On Capitol Hill and in a new CFO survey, finance chiefs say they want a lower overall corporate tax rate and a simpler tax code. Read more at CFO.com. www.cfo.com/article.cfm/14575478/c_14575751

In recognition of higher gas prices at the pump, the Internal Revenue Service has made a special adjustment for specific mileage rates for the last six months of 2011 (Revenue Procedure 2010-51). Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business or medical and moving purposes.

The chart below highlights current mileage rates in effect through June 30, 2011, and the new rates for July 1 through Dec. 31, 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

Mileage Rate Changes

 
While gasoline is a significant factor in the mileage figure, additional expense items that enter into the calculation include depreciation, insurance and other costs. The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the optional standard mileage rates.
The new optional standard mileage rates rates are contained in Announcement 2011-40 (available at http://www.irs.gov/pub/irs-drop/a-11-40.pdf).
Contact Mike Abramovitz at 720-227-0423 or mabramovitz@taxops.com with questions regarding optional standard mileage rates.

The legislative intent to entice angel investors in Colorado to capitalize new technology startups is written into law, even though the program is not yet funded. The State of Colorado reauthorized the Colorado Innovation Investment Tax credit (CIITC) on June 20, 2011, thereby extending a 2010 tax credit to credit to “angel” investors in startup companies focused on research and development of new technologies for the year 2011. An angel investor is typically a wealthy individual or groups of investors that provide capital to early-stage companies. Successful, newly funded, companies can become growth engines for the state, and help attract additional investors and entrepreneurs.

The CIITC was first introduced by the Colorado legislature to encourage angel investing in new, small Colorado businesses primarily involved in research and development, or manufacturing of new technologies, products, or processes. Under the program, those who invest at least $25,000 in a company five years or younger may be eligible to receive a 15 percent tax credit, not to exceed $20,000. In 2010, CIITC tax credits totaling $622,000 were issued to investors who helped companies generate 28 jobs and leverage those investments to bring in roughly 10 times as much private investment.

According to the Colorado Office of Economic Development and International Trade (OEDIT) that oversees the tax credit program, investors that qualify for the tax credit can be any business entity other than a C corporation. Small businesses that qualify to receive the investment include corporations, limited liability companies, partnerships, or other businesses that maintain a principal place of business in Colorado (OEDIT program eligibility criteria found at http://www.colorado.gov/cs/Satellite/OEDIT/OEDIT/1251568656373).

For more information on angel investment tax credits, please contact Mike Abramovitz at 720-227-0423 or mabramovitz@taxops.com.

To find out when the angel investor tax credit funds become available,
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The Michigan Business Tax (MBT) will be no more on January 1, 2012. The controversial tax and surcharge on gross receipts and income was repealed in May in favor of a Corporate Income Tax (CIT) effective January 1, 2012. The CIT is set at a flat six percent rate and will be levied on C Corporations. Pass-through entities are to be taxed according to the ultimate owner and subject to new withholding rules.

In addition, losses generated under the MBT will not be allowed to offset CIT tax, and most business tax credits are being repealed. The tax on insurance companies and financial institutions will remain largely the same. For companies on a fiscal year, the CIT will require both an MBT and CIT calculation for the tax year that contains the January 1, 2012 date.

The current nexus standard and mandatory combined reporting requirements will remain in place. The standard is more than one day of physical presence, or “active solicitation” and $350,000 of Michigan sourced gross receipts. In addition, single-sales factor apportionment was retained with a slight modification to disallow the Multistate Tax Compact (MTC) three-factor apportionment formula. Until further notice, the Kmart decision, which requires a federal disregarded entity to be treated as a reportable entity on a Michigan combined, unitary schedule, has not been repealed.

According to an analysis by the nonpartisan House Fiscal Agency, Michigan’s business tax revenue is estimated to drop by approximately $1.2 billion in fiscal 2013, but increase by $1.5 billion for individual income tax revenue. Businesses widely supported the flat rate, and see the change to an objective, more competitive business tax as good for job creation.

Questions on this and other Michigan state tax changes can be directed to Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

ASC-740 is a complex set of guidance. From terms and definitions to calculations and reporting, the financial accounting standard for computing and reporting income tax provisions demands painstaking attention to detail. As a result of these efforts, companies are able to recognize current year taxes due or refundable, and manage expected future tax consequences of deferred assets and liabilities. In the upcoming months, we’ll break ASC-740 down into a series of blogs to highlight the fundamentals that will answer many questions you have about what it is, who it applies to and how to prepare the analysis.

ASC-740 addresses financial accounting and reporting for the effects of income taxes – federal, foreign, state and local – that result from an enterprise’s activities during the current and preceding years. ASC-740 is the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 740, Income Taxes. ASC-740 includes FASB Interpretation No. 48 (FIN 48) – Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement (FAS) No. 109.

For more information on ASC-740, see or contact Daniel DeLau at 720-227-0065 or delau@taxops.com.

Next in the series: Terms and definitions for ASC-740

The IRS has a new page on its website with collection procedures for late filings and late payments. The page provides detailed information on the collection process and taxpayer rights; payment options; and ways a taxpayer can prevent future tax liabilities. The new IRS collection procedures page is located at
http://www.irs.gov/businesses/small/article/0,,id=108326,00.html .

Contact Mike Abramovitz with TaxOps at 720-227-0423 or mabramovitz@taxops.com for more information and guidance to on the new IRS webpage for late filers.

Under recessionary and budgetary pressures, many states are turning to amnesty programs to rake in some quick cash from delinquent taxpayers. Remiss taxpayers that take advantage of these windows of opportunity can save themselves money and ingratiate themselves back into the good graces of the State and local taxing authorities.

Amnesty programs give those who owe back taxes a chance to pay off their tax debt, often without attendant penalties and at a reduced rate of interest. In 2010, at least eight states offered a no-penalty payback period, including Florida, Kentucky, Maine, Massachusetts, Minnesota, New Mexico, Nevada, and Pennsylvania. Already this year, the states of Michigan and Washington have given select taxpayers a free pass to pay up. Arizona and Colorado will soon follow with an amnesty period later this year.

Tax amnesty programs are used by states and local jurisdictions to collect unpaid taxes faster and more cheaply than they otherwise would if states had to hunt non-filers down for payment. By declaring an amnesty period, states encourage taxpayers to report and pay delinquent taxes through voluntary participation in the amnesty programs.

Since 1982, 45 states and the District of Columbia have established 111 tax amnesties, according to the Bell Policy Center. Eighteen states have declared three or more tax amnesties over this period including Arizona, Kansas, Nevada, Oklahoma and Texas. Colorado has relied on amnesty twice to recover delinquent payments. In 1985, the Bell Policy Center reports that a Colorado tax amnesty period brought in $6.4 million and in 2003, a second amnesty period generated $23 million of tax payments in arrears.

Delinquent Colorado taxpayers may want to consider participating in the tax amnesty program set for Oct. 1 through Nov. 15 of this year (Senate Bill 184). Only companies and residents who had overdue taxes as of Dec. 31, 2010 may take advantage of the amnesty, excluding those with whom the State has already begun the legal process of collecting back taxes.

Those states without official amnesty programs might give delinquent taxpayers similar reprieve options under a Voluntary Disclosure Agreement (VDA). For more information on amnesty programs and VDAs, contact Meredith Theiss at mtheiss@taxops.com or 720-227-0064.

In September of 2006, pharmaceutical giant GlaxoSmithKline agreed with the IRS that it had underpaid taxes for prior years totaling approximately $3.4 billion in taxes and interest. While the scale of this particular example may be unusual, underpayments of tax in the millions of dollars are common occurrences when talking about large corporations, trusts, partnerships, and wealthy individuals.

To assist in closing this underpayment gap, and to take advantage of relatively recent financial accounting reporting requirements, the IRS is now requiring the reporting of uncertain tax positions on Schedule UTP beginning with the 2010 tax year.

The instructions to Schedule UTP provide that each U.S. federal income tax position taken by an applicable corporation on its U.S. federal income tax return must be reported on the schedule if the following two conditions are satisfied:

1.  The corporation has taken a tax position on its U.S. federal income tax return for the current year or for a prior year.

2.  Either the corporation or a related party has recorded a reserve with respect to that tax position for U.S. federal income tax in audited financial statements, or the corporation or related party did not record a reserve for that tax position because the corporation expects to litigate the position.

Red Flagging Issues for the IRS

Uncertain tax position reporting only applies to corporations with $100 million in assets during 2010, but over the next five years, the threshold for being subject to the uncertain tax position rules will be lowered to $10 million in assets. Only the smallest companies will not be subject to the reporting requirements. Schedule UTP does not currently apply to pass-through or tax-exempt entities.

As a result of these additional reporting requirements, more companies will need to determine whether to take an uncertain tax position on their return or not. Companies should perform additional research to ensure that the uncertain tax position is more likely than not to occur before risking red flagging any uncertainty to the IRS in a footnote or Schedule UTP. If an uncertain tax position is more likely than not to occur in the future, than the company does not need to disclose that position in their financial statements or on Schedule UTP for reporting to the IRS.

For more information on uncertain tax position reporting, please contact Dan DeLau at 720-227-0065 or delau@taxops.com.

The IRS and the Financial Crimes Enforcement Network (FinCEN) have issued an extension for individuals with only signature authority that are required to file the Report of Foreign Bank and Financial Accounts (FBARs). These individuals will receive a one-year extension beyond the upcoming filing date of June 30, 2011.

The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries. U.S. persons are required to file FBARs Form TD F 90-22.1 annually if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

FinCEN Notice 2011-1 extends the deadline until June 30, 2012, for the following individuals:

•  An employee or officer of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”).
•  An employee or officer of a controlled person of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.

All other U.S. persons required to file an FBAR this year must meet the June 30, 2011, filing date.
For additional information about FBAR filing requirements, see Mid-year deadline for FBAR reporting fast approaching or call Mike Abramovitz at 720-227-0423 or mabramovitz@taxops.comfor guidance on upcoming deadlines.

Among the many considerations for entrepreneurs of startup companies, managing tax issues tends to rank near the bottom of the list. Instead, entrepreneurs see more value in spending seed capital and limited resources on growth initiatives, such as courting a customer base and improving product and service lines and distribution.

As these initiatives bear fruit and the company grows, so too does its operational and tax complexity, often before startups have the financial means to adequately manage that complexity. As a result, tax opportunities may be lost and risk created.

Tax issues are best dealt with as a company grows. This approach allows for proactive planning and execution of tax function initiatives including; tax planning, cash flow management, risk management, compliance and reporting, and tax department operations. Yet as each company grapples with the difficulties of moving beyond the startup stage, it may not always be feasible to attack tax issues head-on while so many other high priority items wait in the wings.

TaxOps Investments allow the tax function of a startup to grow in complexity with the company.

TaxOps Investments partners with promising startups to make sure tax issues are dealt with correctly from the start. “This allows the tax function to grow in complexity with the company,” Brian Amann, director at TaxOps, says. TaxOps Investments can enter into these types of equity arrangements since it does not offer the audit and financial statement attestations that require independence under AICPA guidelines.

In exchange for an equity position, TaxOps advisors provide partner companies with the tax expertise and solutions to anticipate and manage ongoing tax issues in the most cost effective manner. “Our equity interest means that we share the risk and take literal ownership of these high-growth startups,” Amann says.

Five years ago, GreenBuilder Media met the short-list of critera for TaxOps Investments; the eco-friendly company was long on promise and short on capital. As its green technique and technology vision rapidly spread out across the U.S., the company’s tax complexity also increased. Complying with onerous rules and tax filings in various jurisdictions carried significant opportunity costs, reducing capital available for growth. Amann says, “The company couldn’t afford to pay for the complexity they had created with their rapid growth.” (See our client profile on GreenBuilder Media)

TaxOps Investments took an equity interest in exchange for three years of specialty tax solutions, enough time and expertise to see GreenBuilder beyond the startup stage to the next level in its development. TaxOps provided much-needed tax solutions to the company and helped position them from a tax planning and cash flow standpoint for future growth.

TaxOps Investments partners with earlier stage companies with complex tax needs that are not being met. “With a little help on the front end, we hope to give these companies the solid footings they need to grow and become successful,” Amann says.

Please contact Brian Amann at 720.227.0062 or bamann@taxops.com if you’d like to discuss an equity arrangement with TaxOps Investments.