Taxes and Tax Reform- The Road Ahead. Presented by: Dean Zerbe. alliantgroup,lp

Transcription

1 Taxes and Tax Reform- The Road Ahead Presented by: Dean Zerbe alliantgroup,lp

2 Dean Zerbe, J.D., LLM National Managing Director- alliantgroup Washington, D.C. Dean Zerbe is National Managing Director for alliantgroup and is based out of alliantgroup s Washington D.C. office. In this role, Dean is responsible for, among other things, monitoring tax-related legislative activity in Washington to help keep our clients and staff informed and help direct alliantgroup s service offerings to ensure we are meeting client needs. Prior to joining alliantgroup in February, 2008, Dean was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance, where he worked closely with the Chairman (and currently Ranking Member) of the Finance Committee, Senator Charles Grassley (R-IA) on tax legislation. Former Sr. Counsel and Tax Counsel, Senate Finance Committee: Involved with almost every major piece of tax legislation alliantgroup s ultimate tax policy expert Focused on federal and state tax credits and incentives, and U.S. tax policy Media go-to source for commentary on tax policy and other issues

3 Who is Dean Zerbe? Who is Dean Zerbe? Senior Counsel and Tax Counsel what does staff do? (hearings/draft/jct/oversight/senators) Senate Finance Committee Senator Grassley (Chairman) Small Business Committee Senate Attorney LS&C

4 - Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L ) - Job Creation and Worker Assistance Act of 2002 (Public Law ) - Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law ) - Working Families Tax Relief Act of 2004 (Public Law ) - American Jobs Creation Act of 2004 (Public Law ) - Katrina Emergency Tax Relief Act of 2005 (Public Law ) - Gulf Opportunity Act of 2005 (Public Law ) - Tax Increase Prevention and Reconciliation Act of 2005 (Public Law ) - Pension Protection Act of 2006 (Public Law )

5 Tax Politics 101: Elections matter -- House Republicans: - Origination - Majority Rules Senate Democrats (53 Votes) - Bipartisan - 60 Votes Rules

6 Tax Politics 101: Does Scoring Still Matter? Yes and No Offsets now Republican House wants them for (some) tax. How does it all work the Role of Joint Tax?

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8 Tax Reform Is this going to happen?

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10 Tax Reform Is this going to happen while you are still practicing? NOW Everyone loves tax reform Same bed dreaming different dreams What needs to happen - A Plan (a detailed plan) -- The Treasury Secret Plan - A Campaign - A Winner Deficit Commission Joint Committee

11 Tax Reform The ideas? Cain (27% uncapped payroll tax) (no death/cap) Perry 20% flat tax; 12,500 per person deductible, below 500k mortgage, charity, corporate 20% -- no death/long-term cap tax Obama unreleased Treasury Paper Camp proposal International to start revenues/progressivity/growth

12 Tax Reform -- alliantgroup 1. Tax reform for businesses must benefit all business, not just the Fortune 500 companies.. 2. Ensure that small and medium businesses can take equal advantage as large corporations when it comes to credits, deductions and incentives for business. 38c 3. Greater certainty in the tax laws would be of significant benefit to small and medium businesses. 4. Simplification of the tax laws would also be most welcome to small and medium business owners as well as their accountants. 5. Improve taxpayer rights for small-business owners. 6. For purposes of long-term economic growth, we need to continue to encourage innovation and new business 7. The tax code needs to encourage investment in new business YOUR IDEAS?

13 Tax Reform IF you had tax reform... Corporate taxes lower (but need to share the benefits of growth) Eliminate deductions 199 Territorial System Tax Pass-Thrus (greater than $50 million)? Tax-Exempts (AARP) VAT? Individuals Repatriation (carrot meet stick) Debt v. Equity Cap on deductions individuals? What do you do with NOLs / AMT? BIG ISSUE CAN T HARM PASS-THRUS CAMP & UPTON AND SUPERCOMMITTEE --WHAT HAPPENED? SO..IS REFORM GOING TO HAPPEN THIS CONGRESS?

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15 Taxes Today JOBS BILL CONTINUED PAYROLL HOLIDAY -- Increased to 50% EMPLOYER PAYROLL HOLIDAY 50% reduction first $5 m in payroll ANY INCREASE IN PAYROLL UP TO $50 M NO PAYROLL TAX VETERANS HIRE AND NEW HIRE (UNEMPLOYED 6 MOS 4K) ACCELERATED DEPRECIATION AND 179 3% withholding 38c? PAYFORS 5.4% Millionaire (MAGI) Oil and Gas Carried Interest LIFO 200/250k limitation on deduction IRS no longer tiered, shift to small and medium, UTP, Importance of Right Start, Bate-Stamps Fast-Track r and d firms without tcs

16 Taxes Tomorrow After the Election Three Scenarios -- samson scenario? Estate/Death Tax $5 / $5 and 35%. $3.5 and 45%. $1 million and 55%. Top Rates Overall Bush tax cuts (and don t forget Obama expansion) Capital Gains/Dividends (IC-Disc) AMT Extenders Health Bill BUT 3.8% tax increase from health bill 1/1/13 (200k/250k) OI/ Dividends/ Cap Gains Sales/Use Tax - remote What do you tell your clients who want answers?

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18 Stop Crying and find tax savings!

19 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

20 What types of Buildings? Commercial Buildings includes: 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.

21 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

22 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

23 Don t I have to be really green?

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25 8 Different Ways to Qualify Placed In Service Requirements for Full Qualification 50% Reduction Requirements for Partial Qualification Envelope HVAC Lighting Rule 16 2/3% or 10% 10% 16 2/3% or 20% 20% 16 2/3% or 20% 20% Interim Lighting Rule 25% to 40% Reduction in LPD (50% for warehouses) Tax Deduction $1.80/sf $0.60/sf $0.60/sf $0.60/sf $0.30 to $0.60

26 Get Certified Obtain a certification with respect to the property Must be performed by an unrelated third party engineer or contractor licensed in the jurisdiction in which the building is located Energy Modeling must use a Performance Rating Method (PRM) Must use DOE-approved software (about 20 different versions) Analysis of design plans and specifications Field Inspections of the building must be performed after the property has been PIS Signed letter certifying that the building meets the required energy efficiency standards

27 Case Study-Department of General Services Buildings 4 buildings in CA 475K, 468K, 350K, 55K square feet Tax Deduction $718,531 Estimated Tax Savings - $251,486 Only Lighting System qualified under interim lighting rule LPD reduction of 30%, 63%, 57%, and 43% Fan and pump operational brake horsepower was not rightsized! Is this good news?

28 The IC-DISC Credit Does your client: Sell products that are used, consumed, or otherwise disposed of outside the United states? Yes No Export products that are manufactured, produced, grown, or extracted within the United States? Yes No Anticipate $1.5 million or more in annual gross receipts from the above transactions? Yes No

29 IC-DISC at Work Client is a producer of aluminum products in California, an $80,000,000 company. After initial review, alliantgroup estimated benefits to them of $150,000 to $200,000. Our analysis is yielding annual savings of approximately $650,000 effectively doubling their profits. (note: this is not par)

30 Domestic Production Activities Deduction (DPD) Created in the 2004 American Jobs Creation Act Replaces Extraterritorial Income Exclusion (ETI or EIE) Located in Internal Revenue Code Section 199 Congress wanted to provide incentive to U.S. producers to hire workers in the U.S. Provides for a deduction based on domestic production activities. Industry Specific Guidelines for film and music producers, software programmers, construction contractors, engineers, and architects.

31 Be CAREFUL!! DPD is a Tier One Audit Issue As the deduction has phased in, more and more taxpayers are being audited. Shortcut calculation methods will not pass IRS muster today. We are receiving an alarming number of calls for taxpayers that have not calculated properly and are now seeking our assistance. IRS requires an item by item determination of qualified property. Taxpayer and/or preparer need to maintain these workpapers. IRS requires consistency with 263A. If taxpayer claims DPD, it also must use UNICAP when expensing qualifying property. IRS has 5 minimum checks for evaluating a DPD claim: Does the taxpayer s business make sense with the requirements for DPD? Is DPGR box 1c GR? Did the taxpayer reduce DPGR for items to remove non-qualified embedded service income using an approved method? Was the taxpayer required to use 861 to allocate and apportion deductions? If so, was an approved methodology used? Did taxpayer apply the appropriate wage and income limitations?

32 The R&D Tax Credit For clients who design, develop or improve a product, process, technique, formula, invention, or software.

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34 X Marks the Spot! R&D Activities Related to: Function Performance Reliable Quality Durability Product X Process Computer Software Technique Formula Invention

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36 X Marks the Spot! R&D Activities Related to: Function Performance Reliable Quality Durability Product X Process X Computer Software Technique Formula Invention

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38 X Marks the Spot! R&D Activities Related to: Function Performance Reliable Quality Durability Product X Process X Computer Software Technique Formula Invention X

39 How Can alliantgroup Serve You?

40 Who are we? National Consulting Firm Focused on supporting CPA firms nationwide alliantgroup - Houston (national office), New York, Boston, LA, Atlanta, Orange County, San Francisco, San Diego, Seattle, Chicago, Toledo, Denver and Miami alliantgroup - Has over 250 professionals nationwide Former Big Four Partners and Managers CPAs and Attorneys Former Commissioner of the IRS (Mark Everson) Senate Counsel to Senate Finance Committee (Dean Zerbe) Chairman of the IRS Oversight Committee (Jim Ramstad) alliantgroup - Only specializes in government sponsored incentive programs. alliantgroup - Works with CPA firms Be your back office Introduce specialized tax incentives to your clients

41 Mark Everson joins Served as Commissioner of Internal Revenue from 2003 until 2007 Appointed Vice Chairman for alliantgroup Will advise alliantgroup on strategic, operational, and client service initiatives Many companies do not take advantage of all the tax incentives to which they are entitled. alliantgroup can help. Based on my meetings with alliantgroup personnel and a number of the accounting professionals with whom they work across the country, it is clear the firm has achieved a great deal since its founding and is well positioned for further expansion. Mark Everson

42 Hon. Jim Ramstad joins alliantgroup Senior Adviser Former Congressman from Minnesota ( ) Member of the House Ways & Means Committee Authored numerous pieces of tax legislation Former Minnesota State Senator Focused on the needs of small and mid-sized business

43 Christopher S. Kit Bond joins Served as Chairman for the Committee on Small Businesses and Entrepreneurship and as Vice Chairman of the Senate Intelligence Committee. Elected to statewide office a total of seven times, Bond also served as Missouri State Auditor (1971-3) and two terms as Governor of Missouri Most recently representing the state of Missouri for four terms in United States Senate ( ) As alliantgroup Senior Advisor, he will advise on strategic initiatives to educate small and medium-sized Missouri businesses about valuable tax credits and incentives., as well as increase jobs in areas of high unemployment.

44 alliantgroup, L.P. is here to help with your vital work

45 alliantgroup, LP is an independent consulting firm that works with CPA firms and their clients to ensure they receive the full benefit of all available Federal and State government sponsored incentive programs, such as the Research and Development tax credit, the Extraterritorial Income Exclusion, the IC-DISC, the Domestic Production Deduction, the Training Credit, and Enterprise Zone Incentives. For more information, visit our website at: Dean Zerbe National Managing Director alliantgroup, LP