As part of an unprecedented effort to recoup lost income-tax revenue, New York tax authorities are targeting individuals earning as little as $100,000 a year who claim to have left the state during the pandemic. Since the end of the filing season, thousands of notices from the New York Tax and Finance Department have landed in taxpayers’ mailboxes. Normally, it would take $1 million a year in income to trigger heightened scrutiny, but many people who are earning far less are receiving letters asking them to verify residency status and personal income allocation to determine whether they owe more to the state than claimed on their 2020 earnings. According to the state agency, their tax authorities have sent out more than 149,000 audit notices. This also includes computerized letters, or desk audits.

While New York is known to be an aggressive tax collector due to its history of relying on field audits of high-net-worth individuals, its latest enforcement efforts are highly unusual. This is due to New York tax authorities sending notices to clients with salaries between $100,000 and $300,000 a year within weeks of filing their state returns. The triggering events for such audits appear to be if a taxpayer indicated that they only lived in the state part of the year or allocated less income to New York than prior years.

Tax Enforcer. New York taxes the income of nonresidents if they work or perform services inside the state. This includes wages paid to a commuter who worked from home out of necessity during the pandemic. Some commuters, like those in neighboring New Jersey, will receive a credit on their New Jersey state income tax to avoid double taxation. Some have challenged that assertion, arguing that New York doesn’t have a right to tax income earned outside its borders.

Desk Audits. Tax experts say the pandemic has only accelerated an existing enforcement priority for the tax department over the last several months. Across the country, Americans fled dense major cities like New York during the height of the pandemic either to second homes or to temporarily live with family, while some left altogether to the suburbs in search of more space. Desk audits are computer-generated queries that are sent automatically to individual filers when the system picks up an anomaly in a tax return from prior years. A field audit consists of an individual auditor being assigned to deeply vet a taxpayer’s whereabouts for an entire tax year. In desk audits, taxpayers are being asked to fill out a non-resident questionnaire collecting preliminary information like when the individual last filed a state tax return, when they became a non-resident, and how many days they worked in New York.

$10,000 tax bill. Many have been surprised by these unexpected tax bills. Taxpayers have been receiving a $10,000 tax bill with their desk audit notice. This is because some believe that they can allocate a smaller percentage of income to New York compared to the previous year. Many taxpayers who are unable to prove their whereabouts are forced to pay state income tax even if they are a non-resident.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Earlier this month, the IRS issued a safe harbor that allows employers to exclude certain amounts received from pandemic economic relief programs when determining whether they qualify for the Employee Retention Credit (ERC) based on a decline in gross receipts. Amounts that can be excluded from the calculation of gross receipts include:

  • Forgiveness of Paycheck Protection Program (PPP) loans
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
  • Restaurant Revitalization Fund grants under the American Rescue Plan

It is important to calculate gross receipts since an employer may be eligible for the ERC if the gross receipts for a calendar quarter declines by a certain percentage compared to a prior calendar quarter. While the amounts received from other pandemic relief programs above are excluded from an employer’s gross income, they have to be included in its gross receipts, unless safe harbor is used. According to the IRS, the safe harbor is needed because Congress intended that all employers could partake in the other relief programs while claiming the ERC. This is done by assuring that the same wage dollars are paid for or reimbursed with other relief program funds and are not treated as qualified wages for purposes of the ERC.

What is the safe harbor? The safe harbor allows employers to exclude other economic relief funds from their gross receipts to determine eligibility to claim the ERC for a calendar quarter. Employers may consistently apply this safe harbor if they:

  • Exclude the amount from its gross receipts for each calendar quarter in which gross receipts for that calendar quarter are relevant to determining eligibility to claim the ERC; and
  • Apply the safe harbor to all employers treated as a single employer under the ECR aggregation rules.

How do you elect the safe harbor? To do this, an employer must exclude the amounts received through relief programs listed above from its gross receipts when determining eligibility to claim the ERC on its employment tax return or adjusted employment tax return that calendar quarter. Employers may also file employment tax returns on an annual basis for the year including the calendar quarter.

The safe harbor is to be applied for the purposes of determining eligibility to claim the ERC for wages paid after March 12, 2020, and before January 2, 2022. Employers must retain records to support the credit claimed, including the use of the safe harbor. The safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Last week, two Senate members proposed an end to the prized tax break for the private-equity industry. Senate Finance Committee Chairman Ron Wyden and panel member Sheldon Whitehouse proposed a repeal to the carried interest tax break. This would prevent private equity fund managers from paying lower tax rates on their earnings compared to regular income. This bill also prohibits deferring tax payments on those earnings. According to an estimate made by the Joint Committee on taxation, requiring fund managers to pay taxes when they receive profits will raise about $63 billion over the next decade. While the American Families Plan did call for an end to carried interest, it fell short of eliminating an investor’s ability to delay paying taxes on the income. This means that the initial plan would have created about $14 billion over the next decade, according to an estimate from the congressional tax scorekeeper.

In addition to salaries, private equity managers rely on a share of the appreciation of the assets that they oversee, which can be in the millions of dollars. These gains have previously been taxed as capital gains, which is a much lower rate than the top marginal income tax rate applied to wages. Biden has proposed to raise the top income tax rate from the current 37% to 39.6%. Carried interest payments are being taxed at 20% under the current law.

The potential revenue totals are just a small portion of the up-to $3.5 trillion, but the issue represents a symbolic political win for lawmakers who say they want to raise taxes on the wealthiest Americans to make the Tax Code more equitable and lessen income disparities. Carried interest has been under attack from both parties for years. In 2017, the private equity industry successfully fought off major changes in the tax overhaul that year, when some legislators considered cutting the tax break to pay for reductions elsewhere. In the end, the GOP kept the carried-interest tax break intact but required that investors hold their investments for longer to get the benefit.

The Senate will soon begin debating a budget resolution that will serve as the framework to advance the Democrats’ economic agenda. The bill requires unanimous support from Democrats in Congress and will likely consume the legislative agenda in the fall.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

With the Biden administration and G-20 leaders agreeing on the need for more revenue, the U.S. and other countries are moving forward on increasing tax rates on multinational corporations. Earlier in July, G-20 leaders agreed on a plan to impose a minimum tax rate of 15% on corporations and to keep companies from shifting their profits to low-tax countries. Between the U.S. and international moves, companies are turning to tax experts for advice on how to minimize their taxes. New data released by the Organization for Economic Cooperation and Development (OECD) indicated that multinational corporations have continued to shift their profits to other countries despite record low tax rates.

Proposed changes from the Biden administration would reverse some of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, increasing the 21% corporate tax rate. This could upend the careful tax planning that companies have been doing with their clients after passage of the TCJA. Doubling the Global Intangible Low-Taxed Income (GILTI) is not going to be viewed as an overly positive development for those who are subject to the rate.

What are the major changes that are in store for the US? While the bipartisan group of senators have struck a deal on the infrastructure plan, there are still others that oppose any tax increases. The administration hopes to move the infrastructure legislation on a parallel track with a $3.5 trillion budget resolution to fund what they call “human infrastructure.” After passage of the TCJA, the Treasury Department and the IRS needed to spend the next few years developing regulations to implement the various provisions of the 2017 tax overhaul. While the infrastructure plan at least seems to be making progress, the shape of the tax provisions in the larger budget bill remain uncertain. One of the offsets to help pay for the increased social spending was supposed to be increasing the IRS’s enforcement budget to pull in more tax revenue and close the tax gap but it was met with backlash.

Global minimum taxes. The latest moves by both the Biden administration and the OECD toward a global minimum corporate tax rate are just one element of a wider reaction against the overall lowering of rates. The OECD’s international tax reform discussions on base erosion and profit-shifting were underway long before the Biden administration added new momentum this year with its proposal for a global minimum tax rate. While the OECD timeline may seem ambitious, experts believe the proposals may be ratified and introduced within three years. Advocates for raising corporate tax rates are hoping the OECD and the G-20 will go even further in their negotiations. While the initial plan calls for a 15% minimum, advocates are hoping to get above a 20% minimum for global corporate taxes. Another important detail is having digital companies taxed if they operate in your territory. Countries that are benefiting from offering the lowest tax rates would need to sign off on the plans before all the proposals for a global minimum tax rate could work.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

After more than a year of the Paycheck Protection Program and legal challenges, the Small Business Administration (SBA) is dropping their request that larger borrowers provide supplemental financial information. Due to this change, it is easier for big borrowers to apply for PPP loan forgiveness. The SBA’s effort marks an about-face for the agency that landed in hot water after allowing publicly traded companies to access the program intended for small businesses. The SBA began informing lenders that it plans to eliminate the loan necessity review for PPP loans of $2 million or more. They said they will no longer request the loan necessity questionnaire for any PPP loan reviews as well. In October, the SBA asked lenders to provide loan necessity questionnaires for both for-profit and nonprofit PPP loan borrowers that had or exceeded $2 million. On the other hand, smaller businesses were only required to self-certify for potential need.

The questionnaire itself took a lot of time and energy for borrowers to fill out. It asks for a litany of supplemental financial information such as gross revenue, capital on hand, and a list of the highly paid executives. Not to mention it had questions regarding business operations and business activity. Many businesses worried that the information they were providing could fall into the public domain.

In April of 2020, the U.S. Treasury encouraged businesses with an alternative way to raise funding to return the money. It also encouraged companies to look deeply into if they need federal funds to guard against the economic uncertainty. The U.S. Treasury also added that a public company with substantial market value and access to capital markets would not meet the standards required for attaining a government-backed loan. The SBA also issued a final interim rule. This rule notes that hedge funds are not eligible for federal assistance through the PPP. The SBA alluded that private equity-backed companies would face a level of scrutiny like public companies when applying for a PPP loan.

Closer inspection of the bigger loans was thought to be useful for preventing companies that did not need emergency funding from tapping the PPP loans. It also served as a mechanism for weeding out publicly traded companies and other firms that have alternative funding.

After a year of the PPP, the SBA has helped in loaning over $780 billion in emergency funds to more than 8 million small businesses throughout the U.S.A. The SBA’s interests are to keep the forgiveness process streamlined and drama-free. Former director of the SBA’s office of capital access, Bill Briggs, said that the SBA is looking to further expedite the forgiveness process for borrowers and ease some administrative tasks that the agency is currently facing. In December of 2020, the Associated General Contractors (AGC) of America filed a lawsuit against the SBA, seeking to amend the loan necessity questionnaire to allow borrowers to provide additional context explaining the totality of their circumstances. The AGC notes in their complaint that the questionnaire does not ask borrowers to describe the status of their operations and the attendant business anxieties back in the spring. Instead, it focuses on what came after, over the ensuing months of 2020. This pushed the SBA’s information request outside their purview. The goal of this lawsuit was to achieve a more rational review of what borrowers in general knew and did not know at the time they applied for loans. They were also trying to persuade the SBA that economic uncertainty was a major factor.

Looking past what may have been the SBA’s reasoning behind the change, businesses should be looking to complete the next step and figuring out an action plan. Although businesses won’t need to file the supplemental form anymore, they may still need to provide financial documents of need. After receiving forgiveness, businesses won’t be “off the hook” either, they may be audited many years later. It is a good idea for businesses to hold onto financial documents relating to PPP loans for at least 6 years.

Talley’s professionals have spent hundreds of hours reviewing the law, regulations, and SBA PPP FAQs issued on an almost daily basis and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or forgiveness audit process.

At the end of June 2021, the U.S. Supreme Court denied New Hampshire’s request to file a bill of complaint against Massachusetts regarding the taxation of remote workers during the pandemic. New Hampshire filed their motion for leave to file a bill of complaint in October of 2020 after Massachusetts issued a temporary emergency regulation that said workers who normally work in Massachusetts but who, because of the COVID-19 pandemic, were working in other states would still be required to pay Massachusetts income tax.

In its complaint, New Hampshire had said that Massachusetts unilaterally imposed an income tax within New Hampshire that New Hampshire, in its sovereign discretion, has deliberately chosen not to impose. New Hampshire argued that this rule was unconstitutional under the Commerce Clause and the Due Process Clause of the U.S. Constitution. They asked the Court to enjoin Massachusetts from enforcing the regulation and to require Massachusetts to refund the payments, plus interest, that it collected from nonresidents.

While The Supreme Court did not explain its decision not to take up the case, they did reply to New Hampshire’s motion. Massachusetts had argued that New Hampshire lacked standing to sue because it did not, as a state, suffer an injury, and that it did not state a viable Commerce Clause or due process claim. Massachusetts broadly described its regulation as maintaining the status quo.

In May, an amicus brief filed by the U.S Justice Department urged the Court to dismiss the case. This case was described as not an appropriate case for the exercise of this Court’s original jurisdiction because the issue could be litigated by New Hampshire residents who were subject to the Massachusetts income tax.

With so many employers struggling with tax compliance within their remote work policies, this major case could have cleared up issues between states and their tax policies that ultimately impact employers and workforce mobility. The decision to decline the case means that resolving these issues is now in the hands of individuals impacted by remote work taxes.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

It’s not unusual for entrepreneurs to face a multitude of unique challenges every day that can stretch their ability to stay productive, especially during the current pandemic. When you have employees relying on you and a mountain of deadlines to meet, shutting your door and curling up into a ball in the corner is not an option. Besides money and health, time is the greatest commodity an entrepreneur can have. It makes sense, then, that the most successful business owners have figured out how to work more efficiently with the time they do have. Listed below are some productivity tips that we’ve picked up along the way.

“Eat your frog” first. Wait, what?! Mark Twain said it best: “Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.” In other words, spend your morning working on something that you don’t want to do, which requires a large amount of concentration. By doing so, you’ll get the more tedious task done, freeing yourself up to move on to the other pressing items on your to-do list.

Want to be productive? Don’t multitask. Multitasking in the morning when you have lots to do, tons of energy, and a venti-sized cup of coffee with a double shot of espresso in front of you, is tempting. However, doing so can set your whole day back. Research conducted at Stanford University confirmed that multitasking is less productive than working on one task at a time. Researchers found that people who are regularly bombarded with several streams of electronic information cannot pay attention, recall information, or switch from one job to another, as well as those who complete one task at a time.

Take care of yourself. This is both the most important and the most overlooked tip for any entrepreneur to follow. All the business and productivity advice in the world won’t help you if you’re already stressed out, sleep deprived, and running yourself into the ground before you take that first sip of coffee or tea in the morning.

Whether you’re looking to improve your tax position, build your brand through a business transaction, or guarantee a legacy for your family, Talley is uniquely equipped to provide the technical and managerial expertise to help you plan, negotiate, structure, and execute your goals.

To learn more how Talley can help your business become more productive and profitable, contact us today.

While technologies like crypto and non-fungible tokens (NFTs) are designed to be invisible, the IRS is aware that money laundering is being carried out by some crypto users. It is leveraging data analytics technology and artificial intelligence to assist its overburdened staff. Jeff Tribiano, deputy commissioner for operations support at the IRS, believes that technology, data analytics, and artificial intelligence play a large part in the future of the work that the IRS is going to be doing. Although the crypto world has been changing rapidly, the IRS has been leveraging technology to keep up with it. The IRS is continuing to address how cryptocurrency relates to the dark web and is working with firms on the potential issue of tax evasion.

Global cooperation. IRS Criminal Investigation has been working with tax authorities in four other countries, Canada, the United Kingdom, Australia, and the Netherlands, through a group known as the J5 on tax cases involving cryptocurrency. Initially working with the Organization for Economic Cooperation and Development, the IRS was coming up with typologies and methodologies to help countries worldwide to address various emerging threats, and cryptocurrency was on that table. With the J5, they have taken it one step further as far as really addressing the non-compliance issues in cryptocurrency and professional enablers. Not only are they looking at cryptocurrency as an issue of digital currency, but they also have a platform where they’re looking at the technology so that countries can speak to each other.

Biden Administration proposals. In the Treasury Department’s Green Book, the Biden administration’s proposal for the IRS is to increase its tax enforcement budget to pull in more tax revenue, including requiring banks and other financial institutions to report more information about their customers’ accounts. The commissioner of the IRS’s Small Business/ Self-Employed Division, Eric Hylton, anticipates that more tax whistleblower claims will be filed relating to cryptocurrency, and the IRS will be able to trace these more with the help of tipsters. Hylton will be working with former IRS acting commissioner Steven Miller and former Senate Finance Committee senior counsel Dean Zerbe on research and development for tax credits, tax advisory services for digital currency, and whistleblower claims against taxpayers who aren’t reporting their cryptocurrency gains.

IRS Tech Hiring. Cryptocurrencies and NFTs are only one part of the IRS’s digital transformation challenge. The IRS is looking to hire more tech employees to help with that effort, thanks to the streamlined “critical pay authority” it was granted in the Taxpayer First Act of 2019 for technology upgrades. On top of that, the IRS is actively fighting against the increase in fraud and non-compliance brought about by COVID-19. The IRS is hoping to hire experts who can perform complex audits, investigations, and compliance checks on cryptocurrency using data analytics and other advanced technologies. IRS Criminal Investigation is increasing its use of artificial intelligence and data manipulation tools to find connections and patterns that wouldn’t necessarily be readily identified as a human being.

Like the IRS, business owners should be looking into leveraging data analytics and technology to help them make better data-driven decisions. The availability of useful information is constantly increasing, and many companies are changing how they look at their processes. By embracing real-time metrics and real-time forecasts, business owners will gain a greater understanding of how certain actions will affect their decisions.

From technology-based accounting solutions to management information, analysis, and reporting, Talley LLP is the premier business consulting firm for entrepreneurs and their closely-held businesses. For more information on how to leverage your business’s data technology, contact Talley today.

Let’s pretend for a second that the pandemic is a thing of the past and companies are keeping their promise of allowing remote work from anywhere in the world for a few months out of the year. Now, imagine a Londoner, a New Yorker, and a Hong Konger get together somewhere in Brazil. They all make the same $100,000 salary and have been approved to work remotely from Brazil for two months. Once they have finished business in Brazil and head home, who would owe the most in taxes?

That is the one question staff and employers have been trying to determine while discussing post-pandemic work arrangements. Although there is still a lot of uncertainty, the job market is tightening in many countries. Firms, startups in particular, are eager to entice new talent with remote-work options.

A decade ago, Uber, Facebook and Instagram were able to differentiate themselves from Wall Street firms by offering free lunches, kooky office setups, and casual dress codes. Now companies all around the world are formalizing and extending their COVID-era flexible work options; many with liberal limits on where employees can commute from and how long they are able to do it for. Many believe that this is a valuable lifestyle being offered that might be one of the only ways to hire good people.

Many companies are turning to outside firms to help with a remote workforce. These firms help with different human resource functions. Payroll startup Deel has seen a surge in demand within the last year for its services of managing staff abroad with a mixture of software, local accounting experts, and foreign exchange hedging. Work-from-anywhere policies present risks for staff and companies where governments are educating themselves with cross-border commutes and are in dire need of tax revenue. Many employees that work abroad, even for a few weeks, may find themselves liable for taxes overseas even though many countries have double-taxation agreements in place which avoid excess taxation. These policies, however, only apply to federal taxes, not city or state obligations that are common in the U.S or social-security liabilities common across Europe.

All things considered, the New Yorker may face the highest bill, while the Londoner may see no change. Although, this assumes that all three can fill out their Brazilian taxes on time and according to regulations. He also warns remote workers of the possibility of filling out multiple tax forms for different countries and losing benefits from tax treaties between jurisdictions.

It is estimated that the New Yorker would be paying $1,648 more than they would have if they stayed in New York. This is because Brazil’s flat tax rate of 25% for non-residents is higher than the U.S. federal tax rate of 24% and the state of New York, as well as New York City, does not provide tax relief for Brazilian liabilities. The Hong Konger may owe $1,334 for working two months in Brazil due to higher tax rates as well. Luckily for the Londoner, the 40% U.K. tax rate for their salary is higher than Brazil and the U.K. could provide full relief for the Brazilian taxes paid.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

The IRS’ focus is now on private wealth clients, hedge fund managers, and cryptocurrency traders who are fleeing to Puerto Rico in an attempt to escape President Biden’s proposed capital gains tax increases as well as take advantage of Puerto Rico’s significant tax breaks. In late January, the country’s tax collector quietly coordinated a campaign that examined individuals, dating back to 2012, who took advantage of tax incentives that were designed to lure high net-worth individuals and corporations to Puerto Rico. This campaign showed that about 4,000 mainland US residents and firms had moved between 2012 and 2019. This led to hundreds of millions of dollars in lost tax revenue for the U.S. government. The IRS is anticipating more audits now that the deadline has passed. Many tax attorneys that have advised clients on federal tax income issues with respect to Puerto Rico have already started receiving requests for information.

The taxpayers who may have excluded income subject to U.S. tax, or failed to file and report income altogether when they moved to Puerto Rico, are the biggest issue for the IRS at this moment. They are also targeting those who claim to be bona fide residents of Puerto Rico but may be claiming U.S. income to evade taxes. The IRS’ push is taking place as Biden’s proposed tax increases have triggered moves by America’s wealthiest from high-tax states such as New York and California. Hedge funds like Izzy Englander’s Millenium Management and ExodusPoint Capital Management have already moved to establish subsidiaries on the island.

Although campaigns by the IRS often take years to organize, agents can detect factual patterns that indicate a significant loss of revenue due to noncompliance. In Puerto Rico’s case, much of the focus will be on establishing whether individuals are truly island residents and whether they properly sourced income to Puerto Rico.

Unlike other IRS efforts, this campaign’s originated when Congress requested a report from the agency in their 2020 appropriations bill concerning Puerto Rico’s tax laws. The IRS’ report to Congress calculated that more than 1,924 applicants had been granted tax benefits under the Exports Services Act, formerly Act 20, as of March 2020. Act 20 offers entities a 4% corporate rate on business income and a 100% tax exemption on dividends. That provision, along with the Individual Investors Act, has now been consolidated into a new incentive law to attract individuals and investments to the island.

Individuals will have to prove their Puerto Rican residency to the IRS as a key factor in claiming the tax benefits. Meaning, taxpayers must live on the island for a minimum of 183 days annually every year to be considered a bona fide resident. Maintaining a residency in the eyes of the IRS goes beyond simply leasing an apartment in the popular Dorado Beach. It includes bringing your main possessions, joining local clubs, updating your voter registration status, moving with your spouse, and enrolling your children in the island’s schools. Although, moving doesn’t necessarily make someone exempt from filing U.S. tax returns; even if someone has qualified for tax incentives from Puerto Rico. Another detail to note is that only income from a Puerto Rico source is eligible for exemption, not a foreign source. In many of the audits, the New York Department of Taxation tries to determine an individual’s “true intentions.” This means a taxpayer must provide clear evidence that they’ve really moved to another state which includes the sale of their home in New York, closing any businesses, and relocating their belongings. Problems arise when people claim to have moved but can’t supply any supporting evidence.

Talley’s experienced team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your wealth and assets to the next generation. We welcome the opportunity to discuss the current options available to you. For more information, contact us today.

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