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Tag Archive for Freeman Law

Tax Treaties: United States And Poland

Tax Treaties: United States And Poland

Quick Summary.  Situated in Central Europe, Poland is bordered by Germany, Ukraine, Russia, Belarus, the Czech Republic, Slovakia and Lithuania.  Poland is a republic with a bicameral parliament comprised of the Sejm and Senate.  Poland is comprised of 16 provinces.

The Constitution of Poland, which was adopted in 1997, serves as the supreme law and the legal system is governed by a code of civil law.  Poland’s judiciary serves as an independent branch of government and incorporates a four-tier court system headed by the Supreme Court.

Article 26(2e) of the Corporate Income Tax Act provides for new withholding rules and exclusions/restrictions that became effective in 2020.

In addition, in 2019, Poland introduced an “IP Box” tax relief program whereby income derived from “eligible intellectual property rights” is subject to a preferential tax rate.

Poland is a member of the European Union (EU), the North Atlantic Treaty Organization (NATO), the World Trade Organization (WTO), and the Organisation for Economic Co-operation and Development (OECD).

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Tax Treaties: United States And South Africa

Tax Treaties: United States And South Africa

Quick Summary.  South Africa is a parliamentary democracy with three branches sharing Constitutional authority: the executive, judiciary, and parliament branches.  Its blended legal system combines Roman-Dutch civil law, English common law, and customary law.  Under South African law, there are three levels of governmental authority: National; Provincial; and Local government.

Beginning in 2001, South Africa moved from a source-based income tax system to a residence-based income tax system.  Residents are taxed on their worldwide income. Non-residents are taxed on their South African sourced income. The same rates apply to both residents and non-residents.

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How Will States Deal With Budgetary Issues?

How Will States Deal With Budgetary Issues?

As we begin a new year, new issues arise for states. As states are dealing with budgets for the year, spending has increased and tax revenue have decreased. The COVID-19 pandemic has changed our lives, the way we work, shop and interact with others.

A few states are seeing their residents, like California, New York and New Jersey, all high tax jurisdictions, moving to and becoming permeant residents of Florida, Texas, and Nevada, all states with low taxes or no state tax on companies or individuals.

How will states deal with these budgetary issues?  Decrease spending? Increase tax rates? Expand the tax base? Tax out-of-state companies and Individuals?  Increase tax credits and incentives, to attract investment? My guess, all the above, except for decreases to spending.

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State And Local Tax: Controlling Interest Transfer Tax

State And Local Tax: Controlling Interest Transfer Tax

Do you own an entity that holds real estate?  Are you thinking about selling real estate?  Are you considering selling the real estate asset or selling the entity that owns the real estate?

Generally, a real estate transfer tax is imposed on documents that convey an interest in real estate from one person to another person. The transfer tax, generally, is imposed on the recordation of a deed and is based on the consideration paid or the fair market value of the property (the “Real Estate Transfer Tax”).

Taxpayers utilized loopholes to avoid paying the Real Estate Transfer Tax, by selling the entity that owns the real estate instead of selling the real estate itself.  Approximately 17 states have closed such loopholes.

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So You Made Money On GameStop, Now What? A Primer On Capital Gains

So You Made Money On GameStop, Now What? A Primer On Capital Gains

The GameStop stock saga will undoubtedly go down in history as one of the most mystifying market events Wall Street has ever seen. Indeed, the markets have seen a massive influx of new retail investors into the space. But many of these investors have not previously participated in the market.[1] As noted by CNBC:

There were 3.7 million downloads of Robinhood in January, according to app market intelligence firm SensorTower, even with the millennial-favored stock trading app’s unpopular decision to put trading restrictions on a handful of stocks during GameStop’s climb. After the GameStop drama in February, downloads are still tracking strongly with 1.8 million month-to-date.[2]

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Recent Tax Court Decision: Economic Substance And The Step Transaction Doctrine

Recent Tax Court Decision: Economic Substance And the Step Transaction Doctrine

A recent Tax Court case illustrates the reach of the economic substance doctrine and the step transaction doctrine.  For the benefit of our readers, we have briefed the case below:

Complex Media, Inc. v. Comm’r, T.C. Memo. 2021-14 | February 10, 2021 | Halpern, J. | Dkt. Nos. 13368-15 and 19898-17

Short Summary: Taxpayer-corporation (Corp.) acquired the assets of a business from a third-party partnership (P’ship).  In exchange for the transferred assets, Corp. issued approximately 5 million shares of common stock.  Immediately thereafter, Corp. redeemed 1.875 million of the common shares held by P’ship in exchange for $2.7 million in cash and Corp’s obligation to make an additional payment of $300,000 a year later.  P’ship paid the cash and assigned its right to the additional payment to one of its partners in redemption of that partner’s interest in P’ship.  Corp. claimed an increased basis of $3 million in intangible assets it acquired from P’ship and amortized that additional basis under I.R.C. § 197(a). The IRS disallowed the deductions under I.R.C. § 197(a).

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Why State And Local Tax Due Diligence Is Important

Why State And Local Tax Due Diligence Is Important

Why is State and Local Tax (SALT) due diligence important in mergers and acquisitions?  Someone else’s issues may be your headache and cost you a lot of money!

What is due diligence? Due diligence is the process of identifying and analyzing the risk associated with acquiring a business or selling a business. Tax risk, particularly state and local tax, is a key part of that analysis.

There are many different types of taxes that businesses should take into consideration when doing due diligence, such as property taxes; sales and use taxes; gross receipts taxes; income taxes; and franchise taxes.  Each of these tax types have unique rules and implications, and state and local jurisdictions apply those taxes in different ways. It can get complex quickly based on where a company is doing business.

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SALT ALERT: Apportionment Rules Change

SALT ALERT: Apportionment Rules Change

Texas has updated its rules regarding the sourcing of revenue for apportionment purposes.  The Comptroller has indicated that the change in the rules reflects statutory changes, court decisions, current guidance, update definitions and improve readability.

The amendments bring both favorable and adverse changes for taxpayers subject to the Texas Margins Tax, with changes to the sourcing provisions for receipts from services, including advertising services, transportation services and internet hosting, and receipts from sales of computer hardware and digital products, capital assets and investments, interests in single-member limited liability companies (SMLLCs) and sales of securities through an exchange.

Services

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Substitute Return Penalties Are Valid – Llanos v. Commissioner

Substitute Return Penalties Are Valid—Llanos v. Commissioner

Comedian Jerry Seinfeld one said, “The IRS! They’re like the Mafia, they can take anything they want!” It’s a sentiment probably shared by most U.S. citizens—much to the chagrin of taxpayers. As many now, the Internal Revenue Service is not limited in simply administering the Internal Revenue Code or collecting taxes from individuals. The Service’s power reaches farther than that. Its power also includes filing substitute tax returns on behalf of taxpayers—a veritable correction called upon when a voluntary tax system is not so voluntary. Additionally, the IRS also has the power to assess additions to tax and penalties in various circumstances. As the Ninth Circuit recently affirmed, the IRS has the power to assess such additions to tax and penalties on substitute tax returns it files on behalf of taxpayers.

Section 6651 Penalties, Generally

Generally, the Internal Revenue Service may assess certain additions to tax for failure to file tax returns or failure to pay taxes. Section 6651 prescribes the various situations and penalty amounts that is may assess as follows:

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Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

The Tax Court’s recent decision in Sells shows that the IRS is continuing to aggressively pursue conservation easement deductions where it believes the transaction is overly aggressive.  However, the case also demonstrates potential defenses against proposed penalties.

Sells v. Comm’r, T.C. Memo. 2021-12,  January 28, 2021 | Holmes, J. | Dkt. Nos. 6267-12, 6801-12, 6835-12, 6836-12, 6837-12, 6838-12, 19246-12, 13553-13

Short Summary:  In August 2002, Burnish Bush Farms, LLC was formed with eight members—each a 12.5% owner.  Later, Mr. and Mrs. Moses sold mountainous land to Burnish Bush for $1.4 million.  In 2003, Burnish Bush deeded a conservation easement on the acres that it owned to Chattoawah Open Land Trust, Inc.  The conservation deed contained various provisions, including an extinguishment-proceeds clause.

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Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

The Tax Court’s recent decision in Sells shows that the IRS is continuing to aggressively pursue conservation easement deductions where it believes the transaction is overly aggressive.  However, the case also demonstrates potential defenses against proposed penalties.

Sells v. Comm’r, T.C. Memo. 2021-12,  January 28, 2021 | Holmes, J. | Dkt. Nos. 6267-12, 6801-12, 6835-12, 6836-12, 6837-12, 6838-12, 19246-12, 13553-13

Short Summary:  In August 2002, Burnish Bush Farms, LLC was formed with eight members—each a 12.5% owner.  Later, Mr. and Mrs. Moses sold mountainous land to Burnish Bush for $1.4 million.  In 2003, Burnish Bush deeded a conservation easement on the acres that it owned to Chattoawah Open Land Trust, Inc.  The conservation deed contained various provisions, including an extinguishment-proceeds clause.

Burnish Bush filed a Form 1065, U.S. Return of Partnership Income.  Attached to the Form 1065 was Form 8283, Noncash Charitable Contributions.  On page 2 of this form Burnish Bush reported the donation of the conservation easement to COLT as a noncash charitable contribution with a value of less than $5.4 million.  Burnish Bush attached a “qualified appraisal” to the return.  The IRS audited the return, disallowed the charitable contribution, and proposed penalties.

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Tax Treaties: United States And Germany

Tax Treaties: United States And Germany

Quick Summary.  Located in Central Europe, Germany has the largest economy of all European nations.  Germany is a federal parliamentary republic with legislative power exercised by the Bundestag and Bundesrat.  It government is founded in its 1949 constitution, the Grundgesetz.   Germany is comprised of 16 provinces with a capital at Berlin.

Effective July 1, 2020, Germany has implemented information exchange provisions pursuant to the EU-Directive (DAC 6 – (EU) 2018/822) for mandatory automatic exchange of information related to cross-border arrangements.  Germany has introduced legislation to adopt in German law EU Anti-Tax Avoidance Directive (EU-ATAD – (EU) 2016/1164 and ATAD II – (EU) 2017/952), a measure that introduced controlled foreign corporation (CFC) rules and hybrid mismatch rules.

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