up his sleigh, the Internal Revenue Service (“IRS”) released a Private Letter Ruling related to S election status. As noted in a previous Insight Blog, corporations may jeopardize their S election by failing to timely submit Form 2553, failing to obtain spousal consent, or, in this case, creating a second class of stock. Here, however, despite the creation of a second class of stock, the IRS determined that the termination of the taxpayer’s S election was inadvertent and, therefore, still valid.

S Election Terminations, Generally

Generally, a small business corporation may terminate its S election in a number of manners.[1] For example, a majority of the corporation’s shareholders may elect to voluntarily revoke the election.[2] Further, a corporation may cease to be a small business corporation (e.g., having more than 100 shareholders) or the corporation’s passive investment income may exceed 25 percent of gross receipts for three consecutive taxable years and the corporation has accumulated earnings and profits.[3]

Written by Zachary Montgomery | Posted in Freeman Law • S Election • Texas

06 Nov 2020

Expat Execution – TIGTA Audit Recommends IRS Increase Its Enforcement Efforts

One might not expect it, but the United States has experienced an increasing trend in number of expatriates in the last decade. Each year, thousands of individual taxpayers relinquished either their U.S. citizenship or permanent resident status, peaking in 2016 with 5,405 total expatriates. Expatriates are required to comply with specific tax provisions. The Treasury Inspector General for Tax Administration (“TIGTA”) ultimately performed an audit to assess the reliability and effectiveness of the Internal Revenue Service’s efforts to ensure taxpayer (or former taxpayer) compliance.

Sections 877 and 877A, Generally

Sections 877 and 877A of the Internal Revenue Code govern the tax provisions related to expatriates. Under these provisions, certain taxpayers who relinquish their U.S. citizenship or long-term residents who terminate their U.S. residency may be subject to certain tax consequences. Specifically, such taxpayers must certify on Form 8854, Initial and Annual Expatriation Statement, their compliance with all U.S. federal tax laws for the five years prior to the date of expatriation and determine whether they are “covered expatriates.”

Written by Zachary Montgomery | Posted in Expatriate Audits • TIGTA • Treasury Inspector General For Tax Administration

28 Oct 2020

Bare Bitcoins — No Fourth Amendment Privacy In Virtual Currency Records

Virtual currency has been around for a number of years now, and yet many still believe virtual currency transactions provide a level of anonymity and privacy not afforded by other types of monetary transactions. That simply isn’t true. With the right tools and understanding, it is possible to uncover the identities of virtual currency users. Moreover, virtual currency has led to the evolution of financial regulations, tax regulations, and legal regulations. In July, the Fifth Circuit dealt with whether Bitcoin users had certain Fourth Amendment protections from unreasonable searches and seizures. In short, they do not.

Bitcoin Transactions, Generally

Virtual currencies may take many forms, but the “Bitcoin” is perhaps the most well-known. Furthermore, Bitcoin transactions function in a very specific way. Bitcoin users maintain an “address,” which is a string of alphanumeric characters, much like a bank account number. A company or organization may form multiple addresses and combine them into a separate, centralized address, known as a “cluster.”

Written by Zachary Montgomery | Posted in Bitcoin • Bitcoin Regulation • Fourth Amendment

21 Oct 2020

Fighting Section 6654 Penalties – Are Your Circumstances Unusual Enough?

The year 2020 has seen some very unusual circumstances and events—the Australian wildfires, the COVD-19 pandemic, the presence of murder hornets, a contentious presidential election—and the year is not over yet! Throughout this year, taxpayers may have missed estimated tax payments or underpaid their estimated taxes. This can have consequences come tax filing season next year. The year 2021 (which everyone hopes will be better than 2020) may already have certain types of tax penalties waiting for taxpayers.

Section 6654 Penalties, Generally

The Internal Revenue Service (“IRS”) may assess failure-to-pay-proper-estimated-tax penalties based on I.R.C. Section 6654. According to I.R.C. Section 6654(a):

Written by Zachary Montgomery | Posted in Section 6654 Penalties

14 Oct 2020

Personal Liability Exposure For Business’ State Taxes – Boo!

Personal Liability Exposure for Your Business’ State Taxes

Halloween is just around the corner, and if you thought this year could not get any scarier, think again. Failure to remit your business’ taxes to the state may result in a personal visit by the Office of the Texas Comptroller or Texas Attorney General. Several provisions of the Texas Tax Code impose personal liability on individuals associated with a business. Those individuals are typically (although not always) people with authority and power to make decisions related to a business’ operations, finances, and/or tax obligations. The following is a list of key tax provisions demanding personal liability:

Generally

(a) Any person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected. . . .

(b) With respect to tax or other money subject to the provisions of Subsection (a) or (a-2), an individual who controls or supervises the collection of tax or money from another person, or an individual who controls or supervises the accounting for and paying over of the tax or money, and who wilfully fails to pay or cause to be paid the tax or money is liable as a responsible individual for an amount equal to the tax or money not paid or caused to be paid. The liability imposed by this subsection is in addition to any other penalty provided by law. The dissolution of a corporation, association, limited liability company, or partnership does not affect a responsible individual’s liability under this subsection.[1]

Franchise Taxes

(a) If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. The liability includes liability for any tax or penalty imposed by this chapter on the corporation that becomes due and payable after the date of the forfeiture.[2]

Fraudulent Tax Evasion