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