Cautionary tale: Owner personally liable for sales tax

A New York administrative law judge found an owner to be a responsible person and personally liable for unpaid sales and use taxes.

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Cautionary tale: Owner personally liable for sales tax

TAX ALERT | January 30, 2023 | Authored by RSM US LLP

Executive summary: Personal responsibility for sales taxes is an ongoing concern

A New York Division of Tax Appeals administrative law judge (ALJ) recently found that an individual who partly owned a property management company was an officer and personally liable for unpaid New York sales taxes. Failure to remit sales and use taxes, and many other taxes, can result in substantial monetary penalties and interest, and even business closures. Personal liability for unremitted taxes could also extend to a broad range of responsible parties based on the facts and circumstances, with potential exposure to criminal penalties.

Cautionary tale: Owner personally liable for sales tax

The individual at issue was a 30% owner of a company that owned 30% of a property management company. The property management company failed to timely file three months of sales and use tax returns or pay sales taxes. The New York Division of Taxation assessed $49,639.19 in tax plus penalties and interest against the individual as a responsible person for the property management company. 

On appeal, the ALJ found that the individual signed checks, payment and authorization agreements and partnership and other tax returns. Additionally, he was listed on a power of attorney form signed by the individual as a “managing member” for the property management company, although he subsequently testified he was a limited partner and not a managing member or general manager. He was also identified as a “responsible person” on a New York Form AU-431, Responsible Person Questionnaire, for the company. In finding for the division, the ALJ also noted that the individual had the authority to hire and fire employees. The ALJ concluded that the evidence “clearly” established sufficient authority and control over the company to be personally liable for the tax. It should also be noted that in this case, the individual’s reply brief was not considered by the ALJ because it was not timely filed. 

Takeaways

Ultimately, the facts of the case are not unique as another in a long-line of personal responsibility findings. Those owning and managing businesses must remember to be cognizant of their role and the corresponding tax ramifications. Anyone who has control over a company’s tax and accounting operations may be a responsible party – and subject to personal liability for failure to collect or remit sales and other trust fund taxes. There are many cases where CEOs, CFOs and directors have been held personally liable, even when their day-to-day activities are not at all tax related. 

Additionally, one need not be an executive to be held responsible. Some examples of activities that could lead to personal liability include being involved in deciding financial obligations that must be paid, having the power to hire and fire employees, having check signing authority, signing tax returns or having substantial authority over business decisions. Corporate officers, owners and responsible parties of businesses with sales tax collection obligations should be aware of the consequences for failing to timely remit the tax.

Responsible party personal liability usually arises from situations where the business is in distress. State taxing authorities will pursue responsible persons if they determine that the business cannot satisfy sales and use tax liabilities. 

Sales and use tax liability for responsible parties

As a general rule, officers, members, owners and anyone with any responsibility for financial decisions could be held personally liability for unpaid sales tax. Most states have specific statutory provisions for personal liability. While officers and owners can almost always be held personally liable for failure to remit sales and use taxes, employees with responsibility for financial decisions can also be liable under facts and circumstances tests. These tests look to whether the individuals had access to bank accounts, made management decisions, signed or filed tax returns, signed checks or had any control over any financial matters or financial-related oversight, or authority to exert that oversight. 

Ignorance of the sales tax compliance function is rarely a successful defense if the individual was an owner of the business, a corporate officer or a party with any responsibility for financial decisions. Businesses that have never reviewed their sales and use tax compliance processes and controls should consider a process review to identify inefficiencies and opportunities in all stages of sales and use tax compliance.

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Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Brian Kirkell, David Brunori, Anna Cronic, Mo Bell-Jacobs and originally appeared on 2023-01-30.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/cautionary-tale-owner-personally-liable-sales-tax.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Measuring the risk of default in the debt ceiling crisis

The one- and three-year U.S. credit default swaps have already spiked above levels of previous financial and political crises.

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Measuring the risk of default in the debt ceiling crisis

REAL ECONOMY BLOG | January 27, 2023 | Authored by RSM US LLP

The standoff over raising the federal government’s debt ceiling is not the first time that members of Congress have threatened to default on payments of existing U.S. public debt.

During past episodes, the policy brinksmanship has pushed up the cost of financing, caused a selloff in equity markets and led to a general decline in corporate and public confidence.

Both the public and financial markets tend to approach potential debt ceiling crises with a certain amount of skepticism and fear. One cannot simply ignore the current debt ceiling debate as talk or the price of negation.

While one should tread gingerly when attempting to extrapolate political rhetoric onto a likely response through financial markets, there is now evidence that this political discord is raising the cost of issuing public debt and increasing financial stress.

CDS

In our estimation, it will be some time—we think between August and October—before the U.S. government reaches a date that risks default. But there are already signs that the political polarization is resulting in financial stress.

Consider the one- and three-year U.S. credit default swaps, which have already spiked above levels of previous financial and political crises.

The CDS market is a vehicle for passing the increased risk of corporate default onto another party more willing to take on that risk.

For instance, a business lender might consider that the interest rate on existing holdings is no longer adequate compensation for the increased risk of an economic slowdown and the increased risk of default by corporate borrowers. The CDS market offers additional insurance for that risk.

Now, the cost of a one-year CDS is substantially higher than a three-year contract, implying a greater risk of default within the next year than in the next three years. Note, however, that the risk of further disruptions within the current term of Congress remains elevated.

The takeaway

This is not the first time for such an increase. The spike in the cost of protection offered by the CDS market in these recurring episodes is an indication of the effect of political discourse on the economy.

Just the threat of a U.S. default will have an impact on financial conditions and financial stability, which diminishes the ability of the business sector to borrow and lend, and will disrupt the normal course of the business cycle.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Joseph Brusuelas and originally appeared on 2023-01-27.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/measuring-the-risk-of-default-in-the-debt-ceiling-crisis/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Workforce strategies require ‘balancing act’ of tax implications

How to strengthen your workforce strategy by applying the tax implications to various ways to recruit and retain employees.

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Workforce strategies require ‘balancing act’ of tax implications

ARTICLE | January 25, 2023 | Authored by RSM US LLP

Labor market pressures continue to compel businesses to strategize about the compensation and benefits used to attract and retain employees. From remote work arrangements and incentive compensation to education assistance to parking spaces for electric vehicles, the range of items in any total rewards package can seem limited only by the imagination.

Most compensation methods and benefits, whether traditional or relatively new to the equation, affect an employer’s or employee’s tax obligations in some way. Taking those implications into account helps businesses establish a sustainable approach to their workforce objectives. They’re also key to remaining competitive, especially since 83% of middle market executives anticipate some degree of challenges in staffing open positions in their organization through the first three quarters of 2023, according to the Q4 2022 RSM US Middle Market Business Index survey.

“Tax needs to be at the table in conversations about overall compensation philosophy—not necessarily as the decision-maker, but because businesses should weigh it as a factor in the cost of whatever they’re doing,” said Anne Bushman, a partner in RSM’s Washington National Tax group and leader of the firm’s compensation and benefits practice.

Take remote work, for example; 33% of middle market companies reported having employees working remotely due to the pandemic who were not doing so before the pandemic (a slight dip from 36% a year ago). Of that segment, 54% consider making remote work a full-time permanent option for some employees.

There’s a litany of tax considerations for those companies structuring remote work arrangements, including state and local income tax withholding requirements and compliance ramifications of the so-called tax home of remote and hybrid employees. The potential for unexpected tax obligations is higher for employers that don’t understand how laws apply, not to mention the costs of compliance in an increasing number of jurisdictions.

“You’ve got to do your homework and understand what your requirements are so you can make informed business decisions,” said Peter Berard, RSM senior director and leader of the firm’s employment tax practice.

“If an employee is getting value from the flexibility of a remote work arrangement, maybe the employer can dial down a salary level or a benefit from somewhere else—because it’s all a balancing act.”

Anne Bushman, partner in RSM’s Washington National Tax, on tax affecting compensation philosophy

Rather than tax driving those decisions, though, Berard and Bushman suggest a comprehensive compensation philosophy should shape workforce strategy.

Bushman encourages businesses to ask themselves what value they are providing employees. And as workers continue to make their preferences known—including flexibility in where and when they work and offerings that make them feel valued—a strategy to serve both parties can come into focus.

“If an employee is getting value from the flexibility of a remote work arrangement, maybe the employer can dial down a salary level or a benefit from somewhere else—because it’s all a balancing act,” she said.

The compensation methods and benefits on the scale vary too. Retirement programs (61%), incentive compensation arrangements (47%), education opportunities or assistance (38%), subsidized transportation benefits (17%) and equity/share ownership (15%) are among more than 20 compensation methods and benefits that middle market executives said their companies are offering to attract and retain employees, according to the MMBI survey.

What are organizations offering to attract or retain employees?

That list evolves along with the labor market and other economic conditions, which is why companies benefit from regularly revisiting their compensation philosophy.

“We’re in another shift right now where we’ve been in an inflationary period and we’re talking about a recession,” Bushman said. “How might that change your plan? Do you have to dial back the cash compensation because you simply cannot afford it? You can get ahead of that when you know it’s coming.”

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Anne Bushman, Peter Berard and originally appeared on Jan 25, 2023.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/business-tax/workforce-strategies-require-balancing-act-of-tax-implications.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Preparing for state section 174 differences

State conformity to section 174 and potential congressional action require taxpayers to plan ahead and stay flexible as compliance season approaches.

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Preparing for state section 174 differences

TAX ALERT | January 25, 2023 | Authored by RSM US LLP

Executive summary: State section 174 conformity regardless of federal reform

The Tax Cuts and Jobs Act (TCJA) requires taxpayers to capitalize and amortize research and experimental (R&D) expenditures under section 174 for tax years beginning after Dec. 31, 2021. For taxpayers affected by the changes, state tax conformity issues will create an additional layer of complexity. With uncertainty surrounding how or whether Congress will address the section 174 capitalization rules in the 2023 legislative session, it is critical to understand existing state tax issues and potential implications of future federal legislation. 

State conformity and section 174 

RSM has previously discussed what taxpayers need to know about the looming required capitalization of section 174 expenditures and taxpayers should similarly prepare for state differences, regardless of whether Congress addresses section 174 for 2022. 

From a state perspective, whether the state conforms to the changes made to section 174 is generally the first question to consider. Most, but not all, states have updated their conformity dates or specific conformity provisions to incorporate changes made by TCJA or otherwise conform to the provisions through rolling conformity to the IRC. 

For those states that continue to maintain a conformity date for section 174 prior to the enactment of TCJA, capitalization of R&D expenditures will not be required. Current expense treatment for R&D expenditures will remain the appropriate approach for these states, requiring a federal/state modification to correctly reflect state taxable income. 

At least one state, Tennessee, has enacted specific legislation to decouple from the federal capitalization requirements under section 174 and allow state-level current expensing. Other states may propose or enact legislation to decouple from the federal capitalization rules during the 2023 legislative sessions. Importantly, some states have differing conformity rules for corporations and pass-through entities, creating a disconnect between proper state treatment of expenses under section 174 for differing entity types. Pass-through entities should consider these differences, especially since conformity to section 174 is often addressed in a corporate context. 

Additionally, not all states conform to section 280C, which provides that a taxpayer is required to reduce its section 174 deduction (or beginning in 2022, the amount capitalized and subsequently amortized) by the amount of section 174 expense included in its federal R&D credit computation, unless electing to claim a reduced federal credit. Many states conform fully to section 280C, but some states fully decouple, partly conform or have provided a state-specific modification to allow a subtraction for expenses disallowed at the federal level. 

For taxpayers materially affected by the updated capitalization requirements under section 174 and the expense disallowance under 280C, it is imperative that conformity to the federal provisions is examined on a state-by-state basis to ensure proper treatment of R&D expenditures. State conformity to section 174 and conformity to section 280C are separate, non-correlated issues, requiring an analysis of each to determine correct state tax treatment.

Takeaways

The timing of federal legislation is a key factor for fixed-date or selective conformity states. With most state legislatures out of session by the beginning of summer, there is a distinct possibility that some states will not be able to respond to federal legislation timely. Changes to federal provisions effective in 2023, or earlier, may not be conformed to by many states until 2024 state sessions, or later. 

With the uncertainty, and increasing unlikeliness, of an early tax bill from Congress, taxpayers should prepare for the variety of scenarios that may occur as we enter 2022 compliance season and contemplate 2023 estimates. Taxpayers with questions about state conformity to section 174 or section 280C should speak to their state and local tax advisers as well as staying flexible and prepared in the event Congress acts on tax provisions in the next couple of months. 

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Brian Kirkell, Christian Wood, Anna Cronic, Mo Bell-Jacobs and originally appeared on 2023-01-25.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/preparing-state-section-174-differences.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Private equity deal activity remains resilient despite leveraged loan market

Private equity faces a number of headwinds in 2023; yet opportunities still await deal-makers in this sector, which is sitting on close to $800 billion in dry powder that is ready to be put to work and cannot sit on the sidelines for too long in private equity’s closed-end fund structure.

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Private equity deal activity remains resilient despite leveraged loan market

REAL ECONOMY BLOG | January 19, 2023 | Authored by RSM US LLP

2022 U.S. private equity deal flow closed as the second-best year on record in both dollar and volume terms against a backdrop of a debt-financing squeeze. Banks retreated from the broadly syndicated loan market after their balance sheets were saddled with commitments to finance leveraged buyouts on much less favorable terms earlier in the year.

Chart showing U.S. private equity deal activity

Deal activity for 2022 totaled an estimated $1.01 trillion, a decline of 19% from a record $1.26 trillion in 2021, based on data from PitchBook. Though not as epic as 2021, it’s hardly the collapse that some expected given the numerous economic headwinds. It was also the second consecutive year that deal activity exceeded a trillion dollars—a milestone that far outpaced any year other than 2021.

Deal count fell only 2% to an estimated 8,897 versus 9,120 in 2021, PitchBook data shows. By this metric, deal activity in 2022 was on as much of a tear as it was in 2021; however, the notable difference was in the size of the deals, with median buyout deal sizes reportedly dropping 12%. Nevertheless, private equity managers continued to deploy capital, albeit in smaller bets, even as inflation, rising interest rates and high energy prices raised recession fears.

The availability of debt financing was a major inhibiting factor to large buyout deals, forcing private equity managers to focus on add-on acquisitions to keep the deal engine running. The leveraged loan market, which largely supplies the debt financing for mega buyout deals, seized up during 2022. Banks, which underwrite broadly syndicated loans on major deals, were caught in the crosshairs of rising interest rates. This left them stranded with loss-making positions that they couldn’t offset on their balance sheets.

Chart showing U.S. loan issuance volume

With banks on the sidelines, private credit funds have stepped in to fill the void by increasingly financing large buyout deals, which has helped to sustain deal flow. But they can only do so much. Even with record fundraising for private credit funds in recent years, their scale still pales in comparison to the banks, forcing private equity managers to get creative about how to deploy capital.

Besides shifting to add-on acquisitions, which are smaller in size and can be more easily digested by a congested debt market, private equity managers accepted much less leverage and put down more equity on closed deals. The reduced leverage ratios and increased interest coverage ratios not only improve the chances of speedily securing the debt financing needed to close, but they also set up the portfolio companies with much more solid footing to weather a downturn should economic conditions deteriorate.

Private equity firms continue to sit on plenty of dry powder which has kept deal-makers on the hunt; however, for the first time since 2010, cumulative dry powder recorded a drop.

Chart showing U.S. private equity fundraising and dry powder

Private equity fundraising in 2022 was relatively strong, as private equity managers went back on the fundraising trail to replenish their war chests after dipping into them extensively in the explosive dealmaking environment of 2021. But given the jittery mood in capital markets, fundraising did not keep pace with 2021 and was not enough to restore the outlays from 2021 and 2022 deal activity. Fundraising success was also skewed toward larger, more established private equity managers who enjoy more sticky relationships with institutional investors.

As institutional investors have taken significant markdowns in their public market portfolios, their private equity holdings have increased relative to their overall portfolios because of the so-called “denominator effect.” This has forced asset allocators to be much more selective with their allocations to private capital markets at the detriment of emerging and lower-midsize private equity managers who struggled to get in on the fundraising action of 2022.

Private equity exit activity declined in 2022 to add misery to the fundraising challenges. Exit activity totaled an estimated $322.9 billion, a drop of 63% from $876.7 billion in 2021, according to PitchBook data. This means private equity managers did not realize as much in proceeds from exit transactions as in recent years, preventing them from making distributions to investors that could be recycled back to private equity funds as new commitments.

Chart showing U.S. private equity exit activity

Developments to watch

Private equity faces a number of headwinds in 2023.

Benchmark interest rates are at their highest levels since the end of 2007, and the Federal Reserve is promising more hikes. This means the pain of higher borrowing costs to finance buyout transactions will persist. Portfolio companies will also feel the pinch as they struggle to keep up with higher interest burdens. Earnings to cover these interest charges will also be under threat from inflation and recession fears.

Scarcity of debt financing remains a concern with the leveraged loan market still in hiatus as the hangover effects from last year’s deal pipeline linger.

Yet it is hard to paint too dire a picture on an industry sitting on close to $800 billion in dry powder that is ready to be put to work and cannot sit on the sidelines for too long in private equity’s closed-end fund structure. The dislocation in the public markets from 2022 and re-rating of valuations from the lofty heights of 2021 can only serve to open up opportunities that can be exploited and keep appetite for deal flow alive.

We expect to see this transpire through a further proliferation in add-on deals. Private equity will also be ready to swoop in should carve-out opportunities present themselves. A number of companies have seen drops in valuation that have categorized them as mid-cap or small-cap companies and made them perfect candidates for take-private deals.

Even though financial conditions started the year in negative territory, conditions have eased from negative to neutral territory. Private equity managers will be praying conditions ease further, in hopes of reversing the negative sentiment against them that saw the stocks of major publicly traded private equity firms punished in 2022. Much of that will depend on the severity and duration of a recession, if and when it strikes.

Chart showing stock price performance in 2023 among publicly traded private eqiuty firms

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Kennedy Chinyamutangira and originally appeared on 2023-01-19.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/private-equity-deal-activity-remains-resilient-despite-leveraged-loan-market/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Shipping costs from China plunge, helping ease inflation

Shipping costs from Shanghai to American seaports reached a peak last January, decelerated during the first half of the year and have plunged since June.

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Shipping costs from China plunge, helping ease inflation

REAL ECONOMY BLOG | January 18, 2023 | Authored by RSM US LLP

Moderating inflation across the global and domestic economies has been driven by declining costs of goods, which through December fell by 4.8% on a three-month average annualized basis.

We now think it appropriate that the Fed consider a strategic pause in its rate increases.

While there are risks around further disruptions to global supply chains linked to the surge in COVID-19 cases in China, for now this is a positive and constructive development that will bolster overall economic activity.

We now think it appropriate given large declines in the primary causes of inflation over the past two years that the Federal Reserve consider a strategic pause in its price stability campaign this spring.

Much of the improvement in the inflation outlook has to do with the collapse in transportation costs and year-over-year declines in the price of oil and energy.

China to U.S. shipping costs

It now costs 78% less to ship a container from China to the United States than it did last year. Shipping costs from Shanghai to American seaports reached a peak last January, decelerated during the first half of the year and have plunged since June.

The decline in transporting goods from China to the United States has coincided with general improvements in the supply chain.

The latest reading of the RSM US Supply Chain Index stands at 0.4 standard deviations above neutral and is indicative of the modest normalization of global supply chains that is taking place.

In particular, there have been a normalization of the inventory-to-sales ratio and outsized increases in wholesale and retail inventories, all of which imply a greater supply of goods and lower prices.

Considering that there remain shortages of components (particularly computer chips) and assuming a somewhat lagged response of retail prices to increases in inventories, the monetary authorities can anticipate uneven reductions in the prices of goods.

Jabil, an electronics manufacturing services company, estimates a half-year wait for basic computer chips and up to a full year for high-end chips, with easing to take place over the course of the year.

The takeaway

The increased supply of consumer goods implies a further decline in inflation that needs to be factored into the setting of the federal funds rate.

We anticipate that a 25 basis-point increase, as opposed to a 50 basis-point increase, is now under consideration ahead of the Federal Open Market Committee’s policy decision on Feb. 1.

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This article was written by Joseph Brusuelas and originally appeared on 2023-01-18.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/shipping-costs-from-china-plunge-helping-ease-inflation/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

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IRS releases draft instructions to claim amended R&D credits

IRS issues draft instructions for Form 6765 that formalizes the information required for claiming research credits on an amended tax return or an administrative adjustment request (AAR) for BBA partnerships.

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IRS releases draft instructions to claim amended R&D credits

TAX ALERT | January 18, 2023 | Authored by RSM US LLP

 Revised instructions for amended research and development (R&D) credits

IRS issues draft Form 6765 instructions regarding the 5 items of information required to be included with research credit claims filed on an amended return or an administrative adjustment request (AAR).

The IRS released a draft of the instructions for Form 6765, credit for increasing research activities. As expected, the IRS formalized the rules they outlined in FAA20214101F.  The FAA “clarified” how taxpayers can make a valid claim under section 41 (research credit) on an amended return or administrative adjustment request (AAR).

The instructions now require 5 specific items for any taxpayer either filing an amended return to claim increasing research activities that either were not reported on an originally filed return or to increase the amount reported on an original return.  The five items required for these claims include:

  1. The factual basis of your section 41 research credit claim.
  2. The research activities performed.
  3. The individuals who performed each research activity. A taxpayer may instead identify the individuals who performed each research activity by listing the individual’s title or position.
  4. The information each individual sought to discover.
  5. The total qualified employee wage expenses, total qualified supply expenses and total qualified contract expenses paid or incurred for section 41 research credit claim or complete the Form 6765.

Any submission must identify the exact pages that contain the five items of information described above. The instructions also state that Bipartisan Budget Act Partnerships cannot file amended returns but must instead file an Administrative Adjustment Request.

The instructions do not come as a surprise as the IRS has been indicating that they intended to move forward.

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Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Christian Wood, Dana C. Jackson, Rory Bertiglia and originally appeared on Jan 18, 2023.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/irs-releases-draft-instructions-to-claim-amended-r-d-credits.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

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(541) 773-6633

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National Taxpayer Advocate: light at end of the tunnel, long way to go

The NTA reports on the 10 most serious problems encountered by taxpayers and makes recommendations to alleviate these problems.

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National Taxpayer Advocate: light at end of the tunnel, long way to go

TAX ALERT | January 18, 2023 | Authored by RSM US LLP

Executive summary: Top 10 most serious problems encountered by taxpayers

Each year, the IRS National Taxpayer Advocate (NTA) reports to Congress on the 10 most serious problems encountered by taxpayers and makes recommendations to alleviate these problems. The Taxpayer Advocate, Erin Collins, expressed optimism when reflecting on the IRS’s efforts this past year to reduce historically high backlogs in paper processing brought on by the pandemic and implementation of programs to provide economic relief from the pandemic. The Taxpayer Advocate attributes her optimism to the guaranteed funding stream provided to the IRS under the Inflation Reduction Act of 2022 and the streamlined hiring authority recently granted to the IRS. If money is spent wisely, the IRS could revolutionize its outdated technology, drastically improve customer service, and retain top talent. The report highlights that taxpayers and tax professionals should continue using online tools to streamline their interactions with the IRS, including taxpayers registering for an online account with the IRS. Please see the prior alert: Smile! The New IRS identity verification process requires a selfie.

Taxpayer advocate reports to Congress on improvements and significant backlogs

The NTA identified the following problems and proposed certain recommendations to improve the taxpayer experience. 

Processing delays

The IRS continued to experience unprecedented delays in paper processing. Improvements were noted from the prior years; However, the IRS relies on manual processes and outdated technology. In December 2022, the IRS had 29.3 million unprocessed returns, including 4.3 million Forms 1040 for 2022.

The complexity of the tax code

The Internal Revenue Code (IRC) is complex. Taxpayers and small businesses struggle to understand and file their tax returns.  The NTA recommends uniform definitions and that the code should be simple enough to minimize voluntary noncompliance and easier for the IRS to administer. 

IRS Hiring and training

Fragility in the Human Capital Office’s hiring, recruitment and training undermines the IRS’s effort to provide better customer service. The IRS must allocate funding to this area to hire the right people and fast. It currently takes the IRS approximately 80 days to complete the hiring process. 

Telephone and in-person service

The IRS was only able to answer 13% of the calls received in 2022, a trivial improvement from the prior year. Taxpayers continue to face frustrations when trying to reach a representative over the phone or in person. Critical to improving customer service are eliminating the paper backlog, modernizing online access and extend hours of operation. 

Online Access for taxpayers and tax professionals

While the IRS online account lacks integration and functionality, every taxpayer is encouraged to sign up to use the tool. Focusing on improving the online experience to entice taxpayers to use the platform is critical. The online account should be a one-stop solution for all IRS digital offerings where a taxpayer can perform multiple tasks in a single visit to the IRS website. Online accounts currently do not provide a central hub with which a taxpayer could upload correspondence, retrieve their identity protection pin or access Where’s my refund or Where’s My Amended return? The NTA recommends that the IRS add increased functionality and offerings of self-service applications to the Tax Pro Account and deploy an online account for businesses. 

E-file and Free File

The IRS e-filing system continues to create obstacles and lacks ease of use for taxpayers. Approximately 31% of taxpayers who experienced e-file rejections experienced multiple rejections during the 2022 filing season. Business income tax returns were e-filed at a 70% rate, this presents an immediate opportunity for an enhanced e-filing system. The NTA recommends the IRS evaluate the need to reject returns, make all IRS forms compatible with e-filing and upgrade business taxpayer’s e-file experience regarding information returns. 

IRS Transparency

Although minor improvements were made in the prior filing season, the IRS fails to meet expectations regarding full transparency of return processing delays, correspondence status, new guidance, and how to comply with tax obligations. Taxpayers have difficulty obtaining information and answers. The NTA recommends that the IRS commit to providing regular budget and information reports, improve Where’s My Refund?, IRS2Go, and online accounts, and provide specific information on the cause of delays.

Return preparer Oversight

The IRS does not enforce minimum competency standards for all return preparers. This harms taxpayers, leaving them vulnerable to errors that could result in an overpayment, underpayment of tax liability and avoidable collection actions. Taxpayers are responsible for inaccuracies and due diligence in selecting tax preparers. The NTA recommends Congress prioritize the assessment and collection of tax preparer violations. 

Appeals 

The average appeals office (AO) case takes approximately one year to resolve. This is another backlog stemming from the various staffing challenges faced by the IRS and AO. The independent AO fails to keep up with case inventory and obtain funding to enable hiring and modernization of systems and electronic case files. 

Overseas Taxpayers 

The IRS rules and procedures on overseas taxpayers are extraordinarily complex. This accumulates more frustration in addition to the many barriers already faced in meeting U.S. tax filing obligations. It is estimated that 9 million U.S. taxpayers live abroad and experience restricted access to IRS support and resources. The NTA recommends improvements to e-filing, FAQ’s and online resources for overseas taxpayers. 

The IRS’s delays frequently result in various issues that taxpayers may need Tax Controversy professionals’ advice on. Please contact the drafters of this tax alert if you require assistance with any of the issues outlined above.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by John Cardone, Kori Pitts and originally appeared on Jan 18, 2023.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/National-Taxpayer-Advocate-light-end-tunnel-long-way-to-go.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Tax year 2022 brings more changes to international tax reporting

Understand how the IRS is changing tax compliance for taxpayers with international activity for 2022.

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Tax year 2022 brings more changes to international tax reporting

TAX ALERT | January 12, 2023 | Authored by RSM US LLP

International tax forms & instructions released

Over the last few months, the IRS has periodically released a litany of updated forms and instructions for taxpayers with international tax (ITAX) activity. While some of these updates are still in draft form, and have yet to be finalized, there are a few noteworthy changes forthcoming. Once finalized, these forms and instructions are intended to be applicable for a taxpayer’s 2022 tax year.

Preparing for the 2022 tax filing season

With the 2022 tax filing season just a few months away, the time is now to start planning for upcoming compliance changes. Here are the latest forms, schedules and instructions recently released by the IRS by ITAX topic.

Foreign tax credit

Form 1118 (Final Rev. Dec. 2022), Foreign Tax Credit – Corporations, includes a revamped Schedule H, Apportionment of Certain Deductions. Former Part II, Interest Deductions, All Other Deductions, and Total Deductions, is now split out further into two separate and distinct parts: Part II, Deductions Allocated and Apportioned Based on Assets, and Part III, Other Deductions. While the IRS is not necessarily requesting new information, the format is new. In 2021, taxpayers were required to attach a schedule outlining all other deductions. In 2022, the IRS is standardizing this request.

Form 1118 (Schedule L) (Final Rev. Dec. 2022), Foreign Tax Redeterminations, has been updated for a handful of items. Part I now requests a “Reference ID Number for Contested Tax, if applicable” to reflect Reg. section 1.905-1(d)(4) and new Form 7204. New questions (i.e., columns) have been added to Part III to better reflect section 905(b) and (c) and Reg. section 1.905-4. Lastly, new Part V, Annual Reporting for Contested Taxes, has been developed for taxpayers to comply with the annual notice requirement described in Reg. section 1.905-1(d)(4)(iv). For each tax year following the year in which a provisional foreign tax credit (FTC) election is made on new Form 7204, up to and including the tax year in which the contest is resolved, the taxpayer must provide the information requested. While the Form 1118 instructions have not yet been issued, the forms are once again growing in size due to the IRS’s increased desire for visibility.

New Form 7204 (Draft Rev. Dec. 2022), Consent To Extend the Time To Assess Tax Related to Contested Foreign Income TaxesProvisional Foreign Tax Credit Agreement, has been developed pursuant to Reg. section 1.905-1(d)(4) to allow taxpayers, under the conditions provided in Reg. sections 1.905-1(c)(3) and 1.905-1(d)(4), to elect to claim a provisional FTC for a contested foreign income tax liability (or a portion of it) that the taxpayer has remitted to the foreign country, before the contest has been resolved.

Form 1116 (Final Rev. 2022), Foreign Tax Credit (Individual, Estate, or Trust), has been revised to reference the final FTC regulations, T.D. 9959, and the creditability of foreign taxes under sections 901 and 903. The instructions also draw attention to Schedule K-3. In 2022, certain partnerships and S corporations are excepted from providing Schedule K-3 to partners and shareholders that might otherwise benefit from Schedule K-3 information in claiming an FTC. However, taxpayers have the right to request the Schedule K-3 from the partnership or S corporation to obtain this information.

Form 1116 (Schedule B) (Final Rev. Dec. 2022), Foreign Tax Credit Carryover Reconciliation Schedule, includes a minor revision to Line 1, “enter the amounts from the appropriate columns of line 8 of the prior year Schedule B.” In addition, the Reconciliation Worksheet (found within the instructions) “Caution” clarifies this worksheet should now only be used in cases where a taxpayer is amending their 2021 FTC within the special 10-year limitation period described in section 6511(d)(3) (or section 6511(c) if the period is extended by agreement).

Form 1116 (Schedule C) (Draft Rev. Dec. 2022), Foreign Tax Redeterminations, Part I now requests a “Reference ID Number for Contested Tax, if applicable” to reflect Reg. section 1.905-1(d)(4) and new Form 7204. Also, new Part V, Annual Reporting for Contested Taxes, has been developed for taxpayers to comply with the annual notice requirement described in Reg. section 1.905-1(d)(4)(iv). For each tax year following the year in which a FTC election is made on new Form 7204, up to and including the tax year in which the contest is resolved, the taxpayer must provide the information requested (similar to the revisions to Form 1118, Schedule L).

Controlled foreign corporations

Form 5471 (Final Rev. Dec. 2022), Information Return of U.S. Persons With Respect to Certain Foreign Corporations, includes slight revisions to Schedule G, Other Information, question six. Of note, the reference to Schedule M has been removed. This question has likely been reworded to reflect the final regulations under section 250 (similar to the revisions to Form 5472).

Form 5471 (Schedule Q) (Final Rev. Dec. 2022), CFC Income by CFC Income Groups, now includes an “Other” line for a subpart F income group. This line appears to be a “catch-all” for any subpart F income that may not necessarily fit into a specific category and/or which likely requires a supplementary explanation for both IRS and taxpayer use (i.e., those taxpayers receiving a Form 5471 attachment via schedule K-3). The Schedule also includes two new columns that request information on “loss allocation” and “net income after loss allocation.” At this time, the IRS has yet to release draft instructions for Forms 5471 and 5471 (Schedule Q) so it is difficult to comment further on the forthcoming impact.

Form 8992 (Final Rev. Dec. 2022), U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), includes minor revisions. A new sentence has been added to Part II, Line 5 of the form: “If zero or less, enter -0-.” This is merely a clarification and is consistent with previous instructions. Regarding Forms 8992 (Schedule A) (Final Rev. Dec. 2022) and 8992 (Schedule B) (Final Rev. Dec. 2022), if a controlled foreign corporation (CFC) has an employer identification number (EIN), the taxpayer must enter that EIN. Taxpayers will no longer have the option to enter “APPLIED FOR” in lieu of an EIN. If the CFC does not have an EIN, the taxpayer must enter a reference ID number that uniquely identifies the CFC. Taxpayers will no longer have the option to enter “FOREIGNUS” in lieu of a reference ID number. Also, if the taxpayer has filed or will be filing a Form 5471 with respect to the CFC, the reference ID number for that CFC must be the same as reported on Form 5471, as applicable.

Form 8990 (Draft Rev. Dec. 2022), Limitation on Business Interest Expense Under Section 163(j), has been revised to include new informational questions geared towards foreign entities. In addition, the form has been revised for the delayed provisions of the Tax Cuts and Jobs Act of 2017 (TCJA). For tax years beginning after 2021, the computation for adjusted taxable income (ATI) is computed with the deductions for depreciation, amortization and depletion. The add-back for these deductions has been eliminated. Lastly, a new worksheet has been added to the draft instructions. Worksheet C will be used to determine eligibility for the safe-harbor election under Reg. section 1.163(j)-7(h) (i.e., the stand-alone applicable CFC/CFC group safe harbor election).

Form 1042 series

Form 1042-S (Final Rev. 2022), Foreign Person’s U.S. Source Income Subject to Withholding, has been updated for various new codes. Income code 56 was added to address section 871(m) transactions resulting from combining transactions under Reg. section 1.871-15(n). Income code 57 was added for use by brokers that are required to report or withhold on the transfer of interests in publicly traded partnerships (PTPs), including distributions made by PTPs. New chapter 3 status code 38 has been added to report a payment to or from a PTP. Lastly, new limitation on benefits (LOB) code 12 has been added to report that there is no LOB article in the applicable tax treaty.

Partnership withholding

Form 8804 (Final Rev. Nov. 2022), Annual Return for Partnership Withholding Tax (Section 1446), is now termed a continuous-use form. Both the form and instructions will be updated as needed as opposed to on an annual basis. Going forward, taxpayers will be required to use the latest version of the form, and applicable instructions, as opposed to a form, and set of instructions, that relate to a specific tax year for filing purposes. Form 8804 also includes new lines for the partnership to report tax withheld under section 1446(f)(1) on the transfer of an interest in a partnership engaged in a trade or business in the United States.

Form 8288 (Final Rev. Jan. 2023), U.S. Withholding Tax Return for Certain Dispositions by Foreign Persons, now incorporates reporting for a transferee of a non-PTP interest required to withhold under section 1446(f)(1) on the amount realized from the transfer. The form has also been updated to include reporting for partnership withholding under section 1446(f)(4) on distributions to a transferee that failed to withhold under section 1446(f)(1). The draft instructions indicate that updated Forms 8288 and 8288-A and a new Form 8288-C are being released to reflect the withholding and reporting requirements under sections 1446(f)(1) and (f)(4), applicable to transfers occurring on or after Jan. 1, 2023, as well.

Schedule K-2 and K-3

The IRS released updated final Schedules K-2 and K-3 and instructions for the Forms 1065, 1120-S and 8865 versions of these schedules. The instructions include various updates, including a significant change to the domestic exception that was available in tax year 2021. See RSM’s previous tax alert, Schedules K-2 and K-3 draft instructions for tax year 2022, for additional information.

Other

Form 5472 (Final Rev. Dec. 2022), Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, Part VIII, lines 41a through 41d have been reworded to reflect the final regulations under section 250. Part VIII, lines 48b and 48c have a new attachment requirement when an election described in Reg. section 1.482-7(d)(3)(iii) (B) or Notice 2005-99 is made according to the draft instructions.

Form 8865 (Draft Rev. 2022), Return of U.S. Persons With Respect to Certain Foreign Partnerships, Item H, Question 12, has been reworded. Of note, the reference to Schedule N has been removed. This question has likely been reworded to reflect the final regulations under section 250 (similar to the revisions to Form 5472). At this time, the IRS has yet to release draft instructions for Form 8865 as to potential further enhancements.

Form 8898 (Final Rev. Oct. 2022), Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession, includes a new line for the taxpayer’s worldwide gross income for the tax year associated with the move.

Form 2555 (Final Rev. 2022), Foreign Earned Income, increases the maximum exclusion amount to $112,000.

Status of ITAX forms

Draft tax forms

Form 8990

Instruction 8990

Instruction 8288

Instruction 5472

Instruction 1042

Instruction 8865 (Sch K-2 & K-3)

Instruction 1116 (Schedule C)

Form 7204

Instruction 7204

Form 1116 (Schedule C)

 

 

Final tax forms

Instruction 1042-S

Instruction 8804, 8805, and 8813

Instruction 8898

Form 1042-S

Form 8804

Form 8898

Form 1042-T

Form 8804-W

Instruction 2555

Publication 1187

Form 8865

Form 2555

Form 1042

Instruction 1116 (Schedule B)

Instruction 1116

Form 8453-WH

Form 8879-WH

Instruction 8804 (Schedule A)

Form 5471

Instruction 8992

Form 8804 (Schedule A)

Instruction 1118 (Sch L)

Form 8992 (Schedule A)

Instruction 8804-W

Instruction 1065 (Sch K-2 & K-3)

Form 8992 (Schedule B)

Form 8865 (Schedule K-2 & K-3)

Instruction 1120-S (Sch K-2 & K-3)

Form 1120-S (Sch K-2 & K-3)

Instruction 1120-S (Sch K-3)

Form 8288

Form 8288-A

Form 8288-C

Form 1118

Form 5472

Form 8992

Form 1116 (Schedule B)

Form 1118 (Schedule L)

Form 1065 (Sch K-2 & K-3)

Form 1116

Form 1042 (Schedule Q)

Instruction 1065 (Sch K-3)

Form 5471 (Schedule Q)

 

 

Draft tax forms

Form 8990

Instruction 8990

Instruction 8288

Instruction 5472

Instruction 1042

Instruction 8865 (Sch K-2 & K-3)

Instruction 1116 (Schedule C)

Form 7204

Instruction 7204

Form 1116 (Schedule C)

 

 

   

Action items

Taxpayers and tax return preparers alike can continue to monitor the status of various forms, schedules, and instructions by reviewing the IRS website, Draft Tax Forms, Forms, Instructions and Publications, and Prior Year Forms and Instructions, for additional information.

For more information, please consult with your tax advisor.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





  • Topic Name:
  • Should be Empty:

This article was written by Ayana Martinez, Mandy Kompanowski and originally appeared on 2023-01-12.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/Tax-year-2022-brings-more-changes-international-tax-reporting.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

Financial reporting considerations in a challenging economic environment

Our whitepaper highlights some matters for management and those charged with governance to consider in the upcoming reporting season.

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Financial reporting considerations in a challenging economic environment

WHITE PAPER | January 10, 2023 | Authored by RSM US LLP

Inflation has been increasing at rates not seen in decades. These increases have real effects on prices, which has resulted in new challenges and financial reporting considerations for entities. Volatile markets and customer demands make predicting future cash flows difficult and rising costs could reduce profit margins. In addition, supply chains continue to experience pressure as key suppliers experience significant backlogs due to the lingering effects of COVID-19, labor shortages, increases in delivery costs, government regulation and geopolitical issues like Russia’s war in Ukraine, as well as tension between the U.S. and China. With all this going on, it is important that entities carefully evaluate the accounting and reporting implications of all the issues and challenges of the current environment.

Our whitepaper, Financial Reporting Considerations in an Environment of inflation and Rising Interest Rates, highlights some matters for management and those charged with governance to consider in the upcoming reporting season.

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This article was written by RSM US LLP and originally appeared on 2023-01-10.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/financial-reporting/financial-reporting-consideration-challenging-economic-environment.html

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