SALT TALK: Should State Apportionment of Income Change with Your Mood(y’s)?

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Nov 16, 2020 11:40:00 AM

When I was in law school, Constitutional Law and Tax Policy were my least favorite subjects. Little did I know I would grow up to be a SALT expert and these subjects would be the foundations of my chosen practice area. Not on a day-to-day basis, but as the essential foundation to everything we do.

While my eyes may have occasionally glazed over in class, I did manage to learn that tax policy is what makes the law and it isn’t the law that should be making tax policy. This distinction might seem subtle or nonexistent, but I think is illustrated in all its grandeur in a New York State ALJ Decision, In the Matter of Moody’s Corporation & Subsidiaries, (DTA Nos. 828094 and 828203, October 24, 2019.)

There were four separate issues in this case, but the focus will be on the apportionment of receipts to New York State by the taxpayer, Moody’s Investors Services (MIS). MIS is hired by issuers of corporate debt to perform what we all know as bond rating services used by the investment public in making decisions regarding the appropriateness and the risk of investing in specific debt issues. Both the Tax Department and the taxpayer agreed that MIS performs these services for debt issuers with commercial domiciles throughout the world, the services are “used” by investors throughout the world, but most of the activities (roughly fifty seven percent) in formulating the ratings are performed in New York State.

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TAX TALK: How Series EE Savings Bonds are Taxed

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 16, 2020 9:20:00 AM

Many people have Series EE savings bonds that were purchased many years ago. Perhaps they were given to your children as gifts or maybe you bought them yourself and put them away in a file cabinet or safe deposit box. You may wonder: How is the interest you earn on EE bonds taxed? And if they reach final maturity, what action do you need to take to ensure there’s no loss of interest or unanticipated tax consequences?

Fixed or Variable Interest

Series EE Bonds dated May 2005, and after, earn a fixed rate of interest. Bonds purchased between May 1997 and April 30, 2005, earn a variable market-based rate of return.

Paper Series EE bonds were sold at half their face value. For example, if you own a $50 bond, you paid $25 for it. The bond isn’t worth its face value until it matures. (The U.S. Treasury Department no longer issues EE bonds in paper form.) Electronic Series EE Bonds are sold at face value and are worth their full value when available for redemption.

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Topics: TAX TALK

TAX TALK: Tax Responsibilities If Your Business is Closing Amid the Pandemic

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 9, 2020 9:20:00 AM

Unfortunately, the COVID-19 pandemic has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of the various tax obligations that must be met.

Of course, a business must file a final income tax return and some other related forms for the year it closes. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements.

Sole Proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax. 

Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, “Partner’s Share of Income, Deductions, Credits, Etc.”

All Corporations. Form 966, “Corporate Dissolution or Liquidation,” must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.

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Topics: TAX TALK

T&E TALK: The Executor’s Role

Posted by Ada Clapp, J.D. on Nov 9, 2020 7:00:00 AM

If you have been named as an executor (or if you are choosing your own executor) it is important to understand the duties and responsibilities of this role. Today’s blog provides a broad overview of the process and responsibilities of estate administration. You should also understand that administering an estate responsibly requires a wide variety of skills including administrative, investment, legal, and accounting expertise. While you may not possess all of these skills, you should know that you may retain outside advisors to help you perform this complex role.

Overview of Executor’s Duties and Stages of Estate Administration

The role of an executor is to wind up the affairs of a decedent, collect the assets belonging to the decedent, satisfy the decedent’s claims, and distribute to the decedent’s beneficiaries the assets remaining after estate settlement. The course of the administration of a decedent's estate usually passes through a number of distinct stages:

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Topics: T&E TALK

TAX TALK: 4 Tax Issues Divorcing Couples Should Understand

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 2, 2020 9:20:00 AM

When a couple is going through a divorce, taxes are probably not foremost in their minds. But without proper planning and advice, some people find divorce to be an even more taxing experience. Several tax concerns need to be addressed to ensure that taxes are kept to a minimum and that important tax-related decisions are properly made. Here are four issues to understand if you’re in the midst of a divorce.

Issue 1: Alimony or Support Payments. For alimony under divorce or separation agreements that are executed after 2018, there’s no deduction for alimony and separation support payments for the spouse making them. And the alimony payments aren’t included in the gross income of the spouse receiving them. (The rules are different for divorce or separation agreements executed before 2019.)

Issue 2: Child Support. No matter when a divorce or separation instrument is executed, child support payments aren’t deductible by the paying spouse (or taxable to the recipient).

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Topics: TAX TALK

SALT TALK: Life Coaching, GPS or Tax Planning

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Oct 26, 2020 11:40:41 AM

What do these three items have in common? Depending on whom you ask, they can all help you find your way. Not knowing much about life coaching, and as a male being devoid of the gene to ask directions (even from an inanimate object), I tend to be most helpful providing direction in the form of tax planning.

In an earlier blog, I discussed the trend towards single factor apportionment formulas. Today, we will address its first cousin, market-based or customer-based sourcing. In the old-world manufacturing economy, it was easy to “find your way.” You sent thingamajigs[1] to your customer in Ohio and (very) generally speaking, receipts would be sourced to the thingamajigs’ destination, Ohio. So a New York- based manufacturer would get the benefit of apportioning a percentage of his or her tax base outside of New York and either to Ohio (if there was nexus in Ohio, a topic for at least another 100 posts) or possibly to nowhere.

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TAX TALK: Avoid the Pitfalls of Buying and Selling Mutual Fund Shares

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 26, 2020 9:20:00 AM

If you invest in mutual funds, be aware of some potential pitfalls involved in buying and selling shares.

Surprise Sales 

You may already have made taxable “sales” of part of your mutual fund investment without knowing it.

One way this can happen is if your mutual fund allows you to write checks against your fund investment. Every time you write a check against your mutual fund account, you’ve made a partial sale of your interest in the fund. Thus, except for funds such as money market funds, for which share value remains constant, you may have taxable gain (or a deductible loss) when you write a check. And each such sale is a separate transaction that must be reported on your tax return.

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Topics: TAX TALK

SALT TALK: Change of NY Domicile Successful by Dumping Old Girlfriend; Keeping Old Dog

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Oct 19, 2020 11:40:00 AM

In light of the current COVID-19-inspired flight from New York, it is worth revisiting the issue of change of domicile. A New York State Tax Appeals Tribunal Decision[1] held that a taxpayer successfully demonstrated, by clear and convincing evidence, a change in domicile from New York City to Dallas, Texas. The extremely well-reasoned Opinion is notable in recognizing the domicile change occurred through a complex series of events and not simply by one overt act. Rather than simply reiterating the Tax Department’s own Nonresident Audit Guidelines, (which, despite what an auditor may tell you, are not the law) the Tribunal looked to the precedential jurisprudence and reminded all that a change of domicile is a question of fact, not a question of law. The circumstances surrounding the changes can vary widely depending on the individual.

The details of the Opinion are way too complex to cover in this short space, but the series of events which evidenced the intent to abandon the old domicile and establish a new one included the termination of a relationship with his long-term girlfriend, changing career goals and circumstances, listing of his $2.4 million New York City apartment, renting a small apartment in Dallas, and culminated with moving his “large, senior dog[2]” to Dallas.

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TAX TALK: What Tax Records Can You Throw Away?

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 19, 2020 9:20:00 AM

October 15 was the deadline for individual taxpayers who extended their 2019 tax returns. (The original April 15 filing deadline was extended this year to July 15 due to the COVID-19 pandemic.) If you’re finally done filing last year’s return, you might wonder: Which tax records can you toss once you’re done? Now is a good time to go through old tax records and see what you can discard.

The General Rules

At minimum, you should keep tax records for as long as the IRS has the ability to audit your tax return or assess additional taxes, which generally is three years after you file your return. This means you potentially can get rid of most records related to tax returns for 2016 and earlier years.

However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income (AGI) by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So a general rule of thumb is to save tax records for six years from filing, just to be safe.

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Topics: TAX TALK

SALT TALK: New Jersey Enacts Millionaires Tax — Immediate Action Required

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Oct 12, 2020 11:40:00 AM

My colleagues Sarah Kim J.D., LL.M. and Ken Maeng, J.D. examine New Jersey’s recently signed fiscal 2021 budget which includes a so-called “millionaires tax” and will require immediate action by employers and high net worth taxpayers.

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