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Moments In Tax History

Eisner v. Macomber, 252 U.S. 189 (1920)

Summary: In Eisner v. Macomber, the U.S. Supreme Court ruled that for purposes of the Sixteenth Amendment, “income” was “a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being ‘derived,’ that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal.”  Macomber introduced the realization requirement to the federal income tax, and the decision continues to be cited in such contexts as cryptocurrency hard forks and the constitutionality of provisions denying deductions for cannabis businesses.

Background:  The U.S. Constitution prohibits Congress from imposing an unapportioned direct tax.[1]  In 1895, the U.S. Supreme Court ruled that an attempt by Congress to tax incomes uniformly throughout the United States was unconstitutional due to this constitutional prohibition.[2]

On February 3, 1913, the Sixteenth Amendment to the U.S. Constitution was ratified. According to the Sixteenth Amendment, “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”[3]  That same year, Congress passed the Revenue Act of 1913, inaugurating the modern federal individual income tax.[4]

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In summary, based on an analysis prepared by the Tax Policy Center, President Trump’s revised tax plan would cut taxes on every income level.  However, high wage earners will receive the biggest tax cuts, both in terms of dollars, as well as in percentage of income.  According to the analysis, the Trump revised tax plan would reduce the top individual income tax rate to 33 percent, and reduce the corporate rate to 15 percent.

The plan will allow owners of pass-through businesses (such as sole proprietorships, partnerships, and S corporations) to elect to be taxed at a flat rate of 15 percent, rather than under the regular individual income tax rates.  Capital gains and dividends would be taxed under the current preferential rate structure.  Distributions from “large” pass-through businesses received by owners who elected the 15 percent flat rate would be taxed as dividends. Read More

Eva Rosenberg, Tax Connections

The good news. President Trump Congress keeps telling you that taxpayers will be able to file on a postcard.

The bad news? Look at lines 3, 10, 11, and 12.
Your government is naïve. While this may be wish-fulfillment, it has no basis in practical reality.

It should be a required pre-requisite for all lawmakers to prepare their own income tax returns before they are permitted to write, vote on, or pass legislation. I loved that episode of the short-lived TV series Mr. Sterling, where Senator Bill Sterling (Josh Brolin)  is grumbling, trying to prepare his own tax return. Better yet, they should spent two weeks volunteering, or observing, at a VITA site to see how their tax laws truly affect low-income people’s tax filings. Read More

Hale Stewart

A quick reminder about sending investment portfolios offshore.

The U.S. taxes residents on worldwide income. From the Treasury Regulations:

In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.

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Grant Gilmour

What are Prepaids on a Balance Sheet? The Prepaids category appears under Current Assets on a Balance Sheet. Prepaids represent expenses that are paid in advance for a future period.

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Milton Boothe

To be eligible for the Premium Tax Credit under the Affordable Care Act, all of the following must apply:

• Your income must be between 100% and 400% of Federal Poverty Line (see below) for a given family size.

• You cannot be claimed as a dependent.

• If married, you must file a joint return (although some exceptions may apply).

• You must be enrolled in a qualified health plan through Marketplace.

• Cannot be eligible for other minimum essential coverage.

• Premiums must be paid.

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TaxConnections Offshore BusinessFundamental Foundation of Foreign Base Company Income and Controlled Foreign Corporations© Generally.

Foreign Base Company Income

Therefore the first type of Foreign Base Company Income, Foreign Base Company Sales Income has as its function to be utilized as a sale or trade conduit offshore corporation in an international corporate structure. Certainly the intra activity sequences have many facets and planning opportunities. Those will be discussed subsequently in a more specific discussion of offshore companies that come within the characterization as a Foreign Base Company Sales Income.

Foreign Base Company Service Income

A second category of Foreign Base Company Income whose activities are subject to Subpart F Income treatment is Foreign Base Company Service Income. This type of Subpart F Income is income derived by a foreign corporation in connection with the performance of technical, managerial, scientific, skilled, industrial, commercial or similar type services. In practicality corporate structures tend to find their utility most beneficial as an administrative or service oriented company in a favorable tax preferred Financial Center. Read More

TaxConnections Offshore BusinessFundamental Foundation of Foreign Base Company Income and Controlled Foreign Corporations© Generally.

The essence of this corporate structure planning is to combine the concept of ownership structure that subjects a foreign corporation to a controlled status and activities of the corporate entity. The two concepts of controlled foreign corporate status and Foreign Based Company Income are intertwined in the implementation of Subpart F Income tax consequences.

The importance stems from the concept that Foreign Base Company Income and a controlled foreign corporation’s characterization subjecting it to Subpart F Income taxation are two separate considerations. One is whether a foreign corporation is a controlled foreign corporation. The second is whether the controlled foreign corporation has Foreign Based Company Income.

If a foreign corporate entity has Subpart F Income because it has Foreign Base Company Income, but it is not deemed a controlled foreign corporation by virtue of ownership, it is not subject to Subpart F Income treatment. Those are two distinct planning features. Read More

How to Prevent US Taxation on Your Worldwide IncomeOnce a non-US individual is classified for income tax purposes as a “resident” he is subject to income tax in the same manner as a US citizen: i.e., taxed on his worldwide income (meaning income from all sources whether from within or outside the US) at a maximum rate of 39.%. This worldwide income tax covers the period from commencement of the residency period until its conclusion (determination of which is also tricky under the tax laws). Income that is taxed includes but is not limited to wages, interest, dividends, rents, capital gains, royalties, gambling winnings etc. regardless of whether these items arose from outside the US.

The person also becomes responsible for filing tax returns and various information returns (such as “FBAR”). Often, foreigners do not understand these rules and do not realize they have a duty to file even if they are only earning wages from an employer in a foreign country. Filing is required even if the salary and / or housing allowance is below the foreign earned income (and / or housing) exclusion amount thresholds permitted for US taxpayers working overseas. Failure to file could result in loss of the ability to claim these exclusions. Read More

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