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New Jersey Releases Guidance to CPAs Filing Beneficial Ownership Reports Under the Corporate Transparency Act

New Jersey Releases Guidance to CPAs Filing Beneficial Ownership Reports Under the Corporate Transparency Act

On July 9, 2024, the Committee on the Unauthorized Practice of Law (the “UPLC”), appointed by the Supreme Court of New Jersey, issued guidance in response to an inquiry from the New Jersey Society of Certified Public Accountants regarding the filing of beneficial owner information reports (“BOI Reports”) under the Corporate Transparency Act (the “CTA”).

Background

The CTA was enacted on January 1, 2021 as part of the Anti-Money Laundering Act of 2020, but the provisions regarding the filing of BOI Reports did not take effect until January 1, 2024 pursuant to a final reporting rule (the “Reporting Rule”) issued by the Financial Crimes Enforcement Network (“FinCEN”) on September 30, 2022 (and subsequently amended on November 30, 2023). Under FinCEN’s Reporting Rule (as amended), entities subject to the CTA’s reporting requirements created prior to January 1, 2024 have until January 1, 2025 to file their initial BOI Report; entities created during 2024 have ninety days to file their initial BOI Report; and entities created after 2024 have thirty days to file their initial BOI Report.

UPLC Guidance

In response to an inquiry from the NJCPA, the UPLC issued guidance on whether the filing of BOI Reports constitutes the practice of law in the State of New Jersey. In general, the UPLC determined that (i) the filing of Beneficial Owner Information Reports under the Corporate Transparency Act does constitute the practice of law, but that (ii) “a licensed CPA can engage in this conduct provided the CPA notifies the client that it may be advisable to consult with a lawyer.” The guidance goes on to further state that “[c]omplex filings require a lawyer’s judgment, training and expertise” because “the analysis may be tricky and the risk of penalties, if the analysis is faulty, is greater.” In making the determination of what constitutes a complex BOI Report filing, the UPLC expressly “relies on the professionalism of CPAs to ensure that such licensees will recognize when a filing is more complex and it is in the client’s interests for a lawyer to be retained in the matter.”

When is a BOI Report filing complex enough to require advice from an attorney?

Unfortunately, the UPLC guidance does not provide any examples of when a BOI Report filing is complex enough to require a lawyer’s judgment, training and expertise. It does, however, acknowledge that “most filings will be straightforward,” and provides an example of such a straightforward filing: “For example, all matters where there is a single owner of a limited liability company will be simple—that single owner is the beneficial owner of the entity for purposes of the [CTA].”

Takeaways

Although not stated in the UPLC guidance, the “complex filings” contemplated therein likely revolve around the definition of what constitutes a “reporting company” and who is a “beneficial owner” under the CTA. On the first definitional question, the CTA identifies twenty-three categories of exempt entities which include a separate exemption for wholly-owned subsidiaries of otherwise exempt entities. Importantly, if an entity is not a reporting company or is otherwise exempt, there is no filing with FinCEN required to claim the exemption, but substantial penalties may be imposed if this initial determination turns out to be incorrect.

On the second definitional question, a beneficial owner is defined as an “individual who, directly or indirectly . . . (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The Reporting Rule elaborates on the question of who exercises “substantial control” over the entity by identifying those who have legal or factual authority to control the entity, and it also includes a catch-all provision.

Thus, it seems that the initial determination of whether a particular entity is exempt from the CTA’s filing requirements would most easily satisfy the complexity threshold discussed in the UPLC guidance. For entities who have corporate officers and/or tiered ownership structures, the secondary determination of which individuals have “ownership interests” or exercise “substantial control” over the entity would most easily rise to the level of complexity requiring a lawyer’s judgment, training and expertise to complete the filing.

Matt Eyet Interviewed on “Lawyers Who Care”

Matt Eyet Interviewed on “Lawyers Who Care”

Matt Eyet, Esq., founder of Eyet Law, was recently interviewed on Lawyers Who Care, the video show and podcast that highlights attorneys that go above and beyond for their clients. 

You can check out the full video here, but keep reading for a recap of what you’ll get to see! 

In the interview, Andrew Samalin, CFP of Samalin Wealth, spoke with Matt about his journey to becoming a tax lawyer. Because of the sheer volume of potentially applicable code sections, case law, and administration guidance surrounding tax, Matt sees every matter as being similar to a puzzle. Figuring out what applies, which code section does or doesn’t affect the case, and how best to move forward while adhering to the myriad of tax rules is all part of that strategy and solution. 

In one instance, Matt represented someone who had Google searched for a tax lawyer. The client, having undergone a divorce, agreed to be solely responsible for the joint tax liability that was owed for several years leading up to the divorce. The client’s wife had been under the impression these taxes had been taken care of and hadn’t known about the owed taxes.  

Given the situation, Matt worked with the wife to first request administrative relief, and ultimately to file a petition to absolve the wife of the tax liability. With this type of case, there are seven main factors that the IRS seeks to check in order to determine if the relief should be granted. 

During the time the petition was pending, the wife attempted to purchase the condo she was currently renting and couldn’t get a loan because of the tax lien against her. But when Matt got a plea for help from her, he couldn’t say no, even though this task was outside the scope of what he was retained for. He drafted a letter to the bank. Given the compelling nature of the carefully crafted letter, the bank disregarded the tax liens and granted the loan.  

Though the IRS wound up denying the initial request for administrative relief, Matt remained dedicated to the case and took it to the IRS Office of Appeals. After the appeal, the court only dismissed one of the three years of taxes owed, which still totaled over $160,000. Ever-committed to helping and serving his clients’ best interests, Matt took things one step further by filing a petition in U.S. Tax Court to resolve the remaining tax years. After Matt provided discovery and helped prepare both the client and ex-wife to testify, Chief Counsel’s Office at the IRS gave all the relief they requested for the wife. 

While tax law can be black and white in many ways, these are the types of cases where the practical application of the tax rules and legal process make all the difference in the lives of clients. 

Have a tax matter you need assistance with? Contact our experienced tax lawyers today.

Eyet Law Featured on Talking with the Experts: PPP Loans and Estate Tax

Eyet Law Featured on Talking with the Experts: PPP Loans and Estate Tax

Recently, our very own Matthew Eyet, Esq. talked with Rose Davidson, host of Talking with the Experts, a vodcast for business owners, about various hot-button business planning issues including Paycheck Protection Program (PPP) loans and estate tax under the new administration.

You can find the full conversation here, but we have put together a few key takeaways below.

PPP Loans 

Many businesses have applied for PPP loans, and issues with the first draw loans from the spring of 2020 are now in the news again as federal prosecutors have committed resources to going after fraud.

However, as Matthew emphasized, PPP loans aren’t the only type of loan out there. Economic injury disaster loans (EIDL) also exist, and businesses can qualify for both. In fact, between state and federal relief programs, there are many layers of support available to businesses. It’s possible for businesses to find relief from, five or more different local state and local federal sources.

Estate tax

Matthew and Rose also delved into estate tax and possible legal changes under the Biden administration.

Matthew explained step-up in basis, which has been receiving some press attention lately: If a farming couple in Iowa bought their land for $100,000, but it grows to be worth $10 million by the time of their deaths, then the asset of the farmland has appreciated significantly—yet there is no liquidity to pay the estate tax because it’s a farm. The step-up in basis means that the inheritors of the farm will not be taxed on the gains in value, so long as the property is held in the name of an individual until their death. 

The reverse is also true: You can’t claim a loss if your property depreciates from $10 million to $100,000. “Hold on to the appreciated assets until you die and sell the ones that depreciated before you die,” Matthew advised.

Another area of concern when it comes to changing tax laws is the amount of the gift and Estate tax exemption lifetime, which are currently set at a gift of 11.7 million per person. If the value of your entire estate doesn’t exceed $11.7 million, then you don’t pay federal estate tax on it when transferring the assets to the next generation (although you may have to pay state tax). Married couples get to each use the unused portion of the other’s exemption. Once you cross the threshold, you’re facing a flat tax rate of 40%.

Fourteen years ago, the lifetime exclusion amount was only $1 million—a significant difference. Will the Biden Administration succeed in shifting the threshold again? We can’t say, but it helps to be prepared.

Full-spectrum planning

As Matthew and Rose discussed, there are many forms of federal and state relief available to businesses. If you have questions about loan forgiveness, especially if you didn’t have much in payroll expenses—or if you have questions about planning for changes in estate tax—then we recommend consulting a qualified professional such as Matt to help navigate the monies you will encounter through the process.

At Eyet Law, we offer concierge legal services by providing full-spectrum support for our clients in tax law, estate planning, business law, and civil litigation. Questions? Contact us.

Bankruptcy During Litigation: Eyet Law Firm’s Approach

Bankruptcy During Litigation: Eyet Law Firm’s Approach

When you’re involved in litigation, keeping all the possible outcomes in mind is part of the job. It’s a key part of building a strong case. But for attorneys and their clients, there’s little that’s more frustrating than having the defendant declare bankruptcy during the proceedings.

There are times when there’s a legitimate cause to declare bankruptcy, but sometimes it’s used as a legal tactic. Often clients are told that there’s nothing that can be done once their adversary files bankruptcy—they have to cut their losses and accept pennies on the total dollar value of their claim.

It has proven to be an effective tactic, especially for several high-profile real estate moguls and business entrepreneurs who have been known for using the bankruptcy code as a strategic litigation maneuver in various types of lawsuits.

But at Eyet Law, we know there are ways to handle improper bankruptcy filings that are being used solely for litigation maneuvering purposes.

An illegitimate bankruptcy claim?

As we mentioned, it’s a question that a lot of attorneys have rebuffed in the past, saying that there wasn’t anything that you could do about it. However, we’ve been successful at forcing the nefarious-acting adversary to prove the legitimacy of its claim in this very situation. Let’s look at a recent case.

Eyet Law handled a case where a founding business partner was frozen out of his business by his co-founders/former partners. We filed a lawsuit on behalf of the ousted partner against two of the ex-partners as well as the business entity. Despite the entity having generated one million+ dollars of net profit during the prior year, the entity waited until the day before the Order to Show Cause hearing in state court to file for Chapter 11 business bankruptcy, followed by a notice of removal to federal district court of the claims against the principal of the Company.

Ultimately, this case became a matter of principle for us. We wanted to help make sure that the estate of the deceased was able to receive their rightful interest in the business, and couldn’t let this tactic deprive them of the funds.

A bankruptcy claim doesn’t have to mean the lawsuit ends

Because the defendants had filed for bankruptcy, the case moved from the traditional litigation channels of state and federal district court to federal bankruptcy court. The day prior to when we were supposed to be in court together, we learned the defendants had petitioned for their case to be moved from state court to federal court.

Typically, this has been used as a procedural method to short circuit lawsuits. Once cases move to federal bankruptcy court, there’s often little you can do. We knew better though. By proving that the bankruptcy claim was one that had zero independent legal merit, we were able to keep the action against the principals alive through normal litigation channels.

New approach to an old problem

Because bankruptcy filings during litigation have often been written off, taking a new approach to this old problem can surprise even the most-seasoned bankruptcy professionals.

At Eyet Law, we see things a little differently.

Business owners and investors regularly file for bankruptcy. While this can be the cost of doing business, when it’s done with the intention of avoiding litigation, it’s important to hold them accountable.

In fact, this was such a noteworthy approach that we were frequently told by those in the industry that they were watching to see the outcome. Should the case not be able to continue in bankruptcy court, it would send a clear message that it couldn’t be used to avoid litigation.

This is our goal: to advocate for clients and work effectively within the legal system to get the outcome you deserve. Because when it comes down to it, this is a litigation issue, not a bankruptcy issue.

When facing court cases like this, clients often get discouraged at the perceived setback. That’s understandable, but we always impress upon our clients the importance of remaining resilient. If you’re dealing with a lawsuit and your adversary has declared bankruptcy, don’t give up just yet. Instead, contact the experienced litigators at Eyet Law to discuss what your options are.

COVID-19 and Its Impact on Year-End Tax Planning for Businesses and Individuals

COVID-19 and Its Impact on Year-End Tax Planning for Businesses and Individuals

COVID-19 has brought significant financial challenges to many communities and caused historic disruptions for businesses. Congress’s relief response includes provisions that run through the tax code. For both individuals and businesses, this means there are some key considerations for year-end tax planning.

Cares Act Impact on Business Taxes

The Coronavirus Aid, Relief, and Economic Security (CARES) Act accelerated the timeline created by the Tax Cuts and Jobs Act (TCJA). In turn, this repealed the Corporate Alternative Minimum Tax (AMT) and allowed corporations to claim all their unused AMT credits in the tax years beginning in 2018, 2019, 2020, and 2021. The CARES Act allows corporations to claim all remaining AMT credits in either 2018 or 2019. This gives companies several different options to file for quick refunds, of which the fastest method for many companies will be filing a tentative refund claim on Form 1139.

Additionally, the CARES Act included a provision allowing businesses to use current losses against past income for more immediate refunds. Net operating losses (NOLs) in tax years beginning in 2018, 2019, and 2020 can be carried back five years for refunds against prior taxes.

Losses from years with lower tax rates can offset income from previous years with higher tax rates, however, carrying back NOL to a specific year may impact the application of other IRS provisions for that year. It’s important to note that this carryback provision is mandatory unless an election is made. To opt-out, a formal election statement must be filed along with a 2020 return or an amended return must be filed for previous years.

Social Security Taxes and the CARES Act

The CARES Act also allows employers to defer paying their 6.2% share of Social Security taxes for the remainder of 2020, and for self-employed individuals to defer payment of certain self-employment taxes. This applies to taxes required to be remitted between March 27, 2020, and December 31, 2020. 

The deferred amount is due in two parts with the first half due by December 31, 2021, and the second half due by December 31, 2022. This can provide a liquidity benefit, but the impact on deductions should be considered. Businesses can’t deduct their share of payroll taxes until paid. Therefore, there may be some benefits for paying early to take the deduction in 2020, such as increasing an NOL for the provision benefits discussed above. 

PPP Expenses and Taxes

Initially, some states ruled that expenses paid for with PPP funds are not eligible deductions. It was originally unclear whether Congress would agree, but the Consolidated Appropriations Act, 2021 put these concerns to rest and confirmed that otherwise deductible business expenses paid for with a forgiven PPP loan are deductible.

Cares Act Impact on Individual Taxes 

For individuals, the CARES Act directed the IRS to issue stimulus checks of up to $1,200 per taxpayer and $500 per qualified child dependent earlier this year. These payments were paid based on 2018 or 2019 tax returns, but are structured as advances of 2020 tax credits. Because of this, the amount received may not match the amount of credit calculated on a 2020 return. If the 2020 credit calculation is less than what was received, there is no requirement to pay it back; however, if the amount received was less than the credit calculated for 2020, it can be claimed as an additional refund.

Additionally, the CARES Act offers two opportunities for charitable taxpayers in 2020. Individuals who do not itemize their charitable contributions will be allowed an “above the line” deduction of up to $300 in 2020. For those who do itemize, the CARES Act increases the limit on charitable deductions to 100% of the individual’s Adjusted Gross Income (AGI) for cash contributions made to public charities in 2020.

Individuals can also exclude up to $2 million (or $1 million if not married filing jointly) of Cancellation of Debt income from qualified principal residence indebtedness that is canceled in 2020 because of their financial condition or decline in value of the residence. Debt canceled after December 31, 2020 can still qualify, only if discharged pursuant to a written agreement entered into prior to January 1, 2021.

The CARES Act allows eligible individuals to withdraw up to $100,000 from qualified retirement plans during 2020 without incurring the standard 10% early distribution penalty. These taxable distributions can be included in gross income ratably over three years. Taxpayers may re-contribute the withdrawn amounts to a tax-qualified plan or IRA at any time within three years after the distribution, with these repayments being treated as a tax-free rollover and not subject to that year’s cap on contributions.

Calculating the CARES Act Impact on Your Taxes

As new bills begin to pass, lawmakers are still considering further stimulus and economic recovery legislation. With new information constantly coming forth, sitting down with an experienced tax attorney or CPA can keep businesses and individuals on track to take advantage of all tax-beneficial opportunities.

Johnson & Johnson Prevails in Tax Case With $65M Win

Johnson & Johnson Prevails in Tax Case With $65M Win

Johnson & Johnson (J&J), the international pharmaceutical company whose headquarters are right down the road from the Eyet Law office, has won a $56 million dollar tax case before the Supreme Court of New Jersey that poses broad implications for tax law interpretation.  

The case, the result of a long process of appeals, carries implications for how tax law may be interpreted. It clarifies requirements for New Jersey taxpayers from 2011 to 2020 and, importantly, delivers new insight into how courts might read ambiguous tax laws.

The Background 

Johnson & Johnson, headquartered in New Jersey, is insured by Middlesex Assurance Company Limited (MACL). MACL, which is based in Vermont, was established to insure Johnson & Johnson. 

MACL was formed solely to provide insurance coverage for Johnson & Johnson. Because of this, they’re categorized as a “non-admitted insurer” in New Jersey, which refers to insurance companies that offer coverage without being licensed to undertake insurance business in that state. As such, they operate under different regulations. 

A decade ago, Congress passed the Non-admitted and Reinsurance Reform Act (NRRA) of 2010 which streamlined how non-admitted insurers could be taxed for out-of-state insurance premiums by states. 

This move gave the insured’s state of residence the sole right to tax premiums for all coverage nationwide instead of granting tax rights to wherever there was nexus. For Johnson & Johnson, this meant that New Jersey alone could pass laws levying taxes on their out-of-state non-admitted insurance premiums (called an Independent Procurement Tax, or IPT), which they did in 2011. 

Initially, Johnson & Johnson followed suit and paid IPT premiums in New Jersey for all nationwide premiums. But, in 2015, they filed for a refund for coverage outside of New Jersey, arguing that amendments did not, in fact, levy taxes on nationwide coverage.  

How the Courts Responded 

The New Jersey Division of Taxation initially rejected their case, stating that the 2011 amendment wasn’t clear and that the legislative intent appeared to be for IPT to apply to all non-admitted insurance acquired by New Jersey entities nationwide as per the NRRA.

Johnson & Johnson responded by appealing to the Superior Court of New Jersey, Appellate Division. The Appellate Division determined that:

  • The statute didn’t clearly levy IPT for out-of-state coverage  
  • Legislative intent didn’t clearly show otherwise
  • In situations of ambiguity, courts should lean in the favor of taxpayers.  

Although a portion of the New Jersey amendment expanded the law’s scope to all nationwide coverage, the law only specified that this applied to surplus lines policies — a type of policy that is historically taxed like other non-admitted policies in New Jersey but which isn’t the type of coverage Johnson & Johnson acquired from MACL.

The Division of Taxation and the Department of Banking and Insurance (DOBI) countered by appealing to the Supreme Court of New Jersey. Their argument stated that the amendment should be read to apply to all non-admitted coverage, not just surplus lines coverage, and that when in doubt the courts should give deference to their regulatory interpretations. The Supreme Court followed the Appellate Division’s reasoning and rejected this argument.

Unpacking the Argument

“Surplus lines policy” isn’t defined in statutes, though “surplus lines insurer” is: any insurer that offers insurance regulated by the surplus lines law. Because non-admitted insurance is typically regulated like surplus lines insurance, the laws governing it are located in a section of the surplus lines law, and so this definition of “surplus lines insurer” arguably includes insurers who offer other non-admitted insurance as well.

Additionally, the laws governing surplus lines coverage had also been amended elsewhere to include nationwide premiums. As a result, interpreting the statute in question to apply to just those taxes would be to read the new language as duplicative, and therefore a legal nullity. Courts usually avoid these interpretations, given that they are ostensibly not what the legislature intended.

Altogether, the Supreme Court and Appellate Court found that this was not enough to determine the statutory language was unclear and the language clearly applied the nationwide scope of the tax to “surplus lines policy” premiums only. However, the courts held that even if the law was unclear the tax still wouldn’t apply, as the taxpayer should get the benefit of the doubt in such circumstances.

The Tax Takeaway

For most taxpayers, the key takeaway here is the guidance on how courts evaluate cases when tax statutes are unclear. In this situation, the courts determined the relevant statutes to be clear. However, another principle came into play: when in doubt, find in the taxpayer’s favor rather than defaulting to the Division of Taxation’s interpretations.