The New England Accounting Advisor

On the evening of December 16, the Senate passed the Tax Increase Prevention Act of 2014 ("Extenders Act"), retroactively reinstating many tax breaks that expired at the end of 2013, but only extending those provisions through 2014. The House of Representatives originally passed the Extenders Act on December 3 and, with the Senate's vote, the bill now heads to President Obama, who is expected to sign it. After a year filled with discussions about corporate tax reform and the permanent extension of popular provisions such as the research tax credit, to walk away with only a one-year extension of the expired provisions feels anticlimactic. Taxpayers that were hesitant to take advantage of the tax breaks until they were officially extended will have little time to do so before year end. At least taxpayers and their tax advisors will be able to factor these provisions into their year-end tax projections for their fourth quarter estimate calculations.

The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 requires management to evaluate whether substantial doubt exists that an entity will be able to continue as a going concern and defines, for the first time in US GAAP, the key terminology and responsibilities of management related to an entity's ability to continue as a going concern.

Public corporations generally cannot deduct more than $1 million in compensation per year for covered employees (i.e., certain key executives). Certain types of compensation, most notably performance-based compensation subject to shareholder approval, are excluded from this limitation. Recent guidance provides insight on several issues, including who are covered employees, whether shareholders actually had the ability to approve performance-based compensation and whether dividends on restricted stock units were subject to the $1 million limitation.

Beginning on July 1, 2015 all Massachusetts private sector employers with more than 10 employees must provide up to 40 hours of paid sick time per calendar year, while private sector employers with fewer than 11 employees must provide 40 hours of unpaid sick time per calendar year. These requirements are the result of a new sick leave law passed by Massachusetts’ voters on Nov. 4, 2014.

The new law ensures employees can take sick leave without repercussion to:

• Care for a physical or mental illness, injury or medical condition affecting the employee or the employee’s child, spouse, parent, or parent of a spouse;

• Attend routine medical appointments of the employee or the employee’s child, spouse, parent, or parent of a spouse;

• Address the effects of domestic violence on the employee or the employee’s dependent child.

Holding a concentrated position in low basis stock can be a dilemma for many investors. With federal long-term capital gains rates up to 20 percent, the 3.8 percent net investment income tax and state income taxes, the cost may be too high to justify selling the stock. Some will simply hold the stock until they die, providing their heirs with a step-up in basis resulting in little or no tax consequences. This could be risky. A drop in share price could result in a significant decrease in wealth. The potential for transactions that the investor cannot control (such as an inversion or other taxable event) pose additional risks. There are options, but none of them are perfect.

FATCA Targets Tax Evasion

The recently enacted Foreign Account Tax Compliance Act (FATCA) added a chapter to the Internal Revenue Code designed to prevent U.S. persons from using offshore accounts and investments to evade U.S. tax. Effective July 1, 2014, any person making a payment of U.S. source income to either a Foreign Financial Institution (FFI) or a Non-Financial Foreign Entity (NFFE) must consider whether it is subject to FATCA.  

U.S. entities, both financial and non-financial, that make payments of U.S. source income to non-U.S. persons will be affected. There is a potential 30% U.S. withholding tax imposed on U.S. source "withholdable payments" made to a non-U.S. entity under FATCA. The U.S. payor will need to understand the entity classification of its non-U.S. payees under FATCA and will be required to maintain documentation on these non-US persons.

Since the new FATCA requirements did not replace the existing withholding rules on payments of certain U.S. source income to non-U.S. persons, businesses are currently reviewing their processes to ensure proper compliance with the existing withholding rules as well as the new FATCA provisions.

Authors: Tarra Curran and Claudia Mullen

While paying taxes might not be our favorite pastime, the overwhelming majority of taxpayers strive to file and pay all of their tax obligations. However, sometimes taxpayers' best efforts to comply with their tax obligations are not enough, especially in the state and local tax world. Although it may be an innocent mistake, such filing non-compliance may be very costly if it is first discovered by the state or local taxing jurisdiction, because the taxpayer will not only be subject to tax and interest but also harsh penalties (up to 25 percent or more). On the other hand, the taxpayer does have options to come forward and minimize its exposure if the taxpayer is the first to discover any non-compliance. Voluntary disclosure agreements, or "VDAs," are a popular and generally effective method for taxpayers to clean up their state tax compliance issues.

How Did You Not Pay Your Taxes?