All Forum Posts by: Greg O'Brien

@Coty Dolan this would be done at the state level. You should consider the RE tax aspects of the change, and what the goal are for the LLC etc. Do you have active rentals in here? Development? If you go through a planning process, you may find that the S corp should not own the LLC, rather service it. There are a lot of factors to be considered before changing the ownership structure.

If you have already thought through all the tax implications (good and bad) and are just looking to make the change, the ownership exchange would be done at the state level.  Once your partner is bought out, the partnership turns into a disregarded entity from the IRS' perspective.  

@Basit Siddiqi we inherited a few "messes" from them.  They set up these crazy webs of entities for rather simple investors.  The person did not know they had compliance responsibilities for all of these entities, fell behind and created big issues, including not educating the investor that they could not simply move property in and out of a corp!  

@Andrey Y. to answer your question about 18 vs 19...QBI was new in 2018, so the reporting wasn't completely clear nor were syndicates completely up to speed on properly reporting based on the Regs.  We will likely continue to see changes around QBI reporting and before you know it...it will be gone!  

Agreed.  Call around and find a CPA that has great RE experience (and invests) and is focused more on planning than compliance only.  That should set you up nicely! 

@Michael Plaks This is an extremely convoluted issue and not about the IRS and 265.  This is purely about helping our small businesses stimulate the economy to a recovery.  Forget some tax code for a minute.

The IRS did not follow common sense, in fact, they did the exact opposite.  Obviously, Congress wanted what you called a "double dip".  How?

The lead Republican and Democratic on House Ways and Means/Senate Finance and our industry group (and chief lobbyist) the American Institute of Certified Public Accountants, ALL have come out in the last 48 hours and said the IRS is out of line right now and are not following the intent of the law.  

The two in Congress both said they will address it and the AICPA said that it was absolutely clear Congress intended for the deduction.  From day 1, the policy was crystal clear.  

Yes, Congress, who writes the laws, intended for a double dip but screwed up in execution by overlooking 265. They just said so yesterday.  BTW, I will refrain from calling your argument "flimsy" or calling you a "politician" or "lawyer".  I happen to respect both politicians and lawyers, so thanks for the compliment.

^^^ @Steven Hamilton II @Kevin Smith do NOT hold long term rentals in an S Corp! As Steven said, without other complicating factors, if an accountant recommends this, run and run fast!

@Michael Plaks I won't accuse you of being anything!

Can you please explain now why the ERC or full UI would not be a better choice than a PPP with income taxes and FICA (per IFRs), especially for C Corps.  Can you also explain the Congressional comments from yesterday?  

Direct quote from one of the Senators who wrote the bill on 5/1/2020..."The intent was to maximize small businesses' ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible.  This notice (2020-32) is contrary to that intent".

If I am a business owner 100% shut down, why would I take the PPP and pay my employees to do nothing?  Also, FICA is not forgiven under PPP (under current rules). 

Easy example: I have revenue of $100 and normal wages of $50.  I take the PPP and spend $50 on wages.  My net taxable income is now $100 or a C corp tax of $21 and I paid unreimbursed FICA of $8.  I am out of pocket $29 to Uncle Sam.

OR choice 2, I have revenue of $100 and normal wages of $50.  I keep everyone laid off and do not take PPP.  My net taxable income for the same period is $100 or $21 in tax BUT no FICA>  I am out of pocket $21.  Why would I not do this?  My employees are getting UI, so that is not an issue.

Sorry - but it is clear as day that is NOT what Congress wanted.  They wanted people employed.  

It was clearly a drafting error as most tax attorneys have pointed out.  When laws are written at the 11th hour, they miss things.  Why wouldn't they just call it income and issue 1099-Cs to make it 10000000% easier for everyone?  The net effect is the same (Except for a gross receipts tax state). 

The funny thing I find is now all the CPAs and EAs coming out saying "see I told you so!  IRC 265 is so obvious!!!".  Lastly, I'll make a nice internet bet this is fixed in Phase 4 OR a large "small" business just takes the deductions anyways and sues the IRS in court.  

From the last Interim Final Rules, they addressed and said the bank should pay the SBA directly.  It may have been an FAQ actually but the Treas did post about this.

@Michael Plaks I think the withdrawal method will be a good, safe solution.  Coincidentally, a client who received a $15k Sch C loan just called.  The small bank called him upon depositing the funds today and said "all is forgiven, we don't want to carry a few K on our balance sheet, so consider it forgiven now".  So I imagine this will be the wild wild west once again!

IRS released guidance yesterday saying that any PPP expenses that are forgiven are NOT deductible for Fed income tax purposes.  In essence, the forgiven funds are taxable, in direct conflict with the Cares Act.  Congress addressed forgiven income in the Cares Act but not deductibility.

Many tax pros have been wary of this for weeks and the IRS dropped the hammer yesterday.

However, already saw Sen Grassley saying that this was not the intent and he was disappointed with the IRS.  I suspect we haven't heard the last word but for tax planning purposes, people should be aware of the implications laid out.