Download Staying One Step Ahead Proper Tax Planning and Compliance for

Staying One Step Ahead
Proper Tax Planning and
Compliance for Tax Audits
Miriam C. Konstam
Corporate Tax Services Manager
July 22, 2009
Agenda
Tax Planning
• Debt vs. equity
• Delaware franchise taxes
• Establishing US operations
– State tax implications
– Incentives or grants available
Tax Compliance
•
•
Forms W-8 Series
Sales Tax Issues and Audits
Debt vs. Equity
• IRC § 385 governs this issue
• Debt appears to have flexibility
• Debt must accrue interest and comply with
withholding requirements
• Taxpayer is bound by his decision, IRS is not
Debtor-creditor or corporation-shareholder relationship?
•
Is there an unconditional promise on the part of the debtor to pay a sum certain
•
Is there convertibility into the stock of the corporation
•
Are the rights of the creditor subordinate to those of general creditors
•
Does the agreement give the creditor the right to participate in the management
of the debtor
•
Is the debtor thinly capitalized
•
Is there identity between the creditor and shareholders of the debtor;
•
Were the funds repaid on the due date
•
Is there presence of a maturity date
•
What is the label placed upon the instrument by the parties
•
Does the debtor have the ability to obtain loans from outside
lenders
Our Perspective
• Most transactions have the characteristics of equity
– Ensuring treatment of debt
– Compliance with above
– Tax due on payment of interest
– Portfolio interest exception
• Treatment upon exit
– Equity – Return of capital and capital gain.
– Loan – Payment of interest and withholding; return of principal.
– Conversion Feature – Tax due on period of loan treatment, including if payment is
in shares
• Distribution of portfolio company’s earnings
How likely is it that this scenario will occur?
Delaware Franchise Taxes
• Certificate of Good Standing
• Default – Authorized Shares Method
• $75 for each 10,000 shares
• 40,000,000 x 75 = $300,000
10,000
Alternate Method
Gross Assets
12/31/2008
$ 20,000,000
Shares Authorized
40,000,000
APVC For Tax
Basis
40,000,000
TAX DUE
Total Shares Issued
Assumed Par
20,000,000
Assumed Par
1
Assumed Par Value
Capital
1.000000
40,000,000
Gross Tax
Prorated for Number
of Days
$ 14,000.00
365
$
14,000.00
The P. Stein Way
Gross Assets
12/31/2008
Total Shares Issued
$ 20,000,000
Shares Authorized
40,000,000
Assumed Par
40,000,000
APVC For Tax
Basis
20,000,000
TAX DUE
Assumed Par
0.5
Assumed Par Value
Capital
0.500000
Gross Tax
$
20,000,000
Prorated for Number of
Days
7,000.00
365
$
7,000.00
Establishing US Operations
State Tax Implications
• 50 states
• Physical Presence
• Economic Presence
• Migration to Gross Receipts Taxes
• On the Upside – Grants & Incentives
Sales Tax Issues and Audits
• Is sale subject to sales tax?
- Transaction subject to tax
- End user – resale certificate
• Is there nexus in that state?
• Use tax
• 8,800 jurisdictions
• Audits – testing periods plus interest
Forms W-8
• IRS Tier I Issue – Closing the $100 billion tax gap
• Default Presumption Rules
• Substitute Form W-8
• Spreadsheet Equivalents