CCA

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