LET’S TALK TAX - BDO USA, LLP · 2019-07-11 · 3 2019 Let’s Talk Tax Mid-Year Update RYAN...

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK

company limited by guarantee, and forms part of the international BDO network of independent member firms.

LET’S TALK TAX

REFORM - ONE

YEAR LATER: LESSONS LEARNED AND PRACTICAL

STRATEGIES FOR 2019 AND

BEYOND

July 10, 2019

The following is a summary of certain tax provisions contained in the new tax law and provides a high level overview.

As such, it is not intended to be a comprehensive discussion of all the numerous tax law changes, definitions and special rules

relating to the provisions presented.

2019 Let’s Talk Tax Mid-Year Update2

MEREDITH PILAROTax Partner

703-770-6357

[email protected]

TIM ROSSTax Partner

703-752-7389

[email protected]

KATHERINE REEVESManaging Director

703-752-7393

[email protected]

With You Today

mailto:[email protected]




RYAN THOMASInternational Tax Senior Manager

703-770-6312

[email protected]

JOSH SWAINTax Managing Director

703-770-4445

[email protected]

ELIL ARASUState & Local Tax Managing

Director

703-336-1652

[email protected]

With You Today





Housekeeping Items

Please silence cellphones

Restrooms are located right outside this room near the elevators

Help yourself to beverages and more food just outside the back of the room

Parking is complimentary – see registration table to have your ticket validated

CPE will be sent via email in a few weeks – as long as you checked in at the registration

desk you are set

An email will be sent out in the next day or two with the presentation materials as well as

a survey

Wi-Fi network: 8401 conference; Password: greensboro


Agenda

New IRC Sec. 199A Deduction for Income from Pass-Through Entities

New Non-Deductibles- What We Have Learned

GILTI updates

Expanded Interest Deduction Limitations

State Income Tax Reaction to Tax Reform and Other Updates

What’s Next


TCJA Was Signed Into Law December 22, 2017

7 2019 Let’s Talk Tax Mid-Year Update

New IRC Section 199A Deduction for Income

from Pass-Through Entities


Section 199A Deduction for Qualified Business Income

Taxpayers (flow through entities) other than corporations are generally eligible to claim

a deduction equal to the sum of:

1) The lesser of (A) the taxpayer’s “combined qualified business income amount” or

(B) 20 percent of the excess of the taxpayer’s taxable income over capital gain plus

qualified cooperative dividends, plus

2) The lesser of (A) 20 percent of the aggregate amount of qualified cooperative

dividends or (B) the taxpayer’s taxable income (reduced by net capital gains)



A taxpayer’s combined qualified business income amount is equal to the sum of:

(1) 20 percent of the taxpayer qualified business income (QBI) with respect to each

qualified trade or business plus (2) 20 percent of the aggregate amount of qualified

real estate investment trust dividends and qualified publicly traded partnership

income



In general, qualified business income is the net amount of qualified items of income, gain,

loss, and deduction with respect to any qualified trade or business

Qualified business income does not include investment type income, reasonable

compensation, and guaranteed payments

A Qualified trade or business is any business that does not include a “specified business

Specified trade or businesses include fields of health, law, accounting, actuarial science,

performing arts, consulting, athletics, financial services, and brokerage services

Act removed engineering and architecture services



Exception for specified service businesses where a taxpayer’s taxable income does not

exceed $315,000 (joint filer) or $157,500 (other filers), subject to full phase-in at

$415,000 and $207,500, respectively

The Section 199A deduction can create an effective maximum rate of 29.6% (down from

the highest statutory rate of 37%

Significant limitations may result in an inability to achieve the reduced 29.6% tax rate

All you need to remember:

Possible 20% deduction for a qualified trade or business conducted in a partnership, S-

Corporation, or sole proprietorship


Section 199A OverviewCase Study

LLC has taxable income of $1M

W-2 wages are $600K

Sec. 1231 Gain is 15k

Depreciation & Amortization expense of

$100K

UBIA is 250K

Allocation are made pro-rata

QBI equals taxable income

US Holdco

Foreign

Corporation

US

Operating

LLC

US

Operating C

Corp

US

Individual

(VA)

100%

100%

90% 10%


Section 199A OverviewCase Study

What is the 199A deduction for the partners?

C-corporation partner get nothing allocated

Individual Partner is allocated 10% of taxable

income. Assuming no limitations, the

individual has 20% of 100K as his or her Sec.

199A deduction. Sec.199A deduction is 20K

US Holdco

Foreign

Corporation

US

Operating

LLC

US

Operating C

Corp

US

Individual

(VA)

100%

100%

90% 10%


New Non-Deductibles- What We Have

Learned


The New Non-Deductibles

Entertainment costs

Meals

Transportation/Parking

Moving expense reimbursements


Entertainment Costs

Entertainment deduction amusement or recreation eliminated

50% of business meals still deductible if employee is present and not lavish or extravagant

Food during entertainment can qualify if purchased separately from the entertainment


Meals

50 percent of business meals still deductible if employee is present and not lavish or

extravagant

Employee recreational events such as holiday party and annual picnic remain 100 percent

deductible

Beware of overusing the deduction for meals furnished for the convenience of the

employer



Qualified transportation fringe benefit

• Can still be provided to employees as a tax free benefit

• However, no longer deductible by employer

• BUT bicycle commuting allowed through 2025 as a deduction if included in employee

compensation

Deduction is lost even if employees fund the payment through pre-tax payroll deduction

Parking at or transportation to a worksite that is not a part of the employee commute

remains deductible as a working condition fringe benefit when reimbursed under an

accountable plan



Discontinuance of qualified transportation fringe benefit making employees pay fair

market value of parking and transit with after tax dollars can restore the employer

deduction

• Impact on employees can be mitigate with an increase of compensation, but consider

other increased cost such as employer FICA and other wage based employee benefits

such as life insurance, workers compensation, retirement, etc.


How to Calculate the Non-Deductible Amount?

Payments to third party for employee parking is not deductible

Expenses associated with owned or leased property must be determined

• Allocate expenses including lease payment between parking and non-parking property

using any reasonable methodology

Allocation of leases affected by the type of property covered by the single lease payment

• Marshall & Swift data base used for cost segregation studies is one way to determine

allocation of lease payment between buildings and parking structures

• Aggregation of locations possible in the same city and possibly in the same geographic

area

• Complicated


Excerpt from Marshal and Swift Database


Determination of Cost Associated with Employee

Parking

Any reasonable method

IRS Notice 2018-99 provides a safe harbor methodology

• Reserved spots for employees (non-deductible)

• Reserved spots for guests and visitors (deductible)

• Primary use exception for unreserved spots (if passed no additional lost deduction)

• If primary use not passed, allocate expenses to the estimated usage by employees on a

normal business day (additional lost deduction)

Complicated


Moving Expenses

Individuals

Not currently deductible by individuals as a business expense

Therefore, not reimbursable by employer on a tax free basis, even, if the move at the

request of the employer or to accept employment

• Accountable plans can reimburse on a tax free basis any employee expense that would

be deductible by the employee on their Form 1040 as an employee business expense

• The TCJA changed that disallows the employee’s deduction affects the taxability to

moving expenses paid or reimbursed by the employer

Employers

Must report as taxable compensation to the employee

• Subject to all income and employment tax withholdings

Deductible to employer as compensation


GILTI Updates


Overview of GILTI

Under the new Section 951A, U.S. shareholders of any CFC must include in gross income

for a taxable year their pro rata share of global intangible low-taxed income (“GILTI”) in a

manner generally similar to inclusions of Subpart F income. For any amount of GILTI that is

includible in a C-corporation shareholder’s income, the C-corporation generally should be

entitled to a limited deemed foreign tax credit for 80% of the foreign taxes attributable to

the “tested income” of the CFC.

GILTI inclusion amount = net CFC tested income – net deemed tangible income return

(“Net DTIR”)


Overview of GILTI

Net DTIR = 10% x such shareholder’s pro rata share of the qualified business asset

investment (“QBAI”) of each tested income CFC with respect to which such shareholder is

a U.S. shareholder for such taxable year less specified interest expense

• Specified interest expense is the amount of interest expense of each of the U.S.

shareholder's CFCs that constitutes an allowable deduction in the U.S. shareholder

inclusion year, to the extent that the interest income attributable to the expense is

not taken into account in determining the U.S. shareholder's net CFC tested income.

• QBAI = average of the aggregate of its adjusted bases, determined as of the close of

each quarter of the taxable year, in specified tangible property used in its trade or

business and of a type with respect to which a deduction is generally allowable under

Section 167

− Very generally, specified tangible property is tangible property used in the

production of tested income depreciated using ADS. Special rules for dual-use

property


Overview of GILTI

Net CFC Tested Income

• Pro rata shares are determined under the rules of Section 951(a)(2)

• The tested income of a CFC means the excess (if any) of the gross income of the

corporation—determined without regard to certain exceptions to tested income—over

deductions (including taxes) properly allocable to such gross income (“tested gross

income”)

− The exceptions to tested income are: (1) the corporation’s ECI under Section

952(b); (2) any gross income taken into account in determining the corporation’s

subpart F income; (3) any gross income excluded from foreign base company

income or insurance income by reason of the high-tax exception under Section

954(b)(4); (4) any dividend received from a related person (as defined in Section

954(d)(3)); and (5) any foreign oil and gas extraction income (as defined in Section

907(c)(1))

• The tested loss of a CFC means the excess (if any) of deductions (including taxes)

properly allocable to the corporation’s gross income—determined without regard to the

tested income exceptions—over the amount of such gross income


Overview of GILTI

A domestic C-corporation (other than RICs and REITs) is permitted a deduction equal to

37.5% (reduced to 21.875% after 2025) of its foreign derived intangible income (“FDII”) of

the domestic corporation and 50% (reduced to 37.5% after 2025) of its GILTI (if any)

included in income under Section 951A and the amount treated as a dividend received by a

domestic corporation under Section 78 that is attributable to the corporation’s GILTI

amount. These deductions are subject to certain limitations (e.g. potential reduction of

deduction based on taxable income) and complicated mechanical formulas are used to

determine the amounts.


Recent Final and Proposed GILTI Regulations

On September 13, 2018 the Treasury released proposed regulations related to Section

951A. These proposed regulations provided guidance with respect to the mechanics of

determining a US shareholder’s GILTI inclusion, including CFCs held through partnerships

and determining a GILTI inclusion on a consolidated basis.

On June 14, 2019 released final and proposed regulations under Section 951A.

• The final regulations retain the overall structure and basic approach of the proposed

regulations issued in September 2018 but also have some significant modifications.

The final regulations clarify the interaction of subpart F and GILTI for purposes of

determining tested income.

Modify anti-abuse rules for certain property transactions taking place prior to the effective

date of Section 951A.

Modify the treatment of domestic partnerships and their partners for purposes of

determining a domestic partner’s GILTI inclusion.


Recent Final and Proposed GILTI Regulations

The final regulations also include final rules under Sections 78, 861, and 965 which were

originally proposed in a separate proposed regulation package relating to foreign tax

credits.

• These rules finalize the rules under Treasury Prop. Regs §1.78-1.

• Retain provision to treat Section 78 dividend relating to taxable years of foreign

corporations beginning before January 1, 2018 as ineligible for the dividends received

deduction under Section 245A.

• Modify certain rules under Treas. Prop. Reg. §1.861-12(c) relating to basis adjustments

to CFC stock taking into account Section 965 basis adjustment elections.

• Finalize rules related to the Section 965(n) election to forgo use of a net operating loss

(NOL) in the toll charge year.

The proposed regulations provide guidance on the general carve out exception from GILTI

gross tested income of certain income subject to “high tax” in a foreign jurisdiction. The

proposed regulations also amend the treatment of domestic partnerships and their

partners for purposes of determining 951 inclusions (subpart F and 956 inclusions).


Expanded Interest Deduction Limitations


Section 163(j) OverviewBackground

On December 22, 2017, Section 163(j) was amended by the Tax Cuts and Jobs Act

(“TCJA”).

Section 163(j), as amended by the TCJA, provides new rules limiting the amount of

business interest expense that can be deducted for taxable years beginning after

December 31, 2017.

The new Section 163(j) provides that the amount allowed as a deduction for business

interest expense is limited to the sum of:

1) The taxpayer's business interest income;

2) 30% of the taxpayer's adjusted taxable income (“ATI”) for such taxable year; and

3) The taxpayer's floor plan financing interest for such taxable year.


Section 163(j) OverviewBackground

ATI is basically EBIDTA (i.e., add back deductions allowable for interest, depreciation,

amortization, depletion, NOLs, and Sec 199A deduction)

After December 31, 2021 – ATI is basically EBIT.

Solely for Section 163(j), interests attributable to the following businesses are not

considered business interests and thereby are not subject to the limit: electing real

property trade or business, electing farming business, and certain utility businesses


Section 163(j) OverviewBroadened Applicability

Section 163(j) now generally applies to business interest expense of U.S. taxpayers

engaged in business in any form (e.g. C corporation, partnership, S corporation, or sole

proprietorship), and regardless of foreign ownership.

Small business exemption. A taxpayer – other than a tax shelter - could be exempt from

the new Section 163(j) rules if its average annual gross receipts for the three preceding

taxable years do not exceed $25 million. For purposes of the $25 million test, aggregation

rules under Section 448(c), which further references to Section 52(a) and (b) and Section

414(m) and (o), shall apply.

By contrast, the pre-TCJA version of Section 163(j) generally only applied to thinly

capitalized corporations with related party debt or certain third-party debt guaranteed by

foreign affiliates.

The new Section 163(j) limitation could significantly increase the after-tax cost of

financing.


Section 163(j) OverviewCase Study

Consolidated C corporation has taxable

income before 163(j) and partnership

inclusions of $1M

Interest expense of $500K and interest

income of $10K

Excess Business Interest Expense from

investment in partnership of $75K

Depreciation & Amortization deductions

allowable of $100K

What is the 163(j) limitation at the C corp

level?

How does the C corp treat the Excess

Business Interest Expense from the

partnership?

US Holdco

Foreign

Corporation

US

Operating

LLC

US

Operating C

Corp

US

Individual

(VA)

100%

100%

90% 10%


Section 163(j) OverviewCase Study

What is the 163(j) limitation at the C corp

level?

How does the C corp treat the Excess

Business Interest Expense from the

partnership?

The $75K of Excess Business Interest is

tracked at the C corp level on Form 8990

and will be carried forward in the future

until the same partnership has Excess

Taxable Income and/or Excess Business

Interest Income. At that time, the amount

will be “released” into the C corps

interest expense limitation calculation.

US Holdco

Foreign

Corporation

US

Operating

LLC

US

Operating C

Corp

US

Individual

(VA)

100%

100%

90% 10%


Section 163(j) OverviewInvesting in a Partnership (C Corp 163(j) considerations

Excess Business Interest Expense

Excess Taxable Income

Excess Business Interest Income

Partnerships not subject to 163(j)

Basis Adjustments in partnerships


Section 163(j) OverviewOther Considerations

Amortization of Debt Issuance Costs

ASC 740 Impact

IRC Section 382

CFCs

S Corporations


State Income Tax Reaction to Tax Reform

and Other Updates


State Methods of Internal Revenue Code Conformity

H.R. 1 “Tax Cuts and Jobs Act”

Date of Enactment is December 22, 2017

“Rolling” Conformity – the IRC “as amended”

• These states will automatically conform to the TCJA unless they decouple

“Fixed-date” Conformity – the IRC “as in effect on ….” or “as amended through” a specific

date

• These states will not conform to the TCJA until they update their IRC conformity date

(assuming no decoupling). Most states have since conformed to the TCJA, but they may

still decouple from certain provisions.

“Selective” conformity - only specific IRC provisions on a “rolling” or “fixed-date” basis


State Methods of Internal Revenue Code Conformity

Examples of Nonconformity

Did you know that California, New Hampshire, and Texas still have not conformed to the

TCJA?

• This means that in these states, you will need to re-compute federal taxable income as

if the TCJA was never enacted. This could require significant effort in completing the

tax returns in these states and may increase or decrease the amount of tax due in

these states.

Further, Iowa will not conform to the TCJA until tax years beginning on or after January 1,

2019.

Although Wisconsin updated its general IRC conformity date to include the TCJA

amendments, the state then proceeded to decouple from most of the TCJA.

Finally, although Hawaii and South Carolina also updated their general IRC conformity

date, they continue to decouple from most of Subchapter N, the Code’s international tax

provisions


State Impact of Global Intangible Low-Taxed Income

– IRC Section 951A

Did you know that a company’s Global Intangible Low-Taxed Income (GILTI) amount

can be different for state purposes and federal purposes?

In certain states, GILTI income will be deductible while in other states it will be

taxable. Moreover, many states have not indicated whether GILTI is includable or

excludable from state taxable income. For these states, you will need to check

their DRD or exclusion for Subpart F income, if any, and see if it is broad enough to

encompass GILTI. Analysis is also needed to determine whether the IRC Section 250

GILTI deduction is added back.

If a state includes all or a portion of GILTI in state taxable income, only a handful

have indicated if the taxable GILTI amount is included in the state’s sales factor of

the apportionment formula.

Lastly, if your client is paying tax on GILTI income in separate filing states, there

may be restructuring opportunities that may minimize the tax paid in separate

filing states on the GILTI income.


Foreign Derived Intangible Income

The 2017 Tax Act provides US companies with a new permanent deduction: Foreign-

Derived Intangible Income (FDII). An incentive for C corporations to generate revenue from

serving foreign markets, the provision applies a preferential tax rate to eligible income.

Did you know that a company’s Foreign Derived Intangible Income (FDII) amount can be

different for state purposes and federal purposes?

• FDII should be calculated on an entity by entity basis if any separate returns are filed.

Certain states will incorporate the IRC section 250 FDII deduction while other states may

not. The state income tax starting point (Line 28 vs. Line 30) will impact the treatment.

Similarly, a state may allow the IRC Section 250 GILTI deduction, but that does not mean

it will also allow the IRC Section 250 FDII deduction.


New Federal Foreign Source Dividends Received

Deduction

For Federal taxes, there is a 100% DRD for the foreign source portion of dividends received

by a domestic corporation that is a 10% shareholder in a distributing foreign corporation.

Did you know that the TCJA’s new 100% foreign-source DRD likely will not apply for most

states?

Even though a state may conform to the TCJA, most states apply their own DRD to foreign-

source dividends or will follow either the old or amended IRC Section 243 for purposes of

their foreign-source DRD.

• This means you may need to add-back the federal DRD and separately calculate a

state foreign-source DRD, which could result in a portion of the dividends being

subject to state tax even though they are fully deductible for federal tax purposes.


State Impact of Interest Expense Limitations – IRC

Section 163(j)

Did you know that for separate return states you will need to calculate a separate entity

adjusted taxable income (ATI) amount for purposes of the IRC Section 163(j) limitation?

• While some states decouple from section 163(j), there are several separate return

states that will conform.

• In addition, since many separate return states also have their own related party

interest expense “add-back statutes,” you also will need to determine which federal

deductible interest dollars are related party interest dollars potentially subject to

state add-back.

• To further complicate matters, some states have delayed their decoupling from

section 163(j) to a later tax year (e.g., Tennessee) or delayed their conformity (e.g.,

Iowa).

For flow-through entities, the calculations can be even more complicated at the state

level, especially for non-resident member withholding and composite return elections.


State Impact of Amendments to Federal NOL

TCJA amends IRC Section 172 to limit the NOL deduction to 80% of FTI (determined

without regard to the NOL) for losses arising in taxable years beginning after December 31,

2017.

Eliminates NOL carrybacks, but makes carryforward period indefinite.

For Corporate Taxpayers: Did you know that only a handful of states are conforming to the

TCJA’s amendments to IRC Section 172?

• For most states, you will still need to calculate and track individual state NOLs with

their own limitations and carryforward periods.

For Individual Taxpayers: Did you know that business owners might have disallowed excess

business losses under IRC Section 461(l)) at the state level, even if they don’t at the

federal level?

• Some states will not accept a NOL without a federal NOL.


Qualified Business Income Deduction

Provides a 20% individual owner deduction for “qualified business income” received from a

pass-through entity (PTE)

• PTE includes sole proprietorship, partnerships, LLCs taxed as partnerships, and S

Corporations

Did you know that only a few states start the computation of state taxable income for

personal income tax purposes with federal taxable income? Most others start with federal

adjusted gross income and a few with their own gross income definition.

As a “below-the-line” deduction, the QBI deduction is limited at the state level. And of

these few states, Oregon adds back the QBI deduction, and South Carolina decoupled from

IRC Section 199A. Iowa is phasing in a QBI deduction starting with the 2019 tax year.

New IRC Section 199A is not a deduction in arriving at adjusted gross income; instead it is

a below-the-line deduction reducing federal taxable income.

Most states start determination of an individual’s state taxable income with federal AGI

• QBI deduction will not be included in the state’s starting point when the starting point

is federal AGI.


New Federal Limitation on the Deductibility of State

and Local Taxes for Individuals

Amended IRC Section 164

Effective for the 2018 tax year, individuals that itemize deductions may still deduct state

and local property taxes and either income tax or sales tax.

However, the “SALT deduction” is now capped at $10,000.

The new limitation does not apply to state and local taxes paid by a trade or business.

The deduction cap will impact high-income taxpayers in high-tax states.

• California, Illinois, New Jersey, New York, Pennsylvania, and Texas have claimed more

than half the value of the deduction in prior years.

A number of states have begun to consider “work-arounds”

• Payroll or other entity level taxes and personal income tax credits

• Charitable contributions in lieu of taxes


State Income Tax Updates


Market-Based Sourcing

Market-Based

Sourcing

Where Benefit

Received

Market-Based

Sourcing

Where Service

Received

Market-Based

Sourcing

Where Service

Delivered

Market-Based Sourcing

Where Customer

Located

Arizona (election) Connecticut Alabama Georgia

California Illinois Colorado (2019) Maryland

Iowa Maine District of Columbia Nebraska

Michigan Minnesota Indiana (2019) Oklahoma

Missouri (election)* Kentucky

New Jersey (years

ending on/after

7/1/2019)

Louisiana

New York Massachusetts

New York City Montana

Rhode Island New Mexico (2020)

Utah Oregon

Wisconsin Pennsylvania

Tennessee

*Missouri will require market-based sourcing starting 2020


Single Sales Factor Formulas

Arizona (election) Illinois Minnesota Oregon

Arkansas (2021) Indiana Missouri

(election/required

2020)

Pennsylvania

California Iowa Nebraska Rhode Island

Colorado Kentucky New Jersey South Carolina

Connecticut Louisiana New York Texas

Delaware (2020) Maine New York City (2018) Utah

(elections/required

2021)

District of Columbia Maryland (2022) North Carolina (2018) Wisconsin

Georgia Michigan

*States may require SSF for specific industries (e.g., financial institutions,

transportation companies, etc.). MD and MA require manufacturers to use SSF.

MS and VA require retailers to use SSF (and debt buyers for VA). TN, UT, and

VA provide an election to manufacturers to use SSF. TN provides asset

management partnerships with a SSF election.


2019 State Tax Legislative UpdateOregon Corporate Activity Tax Enacted

A new Corporate Activity Tax (CAT) for the privilege of doing business in the state was

enacted in Oregon this week as a plan to fund education. Unlike Ohio’s CAT, this

additional tax burden is imposed on individuals, partnerships, limited liability

corporations, associations, estates, S corporations, and disregarded entities as well as

traditional C corporations, with substantial nexus with Oregon.

This tax is imposed in addition to the corporate income/franchise tax and the individual

income tax already imposed by the state.


2019 State Tax Legislative UpdateOregon Corporate Activity Tax Enacted (Cont.)

The new CAT defines substantial nexus to include a “bright-line presence” test of having

one or more of the following in the state during the calendar year:

• $50,000 of property;

• $50,000 of payroll;

• $750,000 of commercial activity; or

• At least 25% of the person’s total property, total payroll, or total commercial activity.



The tax is imposed at the rate of $250 plus .57% of the taxpayer’s taxable commercial

activity that exceeds $1 million. A subtraction from the gross commercial activity sourced

to Oregon is allowed for 35% of the greater of the following: 1) the amount of cost of

inputs, or 2) the taxpayer’s labor costs. For this purpose, cost of inputs is calculated

according to Internal Revenue Code (IRC) section 471, which relates to the general rules of

inventory valuations. Labor costs are defined as all compensation paid to an employee

that does not exceed $500,000.

A unitary group is required to file the CAT as a single taxpayer, excluding intercompany

transactions. For sales of services and intangibles, market-based sourcing is used, with the

use of alternative apportionment allowed



Although there are separate definitions of “commercial activity” for financial institutions

and insurers, the general definition is “the total amount realized by a person, arising from

transactions and activity in the regular course of the person’s trade or business, without

deduction for expenses incurred by the trade or business.” There are more than 40

exclusions from this definition, including interest, dividends, pass-through distributions,

receipts from sales of capital assets, and receipts acquired by an agent on behalf of

another.

The use of gross receipts as a base, while allowing deductions for cost of goods sold or

payroll, indicates that this activity tax works like a hybrid Texas Margin Tax/Ohio CAT in

regard to the calculation of the taxable base. This new tax is effective for tax years

beginning on or after January 1, 2020.


Pass-Through Entities – “PTE Taxes”Oklahoma H.B. 2665, enacted Apr. 29, 2019

Follows Connecticut (2018) and Wisconsin (next slide) in enacting a “PTE tax” as a

workaround to address the federal $10,000 limitation on the personal income tax SALT

deduction.

Provides an election for a pass-through entity (partnership, LLC, S corporation) to pay a

“PTE income tax.” Election is binding until revoked.

Effective for tax years beginning on or after January 1, 2019.

Partners/members whose only Oklahoma source income is from the electing PTE are

relieved of obligation to file Oklahoma tax returns.

Distributive shares of income to partners/members that are individuals, trusts or estates

are aggregated and subject to 5% tax rate (highest marginal individual rate). Distributive

shares of income to corporations, financial institutions, or another PTE are aggregated and

subject to 6% tax rate.

If PTE has a net loss, it is eligible to be carried back two years or forward 20 years.


Pass-Through Entities – “PTE Taxes”Wisconsin S.B. 883, enacted Dec. 14, 2018

Persons owning more than 50% of the capital and profits interests in a partnership (or LLC

taxed as a partnership) or owning more than 50% of the shares of an S corporation may

make an annual election for the PTE to be taxed at the entity level.

Effective for S corporations starting with the 2018 tax year and for partnerships/LLCs

starting with the 2019 tax year.

The PTE will be taxed at the Wisconsin corporate rate of 7.9%.

The PTE may not carry forward losses.

The only tax credits that the PTE may claim are for PTE-level taxes paid to other states,

including for composite returns.


What’s Next


What’s Next

Technical corrections and guidance still

needed!

• Qualified improvement property

• Final regulations on 163(j) and other

areas

Continue to watch state reactions to tax

reform

Special S Corp provisions to convert to C

expire 12/21/19


Thank You!


BDO USA

Year on year 10.7% growth rate and 8.3% increase from 2017 at

constant exchange rates4.2% increase over last year

National Presence, Global Reach

BDO INTERNATIONAL

60+

OFFICES

650+

ALLIANCE FIRM

LOCATIONS

6,592TOTAL PERSONNEL

Accounting & Audit

49%

Tax

34%

Advisory

17%

100 YEARS, AND COUNTING.

When M. L. Seidman founded Seidman & Seidman in 1910, there were

just over 2,000 accountants in the entire United States, and by the

1980’s the global network had been established – and the firm was

renamed BDO Seidman.

Today, BDO’s entrepreneurial spirit lives on, and the firm continues

its history of growth as it expands across the country. Yet, no matter

how large we become, we will continue to remain united under a

common purpose: helping people thrive, every day.

Statistics as of and for the year ended 6-30-18.

162COUNTRIES

Accounting & Audit

45%

Tax

21%

Consulting Advisory

34%

1,590+OFFICES

80,087TOTAL PERSONNEL

BDO International statistics as of and for the year ended 9-30-18.

EXCEPTIONAL SERVICE. WORLDWIDE.

With a network spanning more than 160 countries worldwide, BDO is

the 5th largest global network of public accounting firms. Our

seamless global approach allows us to serve clients through a central

point of contact, granting access to relevant experience across

borders – where and when our clients need us.

billion revenues

$1.47billion revenues

$8.99

62

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax,

advisory and consulting services to a wide range of publicly traded and privately held companies.

For more than 100 years, BDO has provided quality service through the active involvement of

experienced and committed professionals. The firm serves clients through more than 60 offices and

over 650 independent alliance firm locations nationwide. As an independent Member Firm of BDO

International Limited, BDO serves multi-national clients through a global network of 80,000 people

working out of 1,590 offices across more than 160 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International

Limited, a UK company limited by guarantee, and forms part of the international BDO network of

independent member firms. BDO is the brand name for the BDO network and for each of the BDO

Member Firms.

Material discussed is meant to provide general information and should not be acted on without

professional advice tailored to your or your firm’s individual needs.

© 2019 BDO USA, LLP. All rights reserved. www.bdo.com

Date post:	11-Mar-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

LET’S TALK TAX - BDO USA, LLP · 2019-07-11 · 3 2019 Let’s Talk Tax Mid-Year Update RYAN...

Documents