2011 Tax Update

A higher return on experience.

2011 Tax Update
10 timely topics in 100 minutes

webinars.plantemoran.com

Moderator

Annette Tenerelli-Lemke
Tax Partner
734.302.6407
Annette.Tenerelli-Lemke@plantemoran.com

2 webinars.plantemoran.com


Current Tax Climate
and planning opportunities


Presenters

Mike Monaghan
Partner, National Tax Office
586.416.4943
Mike.Monaghan@plantemoran.com

Amy Ciminello
Tax Specialist, National Tax Office
614.222.9044
Amy.Ciminello@plantemoran.com


Agenda
 Current tax environment
 Pending tax reform proposals
 Tax planning opportunities


Current Tax Law:
Rising Tax Rates – Unearned Income


Example:
2011-2013 Tax on Ordinary Income


PM Perspective
 Each planning situation is unique.
 Need to consider various tax reform proposals.
 Conventional planning methods for deferral of income and
acceleration of deductions apply to short-term manipulations of
income.
 Items with long term effects need more consideration due to
scheduled increases in tax rates starting 2013.


Pending Tax Reform Proposals
 Super Committee
 6 Democrats and 6 Republicans
 Assigned with determining $1.5 trillion deficit-reduction measures over a
10-year period
 Plan is due 11/23/11


Tax Planning Opportunities
 Short term accelerations
 State and local tax deposits
 Property taxes
 Charitable contributions
 Long term accelerations
 Planning for NOL
 Installment sales
 Consider applicability of alternative minimum tax


 Election to forgo net operating loss carryback
 Outlook on tax rates affects decision to carryback NOL
 Other considerations:
• Cash flow needs
• Likelihood of future taxable income
• Time value of money


 Accelerated depreciation methods
 Cost segregation adjustments
 Section 179 elections
 Bonus depreciation on new assets
• 100% through 12/31/2011

 Other Accounting Methods


Entity Choice
 Changing tax rates impact the entity choice decision.
 Pass-through entities may be less advantageous if individual rates
increase and corporate rates stay the same.
 With the individual tax rates subject to an increase (as high as 43.4% for
tax year 2013), pass-through entities may be disadvantaged.


Example:
2011-2013 Pass-through vs. C Corporation



Health Care Reform


Presenters

James Minutolo
Senior Manager, National Tax Office
513.744.4722
James.Minutolo@plantemoran.com

Robert Kouza
Senior Tax Manager
248.223.3781
Robert.Kouza@plantemoran.com


Status of Legislation and Law Suits
Enacted March 23, 2010
 Staggered effective dates from date of enactment through 2018.
 With a few small exceptions, law remains effective and effective dates for
many key provisions have passed or are looming in the near future.

Law Suits
 Multiple suits at varying points of progress.
 11th Circuit Court of Appeals found individual mandate unconstitutional.
 6th Circuit Court of Appeals found individual mandate constitutional.
 Conflict among circuits sets up a Supreme Court challenge.


Don’t Ignore Health Care Reform

 Many provisions are already effective.
 More become effective every year.
 Complete repeal is unlikely.
 Law suits may overturn some provisions but unlikely to invalidate
entire statute, especially the tax provisions.


Selected Currently Effective Provisions

 Extended coverage for children to age 26 (2010 – except
grandfathered plans)
 Small employer health insurance credit (2010 – No more than 25
FTEs with average comp less than $25,000)
 Nondiscrimination rules for fully insured plans (2010 – enforcement
deferred pending further guidance)
 W-2 reporting of health plan costs (2011 – enforcement deferred until
2012 for large employers; 2013 for employers issuing fewer than 250
W-2s in 2011)
 OTC medications not eligible for tax-free reimbursement (2011 –
most plans should have been amended)


Selected Provisions Effective in 2012
 Expanded 1099 reporting (2012 – Repealed)
 W-2 enforcement of health cost reporting for employers that issue
250 or more W-2s in 2011


 Increased Medicare Tax (0.9% additional on excess earned
income; 3.8% on excess unearned income - $200,000 MAGI
single, $250,000 MAGI MFJ)
 $2,500 cap on flexible spending account contributions



 Large employer health care mandate (penalties of $2,000 or
$3,000 per uncovered employee for employers with 50 or more
FTEs)
 Individual health care mandate (penalty on individuals who fail
to carry qualifying coverage)
 Health care vouchers (repealed)
 State health care exchanges required to be active


 40% excise tax on “Cadillac” plans becomes effective


What Should I Be Doing Now?

 Have someone in your organization who is specifically
responsible for developing and implementing a strategy to
address health care reform.
 Identify your team of advisors and make sure they know you
are going to be looking to them for guidance about how to deal
with health care reform.
 Collect information – employee census and cost and utilization
data.



Tax Accounting Methods
and why they are important to you


Presenters

Kurt Piwko
586.416.4948
Kurt.Piwko@plantemoran.com

Rob Shefferly
586.416.4927
Robert.Shefferly@plantemoran.com


What is a Method of Accounting?
 Method used to determine the amount of income or expense to
recognize
 Controls both timing and amount
 Does not change the overall amount of income a taxpayer will
recognize over time but only when
 Includes both an overall method of accounting as well as the
method to account for individual items
 The cash or accrual method of accounting would be a taxpayer’s
overall method of accounting
 The method of depreciating an asset would be a method of
accounting for a particular item


Why is a Method of Accounting Important?
 Methods of accounting cannot be changed by the taxpayer
without the consent of the IRS
 A formal set of procedures exists to change methods
 Changing a method under the proper procedure generally provides
audit protection
 Even if previous method was incorrect, no penalties or interest can
be assessed when a method is properly changed
 When a method is changed, a cumulative adjustment to
income must be made
 When changed voluntarily, any increase to income is spread over 4
years while a decrease to income is deducted immediately
 When change is involuntarily (e.g., in an IRS audit), the entire impact
is reported in a single year


Tax Planning - Opportunities
 Changing between methods can accelerate deductions
 Personal and real property taxes
• Property taxes may be deducted in the year in which a lien attaches or
when the owner becomes personally liable as long as the taxes are paid
within 8.5 months of yearend.
• The “lien date” is different in each state, but in some states the date for the
taxes due next year is at the end of the current year.
• Example: A Michigan manufacturing business owes $200,000 in personal
property taxes each year: $175,000 in July and $25,000 in December. For
book purposes, the taxes are capitalized as prepaids and amortized over 12
months. As of December 31, the business has $115,000 of prepaid property
taxes on its books.
 This taxpayer could deduct the entire $115,000 of prepaid taxes and deduct the
$175,000 due next July as well.


Tax Planning – Exposure Mitigation
 Changing from an impermissible method to a permissible method
 Inventory reserves
• In general, reserves for estimated losses on inventory are not deductible
until actually realized.
• Example: A taxpayer accrued reserved $300,000 related to inventory
that was not getting sold as quickly and it expected and was becoming
obsolete. This reserve was deducted for tax purposes when it was
established.
 An accounting method change could be filed to correct the impermissible
method of accounting.
 $75,000 of income would be recorded in the year of the change and each of the
next 3 years.
 The IRS would be barred from assessing tax in any tax year related to this
issue, even if it were auditing an earlier year when this deduction was taken.


Tax Planning – Exposure Mitigation (cont.)
 Changing from an impermissible method to a permissible method
 Other accruals for estimated losses
• In general, reserves for estimated losses are not deductible until actually
realized for tax purposes.
• Example: In 2010, taxpayer accrued for a $500,000 lawsuit that it
expected to lose. In 2011, it actually lost the suit and paid the other party. It
deducted this amount in 2010 and discovered the issue in 2011.
 An accounting method change could be filed for 2011 to correct the impermissible
method of accounting.


Appendix: Other Accounting Method Change
Examples
 Cash vs. Accrual
 Cash method is generally available to most small businesses
 Cash method can still be available to mid- and large-sized businesses as
long as no inventory is maintained (and other various requirements are
met)
 Compensation
 Compensation can only be deducted if fixed by yearend and paid within
2.5 months after yearend
• Includes payroll, bonuses, vacation pay, sick pay, etc.

 Payroll Taxes
 Payroll taxes on all compensation can be deducted if the related
compensation is fixed by yearend and the taxes are paid within 8.5
months of yearend


Appendix: Other Accounting Method Change
Examples (cont.)
 Cash and Volume Discounts
 Many taxpayers record cash or volume discounts as income when received
instead of reducing the acquisition cost of the related inventory
 For tax purposes, these amounts may be capitalized
 Depreciation
 Opportunities typically exist to review fixed assets (and make necessary
changes) to verify proper life, method, classification and immediate
expensing opportunities have been fully taken advantage of
 Self-insured Medical Accrual (IBNR)
 Generally represents cost of medical services provided to employees of a
self-insured employer but for which claims have not yet been processed
 Many employers do not deduct this amount, but much of it is deductible
under certain circumstances



Entity Choice


Presenters

Andy Covode
Senior Tax Manager
513.744.4730
Andy.Covode@plantemoran.com

Derik Rynearson
Tax Manager
269.982.6067
Derik.Rynearson@plantemoran.com


Terminology

 Pass-through entity – An entity taxed as an S corporation, a
partnership, or a sole proprietorship
 S corporation – A corporation that has made an election to be taxed
as an S corporation instead of a C corporation
 Partnership – A legal entity taxed as a partnership. It may include
general partnerships, limited partnership, limited liability company, or
other joint venture arrangements
 Sole Proprietorship – A business not operating through a legal entity
or operating through a limited liability company owned by only one
owner
 C Corporation – A corporation that has not made an election to be
taxed as an S corporation


Non-Tax Considerations
 Legal liability protection of owners
 Expense of formation and operation
 Organizational documents
 Management decisions
 Annual meetings
 Capital structure flexibility
 Ownership transfer flexibility
 Legal recognition in other jurisdictions
 Other state law considerations


Non-Tax Considerations
 Taxability of transfers of property to entity
 Capital structure flexibility and basis
 Raising additional capital (e.g., IPO)
 Foreign treatment of international transactions
 Ownership limitations
 Employment taxes
 Fringe benefits and compensation of owners
 Disposition/termination/reorganization plans


Tax Considerations

 C corporation
 Entity pays Federal tax on income earned
 Shareholders taxed on dividends received (“double tax”)
 States typically follow Federal treatment
 Flow-through entities
 Entity pays no Federal income tax
 Owners taxed on income earned by entity
 Distributions can generally be made tax-free (“double tax relief”)
 States split on tax treatment


Schedule of Maximum Tax Rates


Example – 2011 Tax on Operating Income


Example (cont.) - 2011 Tax on Distributions


Example (cont.) - Summary of 2011 Tax Rates

 C corporations generally pay less Federal tax than pass-through
entities on operating income.
 C corporations and their shareholders pay significantly more tax than
pass-through entities when income is distributed.
 C corporations can be advantageous when the distributions can be
deferred far enough into the future so that the net present value (NPV)
of the future tax cost is low when compared to the current tax savings.


Summary
 There is no single answer for all businesses.
 The choice must be evaluated on a holistic basis to include consideration for all
items including legal issues, employment issues, exit strategy, and federal taxes and
state taxes.
 Converting a business from a pass-through to a C corporation or vice versa may not
be a simple transaction and may have its own advantages and disadvantages
depending on the current structure of the business.
 Any evaluation involves a significant amount of projections (i.e., future income
levels, need for dividend distributions, appreciation of business, etc.) and
assumptions (i.e., future tax rates, present value interest rates, etc.) which may
prove to be inaccurate.
 Even when considering the increased cost of the disposition of the business, C
corporations can still be advantageous when the tax on the sale of the business is
deferred far enough into the future.
 State taxes are a critical component because they can significantly alter the spread
between corporate and flow-through tax rates.



Transaction Planning


Presenters

Mark Jolley
Partner, National Tax Office
734.302.6923
Mark.Jolley@plantemoran.com

Emily Murphy
Manager, National Tax Office
734.302.6904
Emily.Murphy@plantemoran.com


Overview
 C Corporation: Stock sale versus asset sale
 Stock sale: Exclusion of gain on sale of Section 1202 stock
 Stock sale: Election to treat sale of stock as deemed asset sale
under Section 338(h)(10)


C Corporation: Stock Sale vs. Asset Sale
 When a C corporation is ultimately sold in a taxable sale, the sale
may be structured as a stock sale or asset sale.


Example: Sale of C Corporation

Assumptions: Observations:
 FMV of assets = $1,000,000  In asset sale, the seller recognizes
double tax, decreasing net
 Inside basis of assets = $100,000
proceeds on sale.
 Sole shareholder’s outside basis in
 In reality, the sales price of the
stock of = $75,000
company in stock sale would likely
 In the asset sale, the assets are be adjusted for lack of step-up to
sold, then the company liquidates buyer.
and provides cash to shareholder.

Example: Adjustment for tax benefit

Observations:
 Because of the purchase price adjustment related to the step-up of the
underlying assets, the difference between a stock sale and asset sale is
generally much smaller than shown in the previous slide.
 There may be other adjustments to the purchase price for stock versus asset
sale for non-tax differences in stock vs. asset sale.


Gain exclusion under Section 1202
 Section 1202 provides that the gain on sale of §1202 stock may be
excluded from income
 Exclusion limited to greater of $10,000,000 per taxpayer per company
or 10 times aggregate basis of qualified stock disposed during the year.
 May effectively eliminate double tax on sale of §1202 C corporation
stock.
 Section 1202 is most beneficial in the context of a stock sale, though
the provision will still benefit in an asset sale followed by liquidation.
 100% gain exclusion for qualifying stock acquired after 9/27/10 and
before 1/1/12
 Excluded gain is NOT an AMT preference item.
 There is a limited time to take advantage of the provisions of §1202
before the end of 2011
 Not elective – If you have acquired §1202 stock and continue to meet
the §1202 requirements, you are entitled to the gain exclusion upon
sale.

Section 1202 Stock - Qualifications
 Stock must be issued by C corporation.
 Stock must be acquired as original issue in exchange for money or
property (not stock), or as compensation for services.
 Stock must be held for five years before sale.
 Business must meet the “qualified small business” criteria.
 Ineligible corporations include DISC, 936 Corporation, RIC, REIT,
REMIC, Cooperative.


Qualified Small Business Criteria
 Domestic C Corporation with aggregate gross assets less than
$50,000,000 from 8/10/93 through immediate post-issuance
 All business types eligible except for:
 Certain professional service businesses
 Banking, insurance, financing, leasing, investing, or “similar”
 Farming and mining
 Operating a hotel, motel, restaurant, or “similar”
 More than 80% of assets (by value) must be used to conduct
qualified business activity
 The determination of assets used in a qualified business activity is
subject to additional rules, particularly for new corporations, corporations
with investments in subsidiaries, and corporations with non-business real
estate holdings
 Must meet this requirement for “substantially all” of taxpayer’s stock
holding period

Section 1202 - Planning
 Acquisition or start-up tax vehicles
 Form new companies between now and 12/31/2011 with specific plans
to use funds in qualifying businesses afterwards (within 2 years)
 Restructuring existing businesses:
 Special partnership recapitalizations underneath new holding company
 Transfer existing C corporations under new holding company in taxable
transaction
 Have new company buy other selective assets from other related
companies (maybe high basis or with other attributes)
 Stock options
 Exercise stock options in eligible business and exclude gain in upon
sale


Section 1202 - Example

Observations:
 The elimination of tax at the shareholder level makes this same transaction
discussed earlier much more lucrative – eliminating the individual tax of 90-
110K in this example – or 15% greater net proceeds to shareholders.


Section 338(h)(10) Election
 Section 338(h)(10) allows the seller of stock in a corporation as sale
of assets to the buyer, even though the actual nature of the sale was
a stock sale
 Best of both worlds - Buyer desires stepped up basis in assets, but the
parties have non-tax reasons for desiring a stock sale.
 May result in additional tax cost to seller. The seller will demand gross-up
of sales price for additional costs as result of election.
 Election can be made, at the agreement of both parties, when:
 Purchaser is a CORPORATION
 Target is
• 80% or greater owned subsidiary of seller, or
• an S corporation


Section 338(h)(10) Election Implications:
S Corporation
 Deemed sale of assets could trigger built-in gains tax, if the
corporation was previously a C corporation.
 The sale of assets may result in ordinary income related to sale of
ordinary assets (inventory, depreciation recapture, etc.), taxed at
higher rates than capital gains.
 Furthermore, if shareholders’ basis in stock is high, shareholder
could recognize ordinary income on sale of ordinary assets, and then
recognize capital loss on liquidation.
 Entire gain could have been capital gain absent the election.
 If taxpayer does not have other capital gains, they may be able to
deduct only $3,000 capital losses each year.
 Nevertheless, the issues above can be addressed through a gross-
up in the purchase price. 338(h)(10) elections can be a powerful tool
in sale of S corporations. The costs/benefits must be analyzed based
on facts of each transaction.


5 minute break



Estate Planning


Presenters

Dawn Jinsky
Senior Tax Manager
248.223.3642
Dawn.Jinsky@plantemoran.com

James Minutolo
513.744.4722
James.Minutolo@plantemoran.com


Current Law and Scheduled Changes for 2013


Opportunities
 Take action today while the exemption is high, tax rates are low,
and interest rates are low! We may not get another chance.
 Evaluate various estate planning strategies to determine which one
is right for you. We’d be happy to meet with you to discuss any of
the following:
 Lifetime gifting
 Grantor Retained Annuity Trust (GRAT)
 Charitable Trusts (CRT, CLT)
 Family LLC
 Qualified Personal Residence Trust (QPRT)
 More
 Gather information and develop your personal balance sheet.


Personal Balance Sheet

What is it?
 Summary of personal assets and liabilities showing overall net worth
 Outlines titling of assets, liquid and illiquid assets

Why is it important?
 Manages the overall financial health of your family more effectively
 Allows one to identify financial issues, set goals, and track progress


A New Planning Concept Called Portability
 Basic concept
 Common questions include:
 What are the benefits?
 What are the advantages of
utilizing a credit shelter trust?
When would you not want to?
 How do you make the election to
use portability?



Investment Planning


Presenters

Jim Baird
Partner, Chief Investment Strategist – PMFA
269.567.4552
Jim.Baird@plantemoran.com

Mark Dixon
Partner, Chief Investment Officer – PMFA
248.223.3576
Mark.Dixon@plantemoran.com


Wealth Management Industry At a Glance


Market Volatility: Investors Cannot Control It
But Can Use It To Their Advantage

Excessive levels
of volatility can
be painful for
investors but
can provide a
window of
opportunity to
engage in tax-
motivated Source: PMFA, Bloomberg

transactions.


Capital Losses: Points to Remember

 Capital Gains Tax Rates Rising? Given the severe
budget deficits and the historically low capital gains rates
currently in force, the potential for capital gains rates to
rise in the years ahead is significant.
 Capital Losses Can Be Carried Forward. While it
would be clearly preferable to not incur a loss, taking
advantage of opportunities created by market conditions
can provide the opportunity to harvest losses.
 Stay invested. Selling positions at a loss doesn’t mean
deviating from one’s long-term plan.


Tax Benefits of Municipal Yields Create
Opportunity

Recent declines
in Treasury
yields, and the
expectation for
them to remain
low for some
time, have made
municipal yields Source: PMFA, JP Morgan As of 10/28/11
attractive on an
after-tax basis.


Other Considerations

 Asset location matters. Consideration of the tax
efficiency of a portfolio can result in superior after-tax
returns.
 Required minimum distributions. Does your IRA
qualify and what withdrawal amount is needed?
 Early coordination is key. Coordination of tax planning
ideas with your financial advisor and tax consultant,
BEFORE year-end, will produce the best results.


Disclosures
Past Performance Does Not Guarantee Future Results. All investments include risk and
have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by
the sources referenced and are based on data obtained from recognized statistical services or
other sources believed to be reliable. However, some or all information has not been verified
prior to the analysis, and we do not make any representations as to its accuracy or
completeness. Any analysis non-factual in nature constitutes only current opinions, which are
subject to change. Benchmarks or indices are included for information purposes only to reflect
the current market environment; no index is a directly tradable investment. There may be
instances when consultant opinions regarding any fundamental or quantitative analysis may not
agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information
about economic and market conditions and not for the purpose of providing investment advice.
Investment in any of the companies or sectors mentioned herein may not be appropriate for you.
You should consult a representative from PMFA for investment advice regarding your own
situation.



State & Local Tax
Illinois, Ohio, & Michigan Updates


Presenters

Bob Woolley
Partner, Tax Services
614.222.9160
Bob.Woolley@plantemoran.com

Julie Corrigan
Senior Tax Manager, SALT
216.274.6509
Julie.Corrigan@plantemoran.com


Presenters

Curtis Ruppal
Partner, SALT Practice Leader
616.643.4069
Curtis.Ruppal@plantemoran.com

Rachel Keller
Senior Tax Manager, SALT
248.223.3759
Rachel.S.Keller@plantemoran.com


Illinois Tax Act Highlights

 Corporate Income Tax Rate
 Increased from 4.8% to 7% for taxable years beginning on or after 1/1/11
 Reduced to 5.25% for taxable years beginning on or after 1/1/15, and
reduced back to 4.8% for taxable years beginning on or after 1/1/25
 Additional Replacement Tax of 2.5% still applies
 Individual, Trust, and Estate Income Tax Rate
 Increased from 3% to 5% for taxable years beginning on or after 1/1/11
 Reduced to 3.75% for taxable years beginning on or after 1/1/15, and
reduced to 3.25% for taxable years beginning on or after 1/1/25
 Additional Personal Property Replacement Tax of 1.5% (PTEs)
 Suspension of Corporate Net Operating Loss Utilization
 Estimated Tax Prior Year Safe Harbor
 IL Estate Tax reinstated for persons dying after 12/31/10

Illinois Update

 Angel Investment Credit Program
 Unitary Business Group changes
 Electronic filing programs
 New EFT filing thresholds
• $20,000 aggregate tax liability for business taxes effective 10/1/10
• $12,000 aggregate payroll tax liability effective 1/1/11
• $200,000 for individuals
• Enroll separately through IL to make required deposits
 Roll-out electronic filing for the IL-1120-ST in March 2012. Other
business income tax forms will follow (IL-1041, IL-1065, and IL-990-T)
 Effective 2/1/12, TeleFile will no longer be available for filing Sales and
Use Tax Returns (Form ST-1) by telephone



State & Local Tax
Ohio Update


Ohio Budget Bill Highlights
 Governor John Kasich signed Am Sub HB 153 on 06/30/11
 Repealed the Ohio estate tax applicable to the estates of individuals
dying on or after 01/01/13
 Enacted two amnesty programs – significant tax saving opportunities
1. Use Tax Amnesty Program available 10/01/11 – 05/01/13
2. General Tax Amnesty Program available 05/01/12 – 06/15/12
 Creates nonrefundable small business investment credit “Invest
Ohio”
 Creates new refundable job retention tax credit against the CAT,
corporate franchise tax, and the personal income tax for businesses
 Extends the historic building rehabilitation tax credit, rather than
letting the credit expire 06/30/11.


Ohio Update
 Department of Taxation closed seven district offices including Akron,
Cincinnati, Cleveland, Dayton, Toledo, Youngstown and Zainesville
 Pass-Through Entity Tax Business Tax Division Alert: Addresses a
Nonresident Individual’s Ability to File Form IT-1040 when an
Individual Investor is Included in an IT-4708 Composite Return
 Pass-Through Entity Tax Audit Issues:
 Gain recognized by non-resident >20% equity investor selling an
investment in a closely held Ohio business must be apportioned to Ohio
 Related Member Addback Adjustments (>40% direct or indirect)
 Compensation Addback (>20%)
 Ohio Commercial Activity Tax Voluntary Disclosure Program



State & Local Tax
Michigan Update


Michigan Tax Reform Highlights

 Effective repeal of MBT on 12/31/2011
 CIT effective 1/1/2012; no direct business tax on flow-through entity
 Beneficial ownership interest in a flow-through entity doing business
in Michigan may create nexus for members and shareholders having
no other Michigan activity
 MBT net operating losses will expire along with the MBT on
12/31/2011
 Financial statement adjustments required as a result of MBT repeal
 Expanded Michigan withholding requirements in tiered entity
structure
 Only credit retained under CIT is the Small Business Credit


Michigan Update
 Importance of proper planning for transition from MBT to CIT
 Fiscal year taxpayers
 Timing of income/deductions
 Payment of winter 2011 industrial personal property taxes
 Entity selection considerations
 Proper planning for payment of 2011/2012 estimated taxes
 Certificated credit holder election into the MBT post-2011

 Personal property tax reform



International Tax Planning
Issues for US Owned Foreign Business Operations


Presenters

Bill Henson
Partner, International Tax Services
248.375.7311
Bill.Henson@plantemoran.com

Kellie Becker
Senior Tax Manager, International Tax Services
586.416.4904
Kellie.Becker@plantemoran.com


US Tax Considerations

 US structure can make a difference
 Partnership or S corporation
 C corporation
 US treatment of foreign income
 Branch
 Disregarded Entity
• “Check-the-Box” elections
 Foreign Corporation
• “Per Se” Corporations


Deferral of Income
 Foreign corporation income not subject to tax until repatriated
 Powerful planning technique
 Must be able to keep cash offshore
 Notable exceptions to the rule
 Loans to US shareholders
 Use of foreign corporations as security for loans
 “Subpart F” income


Taxation of Dividends
 Tax rate depends on US status
 C corporation, Partnership, S corporation, Individuals
 Capital gains rate available to individuals
 Treaty countries only
 Foreign Tax Credit
 Generally available to corporations only
• Preserves corporate/shareholder level taxation
 Individuals do get a FTC for withholding taxes


Taxation of Foreign Branch
 Branches or “Flow-Through” Entities taxed currently
 Can elect flow-through treatment for some foreign entities
 Income or loss taxed currently in US
 Allows for FTC for foreign corporate level taxes to individuals
 Flow-Through losses can be “Re-Captured”
 Foreign currency translation



Tax Solutions
Year-end reminders


Presenters

Nathan Buchalski
Senior Manager, Tax Solutions Practice Leader
734.302.6960
Nathan.Buchalski@plantemoran.com

Jonathan Winterkorn
Senior Tax Manager
513.744.4729
Jonathan.Winterkorn@plantemoran.com


Research & Development (R&D) Tax Credit
 For new or improved products or processes
 Qualifying cost
 Wages, supplies, contract research


Research & Development (R&D) Example
 Taxpayer is an Ohio software development company and has
35 developers making an average of $75,000 a year.
 These developers spend 80% or more of their time working on
qualifying R&D projects.
 This client has the potential for a $150,000 Federal tax credit
plus an additional $50,000 in Ohio R&D tax credits that can be
applied towards Ohio’s CAT tax.


Domestic Producers Activity Deduction (DPAD)
 Qualifying Activities
 MPGE
 Must be calculated on an item by item basis


DPAD Example
 Taxpayer has taxable income of $4,000,000 and manufactures
products as well as resells third part products.
 Qualifying activities represent 83% of the gross receipts.
 Upon examination, it is determined that 93% of the taxable income
comes from qualified activities.
 Without proper review and documentation of the qualified activities
and associated cost, this client would have lost $120,000 of tax
deductions.


Cost Segregation/Fixed Asset Analysis
 Cost segregation for new buildings
 Review capitalize vs. expense


Cost Segregation Example with100%
Bonus Depreciation
 Taxpayer is building an apartment building for $15 million.
Below is an illustration of tax benefit for doing a cost
segregation with no bonus depreciation, 50% bonus
depreciation, and 100% bonus depreciation.
 No Bonus Depreciation: 1st year tax savings of $225,000;
NPV of savings over the life of the building of $530,000.
 50% Bonus Depreciation: 1st year tax savings of $940,000;
NPV of savings over the life of the building of $665,000.
 100% Bonus Depreciation: 1st year tax savings of
$1,650,000; NPV of savings over the life of the building of
$800,000.


Thank You

Thank you for attending!

To view a complete calendar of upcoming Plante Moran webinars, visit webinars.plantemoran.com


2011 Tax Update

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2011 Tax Update