A Massive New FinCEN [Government] Filing Requirement Is Coming

by Kenneth Hoffman in


Do you own or advise a corporation, limited liability company (LLC), limited partnership, limited liability partnership, limited liability limited partnership, or business trust?

Or are you planning to form one of these entities?   

If so, be alert. There’s a new federal filing requirement coming.  

Back in 2021, Congress passed a new law called the Corporate Transparency Act (CTA) that requires corporations, LLCs, and other business entities to provide information about their owners to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which is a unit separate from the IRS.   

The CTA is part of a government crackdown on corruption, money laundering, terrorist financing, tax fraud, and other illicit activity. It targets the use of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.   

Businesses subject to the law will have to file a “beneficial owner report” with FinCEN, including each beneficial owner’s full legal name, date of birth, and residential street address, as well as an identifying number from a legal document such as a driver’s license or passport. FinCEN will include the information in a database for use by law enforcement, national security and intelligence agencies, and federal regulators that enforce anti-money-laundering laws. The database will not be publicly accessible.   

Violations of the CTA can result in a $500-a-day penalty (up to $10,000) and up to two years’ imprisonment.  

The CTA did not take effect immediately. Rather, Congress gave the FinCEN time to write regulations governing how the CTA should be applied and to give businesses a heads-up about the new law. FinCEN has now issued its proposed regulations, and they take a fairly hard line on how the law will be applied.  

Here are four things the new regulations make clear.  

1. The filing requirement may begin soon. The CTA goes into effect when the proposed regulations become final, which is expected to occur sometime between mid- and late 2022. As soon as it goes into effect,   

  • new corporations, LLCs, and other entities will have to comply with the filing requirement within 14 days of being formed, and

  • existing entities will have one year to comply.

2. Millions of small businesses are affected. The reporting requirements will apply to almost every small business that is not a sole proprietorship or general partnership, including corporations, LLCs, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships—over 30 million in all.   

Larger companies with over 20 full-time employees and $5 million in gross receipts are exempt.   

3. There will be many beneficial owners. The proposed regulations make it clear that a company can have multiple beneficial owners, and it may not always be easy to identify them all. There are two broad categories of beneficial owners:  

  • any individual who owns 25 percent or more of the company, and

  • any individual who, directly or indirectly, exercises substantial control over the company.

4. Law and accounting firms are not exempt. Neither the CTA nor the proposed regulations contain any exemption for legal or accounting firms, except for the relatively few public accounting firms registered under Section 102 of the Sarbanes-Oxley Act of 2002. Thus, any law or accounting firm that is a professional corporation or an LLC will have to file a beneficial owner report unless it has more than 20 employees and $5 million in annual income.   ​

If you have questions about the CTA and its effect on you, please call me on my direct line at 954-591-8290. 


Who Won Most at Roland Garros?

by Kenneth Hoffman in ,


For two weeks every spring, the tennis world focuses its attention on Roland Garros, the Parisian center that hosts the French Open. This year, fans yawned as the dominant Serena Williams cruised to her 20th career major title in the 2015 French Open, defeating the 13th-ranked Czech Lucie Safarova. On the men's side, fans saw an actual contest, as the Swiss Stan Wawrinka used his devastating backhand to take his second major in four sets, upsetting top-ranked Novak Djokovic and denying him a career Grand Slam.
 
Both winners claimed €1.8 million, or about $2 million, in prize money. But does that mean they actually take home that much? Certainly not. You may have heard about this thing called "taxes" that eat into our bounty. So let's take a look at what happens to those purses to see who really comes out ahead.
 
Playing professional tennis isn't like signing a contract with a baseball or football team and collecting a guaranteed salary. It's more like running a small business whose "product" is winning tournaments. James Ward, currently ranked #101 in the world, put it well last year when he told International Business Times, "It's difficult . . . . You're paying your own expenses, your coach's, you're paying for your food, your hotel, your travel — for two people. And if you lose in the first round you're getting $300, minus tax. It's embarrassing. You've just got to win matches."
 
James is exaggerating a little bit — first round losers at the French Open get €27,000 in addition to their walk of shame. And in Williams's case, her coach is also her boyfriend, which brings down the cost of her entourage a bit. But still, if you want to get rich playing tennis, you've got to be very, very good. The real money, as with so many sports, is in the endorsements.
 
France takes the first slice at French Open winnings, and it's a big one. France's top tax rate is 45%, which is actually down, from 75% just two years ago. It's high enough that international athletes grumble about it publicly. In fact, last year Serena told Rolling Stone magazine, "Seventy-five percent doesn't seem legal. Nobody does anything because the government pays you to be broke. So why work?"
 
Then Williams comes home, and the IRS serves up a maximum rate of 39.6%, plus a Medicare tax of 3.8% on top of that. At least her home state of Florida doesn't impose an income tax.
 
As for Wawrinka, who ranks fourth in the world after this week's win, he wins the Tax Bracket Open. He pays a maximum federal income tax of just 11.5% on income over SFr700,000. (That's Swiss francs, for those of you keeping score at home — 700,000 Swiss francs equals about $658,000.) His home canton of Vaud (similar to a state government in Switzerland) and his home town of St. Barthélemy lob more taxes at him. Total tax burdens in Switzerland can reach 40% depending on where you live. Even so, Wawrinka squeaks out ahead of Williams. (He may not "love" paying them, but at least he gets to pay a bit less.)
 
When it comes to tennis, how hard you hit the ball is important. But it also matters where you hit it, too. It works the same way with taxes. How much you make is key. But how you make it and even where you make it are important, too. Serena Williams and Stan Wawrinka both have tennis coaches to help them win more tournaments. And they have tax coaches to help keep as much of what they win as possible. So don't risk double-faulting against the IRS. Call us for the plan you need!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


Guaranteed Loser

by Kenneth Hoffman in ,


You've bought a lottery ticket or two in your time, right? The Powerball jackpot hits a bazillion dollars, and you realize you really can't win if you don't play. So you buy a ticket or two just to nurse that fantasy of champagne wishes and caviar dreams. Forget the reality that most lottery players never win, and even the ones who do make headlines usually seem to go bankrupt faster than a professional footballer who tears his ACL two games into his rookie season.

Most people who buy lottery tickets really do want to win. In fact, a 2006 study revealed that 21% of Americans believe playing the lottery was their best bet for financing retirement! (Really? That's not the same thing as counting on the lottery to retire, but it still doesn't say much about our financial planning smarts.) But would you believe there's a small group of Americans who pay top dollar for losing tickets? Why on earth would anyone ever do that? The answer, not surprisingly, lies in that financial cancer that we lovingly refer to as the Internal Revenue Code.

Start with the premise that gambling winnings are taxable income. That makes perfect sense, of course; the IRS doesn't really care how you make your living as long as they get their share. (Even illegal income is taxable — remember who finally nailed Al Capone?) And that stinks. Sure, winning a hundred million sounds like a lot, but you're lucky to be left with half of that after you take care of your Uncle Sam and all the rest of those greedy relatives who show up with their hands out as soon as they hear you've won.

The good news is, you can deduct your gambling losses from gambling winnings before the IRS takes their cut. You don't even have to net out your totals by contest — you can deduct casino losses against lottery wins, and vice versa. But deducting gambling losses creates its own problem. The lottery commission, casinos, and racetracks where you do your best "work" are happy to send the IRS a Form W2-G reporting your wins. So how do you show an auditor how much you lost?

That's where the losing lottery tickets come in. Just hop onto a website like Craigslist or Ebay, and look for folks with losing tickets to buy or rent! The sellers might try to disguise them as "memorabilia." But just between us, we know what they're really for. The Daily Beast even found one bold seller getting rid of $1,100 in losing tickets, for the bargain price of $500, "so ya don't look like a xxxxx :) come tax time"!

Wanna know what sort of financial genius cooked up such a great scheme? He was an accountant named Henry Daneault, and he used to work for the IRS! In 1985, his client Phillip Cappella won $2.7 million, paid out over 20 years, in the Massachusetts Megabucks. When tax time rolled around, Daneault and his client made up $65,000 in gambling losses to erase $20,000 in tax. Then his old employer the IRS came sniffing around. Uh oh, what now? He paid $500 to rent $200,000 worth of losing tickets for a month. It might have been a great idea if it had worked. Sadly, it did not, and Daneault and his client both wound up pleading guilty to fraud and serving time in jail.

So now you know how to be a guaranteed loser. Want to know how to guarantee a win? Call us for a plan to pay less tax, the right way. Our strategies are all court-tested and IRS-approved. You won't have to win the lottery — you'll just feel like you did!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


Ten Issues for Bussinesses in 2015

by Kenneth Hoffman in ,


With the New Year in full swing, small business owners are focused on implementing their strategic plans for 2015. An important component of those plans should include monitoring potential regulatory changes and understanding how they may impact the small business landscape. 

Staying up-to-date with the ever-changing regulatory environment can be the difference between your business maintaining compliance and potentially facing steep IRS penalties. K.R. Hoffman Co., LLC keeps a close eye on regulatory issues to help business owners plan for changes that may be required in the New Year. 

Kenneth Hoffman, managing member of K.R. Hoffman & Co., LLC, a highly sought after tax and business counselor to entrepreneurs, professionals and select individuals, has offered his list of the top 10 regulatory issues that small business owners need to be aware of in 2015. 

1.     Tax Extenders and Tax Reform. On December 19, 2014, President Obama signed the Tax Increase Prevention Act of 2014 into law. Approximately 50 tax breaks, known as “tax extenders,” were retroactively expanded through December 31, 2014. Some of these, such as bonus depreciation and accelerated expensing of certain asset purchases, are particularly beneficial to small businesses. IRS leadership has noted that despite the delay in the initial passage of the extenders, the tax filing season will start on time; however, due to budget constraints, the processing of returns and refunds may be affected. Additionally, the short-term extension could complicate a possible rewrite of the tax code in 2015. Business owners will want to monitor any tax reform developments for potential ramifications. 

2.     The Affordable Care Act. The New Year brings additional responsibilities for businesses defined as Applicable Large Employers in the Employer Shared Responsibility (ESR) provisions of the Affordable Care Act (ACA). Applicable Large Employers will need to be prepared to meet new IRS mandates to file annual information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offers in 2015. 

3.     Taxation of Online Sales. Taxation of online sales is likely to be an issue affecting many businesses this year. To level the playing field between brick and mortar retailers and online merchants, and respond to state concerns about lost revenue, the U.S. Senate passed the Marketplace Fairness Act in May 2013, which would have allowed states to collect sales tax on purchases made by state residents regardless of where the seller is located. The bill stalled in the 2014 session of Congress. Because of the amount of tax revenue at stake, businesses should expect this legislation to be resurrected this year. 

4.     Immigration Reform. President Obama announced late in 2014 his plan to use his executive authority to make changes to our nation’s immigration laws. Federal agencies are currently moving forward to implement the president’s plan. Employers will need to continue to monitor changes to the immigration system that may impact their internal hiring and staffing procedures, particularly in terms of Form I-9 procedures and work authorization documentation, as well as address potential labor gaps should newly authorized workers decide to look for higher paying positions. 

5.     Overtime Regulations. The U.S. Department of Labor is expected to release proposed guidelines in the first quarter of the year to modernize and streamline the existing overtime regulations under the Fair Labor Standards Act. The revised regulations are expected to expand the number of workers eligible for overtime pay by increasing the minimum salary levels required for exempt status employees, and by expanding the duties defining “administrative” employees exempt from overtime pay. In the interim, employers are encouraged to review their employee classifications, focusing on job duties and salary levels for those workers classified as exempt. Employers should anticipate the potential need to track and pay overtime rates where applicable. 

6.     Employment-Related Legislation. Employers will need to remain diligent in their efforts to comply with new legislation in their jurisdictions this year. The trend of local and state governments passing minimum wage increases is expected to continue. In addition, hiring procedures and employment applications will need to be revised for employers in jurisdictions covered by “ban-the-box” laws that prohibit pre-employment inquiries into applicants’ criminal histories. Lastly, paid sick leaves and the tracking and notice requirements that go along with this benefit will require employers to review current sick day benefits and comply with what can be complex provisions in order to avoid violations. 

7.     Privacy. After some have called 2014 “The Year of the Data Breach,” there is a greater likelihood that in the upcoming 2015 legislative session, Congress will look to pass baseline cybersecurity legislation. Businesses should begin analyzing the relationships between technology and their customers’ personal data. Customer privacy should be appropriately protected through such means as secure networks, timely detection of malware, enhanced credit card security, and strong encryption. Businesses can expect increasingly vigorous enforcement actions from agency regulators following violations of Federal and state privacy laws. 

8.     Retirement. There are a number of developments coming, or currently under consideration, which may impact small business owners who currently offer a retirement plan to their employees, or are thinking about offering one. The U.S. Treasury in 2015 will more broadly introduce its non-mandatory workplace savings program – myRA – which will allow employees to place deferred funds into a program that is similar to a Roth IRA. Additionally, 14 states have proposed legislation that would create workplace savings programs through employers not currently offering a retirement plan for their employees. Other proposed legislation would offer further incentives to small businesses to open retirement plans, provide for lifetime income information on plan statements, and require further disclosures around target-date funds included as plan investment options. 

9.     FUTA Credit Reduction. Some states continue to have outstanding federal unemployment loans in 2015. Employers in these states will continue to have their FUTA credit amount reduced as a way to pay back the outstanding debt. The final list of credit reduction states was published by the Department of Labor in November. Employers in the impacted states should plan to pay higher FUTA taxes for tax year 2015, due in January 2016, and may want to consider planning for the additional tax amount early in order to avoid an unexpected tax expense at the end of the year. 

10.   Banking Developments. With the surge in use of mobile payment applications such as Apple Pay™, businesses will also see the parallel move toward increased payment security and mobile payment acceptance. Small businesses should consider implementing technology that will allow them to accommodate these trends. Additionally, heightened regulatory pressures on banks to know the parties they are dealing with may result in increased requests for data from business owners or extended account-opening procedures. Payroll cards will also continue to be an area of focus in 2015, as several states are expected to introduce legislation relating to this popular method of pay. Employers should ensure their payroll card provider is up to speed on the evolving regulations in this area. 

Kenneth Hoffman is a trusted senior tax advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges. To have a conversation on how Mr. Hoffman can protect you and your business from the IRS, contact him at 954-591-8290 or info@krhoffman.com.  


Trick Play Backfires; Team Thrown for a Loss

by Kenneth Hoffman in ,


College football fans have been crying for a season-ending playoff tournament for years, to replace the invitational "bowl championship" series that usually prompted as many questions as it answered. Monday night they got their wish, as the third-string quarterback Cardale Jones and the Ohio State Buckeyes overcame four turnovers to stun the Oregon Ducks, 42-20, in the very first College Football Playoff Championship Game.

Somewhere lower in the college football hierarchy, the University of South Dakota Coyotes aren't anyone's idea of national champions. They didn't even play Division I ball until 2008, when they joined the Missouri Valley Football Conference. This year's squad eked out just two wins, against William Penn's Statesmen and Northern Arizona's Lumberjacks. But one group of players took an even tougher hit. And their opponents weren't even wearing pads or cleats! What happened? Well, they challenged the team at the IRS — and they got thrown for a big loss.

Alphonso "Rico" Valdez grew up in Tampa, Florida, and graduated from Chamberlain High School before heading to the prairie to play cornerback for the 'Yotes. Maybe he felt exploited, playing for scholarship money instead of cold hard cash. But he didn't have the chops to go pro. So he recruited his own team of 11 conspirators, picking up some of his USD teammates, a former student government president who had been impeached for misusing student funds, and some friends from back home. Together, the group collected random names, addresses, and Social Security numbers, then used that information to file false tax returns on behalf of the victims and request fraudulent refunds in the form of prepaid debit cards.

We're not sure if any of the conspirators majored in accounting or not, but either way, pre-law probably would have been a smarter choice. The scheme came to light on a warm April day in 2012, when the criminal mastermind Valdez traded his helmet for sunglasses and a stocking cap, then made trip after trip to an ATM to convert those cards into cash. A concerned citizen noticed his unsportsmanlike conduct and called local police, who used surveillance video to pull the first string that eventually unwound the entire scheme.

The team scored $421,000 over the course of their "season" before officials threw a flag. Prosecutors don't know what happened to the money — they say there were no Mercedes-Benzes, no Louis Vuitton, and no Tiffany jewelry. USD athletic director Dave Herbster said "I'm not even sure that any of them had a car while they were here, and if they did, it probably wasn't a nice one."

At least they had the good sense to plead guilty to various charges of conspiracy and identity theft, and save real taxpayers the cost of a trial. They're even saying they're sorry! Valdez wants to become a high school football coach and show children they can further their education despite their mistakes. His girlfriend, Melissa Dinataly, said "the world is corrupt enough as it is. I shouldn't have done this." Of course, these aren't five-yard penalties — the whole team is headed to jail, for terms ranging from two to five years. They say prison life is structured — more than some people care for! So we'll see if the same discipline that helped Valdez excel on the field helps him excel in the yard.

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


Deduct the Alamo!

by Kenneth Hoffman in , ,


In 1836, Mexican General Santa Anna and 1,500 troops laid seige against 182 Texans garrisoned at the Alamo, a Spanish mission designed to resist attack from native tribes. Thirteen days later, the Mexicans stormed the walls and killed every last man inside, including Commander William Travis and frontiersmen Davey Crockett and Jim Bowie. Santa Anna's cruelty inspired Texans to join their army to seek revenge, crying "Remember the Alamo!" on their way to crushing the Mexicans at the Battle of San Jacinto.

Remembering the Alamo has become a central part of Texas history. So, which Texas musician just offered a tax-planning lesson by donating his collection of Alamo artifacts to the Texas Land Office? Was it rock 'n' roll pioneer Roy Orbison, hailing from lonely Vernon near the Oklahoma border? Perhaps it was country legend Willie Nelson, born an hour south of Fort Worth? Wait, wait . . . was it Tejano accordionist Leonardo "Flaco" Jiménez from San Antonio? No, no, and no. The answer, of course, is English singer and drummer Phil Collins, hailing from the London suburb of Chiswick!

Collins fell in love with the Alamo legend at age 5, watching actor Fess Parker play the "King of the Wild Frontier" Davey Crockett. According to Texas Monthly, the rocker's collection includes hundreds of documents, "plus artifacts like uniforms and Brown Bess muskets that belonged to Mexican soldiers, a sword belt believed to have been worn by Travis when he died atop the northern wall, and a shot pouch that Crockett is thought to have given a Mexican soldier just before he was executed." For years, they sat in his basement in Switzerland. But last month, Collins donated over 200 of his pieces to go on display in a new Alamo Visitors' Center.

Collins grudgingly admits to spending "seven figures" building his collection. Today it's said to be worth as much as $15 million. That sort of appreciation would seem to invite attack from the troops at the IRS. (And collectibles like the Alamo artifacts are even subject to a special 28% rate, 8% higher than the regular 20% for regular long-term gains). But there's an easy way for donors like Collins to avoid that tax, and get an even bigger charitable deduction for their gifts.

Let's say you spend $5 million building a collection that grows to be worth $15 million. Then you decide you want it to go to a museum. If you sell it to the museum, you'll owe $2.8 million in capital gains tax, plus $380,000 in "net investment income tax" on your $10 million gain. That's probably not as bad as being overrun by 1,500 soldiers — but it still leaves you with just $6,820,000 of after-tax gain.

Now let's say that instead of selling your collection to the museum, you donate it. Now you won't pay any tax at all. (Why should you? You never really "realize" your gain.) And, because you're making a charitable gift, you get to take a charitable deduction for the full $15 million value of your donation!

That same strategy works for any sort of appreciated property. Let's say you paid $1 million for a piece of property, which is now worth $3 million. Now you want your alma mater to have that $3 million, even though you know they can't use the property itself. You could sell the property, donate the after-tax proceeds, and take a deduction for your after-tax gift. Or, you could just donate the property and let the school sell it. That would avoid the tax on the gain and give you a deduction for the full pre-tax value!

Tax planning couldn't save the Texans at the Alamo. But it can save you from the IRS artillery. So if your year-end plans include charitable gifts, call us. We can help you with ideas to make the most of those gifts, even if you're not deducting the Alamo.

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


Illegal Deduction in the Backfield

by Kenneth Hoffman in ,


The 1985 Chicago Bears were one of the greatest teams in NFL history — in fact, ESPN ranked them the greatest ever. Quarterback Jim McMahon, Hall-of-Fame running back Walter Payton, defensive tackle William "Refrigerator" Perry, and the rest of the team captured America's heart as they sent nine players to the Pro Bowl and shuffled their way to victory in Super Bowl XX.

Hard to believe that was just 29 short years ago. Today's "Monsters of the Midway" are 3-5 after going into hibernation against the New England Patriots this week. They've lost to the Bills, the Packers, the Panthers, and the Dolphins. They're even losing to the Cook County Revenue Department! And that contest illustrates the sort of hair-splitting that seems to define so much of tax law.

In 2003, the Chicago Park District renovated the team's home at Soldier Field. The new venue includes 8,000 "club seats" on the Lake Michigan side of the field that come with all sorts of extra goodies like access to the heated "Club Lounge," parking, and gameday programs. There are also 133 luxury suites that rent for up to $300,000 per year and include private seating, private bathrooms, food and drinks, and even individual temperature controls. (If you've ever shivered through a December game at "the Eyesore on the Lake Shore," you'll realize that heat may be the most valuable perk of all!)

Cook County, where the stadium sits, levies an amusement tax equal to "three percent of the admission fee or other charges paid for the privilege to enter, to witness or to view such amusement." (We're not sure how "amusing" it is to watch Da Bears fall to the lowly Carolina Panthers, but that's a topic for a different day.) However, that tax specifically excludes "any separately stated charges for nonamusement services or sales of tangible personal property."

And that's where it starts getting tricky. How much of the premium ticket price should be subject to that tax and how much should be exempt?

The team broke out a separate "club privilege fee" from the price of the club seats and argued that it shouldn't be taxable because it's separate from the right to enter the stadium and watch the game. As for the luxury suites however, they did not break out a separate fee for the extras, but assigned those seats a flat $104 value and paid the tax on that amount. In 2007, the county threw a penalty flag, holding that it's impossible to separate the extra perks from the price of a seat, and sacked the team for $4.1 million in extra taxes.

Naturally, the Bears challenged the ruling on the field. They took it to an administrative law judge, who sided with the county.

If this had been an on-field call, the Bears would have been allowed just one challenge — and they would have been charged with a timeout too, for losing it! But that's not how it works with taxes. So the team appealed to the replay judges at the Cook County Circuit Court, and won. But now the county had possession. They advanced the ball to the First District Appellate Court, which re-affirmed the tax. (Don't rule out a Hail Mary to the Illinois Supreme Court. And you thought football games have gotten too long!)

Coach Mike Ditka would never have led his '85 Bears to the field without a game plan to minimize his opponents' strengths and take advantage of their weaknesses. It works the same way with your taxes. So call us when you're ready for your own plan. But do it fast! December 31 is closer than you think, and the clock is about to run out on some of the most valuable strategies!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


No Such Thing As a Free Lunch!

by Kenneth Hoffman in ,


Silicon Valley's high-tech employers are famous for feeding their employees at work. It's not entirely selfless — feeding people helps attract talented workers and keep them chained to their desks. At this point, it's no longer a novelty — it's an expected part of Silicon Valley culture. Companies routinely make headlines for luring away each others' executives and programmers. But back in 2008, Facebook made headlines for poaching Google's chef!

 Employers know that if they're going to use lunch to compete for talent, it oughta be good. The average computer nerd may be perfectly happy scarfing down Cheetos in his parents' basement. But six-figure software engineers demand more. So, for example, Google offers employees 30 different "cafes" at their Mountain View campus, serving delicacies like squash-corn-pecan dumplings, and daal saagwala from Northern India: "a mix of soft kale, spinach, and mustard greens, tossed with three types of beans and lentils in a broth singing with distinct cumin notes and a pleasant cilantro flourish." (We suspect that if they had served anything in honor of last month's International Bacon Day, it would have been so insanely good that you could never look a pig in the eye again.)

The best part? It's all free! But that may not be true much longer, if the food critics at the IRS have their way. Last month, they released their 2014-2015 Priority Guidance Plan, which reveals their 317 priority "projects we intend to work on actively during the plan year." And there on Page 7, sandwiched between "Regulations under §86 regarding rules for lump-sum elections" and "Regulations on cafeteria plans under §125," you'll find "Guidance under §§119 and 132 regarding employer-provided meals."

Ironically, free lunches have nothing to do with "cafeteria plans." The relevant regulations at 26 CFR 1.119-1 provide that "The value of meals furnished to an employee by his employer shall be excluded from the employee’s gross income if two tests are met: (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer."

Sounds pretty straightforward, right? Marketing software maker Moz.com gives employees a never-ending cereal bar. They serve it at their business headquarters, and they do it to keep employees from running to the In-N-Out Burger down the street. So what's the problem? Well, the IRS thinks that all that Cap'n Crunch may be more than just a convenient employee perk. They're worried that it's actually disguised compensation. And they're licking their chops at the thought of all the tasty revenue they can raise if they're right. (Don't even get them started on that 24-7 on-tap keg at apartmentrental.com!)

If the IRS concludes that meals are part of compensation, they'll be included in employees' W2s and taxed just like the rest of their paychecks. And while the occasional daal saagwala might not sound like much, those meals can add up fast. Let's see here . . . 1,000 employees eating $8 meals, five times per week, adds up to $2 million in new taxable income per year from just this one example — plusmore for Social Security and Medicare. No wonder the carnivores at the IRS are sharpening their knives! (Of course, they'll have to issue even more new regulations telling us how to value all those meals. But bureaucrats love writing regulations even more than they love Cap'n Crunch!)

You may not be worried about all this if you're not getting a free lunch at work. But remember, the IRS has 316 other"priority projects" on its plate. And it's our job to keep an eye out for the ones that hit your wallet. So call us when you're ready for the plan you need to protect yourself from them all!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at(954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter,facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


"Gaming the System"?

by Kenneth Hoffman in ,


America's biggest companies fight like tigers for surprisingly tiny advantages. Grabbing as little as a single extra percent of market share can mean millions in new revenue, especially in popular categories like soft drinks or laundry detergent.

The same is true when it comes to taxes. A chief financial officer who cuts his company's tax rate by a percent or two is a hero — and while his name may not make headlines, his paycheck will show it. The Fortune 500 compete for tax planning talent like baseball teams compete for starting pitchers. General Electric is a great example — from 2002 through 2011, it earned billions in profit and paid an average tax rate of just 1.8%. No wonder its tax department has been called "the world's best tax law firm."

Right now, the coolest kids in corporate America's tax departments are all talking about "tax inversions." The strategy involves buying a foreign company headquartered somewhere with lower taxes, then moving their "tax domicile" to the new country while leaving their core business here. Nine U.S. companies have taken the plunge in 2014, and a dozen more are currently weighing it. Take Medtronic, for example. The Minnesota-based pacemaker manufacturer was groaning under a combined 39.1% federal and state tax rate. That's enough to give any CFO a stroke. So what do the tax doctors prescribe? Merge with Covidien, in Ireland. Take advantage of the Emerald Isle's 12.5% rate, and party like it's 1999. The move could save as much as $4.2 billion in U.S. taxes.

If you think this sounds like the sort of move that would upset our friends at the IRS, you're right. (Google "tax inversion + weasel" and you'll get 4,450,000 results.) Last month, President Obama condemned it as "gaming the system," and urged Congress to slam the doors shut, saying "stopping companies from renouncing their citizenship just to get out of paying their fair share of taxes is something that "cannot wait.” Of course, inversions have their champions, too. Defenders point out they're perfectly legal under Internal Revenue Code Section 7874. They argue that the tax savings created by inversions flow through to customers, employees, and shareholders in the form of lower prices, higher wages, and higher profits. And they assert that the deals will help American companies compete against rivals in lower-taxed jurisdictions, protecting jobs and wages.

But not everyone is jumping on the tax inversion bandwagon. This summer, Walgreens announced they would be completing their acquisition of Alliance Boots, Europe's largest pharmacy. Walgreens had contemplated using the deal to move their tax headquarters to Switzerland, but ultimately decided to pass. Since then, the company's stock has dropped 15%. So . . . a mistake? Well, moving could have saved a bundle — as much as $4 billion over the next five years. But it also could have backfired, big time. Executives worried it could spark a decade-long fight with the IRS, chase customers away, and even jeopardize the millions of dollars in federal revenue that Walgreens rakes in from Medicare and Medicaid. Senator Dick Durbin reported he was thrilled that "the corner of happy and healthy" would stay "right here in Illinois."

What do you think? Are the folks who take advantage of tax inversions really "gaming the system," as President Obama has said? Or are they just playing the hand they're dealt, protecting themselves as best they can against the aces up everyone else's sleeves? Whichever you think, remember that we're here to help you play the cards you're dealt. So call us with your questions, and let us help you pay the least tax you can!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


Ooops!

by Kenneth Hoffman in , ,


Politicians in Iowa, like politicians everywhere, want to encourage their local economy to grow. (Happy voters lead directly to reelection, of course.) But back in 2008, construction in Iowa, like construction everywhere, had slowed because of the recession. So the Hawkeye state's legislators did what they thought was a smart thing. As part of an overall reform that raised the sales tax rate from 5% to 6%, they streamlined the rules regarding heavy construction equipment. Specifically, they said that sales would be subject to the equipment excise tax — but rentals and leases would not. Makes sense, right? Why make construction more expensive by imposing a sales tax on folks who aren't actually buying the equipment they use?

Since then, the Iowa Department of Revenue has collected more than $20 million in tax on equipment sales. Nobody paid any special attention to the new rules — at least, until last summer. That's when a curious attorney for an equipment buyer contacted the Department with the unwelcome news that the legislature had streamlined the tax a little too well. In fact, the language of that legislation had accidentally repealed it entirely!

And nobody noticed. Not the staffers who wrote the law. Not the legislators who introduced it into the statehouse, marked it up, and passed it. Not the governor who signed it. Not the 185 or so equipment vendors who mistakenly collected the tax on behalf of the state. And certainly not the Department of Revenue who happily took the vendors' deposits, year after year after year.

Oops. "I think you call that a mess," said Rep. Tom Sands, Chair of the Iowa House Ways & Means Committee.

What could Iowa do? Honoring the mistake would mean paying back $20-30 million in taxes and interest, plus giving up $7 million more every year going forward. That may sound like a drop in the bucket compared to the state's overall $15 billion budget. But in today's tight economy, every bit counts.

The legislators who accidentally repealed the tax probably would have preferred to ignore the whole thing and hope that nobody noticed. (Insert your own joke about political cover-ups here.) But once that lawyer discovered their goof, the game was up. So they did something any golfer understands. They took a mulligan! On March 10, the Iowa House voted 95-0 to pass a "technical administration" bill reinstating the tax, retroactive all the way back to 2008. On March 27, the state Senate concurred, 26-21. And on April 10, Governor Branstad signed it into law.

So, does it count as "raising taxes" to pass a bill retroactively reinstating a tax you never meant to repeal in the first place?

When a tree falls in the forest and no one is around to hear it, does it make a sound?

You probably shouldn't hold your breath waiting for Congress to accidentally repeal the Internal Revenue Code. Fortunately, you don't need that sort of foulup to pay less. You just need a plan — a blueprint for taking advantage of all the deductions, credits, loopholes, and strategies you're legally entitled to. So call us when you're ready for that plan, and see what we can construct for you!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.