Thursday, September 16, 2021

 

2021 Annual Meeting & Seminar

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 16th 2021







Join the Massachusetts / Rhode Island NATP Chapter on Saturday, October 16th 2021 for our Annual Meeting & Educational Seminar. This all day event will be held at the Southbridge Hotel & Conference Center. We are offering both in-person and virtual option via webinar. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great Continuing Education  opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities (In-Person). This seminar is limited to the First 100 Registrants!


  • For online registration FOR IN PERSON MEETING, click here.
  • For online registration FOR VIRTUAL MEETING, click here.
  • To register by phone, fax or mail, click for the registration form.
  • After October 14th, please print the form (see link above) and register at the door.

Registration 7:00 am to 8:00 am (Continental Breakfast Included)
Education 8:00 am to 6:00 pm (Webinar Log-in 7:55 am)
Annual Meeting Prior to Lunch (Lunch Included)

CE Credits -
9 Federal Tax Law Topics FOR IN-PERSON Attendees Only


Speaker - John Sheeley, EA


Topics:

  • Schedule E-Beyond the Basics: Deciding which activities belong on a Schedule E or another Schedule like C, F or even line 21. Analyze appropriateness of IRC 121.
  • Crowd Funding: Raising funds for charitable purposes, business start-ups and medical funds and how to report them.
  • Data Security in the Tax Office: Best practices as suggested by industry and the IRS Security Summit.
  • S Corps: Options and misconceptions.
  • Taxation of Crypto Currencies: Overview of IRS related position on reporting and examination and how to complete due diligence.




Chester, New York based John Sheeley, EA began his career in the tax industry in 1987, passing the IRS special enrollment exam in 1995. His career includes 13 years as a multi-unit franchisee of a national tax firm and 5 years as a tax manager at a regional CPA firm in New York. A National Tax Practice Institute fellow, John completed his undergraduate education at the State University of New York at Oswego.

John formed his current tax services firm in 2008, with a focus on the tax and representation needs of U.S. citizens living abroad, and non‐resident alien entrepreneurs and entertainers living and working in the United States. The Firm prepares the occasional cannabis industry and crypto currency tax return.

John is also the founder of Tax Practice Pro, Inc, a national continuing education provider. His current teaching focus centers on taxation of legal marijuana businesses, problems of S corps, and taxation of non-resident aliens and those living abroad. He can be reached at john@taxpracticepro.com

Thursday, August 26, 2021

Massachusetts Joins Rhode Island In A Mostly Successful Attempt To Work Around The Federal $10,000 Itemized Deduction (SALT) Limitation.

William Delaney, EA
Westwood, MA

Under RI Gen. Laws §44-11-2.3, a pass through entity (S corporation; partnership), is permitted to make an annual election “by filing the prescribed tax form and remitting the appropriate tax.” [§(a)(1)] “…to pay the state tax at the entity level…” [§(a)(5)(b)(1)] A proportionate credit for state tax paid shall be allowed on the owner’s RI personal income tax return [(a)(5)(d)]. Effective 7/1/2019.


§(a)(4) defines a pass-through entity as “…a corporation that…is treated as an S corporation…, or a general partnership, limited partnership, limited liability partnership, a member of a limited liability company, a beneficiary of a trust, or a sole proprietor.”


This is a far more expansive definition than its MA counterpart found in Section 1 of the MA legislation (see below), and it appears to exceed the relied upon authority found in IRS Notice 2020-75 (see page 2), which limits the concept to “…taxes imposed on and paid by a partnership or an S corporation on its income.” (editor’s commentary).


The current MA state budget (enacted 7/16/2021) adds new Chapter 63D to the Taxation of Pass-Through Entities (Chapter 63) of MGL. An “eligible pass-through entity” is defined as an S corporation; a partnership; an LLC which elects S corporation taxation [Section 1]. See also comments (above) regarding the comparable RI language which defines a pass-through entity.


“An eligible pass-through entity may elect to pay an excise on its qualified income taxable in Massachusetts at a rate of 5 per cent. A qualified member (defined as a shareholder of an S corporation or a partner in a partnership) of an electing pass-through entity shall be allowed a refundable tax credit computed proportionately but limited to 90% of the amount apportioned. The credit may only be claimed for the tax year in which the eligible pass-through entity’s taxable year ends (usually a calendar year) [Section 2]. RI does not reduce the apportioned credit amount.


The election is to be made on an annual basis, “…in a manner determined by the commissioner…” and “…shall not be revoked.” It applies to all members of the entity. [Section 6]. If the SALT limitation is subsequently repealed, the tax credit will no longer apply [Section 3].


The applicable federal concept is that this taxation scheme qualifies under federal law as a tax imposed on income which is an allowable federal deduction (state income tax expense) against pass-through income (but see commentary on page 1 regarding the expansive RI definition of a pass-through entity). The deduction is added back to pass-through income for purposes of both RI and MA personal income taxation. Authority is IRS Notice 2020-75 effective November 9, 2020, which states that the IRS “…intend(s) to issue proposed regulations…”. Specifically, as authority used by both RI and MA…


SECTION 3. FORTHCOMING PROPOSED REGULATIONS


.01 Purpose and scope. “…the forthcoming proposed regulations will clarify that Specified Income Tax Payments (as defined in section 3.02(1) of this notice) are deductible by partnerships and S corporations in computing their non-separately stated income or loss.”


.02(1) “…the term Specified Income Tax Payment means any amount paid by a partnership or an S corporation to a State, a political subdivision of a State…(Domestic Jurisdiction) to satisfy its liability for income taxes imposed by the Domestic Jurisdiction on the partnership or the S corporation.” Apparently, it does not matter that the tax is self-imposed by election and not uniformly imposed by statute (editor’s commentary).


.02(2) “…the partnership or S corporation is allowed a deduction for the Specified Income Tax Payment in computing its (federal) income for the taxable year in which the payment is made.”


.02(4) “Any Specified Income Tax Payment…is not taken into account in applying the SALT deduction limitation to any individual who is a partner in the partnership or a shareholder of the S corporation.” This is the work-around the $10,000 limitation because the specified income tax payment is outside of the limitation (not taken into account) when claiming itemized deductions (editor’s commentary).

Monday, August 23, 2021

PPP/EIDL Fraud Prosecution - Couple Sent to the Slammer




Due to a case investigated by the SBA-OIG, USPIS, and TIGTA (if you recognize all of these acronyms you win a gold star and a free lottery ticket), a Florida couple were each sentenced to a jail term (18 months for the gal; 30 months for the guy) for defrauding the federal government.


Latoya Stanley and Johnny Philus decided to be a bit creative when they filed for PPP free money last year. So why not claim, as Stanley did, to employ 18 persons in her beauty supply LLC. Philus did her one better; he claimed to employ 29 in his auto boutique LLC. Neither firm had any employees.


But why stop there, they reasoned, so they did not. Stanley claimed to employ 5 persons and generate $800,000 of gross income from a farm in her little back yard. Philus, again trying to outdo his significant other, claimed 10 employees and $400,000 of gross income from a farm in his back yard. Each of their residential lots were under one acre in size.


Of course, the farms did not exist. The beauty supply and auto boutique businesses (which did exist, on paper) did not employ anyone.


They filed their applications, waited, and eventually received more than $1 million from PPP and EIDL funds. They were arrested on August 26, 2020 and charged with fraud. After pleading guilty, they were sentenced on June 2, 2021 in Southern Florida District Court.


The couple were investigated by the SBA’s Office of Inspector General (SBA-OIG); United States Postal Inspection Service (USPIS); and, Treasury Inspector General for Tax Administration (TIGTA).

Monday, July 19, 2021

Tax & Accounting Professionals Can Request Power of Attorney (POA) or Tax Information Authorization (TIA) Online With Tax Pro Account.


How it Works

Tax Pro Account lets you submit an authorization request to an individual taxpayer’s IRS online account.

  • Submit request in 15 minutes or less
  • Taxpayer electronically signs
  • Real-time processing

Who Can Use This Service

To use Tax Pro Account, you must have:

  • For Tax Information Authorization:
    • A Centralized Authorization File (CAF) number in good standing assigned to you as an individual
    • A CAF address in the 50 United States or the District of Columbia
  • For Power of Attorney:
    • A Centralized Authorization File (CAF) number in good standing assigned to you as an individual
    • A CAF address in the 50 United States or the District of Columbia
    • Authority to practice before the IRS as an attorney, certified public accountant, enrolled agent, enrolled actuary or enrolled retirement plan agent
    • License to practice in the 50 United States or the District of Columbia as an attorney or certified public accountant

 

 Read more on the IRS's website here

Tuesday, June 22, 2021

Part 3 of 3: How Massachusetts Attempted to Tax S Corporations and Their Shareholders


Last week, we were at the point where the MA legislature was going to pull us out of the tax trap developed by the department of revenue, but they failed to do so…

 

Well, now we have the DOR coming to our rescue with recently revised Tax Filing Season Frequently Asked Questions. 

 

FAQ – Did Massachusetts update the treatment of loan forgiveness income?

 

Yes.  Loan forgiveness income is excluded from gross income for personal income taxpayers…”

 

OK, so here (apparently) is how things stand.  Self-employed individuals who would otherwise be taxed by MA on debt forgiveness income are no longer subject to tax.  They meet the federal and MA definition of an eligible recipient.  Individual shareholders of MA S corporations who would be taxed by MA on their corporation’s non-existent debt forgiveness income, will no longer be taxed on income which was never there and which the legislation did not mention! 

 

Apparently, the Department of Revenue reconsidered its position and reversed itself by issuing an FAQ.  This was followed-up by TIR 21-6 (4/30/21) wherein the Commissioner said (Part IV) “…PPP loan borrowers subject to the Massachusetts personal income tax, including Schedule C filers, certain partners in a partnership, and S corporation shareholders should not include in Massachusetts gross income the amount of a PPP loan forgiven under §1106(b) of the CARES Act during the 2020 tax year.”

 

However, the TIR, unlike the FAQ, only allows the “deduction” for tax year 2020.  It is a correct reflection of the state statute, which says…

 

“SECTION 23.  Notwithstanding any general or special law to the contrary, for the taxable year beginning January 1, 2020, the following items shall be deducted from federal gross income…”

 

This means that any PPP loan forgiveness income for tax year 2021 is fully taxable to Massachusetts S corporation shareholders if the Commissioner’s previous deviation from the language in the CARES Act is allowed to stand.

 

An excerpt from a noteworthy DC Circuit Court of Appeals decision may be appropriate here.  In Loving v. Internal Revenue Service, DC Cir. Ct. of Appeals No 13-5061 (2/11/2014) (written primarily by Circuit Judge Brett Kavanaugh, now of the US Supreme Court) the Court said:

 

“The IRS is surely free to change (or refine) its interpretation of a statute it administers…But the interpretation, whether old or new, must be consistent with the statute.”

 

The same admonition is surely appropriate to the administration of the Massachusetts Department of Revenue.  If you assert a position, issue the necessary authority consistent with the requirement to do so under statute.  If your position changes, issue the necessary authority consistent with the requirement to do so under statute.

 

Ask yourself this one last question---why did our state legislature only authorize a state tax deduction from income for individual taxpayers who meet the definition “…of an eligible recipient, as described in subsection (a) of the [CARES] Act…”  S corporation shareholders do NOT meet that definition (since they were never indebted) so why didn’t the MA legislature grant them a deduction from their income?

 

Could it be that the MA legislature actually looked at the federal CARES Act (someone did because they quoted from it) and concluded that S corporation shareholders were never taxable to begin with (contrary to the position taken by the MA DOR) so why grant tax relief to someone who does not need it?  Perhaps that explains why the MA DOR backed-away from its inconsistent interpretation of statute when it issued a subsequent FAQ/TIR---the state legislature did not agree with them.