We do not know if or when any of these proposals will become law, but wanted to provide you with this brief overview of President Obama’s Blueprint for an America Built to Last.

In his State of the Union address, President Obama laid out a Blueprint for an America Built to Last, encouraging companies to create manufacturing jobs in the United States while removing deductions for shipping jobs overseas and encouraging insourcing. During the past two years, we have begun to see positive signs in American manufacturing - with the manufacturing sector adding more than 300,000 jobs since December 2009, with companies engaging in the emerging trend of “insourcing” by bringing jobs back and making additional investments in the United States. Manufacturing jobs are growing for the first time since the late 1990s.

The proposals the President is describing today are designed to build on this progress. They include six proposals that Congress should act on immediately to encourage job growth in the United States and that are fully paid for by closing tax loopholes that encourage the shifting of jobs and shielding of profits overseas. The President is also calling for Congress to extend current temporary tax incentives this year to bring more certainty to the near-term economy and for fundamental tax reform that would encourage more investment in America with a new international minimum tax, a lower rate for American manufacturing, and a simpler, broader tax code.

The President is proposing the following revenue-neutral reform package to support manufacturing, discourage outsourcing, and encourage insourcing that Congress should act on immediately:

1. Removing tax deductions for shipping jobs overseas and providing new incentives for bringing them back home (revenue neutral) : The tax code currently allows companies moving operations overseas to deduct their moving expenses - and reduce their taxes in the United States as a result. The President is proposing to change that. These deductions will be denied, and companies will no longer be provided deductions for moving their operations abroad. At the same time, the President is proposing to give a 20 percent income tax credit for the expenses of moving operations back into the United States to help companies bring jobs home.For example : If a company was closing a plant to move that plant overseas and incurred $1 million in expenses - ranging from the cost of scrapping equipment to shipping physical capital to clean up costs - it could right now deduct those expenses, and get a tax reduction of $350,000 (assuming the firm faces the 35 percent statutory tax rate). The President proposes to eliminate this tax deduction. And, if a corporation moving jobs to the U.S. incurred similar expenses, the President proposes to provide that company with a tax credit of $200,000 to help offset these costs and encourage investment here at home.
2. Targeting the domestic production incentive on manufacturers who create jobs here at home and doubling the deduction for advanced manufacturing (revenue neutral) : In conjunction with the President’s broader commitment to corporate tax reform, the Administration is proposing measures to provide incentives for manufacturing in the United States. The Administration is proposing to reform the current deduction for domestic production by more narrowly focusing it on manufacturing activities—for example, it would no longer cover oil production. These savings would be invested in expanding the deduction for manufacturers and doubling for advanced manufacturing technologies from its current level of 9 percent to 18 percent.
3. Introducing a new Manufacturing Communities Tax Credit to encourage investments in communities affected by job loss ($6 billion in credits) : The President is proposing a new credit for qualified investments that help finance projects in communities that have suffered a major job loss event. This credit will provide $2 billion per year in incentives for three years. For this purpose, a major job loss event occurs when a military base closes or a major employer closes or substantially reduces a facility or operating unit, resulting in permanent mass layoffs. The tax credit would support qualified investments in this affected community - made in conjunction with State Economic Development Agencies and other local entities - that improve local economic growth.
4. Providing temporary tax credits to drive nearly $20 billion in domestic clean energy manufacturing ($5 billion in credits) : The President is proposing to extend tax credits to drive nearly $20 billion of investment in domestic clean energy manufacturing, ensuring new windmills and solar panels will incorporate parts that are produced and assembled by American workers. This Advanced Energy Manufacturing Tax Credit -which was oversubscribed more than three times over - goes to investments in clean energy manufacturing in the United States. The additional $5 billion in tax credits the President is proposing will leverage nearly $20 billion in total investment in the United States.
5. Reauthorizing 100% expensing of investment in plants and equipment ($4 billion) : The President is proposing to extend for all of 2012 a provision that allows businesses to expense the full cost of their investments in equipment, spurring investment in the United States. Over the next two years, this would provide businesses large and small with $50 billion in tax relief, with much of that recovered by the Treasury in subsequent years.
6. Closing a loophole that allows companies to shift profits overseas (raises $23 billion) : Corporations right now can abuse the tax system by inappropriately shifting profits overseas from intangible property created in the United States. The President is proposing to close this loophole.
   At the same time as the President is calling for immediate enactment of this plan, he is also pushing forward on a framework for corporate tax reform that would encourage even greater investment in the United States, while eliminating tax advantages for outsourcing. This framework will include:-Making companies pay a minimum tax for profits and jobs overseas and investing the savings in cutting taxes here at home, especially for manufacturing : The President is proposing to eliminate tax incentives to ship jobs offshore by ensuring that all American companies pay a minimum tax on their overseas profits, preventing other countries from attracting American business through unusually low tax rates. The savings would be invested in cutting taxes here at home, especially for manufacturing.-Making permanent an expanded Research and Experimentation Tax Credit : The President has proposed to make permanent the Research and Experimentation Tax Credit, while enhancing and simplifying the credit. About 70 percent of the benefit directly supports jobs in the United States, and every dollar spent encourages U.S.-based investment, as only research and experimentation performed in the United States is eligible.-Simplify the tax code and close loopholes : Over the nearly three decades since the last comprehensive reform effort, the tax system has been loaded up with special deductions, credits, and other tax expenditures that help well-connected special interests, but do little for our Nation’s economic growth. The President’s framework will close these loopholes and simplify the tax code so businesses can focus on investing and creating jobs rather than filling out tax forms.

Building on Progress

• Providing tax incentives to help businesses grow and invest : Building off earlier measures, the President signed into law a provision that allowed businesses, both large and small, to immediately write off 100% of the costs of new investment in equipment in the United States. This is among the 17 tax cuts the President has signed into law for small businesses, including measures that temporarily eliminated capital gains taxes on key small business investments and raised expensing limits for small firms.
• Providing tax incentives to support domestic investment in clean energy technology manufacturing : The Recovery Act’s Advanced Energy Manufacturing Tax Credit provided $2.3 billion in incentives that catalyzed an additional $5.4 billion in private sector investment in projects to manufacture the next generation of solar, wind, geothermal, vehicle, energy efficiency, and other clean energy technologies.
• Temporary tax cuts to increase investment and jobs : The President has signed into law $200 billion in tax relief and incentives for America’s businesses to encourage them to make new investments and create new jobs - relief that was paid out over the last three years. This includes provisions that directly benefit those businesses that did the most to boost investment and hiring.
• Cracking down on overseas tax avoidance and loopholes : The President has taken strong steps to crack down on overseas tax evasion and loopholes - measures that will save billions of dollars over the next decade and make sure that everyone plays by the same rules. This includes signing into law the Foreign Account Tax Compliance Act, which targets tax evasion by U.S. citizens holding investments in foreign accounts, as well as measures to crack down on abuse of foreign tax credits through games that allowed multinational companies to inappropriately reduce the amount of taxes they paid here at home.

We’ve been told that over the next several months ALL taxpayers that filed a PPT return in Marion County with an assessed value of $50,000 or more will be audited. The audits will be for the 3/1/2009, 3/1/2010 and 3/1/2011 assessment dates. 

TMA, the company that performs the Tangible Personal Property audits, will be mailing a letter to the affected taxpayers to inform them of the audit. TMA will follow up with a phone call to the taxpayer if TMA does not receive a quick response from the taxpayer. These letters have started going out and will continue over the next several months. 

If you receive a letter and have any questions or concerns, please contact us.

The answer is yes. The first step is to create a partnership/LLC or use an existing partnership/LLC to own and maintain the policies. The policies owned by the partnership/LLC will be used to fund the buy-sell agreement for the primary business which is usually structured as a corporation. The partners in the partnership/LLC are also shareholders in the corporation. As part of the initial capital contribution to the partnership/LLC, each of the partners purchase a life insurance policy and then transfer it to the partnership/LLC or the entity could purchase the policies on the partners inside the partnership/LLC. The insured partner pays the ongoing premiums on the policy as additional capital contributions to the partnership/LLC. The source of the funds used to pay the premiums can be from personal funds or can be through a salary bonus from the corporation.

When transferring a life insurance policy the transfer-for-value rules must be reviewed. This scenario, i.e. using a partnership/LLC to hold the life insurance policy, may fall under the exceptions to the transfer-for-value rules. One of the exceptions to this rule is where there is a transfer-for-value to a partnership/LLC in which the insured is a partner or where there is a transfer-for-value to a partner of the insured.

Upon the death of a partner, the partnership/LLC will use a portion of the life insurance proceeds to purchase the decedent’s partnership/LLC interest and the rest is distributed to the remaining partners to purchase the decedent’s shares in the corporation or they could contribute the proceeds to the corporation and then the corporation could redeem the decedent’s shares.

The surviving partners’ basis in the partnership/LLC increases by the amount of the allocated insurance proceeds. This allows for an income tax-free distribution of the proceeds to the surviving partners and then they can use these funds to purchase the decedent’s shares in the corporation.

If the partner lives to retirement or decides to withdrawal from the partnership/LLC the life insurance policy can be distributed from the partnership/LLC without triggering the taxation of gain in the policy’s cash value because of the non-recognition rule that applies when appreciated property is distributed from a partnership.

It would also be possible for the retiring partner to transfer his partnership/LLC interest to his irrevocable life insurance trust (ILIT) and then have the trust liquidate the partnership/LLC interest in exchange for the policy. This scenario would avoid the three-year rule for transferring existing life insurance policies to an ILIT.

If you filed a Michigan return with non-resident shareholders, partners or members, you may have recently received a notice from Michigan regarding the new required 2012 Flow-Through Withholding Quarterly Return.  Quarterly returns (Form 4917) and withholding on estimated Michigan apportioned income is now required of all pass-through entities with non-resident owners.   

Entities that have no Michigan distributable income or have less than $1,000 per quarter should file a Zero quarterly return.  An Annual Withholding Reconciliation Return is due February 28, 2013. 

All pass-through entities, including those with no non-resident shareholders, are receiving this notice (in an attempt to catch withholding violators).  A quarterly return is required of everyone who received the notice unless the entity files a Notice of Change or Discontinuance.

We have asked about penalty assessment for non-compliance if no tax is due and the quarterly form is not filed. We did not get a yes or no response. We were told it was a good question and that they would look into this since the compliance rule is so new.  We will let you know as more information becomes available. 

Please post a comment here if you have any questions.

Individuals must report specified foreign financial assets on new IRS Form 8938 for 2011 tax year.

A new information reporting form, Form 8938, Statement of Specified Foreign Financial Assets, was recently released by the IRS; temporary and proposed regulations have been released providing guidance for reporting these assets. This new form to report specified foreign financial assets for tax year 2011 will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. The form will be filed with the annual individual income tax return and has the same due date (including extension). Initially the reporting will only apply to individuals, but to the extent provided in future IRS regulations, it will apply to specified domestic entities.

Form 8938 is required to be filed when the total value of specified foreign assets exceeds certain thresholds. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. On the other hand, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

It is important for taxpayers to determine whether they are subject to this new filing requirement. Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40-percent penalty on any understatement of tax attributable to nondisclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which will also be explained in the instructions. Form 8938 is not required of individuals who do not have an income tax return filing requirement. Additionally, the filing of Form 8938 does not relieve anyone from the filing requirements of Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Dept. of Treasury.

Form 8938, Statement of Specified Foreign Financial Assets (Nov. 2011) can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/f8938.pdf. The Instructions for Form 8938 (Nov. 2011) can be viewed at http://www.irs.gov/pub/irs-pdf/i8938.pdf.

Tax returns for tax-exempt organizations with August 31, 2011 or September 30, 2011 fiscal year-ends will be automatically extended to March 30, 2012. The extension is due to the IRS Modernized eFile system being unavailable from January 1, 2012 through February 29, 2012. The affected returns include Form 990, Form 990-EZ, Form 990-PF, and Form 1120-POL. The organizations affected by this may submit a paper return by March 30, 2012 or file Form 8868 to request a three-month automatic extension of time to file the return. The three-month extension starts from the original filing date of the return (January 17, 2012 or February 15, 2012). The amount of tax liability is still due by the original filing deadline and should be paid by making an estimated tax payment or filing a completed return no later than the original due date.

Following a deal made late on December 22, the House and Senate on December 23 passed, and President Obama signed, the Temporary Payroll Tax Cut Continuation Act of 2011 (HR 3765), an amended version of the two-month payroll tax cut extension. Under the deal, which was approved in both chambers by unanimous consent, the payroll tax will remain at the current 4.2-percent rate instead of reverting to 6.2-percent. Self-employed individuals will continue to pay 10.4 percent on self-employment tax. The agreement also includes an extension of unemployment insurance and Medicare payments to doctors, as well as an additional provision not included in the legislative language of the Senate-passed version of HR 3630 to ease the administrative burden of implementing the payroll tax cut extension on small businesses. The measure also includes a commitment to go to conference on HR 3630 in an effort to negotiate a one-year extension of the payroll tax cut.

Beginning July, 1 2011, employers pay FUTA tax at a rate of 6.0% on the first $7,000 of covered wages paid to each employee during the calendar year (6.2% for the first half of 2011).  This tax may be offset by credits of up to 5.4% if state unemployment taxes were paid in full, on time, on all the same wages as are subject to FUTA wages and as long as the state is not determined to be a credit reduction state.  Therefore, if an employer is entitled to the maximum credits, the FUTA rate will be .8% for the first half of 2011 and .6% after June 30, 2011.  There are new boxes on the 2011 Form 940 to report the wages before 7/1/2011 and after 6/30/2011.

Under Title XII of the Social Security Act, states with financial difficulties can borrow funds from the federal government to pay unemployment benefits.  If a state defaults on its repayment of the loan, the 5.4% maximum state unemployment tax credit is reduced.  Employers in credit reduction states pay FUTA tax at a .3% higher rate than other employers beginning with the second consecutive January 1 in which the loan is not repaid by November 10 of that year.  For each succeeding year in which there is a balance, the credit is further reduced by an additional .3%.

Schedule A to Form 940 is out, and it lists 21 credit reduction states for 2011.  There were 3 for 2010.  For 2011 the 5.4% state unemployment credit must be reduced by .3% for taxable wages in 19 states.  The Indiana state unemployment credit must be reduced by .6% and the Michigan state unemployment rate must be reduced by .9%.

For example, an employer with Indiana taxable wages must pay a 1.4% FUTA tax on taxable wages from 1/1/2011 to 6/30/2011 (6.2% -5.4% + .6%).   The same employer would pay a 1.2% FUTA tax on taxable wages from 7/1/2011 to 12/31/2011 (6.0% -5.4 % + .6%).

President Obama on November 21 signed into law legislation providing tax credits for employers who hire military veterans and a repeal of the 3-percent withholding tax imposed on federal contractors. The measure is the first portion of President Obama’s failed jobs package to receive full bipartisan support in both the House and Senate.

The bill offers a tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than four weeks but less than six months. The measure also calls for a tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months.

House members on November 16 approved, by a 422-to-0 margin, legislation repealing the 3-percent withholding tax imposed on federal contractors while providing tax credits for employers who hire military veterans. The measure is the first portion of President Obama’s failed jobs package to receive full bipartisan support in both the House and Senate.

The estimated $11.2-billion cost of repealing the withholding tax is offset by changing the calculation of modified adjusted gross income in determining eligibility for some health care credits, including Medicaid, and the Children’s Health Insurance Program. The 3-percent withholding tax was imposed six years ago on federal contractors to crack down on tax avoidance as part of the Tax Increase Prevention and Reconciliation Act of 2005.

The $1.6-billion cost of the veterans’ hiring provisions is offset by delaying scheduled fee reductions on mortgage applications for loans guaranteed by the Department of Veterans Affairs. The bill offers a tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than four weeks, but less than six months. The measure also calls for a tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months.

The Senate unanimously approved on November 10 after Senate Majority Leader Harry Reid, D-Nev., added the VOW to Hire Heroes Bill of 2011 as an amendment). The House had initially approved legislation repealing the 3-percent withholding tax on October 27 but the Senate amendment required the lower chamber to hold another vote. President Obama has stated his support for the measure.