Mark S Gleason CPA Ltd

For all of you living here in Minnesota, today, Sept 30, 2014 is going to be your last day to make purchases via Amazon.com without paying Minnesota sales tax. The on-line retailing giant has announced that effective October 1st, they will be collecting Minnesota sales taxes on purchases made by Minnesota residents. Amazon has not stated any reason for the change. Under Minnesota law any business with a "physical presence" in Minnesota is required to collect sales tax on sales to customers in Minnesota. The rate of sales tax in Minnesota is 6.875%. I am old enough to remember when it was zero and then became 3%. - Mark S Gleason CPA www.lakes-cpa.com

US Treasury Cracks Down on Inversions The Treasury Department announced this week a batch of new rules designed to curtail inversions, the corporate income tax loophole du jour. The inversion loophole is expected to cost the US $20 billion in revenue losses over the next 10 years, unless Congress takes action. Since Congressional action isn't going to happen, the executive branch is stepping up with the limited authority it has to try to limit the fiscal hemmorhaging these inversions are causing. The inversion loophole is used by large US corporations to avoid US income taxes by having the income taxed in a foreign jurisdiction having a lower tax rate. In a typical inversion transaction, a US corporation merges with a foreign corporation. The newly merged entity retains it's status as a foreign corporation, even if most of the operations are located in the US. Under current law, the merged entity is not treated as a US corporation if the (old) US company's shareholder's end up owning less than 80% of the combined company. The obvious solution would be to lower the 80 percent to 50 percent, but congressional Republicans will not permit that to happen. The new rules issued by the Treasury Department are intended to make the 80% rule harder for companies to get around. The press release issued by the Treasury Department states: "Today’s action eliminates certain techniques inverted companies currently use to gain tax-free access to the deferred earnings of a foreign subsidiary, significantly diminishing the ability of inverted companies to escape U.S. taxation. It also makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. company own less than 80 percent of the new combined entity". These actions are being taken under sections 304(b)(5)(B), 367, 956(e), 7701(l), and 7874 of the Internal Revenue Code. Here are a few of the highlights: Preventing inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (Section 7701(l) of the Internal Revenue Code). Closing a loophole to prevent an inverted company from transferring cash or property from a controlled foreign corporation to the new parent to completely avoid U.S. tax (Section 304(b)(5)(B) of the Internal Revenue Code). Restricting the "skinnying down" technique where corporations reduce their size before a merger so the new combined entity meets the requirements of current law (Section 7874 of the Internal Revenue Code). Preventing "spinversions" of business units into foreign corporations by treating the new spun-off company as a US domestic corporation (Section 7874 of the Internal Revenue Code). Eliminating "hopscotch loans", a technique whereby a foreign subsidiary of a US company loans money to a foreign corporation to help it finance an (inversion) merger with the US parent corporation are now forbidden (Section 956 of the Interal Revenue Code). This is only a taste of today's loophole closing dujour. For further details visit the Treasury Department's website at http://www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx - Mark Gleason www.lakes-cpa.com

A recent tax court case sheds a little light on how flexible the "exclusive business use" requirement for a home office deduction might be. In a rare taxpayer victory in tax court, taxpayer Lauren Miller, who admitted to occasionally using portions of her home office space for nonbusiness purposes, was successful in defending against disallowance of her home office deduction. After analyzing the layout of her apartment, the business use of the home office, the court ruled that she was entitled to deduct one-third of her apartment rent and cleaning service charges for the year. Although this is a tax court summary decision in a case involving less than $50,000 and is not to be treated as precedent for any other case, taxpayer's victory hints that if facts and circumstances warrant, minor, "de minimis" personal use of a home office will not cause failure of the entire deduction. This case is available on line at http://ustaxcourt.gov/InOpHistoric/MillerSummary.Guy.SUM.WPD.pdf Mark S Gleason CPA www.lakes-cpa.com