William Byrnes

The Tax Court recently decided a case, Slaughter v. Comm’r (find all the citations in 1 Taxation of Intellectual Property § 1.06 (2019), involving annual royalty payments to an author wherein the IRS argued that instead of treating the payments as royalties that are not subject to self-employment and Medicare tax, the payments should be treated as net earnings from self-employment. The dispute that the Tax Court faced was whether there is a distinction, for self-employment tax purposes, between an author’s royalty income derived from her writing and any royalty income derived from her name and likeness. The author contends that one portion of her royalty payments is derived from her writing, which is a trade or business, and that another portion is derived, not from her writing, but rather solely from her name and likeness which are personal attributes which are not part of any trade or business. The IRS argued that the entire payments the author received from her publishing contracts were derived from her trade or business as an author, thus subject to self-employment tax.

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With new tax legislation comes new tax games, which is the topic the new paper, “The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation,” available from SSRN.  I haven’t reviewed it, but it has received a large amount of publicity in the press.  It’s written by a group of tax professors. Read More

William Byrnes, Tax Advisor

Organizations described in IRC 501(c)(3) and exempt under section 501(a) must be both organized and operated exclusively for exempt purposes. You have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net earnings inures to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by section 6001 and 6003(a)(1) of the Code and Rev Ruling 59-95, 1959-1 C.B. 627. You did provide information stating that your organization has been inactive and that there have been no operations conducted or planned. As such, you fail to meet the operational requirements for continued exemption under Section 501(c)(3).

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Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU’s Code of Conduct or OECD’s Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. In the context of the screening process, the Code of Conduct Group invited each jurisdiction where concerns were identified to commit to address such concerns. The large majority of jurisdictions have decided to introduce the relevant changes in their tax legislation in order to comply with the EU screening criteria.  The following jurisdictions are committed to addressing the concerns relating to economic substance by 2018: Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; and Vanuatu.

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The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 311 of the USA PATRIOT Act that severs Bank of Dandong, a Chinese bank that acts as a conduit for illicit North Korean financial activity, from the U.S. financial system. FinCEN also issued today an advisory to further alert financial institutions to schemes commonly used by North Korea to evade U.S. and United Nations (UN) sanctions, launder funds, and finance the North Korean regime’s weapons programs.

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The Federal Trade Commission has charged the publisher of hundreds of purported online academic journals with deceiving academics and researchers about the nature of its publications and hiding publication fees ranging from hundreds to thousands of dollars.

The FTC’s complaint alleges that OMICS Group, Inc., along with two affiliated companies and their president and director, Srinubabu Gedela, claim that their journals follow rigorous peer-review practices and have editorial boards made up of prominent academics. In reality, many articles are published with little to no peer review and numerous individuals represented to be editors have not agreed to be affiliated with the journals.

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Operation made false claims and hid publishing fees, FTC alleges.

A federal court has granted a preliminary injunction requested by the Federal Trade Commission, temporarily halting the deceptive practices of academic journal publishers charged by the agency with making false claims about their journals and academic conferences, and hiding their publishing fees, which were up to several thousand dollars.

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The Senate Finance Committee has posted its 515 pages of new Internal Revenue Code language for a vote within 10 days.  Relevant text passages for base erosion and profit shifting are excerpted below.

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Charles Lincoln, Esq. (LL.M. International Tax) authors this article analyzing from an international tax law perspective, what might be the effects of the new proposed partnership rules in the US?

Partnerships are a complex combination of sole proprietorship rules, corporate rules, and financial accounting rules—the tax consequences are outlined primarily in Subchapter K of the US Internal Revenue Code.[1] Partnerships often involve individuals and individuals with corporations acting as partners engaging in business. However, when comparing the US approach to partnerships, there can be differences—especially in the concept of opaque and flow entity through taxation. Opaque is when the profits are taxed at the corporate entity level and flow through is when the profits are taxed at the individual level.

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In the aftermath of the release of the “Paradise Papers”, 200 delegates from more than 90 delegations met in Yaoundé, Cameroon for the 10th meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes which now includes 147 countries and jurisdictions.

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The CEO of one of the world’s largest independent financial services organizations has co-written an assertive open letter to the U.S. Treasury Secretary to demand the Trump administration scrap the Foreign Account Tax Compliance Act.

Nigel Green, together with Jim Jatras, his co-leader of the Campaign to Repeal FATCA, have sent the five-page letter to the Honorable Steve Mnuchin as, after a year in office, nothing has been done to abandon the “worst law most Americans have never heard of.” This despite promises in the election campaign that, should they win, the Republicans would “call for repeal” of FATCA.

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Raising our Taxes and Killing Social Security via the Republican’s Proposal for an Inflation Tax in Tax Reform

This so-called “Tax Reform” is going to raise our tax burdens while killing social security.  The Republicans have proposed, and Democrats have agreed, that actual inflation should not be recognized in future years, limiting inflation adjustments of tax brackets to increase tax on persons who earn more because of inflation, and decreasing social security benefits by half over 20 years.  This Tax Reform, besides reducing retirement opportunities for public employees, imposes “Chained CPI” (also known as the inflation tax) upon social security benefits to keep them from increasing and upon tax brackets to keep them from increasing as well. But tax brackets not increasing is bad for taxpayers. Tax brackets that do not move up to account for actual inflation require a higher tax rate be paid on future income as actual inflation pushes it into the next bracket.

I thought Republicans wanted lower taxes imposed on people who sweat and toil? Or do Republicans actually want lower taxes only on idle passive investors?

What if I like organic apples?

How’s that again? “Chained CPI” is sold as the savior of Social Security (see Heritage Foundation explanation). The example employed by Heritage in favor of Chained CPI: if apples go up in price, then consumers stop eating apples and eat cheaper oranges instead. What if I prefer apples? What if I am allergic to oranges? To my actual point: it is not a ‘choice of apples versus oranges world. It’s a choice between quality and cheaper (generally imported) goods. Chained CPI over time eliminates the local farmer’s organic apples in favor of the imported, genetically modified, pesticide grown cheap apples. Chained CPI requires that we reduce lean meat (sorry vegans) in favor of affordable fast food.

Chained CPI is a system built on forcing a degrading quality of life onto retirees. 

Compounded over time, it’s a choice between affording medication and going without medication, giving up restaurant dates with my spouse in favor of TV dinners. The monthly annuity from social security, as little as it is relative to a 15.4% pay-in of salary (albeit capped, but so are benefits) over 40 years, could be cut significantly over 20 years (see New Republic explanation) in respect to what it can actually buy in today’s terms. In 20 years when my generations retirees wake up to this death by a thousand substitutions, the monthly social security annuity is so relatively inconsequential, it won’t be worth discussing any longer. Worse, over these 20 years, our tax bills will increase annually via the Chained CPI bracket creep that keeps brackets from adjusting upward as our wages hopefully increase. So inflationary tax takes away our ability to try to mitigate the loss of our catchup retirement and social security. We MUST work, if able, until we drop dead, assuming that we are not substituted for a cheaper wage worker.

Retired, Older Experience Hirer Inflation Than Younger Population  

The Congressional Research Service has published a study that finds that elderly persons actually experience higher inflation than younger ones (see CRS Research Report A Separate Consumer Price Index for the Elderly?).  Instead of going the wrong direction to a Chained CPI, the CRS suggests a CPI for the elderly spending patterns to be called CPI-E.

Follow the impact analysis of the 2018 tax updates after these pass by a team of experts who will map out how these affect your clients and what planning you need to do – TaxFacts Online.

Have a question? Contact William Byrnes

Your comments are welcome!