Included in Florida’s budget for fiscal year 2018 is an expansion of the state’s Sales Tax Credit Scholarship Program. Under the program, eligible businesses may receive a tax credit when they redirect their sales tax on commercial real estate leases to approved organizations that fund scholarships and job-training programs for eligible students throughout the state. The Department of Revenue (DOR) has already begun accepting applications from businesses, for which the state will allocate $57 million in available credits.
Tenants that occupy, use or are entitled to use commercial property may apply to the state to receive a dollar-for-dollar credit against the real estate rental tax they paid to a landlord when they make monetary contributions to an eligible scholarship-fund organization in the state that is exempt from federal income tax. Eligible organizations may include scholarship-funding organizations, such as Step Up For Students and Gardner Scholarships; private schools with students in grades K through 12; and accredited facilities that provide job-training services to persons who have low income, workplace disadvantages or other barriers to employment.
Timing is critical for businesses that wish to apply to allocate their tax credits to qualifying scholarship-funding organizations. While the DOR expects to receive numerous applications, it will allocate the $57 million in available credits on a first-come-first-served basis. Upon the DOR’s approval of an application, the agency will send a certificate of contribution to the business’s landlord, who will then reduce the tax that he or she collects from the business’s lease payments beginning on October 1, 2018.
With advance planning under the direction of experienced state and local tax advisors, businesses that pay commercial rent can apply to the Florida Sales Tax Credit Scholarship Program and realize potential tax savings while helping underprivileged children get the education they deserve.
About the Author: Karen A. Lake, CPA, is SALT (state and local tax) specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where she helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
About the Author: Karen A. Lake, CPA, is SALT (state and local tax) specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where she helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
Taxpayers have until Sept. 28, 2018, to avoid criminal prosecution and steep penalties when they coming forward voluntarily and share with the IRS previously undisclosed foreign financial assets. The IRS announced that on that date it will end the Offshore Voluntary Disclosure Program (OVDP) that it implemented to encourage reticent taxpayers to come into compliance with U.S. laws and pay their fair share of U.S. taxes.
The IRS first introduced an OVDP in 2009 to allow noncompliant taxpayers to come forward voluntarily to resolve their unreported income and assets. Consequently, more than 56,000 taxpayers have participated in the program and paid taxes, interest and penalties in excess of $11 billion. The agency reissued and updated the program several times, as recently as 2014, when the penalty for unreported assets held in certain foreign financial institutions investigated by the Justice Department was substantially increased.
Eligible taxpayers who unwillingly and unintentionally failed to disclose their foreign income and foreign assets may continue to use the Streamlined Filing Compliance Procedures (SFCP) as well as Delinquent International Information Return and Delinquent Foreign Bank and Financial Account (FBAR) Filing Procedures to meet their tax reporting obligations. For now, these programs remain in effect indefinitely. However, the IRS may choose to terminate them at any time.
The advisors and accountants with Berkowitz Pollack Brant work with domestic and foreign individuals and businesses to comply with international tax laws, maximize tax efficiency and reduce unnecessary compliance costs.
About the Author: Arthur Dichter, JD, is a director of International Tax Services with Berkowitz Pollack Brant, where he works with multi-national businesses and high-net worth foreign individuals to structure their assets and build wealth in compliance with U.S. and foreign income, estate and gift tax laws. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
In matters in which the IRS determines that a taxpayer is deficient in meeting his or her income tax liabilities, it is generally presumed that agency is correct. It is the taxpayer who bears the burden to prove the IRS wrong by a preponderance of evidence. In essence, the IRS can challenge any and all taxpayer claims to credits and deductions, even if the taxpayer is in fact entitled to them. Taxpayers must then show demonstrative proof to back up the tax treatment for which they claim they are entitled.
This was the issue before the U.S. Tax Court in February 2018 when the IRS challenged a Mississippi family’s deduction of $27,646 in expenses incurred to replace carpeting and make other routine maintenance repairs to rental units in real estate property that the family owned. The IRS issued the taxpayer a notice of tax deficiency and a related penalty contending that those repairs constituted a property “improvement” that the taxpayer should have written off and depreciated over time. The only proof that the taxpayer presented to prove that it properly deducted those expenses was a three-page list of its itemized repairs and associated costs.
The court subsequently ruled in favor of the IRS due to the taxpayer’s inability to meet its burden of proof and provide a preponderance of documents, records and other physical evidence to counter the IRS’s claim.
What could the taxpayer have done differently? According to the court, the taxpayer could have corroborated its position with records documenting the value of its properties before and after the repairs through appraisals, or inspection reports or lease contracts that stipulate the taxpayer’s requirement to make repairs in between tenants.
In light of the court’s decision, it behooves taxpayers to err on the side of caution and take extraordinary steps to prove their decisions to claim deductions, especially with regard to real property and the repair regulations. As a minimum, taxpayers should take before and after photographs and/or video of items that require repairs in order to demonstrate that the costs they incur are in fact a result of general property maintenance and not improvements, restorations and betterments to extend the property’s useful life or adapt it for a new or different use.
About the Author: Arthur Lieberman is a director in the Tax Services practice of Berkowitz Pollack Brant, where he works with real estate companies and closely held businesses on deal structuring, tax planning, tax research, tax controversies and compliance issues. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
The high times are over for cryptocurrency investors who thought their gains and profits from Bitcoin, Etherium, Ripple and other firms of virtual money could escape the watchful eye of Uncle Sam.
The IRS has made it clear that it considers digital money to be a physical asset subject to U.S. income taxes, and it will take all necessary efforts to uncover and criminally pursue digital currency tax evaders. In a recent development, Coinbase, the cryptocurrency exchange platform, announced it will comply with a 2017 district court ruling requiring it to share with the IRS the records of more than 13,000 of its customers who since 2013 bought, sold, transferred and stored more than $20,000 in digital currency for which an unreported tax liability may be due. As the IRS and other government agencies focus on regulating cryptocurrency, investors must understand how the tax code treats virtual money, and they must commit to meet their related tax responsibilities or risk criminal prosecution.
Taxable Events with Cryptocurrency
Cryptocurrency’s treatment as a capital asset means that taxes will apply whenever an investor does any of the following:
- sells digital currency for a gain
- converts it to cash
- trades it for another digital currency, or
- uses it like cash to buy a product or service at a point in time in which its value is more than the investor initially paid to acquire it.
The applicable tax rate depends upon several factors, including the holding period, which is the amount of time between when an investor acquires the asset and when the taxable event occurs.
For example, if an investor bought Etherium in 2016 and holds it for at least one year before selling it in 2018, he or she will be subject to a 20 percent long-term capital gain tax on the difference between the purchase price and the value of Etherium at the time of the sale. However, if the same investor cashes in his or her Etherium during the same year as acquisition, the realized gain would be subject to ordinary income tax, which, depending on the investor’s annual earnings and tax bracket, could be as high as 37 percent.
It is important that investors consider the wide fluctuations in cryptocurrency value that can occur before making any decision to use, sell or trade their Etherium, Bitcoin or Ripple tokens. Not only can timing help to minimize tax liabilities when investors sell or cash out their virtual money, it can also help investors avoid the mistakes of incurring taxes and paying outlandish prices when they use cryptocurrency to make purchases. For example, consider an investor who bought 100 Bitcoin on Jan. 1, 2016, when the value of one bitcoin was equal to approximately U.S. $433. If the investor purchases airline tickets with Bitcoin via Expedia on March 2, 2018, when one Bitcoin was equal to more than $11,000, he or she should first be concerned about overspending for the flight. In addition, he or she will also be exposed to capital gain tax on the $105,670 difference between his or her original cost basis and the value at the time of the taxable sale.
Conversely, individuals who invested in Ripple at the start of 2017 and maintained their holding without using, trading or cashing it in by the end of the year, will have reaped 36,018 percent tax-free returns on their investment. However, as soon as individuals use their digital money, they may realize a gain and be required to pay taxes on that amount.
Cryptocurrency Treatment as 1031 Exchange Property
Historically, taxpayers could defer capital gains tax on the sale of appreciated property when they reinvested sale proceeds from one asset into a similar, like-kind property within a specific time period. Under Section 1031 of the Internal Revenue Code, this tax treatment was available to real estate investors as well as to collectors of art, jewelry and other highly appreciated assets. Investors in cryptocurrency had also assumed that 1031 treatment would apply to them when they traded one cryptocurrency for another.
While taxpayers can argue such a claim, in theory, they will be surprised to learn that 1031 treatment is not so easy to apply in reality. For one, taxpayers are required to track and report 1031 exchanges on their federal tax returns and back up their claims with documentation. Therefore, an investor who bought and sold virtual currency multiple times throughout the year would need to file with their tax returns an equal number of Forms 8824 reporting their like-kind exchanges. If an investor had 500 transactions during the year, he or she would need to file 500 forms.
Secondly, with the passage of the Tax Cuts and Jobs Act overhauling the U.S. tax code, the government has made it clear the only asset that will qualify for tax-deferred 1031 exchange treatment beginning in 2018 is real estate. As a result, investors who trade Etherium for Bitcoin or Ripple for Litecoin will need to report those trades to the IRS, even if they do not realize a gain or loss. When a trade results in an actual gain, the difference will be subject to tax. Should a trade result in a loss, taxpayers may, under certain circumstances, use that deficit to offset capital gains of the same type and potentially reduce their overall taxable income for the year.
As U.S. and foreign governments rush to regulate the cryptocurrency craze and grab their share of taxpayers’ extreme market gains, investors should err on the side of caution and prepare to report all of their virtual currency transactions to taxing authorities. It is far better to be forthright and self-report than it is to be exposed by a government-authorized release of investor information.
The advisors and accountants with Berkowitz Pollack Brant work with U.S. and foreign individuals and business to help them comply with tax laws while maximizing tax efficiency across borders.
About the Author: Dustin Grizzle is an associate director of Tax Services with Berkowitz Pollack Brant, where he provides tax-planning and compliance services to high-net-worth individuals and businesses in the manufacturing, real estate management and property investment industries. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
Taxpayers with “seriously delinquent” unpaid federal income tax debt in excess of $51,000 may have their passports revoked in 2018.
Under the Fixing America’s Surface Transportation (FAST) Act of 2015, the State Department, upon notice from the IRS, is required to deny passport applications and passport renewals for individuals who have unpaid tax liabilities and for whom a federal tax lien has been filed. Excluded from the law are taxpayers who are located in a federally declared disaster area, who are in the midst of bankruptcy proceedings, or who the IRS identified as a victim of tax-related identity theft.
To avoid a potential passport issue, the IRS urges U.S. citizens traveling or living outside the country to determine if they have delinquent U.S. tax liabilities and, if they do, to take one of the following actions:
• Immediately pay the tax debt in full,
• Make timely payments under the terms of an installment agreement with the IRS,
• Pay the tax debt under an accepted offer in compromise or under the terms of a settlement agreement with the Department of Justice,
• Pay a levy and request a pending collection due-process appeal, or
• Make an innocent spouse election or request innocent spouse relief to suspend collection efforts.
Once the tax deficiency is resolved, the IRS will notify the State Department within 30 days to remove any restriction on an existing and pending passport application. The accountants and advisors with Berkowitz Pollack Brant help individuals and businesses maintain tax efficiency while meet their U.S. and foreign tax reporting responsibilities.
About the Author: Adam Slavin, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practices, where he provides tax planning and consulting services to high-net-worth individuals and closely held business. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.
