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Denver Business Attorney Discusses the Definition of Liability in Partnership Context

A partnership is a very common entity format for a small business.  Small business owners can form a partnership as a general Denver Small Business Attorneypartnership, limited partnership, limited liability limited partnership (LLLP) and a limited liability company (LLC) is a partnership as well.  The treatment of partnership liabilities can have large impact to the taxation of the individual members as items of gain, loss and deductions etc. are passed through to the individual members or partners. John McGuire, as a Denver small business attorney has drafted articles relating to partnership liabilities in certain contexts, but the article below is specific to what constitutes a partnership liability and how “liability” is defined in the context of a partnership and the applicable Internal Revenue Code sections and Treasury Regulations.

The Section 752 Treasury Regulations define the term “liability” by referring to the term “obligation.”  The term “obligation” is defined as any contingent or fixed obligation to make payment without regard to whether the obligation is otherwise taken into account for purposes of the Internal Revenue Code.

Below are examples of obligations:

–          Short Sale Obligation

–          Debt through a loan or note or other contract obligation

–          Tort obligation

–          Pension obligation

–          Derivative financial instruments- forward contract, an option or options, futures contracts

For the purposes of Internal Revenue Code Section 752 and in the context of a partnership, an obligation is a liability if, or when and to the extent that the obligation: creates or increases the basis of any obligor’s assets (including cash); gives rise to an immediate deduction to the obligor; or, allows for an expense that is not deductible in computing the obligor’s taxable income and is not properly chargeable to capital.  In Revenue Rule 88-77, the Internal Revenue Service ruled that unpaid expenses and accounts payable of a cash method partnership were not partnership liabilities or obligations.

For partners to share an IRC Section 752 liability, the partnership must be the obligated party.  If for example, another individual or entity is obligated and thus the obligor, the liability would not be considered a partnership liability unless an agent-principal relationship exists between the obligor and the partnership.

Under Section 1.752-5 of the Federal Treasury Regulations, a liability is an obligation to the extent that either: the obligation is not a Section 752 liability or the amount of the obligation exceeds the amount taken into account when incurring the obligation.  For these purposes the amount of the obligation is the amount a willing assignor would pay to a willing assignee in assuming the obligation via an arm’s length transaction.

Recourse Liability: A liability is treated as recourse to the extent any partner or a related person bears the economic risk of loss for the liability.  A related person is defined in Regulations Section 1.752-4(b).

Non-Recourse Liability: A liability is treated as non-recourse liability to the extent that no partner or related party bears the risk of economic loss for the liability.

A Denver small business attorney at The McGuire Law Firm can assist you and your partnership in understanding what constitutes a partnership liability, the type of liability and the impact of such liability.  Mr. McGuire holds an advanced degree in taxation, which is applied to business issues given the close relationship of business and tax.  Law offices in Denver  and west metro.

Contact The McGuire Law Firm to speak with a Denver small business attorney and schedule your free consultation.

 

Sources of Tax Law & Deference to Treasury Regulations by Denver Tax Lawyer

As tax attorneys we are often asked, where does all of this tax law come from?  How can there be so much tax law and what weight is Denver Tax Lawyergiven to certain treasury regulations? When looking at the tax law, you have the tax code known as the Internal Revenue Code, the treasury regulations and case law.  Case law would come from the United States Tax Court as the trial court or on appeal to a federal court of appeals or the United States Supreme Court.  The article below has been drafted by a Denver tax attorney at The McGuire Law Firm regarding sources of tax law authority and the deference given to treasury regulations.

In regards to sources of tax law and authority, the law may come from constitutional cases and other case law, the Internal Revenue Code (IRC) and treasury regulations (proposed, temporary and final regulations).  Treasury regulations may come about through legislation when Congress specifically requests a regulation to complete or “fill out” a statute, or due to interpretive need because the treasury does have the authority to prescribe all needful rules and regulations for enforcement of the Internal Revenue Code.  In general, the treasury regulations can help to explain the IRC and provide guidance regarding the interpretation of the IRC.

One question or issue analyzed by a tax lawyer is: How much deference should the courts give to the treasury regulations?  The Chevron case answered this question whereby the court established a 2 part test to determine the validity of a federal agency regulation.  First, you look to see if Congress has directly addressed the specific and precise question that is at issue.  If a statute is not ambiguous, then a regulation cannot impose a rule contrary to the language of a statute and such is the end of the matter.  Second, if the statute is in fact ambiguous, the courts may not disturb an agency regulation unless the regulation is arbitrary and capricious, or manifestly contrary to the statute.  The regulation must only be a reasonable interpretation, but need not be the best interpretation.

A Denver tax lawyer at The McGuire Law Firm can assist you with your tax matters and in analyzing the tax implications of certain situations and transactions.  A tax lawyer can read the IRC and federal treasury regulations, understand the implications of the law and apply this law to your circumstances and questions.

You can contact The McGuire Law Firm  via phone or email John@jmtaxlaw.com to schedule your free consultation with a Denver tax attorney.

 

Denver Tax Lawyer Article on IRS Forms 433A and 433B

The Internal Revenue Service has many forms and schedules, so many that it can become confusing as to which form is needed for Denver Tax Lawyercertain situations.  The article below drafted by a Denver tax lawyer discusses a few popular Internal Revenue Service forms that would be used in resolving an IRS tax debt.

Form 433A: Form 433A is an individual collection statement, and can be considered an individual financial statement.  The Internal Revenue Service requires individuals to complete this statement if the individual is requesting an installment agreement, and owes over a certain amount of money or the taxpayer wishes to pay a certain amount.  This collection statement requests the necessary information the IRS uses to make a determination and provides the IRS with information that can be used to enforce collection of the tax through a bank levy, wage garnishment or seizure of assets if necessary.  Form 433A asks for information such as: name, address, employer, ownership interests in businesses, bank account information, retirement and investment account information, real property ownership and leases, car ownership and leases, personal property, wages and other income and, expenses.  Further, if an individual is self employed, pages 5 and 6 of the 433A request information regarding the businesses assets and income.

Form 433: Form 433B is a collection information statement for a business.  The IRS would require that a business complete a Form 433B if the business owes taxes and is requesting an installment agreement.  Multi member LLCs, partnerships and corporations would complete Form 433B.  Form 433B requests the name and address of the business, individual owners, ownership percentage, business bank account information, assets owned and leased by the business and business income & expenses.

Form 656: Form 656 is the form used when submitting an offer in compromise to the Internal Revenue Service.  On Form 656 you state the taxpayer’s name, tax periods you are requesting to settle, the reason for the offer in compromise, the offer in compromise amount and terms for payment of the offer in compromise amount.  Additionally, you can state your extenuating circumstances on Form 656 and where you will obtain the monies to pay the tax settlement amount.  Form 656 is submitted with your offer in compromise application fee and the initial offer in compromise payment.

A Denver tax lawyer at The McGuire Law Firm has prepared many forms for clients to resolve our clients tax debts and tax issues.  Mr. McGuire is experienced in preparing these forms and discussing the forms with our clients and the Internal Revenue Service.

Contact The McGuire Law Firm to schedule a free consultation with a Denver tax lawyer!

Denver Tax Lawyer Explains a Schedule D

A new year is upon us, which means federal income tax returns will be due soon.  Each year as we are preparing tax return, reviewing Denver Tax Attorneytax returns or conducting tax planning, clients as our tax lawyers, what is a Schedule D?  This is a very important question, especially if you own stocks and/or other capital assets.  The article drafted below by a tax lawyer in Denver, should help explain a Schedule D.

Schedule D is titled Capital Gains and Losses and is a schedule filed with your 1040 Individual Income Tax Return.  Thus, a Schedule D is used to calculate your long term and short term capital gains and capital losses and carry these figures through to your individual tax return.

Short term capital gains or losses are for assets held for one year or less.  Long term capital gains or losses are for assets held longer than one year.  Gain or loss is calculated by stating the sale price (proceeds amount) less your basis in the asset.  Your basis in the asset would be what you paid for the asset and depending upon the type of asset (and what may have occurred) your basis may be adjusted.  The sales price less your basis is the capital gain or loss.

For example, say you purchased 100 shares of stock of ABC, Inc. in 2010 for $5,000 and sold all 100 shares of ABC, Inc. stock in 2013 for $15,000.  The gain from this transaction would be $10,000, which is the sales price of $15,000 less your basis of $5,000.  The gain would be a long term capital gain because you held the asset for longer than a year.  In the above example, if you had sold the stock in 2013 for $1,000, you would have a $4,000 long term capital loss.

Capital losses can offset capital gains and an additional $3,000 of ordinary income in a taxable year.  For example, in 2013, if you had a $20,000 long term capital gain, and a $15,000 long term capital loss, the net capital gain for 2013 would be $5,000.  Capital losses can carryover if they are not “used up” in a taxable year.  For example, if in 2013, you had $20,000 of long term capital gain and $30,000 of long term capital loss, the capital loss would exceed the capital gain and you would not recognize any capital gain for 2013.  In addition to the amount of the loss used to offset the gain, you can offset ordinary income by $3,000 each year, and carry the rest of the loss forward.  Thus, based off of the above example, the $20,000 capital gain, would be offset by $20,000 of capital loss and the taxpayer could take an additional $3,000 of the capital loss to offset ordinary income and thus lower their federal income tax.  The taxpayer would thereafter have $7,000 of the $30,000 long term capital loss to carry forward to the next tax year.

A Denver tax lawyer at The McGuire Law Firm can assist you with your tax questions and needs.  We help our clients understand the tax laws and how these laws impact them individually and/or their businesses.

To speak with a tax lawyer in Denver, contact The McGuire Law Firm.  Free consultation.

Tax Lawyer in Denver on Solicitations from Tax Relief Companies

You have seen their commercials on TV.  You have heard their commercials on the radio.  Maybe you have even been directly Denver Tax Attorneysolicited by them over the telephone.  I am writing about national tax relief companies, or so they call themselves tax relief companies, but the majority (vast majority) will only take your money with little work.  Many of these so called tax relief companies have been shut down by attorney general offices or other government offices.  If a company has contacted you, do some research online and you can pretty much trust the horror stories you read.  The article below drafted by a Denver tax attorney should help you understand how these companies work and why you should never (never ever!) work with them.

Fear Tactics & Bate and Switch: Most, if not all national tax relief companies use fear tactics.  These companies use salesman to call potential clients (this is unethical solicitation as well if an attorney or attorney(s) work at the firm) from a tax lien list and will tell the potential client that they are going to be levied if they do not hire the firm.  Our clients have been contacted by these firms and have been told that the company was speaking with the IRS revenue office, which is completely untrue.  The potential client is told by a salesman that their debt will be settled and/or penalties removed.  Again, all this is coming from a salesman who may not have a high school degree and certainly is not an attorney or CPA.  So the potential client is told that for a sum of money their tax debt will be settled and penalties reduced.

Who Works the File?  After the individual or business signs on with the tax relief company and makes payment, their file goes to the “associate.”  This associate may be an attorney, but often the associate is an individual that has learned how to rip people off by working at the company.  Your associate may not have a high school degree or college degree.  Thus, you are not being “represented” by or speaking with an attorney.  An attorney will sign a Power of Attorney but will not be the person you speak with and the Power of Attorney will only work on the file minimally, which of course you will likely be double-billed for.  The person you speak with has been trained how to be friendly to you and bill down your money to ask you for more and more money.

Money: Within 30-90 days of hiring the “tax relief” company, you will receive a call from your associate that your retainer needs to be updated, which means, you need to pay more money.  Likely no work and no progress has been made, but the associate will give you an excuse that you owed more than initially thought or your case is more complicated.  If you do not pay more money, they will close your case.  Hopefully, nothing has been accomplished to give you the false sense of security that this company will do much for you, because you really can get raked through the coals.

Tax Attorney: Save yourself the time and trouble.  Call a legitimate tax attorney or tax law firm.  Most offer a free consultation and can give you an honest analysis of your case.  Based on your circumstances, you may never be able to settle your tax debt or have penalties abated, but you could have spent and wasted thousands of dollars with a national tax relief firm attempting these resolutions and options.

In short, do NOT hire any “tax relief” company that is soliciting you.  If you have a question, call a local tax attorney or speak with a Denver tax attorney at The McGuire Law Firm.

 

Denver Tax Lawyer Explains a Schedule C

What is a Schedule C?  This is a common question asked of business attorneys and tax attorneys.  The article below hopefully will Denver Tax Attorney help answer the above question and give additional insight as to the importance of the Schedule C.

IRS Form Schedule C is titled Profit or Loss From Business and is a schedule attached your 1040 Individual Income Tax Return if you are required to file a Schedule C.  In general, self employed individuals or a single member of a limited liability company must file a Schedule C with their 1040 tax return.  Additionally, some individuals do not realize they are required to file a Schedule C.  If you receive a 1099 for non-employee income or miscellaneous income, this income should likely be reported on a Schedule C.  For example, an individual may work for an employer and receive a W-2, but perhaps this individual works for another company a few days a year and is issued a 1099 for this secondary income.  The third party would likely issue a 1099 for the monies paid and this income should be claimed on a Schedule C, or you may be able to file a Schedule C EZ under certain circumstances.

A Schedule C is used to calculate your net income and thus the amount of income you are taxed on.  On the Schedule C, you will state you gross receipts, and other income and then your allowed expenses to calculate your net income.  Allowable expenses would be those related to the operation of the business and a few are listed below.

–          Advertising

–          Car and truck expenses

–          Depletion

–          Depreciation

–          Interest

–          Contract labor

–          Commission Payments

–          Legal and Professional Payments

–          Rent

–          Office Expenses

–          Office Supplies

–          Taxes & Licenses

–          Meals & Entertainment

–          Wages

–          Travel

–          Utilities

–          Other Expenses

Once your net income has been calculated the net income is then stated on Schedule SE, which is used to calculate your-self employment tax.  Self employment tax is stated on Form 1040 as a tax amount and half of the self employment tax can be deducted as an adjustment to income.  Your net income from the Schedule C is also stated on page one of the 1040 as income and is added to other income in the overall calculation of your federal income tax.  Thus, if you are self employed individual or the single member of a limited liability company (LLC) the Schedule C is a vital piece of calculating your total tax due.

A Denver business attorney or tax attorney at The McGuire Law Form can assist you questions and issues regarding your business and the taxation of your business entity.  Further, we can assist you with tax planning matters and analyze the tax implications from specific transactions.

Contact The McGuire Law Firm to speak with a Denver tax attorney or business attorney and schedule a free consultation.  Offices in Denver and Golden Colorado.

 

Denver Tax Attorney Explains a Schedule A

What is a schedule A?  What are itemized deductions?  Can I write off my medical expenses?  These are common questions asked of a Denver Tax LawyerDenver tax attorney by clients at The McGuire Law Firm.  The article below has been drafted by a tax attorney at The McGuire Law Firm to assist with some of the questions above.

A Schedule A is the schedule in which a taxpayer states their itemized deductions.  A taxpayer will either take the standard deduction or itemize their deductions.  A taxpayer will itemize their deductions if their itemized deductions are greater than the standard deduction.  Thus, Schedule A can be used to calculate itemized deductions and is the schedule in which a taxpayer will use to report their itemized deductions on their 1040 Individual Income tax return.

Below is a list of deductions that can be taken on a Schedule A:

–         Medical expenses (the medical expenses that can be itemized are those that are greater than 7.5% of the taxpayers adjusted gross income, or 10% if the taxpayer is a certain age)

–         Taxes: State income taxes or general sales tax, real estate taxes, personal property taxes and other taxes can be deducted as itemized deductions on Schedule A

–         Mortgage interest: You should receive a Form 1098 stating your mortgage interest, or you can report mortgage interest paid that is not reported on a Form 1098, but you will need to provide additional information

–         Mortgage insurance premiums

–         Gift to charity- these can be gifts by cash or check, or property that was donated to charity.  Certain reporting requirements apply when the gifts claimed are above $500 and this figure can change

–         Casualty and theft losses

–         Unreimbursed employee expenses

–         Tax return preparation fees

–         Other expenses

In general, your itemized deductions will lower your taxable income and thus the amount of tax you pay for the year.  Your itemized deductions can be phased out depending upon your adjusted gross income meaning that your itemized deductions are reduced (thus the benefits lessened) when you make a certain amount of money.

Your Schedule A is attached and included with your 1040 Individual Income Tax Return that is filed with the Internal Revenue Service.  In addition to lowering your federal income taxes, if your state income taxes are calculated based off of your federal taxable income, these itemized deductions can also reduce your state income taxes.

You can speak with a Denver tax attorney by contacting The McGuire Law Firm and scheduling a free consultation or email Mr. McGuire at John@jmtaxlaw.com