Legislative Update from Washington, D.C., & Valuable Tax Incentives. Presented by: Dean Zerbe

Transcription

1 Legislative Update from Washington, D.C., & Valuable Tax Incentives Presented by: Dean Zerbe

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3 THE ADVANTAGE OUR TEAM MARK W. EVERSON Former IRS Commissioner; alliantgroup Vice Chairman WALTER HARRIS Former IRS LB&I Industry Director; alliantgroup Director of IRS Practice and Procedure STEVEN MILLER Former IRS Acting Commissioner; alliantgroup National Director of Tax KATHY PETRONCHAK Former IRS Commissioner of SB/SE; alliantgroup Director of IRS Dispute Resolution JIM RAMSTAD Former U.S. Congressman and Chairman of the IRS Oversight Committee; alliantgroup Senior Advisor BLANCHE LINCOLN Former U.S. Senator; alliantgroup Director BOB RILEY Former Alabama Governor; alliantgroup Director KIT BOND Former Missouri Governor and U.S. Senator; alliantgroup Senior Advisor RICK LAZIO Former U.S. Congressman; alliantgroup Director DEAN ZERBE Former Senior Counsel to the Senate Finance Committee; alliantgroup National Managing Director DAWN LEVY Former Counsel to the Senate Finance Committee; alliantgroup Director BOB PRATZEL Former HOK CFO; alliantgroup Strategic Advisory Board Member JAMES FRANKEL Partner at Arent Fox LLP; alliantgroup Strategic Advisory Board Member

4 Dean Zerbe, J.D., LL.M. National Managing Director, alliantgroup Washington D.C. Former Sr. Counsel and Tax Counsel, Senate Finance Committee: Involved with almost every major piece of tax legislation alliantgroup s ultimate tax policy expert Tax Notes January 2013 finalist Tax Person of the Year Media go-to source for commentary on tax policy and other issues Columnist Forbes and Entrepreneur Magazine

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6 The Good News ASC on Amended Returns New regulations TD issued allowing the alternative simplified credit on amended returns Effective immediately Choose your path Part of alliantgroup s ongoing effort to help its partner CPA s and their clients. T

7 Extenders

8 Good Things But Then... R&D AMT Turnoff Start-Up 179D expansion Permanency (for some things)

9 Back to Earth One year extension (retro ) already over 179d; Accelerated Depreciation R&D 179D New Markets Credit WOTC -- no electric motorcycles (thank you)

10 Tax Reform

11 TAX REFORM Its Back! -- and alliantgroup is there. Testifying at first hearing on tax reform June 24, 2014 POLITICO PREVIEW: TODAY S FINANCE HEARING ON TAX CODE, STUDENT DEBT. The Senate Finance Committee kicks off its summer series of hearings on comprehensive tax reform this morning with a look at the role of the tax code in student debt. Among the witnesses: Mark Mazur, assistant secretary for tax policy at the U.S. Treasury Department, Tax Foundation president Scott Hodge, and the Amber Lee, a recent high school graduate who the committee says brings the issue to life. The hearing titled Less Student Debt from the Start: What Role Should the Tax System Play? is today at 10 a.m. in Dirksen room 215.

12 Tax Reform Where Are We? Camp International, Pass-Thrus, Financial Products Camp Gone Baucus Chopsticks for Gavel Wyden Minority New Team: Hatch and Paul Ryan Leadership Senate and House White House Business v. Corporate Revenue Neutral, Raise and Dynamic

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14 Tax Reform The Details Corporate taxes lower (but need to share the benefits of growth and pass-thrus) Eliminate deductions 199 -? Territorial System well maybe... Tax Pass-thrus (greater than $50 million) and S Corp (Edwards) Tax? Tax-Exempts (AARP) 179d Accelerated Depreciation Individuals cap for higher income on deductions Repatriation (carrot meet stick) Debt v. Equity Insurance Large Pass-thrus Carried Interest LIFO IC-DISC Extenders? Estate SO IS REFORM GOING TO HAPPEN?

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16 We horse around and deal with extenders at the end of the year.

17 Health Care -- ACA Not going away don t want better don t want to open up Not implemented Taxable payments for premiums Premiums/deductions for spouses / dependents What are you seeing? Medical Device Tax Supreme Court Case

18 Hot Topics in TCS OVDP / FATCA Offshore Accounts Credit Card SALT / Nexus Issues -- (Wynn Case SC) Automated Under Reporting Employee Independent Contractors Captive Insurance

19 So What To Do?

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21 Stop Crying and Find Tax Savings!

22 Research and Development Tax Credit

23 R&D Credit Extension Either end of 2014 or in reform Expanded? 38c/ASC turnoff you can help!

24 R&D Qualifying Industries Aerospace Agriculture Apparel & Textiles Architecture Beverage/Brewing Chemical Civil Engineering Construction Cosmetics Dairy Farming Defense Contracting Distillery Electrical Contracting Electrical Engineering Electronics Environmental Engineering Feed Mill Firearm/Ammunition Food Processing Footwear Foundry Furniture & Cabinet Manufacturing Gaming General Contracting Government Contracting Life Sciences Manufacturing Mechanical Contracting Medical Device Mechanical Engineering Metals/Mining Nuclear Engineering Oil & Gas Pharmaceuticals Poultry Product Engineering Process Engineering Semiconductor Shipbuilding/Marine Software/Technology Structural Engineering Telecommunications Tool & Die (Job Shops) Waste Management/ Recycling Winemaking

25 Research and Development Tax Incentives for the Architecture & Engineering and Construction Industry: Examples of Activities and Innovations Eligible for R&D Tax Incentives: Developing unique energy efficient features Developing innovative wastewater technologies Developing unique flashing details Developing new building elevations Designing a functional site plan to incorporate or overcome the site plan features Brownfield redevelopment Developing innovative designs for bridges and roadway structures Designing unique water treatment plants to optimize plant capacity or efficiency Designing innovative sanitary sewer systems for new residential communities Designing unique water pipeline and ancillary systems Designing innovative lateral force resistance systems for buildings Designing marinas to meet unique structural and load requirements Typically designing and developing activities (CAD, CAM) Typically not surveying or project management activities

26 Are you looking hard enough? Are you maximizing your benefit? Working with advisors who understand your client s business? Working with advisors experienced in your client s field? Audit Defense proven track record of success?

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28 Construction and General Contracting Tend to Qualify Tend to Not Qualify Means and methods and construction techniques development Structure and facility design for constructability Construction equipment development and improvement Structural steel detailing Building Information Modeling Budgeting and costing Project management Construction implementation Scheduling

29 Construction Case Study Mechanical Contracting R&D Tax Credit Annual Revenue: $94 MM Entity Type: LLP Credit Result: $43,200 29

30 Construction Case Study General Contracting R&D Tax Credit Annual Revenue: $19.9 MM Entity Type: S-Corp Credit Result: $177,300

31 Energy-Efficient Commercial Building Deduction

32 Energy-Efficient Commercial Building Deduction IRC Sec. 179D allows an immediate depreciation deduction of up to $1.80/sf for commercial buildings that achieve certain reductions in total energy and power costs with respect to Interior Lighting HVAC and hot water systems Building Envelope DO I HAVE TO BE REALLY GREEN?

33 What Types of Buildings? Commercial Buildings include: Typical commercial buildings retail, office, industrial Public or government-owned buildings Federal, State, or Local Govt offices, military bases, courthouses, post office, prisons, universities, schools, libraries, airports, police, fire, etc Multifamily structure that is at least 4 stories or higher LEED Certified Building Located in the U.S.

34 What Types of Construction? New construction AND renovations / retrofits of existing buildings can qualify Property must be certified Basis of property must be reduced by the deduction allowed Property placed in service between

35 Who Gets the Benefit? Whoever pays the cost for putting the energy efficient property into service Owner or landlord Tenant or lessee OR Designers of government-owned buildings This is the only green building incentive targeted towards designers

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37 Case Study Local High School Converted analog controls to direct digital controls on existing equipment Building automated system Variable fan drives Qualified for $1.80 per sq ft 81,515 square foot building Total Deduction Awarded: $146,727

38 Case Study Early Childhood Center Modeled HVAC & hot water systems, lighting systems, and building envelope Innovative use of insulated concrete foam Qualified for full building deduction Building envelope achieved 16% Qualified for $1.80 per sq ft 49,068 square foot building Total Deduction Awarded: $88,322

39 Interest Charge Domestic International Sales Corporation (IC-DISC)

40 Taxpayers do not need to suffer the loss of their export tax benefits! The American Taxpayer Relief Act of 2012 has locked in IC-DISC benefits permanently.

41 Who Can Benefit? Manufacturers-Parts as well Architects Engineers Computer Software Biggest problem not taking full advantage and not aware of audit guide

42 Audit Areas of Focus IC-DISC are clearly on IRS s radar Recent ATG focuses on the following: DISC Validation Qualification of Export Property DISC Commission Calculations 1120-IC-DISC Return Errors

43 IC-DISC Structure Must be a U.S. Corporation Want to incorporate in a state without corporate taxation (Delaware and Nevada are the most common) Can only have one class of stock with at least $2,500 of par or stated value on each day of the taxable year IC-DISC should open a bank account with more than $2,500 in said account Timely election to be treated as IC-DISC Must file Form 4876A (requires unanimous shareholder consent)

44 Taxation of IC-DISC and Shareholders Owner-managed exporting company creates a tax-exempt IC-DISC Exporting company pays IC-DISC a commission Exporting company deducts commission from ordinary income taxed at 39.6% IC-DISC pays no tax on the commission IC-DISC can pay a dividend in current or future tax year Shareholders pay income tax on dividend at the capital gains rate of 20% Dividends at 20% Tax Rate

45 Foreign Destination Requirement Sale or lease of property or services in question must ultimately be for use outside of the U.S. For architects and engineers, if you are working on a project that is planned for construction outside the U.S. you qualify

46 IC-DISC Case Study A&E Background: Industry: Architecture & Engineering Product: Design, Engineering Entity Type: S-Corporation Total Sales: $121,750,948 Total Exports: $15,060,162

47 IC-DISC Case Study A&E Services that help enterprises in industry, academia and the public sector create robust design and build solutions for mission-critical data centers. These services include solutions that accommodate evolving trends like cloud computing, skyrocketing demand from new applications, and increasingly important sustainability and energy efficiency goals. These services bring design innovation together with engineering excellence to create successful data center design, construction and commissioning solutions for clients of all sizes.

48 IC-DISC Case Study A&E Export Data: Qualified Export Sales $12,092,959 Export COGS $4,297,797 Export Deductions $3,894,556 Export Profits $3,900,606 Commissions: 50% FTI Method $1,951,114 Benefit (20% of Max Commission) $390,223

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50 Thank You. For more information or any questions please contact: Dean Zerbe Follow Dean on Forbes.com