There is a change in the federal partnership audit rules that take effect for tax years on or after January 1, 2018, that may impact you.

Who is Affected?

All entities classified as partnerships for federal tax purposes. This includes, for example, multi-member LLC’s that have not elected to be taxed as corporations (C or S). If the entity files IRS Form 1065, it is a partnership. Certain partnerships may opt out of the new audit rules, but they must meet the eligibility requirements, including identity and number of partners (no more than 100 partners, all must be individuals, estates, C corporations and S corporations).

The Changes

The new law and regulations proposed by the IRS will replace the current audit regime. The details of the changes to the audit regime are beyond the scope of this letter, but in general, under the new partnership audit rules, any adjustments to tax items for a partnership are generally determined, and the tax attributable to such adjustments is assessed and collected, at the partnership level, with the tax assessed at the highest tax rate then in effect. The adjustments relate to a prior year (the “reviewed year”), but the assessment and collection of the tax will affect the partners in the year of the assessment (the “adjustment year”). The partnership may be able to elect to “push out” the adjustments to the partners who were partners in the reviewed year, rather than assessing it at the partnership level.

In addition, the partnership is now required to designate a “partnership representative” on an annual basis. This designation replaces the appointment of a “tax matters partner” under the prior regime. Comparing the two, the requirements for who may serve as a partnership representative are broader (e.g., not required to be a partner) and the partnership representative has significantly more authority in dealing with the IRS on behalf of the partnership (i.e., sole authority to act and the other partners have no right to receive notice from the IRS or participate in the audit).

What Does This Mean For You?

All partnership agreements (or operating agreements, in the case of an LLC taxed as a partnership) should be reviewed and amended to adopt appropriate changes to reflect the application of the new IRS rules effective January 1, 2018. The nature of these amendments will differ among partnerships/companies depending on the specific situation. Changes may include:

  • appointing the partnership representative, with a mechanism for appointing replacements and any contractual limitations on his authority;
  • ensuring the partnership is eligible to opt out of the rules by restricting who can be a partner;
  • providing for a method of allocating the adjustments in the event of changes in partners between the reviewed year and the adjustment year; and/or
  • providing for an election to “push out” the adjustments to the reviewed year partners.

Please feel free to reach out to any of our tax attorneys to update your partnership’s and/or company’s agreements to remian compliant with these federal tax law changes:

 

Guest post by Beth T. Vogelsang, Esquire, Florida Bar Board Certified Divorce, Marital and Family Law Attorney

On November 2, 2017, House Republicans released an income tax reform bill known as the “Tax Cuts and Jobs Act.” There has been much publicity about the bill’s proposed corporate tax cuts and the purported reduction and simplification of individual income tax rates. One provision of the 492-page bill, which has gone largely unnoticed, is the proposed repeal of the deductibility of alimony payments.

Current IRS Regulations on Alimony

Continue Reading Will Tax Reform Eradicate the Alimony Tax Deduction?

As the year-end approaches, you may want to consider steps to reduce your federal income tax bill, especially as Congress weighs tax reform. The current proposals would reduce income tax rates for most businesses and individuals, and increase the available business deductions. Whether or not the proposed tax reforms become law, the following tax tips should help you save on federal income taxes.

Tips for Business Owners: Expensing and Depreciation

Continue Reading Tax Planning and Proposed Tax Reform

As our area recovers in the aftermath of Hurricane Irma, one less thing we need to worry about in the immediate future are certain tax matters. The IRS has issued relief to taxpayers in Presidential Disaster Areas, which includes Lee, Charlotte, and Collier Counties. Among the relief granted, for affected individuals and businesses there is an extension to January 31, 2018 to file returns and pay taxes originally due during the period starting September 4, 2017.  So, if you were on extension to file your income tax return for your business (generally due September 15, 2017) or individually (due October 15, 2017), you now have until January 31, 2018 to file that return.

Keep in mind, this relief does not extend the time to pay income taxes for 2016, which were due on April 15, 2017 (even if your return was on extension).

The IRS continues to provide updates on areas covered and the relief granted. More information can be found at https://www.irs.gov/newsroom/help-for-victims-of-hurricane-irma.

Tax photo courtesy of 401(K) 2012 under Flickr Creative Commons License

tax flickr 401k 2012Guest post by Eric Gurgold, Florida Bar Board Certified Wills, Trust & Estate Expert

The IRS has just published proposed new regulations under Section 2704 of the Internal Revenue Code that could significantly impact planning for estates that may be subject to estate tax.  If finalized, the proposed regulations would change how transfers of business interests to family members are valued by eliminating certain discounts, disregarding restrictions in transfer agreements and adding attribution rules for family members.  The proposed regulations will not apply to transfers to non-family members.

A public hearing on these proposed regulations has been scheduled for December 1, 2016.  If adopted, the regulations will become final.  A short window of opportunity exists to complete transfers of business interests to family members under the current rules.

If you would like to discuss the impact of the proposed regulations on your estate planning, contact any of our wills, trusts and estates attorneys at 239-344-1100 or by email to eric.gurgold@henlaw.com.

About the Author:

Gurgold - blogEric Gurgold currently serves as Chair of the Estate Planning and Administration division and is Board Certified in Wills, Trusts & Estates by The Florida Bar. For over twenty-five years, Eric has concentrated his law practice in the areas of estate planning and administration, elder law, probate litigation, title insurance claims related to probate issues, business law and taxation. He assists clients in the preparation of wills, trusts, family limited partnerships, inventories, inheritance and estate tax returns, as well as providing counsel to minimize income and estate taxes.

Tax photo courtesy of 401(K) 2012 under Flickr Creative Commons License

As the deadline for filing entity returns closes and the deadline for individual income tax returns approaches, there are issues outside the four corners of the return that taxpayers should keep in mind:

  1. Stay current with your tax obligations. To avoid default or rejection of an installment agreement or offer in compromise under review or in payment status, be sure to file your return or request an extension by the deadline. In addition, even if the return is on extension, there is no extension for payment and a failure to make payment by April 15th (for individual income taxes) may result in a default or rejection.
  2. Be cautious with your personal information. The IRS has identified identity theft, phone scams, and phishing among its “dirty dozen” scams for 2016. Criminals seek to obtain your personal information, including name, address, social security number, and credit card and banking information, in an effort to steal both directly from your accounts and to file fraudulent returns under your name and claim the refund for themselves. The IRS will never call to demand payment or about taxes owed without mailing a bill first and generally does not contact taxpayers to request personal or financial information by email. If you receive an unsolicited call or email purportedly from the IRS, do not provide any of your personal information. If you are not certain whether the information is legitimate, contact the IRS.

For help and other resources within the IRS, see https://www.irs.gov/Help-&-Resources.

For more on the IRS’ 2016 “dirty dozen” list, see https://www.irs.gov/uac/Newsroom/IRS-Wraps-Up-the-Dirty-Dozen-List-of-Tax-Scams-for-2016.

tax burdenCommercial leases and short-term residential rentals are generally subject to sales tax, and it is the tenant’s responsibility to pay it, but the landlord’s responsibility to collect and remit the tax to the Florida Department of Revenue. Other than writing the check to the landlord for the rent, including the sales tax, the tenant often forgets about the sales tax issues. However, there are areas where the tenant could still be responsible directly to the Department of Revenue, as well as areas for planning when negotiating the lease terms.

What if the landlord fails to pay the Department of Revenue?

Sales taxes are what are commonly referred to as “trust fund taxes,” meaning the person collecting the tax (here, the landlord) is holding those funds in trust for the state. Those monies are the state’s property at the time of collection, and if the landlord fails to pay it to the state, the state can then seek the taxes, penalties, and interest not only from the landlord-entity, but from its owners, officers, and employees who were responsible for paying (or failing to pay) the tax. Depending on the circumstances, criminal sanctions may also be sought.

Continue Reading Sales Tax on Leases – Traps for the Unwary