Companies Operating in D.C. Should ACT NOW!!

Has your company been operating under a structure that has historically kept owners or certain entities in the group from filing District of Columbia (D.C.) income/franchise tax returns?

Is your company planning to have a big sale or transaction before the end of 2012?

If the answer to any of the above questions is "yes," then my recommendation is that you act now. Review your structure, review the new DC rules and determine if any changes would be cost-beneficial.

OTHER QUESTIONS TO CONSIDER

Does your company operate within the District of Columbia (DC)? Does your company own real estate within DC? Does your company have several entities within its organizational structure, owned by corporations, limited liability companies, limited liability partnerships, or even individuals? Do those owners own more than 50%? Do those entities operate a unitary business? Does the group of entities include passive holding companies, and unincorporated businesses?

KEY CHANGES

As mentioned in a previous post, DC recently passed regulations that impose combined reporting for commonly controlled, unitary groups of entities.

1. Entities without DC nexus may be required to be included in a DC return causing income that historically escaped taxation in DC to now get taxed. 
2. New nexus presumptions for passive holding companies and managing partners of partnerships operating in DC may cause entities and owners that used to escape taxation in DC to now be taxed.

STARTING POINT

1. Does our group of companies meet the ownership test?
2. Does our group of companies meet the unitary test?

UNINCORPORATED BUSINESSES CONFUSION

Unincorporated businesses are required to be included in DC combined returns if they meet the requirements.  One of the big concerns or issues is "how" they are included.  At the moment, the regulations do provide guidance, but the guidance doesn't make complete sense.  If you read this section in the regulations, it seems like the income from the unincorporated business is going to get taxed twice because of the adjustments to the owner's information that is included in the combined return as well.  Hopefully this is something DC will change before next year's returns are due.

Non-Big 4 Firm SALT Professionals: GOT LEVERAGE?

If you haven't already heard, I thought I would let you know that I recently re-joined Baker Tilly Virchow Krause, LLP (Baker Tilly) as the DC Office State and Local Tax Services leader.  I previously worked at Baker Tilly as the Minneapolis Office State and Local Tax Services leader.

BIG 4 SALT

After working at one of the Big 4 accounting firms for the last year and a half, the differences between working at the Big 4 in the state and local tax (SALT) practice, and leading a state and local tax practice for a large regional firm or any non-Big 4 firm are quite evident. 

For example, a Big 4 firm SALT practice may have 800 or more professionals across the country.  They also have specialty upon specialty; meaning, they have sales tax specialists and income tax specialists instead of just SALT specialists. 

There are pros and cons to this structure depending on the type of clients you are trying to serve.  For example, most middle market clients don't need this type of costly structure or resource.  What they need is a cost-effective, practical, "right-fit" solution to their issues. 

NON-BIG 4 SALT

Every non-Big 4 firm that has a SALT practice or would like to have a SALT practice has to build a different practice (size, structure, specialties, services, etc.) due to the type of clients, issues and experience of the SALT professionals.

Regardless of the type of SALT practice a non-big 4 firm has, they will  most likely never have 800 SALT professionals; hence, they need to specialize or have a strong network of SALT professionals in other firms of which they can contact to discuss complex issues.

LEVERAGE

If you are a non-Big 4 SALT professional or even a SALT professional in a corporation, and think it would be nice to have other SALT professionals to talk to about issues, please join my Leverage | SALT LinkedIn group, e-mail distribution list and/or contact me to discuss.

Let's provide each other with leverage!  (was that corny or cool? oh well).

"CLIFF NOTES" for DC Combined Return Due October 15, 2012!

If your client or company is in the process of preparing a District of Columbia (DC) combined return due October 15, 2012, then you probably are experiencing the pain of working through the regulations and calculations.  Especially since the regulations just became final and there are conflicts between the regulations and the statute. 

Hence, to provide a little guidance and assistance, I thought I would provide a "cliff notes" version of some of the main points (at a high-level) from the regulations.  If the following affect your client or your company, please review the regulations for more details:

1.  Not a nexus combination (includes all entities that meet the requirements for inclusion regardless of nexus)
2.  Combined return includes unincorporated businesses, transportation and financial companies
3.  Excludes:  insurance companies, exempt entities, qualified high tech companies, and 80/20 companies
4.  Companies must be commonly controlled ( > 50%)
5.  May have one or more unitary businesses or combined groups
6.  Commmon owner need NOT be included in the combined group
7.  Passive holding companies MAY be included
8.  Instant unity NOT presumed, but may be proven
9.  Waters-edge method is the STANDARD filing method
10.  Worldwide method is an election (binding for current year and next 9 years)
11.  Prior net operating losses may NOT be shared among members of group
12.  Tax credits may NOT be shared
13.  Single member LLCs are disregarded
14.  Minimum tax applies to each taxpayer member
15.  REITs and RICs allowed dividends paid deduction
16.  FAS 109 deduction is claimed over 7 year period beginning in 2015 (file form with 2012 return claiming amount)
17.  Adopts the Joyce rule for apportionment purposes

There are many issues surrounding the combined return regulations that are causing confusion and a lack of clarity.  One of the main problem areas is understanding how an unincorporated business and its owners are included in a combined return.  If your client or company has this issue, please consult the regulations and a state and local tax advisor for assistance.

DC Employers Required to File Annual Use Tax Return by October 20, 2012!

Attention all District of Columbia (DC) employers:

Title 47 of the District of Columbia Official Code, Section 47-2211, states that any District of Columbia (DC) employer required to file a DC withholding return, who is not required to collect and remit sales tax, shall file an annual use tax return (FR-800A) on or before October 20 of each year, remitting with such return the use taxes which are due. Use tax is required in lieu of sales tax for purchases made from sources outside DC upon which no DC sales tax is charged or collected.

The initial return is due October 20, 2012 covering the period October 1, 2011 through September 30, 2012.

For additional info, goto DC's website.