Video on Rental Income by Denver Tax Lawyer

Many individuals have rental properties and will ask questions regarding the tax implications of such rental income.  In the video below a Denver tax lawyer  discusses general issues regarding rental income, including Schedule E, which is generally where rental income would be claimed.

 

You can contact The McGuire Law Firm to speak with a tax lawyer and discuss the tax implications and other issues surrounding rental income and rental properties.  The McGuire Law Firm offers a free consultation to all potential clients.

Cash Out Merger

In a previous article, we discussed a stock swap statutory merger, which may be considered a “plain vanilla” statutory merger between two corporations.  It was also noted that this merger would be a tax free reorganization, known as an A Reorganization.  Certainly, not all mergers are tax free reorganizations.  The article below has been drafted by a Denver business attorney to discuss a Cash Out Merger, which would be a taxable transaction.

Through a cash out transaction the purchasing firm or business does not want the shareholders of the selling business to hold the purchasing businesses voting common stock.  The purchasing business wants to be able to pay cash for the purchasing business, or if the necessary amount of cash is not available, to pay the selling businesses shareholders with non-voting investments in the purchasing business such as a debt or loan, or non-voting common stock or preferred stock, which would be equity.

To provide an example, think of John Corporation and Jeff Corporation and John Corporation wishes to acquire or purchase Jeff Corporation.  The cash out merger thus involves cash (or potentially a substitute as stated above) being paid from John Corporation to Jeff Corporation.  The shareholders of Jeff Corporation would have to vote to ratify the merger.  The Jeff Corporation stock would be cancelled and Jeff Corporation would be extinguished.  The assets and liabilities of Jeff Corporation would become those of John Corporation.  Procedurally, the board of directors would in all likelihood have to pass a resolution approving the agreement to merger.  This agreement would state the terms and conditions of the merger and whether certification of incorporation of the John Corporation is amended.  The agreement would also need to go to the shareholders for a shareholder vote.  The issue of who will vote in a statutory merger deserves attention.  Under the Delaware Code, the default rule would be that shares without general voting rights (non-voting common shares and preferred shares with no voting rights unless dividend arrearages) would not vote in major transactions.  I think the majority of other state codes would follow this voting rule as well.  It is also important to note that certain preferred stock contracts can provide a preferred stock shareholder a class vote in certain acquisitions.

The minimum vote may require a majority of the outstanding shares and this may be true whether or not the shares are represented at the shareholder meeting.  The turnout at a shareholder meeting can be less than 75% of the outstanding shares, the successful vote on a merger can require the affirmative vote of the vast majority of the shares represented at a shareholder meeting.  There are exceptions to certain voting issues and requirements stated above, which will be discussed in a later article.

If you have questions regarding your business issues, you may speak with a Denver business attorney or tax attorney at The McGuire Law Firm. A free consultation is offered to all potential clients.

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What is IRS Letter 1058?

Receiving a Letter 1058 from the Internal Revenue Service may be quite scary.  Letter 1058 is a Final Notice of Intent to Levy by the IRS.  This means that if you take no action, you are in jeopardy of the IRS levying your bank accounts, garnishing wages or third party monies owed to you and even seizing assets if necessary.  It is important to know that you do have rights as a taxpayer.  The video below prepared by a Denver tax attorney discusses Letter 1058 and hopefully can provide useful information if you have received this notice from the IRS.

 

Contact The McGuire Law Firm to discuss any tax questions or IRS problems with a Denver tax attorney.  Free consultation with a tax attorney in Denver or Golden, Colorado.

What is a Collection Due Process Hearing?

A collection due process hearing is a hearing afforded to taxpayers with certain issues before the IRS.  This hearing may help in resolving a tax matter such as a tax debt, and provides due process to the taxpayer.  The video below has prepared by a Denver tax attorney at The McGuire Law Firm to provide information regarding a Collection Due Process Hearing with an IRS appeals officer.

 

You may contact The McGuire Law Firm to schedule a free consultation with a Denver tax attorney to discuss your tax questions, issues and matters, including IRS related problems.  The McGuire Law Firm has law offices in Denver and Golden Colorado.

Example of Collapsible Partnership Rule by Denver Tax Attorney

The collapsible partnership rule has been discussed in previous articles.  The article below is an example of a transaction whereby the collapsible partnership rule would apply.  The example below should help illustrate when the sale of a partnership interest can generate ordinary income and the allocation of basis to determine the amount of ordinary income that must be realized.

Example:  Jeff is an equal partner in J Cubed LLC and has a $10,000 basis in his partnership interest.  The assets of the partnership are $10,000 in cash, $12,000 in inventory with a $9,000 adjusted basis and investments with an adjusted basis of $11,000 and fair market value of $17,000.  Jeff sells his partnership interest to James for $13,000.  Thus, Jeff realizes a $3,000 gain from the sale of his partnership interest.  $1,000 of the amount realized would be due to the appreciation in the partnership’s inventory.  Thus, Jeff would report $1,000 as ordinary income and the remaining $2,000 of gain would be reported as capital gain.  This can be broken down as follows:

 

Jeff’s Basis: $10,000

 

Jeff’s Basis in Inventory: $3,000 (1/3 of $9,000)

Jeff’s Amount Realized from Inventory: $4,000 (1/3 of $12,000)

Amount Realized of $4,000 less Adjusted Basis of $3,000= $1,000 gain from the inventory and thus ordinary income based upon the collapsible sale rule.

Jeff had a total basis of $10,000 and received $13,000.  $3,000 of his basis was applied to the inventory and thus of the remaining $9,000 that Jeff realized, Jeff’s remaining $7,000 of basis is applied, and $2,000 of capital gain is realized.  Thus, Jeff’s total amount realized is $3,000.

In applying the collapsible sale rule is it possible for the selling partner to report both ordinary income and a capital loss?  Yes, this can occur.  Consider a situation in which the partnership has inventory with a fair market value higher than the adjusted basis and investments with a fair market value lower than the adjusted basis.  To make this easier, we will look at an example with numbers.  Assume Jeff has a $5,000 adjusted basis in his partnership interest and will sell this interest to Locksley for $5,500.  The assets of the partnership are as follows:

 

Asset               Adjusted Basis            Fair Market Value

Cash                $7,500                         $7,500

Inventory        $3,000                         $6,000

Investments     $4,500                         $3,000

From the sale of his interest, Jeff will realize $2,000 from the sale of inventory and with an adjusted basis of $1,000 in the inventory report $1,000 of ordinary income.  Jeff’s remaining adjusted basis is $4,000 but the remaining amount realized is $3,500.  Thus, Jeff would have a loss of $500, which would be a capital loss because the loss was realized through the disposition of Jeff’s remaining partnership assets, which would be considered a capital loss.  Jeff would realize both ordinary income and a capital loss through the sale of his partnership interest.

You can speak with a Denver tax attorney at The McGuire Law Firm if you have any tax or business related questions.  A tax attorney can help you understand the tax implications of certain transactions and prepare & plan for future transactions.  Schedule a free consultation with a Denver tax attorney- 720-833-7705.

 

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Why Family Matters

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Denver Business Attorney Discusses a Partnership Agreement

A partnership agreement may be one of the most important documents for your partnership.  This agreement can govern the day to day operations of the partnership, how important business decisions are made, how income, gain and loss is allocated and more.  A business attorney at The McGuire Law Firm can discuss this agreement with you and help draft an agreement that meets the needs of your partnership.  The video below provides general information regarding a partnership agreement.

 

You can contact the McGuire Law Firm to speak with a business attorney.  The McGuire Law Firm has law offices in Denver and Golden Colorado for your convenience and all potential clients receive a free consultation.

Offer in Compromise Payment Options Video by Denver Tax Attorney

If you are looking to settle your tax debt with the IRS through an offer in compromise, you will have options regarding the payment terms.  The video below has been prepared by a Denver tax attorney at The McGuire Law Firm to provide information regarding your payment options.

 

The McGuire Law Firm has law offices in Denver and Golden Colorado, and offers a free consultation to all potential clients.

Fraudulent Tax Returns in Colorado?

April 15th has come and gone, which is the deadline for filing your individual income tax returns.  Maybe you used a local tax preparer or maybe you prepared your own tax return.  If you live in Colorado, you may have heard that two tax return preparers or companies in Colorado have been accused of preparing fraudulent tax returns.  U.S. Attorney John Walsh and Internal Revenue Service supervisory special agent Stephen Boyd have reiterated the fact to tax return preparers that those who prepare fraudulent tax returns and defraud the federal government will be criminally prosecuted.

 

LM Tax Services was operated by Lance McCuistion of Thornton, Colorado, and Mr. McCuistion had plead guilty to preparing fraudulent tax returns.  Anne Rasamee of Denver, Colorado operated Cheapertaxes with Austin Ray and a federal grand jury has indicted Rasamee on charges of a conspiracy to defraud the United States government and filing fraudulent tax returns.  Rasamee appears to have been charged with another 30 counts of preparing false tax returns.  See the article by the Denver Post.

Lance McCuistion falsely increased deductions such as charitable contributions and child care expenses.  Such false deductions would lower his clients taxable income and based upon 18 tax returns he reduced his clients tax bill by a combined $70,000.  That is quite a tax savings!  As a taxpayer, it is important to remember that you may still be liable for an increase in tax even if you paid a preparer to prepare your tax return.  Thus, if your refund is larger or appears too large or too good to be true, you may want to have the tax return checked by another tax professional.

McCuistion was asked to prepare tax returns by undercover agents from the Internal Revenue Service and apparently was open in regards to discussing how he prepared fraudulent tax returns for his clients.  This fraud charge can lead to five years in a federal prison in addition to a $100,000 fine.  Each count of preparing a false tax return can lead to three years in prison and $250,000 fine.

Again, caveat emptor when having your tax return prepared.  As the taxpayer, you could be the one responsible for paying the tax bill if changes are made to your individual income tax return.

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Denver Business Attorney Provides 8 Questions to Consider When Forming a Business

When forming a business there are certain questions the proprietors should ask and consider.  The list below has been prepared by a Denver small business attorney at The McGuire Law Firm.  While the list is not intended to be exhaustive, it should provide small businesses or small business owners with questions and issues for consideration as they form and structure their business.

 

1) How will the business be formed and maintained?  In regards to formation, do we need to file any documents with the government, such as the IRS, FDA or secretary of state, or can we just start selling our wonderful widgets?  A related question or concern may be, who do we need to help us- do you need an attorney to file certain documents or keep the business in good standing?

 

2) Is the business format chosen a separate legal entity from the individual(s) operating the business?

 

3) Who is liable for business debts to third party creditors?  Within this question, we are concerned about liability incurred to operate and manage the business.  For example, our widgets need super glue 2000, and we may contract with the Mr. Super Glue for our needs.  If the business fails to pay Mr. Super Glue who is liable?  Are the business owners or proprietors liable?  Additionally, if a widget malfunctions and hurts Ms. Ratchet, who is liable?

 

4) Who or what entity/entities own the business?  If a corporation, shareholders are the owners and the shares are the units to indicate ownership.

 

5) If a business owner wishes to leave the business can he or she transfer their ownership interest?  What happens to the business upon an owner leaving- must the business dissolve?  Is there continuity of existence?

6) Who will make certain business decisions, or is an individual hired to make these decisions?  These are questions of business management.

7) How is the business taxed?  Does the business actually pay tax on the profits and how will this double taxation impact the business and business owners?  Does the business pass through profit and loss to the owners and how will this impact the business owners individual income tax returns?

8) What are the businesses needs for operating capital and how will money and/or property be acquired by the business?  Will the owners contribute money and/or property?  If an individual provides money to the business, what are they expecting in return and what are they entitled to in return?  Is the individual making a loan to the business whereby they will be repaid with interest or is the individual investing in the business in terms of receiving a share of the profits and hopeful increase in the value of the business.  In short, are you raising money through debt or equity?  When an individual loans money to the business, they are a creditor of the business and not an owner of the business.  When a person purchases stock or equity in a business, they have an ownership interest in the business.

If you have any questions regarding the formation of you business, speak with a Denver business attorney and tax attorney at The McGuire Law Firm.

The McGuire Law Firm offers a free consultation to all potential clients and would welcome the opportunity to meet with you regarding your business and tax needs.

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