The Good and the Bad for Washington Companies — State Taxes and the Business Climate

Lane Powell Shareholder Scott Edwards authored an article in the December 2011 issue of Seattle Business magazine titled “The Good and the Bad for Washington Companies — State Taxes and the Business Climate.” In the article, Edwards gives an overview of Washington’s business climate and tax structure, and their effect on the state’s businesses and employees.

Oregon Legislature Revises Energy Tax Credit Programs

The Oregon Legislature has passed the second of two measures that will substantially revise the way the state provides tax credits for energy projects. The two bills, HB 3672 and HB 2523, divide what was once known as the Business Energy Tax Credit (“BETC”) into several programs with new caps on the size and types of credits available and, for the manufacturing program, a shift in oversight from the Oregon Department of Energy (“ODOE”) to Business Oregon.

Managing the Exit Tax Burden of the QALICB (Part 2)

Part One of this article explained that when a new markets tax credit (NMTC) investor exercises a put option (the exit transaction) in a leveraged transaction at the end of the seven-year compliance period, it is possible that the qualified active low-income community business (QALICB) will not recognize any cancellation of indebtedness (COD) income. Part One also explained that if COD income is recognized, the amount of income should be the difference between the issue price of the “B loan” and the fair market value of the B loan when the put is exercised.

Treasury Department Clarifies Availability of Cash Grant for Waste-to-Fuel Conversion Equipment

The U.S. Treasury Department (“Treasury”) has released additional guidance clarifying that waste-to-fuel conversion equipment may qualify for the 30 percent cash grant under ARRA Section 1603 in many circumstances. On April 13, Treasury updated the formal program Guidance (the “Guidance”) and added several items to its list of Frequently Asked Questions (the “FAQs”) to clarify that equipment that converts biomass, municipal solid waste, and other qualifying resources to fuel that is used to generate electricity may be eligible for the grant. Eligibility is possible even if the conversion equipment and the generation equipment are located at different sites and/or owned by different persons.

Managing the Exit Tax Burden of the QALICB (Part 1)

The tax credit investor in a leveraged new markets tax credit financing commonly enters into a put option agreement entitling it to sell its interest in the qualified community development entity to an affiliate of a quailfied active low-income community business (QALICB) for a nominal amount after the end of the seven-year compliance period (the exit transaction). Once a portion of the qualified low-income community investment (QLICI) loan is used to repay the leverage loan, the affiliate and QALICB have effectively eliminated the burden of paying the remaining portion of the QLICI loan. Although the elimination of this burden creates an economic benefit for the family of entities that includes the QALICB and affiliate (entity family), the full amount of that benefit may not be reflected in their taxable income at the time of the exit transaction.

Death and Damages Can Be Taxing

In many personal injury cases, and especially those involving large sums of money or actions brought by personal injury victims’ beneficiaries, both income tax and estate tax can significantly change the net value of an award or settlement. Some may be surprised to learn that even personal physical injury damages can result in tax liability [...]

Washington State Tax Amnesty Program Runs Through April 30, 2011

Washington state is currently conducting its first-ever tax amnesty program. Eligible taxpayers who apply for amnesty by April 18, 2011, and pay eligible past due taxes by April 30, 2011, will have interest and penalties waived on taxes paid under the amnesty program.

New Offshore Voluntary Disclosure Initiative Announced

U.S. taxpayers with offshore accounts should take note of the new voluntary disclosure program announced by the Internal Revenue Service. The 2011 Offshore Voluntary Disclosure Initiative (“2011 Initiative”) was announced February 8, 2011, and offers taxpayers who did not participate in the IRS’ prior offshore voluntary disclosure offering in 2009 (“2009 Program”) a second chance to come clean in exchange for reduced penalties. For those taxpayers who have already come forward, new reduced penalty structures in the 2011 Initiative are available to qualifying taxpayers who participated in the 2009 Program.

2010 Tax Relief Act

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Relief Act”). The 2010 Tax Relief Act included a number of taxpayer-friendly changes to federal income, gift, estate and generation-skipping transfer taxes. This discussion focuses on the changes to the estate, gift and generation-skipping transfer taxes enacted as part of the 2010 Tax Relief Act.

Taxing Times — In the New Year, the Legislature Must Balance a Growing Budget Deficit

The 2010 Washington state legislative term was extended by a special session as the House and the Senate battled over whether to raise sales taxes as part of balancing the budget. While the Legislature did not raise sales taxes, it did pass a final budget in April that included an $800 million package of piecemeal tax increases, which contained the largest number and most wideranging set of tax changes seen in the state in at least a decade. The biggest increases (in terms of new tax revenue) were directed at the service sector. This included a temporary 20 percent increase in the service business and occupation (B&O) tax rate, and a permanent change in the method that service businesses must use to calculate the portion of their gross receipts that are taxed as Washington revenue.

Oregon Department of Energy Releases Information on New Rounds of Renewable Energy Generation Applications for the BETC Program

The Oregon Department of Energy (“ODOE”) has released information about the 2011 application process for the Business Energy Tax Credit (“BETC”). Under ODOE’s three-tier priority system, $15 million in tax credits is available for renewable projects estimated to cost less than $500,000 (“Tier 1″), $10 million is available for projects costing between $500,000 and $6 million (“Tier 2″), and $10 million is available for projects costing $6 million or more (“Tier 3″). This guidance follows ODOE’s November 23, 2010, release of revised permanent rules for the BETC program. (Click here for links to the new permanent rules and a summary of the changes).

Initiative I-1098 — Proposed New Washington Tax on Income

Several clients have asked for a summary of the provisions and impact of ballot initiative I-1098 (the proposed New Washington Tax on Income) if adopted. This summary has been prepared for those and other clients interested in an unbiased review of I-1098.

Paying it Forward — Options for Structuring Your Charitable Giving

You are a philanthropist if you consistently donate charitable gifts to make the world a better place. You probably give considerable thought to your annual charitable giving, and you know how much the weak economy has affected charitable organizations.

U.S. Tax Relief for Canadians Emigrating to the United States

Canadians moving from Canada to permanently settle in the United States should take note of recent Internal Revenue Service (“IRS”) guidance providing relief from U.S. federal income taxation.

Expanding the Structured Settlement Tax Exclusion

The structured settlement tax exclusion is meant to provide an incentive for personal injury plaintiffs not to dissipate their recoveries. This article recommends that a uniform tax credit be used instead of an exclusion to ensure that the incentive influences those most likely to dissipate. Read the full article (PDF). This article first appeared in [...]

Structured Settlements and Single-Claimant Qualified Settlement Funds

In 1982 Congress legislated a tax exclusion incentivizing the use of structured settlements. Since then the structured settlement has become a common conclusion for personal injury claims. This article tracks the history and evolution of the structured settlement industry, including the beginning and continuation of the factoring industry. The history, specifically the evolving treatment of [...]

Plaintiffs might receive emotional distress damages tax-free after 2010

Since 1996, emotional distress damages, unlike damages paid on account of physical injuries and physical sickness, have been generally taxable. Plaintiff attorneys and structured settlement industry members lobbied Treasury at a February 23, 2010, Treasury hearing to allow some damages to be received tax-free even without directly satisfying the “physical” requirement. This article discusses the [...]

Estate Planning 2010

The United States has imposed an estate tax since 1916. Approximately 85 years later, Congress enacted the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). EGTRRA included a number of changes to the income, gift, estate and generation-skipping transfer tax statutes then in effect. Many of the changes included in the 2001 legislation are effective only in 2010.

Washington State Considering New Aircraft Tax

Your aircraft may soon be subject to a new annual Washington State tax based on the aircraft’s fair market value. This new tax is part of House Bill 3176, which is scheduled for a public hearing before the House Finance Committee this Saturday, February 13, at 9 a.m. If passed, this bill will result in the imposition of an annual excise tax on the privilege of using an aircraft within Washington State, equal to one half of one percent of the aircraft’s taxable value, as determined under a depreciation schedule to be published annually by Washington State Department of Transportation (“WSDOT”). Accordingly, the owner of a Washington registered aircraft with a taxable value of $20 million, would owe $100,000 per year. Under the bill, WSDOT would be responsible for collecting and administering the tax.

Grants in Lieu of Tax Credits Under the Recovery Act — A Square Peg in a Round Hole

Many issues are raised by the grant program and the guidance recently issued by Treasury, including the legal effect of the guidance, the resolution of disputes arising under the grant program, unanswered procedural questions under the program, and income tax issues relating to the treatment of grants. These areas of difficulty result from the imperfect fit of the grant program with the existing tax credit rules.

Treasury Decides to Pass on Single-Claimant Qualified Settlement Fund Guidance for Now

Whether single-claimant qualified settlement funds can take advantage of the structured settlement exclusion has been debated for some time. The Treasury has had the issue on its “to do list” since 2004, and in 2008 it was reported that the decision was near at hand. As of November 2009, however, the issue is no longer [...]

Justifying The Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies

The structured settlement tax exclusion incentivizes personal injury claimants to agree to periodic payments as opposed to a lump sum amount, in the hope of preventing premature dissipation.The anecdotal evidence suggests that such dissipation is frequent. Statistical evidence is also commonly cited. This note examines the available empirical data, finding the evidence to be inconclusive, [...]

New Tax Legislation Allows Individuals and Businesses to Elect Extended Carryback Period for 2008 and 2009 NOLs

Individuals and businesses filing U.S. income tax returns should take note of the Worker, Homeownership and Business Assistance Act of 2009 (the “Act”), signed into law on November 6, 2009. Under the Act, most taxpayers may elect to carry back net operating losses (”NOLs”) from taxable years beginning or ending in 2008 or 2009 for up to five years. Prior to the Act, the NOL carryback period was limited to two years, with an optional five-year carryback period for 2008 losses of certain small businesses. The 20-year carryforward period remains unchanged.

Washington’s Taxation of Manufacturing — Part 3: Special Issues Relating to the Manufacturing Machinery and Equipment Exemption

In the second part of this series, we provided an overview of the sales and use tax exemptions for manufacturing machinery and equipment used directly in a manufacturing or research and development operation under RCW 82.08.02565 and 82.12.02565 (the “M&E” exemption).  See Washington’s Taxation of Manufacturing — Part 2: The Sales and Use Tax Exemption for Manufacturing Machinery and Equipment.  In general, the M&E exemption applies the purchase and use by a manufacturer or processor for hire of machinery and equipment that is “used directly” in a qualifying “manufacturing operation” or “research and development operation,” as well as machinery and equipment used in “testing” for a manufacturer or processor for hire.

View full article (PDF).

Foreign Financial Institutions Affected by Proposed Changes to the Qualified Intermediary Program

Foreign banks, foreign brokerage firms and foreign branches of U.S. banks (collectively referred to as “foreign financial institutions”) should take note of changes proposed in the President’s 2010 Budget “Greenbook” released on May 11, 2009, and proposed Internal Revenue Service (“IRS”) regulations that will affect participation in the IRS’s Qualified Intermediary (“QI”) Program. Pursuant to the proposed IRS rules and possible legislative changes, foreign financial institutions participating in the QI Program may have to disclose the identities of their customers, comply with additional U.S. tax reporting obligations, and collect U.S. withholding tax when receiving payments of interest, rent, dividends or royalties on behalf of customers. If a foreign financial institution does not participate in the QI Program, payments received by the foreign financial institution from a U.S. person will be subject to 30 percent withholding.

View full article (PDF).

“Hit the Road, Jack — And Don’t You Pay [Oregon] Tax No More?”

While Oregon residents are taxed at a 9% rate on their taxable income, including capital gain income, Washington imposes no personal income tax. Not surprisingly, Oregon residents who expect to recognize substantial income in the future often ask whether they can avoid Oregon tax on the income by moving to Washington before the income is recognized. This article discusses the impact of such a move on the Oregon income tax treatment of different types of income.

View full article (PDF).

This article appeared in the Summer 2009 issue of the Oregon State Bar Taxation Section newsletter.

Washington’s Taxation of Manufacturing — Part 2: The Sales and Use Tax Exemption for Manufacturing Machinery and Equipment

In the first part of this series, we provided an overview of the Washington state tax consequences of engaging in manufacturing activities in Washington: see Washington’s Taxation of Manufacturing — Part 1.  Businesses engaged in manufacturing typically make significant capital investments in machinery and equipment.  Fortunately, Washington law provides manufacturers with a broad exemption from sales and use taxes for machinery and equipment used directly in a manufacturing operation (“M&E exemption”).  The M&E exemption applies to the purchase and use by a manufacturer or processors for hire of machinery and equipment that is used directly in an eligible manufacturing operation.  The exemption also applies to machinery and equipment used directly in testing a manufacturer’s or processor for hire’s tangible personal property, as well as machinery and equipment that is integral to a research and development operation. This article provides an overview of the requirements for qualifying for the M&E exemption, which can significantly reduce the state tax costs of manufacturing.  View full article (PDF).

New Contract Manufacturing Regulations Present Planning Opportunities

The Internal Revenue Service (the “Service”) has issued final regulations providing much-needed, and generally taxpayer-favorable, guidance on the tax treatment of contract manufacturing arrangements entered into by controlled foreign corporations (“CFCs”). Under the final regulations, a U.S. parent company can obtain tax deferral on a CFC’s income from sales of goods where the CFC, through the activities of its employees, is considered to manufacture such goods in the CFC’s country of incorporation even though the goods are physically manufactured in another country by a related or unrelated contract manufacturer. Specifically, the test is whether the CFC’s employees make a “substantial contribution” to the overall manufacturing process.

View full article (PDF).

IRS Sharpens Tools in Pursuit of Alleged Tax Violations

Two recent court cases – one that received much press and another less-publicized case – both demonstrate the IRS’s aggressive stance on investigating alleged tax violations and the degree to which the courts will bless such conduct over the protests of corporate and individual taxpayers.

View full article (PDF).

Agreement Between the United States and Swiss Governments Will Require UBS to Disclose Swiss Accounts Held by U.S. Citizens or Residents

U.S. citizens or residents holding undeclared accounts with UBS AG (“UBS”) should take note of the agreement made on August 19, 2009, between the United States and Swiss governments to settle the U.S. Department of Justice’s lawsuit against UBS seeking the names of U.S. citizens or residents holding Swiss accounts with UBS. The agreement requires the disclosure to the Internal Revenue Service (“IRS”) of 4,450 UBS Swiss accounts held by U.S. citizens or residents. The Swiss government will notify the account holders that their names are being released to the IRS, although the account holders will have an opportunity to appeal the release of their names to a Swiss administrative court.

View full article (PDF).

IRS Announces Qualifying Advanced Energy Project Tax Credit Program: Preliminary Applications Due September 16, 2009

The Internal Revenue Service yesterday issued Notice 2009-72 (the “Program Guidance”) establishing a program implementing the Qualifying Advanced Energy Project Credit (“QAEP Credit”) under Section 48C of the Internal Revenue Code (the “Code”). The Program Guidance may be found on the IRS website: http://www.irs.gov/pub/irs-drop/n-09-72.pdf.

The QAEP Credit was enacted as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”). It is intended to encourage the development of a domestic manufacturing base to support the U.S. renewable energy industry by providing a tax credit equal to 30 percent of the “qualified investment” in a “qualifying advanced energy project.” The QAEP Credit is subject to a nationwide limitation of $2.3 billion, which must be allocated among eligible projects. ARRA required the Treasury Department to establish by August 17, 2009, a program to consider and award certifications for the QAEP Credit. The program announced yesterday fulfills that mandate and sets a short timeline for credit allocation applications.

View full article (PDF).

Tax Provisions in Proposed Health Care Legislation Would Limit Benefits Provided by U.S. Income Tax Treaties

Foreign companies with activities in the United States should take note of the “Americans Affordable Health Choices Act of 2009″ (“H.R. 3200″). Although H.R. 3200 primarily addresses health care reform in the United States, it also includes a tax provision that affects the U.S. taxation of U.S. source interest, dividends, rents and royalties paid to foreign companies otherwise entitled to preferential tax rates under U.S. income tax treaties.

If H.R. 3200 is enacted, the preferential tax rates provided by U.S. income tax treaties for interest, dividends, rents and royalties may not be available to a foreign corporation if received from its U.S. subsidiary corporation.

View full article (PDF).

Conducting Business with Hybrid Tax Entities Between the United States and Canada: The Impact of New Paragraph 7 to Article IV of the U.S.-Canada Income Tax Treaty

The Fifth Protocol (the “Protocol”) to the U.S.-Canada Income Tax Treaty (“Treaty”) entered into force on December 15, 2008. The Protocol is generally effective for tax years beginning on or after January 1, 2009; however, certain provisions of the Protocol have a delayed effective date, including Paragraph 7 of Article IV, which is effective beginning January 1, 2010.

The Protocol makes significant changes to the tax treatment of hybrid tax entities used to conduct cross-border activities. These changes to the Treaty necessitate a review and reassessment of cross-border structures used by U.S. persons to conduct business or make investments in Canada.

View full article (PDF).

Washington Tax Alert: Seller’s Permits to Replace Resale Certificates

Effective January 1, 2010, Washington taxpayers purchasing tangible personal property for resale will no longer be allowed to issue resale certificates to vendors, but will instead be required to have secured a “seller’s permit” issued by the Department of Revenue (“the Department”). The seller’s permits will allow eligible taxpayers to purchase goods or services for resale without paying Washington retail sales tax. This change is a result of Senate Bill 6173, which was enacted during the 2009 legislative session in an effort to curb resale certificate abuse.

View full article (PDF).

Lender’s Receipt of Retained Interest on Residential Loans Sold on Secondary Market Qualifies for Deduction for “Amounts Derived From Interest”

On June 18, 2009, the Washington Supreme Court issued a decision holding that retained interest received by a residential mortgage lender as fees for servicing loans that it sold on the secondary market on a “service-retained” basis were eligible for a deduction from Business and Occupation (“B&O”) tax because they are “amounts derived as interest received on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties.” HomeStreet, Inc. v. Washington Department of Revenue, No. 80544-0, 2009 WL 1709310 (Wash. Sup. Ct., June 18, 2009). In doing so, the Court reversed a 2007 decision of the Washington Court of Appeals, Division II, which had affirmed the trial court’s summary judgment in favor of the Department of Revenue holding that HomeStreet was not entitled to the deduction for retained interest received as compensation for servicing loans.

View full article (PDF).

U.S. Treasury Department Issues Guidance for Cash Grants in Lieu of Energy Tax Credits

On July 9, 2009, the U.S. Treasury Department issued guidance for the award of cash grants by the federal government (“Grants”) in lieu of energy tax credits under Section 1603 of the American Recovery and Reinvestment Act of 2009 (“ARRA”). When ARRA was enacted in February 2009, Congress recognized that current economic conditions have reduced investors’ taxable income, and the attractiveness of the production tax credit (“PTC”) and the investment tax credit (“ITC”) as incentives for development of renewable energy projects has diminished. The goal in providing cash grants for a limited period is to spur renewable energy development, even in the absence of taxable income, and to further the goals of job creation and expansion of renewable energy sources.

View full article (PDF).

Investing in Canada Through a U.S. Limited Liability Company: The Impact of New Paragraph 6 to Article IV of the Canada-U.S. Tax Treaty

Since January 1, 2009, new tax rules affecting fiscally transparent entities investing into Canada have been in place. These new rules emanate from changes to the United States – Canada Income Tax Convention (the “Treaty”) as a result of the Fifth Protocol (the “Protocol”) to the Treaty which was signed December 15, 2008.

In view of the changes to the Treaty, cross border structures used by U.S. and Canadian businesses and investors deserve to be reviewed and reassessed. In particular, U.S. residents should review whether their investments into Canada should be structured or restructured to benefit from the new tax advantages that arise when such investments are structured through a fiscally transparent entity, such as a U.S. limited liability company, which, prior to the Protocol, did not qualify for Treaty benefits.

View the full article (PDF) to learn about the impact of Paragraph 6, Article IV of the Treaty on fiscally transparent entities like LLCs.

Guidance and Applications Available for $2 Billion in Tax-Exempt Bonds for Economic Development Projects in Indian Country

The Internal Revenue Service (“IRS”) recently published (and posted to its website) guidelines and applications for tax-exempt bonds for economic development projects in Indian Country. The guidelines, called “Notice 2009-51 (Tribal Economic Development Bonds),” indicate the first application deadline is August 15, 2009, for $1 billion in bonds, which must be issued by December 31, 2010. This leaves tribes little time to compile the information needed to complete the 11-page application for the first round of financing. There is a second deadline of January 1, 2010, for tribes to apply for the second $1 billion in bonds, which must be issued by December 31, 2011.

View full article (PDF).

Obama’s Tax Proposals Target U.S. Persons and U.S. Businesses with Foreign Activities

Every U.S. individual and business engaged in foreign activities should take note of President Obama’s recent tax proposals. On May 4, 2009, President Obama released information on a plan to raise $210 billion over a ten-year period by curbing the use of offshore tax havens and encouraging U.S. businesses to create jobs in the United States. The President’s plan affects tax deferral rules, the foreign tax credit, entity classification and information reporting requirements of U.S. persons with foreign activities. The plan also targets U.S. persons holding funds outside the United States. View full article (PDF).

Washington’s Taxation of Manufacturing: Part 1

The unique nature of Washington’s tax structure can present some significant challenges for manufacturers. By the same token, Washington provides some significant tax incentives to encourage in-state manufacturing, and there are several tax planning strategies that can potentially minimize the tax burden on manufacturing enterprises engaged in business in Washington. View full article (PDF).

Expanded Scope of Requirement to Report Foreign Bank And Financial Accounts

Every U.S. person that has an interest in or authority over a foreign financial account must annually file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) by June 30. In October 2008, the U.S. Treasury revised the FBAR to expand the list of persons obligated to file and required more detailed reporting of information concerning foreign financial accounts. The revisions were effective January 1, 2009, and any individual with foreign accounts or businesses with foreign accounts for general investment or day-to-day purposes should be aware of the expanded reporting requirements. View full article (PDF).

Proposed Federal Tax Legislation Would Alter U.S. Taxation of Foreign Entities

Foreign investors, and particularly foreign hedge funds, should take note of recently introduced U.S. tax legislation. On March 2, 2009, the Stop Tax Haven Abuse Act was introduced by Senator Carl Levin as Senate Bill 506 (“S.506″). It seeks to eliminate the use of offshore tax havens and correct other abusive tax situations. S.506 is similar to the 2007 proposed legislation (S.681) introduced by Senator Levin and co-sponsored by then-Senator Obama. A companion bill (H.R. 1265) was introduced in the U.S. House of Representatives and co-sponsored by 59 Democrats. U.S. Treasury Secretary Geithner recently stated that the administration supports legislation to shut down offshore tax havens. View full article (PDF).

Tax Treatment of Electronically Delivered Products and Services: WAC Rule 15501 Taxation of Computer Hardware, Software, and Computer and Information

On December 6, 2008, the Washington Department of Revenue adopted Washington Administrative Code (WAC) 458-20-15501 (“Rule 15501″), which is intended to supplement the Department’s existing WAC 458-20-155 (“Rule 155″) and provide long-overdue guidance on the taxation of information and computer services. Rule 15501 is effective with respect to transactions occurring on or after January 16, 2009. View full article (PDF).

Estate Planning in the Future – Did the Presidential Election Really Change Anything?

When this article is published in December 2008, we will know the identity of the next president of the United States. At some point thereafter, we should have a sense of what will happen with the federal estate tax system. View full article (PDF).

This article first appeared in Washington CEO magazine.

Financial Bailout Package Contains Tax Incentives for Renewable Energy

Renewable energy projects got a large boost last week when tax breaks for those developments were included in the $700 billion federal bailout package passed by Congress and signed into law by President Bush. While solar and wind projects stand to be the largest beneficiaries, other renewables and energy efficiency measures also are likely to gain from the incentives. View full article (PDF).

Reduce carrying costs – Monitoring property tax assessments can save money in the long run

Carrying costs are a significant consideration for any development project. For residential developers in particular, the issue escalates when you consider a nationwide decline in the housing market, the increased time on market for new homes and rising construction costs. Understanding and planning for variable costs, such as property taxes, is critical to determining a development project’s profitability and maintaining sufficient cash flow to ensure the project’s survival. View full article (PDF).

This article first appeared in BUILDERnews magazine.

10 Things You Need to Know About Section 409A

As most executives will have heard by now, Section 409A of the Internal Revenue Code changes the legal landscape for any compensation plan or arrangement that promises a benefit in one year and pays the benefit in a later year. Section 409A effectively removes much of the flexibility that previously applied to most forms of deferred compensation. Here are 10 things that every executive needs to know. View full article (PDF).

This article first appeared in Washington CEO magazine.

Gifts and Bequests from Expatriates May Result in Tax Liability for U.S. Citizens and Residents

On June 17, 2008, the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART”) was signed into law. HEART generally extends various tax relief measures to members and veterans of the U.S. armed forces. However, HEART also takes a significant departure from the long-established U.S. gift and estate tax system, and now subjects the recipients of gifts and bequests from certain expatriates to significant tax liability. View full article (PDF).

Foreign Subsidiaries of U.S. Companies May Be Liable for FICA Taxes

On June 17, 2008, the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART”) was signed into law. HEART, which generally extends various tax relief measures to members and veterans of the U.S. armed forces, amends Section 3121 of the Internal Revenue Code of 1986 (the “Code”) to extend liability under the Federal Insurance Contributions Act (“FICA”) to certain foreign employers. View full article (PDF).

The Oregon Business Energy Tax Credit

The Oregon Business Energy Tax Credit (“BETC”) is a nonrefundable credit against Oregon personal and corporate income taxes based on the “certified cost” of certain investments in energy conservation, recycling, renewable energy resources, or reduced use of polluting transportation fuels. Originally enacted in 1979, the BETC was significantly expanded in 2007, and expanded again in 2008, as part of an effort to encourage alternative energy development. The BETC is available only for investments in facilities that are completed by the end of 2015. View full article (PDF).

New rules put pressure on private companies

The free ride is over. Privately held companies now face the same burden borne by public companies last year: Implementing FIN 48. View full article (PDF).

Written Federal Tax Advice – Regulation and Risks

“Written Federal Tax Advice – Regulation and Risks,” a presentation for the Oregon/Washington Tax Institute.

View outline (PDF).

View PowerPoint.

Tax Pitfalls for Canadian Buyers of U.S. Recreational Property

With the waning value of the U.S. dollar, an emerging trend among foreign investors is to acquire U.S. real estate. Consistent with this inbound investment trend, a number of Canadians are purchasing U.S. recreational property.

Various ownership arrangements are available for acquiring and holding U.S. real estate. Since each investor is unique, selecting the optimal ownership arrangement will depend on a number of factors, including the owner’s intended use of the property, duration of intended ownership, plans for future disposition to family members, etc. View full article (PDF).

Withholding of Oregon Tax on Out-of-State Sellers of Oregon Real Estate

In the 2007 regular session, the Oregon Legislature adopted ORS 314.258, requiring any person that is an “authorized agent” to withhold and pay to the Oregon Department of Revenue (the “Department”) a portion of the consideration received in a “conveyance” of an Oregon “real property interest” when the transferor is an out-of-state individual or corporation (the “2007 Act”). View full article (PDF).

U.S. Supreme Court Refuses to Restrict Imposition of B&O Tax on Wholesale Sales

Municipalities in the state of Washington which impose a business and occupation (“B&O”) tax were handed a big victory on February 19, 2008, when the United States Supreme Court denied certiorari of the Supreme Court of Washington’s ruling in Ford Motor Company v. City of Seattle, et al. 160 Wn.2d 32, 156 P.3d 185 (2007). By refusing to hear the appeal by Ford Motor Company (“Ford”), the U.S. Supreme Court has, again, refused to restrict Washington cities from collecting unapportioned gross receipts tax that some argue is unconstitutional. The denial of certiorari allows assessments against Ford in the amount of $402,000 by the city of Seattle, and $1.3 million by the city of Tacoma. View full article (PDF).

Economic Stimulus Act of 2008: Fact Sheet

On February 13, 2008, President Bush signed into law H.R. 5140, the Economic Stimulus Act of 2008 (“Act”). The Act is designed to stimulate the slowing United States economy by providing a series of benefits to both individuals and businesses. View full article (PDF).

Textron, the Work Product Doctrine, and the Impact of FIN 48

On August 28, 2007, the U.S. District Court for the District of Rhode Island ruled in United States v. Textron Inc., C.A. No. 06-198T, 100 AFTR 2d 2007-5848, Doc 2007-20046, 2007 TNT 169-1 (D.R.I. 2007), that some of Textron’s internal tax accrual workpapers were protected from discovery under the work product doctrine because the papers were ‘‘prepared in anticipation of litigation’’ and the protection had not been waived by disclosure of the workpapers to auditors. Importantly, the workpapers at issue in Textron were prepared years before the Financial Accounting Standards Board issued Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes.’’ Assuming other courts agree with the Textron decision, it remains to be seen whether FIN 48 will affect the determination that tax accrual workpapers are prepared in anticipation of litigation. View full article (PDF).

This article first appeared in Tax Notes.

Significant Tax Law Developments in Oregon, 2006-2007

This document, first presented at the U.S. Law Firm Group’s State and Local Taxation Committee Meeting, describes significant 2006-2007 changes in Oregon tax law. View full article (PDF).

New Protocol to the United States-Canada Income Tax Treaty

As anticipated, the United States Department of Treasury and the Canada Department of Finance signed the 5th Protocol (“Protocol”) to the existing income tax treaty between the United States and Canada (the “Treaty”) on September 21, 2007. The Protocol is expected to be ratified by both countries before the end of 2007 and become effective on January 1, 2008. Once ratified, the Protocol will positively affect cross-border transactions between the United States and Canada. Among a number of changes to the Treaty, the following are significant changes that benefit U.S. taxpayers. View full article (PDF).

“Oregon Credits – Contributions To A Trust For Cultural Development”

Under ORS 315.675, a taxpayer is allowed a credit against income taxes for amounts contributed to the Trust for Cultural Development Account, established under ORS 359.405 (“Oregon Cultural Trust” or “Trust”). The credit is allowed for a taxable year only to the extent the taxpayer has contributed at least an equal amount to “Oregon cultural organizations” during the year. View full article (PDF).

This article first appeared in the Summer 2007 issue of the Oregon State Bar Taxation Section newsletter.

Don’t Take the Money and Run – Be Careful When a Client Pays in Cash

I am an assistant U.S. attorney in Seattle, Wash. During the past 12 months, I have participated in the investigation and prosecution of four attorneys for felony offenses which they committed in their professional practices. Each of these attorneys has either been disbarred or is in the process of disbarment proceedings. As a result of their conduct and prosecution, their law practices have been ruined. I write out of a concern for what has happened to them, a concern for our common endeavor to practice law, and a concern for the public perception of lawyers. Also, I write in the hopes that by reading this article, attorneys may avoid such misconduct in the future.  View full article (PDF).

This article first appeared in The Champion.

Global Tax Advisors Need To Understand New Rules Governing U.S. GAAP Accounting for Uncertain Income Tax Positions

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FIN 48 (Accounting for Uncertainty in Income Taxes), effective for fiscal years beginning after December 15, 2006. Under FIN 48, a company may book an income tax benefit on its financial statements only if it is “more likely than not” that the benefit will be sustained if it is examined by a fully informed taxing authority. FIN 48 must be applied by every company that prepares financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), including all SEC registrants and many non-U.S. owned subsidiaries providing financial statements to U.S. lenders. Global tax advisors will now be expected to conform their advice to the new standards so that their clients can properly compute their tax reserves. View full article (PDF).

IRS Finalizes Section 409A Regulations for Deferred Compensation–Summary of Key Provisions

The final regulations under Section 409A of the Internal Revenue Code were issued on Tuesday, April 10. Section 409A was added to the Code by the American Jobs Creation Act of 2004 and establishes strict rules for payment of deferred compensation. Failure to comply with the regulations results in significant adverse tax consequences. The regulations must be considered when drafting any type of deferred compensation agreement, including severance plans.

Together, the preamble and regulations were 397 pages in length, and will certainly require an investment of time to digest completely. Lane Powell’s summary of the key provisions provides a starting point. View full article (PDF).

U.S. Taxation of Foreign Person – and Income Tax Treaty Between the People’s Republic of China and The United States

This article is intended as an introduction to the subject of U.S. taxation on inbound transactions. It is not a comprehensive treatment of the subject area and should not be relied upon as a reference source. It is intended to touch upon selected areas and issues involved with a foreign person’s U.S. activities in summary form. View full article (PDF).

This article first appeared in the March 2007 issue of the IPBA Journal.

GAAP Accounting for Uncertainty in Income Taxes – FASB Interpretation No. 48

FIN 48, issued by the Financial Accounting Standards Board (“FASB”) in July 2006, changes the way many companies must account for income taxes on their financial statements. FASB recently rejected calls for a delay of this change in accounting rules, and compliance with FIN 48 is mandatory for fiscal years beginning after December 15, 2006. View full article (PDF).

Significant Tax Law Developments in Oregon – 2005-2006

The Oregon Department of Revenue denied the taxpayer’s claim for a refund because the return was filed after the statutory deadline. The taxpayer challenged the Department’s denial claiming that the Department should be estopped from denying her a refund based on an allegation that the Department provided the taxpayer with misinformation concerning the filing deadline. View full article (PDF).

FIN 48: Measuring Tax Benefits in The Real World

Many companies are confronting, with the greatest perplexity, how to apply the superficially straightforward recognition/measurement regime of FIN 48 in real-world situations. View full article (PDF).

This article first appeared in Tax Notes.

Accounting for Uncertainty in Income Taxes – The Effect of FASB Interpretation No. 48

Every chief financial officer, chief tax officer, and general counsel — as well as every other person with responsibility for a company’s financial statements — should be conversant with final Interpretation No. 48 (FIN 48), which was issued by the Financial Accounting Standards Board on July 13, 2006. FIN 48 provides definitive guidance on how to address uncertainty in accounting for income tax assets and liabilities under FASB Statement No. 109, Accounting for Income Taxes. As the Board stated in its July 13 press release, FIN 48 “prescribes a consistent recognition threshold and measurement attribute, as well as clear criteria for subsequently recognizing, derecognizing and measuring such . . . positions for financial statement purposes. The Interpretation also requires expanded disclosure with respect to the uncertainty in income taxes.” View full article (PDF).

This article first appeared in The Tax Executive.

Critical Planning Points – In Real Estate Partnerships and Joint Ventures

In a perfect partnership or joint venture (JV), the parties combine their disparate skills and resources and create a whole that is greater than the sum of the parts. Each party trusts the others to act in the best interest of the JV, and no party abuses that trust. Each party is allocated responsibility and authority consistent with that party’s skills, and no party interferes with any other party’s performance of its functions. The economic returns from the venture are divided in a manner that is commensurate with the respective contributions of the parties; all parties believe they are fairly compensated; and tax burdens are minimized. View full article (PDF).

This article first appeared in BUILDERnews Magazine.

The Devil is in the Details – New Tax Deduction for Construction Businesses

Tax codes are a lot like building codes: the devils, and the dollars, are in the details. Consider the IRS’s new Domestic Production Activities (DPA) deduction. This tax break, which applies to income from construction activities, allows builders to take a deduction equal to three percent of qualifying incomes in 2005 and 2006; six percent in 2007, 2008 and 2009; and nine percent from 2010 on. View full article (PDF).

This article first appeared in BUILDERnews Magazine.

Attention to Detail Crucial For Section 1031 Exchanges

Section 1031 of the Internal Revenue Code of 1986, as amended (“IRC”), provides that no gain or loss is recognized on the exchange of property held for productive use in a trade or business, or for investment. Tax law thus allows taxpayers to exchange certain kinds of property for like-kind property without immediately paying tax on the gain. The tax is deferred until the replacement property is ultimately sold. Then, the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax. View full article (PDF).

Prompt Action Saves Property Taxes on New Construction in Washington

In general, there are a number of ways in which commercial and industrial buildings can be improperly valued for property tax purposes. This publication alerts owners to the likelihood that assessors in the state of Washington are not accurately valuing construction in progress. View full article (PDF).

American Jobs Creation Act of 2004 (Tax focus) – Changes to Penalties for Failure to Report Foreign Financial Accounts

On October 22, 2004, the American Jobs Creation Act of 2004 (H.R. 4520) (“AJCA”) was signed into law. This new federal tax law includes numerous provisions of particular interest to individuals and businesses. One such provision is Section 821, which modifies penalties for failure to report foreign financial accounts to the Treasury Department. Not only does the AJCA increase existing penalties for a willful failure to report a foreign financial account, but also imposes a new civil penalty on any person that violates the reporting requirements regardless of willfulness. View full article (PDF).

Reduction in Force in the Last Three Years? Act Soon for FICA Tax Refunds and Property Tax Reductions

The economic downturn in the last few years forced many employers to implement substantial involuntary and voluntary layoffs. These reductions in force (“RIFs”) are also the foundation for two potential tax savings opportunities:

Recent Oregon Corporate Tax Developments – Recent Developments in Equity-Based Compensation

Oregon moves one step closer to a single sales factor apportionment formula. For tax years beginning after June 30, 2006, business income is apportioned for purposes of Oregon corporate excise (income) tax by multiplying the corporation’s business income by a multiplier equal to 90 percent (previously, 80 percent) of the sales factor, plus 5 percent (previously, 10 percent) of the property factor, plus 5 percent (previously, 10 percent) of the payroll factor. However, for tax years beginning after June 30, 2006, certain forest products companies will use a double-weighted sales factor in the formula. View full article (PDF).

Significant Tax Law Developments in Oregon 2002-2003

U.S. Law Firm Group
State and Local Taxation Committee Meeting
September 30, 2003

View full article (PDF).

Combining Historic Preservation And Brownfield Development Incentives And Tax Credits: Case Studies In Creative Deal Making – A Primer On The Historical Rehabilitation Tax Credit

A Primer On The Historical Rehabilitation Tax Credit. View full article (PDF).

Structuring The Transaction: Tax Considerations

Regardless of the type of business, tax outcome is always a major consideration in structuring a business acquisition or disposition. This publication discusses some of the federal income tax considerations that a buyer and seller should address in structuring the purchase and sale of a business. View full article (PDF).

Using the New Markets Tax Credit to Finance Affordable Housing – It Is Doable?

There has been a general impression that the new markets tax credit (NMTC) may not be used to finance housing development. However, while the credit is not available for loans for, or investments in, projects that involve solely residential rental housing, the credit is available for investments in and loans for certain mixed-use projects and certain other types of housing development. This article will review some of the ways in which the NMTC may be used to finance affordable housing in low-income communities. View full article (PDF).

New Markets Tax Credits – Opportunities In Housing

Although the new markets tax credit is not available for loans for, or investments in, projects that involve solely residential rental housing, the credit is available for investments and loans in certain mixed-use projects and certain other housing development projects. This outline will review some of the ways in which the new markets tax credit may be used to finance affordable housing in low-income communities. View full article (PDF).

Conference Outline – Home Funds CDBG LIHTC

Blending HOME Funds, Community Development Block Grant Funds and the Federal Low-Income Housing Tax Credit. View full article (PDF).

Significant Tax Law Developments in Oregon 2001-2002

Tax highlights of 2001 regular legislative session; tax ballot measures in statewide elections, some of which are presented for voter approval by special 2002 legislative sessions. View full article (PDF).

LIHTC – Rehabilitation Tax Credits Outline

This outline provides an overview of the federal low-income housing tax credit and historic rehabilitation tax credit. View full article (PDF).

Oregon: Multistate Taxation and E-Commerce

This outline discusses the various tax issues that face a business engaged in electronic commerce in Oregon, including the types of taxes Oregon imposes, the general mechanics of these taxes, and other miscellaneous tax issues such as nexus and the Internet Tax Freedom Act. View full article (PDF).

President Bush Signs Into Law the Economic Growth & Tax Relief Reconciliation Act of 2001

On June 7, 2001, President Bush signed into law the Economic Growth & Tax Relief Reconciliation Act of 2001, which may affect your estate plan. This update summarizes briefly the most significant estate, gift and generation-skipping tax changes, as well as several income tax changes. It also highlights a few of the most important planning issues that you should consider as a result of the Act. View full article (PDF).

Significant Oregon Tax Cases, 1999 – 2001

In two important cases decided in 2000, the courts concluded that under pre-1995 law, the sales factor includes gross receipts from “treasury function” transactions, i.e., gross receipts that are generated from investing working capital in securities. If the treasury function and working capital management are performed outside of Oregon, the “treasury function” gross receipts will be added to the sales factor denominator, but not the sales factor numerator, thereby significantly reducing a taxpayer’s Oregon apportionment percentage. View full article (PDF).

Partnering With Non-Profits

This outline will review two issues with respect to the impact of such joint ventures on exempt organizations. The first is whether participation by an exempt organization in a joint venture with a for-profit entity endangers its exempt status. The second is whether the exempt organization’s participation in such a venture will give rise to unrelated business taxable income. This outline will also briefly review some of the current issues being raised by the Internal Revenue Service (“IRS”) with respect to business relationships between tax-exempt and for-profit entities. View full article (PDF).