Thursday, July 23, 2020

Tennessee—Multiple Taxes: Relief Announced for Taxpayers Affected by April Tornadoes and Severe Storms

Following the IRS decision to extend federal deadlines for individuals and businesses located in Bradley County or Hamilton County, Tennessee has extended the franchise and excise tax and Hall income tax filing and payment deadlines to October 15, 2020, for taxpayers located in those counties.

The relief postpones the franchise and excise tax and income tax filing and payment deadlines that fall between April 12, 2020, and October 15, 2020. Affected businesses and individuals will have until October 15, 2020, to file returns and make any payments. This includes estimated tax payments for the first two quarters of 2020 that were due on July 15, and the third quarter estimated tax payment normally due on September 15. The extension will be automatically applied to franchise, excise, and income tax accounts of taxpayers having a primary address in Bradley County or Hamilton County. (Extracted from Paychex State Tracker News)


Friday, May 8, 2020

Shipping Charges Taxable in Tennessee

According to the Tennessee Department of Revenue, Delivery charges are considered part of the sales price of an item if the seller charges the customer for the delivery. The state says that it doesn’t matter if the delivery charges are stated separately on the invoice, are included in the lump sum total, or what the terms of the shipping are.

On its website, the Tennessee DOR makes it clear that this statue supersedes the prior Sales and Use Tax Rule 1320-5-1-.71. That rule was replaced in 2008 when Tennessee became compliant with the Streamlined Sales and Use Tax Agreement, which makes shipping and delivery charges a part of the sales price.

Because the charges are considered part of the sale, retailers should always charge sales tax on delivery charges. 

Exception

The only exception to this rule is if the items sold are exempt from taxes — in that case, sellers should not charge sales tax on shipping

Thursday, April 16, 2020

Secure Act Passed in December 2019 ...a Recap

The Further Consolidated Appropriations Act, 2020 (P.L. 116-94), a government spending bill enacted on December 20, 2019, which funds the government through September 30, 2020, served as the legislative vehicle for several year-end tax measures. Notably, the Act included the bipartisan Setting Every Community Up for Retirement Enhancement Act, known popularly as the SECURE Act. The SECURE Act draws upon the identically named House bill (HR 1994) and Senate's bipartisan Retirement Enhancement and Savings Act (RESA) (S 972). The SECURE Act makes major substantive as well as administrative reforms to retirement security, many of which are already effective.

COMMENT:

The SECURE Act is largely considered a "win" for employees as well as the financial services industry. However, many lawmakers, stakeholders and industry leaders are saying that although the reforms are a big step, more needs to be done. To that end, congressional tax writers on Capitol Hill appear unfinished in the realm of retirement security. Top bipartisan, bicameral tax writers have already expressed an appetite for moving forward this year on additional retirement security legislation.

The SECURE Act made reforms to retirement planning and security in a number of areas, including Individual Retirement Accounts (IRAs), 401(k) plans, plan administration, and employer funding.

IRA Changes

The new legislation includes major changes for IRAs, including:

·         Moving the start date for requirement required minimum distributions (RMDs) to the year the owner turns 72;
·         Ending the 701/2 age limit for contribute contributions to an IRA; and
·         Shortening the distribution period for nonspouse inherited IRAs to a 10-year maximum.

The 10-year window for distributions to a nonspouse beneficiary applies regardless of when the IRA owner dies. Thus, the change will severely limit the use of "stretch IRAs" as an effective planning tool. Limited exceptions are available.

401(k) Changes

Some of the most significant 401(k) changes include:

·         Requiring plans to offer participation to long-term, part-time employees;
·         Encouraging auto-enrollment by increasing the cap; and
·         Streamlining the safe harbor for non-elective contributions.

Employers with 401(k) plans must offer employees who work between 500 and 1000 hours year an additional means to participate in the plan. The rule change would only affect 401(k) cash or deferral arrangements, and no other qualified plans.

Administrative Changes

The new law also provides several other administrative changes:

·         Permitting distributions of up to $5,000 for the birth or adoption of a child without incurring the early-withdrawal penalty;
·         Count taxable stipends and nontuition fellowships as compensation for making IRA contributions;
·         Counting nontaxable difficulty of care payments earned by home healthcare workers as compensation for purposes of retirement contributions;
·         Allowing direct trustee-to-trustee transfers between retirement plans of lifetime income investments or annuities; and
·         Providing a safe harbor for plan sponsors in the selection of an annuity provider.

Changes For Employers

Small employers are now able to more easily band together to participate in pooled multiple employer plans (MEPs). Additionally, employers are encouraged to steer employees towards lifetime annuities. Other changes include:

·         allowing plans administrative flexibility, including relief for "close" plans;
·         new annual disclosure requirements; and
·         providing a safe harbor for plan sponsors in the selection of an annuity provider.

Further, qualified defined contribution plans, 403(b) plans, and governmental 457(b) plans are now able to make direct trustee-to-trustee transfers to other employer-sponsored retirement plans or IRAs of lifetime income investments or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held under the plan. Participants are now able to preserve their lifetime income investments and avoid surrender charges or fees.

"There is still more that we can do to help more Americans save for their retirement," Sen. Rob Portman, R-Ohio said. "I believe that passage of the SECURE Act can help pave the way for bolder reforms in legislation I have introduced with Senator Cardin called the Retirement Security and Savings Act. I believe the Senate Finance Committee [(SFC)] should hold hearings and a markup on this legislation, and I will work closely with Senator Cardin to move it forward," Portman added.

COMMENT:

A spokesperson for SFC Chairman Chuck Grassley, R-Iowa, told Wolters Kluwer on January 14 that "nothing is planned at the moment," when asked about the potential SFC markup.


Thursday, December 12, 2019

Shipping Charges Taxable in Tennessee


According to the Tennessee Department of Revenue, Delivery charges are considered part of the sales price of an item if the seller charges the customer for the delivery. The state says that it doesn’t matter if the delivery charges are stated separately on the invoice, are included in the lump sum total, or what the terms of the shipping are.

On its website, the Tennessee DOR makes it clear that this statue supersedes the prior Sales and Use Tax Rule 1320-5-1-.71. That rule was replaced in 2008 when Tennessee became compliant with the Streamlined Sales and Use Tax Agreement, which makes shipping and delivery charges a part of the sales price.

Because the charges are considered part of the sale, retailers should always charge sales tax on delivery charges. The only exception to this rule is if the items sold are exempt from taxes — in that case, sellers should not charge sales tax on shipping.


Thursday, August 31, 2017

Part Sale Part Gift of House to Parents

Tax Court Determines Gain On Part Sale/Part Gift Of Residence To Parents

In Fiscalini, TC Memo 2017-163. an individual (a son) sold his personal residence to his parents after previously being gifted part of the same residence by them, as well as having them pay off outstanding mortgages as part of the sale to avoid foreclosure. 

In this Tax Court case, the Court found that the taxpayer owed long-term capital gain on the sale, but not to the extent argued by the IRS.

In this situation, the parents took title to a portion of the home representing the down payment. They stepped in again, buying back the house when mortgage refinancing left their son facing foreclosure during the 2007 economic downturn. 

Sorting out the nature of a gift and its tax basis and the impact of buy-back arrangements (in this case), as in any case, can sometimes raise questions with the IRS.

Background

The taxpayer and his parents purchased a home. The parents contributed $40,000 cash and the taxpayer took out a $234,000 mortgage. A few years later, the parents gifted their share of the home to the taxpayer. Over the years, the taxpayer claimed he put $50,000 in improvements into the home. He also had refinanced his home until, at the start of the economic downturn in 2007, he found himself facing foreclosure, unable to make the mortgage payments. His parents stepped in again as purchasers, paying the taxpayer $975,000 for the property, paying off the $664,000 mortgages and by an acceptance of  "a gift of equity" from the son of the $295,000 difference (less $16,751 settlement costs).

On audit, the taxpayer and the IRS disagreed over the amount of capital gain realized.  They each  based their arguments upon different conclusions over the taxpayer’s adjusted basis ($329,000 vs. $234,000, respectively) and the amounts realized on the sale of the property ($664,000 vs. $975,000, respectively).

The Court’s analysis

The Tax Court agreed with the taxpayer that the parent’s initial gift of the $40,000 original share of the home was basis that carried over to the taxpayer. His basis equal to the original $274,000 purchase price of the home could not be increased by his claimed $50,000 in improvements, however, since the court determined that he failed to carry his burden of proof for that amount.

The Tax Court also agreed with the taxpayer that the purchase price for determining long-term capital gain was $664,000, and not $975,000: reasoning that the gift of the difference was not made subsequent to the sale but instead was part of it, and also accepting the fact that cash did not exchange hands for that amount; instead, it was a transfer of property that was in part a sale and in part a gift.

After reducing the purchase price by the $16,751 settlement costs and excluding $250,000 of the gain under the Code Sec. 121 home-sale exclusion, the court found that the taxpayer was required to recognize $122,000 of long-term capital gain from the sale to his parents.
References: CCH Dec. 60,996(M) 

Thursday, July 27, 2017

IRS Direct Pay and EFTS Systems Now Have Email Notice Options


Any taxpayers using IRS Direct Pay or EFTPS to pay their taxes can now sign up for an email notification, the IRS has announced.

The new email feature sends tax payment notifications directly to taxpayers’ email accounts. The email notification is to contain the confirmation number that the taxpayer receives at the end of any payment transaction. Businesses using the systems and making payments through a payroll service provider can also opt in to receive email notifications. Once they have opted in, taxpayers will receive email notifications for all payments made through EFTPS, including those made by a payroll service provider.

The IRS advises that, to protect taxpayers, there will not be any web links embedded within the email notifications. If taxpayers see any type of link in an email appearing to be from the IRS, they should not click on those links.

http://www.IRS.gov; Commerce Clearing House TRC FILEIND: 21,156.05.

Saturday, June 24, 2017

Investment Advisor Guarantees Don't Protect Against Losses

I'm not an investment advisor, although I have been asked to analyze an investment or a proposed one now and then. I have been watching the Travelers Golf Tournament this weekend and noticed the numerous commercials being aired and directed at investment advisors that are providing for guarantees. A certain investment firm has been offering to refund investment advisory fees when investors are unhappy, while another has been offering to rebate the fees after two quarters of negative performance. Some investors I know have expressed concerns and questioned me over these offers.

The problem: Many investors mistakenly believe that they will get better advice because of these offers and will be protected from investment losses. The guarantees are not a good reason to select a particular brokerage nor, by any means, a useful way to judge the value of the assistance you may get over one quarter of performance activity. .

How some of these offers work: one allows customers who use any of five advisory services to request a refund of fees for the previous quarter for any reason. The services include the firm's Managed Portfolios, whose model of mutual funds and exchange-traded funds (ETFs) are selected with the help of an adviser.  The minimum investment is $25,000. Another is private-client package, which provides an adviser who creates a tailored portfolio.  That minimum investment is a cool $500,000. Annual fees are 0.9% of your managed assets or lower.  I'm also not sure based upon a footnote you'll find with its website, whether or not either of these offers applies to anyone other than a "current client".

Another firm's service fees rebate only applies to a particular service, which provides for an adviser and assists in selecting among several model portfolios. If your holdings experience two consecutive quarters of negative returns, the firm will automatically refund the fees from both quarters (but not the losses that most certainly go along with the negative earnings). This package requires a $25,000 minimum investment and charges an annual fee of up to 1.25% of managed assets. This guarantee does not reimburse your for investment losses, even if your not satisfied.  You will simply get your fees back. 
.
It has been said that both firms (and all firms, for that matter) worry about losing clients to much-lower-cost services known as robo-advisers who are offered by firms ranging from online newcomers to giants such as Vanguard and Fidelity. These robo-­advisers generally charge 0.35% or less to generate model portfolios of exchanged traded funds even though most of these so-called investment advisors won’t put you in touch with a human adviser.

So offering a "money-back" guarantee (for fees) is not helpful in choosing an investment, nor an advisor and doesn't protect your funds against losses.