Federal

8-5-20

Movement Toward Tax Increases

You may have read last week that Democrats on the Senate Budget Committee announced they had reached a deal on a budget resolution that will enable them to bypass Senate Republicans on the way to enacting most of the “social infrastructure” programs called for under the President’s American Families Plan.[i] Significantly, after the announcement, Senator Manchin, who is not a member of the Committee, indicated he would not stand in the way of the budget resolution, thereby practically assuring its passage and the start of the reconciliation budget process.…

Continue Reading Employee-Shareholders, Reasonable Compensation And Employment Taxes

Not Good

As Mr. Biden settled into the White House, and as the Democrats began planning how to best utilize their slim Congressional majority to enact and pay for their sweeping legislative agenda, the principal concern among most owners of successful closely held businesses was Mr. Biden’s proposal to almost double the federal income tax rate applicable to the long-term capital gains recognized by an individual taxpayer.[i]…

Continue Reading Tax Increases in Sight? Time to Sell the Business? Focus on Economics

2-5-21

I Read the News Today

Much of today’s news is dominated by the future of the Administration’s broadly defined infrastructure plan. Discussions among “those in the know” inevitably turn into debates over the wisdom of pursuing the bipartisan legislative approach favored by centrists from both sides of the political divide as contrasted with the “go-it-alone through reconciliation” budget process being pushed by the more progressive wing of the President’s party.…

Continue Reading Tax Changes in the Offing? “Close Scrutiny” of Business Owners’ Economic Benefits Remains a Constant

What A Ride

No one anticipated that the Administration’s proposed tax increases would fly through Congress easily – at least no one residing in a state in which the recreational use of marijuana has not been legalized. Query, however, whether anyone foresaw the rollercoaster-like developments of the last several days.…

Continue Reading Partners, S Corp. Shareholders and Biden’s 2022 Revenue Proposal: No More Business as Usual

Recap

Last week, we considered several of the revenue proposals included in the Biden Administration’s 2022 Budget that are probably of interest – or should we say, “of concern”? – to the owners of closely held businesses.[i]…

Continue Reading Biden’s 2022 Revenue Proposal, Profits Interests, and The Alchemy of Compensation

Extra, Extra![i]

Last Friday afternoon, as millions of unsuspecting Americans prepared for the long Memorial Day weekend[ii] – for many, perhaps, their first mask-less holiday celebration in almost 15 months – the Biden Administration released its 114-page “Green Book” for the federal government’s 2022 fiscal year.[iii]…

Continue Reading The Biden Administration’s Revenue Proposals for Fiscal Year 2022: Tax Increases and Forced Recognition of Capital Gains

Tax Gap

In a report released last week, the U.S. Treasury Department explained that the so-called “tax gap” – i.e., the difference between the amount of federal income taxes owed by taxpayers for a taxable year and the amount actually paid for such year – “disproportionately benefits high earners who accrue more of their income from non-labor sources where misrepresenting is common.”[i]

According to the report, the largest contributors to this shortfall are the underreporting of income and the overclaiming of deductions on tax returns. These practices, the report continues, are prevalent among higher-income taxpayers with “opaque income sources,” among which the report includes sole proprietorships, partnerships and S corporations, rental real estate, and small C corporations;[ii] in other words, the owners of closely held businesses.

The President is relying upon the data in the Treasury’s report to pressure Congress into closing the tax gap, in part, by increasing the IRS’s enforcement capabilities, requiring more information reporting with respect to “opaque income streams,” and regulating tax return preparers.[iii]…

Continue Reading “Opaque Income Sources” + “Tax Gap” = More Enforcement + Tax Hikes = Anyone’s Guess

Dream Until the Dream Come True?[i]

Ask the owner of a closely held business to describe their most recently recurring nightmare and you are likely to get an earful regarding the prospect of an increased federal income tax on their profits, an increased federal tax on the long-term capital gain from the sale of their business, the imposition of a federal mark-to-market tax on the gain accrued in their business at the time of their death, and the imposition of a federal estate tax determined on the basis of a greatly reduced exclusion amount.[ii]

Basically, the worst parts of Mr. Biden’s tax proposals, as set forth in his American Families Plan.[iii]

Ask the same business owner to describe their fondest dream –  no, not that one –  and they may describe a scenario in which they sell their business for cash but, at the same time, are able to defer the recognition of the gain for many years.[iv]

Too Good to be True?…
Continue Reading Cash in Hand, Tax Deferral, Monetized Installment Sales: No, You Can’t Have It All

Go After Real Estate?

During the 2020 presidential campaign, there was one segment of the “rich” for which then-candidate Biden seemed to have reserved some of his harshest criticism – wealthy real estate investors. Moreover, the Democratic Party’s platform included several proposed changes to the Code[i] the impact of which would probably be felt most keenly by such investors.[ii]

Query the origin of this posture. Was it grounded – pun intended – in the Party’s association, rightly or wrongly, of the real estate industry with Mr. Trump?[iii] But how can this be reconciled with the sizable contributions made by industry leaders to Mr. Biden’s campaign and to political action committees that supported him?[iv]

Regardless of why candidate Biden identified the federal taxation of real estate as an example of what he described as the Code’s special treatment of the wealthy,[v] President Biden recently proposed that the Code be amended to limit many of the favorable provisions upon which real estate investors have long relied for purposes of evaluating the acquisition, operation, and disposition of investment properties.…

Continue Reading “Earth to Earth”: Real Estate, Death and Biden’s Tax Proposals

A Night to Remember?

Did you listen to the President’s speech last Wednesday? He addressed a joint session of Congress to pitch the Administration’s $1.8 trillion American Families Plan. Due to COVID-related restrictions, there were only about one hundred elected officials present in the House Chamber;[i] other invited guests brought the total in attendance to approximately two hundred.[ii]

The sparsely occupied room was to be contrasted with the targeted audience: the almost 27 million U.S. viewers who tuned into Mr. Biden’s speech, and whom he hoped to enlist in his effort to sway a closely divided Congress.[iii]…

Continue Reading The President’s Recent Tax Proposals: What Do They Mean for Business Owners?