This document summarizes a presentation by Polsinelli PC on the implications of the Tax Cuts and Jobs Act for banking institutions. It discusses several key provisions of the new tax law that affect banks, including reduced corporate tax rates, limitations on interest expense deductions, changes to depreciation rules, and limitations on state and local tax deductions. It also provides an analysis of how these changes impact decisions for banks on whether to operate as S corporations or C corporations. The presentation examines potential tax savings for a sample community bank that converts from an S corp to a C corp structure under the new law.
Tax Cuts & Job Act Implications for Small Business Investments Companies Polsinelli PC
On December 22, 2017, the President signed into law a federal tax reform bill commonly known as the Tax Cuts & Jobs Act (the “Tax Act”). The Tax Act resulted in significant changes to the U.S. tax system on a number of fronts. This webinar will provide an overview the provisions of the Tax Act relevant to SBIC’s. We will also address the impact of the Tax Act upon the choice of entity decisions and a number of ancillary matters.
Tax Cuts & Job Act Implications for Small Business Investments Companies Polsinelli PC
On December 22, 2017, the President signed into law a federal tax reform bill commonly known as the Tax Cuts & Jobs Act (the “Tax Act”). The Tax Act resulted in significant changes to the U.S. tax system on a number of fronts. This webinar will provide an overview the provisions of the Tax Act relevant to SBIC’s. We will also address the impact of the Tax Act upon the choice of entity decisions and a number of ancillary matters.
Commercial Real Estate Hot Topics - January 2018CBIZ, Inc.
CBIZ’s Real Estate practice is uniquely positioned to help you
minimize risk and capitalize on market opportunities.
We work with owners, managers, operators and investors, as well as commercial real estate developers and partnerships in all of the major CRE sectors: retail, office, hotel, multi-family, shopping centers and real estate investment trusts.
The Impact of the New Tax Law on Real Estate InvestmentCBIZ, Inc.
Generally speaking, real estate fared well under the Tax Cuts and Jobs Act (TCJA). This document provides a recap of the key areas of real estate that were impacted by the new tax law. www.cbiz.com
Speeding Through 2020 Auto Webinar Series - Year-End ReviewCitrin Cooperman
As 2020 nears completion, we discuss what automotive dealerships need to record and what files need to be kept in order to ensure that 2020 is closed properly and that the new year starts off right.
The tax reform bill was signed into law on Dec. 22, 2017, bringing sweeping and historic changes to our country’s tax laws. These changes generally are effective in 2018 and impact every taxpayer, including many provisions that will significantly impact the construction sector.
We will focus on the manner in which construction businesses are impacted by the new law, and will offer insight about how the sector should respond to the new provisions.
Commercial Real Estate Hot Topics - January 2018CBIZ, Inc.
CBIZ’s Real Estate practice is uniquely positioned to help you
minimize risk and capitalize on market opportunities.
We work with owners, managers, operators and investors, as well as commercial real estate developers and partnerships in all of the major CRE sectors: retail, office, hotel, multi-family, shopping centers and real estate investment trusts.
The Impact of the New Tax Law on Real Estate InvestmentCBIZ, Inc.
Generally speaking, real estate fared well under the Tax Cuts and Jobs Act (TCJA). This document provides a recap of the key areas of real estate that were impacted by the new tax law. www.cbiz.com
Speeding Through 2020 Auto Webinar Series - Year-End ReviewCitrin Cooperman
As 2020 nears completion, we discuss what automotive dealerships need to record and what files need to be kept in order to ensure that 2020 is closed properly and that the new year starts off right.
The tax reform bill was signed into law on Dec. 22, 2017, bringing sweeping and historic changes to our country’s tax laws. These changes generally are effective in 2018 and impact every taxpayer, including many provisions that will significantly impact the construction sector.
We will focus on the manner in which construction businesses are impacted by the new law, and will offer insight about how the sector should respond to the new provisions.
The Impact of the New Tax Law on Real Estate InvestmentCBIZ, Inc.
The bill introduced as the Tax Cuts and Jobs Act (TCJA) was signed into law by the President on December 22, 2017. It is the most far reaching tax change to affect the real estate sector since the Tax Reform Act of 1986. Generally speaking, real estate fared well under the new law.
Understanding the New Tax Law: Real EstateCBIZ, Inc.
The real estate sector fared well under the new tax law introduced as the Tax Cuts and Jobs Act (TCJA). Specifically, the
TCJA dropped the corporate rate by 40 percent, increased benefits for depreciation and expensing, and added a new
deduction against qualified business income for pass-through entities.
CBIZ Commercial Real Estate Hot Topics Newsletter - June-July 2020CBIZ, Inc.
This issue offers links to webinars and articles addressing COVID-19 issues like PPP forgiveness, specific tax considerations for the CRE sector, preparing for cybersecurity questions from your auditor, the P&C market outlook and associated insurance planning insights, keys for a smooth transition to the new normal, and two QOZ topics – one on IRS pandemic deadline relief and a guest article on the role OZ funds can play at both the community and national levels.
CBIZ Commercial Real Estate Quarterly Newsletter – June 2021CBIZ, Inc.
This issue tackles two of the hottest topics for the CRE sector - what you can do to reduce the cost of property insurance and how to take advantage of the newly supercharged employee retention tax credit. Rounding out the issue is coverage of Biden’s tax plan and short takes on Q1 and Q2 CRE sector news. As an added bonus, links are provided to COVID-19 resources, on-demand webinars and additional content & business aids. Learn more.
6 Tax Considerations for the Real Estate Sector under Recent COVID-19 Legisla...CBIZ, Inc.
Tax planning may not be a priority as real estate groups respond and recover to COVID-19 pandemic disruption, but recent legislation provides some significant opportunities that are worth a closer look. This article discusses the careful consideration and planning required to determine an appropriate strategy to optimize income tax obligations under these provisions.
Idaho Law Foundation Headline News Course - Idaho Falls - Nov. 30, 2018
In this presentation, Mr. Cather reviewed the impact of tax cuts and the Jobs Act on businesses.
Section 199A of the Internal Revenue Code provides many taxpayers a deduction for qualified business income from a qualified trade or business operated directly or through a pass-through entity.
http://bit.ly/Harshwal
Understanding the New Tax Law: Private Equity FundsCBIZ, Inc.
Changes under the new tax law are mixed for sponsors of private equity funds. While tax rates for both businesses
and individuals decrease, portfolio and asset management activities are ineligible for the qualified business income deduction available to pass-through entities.
9.22.20 Startups in a Down Economy Legal, Business, and Financing strategiesideatoipo
Launching a startup - or starting a business - is challenging and is fraught with pitfalls. This is even more so in the midst of a pandemic and a global recession.
Roger Royse, partner at the law firm of Haynes and Boone, LLP in Palo Alto, will discus strategies for building and operating a successful business or startup during a recession. Roger will discuss:
1) What should you expect from your vendors, customers and financiers?
2) How can startup founders protect themselves from predatory creditors during a bad economy?
3) What will financing terms look like now?
Is startup investment capital even available?
4) What are some tax traps to avoid when working out debt obligations with investors and creditors?
5) Can startups still get federal stimulus grant money or loans?
6) What will venture capital terms look like now?
7) For existing startup companies -- how can you get venture capitalists to step up and continue funding your startup company?
8) How viable is crowdfunding and other alternative sources of funding in 2020?
9) If you lost your job or have been furloughed, how do you get started doing gig work in a gig economy?
What are the legal traps and restrictions for gig workers?
10) What other strategies and tactics should entrepreneurs deploy during a downturn?
and more!
Please come with your questions, comments and scenarios.
About the Speaker:
Roger Royse is a partner in the Palo Alto office of Haynes and Boone, LLP and practices in the areas of corporate and securities law, tax, mergers and acquisitions and fund formation. He works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger has been an instructor or professor of legal, tax and business topics for the Center for International Studies (Salzburg, Austria), Golden Gate University School of Law and Stanford Continuing Studies and is a frequent speaker, writer, radio guest, blogger and panelist for bar associations, CPA organizations, and business groups. Roger is a Northern California Super Lawyer, is AV Peer-Rated by Martindale Hubbell, and has a “Superb” rating from Avvo..
Roger is the author of Dead on Arrival: How to Avoid the Legal Mistakes That Could Kill Your Startup and has been interviewed and quoted in the Wall Street Journal, Forbes, Fox Business, Chicago Tribune, Associated Press, Tax Notes, Inc. Magazine, Nikkei Asian Review, China Daily, San Francisco Chronicle, Reuters, The Recorder, 7X7, Business Insurance and Fast Company.
If you have questions for Roger, you can reach him at:
roger.royse@haynesboone.com
Preventing Compliance Quagmires in Senior Living Communities: Part 1 - Can So...Polsinelli PC
During this webinar we will explore the regulatory, operational and employment related issues that arise when long term care staff use social media at work in the long term care setting.
Health Care "Prime" - The Future of the Ownership, Organization, Payment, and...Polsinelli PC
The potential for disruption and disaggregation of traditional and incumbent players is occurring across the health care ecosystem and care continuum, and may accelerate through the intended and unintended consequences of this innovative new venture. Is this partnership a seminal event in defining the future of health care? Author William Gibson said, “The future is already here – it’s just not very evenly distributed.” This statement applies as the future of health care fast approaches, but with variability across stakeholders, their businesses, and the communities in which they provide care as part of one of America’s largest industries.
A diverse panelist group will bring a broad range of current perspectives and insights related to this partnership. From the base of the panelists’ unique perspectives, they will discuss their views on the likely near-, mid- and long-term implications of this announced venture on the ownership, organization, payment, and delivery of health care products, supplies and services in America.
The Trump Labor Board Goes Back to the FuturePolsinelli PC
The last weeks of 2017 brought significant changes to the National Labor Relations Board and federal labor law. Polsinelli’s Traditional Labor Practice Group will cover all of these changes, including the short-lived Republican majority, the new Board members and General Counsel, a recap of the major decisions reversing several of President Obama’s pro-employee initiatives over the last eight years, and discuss what is in store for employers in 2018.
Lessons learned from litigating real estate development projectsPolsinelli PC
Real estate development projects are filled with uncertainty. Zoning and permitting denials, disputes with neighboring property owners and citizen groups, and ambiguity in development contracts can cause significant setbacks to even the most well planned developments. This webinar will explore the many pitfalls of the development process and how to navigate them. Four Polsinelli attorneys offer their guidance and insights gained from litigating these very types of issues.
Datascram is being called a massive “Datascam.” Engineers cut corners and, as it turns out, data is not deleted forever. Instead, once deleted, it resides on a Nigerian server where it is sold to the highest bidder. As the company prepares to shut its doors, new questions emerge about Damian Diamond’s role in the fiasco and whether he could be held personally responsible for the company’s potentially criminal activities.
There is a glut of competitive product on the market, and sales and the company stock price are down. Damien Diamond has ordered immediate cost cutting, with significant implications both for the company's bottom line and the lives of the employees currently on the payroll. Failure to proceed in accordance with the law could make Datascram's problems even worse.
WINDING UP of COMPANY, Modes of DissolutionKHURRAMWALI
Winding up, also known as liquidation, refers to the legal and financial process of dissolving a company. It involves ceasing operations, selling assets, settling debts, and ultimately removing the company from the official business registry.
Here's a breakdown of the key aspects of winding up:
Reasons for Winding Up:
Insolvency: This is the most common reason, where the company cannot pay its debts. Creditors may initiate a compulsory winding up to recover their dues.
Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
Types of Winding Up:
Voluntary Winding Up: This is initiated by the company's shareholders through a resolution passed by a majority vote. There are two main types:
Members' Voluntary Winding Up: The company is solvent (has enough assets to pay off its debts) and shareholders will receive any remaining assets after debts are settled.
Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
Winding up is a complex legal and financial process that can have significant consequences for all parties involved. It's important to seek professional legal and financial advice when considering winding up a company.
In 2020, the Ministry of Home Affairs established a committee led by Prof. (Dr.) Ranbir Singh, former Vice Chancellor of National Law University (NLU), Delhi. This committee was tasked with reviewing the three codes of criminal law. The primary objective of the committee was to propose comprehensive reforms to the country’s criminal laws in a manner that is both principled and effective.
The committee’s focus was on ensuring the safety and security of individuals, communities, and the nation as a whole. Throughout its deliberations, the committee aimed to uphold constitutional values such as justice, dignity, and the intrinsic value of each individual. Their goal was to recommend amendments to the criminal laws that align with these values and priorities.
Subsequently, in February, the committee successfully submitted its recommendations regarding amendments to the criminal law. These recommendations are intended to serve as a foundation for enhancing the current legal framework, promoting safety and security, and upholding the constitutional principles of justice, dignity, and the inherent worth of every individual.
ASHWINI KUMAR UPADHYAY v/s Union of India.pptxshweeta209
transfer of the P.I.L filed by lawyer Ashwini Kumar Upadhyay in Delhi High Court to Supreme Court.
on the issue of UNIFORM MARRIAGE AGE of men and women.
RIGHTS OF VICTIM EDITED PRESENTATION(SAIF JAVED).pptxOmGod1
Victims of crime have a range of rights designed to ensure their protection, support, and participation in the justice system. These rights include the right to be treated with dignity and respect, the right to be informed about the progress of their case, and the right to be heard during legal proceedings. Victims are entitled to protection from intimidation and harm, access to support services such as counseling and medical care, and the right to restitution from the offender. Additionally, many jurisdictions provide victims with the right to participate in parole hearings and the right to privacy to protect their personal information from public disclosure. These rights aim to acknowledge the impact of crime on victims and to provide them with the necessary resources and involvement in the judicial process.
Introducing New Government Regulation on Toll Road.pdfAHRP Law Firm
For nearly two decades, Government Regulation Number 15 of 2005 on Toll Roads ("GR No. 15/2005") has served as the cornerstone of toll road legislation. However, with the emergence of various new developments and legal requirements, the Government has enacted Government Regulation Number 23 of 2024 on Toll Roads to replace GR No. 15/2005. This new regulation introduces several provisions impacting toll business entities and toll road users. Find out more out insights about this topic in our Legal Brief publication.
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
PRECEDENT AS A SOURCE OF LAW (SAIF JAVED).pptxOmGod1
Precedent, or stare decisis, is a cornerstone of common law systems where past judicial decisions guide future cases, ensuring consistency and predictability in the legal system. Binding precedents from higher courts must be followed by lower courts, while persuasive precedents may influence but are not obligatory. This principle promotes fairness and efficiency, allowing for the evolution of the law as higher courts can overrule outdated decisions. Despite criticisms of rigidity and complexity, precedent ensures similar cases are treated alike, balancing stability with flexibility in judicial decision-making.
ALL EYES ON RAFAH BUT WHY Explain more.pdf46adnanshahzad
All eyes on Rafah: But why?. The Rafah border crossing, a crucial point between Egypt and the Gaza Strip, often finds itself at the center of global attention. As we explore the significance of Rafah, we’ll uncover why all eyes are on Rafah and the complexities surrounding this pivotal region.
INTRODUCTION
What makes Rafah so significant that it captures global attention? The phrase ‘All eyes are on Rafah’ resonates not just with those in the region but with people worldwide who recognize its strategic, humanitarian, and political importance. In this guide, we will delve into the factors that make Rafah a focal point for international interest, examining its historical context, humanitarian challenges, and political dimensions.
How to Obtain Permanent Residency in the NetherlandsBridgeWest.eu
You can rely on our assistance if you are ready to apply for permanent residency. Find out more at: https://immigration-netherlands.com/obtain-a-permanent-residence-permit-in-the-netherlands/.
Car Accident Injury Do I Have a Case....Knowyourright
Every year, thousands of Minnesotans are injured in car accidents. These injuries can be severe – even life-changing. Under Minnesota law, you can pursue compensation through a personal injury lawsuit.
The Main Procedures for Obtaining Cypriot Citizenship
Tax Cuts & Jobs Act Implications for Banking Institutions
1. Polsinelli PC. In California, Polsinelli LLP
Tax Cuts & Jobs Act Implications for
Banking Institutions
Presented by Polsinelli PC
April 12, 2018
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Presenters
Bill Sanders
Shareholder and
Practice Chair of
the Tax Group
(Kanas City)
Philip Feigen
Shareholder and
Practice Chair of
the Banking and
Financial
Institutions Group
(Washington, D.C.)
Erik Edwards
Of Counsel in the
Tax Group (Kanas
City)
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Federal Legislative Update
Congress orders Dodd-Frank cost review
State of play: Banking regulatory overhaul
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Overview of the Major Tax Act Provisions
Affecting the Banking Industry
Rate Reductions including Choice of Entity and Deferred Tax Asset
Account Impacts
Qualified Business Income (“QBI”) Deduction
Interest Expense Deduction Limitation
Changes to Depreciation and Expensing
Dividends Received Deduction Decrease
NOL Limitations
Excise Tax on Wages over $1 million (Section 162(m))
Limitation on Deductibility of State Taxes
Further Limits on Deductibility for Meals, Entertainment and
Employee Parking
Choice of Entity – To be and S or not to be an S – That is the
question
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Rate Reductions
37% Top Individual Rate (40.8% including net
investment income tax)
• Prior maximum was up to 45%
29.6% Effective Rate on Business Income From Pass-
Throughs Eligible for Full 20% Deduction (33.4%
including net investment income tax)
21% C Corporation Tax Rate Reduced to Flat 21%
• Qualified Dividends still subject to shareholder
level tax of up to 23.8%
• Overall effective federal tax rate of 39.8% for
earnings if distributed (down from 50%)
23.8% Capital Gains Tax Rate Did Not Change
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Impact on Deferred Tax Asset Account
U.S. Bank’s suffered a 40.9% drop in profits
during the fourth quarter of 2017 compared to
the same quarter a year ago
The FDIC indicated this drop was due largely to
one-time changes from the new tax law
Revaluations of Deferred Tax Asset Accounts
due to the C Corporation rate reduction and the
new mandatory repatriation tax on income from
foreign subsidiaries
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Qualified Business Income (“QBI”)
Deduction
20% deduction for flow-through income
Limited to the greater of:
– 50% of W-2/wages paid or
– 25% of W-2/wages paid plus 2.5% of the cost of
tangible depreciable property for qualifying
businesses
Subject to certain limitations and phase-outs
Aggregation issues
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Qualified Business Income (“QBI”)
Deduction, cont’d
Allows individual taxpayers to deduct 20% of domestic
“qualified business income” (QBI) from a partnership, S
corporation, or sole proprietorship (“qualified
businesses”) subject to certain limitations and
thresholds.
“Qualified businesses” do not include “specified service
trade or businesses” (accounting, law, health, several
other professions, service businesses related to
investing, and financial services) but engineering and
architecture trades are not excluded.
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Qualified Business Income (“QBI”)
Deduction, cont’d
“Financial services” versus “banking”
“specified services” are explicitly defined under IRC
Section 1202(e)(3)(A), and include:
– “…any trade or business involved the performance of services in the
fields of health, law, accounting, actuarial science, performing arts,
consulting, athletics, financial services, brokerage services, or any trade
or business where the principal asset of such trade or business is the
reputation or skill of 1 or more of its employees…”
IRC Section 1202(e)(3)(B) addresses “any banking,
insurance, financing, leasing, investing, or similar
business”
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Interest Expense Deduction Limitation
Across the board limitations on the deductibility
of business interest expense.
Real property and farming trades or businesses
can make an irrevocable election out of the
business interest deduction limitation. These
businesses must then use the alternative
depreciation system to depreciate property with
a recovery period of 10 years or more.
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Interest Expense Deduction
Limitation, cont’d
In common parlance, this limitation is described as
limiting the deduction of net interest expense to the
extent of 30% of “adjusted taxable income” where:
– For the first four years, “adjusted taxable income” is EBITDA
(computed on a tax basis); and
– Later, “adjusted taxable income” is 30% of EBIT.
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Interest Expense Deduction
Limitation, cont’d
While there is no bank-related exception to this limitation, Code
Section 163(j)(1) contains a bank-friendly provision. Section
163(j)(1) sates that the amount allowed as a deduction for
any taxable year for business interest shall not exceed the sum of:
– the business interest income of such taxpayer for such taxable year,
plus
– 30 percent of the adjusted taxable income of such taxpayer for such
taxable year, plus
– Certain floor plan financing interest .
“Business interest income” is the amount of interest includible in the
taxpayer’s gross income for the taxable year which is properly
allocable to a trade or business. “Trade or business,” for this
purpose excludes certain specific items, none of which relate to
banking.
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Immediate Expense Deduction and
Section 179
Immediate expensing of tangible property placed in
service between September 27, 2017 through 2022.
5 year phase-out: 80% expensing in 2023, 60% in 2024,
etc.
Applies to new and used property so long as it is
purchaser’s first use of the property.
Applies to tangible property with 20 year depreciation or
less.
– Cost segregation worth more
– Asset purchases more valuable
– Purchase price allocations more important
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Immediate Expense Deduction and
Section 179, cont’d
There were four categories of improvements to the interior of
nonresidential buildings: leasehold improvements, retail
improvement property, restaurant property, and qualified
improvement property.
Now, there is only one general definition, “qualified improvement
property.”
– Includes most interior improvements made after real property is place in
service
– Supposed to get 15 year depreciation, but may have been inadvertently
left out.
– Qualified improvement property: normal is 15 years, ADS should be 20
years, but may have been erroneously omitted. Result unclear
Error means property could be subject to lengthy depreciation, and
could also disqualify this property from immediate expensing
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Immediate Expense Deduction and
Section 179, cont’d
Prior law allowed immediate deduction of $510,000 in
purchases of qualified property in 2017, so long as total
purchases did not exceed $2,030,000
– Qualified property is tangible personal property (not real estate,
except as described below)
New Law increases the deduction to $1,000,000 with
purchase limit of $2,500,000 (both indexed for inflation)
Includes Qualified Improvement Property, roofs, HVAC,
fire and security
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Dividends Received Deduction Decrease
Corporations may still deduct 100% of dividends
received from a corporation that is part of an affiliated
group (generally where the taxpayer owns 80% of the
corporation paying the dividend).
Deduction is reduced to 65% (from 80%) where the
taxpayer owns at least 20% (but less than 80%) of the
corporation paying the dividend.
Deduction is reduced to 50% (from 70%) where the
taxpayer owns less than 20%.
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NOL Limitations
Corporate net operating loss carrybacks are eliminated.
Net operating losses carryforward indefinitely but are
limited to 80% of taxable income.
Technical Correction Possible:
– The new 80% deduction limit is effective for losses arising in tax
years beginning after Dec. 31, 2017 but the Tax Act made the
changes to carrybacks and carryforwards effective for tax years
ending after that date.
– For fiscal year companies with 2017 taxable years ending after
Dec. 31, 2017, this results in an unexpected problem if they have
incurred significant losses they were hoping to carryback.
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Excise Tax on Wages over $1 million
All compensation paid to a “covered employee” (with a broader
definition) in excess of $1 million would be nondeductible,
including post-termination and post-death payments, severance,
deferred compensation and payments from nonqualified plans.
Expanded from just public companies to certain privately-held
corporations not publicly traded but with public debt and foreign
companies publicly traded through American Depository
Receipts.
The Section 162(m) exception under for qualified performance-
based compensation and commissions is eliminated. This is a
significant change for companies that have traditionally had
compensation programs designed in a manner to meet the
requirements of the performance-based exception.
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Limitation on Deductibility of State Taxes
Individuals are limited to state and local tax deductions
at $10,000 (property plus choice of income or sales
taxes, as under old law).
Taxable entities are not subject to these limitations.
Implications for flow through state and local income
taxes.
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Further Limits on Deductibility for Meals,
Entertainment and Employee Parking
No deduction for entertainment expenses
Meals provided for convenience of
employer are now only 50% deductible
even if excludible from employees’ gross
income as de minimis fringe benefits
Employee parking costs no longer
deductible
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Choice of Entity – To be and S or not to be
an S – That is the question
Historical role of S and C corporations in the Banking
Industry
Cumulative Impact of New Tax Law Changes on the
Choice of Entity
Analysis and Case Study of an Community Bank and its
Decision on Conversion
The 10 year Hang Over Effect of Converting From an S
corporation to a C corporation
Washington and the Dilemma of Future Uncertainty
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Historical Role of S and C Corporations in
the Banking Industry
As of September 20, 2017, about 1/3rd of all banks
throughout the US were S corporations
A vast majority of these are banks with assets under $1
Billion.
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Cumulative Impact of New Tax Law
Changes on the Choice of Entity
Historically, the tax code has been biased
toward operating in pass-through form, but the
Tax Act significantly reduced the disparity in
effective tax rates.
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Cumulative Impact of New Tax Law
Changes on the Choice of Entity, cont’d
Examples of businesses that may want to incorporate:
– Businesses that reinvest most of their earnings. Corporate tax
rate is now 21% whereas pass-through income is taxed at 29.6%
to owner if a full QBI deduction is available, and 37% if no
deduction is available.
E.g., assets light and labor light businesses; high tech
business
– Business whose shares may qualify as Section 1202 “Qualified
Small Business Stock”
– Businesses that can make use of nonqualified deferred
compensation.
– C Corporations with foreign sales or who own foreign
subsidiaries.
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Cumulative Impact of New Tax Law
Changes on the Choice of Entity, cont’d
CAVEAT: Once a business chooses to incorporate,
changing back to pass-through form may cause gain
recognition.
– Corporation to partnership (legal partnership or LLC taxed as
partnership): Gain recognized as if assets sold at fair value.
– C Corporation to S Corporation:
– All shareholders must be eligible shareholders.
– One class of stock rule.
– Corporate tax is levied on asset sales within 5 years of the
election to the extent that unrealized built-in gains existed on the
election date.
– Accumulated earnings remain subject to double tax.
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Cumulative Impact of New Tax Law
Changes on the Choice of Entity, cont’d
Examples of businesses that may wish to be organized
in or remain in pass-through form:
– Businesses that distribute most of their earnings. Effective federal tax
rate to corporate shareholders is 39.8% whereas pass-through effective
rate is 29.6% if a full QBI deduction is available. (E.g., asset intensive
and labor intensive businesses.)
– If no QBI deduction is available, individual rate is 37%, which is still ~
3% lower than effective rate to shareholders, assuming NII tax doesn’t
apply – otherwise rates are about the same (39.8% vs. 40.8%).
– Certain heavily leveraged businesses because it is easier for pass-
throughs (e.g., partnerships) to work around the new limitation on
interest deductions.
– S Corporations with foreign subsidiaries can avoid immediate inclusion
of tax deferred foreign earnings.
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Analysis and Case Study of an Community
Bank and its Decision on Conversion
S Corporation
Old Law New Law
Corporate Tax
Pre-Tax Income 15,000,000 15,000,000
Corporate Tax - -
Net After Tax Income 15,000,000 15,000,000
Shareholder Tax
Shareholder Income 15,000,000 15,000,000
QBI Deduction - 3,000,000
Net Shareholder Income 15,000,000 12,000,000
Federal Income Tax 5,940,000 4,440,000
Net Investment Income Tax 570,000 570,000
Phase Out - Itemized Deductions 180,000 -
Sate Income Tax (6% assumed) 900,000 720,000
Federal Tax Savings for State Tax Ded'n (356,400) -
Total Income Taxes 7,233,600 5,730,000
Effective Combined Tax Rate 48.2% 38.2%
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Analysis and Case Study of an Community
Bank and its Decision on Conversion, cont’d
C Corporation
Old Law New Law
Corporate Tax
Pre-Tax Income 15,000,000 15,000,000
Corporate Tax (Federal and State) (6,000,000) (3,900,000)
Net After Tax Cash 9,000,000 11,100,000
Shareholder Tax
Shareholder Income (Dividends) 9,000,000 11,100,000
Income Tax (Federal) 1,800,000 2,220,000
Net Investment Income Tax 342,000 421,800
Phase Out - Itemized Deductions 108,000 -
Sate Income Tax (6% assumed) 540,000 666,000
Federal Tax Savings for State Tax Ded'n (213,840) -
Total Shareholder Tax 2,576,160 3,307,800
Total Income Taxes 8,576,160 7,207,800
Effective Combined Tax Rate 57.2% 48.1%
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S Corporation and C Corporation
Summary
Old Law New Law Old Law New Law
Pre-Tax Income 15,000,000 15,000,000 15,000,000 15,000,000
Corporate Tax - - (6,000,000) (3,900,000)
Net Corporate After Tax 15,000,000 15,000,000 9,000,000 11,100,000
Shareholder Tax (7,233,600) (5,730,000) (2,576,160) (3,307,800)
Net Individual After Tax 7,766,400 9,270,000 6,423,840 7,792,200
Effective Combined Tax Rates 48.2% 38.2% 57.2% 48.1%
S Corporation C Corporation
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30. real challenges. real answers. sm
The 10 year Hang Over Effect of Converting
to a C Corporation
S corporation to C corporation
– General five year prohibition against re-electing S
corporation status
C corporation to S corporation
– Five year built in gains period
S corporation to C corporation to S corporation
– General five year prohibition against re-electing S
corporation status followed by five year built in gains
period
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Washington and the
Dilemma of Future Uncertainty
OMB vs. Treasury
Tax reform 2.0?
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32. real challenges. real answers. sm
A Few Key Points
Choice of Entity is now more complicated – certain provisions of the
tax bill favor corporate form, like the flat 21% tax rate and desire to
reinvest profits, while others, such as the 20% deduction of qualified
business income and distribution of profits, favor pass-throughs.
M&A is likely to accelerate, and asset sales will be more important
because of new rule allowing immediate expensing of tangible asset
purchases.
New provisions will require careful planning and coordination – new
limit on interest deductions, 20% deduction from taxable income of
pass-through businesses, new depreciation and immediate
expensing rules, etc.
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33. real challenges. real answers. sm
Questions
Bill Sanders
Shareholder and
Practice Chair of
the Tax Group
(Kanas City)
Philip Feigen
Shareholder and
Practice Chair of
the Banking and
Financial
Institutions Group
(Washington, D.C.)
Erik Edwards
Of Counsel in the
Tax Group (Kanas
City)
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