Battle for the Tax Code

The Decades Long Battle for the Soul of America.

Appeals Court Judge Learned Hand vs President Roosevelt

Anyone may arrange his affairs so that his taxes shall be as low as possible. He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” Judge Learned Hand.

The history of the tax code boils down into a massive fight for the soul of America between two men, President Franklin Roosevelt and Billings Learned Hand, an American judge and judicial philosopher. who was an avid supporter of free speech and noted for applying economic reason to American tort law. Their battle ground was the tax code. Roosevelt fought for an autocratic approach to tax, and Judge Learned Hand fought for a democratic approach to the code more in line with the 16th amendment itself. 

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

But in addition to the wording of the 16th amendment, above, there was another consideration which Roosevelt did not like.  After Congress released the wording to be voted on by the nation, Congress became aware that the amendment would not pass. So they took out ads in newspapers all over the country saying,

“We will only tax profits.”

That did the trick; the 16th amendment passed; and the ad became part of the legislative intent requiring the courts consider that important limitation in any litigation.

Most of Learned Hand’s career he spent as a judge on the United States of Appeals for the Second Circuit. He was never nominated for the Supreme Court, despite being one of the most respected and accomplished jurists in American history, because Roosevelt hated him. 

This fight between these two men is responsible for the evolution of tax law into the backbone of the philosophy of America. Without a liberal tax code, America would not be the same. The battle was fought over the meaning of the 16th Amendment. The stance each man took was completely opposite the other man’s  Roosevelt favored ditching the democratic approach to taxation & the 16th amendment after 16th amendment was passed in 1913.  Over the entire battle, Roosevelt made the IRS became extremely, inducing Congress to create powerful judicial safeguards against the government. Hand was responsible for much of those protections.

Roosevelt was born in 1883 and died in 1946. Learned Hand was born in 1872 and died in 1961. Their careers and their influence overlapped each other. Although Learned Hand won the argument, the eventual result wasn’t obvious for years. Their result of their long battle was decisive in determining the extent of Presidential and government power.  Hand was one of the most influential jurists in American history, but he spent the entire apex of his career on the Court of Appeals. He was never nominated to the Supreme Court because Roosevelt hated him. Their battle was a fight to the death.

The Issues

Roosevelt’s position on income tax was he could do what he wanted with it. His administration was very aggressive on income tax. For his entire presidency, the top tax rate was between 80% and 90%. From 1934 to 1937, during a time when the top tax rate was 90%, Roosevelt carried out a tax trial charging Andrew Mellon with tax fraud, The prosecutor didn’t think the evidence supported Roosevelt’s position, but he prosecuted the case for four years and won the case. Mellon had to pay $600,000 is back taxes. You can read about it here.

Roosevelt was also generally opposed to tax deductions, including business tax deductions. He & Learned Hand fought over taxes and other issues until Roosevelt died. The battle ended with his death in 1945, and the results came in, in 1954 with the Supreme Court Case now referred to as Glenshaw Glass. That case provided the basic framework of the American tax system when it made the case that tax deductions had to be ordinary, necessary in pursuit of profits by a legitimate business.  Over time it evolved to …

“Tax deductions must be ordinary, necessary & reasonable in pursuit of profits by a legitimate business, and they must meet the additional tests of valid business purpose & economic substance”

Also in 1954, the issue was also dealt with by Congress in Section 162, Trade or Business Deductions, in much the same way the Supreme Court dealt with it.

Learned Hand is a legitimate American Hero. He saved the Republic. If the government could tax at high rates and no deductions, we would have a much different country today. Roosevelt’s tax policies were driving companies out of the U.S. for greener pastures overseas. But Learned Hand ended that. The same thing happened in the Obama administration, but tax reform is bringing U.S. dollars back from overseas.

Learned Hand is noted for applying economic reason to American tort law. Among his quotes are the following.

Top quotations about U.S. taxation. 

First. A given result at the end of a straight path is not made a different result because reached by following a devious path.  Minnesota Tea Co. v. Helvering, 302 U.S. 609 (1938).

Second. A transaction is to be given its tax effect in accord with what actually occurred and not in accord with what might have occurred. While a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not.  Commissioner v. National Alfalfa Dehydrating, 417 U. S. 134 (1974).

Third. Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)

Fourth. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes. Judge Learned Hand.

Fifth. Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

My favorite. “Anyone may arrange his affairs so that his taxes shall be as low as possible. He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” This is the essence of tax planning. Judge Learned Hand.

Genesis of the U.S. Tax System

Little Know Fact

Something very few people realize, the 16th amendment to the constitution created two tax systems, one for individuals and and one for businesses. And there’s a world of difference between them.

After proposing the new amendment, Congress began to worry that the amendment wouldn’t be ratified by the states. The issue was the way it was worded.

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.”

The specific language causing the concern was, “collect taxes on incomes from whatever source derived.” The concern was, the way it was written included money borrowed & the proceeds when selling at at loss in income subject to taxation.  Obviously, Congress had a good reason to be worried. So at the last moment, Congress took out ads in newspapers all over the country promising to ‘tax only profits’.

That relieved an uneasy electorate and the amendment passed unanimously among all the states that voted. Voters weren’t opposed to income tax, they were opposed to an unreasonable tax.

The 16th amendment was subsequently ratified by the Supreme Court in ‘Glenshaw Glass’ and added to the tax code in section 162 of the 1954 tax code. In their deliberations, both the Supreme Court & Congress considered those ads as ‘legislative intent’. Courts have subsequently looked back at those ads to determine Congress’ intent. Intent is crucial to determining how the law will be interpreted and enforced.

In the final analysis, this created two tax systems, which I will explain in my next post.

 

Apple: Best Company in the World?

The evidence is pretty clear to me, Apple is the best company in the world. If there was a hall of fame they would be the first inductee. Their computers, iPhones, etc. are arguably the best products in the world. But on the flip side of that, from what I can tell, they are the best in the world at tax avoidance. Whatever you think of their products, that’s a one, two punch that’s hard to overlook.

NEW YORK-JULY 24 – The Apple logo on the glass of the Apple Store, Fifth Avenue on July 24 2015 in Manhattan.

One of the biggest costs any Global company has to deal with is tax. There’s 50 different states and 200 different countries with different tax rates. Apple has been the absolute best at avoiding overseas tax (& state tax) since Jobs returned to Apple in 1997. Maybe longer.

Their overseas tax has essentially been zero for the entire time. They manage that with the techniques we describe in the following services on our website: Intellectual assets, interstate taxation & international taxation. That isn’t a coincidence. Ever since I saw a GAO article about multinationals paying less tax at lower rates than privately owned businesses, I have been studying Apples & other multinationals’ tax practices. Obviously, they are not advertising this stuff, but every now and then something happens that allows me to see behind the curtain. This article resulting from a leak of secret documents from Apple’s attorneys is one of them.

Their famous Double Irish with a Dutch Sandwich cut foreign sales outside the U.S. to zero tax until 2015. That arrangement became public in 2013 when Congress held Congressional hearings and Ireland was forced to alter their taxation practices. They restructured their tax strategies in 2014. If something happens again, they’ll restructure yet again. There’s too much money on the table to be lackadaisical about it.

Note. Apple’s Irish subsidiaries claimed that almost all of their income was not subject to taxes in Ireland or anywhere else in the world. And rightfully so. They were right. The Irish government agreed with them. They did nothing wrong. No charges were ever brought. But the EU got involved and Apple had to abandon the Double Irish tax strategy for (an island of Jersy) tax strategy.

This is about as important as it can get. Without out the billions they saved in overseas tax, Apple would never have become the most valuable business in the world. Neither would Google, Facebook, Caterpillar, etc. have achieved their massive valuations. I refer to Apple and other multinationals as businesses rather than a companies, because each of them have multiple companies under their umbrella. No multinational is a single company.

A leak of secret corporate records reveals some interesting things. By quietly transferring trademarks, patent rights and other intangible assets to offshore companies, global businesses cut their tax bills dramatically. Also, Apple’s attorneys mailed 14 questions for their attorneys’ offices in the Cayman Islands, the British Virgin Islands, Bermuda, the Isle of Man, Guernsey and Jersey, asking them to “confirm that an Irish company can conduct management activities . . . without being subject to taxation in your jurisdiction.” Apple also asked for assurances that the political climate would remain friendly: “Are there any developments suggesting that the law may change in an unfavorable way in the foreseeable future?”

For more interesting tax information you probably don’t know, visit our website [https:/elliscpafirm.com] or our blog [https:/bizztrategy.com].

We do the same things, absent agreements with tax jurisdictions for privately owned companies. If you qualify, you could save hundreds of thousands of dollars a year. Or, if you’re not that big, you could save thousands or tens of thousands of dollars. Apple saved billions.

 

 

CA reverses Tax Court’s decision to deny anonymity to serial whistleblower.

Whistle blower

Help them cheat, then turn them in?

I knew there was such a thing as an IRS whistle blower, but i didn’t know it was it’s own cottage industry. Which it apparently is. But I’m really having a hard time figuring out how it worked.

GINSBURGSenior Circuit Judge.

“The Appellant asked to proceed anonymously before the Tax Court when challenging the decision of the Internal Revenue Service (IRS) to deny his application for a whistleblower award. The Tax Court denied his request, concluding the balance of interests weighed against anonymity because the Appellant is a “serial filer” of whistleblower claims, which he bases upon publicly available information. The Tax Court’s rationale was that if it does not “identify serial filers by name, the public will be unable to judge accurately the extent to which the serial filer phenomenon has affected the work of the Tax Court.” Whistleblower 14377-16W v. Comm’r, 148 T.C. 510, 518-19 (2017).

Read more here.

My experience with cheating clients

If you’ve ever had clients tell you how to do your job, you can probably relate to this. Of course when it comes to taxation, it involves criminal charges with jail sentences. So I don’t go there. This year, I had a fairly successful client in the cannabis industry that tried to talk me into cheating in three different ways.

  1. First, he wanted to deduct ah investment he made in a company that was still operating and paying taxes. He claimed, probably correctly, he paid more than it was worth and wanted to deduct the difference. That would work for GAAP, but not for taxes. For tax, that’s a violation of law.
  2. Second he found a tax preparer who was willing to play loosey-goosey with 280(e), which limits the deductions that a cannabis business can deduct. He told me top notch cannabis preparers were paying less attention to 280(e). I checked around and some of the top people in cannabis taxation said it was bullshit, as I expected. It ‘s against the law to ignore 280(e). Of course you can do all kinds of things with 280(e), but you can’t just ignore what it says.
  3. Third, he wanted us to deduct accrued interest in a cash basis company. Accruals can only be deducted in an accrual basis company.

In everyone of those situations, I could lose my ticket. All of them involved thousands or hundreds of thousands of dollars in tax.

I refused, he got angry, left and started bad mouthing me.

Summary

If an accredited tax preparer helps a client cheat, they are both liable. The taxpayer for preparing a false return, and the taxpayer for providing false information.  If the client lies to the tax preparer and fails to product the documents, the tax preparer is still liable for not getting the documents. I see no way the tax preparer escapes unscathed.

How it should work

If someone goes to a tax preparer with the intention of cheating, it is the tax professional’s responsibility to tell the taxpayer(s) they could go to jail for cheating. If they persist, the tax preparers should resign from the engagement.

Something else that surprises me is this. The whistle blower bases his claims on “publicly available information.  I’m not sure what that means. Apparently this guy was a tax preparer and used publicly available information to turn in his clients for a reward.

This does not sound like the entire story. i’m guessing there is more here than meets the eye.

And why would the preparer want anonymity?

I have no inkling what the underlying facts are in the court case that started this blog post off. It raised some interesting issues that I don’t understand how the preparer got around. Of course, I’m not going to turn my client in, but I wouldn’t feel bad if someone else did.

One other thing.

I know a person who was very high profile in American politics that was convicted of tax fraud 15 years ago, and he is still in prison. He is likely to die there.

Don’t go there.

A better approach that I suspect is used from time to time, is to simply not pay your taxes. Wait a few years and settle for pennies on the dollar. I don’t ever advise that, but I know it happens.

 

 

 

Court of Appeals Reverses Tax Court Decision re Stock-based Compensation

Court of Appeals 9 (CA 9) upholds stock-based compensation cost-sharing reg again

(From RIA)

Altera Corporation and Subsidiaries v Commr., (CA 9 06/07/2019) 16-70496

The Court of Appeals for the Ninth Circuit, reversing a Tax Court decision, has upheld the validity of a reg under Code Sec. 482that requires controlled entities entering into qualified cost-sharing agreements (QCSAs) to share stock-based compensation (SBC) costs. A dissenting opinion rejected the reg, for similar reasons as those in the Tax Court decision.

Background-allocation of income and deductions among taxpayers. Code Sec. 482 authorizes IRS to allocate income and expenses among related entities to prevent tax evasion and to ensure that taxpayers clearly reflect income relating to transactions between related entities.

Under Code Sec. 482 in the case of any transfer or license of intangible property between controlled entities, IRS may allocate income, deductions, credits, or allowances between the entities to prevent the evasion of taxes or to clearly reflect income. Congress amended Code Sec. 482 in ’86 to provide that consideration for intangible property transferred in a controlled transaction must be commensurate with the income attributable to the intangible. Background-allocation of income and deductions among taxpayers. To achieve a clear reflection of each entity’s income, IRS considers what each entity’s income would be had the controlled entities been dealing with each other at arm’s length. (Reg. § 1.482-1(b)(1) ) In Xilinx Inc. and Subsidiaries, (2005) 125 TC 37, the Tax Court rejected IRS’s Code Sec. 482 treatment of employee stock options under a taxpayer’s cost-sharing arrangement with its subsidiary.

The Court determined that the then-applicable ’95 regs did not authorize IRS to require the taxpayers to share the spread or the grant date value relating to employee stock options under the agreement. The Ninth Circuit affirmed the Tax Court’s decision that controlled entities entering into QCSAs need not share SBC costs because parties operating at arm’s length would not do so. (Xilinx Inc. and Subsidiaries, (CA 9 3/22/2010) 105 AFTR 2d 2010-1490)

In 2003, IRS issued new final regs on cost sharing arrangements. Under the regs, controlled participants must share intangible development costs in proportion to their share of reasonably anticipated benefits. Reg. § 1.482-7A(d)(2)(ii) (the final rule) explicitly requires controlled parties entering into QCSAs to share SBC costs. SBC includes restricted stock, nonstatutory stock options, statutory stock options, stock appreciation rights, and phantom stock.

Background-determining validity of regs. In Chevron U.S.A. Inc. v. Natural Resources Defense Counsel, Inc., (Sup Ct 1984) 467 U.S. 837, the Supreme Court set out a two-step analysis for a court to apply in reviewing an agency’s construction of a statute that it administers: (1) if the intent of Congress is clear, IRS and the courts must give effect to the unambiguously expressed intent of Congress; (2) if the statute is silent or ambiguous as to a specific issue, the question for a court is whether the agency’s answer is based on a permissible construction of the statute. An agency’s regs are given controlling weight unless they are “arbitrary, capricious, and manifestly contrary to the statute.”

The Administrative Procedure Act (APA) requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or “unsupported by substantial evidence.” (5 U.S.C. § 706(2)(A), 5 U.S.C. § 706(2)(E)) In Motor Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., (1983) 463 U.S. 29, the Supreme Court said that Treasury must provide a reasoned explanation for adopting a reg. Specifically, State Farm requires Treasury to articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choice made.

2015 Tax Court decision. The Tax Court held that Reg. § 1.482-7A(d)(2) was invalid because it failed to satisfy State Farm ‘s reasoned decision-making standard. (Altera Corporation and Subsidiaries, (2015) 145 TC 91)

CA 9 reversed, upholds reg. The Court of Appeals for the Ninth Circuit, on July 24, 2018, reversed the Tax Court and upheld the reg. It said that IRS’s rule-making complied with the APA, and its reg is entitled to Chevron deference. A dissenting opinion would have rejected the reg, for reasons similar to those of the Tax Court. (Altera Corporation and Subsidiaries v. Comm., (CA 9 7/24/2018) 122 AFTR 2d ¶2018-5068)

One of the judges that was part of the majority in the case died after oral arguments in October 2017 but before the decisions were released in July 2018.

CA 9 withdrew its opinion. The Ninth Circuit withdrew both the majority and dissenting opinions filed on July 24th, allowing time for a “reconstituted panel” of judges to confer (i.e., with a new judge taking the place of the deceased judge).

CA 9 upholds the regs again – The court first held that the reg did not exceed the authority delegated to IRS under Code Sec. 482. The court also explained that Code Sec. 482 does not speak directly to whether the IRS may require parties to a QCSA to share employee stock compensation costs in order to receive the tax benefits associated with entering into a QCSA.

The panel held that the Treasury reasonably interpreted Code Sec. 482 as an authorization to require internal allocation methods in the QCSA context, provided that the costs and income allocated are proportionate to the economic activity of the related parties and concluded that the regulations are a reasonable method for achieving the results required by the statute. Accordingly, the regulations were entitled to deference under Chevron.

Finally, the reg at issue was not arbitrary and capricious under the Administrative Procedure Act (APA). The court found that while the rulemaking process was less than ideal, the APA does not require perfection. The court found that the IRS understood Code Sec. 482 to authorize it to employ a purely internal, commensurate with income, approach where comparable transactions are not comparable. In light of the statute’s plain text and the legislative history, the IRS also reasonably concluded that Congress intended to hone the definition of the arm’s length standard so that it could work to achieve an arm’s length standard so that it could work to achieve an arm’s length result, instead of forcing application of a particular comparability method. In addition, the court found the IRS understanding of its power to use methodologies other than a pure transactional comparability analysis was reasonable and, therefore, deferred to its interpretation under Chevron.

References: For qualified cost-sharing arrangements, see FTC 2d/FIN ¶D-1155United States Tax Reporter ¶4824.05.

Tax Fraud

 

Before diving into this very interesting newsletter, I want to make it absolutely clear that we don’t go anywhere near the dreaded grey areas that can be interpreted as tax fraud, or even attract an audit. We stay right smack dab in the middle of the tax code. We utilize only approaches that have already been litigated and given the seal of approval by the courts and the IRS.

Everything we do is completely legal. We probably have the lowest audit rate in the country, and we have never had a bad outcome on audit, or “lost” an audit. The first thing we consider in preparing a return, is the likelihood of audit. Nearly every one of the returns we file are doing nothing to attract an audit. If you were, we would talk to you about it.

I am not sending you this newsletter to frighten you, or for any particular purpose besides your enlightenment & entertainment.

Enjoy.

The Importance of Evidence

An IRS agent’s decision to request an indictment for tax fraud is virtually never determined by negotiations between your lawyer or tax professional and the IRS, the Department of Justice or the United States Attorney’s office. The decision is seldom influenced by your perceived cooperation during the investigation or whether you have been a “good guy.” The decision is almost always based upon evidence and the strength of the case. In other words, whether they think they can win. The Tax Division of the Department of Justice frowns upon losing any criminal tax trial. A loss by the government does not promote their objective of voluntary compliance nationwide. So the IRS only brings cases to court that they expect to win.

Too many lawyers and accountants try to “cooperate” and treat a criminal investigation as they would a civil tax audit. The results are far too often tragic. By the time they realize their mistake, it is too late. When the IRS informs you they are opening an criminal case, pull out all your guns, close down all cooperation and go to war. It’s too late to talk. Cooperating will just be used against you in court.

Here’s another problem. Incompetent lawyers.

It is estimated that 90% of all criminal lawyers have never won a criminal tax jury case for the defense. For this purpose “win” means the jury found the taxpayer NOT GUILTY on ALL COUNTS. Many lawyers claim they have won cases but, when you look closely at the cases they cite you will find that they won a few counts but lost the remaining counts in the indictment. Often their clients were sentenced to serve substantial amounts of time in jail. This is hardly a victory for the taxpayer client. A true win for the taxpayer only occurs when all counts are either dropped by the government, dismissed by the Court, or result in not guilty jury verdicts.

IRS Conviction Statistics

The IRS published statistics reveal that approximately 80% of criminal tax investigations result in an indictment. More than 90% of indictments against taxpayers result in a conviction. Investigations are conducted by highly trained criminal division special agents.

During the past 18 years (1999 through 2016) only a modest number of taxpayers won their criminal tax trial and were found NOT GUILTY on all counts. The number of taxpayers acquitted during the past 18 years is as follows:

56 in the Northern Region

62 in the Western Region:

81 in the Southern Region:

Another consideration is this: sometimes your lawyer or tax professional helps you cheat. Sometimes your lawyer or tax professional even comes to you with a tax scam.

For instance.

Another article to read.

A Big 4 firm fell into that trap a few years ago. They actually marketed something that turned out to be illegal. Several partners went to prison. Just remember this, if it sounds too good to be true, it probably is.

There are two ways to select a tax professional: by relationship or by results. Most businesses select tax professional according to relationship because tax firms that regularly deliver better results don’t grow on trees. That is where we try to operate, in the rarefied air of easily measured concrete results.

Robert Ellis
Ellis CPA Firm PC
970.241.5040 voice
970.241.5040 text
970.242.1980 fax

Resurrecting Newsletter

New York Times: “Tax documents show Trump businesses lost more than $1 billion in a decade.” https://www.cnn.com/2019/05/07/politics/trump-tax-returns-losses/index.html.

I’m certain that’s the truth.

It is not uncommon for persons or businesses that continually invest in real estate to show tax losses. It makes no difference whether it’s rental houses or Trump hotels. The normal process for rental properties is to incur tax losses in the early years and taxable profits in later years. Two reasons: 1-rents start out low and increase every year. They are lowest in the first years and increase with time. 2-Interest is just the opposite. Interest is high initially and declines over time, creating tax losses in the early years.

The combination produces tax loses in the early years and tax profits in the later years. This is the nature of the beast. Every rental property goes through this process.

It’s common to incur taxable losses in the first ten years, essentially break even in the second ten years, and taxable income in the last ten years of a 30 year mortgage. If this process is allowed to continue unabated, eventually large amounts of taxable income will be generated, and large amounts of tax will be paid. In addition, if you hold a property too long, the value begins to decline. If you hold real estate too long you may actually lose money while incurring taxable profits that you have to pay tax on. (Caveat, unless you live in California where abandoned garages cost a million dollars.) In other words, you could owe taxes for going bankrupt. In my opinion, unless it’s an uncommon property, or a California property, you have to dispose of it before it starts to decline in value.

If you are constantly selling properties as they become inefficient, as I recommend, it is very difficult to maintain losses for ten consequence years. But it’s not impossible if you are continually increasing your holdings. However, the article may have been referring to the NOL (net operating loss carry-over) that Trump inevitably had throughout the ten years.

Bits & Pieces of tax law.

IRS’s Dirty Dozen scams — 2019 edition – The IRS highlighted the 12 abusive tax schemes it wants taxpayers and tax practitioners to be on the alert for this year. Phishing and scam phone calls were the biggest repeat offenders. Includes R&D credits. – Low income fraudulently claiming credits. – If you have money overseas, report it or face very large penalties. – Frivolous schemes. _ conservation easements. – Abusive tax shelters.

Optimizing residential real estate deductions – The new Sec. 199A safe harbor and tangible property regulations offer ways for landlords to reduce taxable income from rentals.

Avoid tax traps with a timely appraisal – New basis-consistency requirements make defensible valuations even more important.

Appeals court denies taxpayers’ attempt to revoke NOL election – The fact the taxpayers’ preparer made the Sec. 172(b)(3) election without their knowledge did not justify its revocation.

Can a state tax a trust based on the beneficiary’s residency? – The U.S. Supreme Court heard oral arguments in a case that will decide whether states can tax trusts based solely on the fact that a trust beneficiary lives in the state.

Robert Ellis, Ellis CPA Firm PC, 970.241.5040 voice, 970.778.1955 text

 

Intellectual Assets

 

  • Trade secrets
  • Trademarks
  • Copyrights
  • Patents
  • Web sites
  • Customer database
  • Social media accounts

Among the devices most overlooked by privately owned businesses for tax planning, estate planning & asset protection is the use of Intellectual Property.

This Act that made it all possible.

“Today, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, bringing trade secrets alongside trademarks, copyrights and patents as intellectual property rights protected under federal law.” May 23, 2016.

Intellectual property is a term for intangible creations of human intellect. In businesses that often takes the form of patents, copyrights, web sites, trade name, business name, URLs, copyrights, trade secrets, customer lists, etc. Privately owned businesses seldom recognize & value them. Every business has unrecognized intellectual property. Failing to recognize your intellectual assets puts it at risk, makes you more susceptible to audit and increases your income tax. Most businesses never recognize or value intellectual assets. As a rule of thumb, we often recognize & value intellectual assets for tax planning, estate tax planning and asset protection. Generally we move the specific assets, now documented, out of the operating company and place then in another company which is less at risk of lawsuit & seizure by a hostile actor. Your personal name and your operating company are both bad choices to hold intellectual assets.Done right, it is possible to suffer a debilitating lawsuit and open up the next day with little more than a hiccup.

  • We will use intellectual property for tax savings
  • We will use intellectual property to protect vital business assets
  • We will use intellectual property for greater maneuverability.
  • We will identify your intellectual property
  • We will formally recognize your intellectual property
  • We will move intellectual property from risky operating entities to safer property holding entities’
  • We will document intellectual property.
  • We will value intellectual property.
  • We will establish royalty rates.

The goal is, even if you lose a tremendous lawsuit, you will be able to open up the next day with all your vital assets in place without missing a beat. This is also a great estate planning tool & a great tax planning tool.