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April 30, 2015

A group from the Phoenix office Tax Department recently competed in the 2015 Pat's Run. Pat's Run is a 4.2 mile race to support the Pat Tillman Foundation. Founded in 2004, the Pat Tillman Foundation invests in military veterans and their spouses through educational scholarships – building a diverse community of leaders committed to service to others. Pictured below from left to right:

Nicholas Blakiston - Tax Senior Associate, Katie Shotwell - Tax Staff Associate, Danielle Fuentes - Tax Manager, Rida Abbasi - Tax Staff Associate and Armand Slason - Tax Senior Associate

Thank you to all involved for their support!




April 21, 2015

Eustis Corrigan, Senior Managing Director of the Memphis officeparticipated in a Thomson Reuter's tax chat on Twitter. Using the hashtag (#ReutersTax), Eustis and several other "taxperts" across the U.S. answered questions in 140 characters or less.

The following questions were asked by various followers and answered by Eustis (EC):

  1. What are some common tax mistakes?
    • EC: Common mistakes include bad math and misspelled names; misclassification of dividend income as well
  2. Can you explain the tax impact on pre-tax contribution to 401(k) vs after-tax contribution?
    • EC: A pre-tax contribution is not subject to federal income tax and reduces AGI for c/y; tax is deferred until withdrawal is made
  3. What’s your advice to folks who don’t have the cash to pay their taxes?
  4. Is there any way for a grandparent to get a Federal tax break while contributing to their grandchildren's education? [Follow-up: What about 529s from grandparents? Tax impact vs. savings mechanism]
    • EC: A direct payment of tuition is not subject to gift tax; no other tax break
    • EC: The earnings of a 529 plan are tax free IF used for qual education expenses
  5. What will happen if I don’t file my taxes?
    • EC: If you don't file your taxes you will likely receive notices or a visit from your friendly IRS agent!
  6. How do I file for an extension? (And what are the penalties?)
    • EC: File form 4868; if you owe with your extension avoid penalties by paying all taxes owed by the original due date
  7. Should I pay for my taxes with a credit card?
    • EC: Pay taxes with a CC only as a last resort; it is always an economic analysis that should include interest/fees
    • EC: If you have a good relationship with a banker try that route first; interest rate and terms might be better
  8. What’s the craziest tax deduction you've ever heard of?
    • EC: Great question! Deducting the cost of a Mardi Gras ball costume and dues
    • EC: Also cost of cat food at a salvage yard; cats kept snakes and rats off property!
  9. How can we report dividend income from schedule K if the schedule is not available at the time?
    • EC: You may need to file an extension until you get the Schedule K-1
    • EC: The IRS matches K-1s so in order to avoid notices be safe and extend
  10. Should a loan modification be treated as a cancellation of debt?
    • EC: It depend if the modified terms result in a significant modification under IRC sec. 1001; consult tax advisor
  11. What’s the best way to avoid an audit?
    • EC: Sometimes an audit is unavoidable due to random selection; stay honest/keep good records/use a specialist
  12. I got a refund! Should I use it to pay down debt or invest it? Any other tips?
    • EC: Pay your CPA if you used one! Fund an emergency account first then pay down debt.

To view the full conversation click here or search for #ReutersTax on Twitter. If you have further questions regarding any of the above, please contact Eustis Corrigan at ecorrigan@cbiz.com or 901.685.5575. You can also follow Eustis on Twitter @eustiscorrigan for more tax insights.




April 16, 2015

Zandra O'Keefe featured on The Ambulatory M&A Advisor discussing real-estate tax tips that physicians may overlook. Please click here to view a copy of the article.

If you have further questions regarding the article or general healthcare tax issues, feel free to contact  Zandra, at 602.650.6204 or zokeefe@cbiz.com.  




April 14, 2015

Growing companies need to focus on setting their sights on a firm that can not only handle their tax issues, but issues that go beyond.  As a business, when you start to grow you realize that your focus cannot be solely on taxes, and you need to have a provider who embodies that same focus. They need to go beyond taxes and offer services that assess and maintain the areas where money is not being spent correctly. 

One of the areas to focus on is cost recovery. Through cost recovery you are able to mitigate unnecessary financial losses. You need a firm that provides a range of contingency-based solutions to help reduce expense and waste, identify overcharges, and recover profits to add immediate dollars to your bottom line. At CBIZ, we do this by performing: accounts payable recovery audits, common area maintenance and lease recovery services, construction cost review, and telecommunications cost recovery.

Accounts Payable Audits
When it comes to accounts payable audits, you need a firm that helps identify and recover overpayments to vendors and suppliers that may have resulted from transaction, regulatory or contractual errors.

Lease Audit Recovery Services
In a lease audit recovery, the experts will examine your charges and your lease language to ensure charges are accurate as overcharges may be the culprit behind your annual increases.

Construction Cost Review
When doing a construction cost review, your team should work with you to unpack your construction costs to ensure you are only pay for materials and supplies actually used in the project.  At CBIZ, we often find that clients get charged for materials they do not use.

Telecommunications Cost Recovery
The telecommunications cost recovery looks for wrong rates applied, double billing, hidden fees, and other extraneous services fees that have been overlooked in monthly telecommunications invoices.  This is a service that can be applicable to any growing company.

The bottom line is that you need to focus on your bottom line, and that doesn’t always involve just taxes or your current firm.

If you have further questions regarding the services listed, feel free to contact the CBIZ Minneapolis Director of Business Development, Eric Hawkinson, at 612.376.1264 or ehawkinson@cbiz.com.




March 18, 2015

For the first time in history, on March 13, 2015, the Minnesota Department of Revenue annouced that they will no longer examine if an individual's CPA or attorney resides in Minnesota as a factor in determining residency.

Minnesota, like most states, has had a set of rules to determine if you are required to file as a Minnesota income tax resident and pay income tax on 100 percent of your income in Minnesota. There are two tests that they use to determine residency:  

  • The 183 Day Rule.  If you have an abode (a place you stay regularly) in Minnesota and are in Minnesota (physically present) 183 days or more in a calendar year, you are automatically a Minnesota resident for income tax purposes.
  • The Intent Factor Test for Permanent Residency. Minnesota has a number of factors they look at, up to 26,  to decide if a Taxpayer had the intent to leave Minnesota.  They included on this list things like: where your CPA is located, your attorney is located and where your bank accounts are located. As of March 13, 2015, Minnesota will no longer consider those three items as factors to your intent to leave the state of Minnesota for income tax purposes.

This is great news for business owners and individuals who travel often, as well as for those that have trusted advisers outside of Minnesota.

If you have further questions regarding Minnesota residency, feel free to contact our Residency Tax expert  Robert Karon at rkaron@cbiz.com.




March 12, 2015

The Australian Taxation Office (“ATO”) recently published Practice Statement Law Administration (“PS LA”), online guidance for safe harbors regarding the simplification of transfer pricing record keeping. The PS LA explains the Australian Commissioner will not review a taxpayer’s transfer pricing records beyond confirming the taxpayer’s eligibility if certain safe harbor requirements are met.

The guidance provides safe harbors to the following:

Safe harbor conditions for Small (non-distribution) taxpayers:

  • Consolidated turnover is not greater than AUD 25 million; 
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries” (countries considered “high risk”);
  • Has not restructured in the year;
  • Has no intercompany transactions involving royalties, research and development, and license fees and arrangements;
  • Not classified as a distributor; and
  • No more than 15% of total turnover is comprised of “specified intercompany services” (services considered “high risk”).
  • Safe harbor conditions for Small-to-medium sized distributors:
  • Turnover for the distributor is no greater than AUD 50 million and has an operating margin of at least 3% on a 3-year basis;
  • Has no intercompany transactions with entities in “specified countries;”
  • Has not restructured in the year; and
  • Has no intercompany transactions involving royalties, research and development, and license fees and arrangements.

Safe harbor conditions for Low-risk intragroup services:

  • The markup on low-risk service revenue is at least 7.5% or the markup on low-risk service expense is no more than 7.5%; and
  • One of the following conditions is met: (1) No more than AUD 1 million of absolute intercompany services or (2) Greater than AUD 1 million of absolute intercompany services, with service expense comprising of no more than 15% of total expense and the service revenue comprising of no more than 15% of total revenue;
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries”;
  • Has not restructured in the year; and
  • No more than 15% of total turnover is comprised of “specified intercompany services.”

Safe harbor conditions for Low-level intragroup loans:

  • Australian group has a combined borrowed and loan amount of AUD 50 million or less;
  • The interest rate paid on the amounts borrowed is not more than the variable Reserve Bank of Australia indicator lending rate for “small business; variable; residential-secured; term loans”;
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries” (countries considered “high risk”); and
  • Has not restructured in the year.

However, there are certain limitations to the safe harbors. Any taxpayer paying or receiving royalties or license fees are excluded from the safe harbor. Furthermore, the distribution safe harbor applies to the whole group. Specifically, the whole group’s main activity must be classified as a distributor and the distribution segment cannot be segmented. Finally, safe harbor for interest only applies to inbound interest expenses (there is no safe harbor for outbound interest revenue).

If you have further questions regarding transfer pricing or safe harbors, feel free to contact our Transfer Pricing expert Josh Finfrock at jfinfrock@cbiz.com.




March 5, 2015

A common mistake (often most applicable with small businesses) is the issuance of a Form W-2 to a partner in a partnership. Surprisingly, tax advisors continue to see partners treating themselves as employees. Today, more small businesses are offering profits interest as a form of compensation to their employees at all levels, which terminates the employee status in the eyes of the IRS.

When an employee becomes a partner, payroll withholding becomes his or her own financial burden and filing obligation. Previously responsible for withholding and remitting the employment taxes of that employee, the employer must now report guaranteed payments on Schedule K-1 to the partner as opposed to issuing a W-2. Through his or her receipt of a profits interest, the partner is now responsible for making quarterly estimated payments to the IRS.

Both partners and employees should be aware of these changes when capital or profits interests are awarded as a form of compensation. If you are a partner and have received a W-2, you should consult with your tax advisor for the appropriate steps to correct your filing and withholding obligations for 2015.

If you have further questions regarding partnerships, please feel free to reach out to me (samurphy@cbiz.com) or one of my colleagues.




February 25, 2015

If you read Part 1 of our blog post series concerning self-rental income, you know that the Net Investment Income (NII) Final Regulations removed self-rental relationships from the inclusion in Bucket 1 of the NII. While the focus of the previous blog post centered with the rental income in Bucket 1, we will now look at the impact of the self-rental relationship impact on Bucket 3 and some additional tax planning considerations.

After the Proposed Regulations were released, many tax professionals suggested converting triple net-lease arrangements to operating leases. An operating lease holds you responsible for more than just collecting money each month. A triple-net lease designates the tenant as solely responsible for all costs and services for the property.

By converting to an operating lease, the belief was that the rental income would not be included in Bucket 1 due to meeting the “derived in a trade or business in which the taxpayer materially participates” language. However, the Final Regulations relieved this concern by exempting activity falling under Reg. §1.469-2(f)(6) and Reg. §1.469-4(d)(1) as illustrated in our previous blog post. By meeting either of those two positions in the Regs, any gain or loss should also be excluded from Bucket 3.

However, there still may be some benefit in converting a triple-net lease into an operating lease even after the change from the Proposed Regs to the Final Regs.

The operating lease may strengthen your position that the rental activity is a trade or business vs. an investment. The disposition of property used in a trade or business is generally considered ordinary under §1231, therefore if the property is disposed of at a loss it might be considered ordinary under §1231 instead of a capital loss (subject to capital loss limits) on investment property. Additionally, if there is a COD event in respect to real property used in trade or business, there may be an opportunity to make an election under §108(c) to reduce the basis of depreciable real property instead of recognizing COD income. This election would not be available if the property was deemed to be an investment property.

If you have further questions regarding the NII tax or your self-rental property, feel free to reach out to me at bkoch@cbiz.com or one of my colleagues.




February 18, 2015

The Net Investment Income (NII) tax went into effect in 2013, but if you participate in a self-rental property arrangement, now may be a good time to review your tax filings and entity structuring as we head into filing season. The NII Final Regulations included a reversal from a position taken in the 2012 Proposed Regulations concerning the treatment of self-rental income.

As a reminder, the 3.8% Medicare surtax on qualifying NII includes three buckets:

  1. Gross income from interest, dividends, annuities, royalties and rents, unless derived in a trade or business in which the taxpayer materially participates
  2. Gross income from a trade or business that is a passive activity or the trade or business of trading in financial instruments or commodities
  3. Net gain from the disposition of property, other than property the income generated from which otherwise would be excluded under Bucket 1 or 2

For a detailed description of the NII tax, feel free to read our previous post on the topic.

In this example, Bob is an attorney and operates his law practice in which he materially participates inside an S-Corporation of which he owns 100% of the stock. Bob also owns the property in which the law practice operates inside of a separate single-member LLC. Under the terms of the lease, Bob’s law practice pays rent to the single-member LLC.

In most circumstances, rental income is by nature considered passive income. However under Reg. §1.469-2(f)(6), rental income derived from property rented to a trade or business in which the taxpayer martially participates “is treated as not from a passive activity.” In the example presented above, since the rental income in Bob’s single member LLC is derived from the S-Corp, which is an operating business in which Bob materially participates, the income would be considered nonpassive. Also, Bob may group the rental activity with the operating business activity under Reg. §1.469-4(d)(1) thus making the grouped activity a nonpassive activity.

Initially under the Proposed NII Regs, self-rental income appeared to be subject to the 3.8% because it fell within the “rents” description in Bucket 1, unless the rental income was proved to be “derived in the ordinary course of a trade or business.” After hearing complaints from tax professionals, Treasury reversed the position in the Final NII Regs allowing rental income from a self-rental to be excluded from Bucket 1 if it is treated as a nonpassive activity (Reg. §1.469-2(f)(6)) or if the rental activity is grouped with an active trade or business activity (Reg. §1.469-4(d)(1) ) (and the grouped activity is nonpassive to the taxpayer).

For most small business owners, it’s common to split real estate and active business operations into separate legal entities for liability issues. Therefore, it is critical that taxpayer’s develop an understanding of self-rental structuring. A rental lease’s arrangement could change the nature of a property owner’s involvement in the trade or business such as in the case of an Operating lease versus a Triple-net lease. This arrangement is one example of a tax planning opportunity available for self-rental property owners.

Also, how you deal with the disposition of the activity or property can affect if your operations are viewed as a trade or business or an investment property. Read more about these considerations in Part 2 of our blog post series.

If you have any further questions regarding the NII tax or your self-rental property, please feel free to contact Bryan Koch at bkoch@cbiz.com or 901.685.5575.




October 21, 2014

The Tangible Property Regulations are the most dramatic changes in tax law to affect businesses since the overhaul of the Internal Revenue Code in 1986. The IRS has recently finalized procedures for how to implement these extensive changes, some of which are tax-payer friendly and available for a limited time only.

Eustis Corrigan covers some of the recent updates associated with these regulations. Learn more about important guidance that can help you when it comes to your year-end tax planning and preparations in the latest CBIZ BizTip video:




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