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Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
Staying one step ahead seminar
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Staying one step ahead seminar

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Proper Tax Planning and Compliance for Tax Audits …

Proper Tax Planning and Compliance for Tax Audits
2009, Philip Stein & Associates

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  • 1. Staying One Step Ahead Proper Tax Planning and Compliance for Tax Audits Miriam C. Konstam Corporate Tax Services Manager July 22, 2009
  • 2. Tax Planning <ul><li>Debt vs. equity </li></ul><ul><li>Delaware franchise taxes </li></ul><ul><li>Establishing US operations </li></ul><ul><ul><li>State tax implications </li></ul></ul><ul><ul><li>Incentives or grants available </li></ul></ul>Agenda Tax Compliance <ul><ul><li>Forms W-8 Series </li></ul></ul><ul><ul><li>Sales Tax Issues and Audits </li></ul></ul>
  • 3. Debt vs. Equity <ul><li>IRC § 385 governs this issue </li></ul><ul><li>Debt appears to have flexibility </li></ul><ul><li>Debt must accrue interest and comply with withholding requirements </li></ul><ul><li>Taxpayer is bound by his decision, IRS is not </li></ul>
  • 4. Debtor-creditor or corporation-shareholder relationship? <ul><li>Is there an unconditional promise on the part of the debtor to pay a sum certain </li></ul><ul><li>Is there convertibility into the stock of the corporation </li></ul><ul><li>Are the rights of the creditor subordinate to those of general creditors </li></ul><ul><li>Does the agreement give the creditor the right to participate in the management of the debtor </li></ul><ul><li>Is the debtor thinly capitalized </li></ul><ul><li>Is there identity between the creditor and shareholders of the debtor; </li></ul><ul><li>Were the funds repaid on the due date </li></ul><ul><li>Is there presence of a maturity date </li></ul><ul><li>What is the label placed upon the instrument by the parties </li></ul><ul><li>Does the debtor have the ability to obtain loans from outside </li></ul><ul><li>lenders </li></ul>
  • 5. Our Perspective <ul><li>Most transactions have the characteristics of equity </li></ul><ul><ul><li>Ensuring treatment of debt </li></ul></ul><ul><ul><li>Compliance with above </li></ul></ul><ul><ul><li>Tax due on payment of interest </li></ul></ul><ul><ul><li>Portfolio interest exception </li></ul></ul><ul><li>Treatment upon exit </li></ul><ul><ul><li>Equity – Return of capital and capital gain. </li></ul></ul><ul><ul><li>Loan – Payment of interest and withholding; return of principal. </li></ul></ul><ul><ul><li>Conversion Feature – Tax due on period of loan treatment, including if payment is in shares </li></ul></ul><ul><li>Distribution of portfolio company’s earnings </li></ul><ul><li>How likely is it that this scenario will occur? </li></ul>
  • 6. Delaware Franchise Taxes <ul><li>Certificate of Good Standing </li></ul><ul><li>Default – Authorized Shares Method </li></ul><ul><li>$75 for each 10,000 shares </li></ul><ul><li>40,000,000 x 75 = $300,000 </li></ul><ul><li> 10,000 </li></ul>
  • 7. Alternate Method $ 14,000.00     TAX DUE 365 $ 14,000.00 40,000,000   Prorated for Number of Days Gross Tax APVC For Tax Basis   40,000,000 1.000000 40,000,000 Assumed Par Value Capital Assumed Par Shares Authorized   1 20,000,000 $ 20,000,000 12/31/2008 Assumed Par Total Shares Issued Gross Assets  
  • 8. The P. Stein Way $ 7,000.00     TAX DUE 365 $ 7,000.00 20,000,000   Prorated for Number of Days Gross Tax APVC For Tax Basis   20,000,000 0.500000 40,000,000 Assumed Par Value Capital Assumed Par Shares Authorized   0.5 40,000,000 $ 20,000,000 12/31/2008 Assumed Par Total Shares Issued Gross Assets  
  • 9. Establishing US Operations State Tax Implications <ul><li>50 states </li></ul><ul><li>Physical Presence </li></ul><ul><li>Economic Presence </li></ul><ul><li>Migration to Gross Receipts Taxes </li></ul><ul><li>On the Upside – Grants & Incentives </li></ul>
  • 10. Sales Tax Issues and Audits <ul><li>Is sale subject to sales tax? </li></ul><ul><ul><li>Transaction subject to tax </li></ul></ul><ul><ul><li>End user – resale certificate </li></ul></ul><ul><li>Is there nexus in that state? </li></ul><ul><li>Use tax </li></ul><ul><li>8,800 jurisdictions </li></ul><ul><li>Audits – testing periods plus interest </li></ul>
  • 11. Forms W-8 <ul><li>IRS Tier I Issue – Closing the $100 billion tax gap </li></ul><ul><li>Default Presumption Rules </li></ul><ul><li>Substitute Form W-8 </li></ul><ul><li>Spreadsheet Equivalents </li></ul>

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