AGC Financial Issues Forum January 10, 2014 Presented by John R Armour, CPA CCIFP Managing Director, CBIZ MHM, LLC Denver, CO Today’s Presenter John Armour, CPA, CCIFP Managing Director CBIZ West Region AEC Industry Group 720-200-7081 | [email protected] John Armour, CPA, CCIFP is nationally recognized as a leading authority and expert in construction accounting and taxation. John is licensed to practice as a CPA in Colorado and New Mexico. He is a Managing Director in CBIZ MHM, LLC, the 7th largest U.S. accounting firm, where he serves as Western Region Director of Architectural, Engineering and Construction Services. John is a frequent speaker to construction trade associations and conferences, including CFMA’s Annual Conference & Exhibition and the AGC-CFMA Construction Financial Management Conference. He served from 2001-2005 as chair of the AICPA National Construction Industry Conference planning committee. He also served as President of the Colorado Society of CPAs. He has also written for CFMA Building Profits. John is active in construction trade associations, and is a founding member of CFMA’s Colorado Chapter. He has served on various committees and advisory capacities and presently serves on the legislative committees of both the Colorado Contractors Association and AGC’s Colorado Building Chapter. He is also a member of AGC of America’s Tax & Fiscal Affairs Committee and Supplier/Service Provider Council. His additional construction industry involvement includes the Associated Building Contractors, Professionals for Colorado Contractors Council, CICPAC, and Rocky Mountain Surety Association. Circular 230 Notice Any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax related penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed herein 3 Since 2012 • No new tax legislation directly impacting industry • Tax impact and cost impact of HCA becoming more apparent • Ways & Means and Senate Finance deliberating on reform/overhaul with focus on simplification and small business economic stimulus – Watch www.taxreform.gov • No answer for who is going to pay for the parade 4 Regulatory Projects • Home Construction – Drafted revised regulations stalled in Treasury approval process • Still on the Priority Guidance plan • No indication of future release date • Contractors required to apply interpretation based on pre-proposed regulation IRS positions – Home must be under construction – Super completed contract 5 Chief Counsel Projects • Look-back – exempt owners – Issue brought to IRS by Marc Porter – Law Construction • Original look-back regulations were issued prior to 1996 when law changed allowing tax exempt entities such as an ESOP to own stock in an S corporation • Regulations do not have any allowance for excluding non-taxable entities allocable income from the lookback computation when lookback is performed at the entity level. 6 Chief Counsel Projects • Look-back – exempt owners – Issue brought to IRS by Marc Porter – Law Construction – IRS processing center (and the J Wierman lookback Excel spreadsheet) calculates look-back interest for a passthrough paying look-back at the entity level using Corporate rates • Marc argues that this should be at non-corporate rates • Citing Garwood Irrigation Company v. Commissioner., U.S. Tax Court, CCH Dec. 56,500, 126 T.C. No. 12, 125 T.C. No. 233, (May 1, 2006) 7 Section 444 Deposits Can an S corporation with ESOP ownership exclude the ESOP ownership portion of deferred income when computing the Section 444 deposit? Answer – No The Section 444 deposit is based on taxable income at the S corporation level. Any limitations of tax at the shareholder level (including a shareholder that is tax exempt) is disregarded in computing the required payment/deposit. 8 Reasonable Compensation Assume that your company will recover in the future and may desire to pay larger compensation to officers. • Document past earned but unpaid compensation • Consider dividend payments concurrently with added compensation 9 Case Law - Severance Payments US vs. Quality Stores, Inc. – Sixth Court of Appeals held that severance pay was not subject to FICA. Decision is inconsistent with 2nd District case Supreme Court will make a determination in the fall of 2013 as to hearing the matter to resolve conflicting opinions. Consider filing protective claims for refunds for all open years. 10 Case Law – Cost Allocations • Frontier Custom Builders v Commr. – TC Memo 2013 – 231 September 30, 2013 • Speculation and Custom Home Builder • Detail analysis of production, indirect and overhead costs determining tax treatment – Production cost – Mixed service cost – Deductible Unreasonable Tax Positions Beginning in 2014 – Unreasonable Tax Position disclosures are required for corporations with gross assets of $10 million (vs. $50 million) – Evaluate positions prior to year end – Consider changes in accounting methods to mitigate financial statement and tax disclosure impacts. 12 Tax Provisions Expiring at the end of 2013 • • • • Tax credit for research and experimentation Credit for construction of new energy efficient homes (sec. 45L(g)) Work opportunity tax credit (sec. 51(c)(4)) 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements (secs. 168(e)(3)(E)(iv), (v), (ix), 168(e)(7)(A)(i) and (e)(8)) • Additional first-year depreciation for 50 percent of basis of qualified property (secs. 168(k)(1) and (2) and 460(c)(6)(B)) • Election to accelerate AMT credits in lieu of additional first-year depreciation (sec. 168(k)(4)) 13 Tax Provisions Expiring at the end of 2013 • Increase in expensing to $500,000/$2,000,000 and expansion of definition of section 179 property (secs. 179(b)(1) and (2) and 179(f)) • Energy efficient commercial buildings deduction (sec. 179D(h)) • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (sec. 199(d)(8)) • Special rules for qualified small business stock (sec. 1202(a)(4) • Reduction in S corporation recognition period for built-in gains tax (sec. 1374(d)(7)) 14 Questions?