Properly Document and Structure Your Professional Practice Management Fees
Dental, orthodontic, and other professional practices often use management fees to allocate compensation among professionals. This compensation strategy is sometimes tax efficient only if the management fee is tax deductible. The U.S. Tax Court recently ruled that a dental practice was not entitled to deduct purported management fees that the practice paid to a related, ESOP-owned entity because there was no indication that the entity actually performed services in exchange for the fees. Wiley M. Elick, Tax Court Memorandum 2013-139. The court also upheld the IRS's imposition of an accuracy-related penalty. Professionals who use management fees in their compensation plan should ensure that the relationship is properly structured and that services are well documented.
Categories: Income Tax
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June 30 Deadline to Apply for Temporary Misclassified Worker Settlement Program
If your business may have misclassified workers as independent contractors, consider applying for the IRS's temporary Voluntary Classification Settlement Program (VCSP) by June 30th. The VCSP allows eligible taxpayers who have misclassified workers as independent contractors to prospectively reclassify them as employees pursuant to a closing agreement with the IRS. The settlement terms are generous. To qualify for the permanent program, a taxpayer must have filed all required Forms 1099 for the previous three years and must meet other requirements. The temporary version of the VCSP waives the requirement that the Form 1099 filing requirement in exchange for the taxpayer paying a larger percentage of the employment tax liability that would have been due on compensation paid to the reclassified workers during the most recent tax year and paying a reduced penalty for failing to file Forms 1099. A taxpayer may apply for the temporary program by filing Form 8952 with IRS by June 30, 2013, writing “VCSP Temporary Eligibility Expansion” across the top of the form, and striking Part V, Line A3. See IRS Annotation 2012-45 for details.
Categories: Employment Tax & Withholding
Dischargeability of Personal Property Tax in Chapter 7 Bankruptcy
Bankruptcy statute 11 USC §524(a) prohibits the collection of debts that are discharged in a bankruptcy case. However, this does not apply to nondischargeable debts, which can be collected after a debtor receives a discharge, but not during a pending bankruptcy when the automatic stay under 11 USC §362 is in effect.
Dischargeability of personal property taxes varies on the type of bankruptcy case (or chapter). In a Chapter 7, unsecured priority personal property taxes are nondischargeable if: Read More ›
Categories: Personal Property Tax
Alternative Minimum Tax Permanently “Patched”
The Alternative Minimum Tax (“AMT”) was enacted in 1969 to ensure that high-income individuals paid at least a minimal amount of tax. The AMT operates parallel to the regular tax system and allows different deductions, credits, and exemptions. Read about the changes to the AMT ›
Categories: Alternative Minimum Tax, Income Tax
American Taxpayer Relief Act Summary
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law. Enacted to address the tax side of the “fiscal cliff,” the ATRA primarily addresses the expiration of certain portions of the Bush-era tax cuts. Below is a summary of the major tax provisions in the ATRA. Read More ›
Categories: Alternative Minimum Tax, Income Tax
Tribunal Holds that Bankruptcy Does Not Discharge Officer's Personal Liability for Unpaid Taxes
Certain officers may be personally liable for the unpaid taxes of a Michigan business. MCL 205.27a(5) imposes personal liability on those officers with tax paying responsibilities if a business fails to file a return or pay a tax due. As a general matter, an officer has "tax paying responsibilities" if he signs returns, files returns, or has the power to direct others to file returns or pay taxes. Read More ›
Categories: Corporate Income Tax
Arrow Energy v. Department of Treasury - Tax Tribunal Weighs In On Oil & Gas Issues
Foster Swift successfully reverses a $500,000 use tax assessment in Arrow Energy Services, Inc. v. Department of Treasury (MTT No: 404349).
Facts of Case
In 2008, the Department of Treasury audited Arrow Energy for use tax compliance. Arrow Energy is an oil and gas servicing company. During the period of the audit, Arrow Energy was primarily engaged in turnkey operations whereby Arrow Energy utilized subcontractors to construct production-ready natural gas wells for third parties. Read More ›
Categories: Use Tax
New Law Clarifies Withholding Requirements for Flow-Through Entities
Tax withholding requirements in Michigan are set forth in MCL 206.703. Every Michigan employer that is required to withhold federal income tax under the Internal Revenue Code is also required to register and withhold Michigan income taxes. Effective January 1, 2012, companies that pay pension and retirement benefits are also required to withhold Michigan income taxes on those payments to retirees. The withholding rate is generally 4.35%. Read More ›
Categories: Income Tax
Treasury Form 4913 for Quarterly Corporate Income Tax Payments
The Corporate Income Tax (“CIT”) took effect on January 1, 2012 and replaced the Michigan Business Tax (“MBT”) for most taxpayers, except those electing to continue the MBT to claim certain credits. The CIT consists of a franchise tax for financial institutions, a premium tax for insurance companies, and a flat 6% income tax for C Corporations and entities taxed as C Corporations for federal income tax purposes. As discussed in prior blog postings, the CIT does not apply to pass-through entities, such as LLCs or partnerships. Read More ›
Categories: Corporate Income Tax, Income Tax
Court of Appeals Clarifies Agricultural Exemption to the Use Tax
The Michigan Use Tax Act has several notable exemptions, one of which is the agricultural exemption. The agricultural use tax exemption covers “[p]roperty sold to a person engaged in a business enterprise and using and consuming the property . . . in the breeding, raising, or caring for livestock, poultry, or horticultural products.” MCL § 205.94(1)(f). This establishes two requirements for the use tax exemption: Read More ›
Categories: Use Tax
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