Estate planning is about protecting yourself, your family, and your loved ones against potential problems that could arise after you die. Estate planning includes creating a will, establishing trusts, making medical directives, and choosing guardianship over minors. Having a valid will is essential if you don’t do anything else.

You might think you’re too young to worry about estate planning, but you probably are not. A recent study found that nearly half of Americans haven’t done anything to protect themselves financially. And while most people understand the importance of saving money for retirement, fewer than one in four have a savings account.

If you want to ensure that your family gets what you want and deserve after you die, you owe it to yourself to take action.

Is My Estate Plan Good Enough?

Whether you want to protect your home, your family, or both, there are many ways to accomplish this goal. Estate planning is one of those things that people do without really thinking about it. But the reality is that having an effective estate plan helps ensure that you can pass your wealth to your loved ones while protecting yourself against probate court proceedings. In addition to ensuring that your wishes are carried out upon your death, estate planning allows you to take advantage of tax benefits and reduce the amount of money you pay in taxes during your lifetime.

The most important thing to remember about estate planning is that it doesn’t have to be complicated. There are three basic steps involved in creating an estate plan:

1. Determine Your Goals

2. Create Your Plan

3. Implement Your Plan

I Have A Living Trust, Do I Need A Will?

A living trust is one way to avoid probate while transferring assets to beneficiaries upon death. If you have a living trust, you may still need a will. But what happens if you don’t have a will? What if you die without having established a trust?

You may still need a will because assets that are not in your living trust that do not include beneficiary designations or are owned solely by you may still be subject to estate taxes. And if you fail to transfer those assets into your trust correctly, they could become part of your estate and be subject to probate and administration fees.

In addition, if you have a will, it may provide guidance about how you want your assets distributed among your heirs. Without a will, however, there is no specific distribution plan. Sometimes, a court may distribute assets according to state intestacy laws. These laws vary widely across states.

What Is Probate?

What is probate? Probate is the legal procedure used to resolve issues surrounding the distribution of the deceased estate. In simple terms, it involves the formal transfer of property owned by someone who died without a will into the hands of their beneficiaries. This occurs after the court determines what happens to the deceased person’s assets upon death.

The probate process includes validation of wills, payment to creditors, distribution of assets to heirs according to the terms of the will, and a third-party mediator to settle disputes. In some cases, there are no heirs; in others, there are multiple heirs, and the court must determine how the assets should be distributed among them.

With A Small Estate, Should I Still Consider Probate?

Probate is the legal process for distributing assets upon someone’s death. This includes real property, personal property, bank accounts, and life insurance policies. However, it does not apply to certain types of trusts, such as charitable remainder trusts, irrevocable life insurance trusts, and revocable living trusts. Probate is required even if no beneficiaries are named in the deceased person’s will. If you die intestate without a valid will, your state’s laws determine what happens to your assets.

In general, probate proceedings take longer and cost more money than administering a simple estate. For example, the average cost per hour for lawyers performing probate work is $250, compared to $150 for estate administration. Also, the process involves many steps, including filing paperwork, obtaining court approval, having witnesses sign affidavits, paying fees and taxes, and waiting for the courts to make decisions.

The good news is that most people don’t need a lawyer to handle probate. Many states offer simplified probate procedures that allow individuals to administer their estates. Some states require only one form to file for estate administration and probate. Others provide online options, allowing anyone to complete and submit forms electronically. These streamlined processes typically save families thousands of dollars over traditional probate.

However, probate still applies to all wills regardless of whether the estate is large or small. And, probate is always required if someone dies without a valid will.

Types of Trusts

A trust is a legal arrangement where one person manages another person’s property. You can set up a trust for yourself, others, or both. There are three types of trusts: revocable, irrevocable, and testamentary. Each type has different requirements and benefits. Revocable trusts allow you to change the terms of the trust whenever you want. Irrevocable trusts cannot be changed once established. Testamentary trusts give you control over what happens to your property after you pass away.

Charitable Remainder Trusts

A charitable remainder trust allows donors to give away money today without paying taxes on it now. In exchange, the donor receives an annual payment during their lifetime, plus the chance to designate how much goes to charity upon their death.

The trust is similar to a living trust, except that it offers donors a way to receive an income tax deduction, freedom from capital gains taxation, and the possibility of avoiding estate taxes. When the donor dies, the trustee distributes to designated charities according to instructions left in the trust document.

How the McGuire Law Firm Can Help

The McGuire Law Firm provides a full range of personalized trust services, including trusts, wills, powers of attorney, tax advice, insurance, and retirement plans. We are here to ensure you and your family are financially protected, whether during life or after death.

We offer a variety of services to meet your individual needs. Our experienced Denver Tax Attorneys are ready to assist you with estate planning, asset protection, and long-term care planning.

Don’t hesitate to contact The McGuire Law Firm today to learn more about our trusted solutions. Call us at 720-883-7705.

Qualified charitable distributions (QCDC) allow individuals over age 70 ½ to donate money directly from a taxable IRA without triggering a 10% early withdrawal penalty. This type of contribution is called a “qualified charitable distribution.” A QCDC does not trigger a 10% early withdrawal fee, unlike traditional IRA withdrawals. However, it is subject to income taxes and limits on contributions.

The maximum amount you can contribute each calendar year is limited to $100,000 ($200,000 if married and filing jointly). You must donate within 60 days of turning 70 ½ years old. In addition, you cannot use the funds for personal expenses such as home improvements or college tuition.

Eligibility and Qualified Charitable Distributions

Qualified charitable distributions are particular gifts that allow taxpayers to deduct their gift’s total value without worrying about how much money they spent on it or whether the charity gets taxed on the amount received. They’re often used to help families offset the costs of home improvements, college tuition, and medical expenses.

In prior years, the rules governing QCDs required re-authorization from Congress each fiscal year, and those decisions could be made late in the calendar. As a result, many people waited until the end of the year to ensure they qualified for a QCD.

With the passing of the Protecting America’s Affordable Health Care Act (ACA) or “Obamacare,” the QCD provision is no longer subject to annual re-authorization. Instead, the provision became law as part of the ACA and is now permanently part of the Internal Revenue Service code.

You can plan your charitable contributions and begin reviewing your tax situations early each year. You’ll want to know if you qualify for a QCD before making significant charitable contributions.

If you qualify for a QCD, you’ll receive a 1099 form from the charity indicating your donation amount. If you don’t qualify, you’ll receive a W-2G form from the charity showing what portion of the donation went toward qualifying items.

Tax Benefits of the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides immediate tax breaks for individuals and families impacted by COVID-19. This includes those affected by job loss due to the outbreak, self-employed people whose income drops because of the shutdown, and those who lose wages while working from home. In addition, the law extends unemployment insurance coverage to gig economy workers and expands access to free food assistance programs like SNAP.

Minimum Distributions Suspended

The IRS announced that it is suspending the requirement for people age 70½ to take mandatory withdrawals from their traditional IRAs and Roth IRAs. The move came just days before the deadline for taking those early withdrawals.

This probable relief for many who would’ve had to withdraw money from their retirement account. If you’re one of those folks, don’t worry — you’ll still be able to make gifts from your IRA. But if you’re younger than 70½, you might want to consider making a gift to a Colorado Foundation instead.

New Tax Incentives

The new tax incentives are included in the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act. This bill relieves individuals, families, businesses, and nonprofits during the COVID-19 pandemic.

The $1,200 check you receive will cover basic expenses like food, rent, utilities, and medical bills for most people. However, there are some exceptions. If you qualify for Medicaid or Medicare coverage, you won’t receive a total of $1,200. And if you’re self-employed or work for yourself, you’ll still pay taxes on the money.

But don’t worry about it too much because you can deduct your donations to qualified organizations. So if you donate $500 to charity, you could write off $250.

If you’re eligible for the standard deduction, you can contribute up to $300. If you’re itemizing, you can give away up to $600.

Key Takeaways

Charitable contributions from an individual retirement account (IRA) are qualified charitable distributions. These distributions are treated differently than regular income earned from stocks and bonds. For example, you can deduct up to 50% of your adjusted gross income (AGI) on your federal taxes. However, there are some limitations to contributing to an IRA. Here are three key takeaways about charitable giving from IRAs:

1. You can donate from an IRA without paying taxes. Contributions from an IRA are deductible from your federal taxes. This means that you don’t pay taxes on the money donated. If you donate $5,000 from an IRA to charity, you’ll receive a deduction of $2,500 ($5,000 x.50).

2. Your IRA trustees must report the distribution to the IRS on your tax form. Any contributions to an IRA must be reported on Schedule D of Form 1040, which reports all types of investments held within the IRA. Distributions made from an IRA are reported on Form 1099-R.

3. There are restrictions on how much money can be withdrawn from an IRA each year. For instance, withdrawals are limited based on age. Also, the amount withdrawn cannot exceed what is needed to cover certain expenses like medical costs or college tuition.

Please remember this article is not intended to be tax or legal advice, and you should always consult directly with your tax attorney or tax advisors. You can contact The McGuire Law Firm to speak directly with a tax attorney regarding any of your tax issues.

Identity theft happens when someone uses your personal information to commit fraudulent activity. This includes applying for credit cards, bank accounts, loans, or government benefits. If you suspect you are experiencing identity theft, contact your local police department.

You don’t always realize you’re being targeted because the thieves usually steal your identity without your knowledge. They might even use your Social Security number to open up credit lines in your name. Once they’ve taken over your identity, it’s hard to regain control. 

This article has been prepared by a Denver tax attorney at The McGuire Law Firm to provide information related to identity theft and tax-related issues.

If you think you’ve been victimized by identity theft, here are some things you should do:

1. Contact your creditors

2. File a report with the Federal Trade Commission

3. Check your credit reports

4. Request copies of your credit card statements

5. Monitor your credit score

6. Consider filing a police report

7. Get help from a consumer protection agency

8. Start rebuilding your financial life

Can Identity Theft Affect Me?

Identity theft occurs when someone uses your name and Social Security Number (SSN). Fraudsters use your personal information to commit a wide range of criminal acts such as opening lines of credit, applying for jobs, buying homes, taking out mortgages, and even submitting fraudulent tax returns.

Identity thieves often steal names and numbers from public records, including birth certificates, death certificates, driver’s licenses, passports, and vehicle registrations. They also obtain personal data from friends, family members, neighbors, co-workers, employers, landlords, and healthcare providers. The IRS estimates that $16 billion in uncollected taxes is owed yearly because of identity theft.

Regarding identity theft, children and deceased people are especially vulnerable. In fact, according to the Federal Trade Commission (FTC), children under age 13 make up about half of all ID theft victims. Because many parents don’t realize their child’s identity has been compromised, kids are often targeted by criminals.

If you believe your identity has been stolen, contact the FTC’s Identity Theft Resource Center at www.idtheftcenter.org or 877-438-4338.

Reduce Your Exposure to Identity Theft

Identity theft happens when someone uses your personal information without permission to commit fraud. Identity thieves often steal your name, date of birth, Social Security number, driver’s license, credit card numbers, bank account numbers, passwords, email addresses, home address, work address, etc. Once they obtain your data, they can open fraudulent accounts in your name, apply for loans or credit cards, take out cash advances on your credit cards, make purchases online or offline, transfer money into their accounts, and even file tax returns in your name.

The most common way people become victims of identity theft is when they receive unsolicited emails, texts, calls, letters, or postcards asking for personal information. They think nothing about giving out their data because they don’t realize how easy it is for criminals to access this information.

If you suspect that you’ve been a victim of identity theft, here are some things you can do to prevent further damage:

1. Contact local law enforcement immediately. This includes contacting police departments, FBI offices, state consumer protection agencies, and credit bureaus. You can find your local office by calling 866-472-8678.

2. Immediately change your passwords and log off social media sites where you used your real name.

3. Monitor your credit reports regularly. Review your credit report thoroughly and dispute inaccurate information. Your free annual credit report can be found at www.annualcreditreport.com.

4. File a complaint with the FTC. To learn more about what steps to take if you believe you’re being victimized, call the FTC Consumer Response Center at 800-382-1222.

Report Identity Theft Immediately 

If you suspect identity theft, it’s important to take action immediately. You don’t want to wait too long because it could mean losing access to credit cards, bank accounts, Social Security benefits, etc. You can file a complaint with the FTC online at identitytheft.gov or by calling 1-877-438-4338.

You’ll need to provide information like your name, address, date of birth, driver’s license number, passport number, account number, telephone number, email address, and proof of identification such as a copy of your social security card, utility bill, paycheck stub or government document.

Need a Tax Attorney’s Assistance?

John McGuire has prepared this article. John is a tax attorney at The McGuire Law Firm, assisting individuals and businesses with various IRS issues, tax planning, and other taxation matters related to partnerships, corporations, and individuals. Feel free to contact The McGuire Law to discuss your issues with a Denver business attorney or tax attorney.

President Trump signed the Coronavirus Aid, Relief, and Economic Security Act “CARES Act” into law, providing relief funds to help stimulate the economy from the impact of the COVID-19 pandemic. Small businesses that would like to apply for a loan with reduced interest and potential forgiveness should apply through the Economic Injury Disaster Loan program on the Small Business Association website. Below are some of the frequent issues and questions regarding the act. Please consult directly with your tax attorney regarding any specific questions related to your business. You can speak with a Denver IRS tax attorney by contacting The McGuire Law Firm.

Who Is Eligible For The Coronavirus Disaster Program Loan?

Small businesses in every state are eligible to apply for a low-interest loan due to the impact of Coronavirus. According to the CARES Act, businesses with fewer than 500 employees are eligible for loans under 7(a) of the Small Business Act. Sole proprietors, independent contractors, and other self-employed individuals can receive covered loans under the CARES Act. 

What Is The Maximum Loan Amount?

The maximum amount for business loans under the CARES act is less than $10,000,000 or the following formula. Take the average monthly payments for payroll costs for the year before the loan multiplied by 2.5 and add the number of outstanding loans made from January 31, 2020, and ending on the date the loans are eligible for refinancing. Note that this formula is slightly different for seasonal businesses, so unless an election is made, these businesses use payroll costs averages for the 12 weeks beginning February 15, 2019. 

How Can I Spend My Small Business Loan From The CARES Act?

According to the CARES Act Sec. 1102, loans provided by the federal government under the stimulus package may be used for payroll, employee salaries, mortgage interest payments, rent, utilities, and interest on other debt obligations incurred before the covered period. [5] Note that the covered period is February 15, 2020, and ends on June 30, 2020. 

Will My Loan Be Forgiven Under Section 1105 Of The CARES Act?

Section 1106(b) of the CARES Act provides forgiveness of indebtedness for several costs and payments, including payroll, mortgage interest, covered rent obligation payments, and utilities.

Typically, whenever a loan is forgiven, it is considered a relief of indebtedness and will be included as gross income for that taxable year. Section 1106(c) notes that the forgiven debt for purposes of the CARES Act will be considered canceled indebtedness by lenders, but Section 1106(i) will exclude the relief from gross income for tax purposes.

Note that the amount of loan forgiveness may be reduced by specific salary reductions or layoffs, so maintaining the number of employees helps ensure maximum loan potential from the Act.

What Is Considered A Payroll Cost?

Payroll costs are defined in the CARES Act through the Paycheck Protection Program. They include payments to employees that are salaries, wages, commissions or other similar compensation, payment for cash tips, payment for vacation/medical/sick leave, group health care payments, insurance premiums, retirement benefit payments, and payments of state/local tax assessed based on employee compensation. Similarly, payroll costs

for sole proprietors include wages, income, and net earnings from self-employment that does not exceed $100,000 for one year as prorated during the covered period by the Act.

How Do I Apply For The Small Business Loan From The CARES Act?

First, download the Business Loan Application (Form 5), the Home or Sole Proprietor Loan Application (SBA Form 5C), and the Economic Injury Disaster Loan Supporting Information (Form P-019) from the SBA website. Depending on the specific business, additional forms may be required, but a Disaster Assistance loan officer will request these.

For all non-profit businesses, in addition to the Disaster Business Loan application, you need to file the Tax Information Authorization (IRS Form 4506T). Also, attach a complete copy of the most recent Federal Income Tax return, including all schedules for the business. Attach a Personal Financial Statement (SBA Form 413) for each partner, managing member, and principal owner owning 20% or more of the business. Small businesses also should include a Schedule of Liabilities listing all fixed debts (SBA Form 2202).

For sole proprietorships, you must file SBA Form 5C and IRS Form 4506T.

Next, fill out the forms and upload the completed forms to the SBA website, email them to disasterloans@sba.gov, or mail them to the following address:

U.S. Small Business Administration

Processing and Disbursement Center

14925 Kingsport Rd.

Ft. Worth, TX 76155-2243

Need More Assitance? Contact Us!

You can contact The McGuire Law Firm to speak directly with a Denver IRS tax attorney or Denver business attorney regarding your business’s needs and the taxation issues related to the CARE Act. We wish everyone the best during the troubling time.

Form 8283 is a tax reporting form used to report donations to charities. If you donate property valued at $500 or more during the calendar year, you must complete and submit Form 8283 within 30 days of making the gift. This includes cash gifts, securities, life insurance policies, annuities, real estate transfers, and other items.

The IRS requires donors to provide information such as the name of the charity, date of the transaction, type of gift, the value of the gift, and whether the donor received goods or services in exchange for the gift. Donors are required to attach Form 8283 to their tax returns, regardless of whether they claimed a deduction for the contribution on their taxes.

Donations of appreciated assets can qualify for tax deductions under Section 170(e)(3) of the federal tax code. However, donors must still complete and submit Form 8282, even though the asset is already worth more than $5,000. This article has been prepared by a Denver business attorney and Denver tax attorney to discuss charitable contributions. 

The Two Parts of Form 8283

Form 8283 is a two-part form used to report noncash charitable contributions to qualify for an itemized deduction. This form must be filed along with your federal income tax return.

The form consists of two parts. Part one covers contributions valued up to $5,000. If you contribute to property worth more than $5,000, you file part 2 of the form.

Part 1 of the form provides information about the type of gift, the date it was made, and the donee’s name. In addition, section A requires the donor to list the fair market value of each contribution.

Section B is optional and allows donors to report more than $5,000. For example, if you donate stock to charity, you may want to include the total value of the stock in this section.

Charitable Contributions

Noncash contributions are items such as property, artwork, clothing, furniture, books, etc., given to charity. Businesses, organizations, or individuals often donate them. These donations aren’t subject to sales taxes because they don’t go toward purchasing goods and services. Instead, they’re deductible on federal income tax returns.

Section A of Form 8283 requires taxpayers to list the name of the donee organization, the date of the gift, the value of the item(s), and whether it was received directly or indirectly. For example, if you donate a painting to a museum, you’d list the name of the museum, the date of the donation, the value of the painting, and whether it was received “directly” or “indirectly.”

Section B of Form 8283 covers gifts over $5,000. In this section, the donor must provide information about the nature of the gift, including the type of property donated, the property’s fair market value, the payment method, and the date acquired.

For example, if you give $10,000 worth of stock to a nonprofit organization, you’d list the value of the stock, how much you paid for it, and the date you bought it. You’d also indicate whether the gift was made “in one transaction” or “over several transactions.”

The IRS doesn’t require donors to use Form 8283. However, it does recommend that those making significant noncash contributions file the form. To ensure you do, complete Form 8283 for each noncash contribution of $5,000.

Donee Information

The donor organization files this form if it sells, transfers, or disposes donated property. The form must be filed with the IRS within 30 days after the end of the calendar year following the year the donation occurred. Donated property is defined as the property received for public use or benefit. A gift is treated as having been given during the calendar year in which it was transferred.

If you donate property worth over $5,000, you must file Form 8283. The form covers donations of cash, securities, and real estate. You must complete Schedule B even if you don’t owe the property’s value tax.

Where to Find Form 8283

The Internal Revenue Service offers Form 8283, “Sales and Other Dispositions of Capital Assets,” on its website. This form must be completed when selling capital assets such as vehicles, real estate, etc., and includes information about how much money was received and what percentage of the proceeds went toward buying another asset. If you sell stock options, you must use Form 8949, “Reportable Transaction – Sale of Certain Securities.”

Form 8283 Requirements

Form 8283, “Noncash Charitable Contributions,” requires filers to report contributions valued at $250 or more. This includes gifts of cash, stocks, bonds, mutual funds, life insurance policies, annuities, retirement accounts, real estate, and personal property. If you make a gift of property worth less than $500, you don’t have to file Form 8283. But you still need to complete Schedule A, Itemized Deductions, on your federal income tax return.

The IRS allows taxpayers to deduct up to 50% of the fair market value of donated tangible property. For example, if you give away a car, you can claim a deduction equal to half the cost of the car ($5,000).

You can deduct the total donation amount even if you don’t itemize deductions on your taxes. However, if you itemize, you can subtract only those expenses related to the donation.

If you make multiple donations during the same calendar year, you can combine them into one total deduction.

To qualify for the deduction, the donor must establish that the property was given away without expecting to receive anything in return.

A gift recipient may also choose to receive a charitable deduction for the contribution.

Takeaways

Noncash contributions are deductible under Section 170(c)(2) of the Internal Revenue Code. If you donate property, you must file IRS Form 8283 within 30 days of contributing. You cannot deduct the value of certain types of gifts unless you itemize deductions on Schedule A of your federal income taxes. These include:

• Household goods and furnishings valued at up to $500.
• Clothing worth up to $250.
• Books, records, and similar items worth up to $200.
• Artwork, antiques, collectibles, jewelry, musical instruments, sports equipment, tools, and toys worth up to $50 each.
• Donations of vehicles and real estate.
• Charitable contributions of securities, stock, bonds, mutual funds, and insurance policies.

This article was prepared by a tax attorney at The McGuire Law Firm. If you have any questions about charitable contributions, Form 8283, or other tax matters, please contact our firm to speak with a Denver tax attorney.

When businesses acting as the seller or purchaser are going through the acquisition process, there is likely to be discussion as to whether the acquisition will be structured as an asset purchase or a stock purchase. There are advantages and disadvantages to an asset purchase and a stock purchase for both the seller and purchaser. 

However, there may be a means to treat a stock purchase as an asset purchase and receive the best of both worlds. The article below has been prepared by a Denver tax attorney and Denver business attorney to discuss certain tax matters. Still, please always discuss your specific issues with your attorney and check for current laws and regulations that may have changed.

A Stock Purchase

A stock purchase is relatively simple as the seller or target corporation’s stock is purchased. The buyer obtains control of the target corporation’s assets with no other action by owning all of the stock. This being said, the buyer may also inherit liabilities of the target corporation as the business continues and is exposed to prior matters. An asset purchase transaction may be more complex in that the buyer is purchasing the assets and not the stock, thus requiring the transfer of title to each asset, which depending upon the facts and circumstances, could begin to amount to significant time and cost etc. Further, if the target corporation has special licenses and permits, these may not be transferable to the buyer and could create additional issues under an asset purchase.

An Asset Purchase

As it is good and bad with both structures, a buyer, from a tax perspective, will generally prefer an asset purchase because the buyer, after the asset purchase, can step up the basis in purchasing assets. Therefore, the asset’s stepped-up basis will lead to more significant depreciation to lessen taxable income and thus tax at the corporate or personal level. In comparison, when the stock is purchased, the buyer will receive a basis in the stock at the purchase amount. The realization of the tax benefit may not come until the buyer sells the stock using the basis in the stock to offset a capital gain. Thus, the buyer will likely not “realize” the tax benefit of the stock purchase until a later date than they would under an asset purchase agreement.

There is a means under Internal Revenue Code Section 338 for the buyer to make an election treating a qualifying stock purchase as an asset purchase for federal income tax purposes. Under 338, if the transaction qualifies and the election is made, the transaction is treated as if the buyer purchased the target corporation’s assets for the purchase price of the stock. Therefore, the buyer will receive a more advantageous step-up based on the assets.

Section 338 Election

The buyer acquires the seller’s stock at a discount in a stock acquisition transaction. Suppose the buyer makes a qualifying stock purchase within 60 days of the date of transfer. In that case, it must elect to treat the transaction as an asset acquisition for federal income tax purposes. This is known as a “step-up” election.

If the buyer makes a Sec. 338 election, it treats the transaction as a stock purchase for legal purposes. Hence, it continues to acquire the seller’s liabilities, including outstanding debt, shares of capital stock, and certain contingent obligations. However, the buyer does not acquire the seller’s assets. Instead, it steps up the basis of those assets to the purchase price paid for the stock. At the end of the period, the buyer reports the transaction as a sale of stock and recognizes ordinary income equal to the difference between the purchase price and the adjusted cost basis of the stock.

The buyer can choose to allocate the excess of the purchase price over the adjusted cost basis to goodwill. Goodwill represents the purchased excess over the adjusted cost basis of intangible assets such as customer relationships, brand recognition, and patents.

Making the 338 elections is a means to structure an acquisition as a stock sale, which may have benefits, but allow the buyer the tax advantage of an asset purchase agreement.  John McGuire, a Denver tax attorney and Denver business attorney at The McGuire Law Firm, has prepared this article.

 What is FIRPTA?

FIRPTA is a withholding tax requirement for a foreign person’s disposition of a U.S. real property interest that is reported on Form 8288.

 Do I need to report it?

If you are a foreigner transferring an interest in any real property in the U.S., you are subject to the FIRPTA requirements. Further, if you are purchasing an interest in any real property from a foreigner, you may be subject to the withholding requirements for tax purposes under FIRPTA.

 Who qualifies as a foreigner?

The IRS defines a foreign person as a nonresident alien or a foreign corporation that has not made an election under the Internal Revenue Code section 897(i). As a purchaser, it is your responsibility to determine if the seller is a foreign person based on the definition provided by the IRS, which can be broken down into two components. First, an alien is an individual who is not a U.S. Citizen or U.S. national. Second, to qualify as a nonresident alien, the individual must not have passed the green card test or the substantial presence test.

Note that the substantial presence test requires that an individual be physically present in the U.S. for at least 31 days during the current year. Additionally, the individual must be present for 183 days during the 3 years, including the current year and the two years immediately prior. A pivotal element to FIRPTA requires that the real property is located in the U.S. An alternative to the actual property location requirement is an interest in a domestic corporation.

If the seller of the real property is a foreigner and you fail to withhold the appropriate amount of tax, you may be on the hook. The purchaser has to determine whether the purchaser from whom they are buying an interest in the property is a foreign person or not. As a purchaser, you must do your due diligence to ensure you do not have to withhold taxes.

 How much do I need to withhold?

In the past few years, the IRS has made changes to the withholding rates. On February 17, 2016, Congress passed the Tax Cuts and Jobs Act (TCJA), which included a provision allowing taxpayers to elect to pay taxes at a lower rate. If you purchased your real estate before February 17, 2016 and you meet specific criteria, you may be eligible to claim the lower withholding rate. You must file Form 8949, Election To Pay Lower Rate, within 60 days after the date you filed your return for the year in which you paid the highest federal income tax rate.

May I withhold less than 15%?

Maybe. If you calculate your tax liability for the disposition of the real property, and this is lower than the reporting requirements under FIRPTA, you may qualify for a lower withholding rate. This is determined by filling out Form 8288-B.

The most common exception to the FIRPTA withholding tax involves the sale or transfer of a residential property not more than $300,00.00. In addition, either the individual or a family member must plan to live at the property for at least 50% of the days that the property is used for the two years following the transfer. If you qualify under this exception, you may not be required to withhold tax under FIRPTA.

*John McGuire of The McGuire Law Firm prepared the above article. John Is a Denver tax attorney and Denver business attorney and can be reached at www.jmtaxlaw.com

Many individuals (and businesses) buy stock and securities with the hopes and intent of the securities appreciating and perhaps paying interest or dividends. What determines when an individual is treated as an investor, dealer, or trader? Furthermore, what are the tax treatment and proper way to report income and expenses when one is classified as an investor, dealer, or trader?

The article below has been prepared by a Denver business attorney and tax attorney to provide information related to the above issues and questions. Please remember to always discuss your specific facts and circumstances with your tax attorney and tax advisors, as this article is for informational purposes only.

The Internal Revenue Service applies different definitions and meanings to investors, dealers, and traders. Thus, we will begin with an explanation of these terms.  

What’s An “Investor”?

An investor would typically buy and sell securities in anticipation of the securities appreciating and producing other returns such as interest or dividends. In short, the investor would buy a security and hold the security for personal investment as opposed to conducting these activities in a trade or business. Generally, the investor would hold the securities for themselves and a substantial period. When an investor sells or disposes of the securities, the transactions are reported as capital gain or loss on the investor’s 1040 via a Schedule D.

As an investor, capital loss limitations under IRC Section 1211(b) would apply as well as wash sale rules under IRC 1091. Investors may be able to deduct expenses associated with creating the taxable income on their Schedule A itemized deductions. Further, interest paid for money to buy an investment property that generated taxable income may be deducted. The cost of commissions and related fees to dispose of the stock are not deductible but should be accounted for in calculating the gain or loss from the sale or disposition of the securities.

Who’s A “Dealer”?

Securities dealers are required to register with the SEC under section 5(a)(1) of the Securities Act and section 15A(b)(4) of the Exchange Act. A dealer must file Form BD, Schedule 13D, and Form 10K/10Q within 30 days of registration.

The term “dealer” refers to both individual and corporate persons. An individual dealer engages in activities involving offering, purchasing, or selling securities for their account. Corporate dealers include broker-dealers, investment banks, clearing agencies, and others involved in similar activities.

Individual dealers are subject to regulation under federal securities laws. In addition to registration requirements, they are prohibited from engaging in certain types of transactions without prior approval, including short sales, options contracts, futures contracts, and forward contracts.

Corporate dealers are regulated primarily by state law. However, the federal government regulates some aspects of their conduct. For example, brokers, dealers, and agents must comply with recordkeeping rules promulgated by the National Association of Securities Dealers (NASD). These rules require that dealers maintain books and records to comply with applicable federal securities laws and regulations.

Dealers must maintain inventories of securities that represent the interests of their customers. This includes holding shares of stock for customers’ accounts. Dealers must also keep records showing the identity of each customer and the number of securities held for such customers.

Dealers are permitted to engage in activities that involve purchasing and selling securities for their accounts. Such activities include buying and selling securities to make markets, hedging, managing risk exposure, arbitrating, and providing liquidity.

Dealers are sometimes referred to as market makers. Market makers provide a service to buyers and sellers of securities by maintaining a continuous bid. They do not buy or sell securities for their account; instead, they act as intermediaries between buyers and sellers.

Who’s a “Trader”?

Apart from being designated as an investor or dealer, special rules can apply when you are determined to be a trader in securities. In short, a trader would be considered buying and selling securities for your account. Under certain circumstances, you could be regarded as a business even if you do not hold an inventory and maintain customers. The IRS could consider you to be in business as a trader in securities if you meet the following conditions:

• The activity is substantial;
• You are attempting to profit from daily market movements if the pricing of securities and not so much from appreciation, interest, or dividends; and,
• The activity is practiced with continuity and regularity.

If you are a trader in securities,, you can report your income and expenses on a Schedule C with your 1040,, and thus, Schedule A limitations would not apply. Further, the gains and losses from selling securities are not subject to self-employment tax.

What’s A Security?

Security is an item that represents ownership interests in something else. Examples include stocks, bonds, mutual funds, ETFs, REITs, commodities, currencies, and real estate. Securities are traded on exchanges and over-the-counter markets.

 Reporting The Sale of Securities

When you sell a security, it’s called a “sale.” You generally receive cash or another form of payment for the sale. For example, you’ll receive cash or a check if you sell stock shares. When you sell a bond, you usually receive coupon payments.

You need to report the sale of a security on Form 1099-DIV, Short Form Miscellaneous Transaction Information if the proceeds exceed $10,000.

The Mark-to-Market Election

You’ve probably heard about the mark-to-market rule if you’re a trader. This rule allows specific trades to be treated as though they occurred during the current taxable year. For example, if you sold shares of stock at $10 per share, you could elect to treat the gain as ordinary income rather than capital gain. You’d then pay taxes on it at regular rates. In addition, you couldn’t deduct any loss on those shares.

However, there are some restrictions on how this works:

1. You can’t take advantage of the rule unless you sell the stock.
2. You can’t do this if you bought the stock for less than the cost.
3. You can’t use the rule if the security you sold was held for investment purposes.

In addition, you must file a form called Form 4797, Sales or Exchange of Certain Securities. On this form, you’ll list each transaction you want to include in calculating your capital gains and losses. Then, you’ll attach a statement explaining why you believe the transactions qualify for the mark-to-mark rule. Once you’ve filed this form, you’ll be able to calculate your capital gains and losses based on the amount you originally paid for the stocks.

The article above has been prepared by John McGuire of The McGuire Law Firm.  John is a Denver tax attorney and business attorney with the firm and can be reached at John@jmtaxlaw.com

Lawsuits are one of those things that people always want to avoid. They don’t like being sued and don’t like paying up. When it comes to lawsuits, there are some exceptions. For example, most personal injury claims will not be taxed. This includes cases where someone falls off a ladder, slips, is hit by a vehicle, etc. Personal injury claims include anything related to physical injuries. For instance, if you are injured because of a product defect, you could file a lawsuit against the manufacturer.

The same goes for medical malpractice cases. These cases are usually filed against doctors, nurses, hospitals, etc., often involving negligence. A lawsuit involving medical malpractice is typically filed against the doctor, nurse, hospital, or device maker. Many states require that a patient sign a waiver before receiving treatment.

Knowing how much money you might receive if you are involved in a lawsuit, whether a car accident, a slip, a fall or even something else, is crucial. You might be surprised to learn that most of your money will be taxable. This includes your payments to lawyers, experts, and court costs.

Taxes aren’t just about filing paperwork, either. Filing taxes early allows you to take advantage of deductions. If you itemize your expenses, you can deduct certain items such as mortgage interest, property taxes, charitable donations, and state/local sales taxes.

You can also use tax breaks to reduce the amount of money you owe. Many employers offer tax-free allowances for health insurance premiums and retirement plans. Tax credits are also provided for dependent children, tuition, and student loans.

A Denver tax attorney has prepared the article below to provide additional information relating to whether or not proceeds from a lawsuit settlement need to be included in gross income on your individual income tax return. Please remember that this article is for informational purposes only, and you should consult your tax attorney or tax advisor regarding your specific facts and circumstances.

IRC Section 61 & Regulation 1.104-1

The two most commonly used exceptions for damages are amounts paid for discrimination claims and amounts paid for physical injury. Under IRC Section 61, all payments from any source constitute gross income unless there is a specific exclusion. The two main exceptions for damages are amounts paid for personal physical injuries or illness. Under section 104(a), damages received for such injuries or illnesses are excluded from gross income. This includes both settlements and judgments.

Under Treasury regulation 1.104-1, damages received on physical injuries or sickness include those received on account of personal bodily injuries or physical illness. Damages received on account of personal injuries include damages received on account

of personal bodily injuries, including pain and suffering, disability, loss of consortium, hospitalization, medical care, rehabilitation, vocational training, education, interest, attorney fees, litigation costs, criminal fines, awards against third parties, and losses resulting from the death. Damages received on accounts of physical illness include damages received on account of physical illness, including pain and suffering.

Awards & Settlements Tax

Awards and settlement taxes can be divided into two groups to help you understand how much tax you owe. These two groups include claims relating to physical injuries and non-injury-related losses. Each type of claim falls into one of three categories: actual damages, emotional distress damages, and punitive damages.

Within these three categories, awards and settlements often fall into several subcategories. For example, there are awards and settlements involving personal injury, property damage, product liability, and wrongful death. There are also awards and settlements involving physical injuries, such as bodily harm, medical expenses, lost wages, pain, and suffering, etc., and non-physical damages, like loss of consortium, defamation, false light invasion of privacy, etc.

These different types of awards and settlements can be further broken down into four separate categories:

• Actual Damages Resulting From Physical Injuries
• Emotional Distress Damages Arising From Actual Physical Injury
• Non-Physical Damages Arising From Physical Injury
• Punitive Damages

Factors To Consider When Settling Lawsuits

When it comes to settling lawsuits, there are many factors to consider. One crucial factor is how much money you receive and what type of damages you receive. You could pay extra taxes if you settle for less than you deserve.

In most cases, settlements are taxable income. This means you must report the amount you receive as income on your federal income tax return. You may also owe additional taxes if you received part of the settlement due to a physical injury or sickness.

Tax law allows deductions for payments made to compensate for injuries sustained in accidents. Payments to satisfy claims for lost wages, medical expenses, pain and suffering, and punitive damages do not qualify for a deduction. To determine whether you qualified for a deduction, look at the settlement document carefully.

The settlement document should contain information about how much money you received and how the money was allocated. A settlement letter usually includes a breakdown of the allocation, but the letter itself does not constitute proof. Therefore, it is essential to keep copies of the original settlement papers.

You should also retain any correspondence regarding the settlement, including letters from lawyers and court officials. These documents may help clarify the terms of the settlement and provide evidence of the allocation of the settlement proceeds.

Useful Settlement Tax Documents

The IRS has published three documents related to settlements arising from personal injury claims. These include the following:

CC PMTA 2009-035

This document addresses the tax consequences of such settlements and the proper treatment of the part of the judgment attributable to lost wages.

Publication 4345

Taxability provides general information about settlements and how to treat them for federal income tax purposes.

Rev. 85-97

The entire amount received by an injured person in settlement of a suit brought against another party for personal injuries sustained in a motor vehicle accident is excludable from their gross income.

Rev. 61-1

Clarifies the application of Rev. 85-97 to cases involving multiple plaintiffs.

Need More Information?

The above article has been prepared by John McGuire of the McGuire Law Firm. John is a Denver business attorney and tax attorney. Please contact The McGuire Law Firm directly with questions, comments, or concerns. Call us at 720-833-7705.

The Internal Revenue Service performs criminal investigations into individuals suspected of tax evasion, money laundering, drug trafficking, and other crimes. These investigations are conducted primarily by special agents assigned to the Criminal Investigation Division (CID). However, several sources of criminal investigation data are used by CID investigators.

A Denver tax attorney has prepared the article below to provide additional information regarding these questions and issues. Please remember this article is for informational purposes, and you should consult your tax attorney or a criminal attorney with specific questions.

IRS Auditors

Audit reports contain information about audits and assessments being performed by IRS auditors. This includes the audit date, assessment type, amount assessed, and amounts owed. Audit reports also include references to prior audit activity related to the same taxpayer.

Taxpayers

This source contains information about taxpayers whose returns were selected for examination or collection activities. Taxpayer records include basic identifying information, including name, address, social security number, and employer identification numbers. Other information includes income earned, deductions claimed, and payments made.

Public Records

Information contained in public record databases provides additional leads to investigate. Examples include motor vehicle registrations, property ownership records, birth certificates, marriage licenses, divorce decrees, etc. Public records are often referred to as “public access” because anyone can obtain copies without paying a fee.

Analysis, Review, and Investigation

A primary analysis of the facts and circumstances surrounding the case is performed. This includes reviewing the investigative file, interviewing witnesses, obtaining additional documents, etc., and analyzing those facts and circumstances to determine whether probable cause exists to believe that a violation of federal law has occurred or that there are grounds for opening a prosecution.

Relevant information is evaluated. This may include evaluating the credibility of witnesses, determining the reliability of documentary evidence, and assessing the soundness of the case against the defendant.

This preliminary process is called a “preliminary investigation.” A special agent’s front-line supervisors review the initial information and determine whether to approve or deny the further development of the case.

If the supervisor approves, approval must be obtained from the head of the office, the special agent-in-charge, to begin a “subject criminal investigation.” At least two layers of CI management must have approved initiating a subject criminal investigation. For example, the head of the office could authorize the initiation of a subject investigation based upon the recommendation of the special agent in charge.

The special agent in charge must obtain approval from their immediate supervisor to open a subject criminal investigation. In addition, the special agent in chief must sign off on the decision to open a subject investigation.

Beginning The Criminal Investigation

A criminal investigation begins once the special agent determines sufficient information to support probable cause that a crime has been committed. In some cases, the special agent must present the case to a federal prosecutor to confirm whether there is evidence to file charges against someone. If the case proceeds forward, it is referred to the IRS Office of Professional Responsibility (OPR), where a preliminary determination is made regarding whether the matter warrants further review by OPR.

In addition, the special agent submits a report to the Assistant Attorney General for the Criminal Division, recommending how the matter should proceed. At this stage, the decision about whether to prosecute rests solely with the United States Attorney’s office.

The investigation phase typically lasts several months, during which the special agent gathers evidence, conducts witness interviews, and prepares reports summarizing the findings. During this period, the special agent consults with counsel, such as the chief counsel for the Criminal Tax Division and the assistant US attorney assigned to the case.

Once the investigation concludes, the special agent presents to the grand jury, presenting the evidence gathered during the investigation. After the grand jury determines an indictment, the case moves into the pre-trial phase.

Prosecuting Tax Crimes

The IRS Criminal Investigation Division (CID), which investigates tax crimes such as filing false returns, money laundering, identity theft, and bribery, is one of several divisions within the DOJ. The division typically refers cases to federal prosecutors for possible prosecution when investigating criminal activity. The special agents assigned to investigate the case prepare a special agent report. This report includes information about the evidence collected during the investigation, witness interviews, and analysis of financial records.

If the DOJ chooses to prosecute the case, the special agent becomes part of the prosecution team. Prosecutors are in charge of preparing the case for trial. They decide what witnesses to call, how much evidence to present, and whether to offer plea deals. In addition to the prosecutor, the defense attorney represents the defendant in court. The judge presides over the proceedings and makes rulings regarding the admissibility of evidence.

Conviction Of Tax Crimes

The IRS Criminal Investigation Division recommends charges against individuals suspected of committing tax crimes. These recommendations are based on evidence obtained during an investigation. In the fiscal year 2018, approximately 3,000 criminal investigations resulted in a recommendation for prosecution. This number represents about 0.3 percent of the cases the IRS Criminal Investigations Division opened.

A conviction is a finding of guilt beyond a reasonable doubt by a jury or judge following trial. A guilty plea is a formal admission of guilt where there is no contesting of the facts.

Need Help?

Suppose you have been contacted by an IRS Criminal Investigator or know of an ongoing investigation in which you are a witness or target. In that case, contacting a tax or criminal tax attorney is highly recommended. Call The McGuire Law Firm at 720-833-7705.