Accounting and Assurance Services are the most basic and common application of our skills. Our services provide independent, professional opinions that reduce information risk and provide comfort to third parties.

Our company caters to small and mid-sized for-profit entities that need dependable, efficient and effective reporting.

Accounting and Assurance services include:

  • Financial Statements
    • Audits, Reviews and Compilations
    • Agreed Upon Procedures
    • Forecasts and Projections
  • Bookkeeping, including training on accounting systems such as QuickBooks
  • Trust and Probate Accounting
  • Accounting Systems Consulting, including Internal Controls

We appreciate that as external auditors/accountants, we can be an interruption to what you do best, operate your business. While we are providing a much needed service, we understand the necessity to clearly communicate and to work with our clients to allow for as little disruption and as much efficiency as possible.

Richard J. Maloney, CPA, ABV

With over 30 years experience as a Certified Public Accountant, Richard Maloney focuses his practice on tax and business planning, litigation support and personal financial planning. He has worked with Arthur Andersen in Boston and Ernest & Young in Manchester.

A graduate of St. Michael’s College and Albany Law School (Union University), Rick also received a Masters Degree in Accounting from the School of Business of S.U.N.Y. at Albany. In addition to being a CPA, he is a member of the New Hampshire Bar.  He is accredited in Business Valuation (ABV) and as a Personal Financial Specialist (PFS) by the American Institute of CPAs.

He frequently appears on Continuing Legal Education panels for the New Hampshire Bar Association.

He has served as treasurer and a director of the Business and Industry Association of New Hampshire as well as the treasurer and a director of New Hampshire Public Television.  He is a former head of the Tax Section of the New Hampshire Bar Association and the Tax Committee of the New Hampshire Society of CPAs. He has served on other boards including the Derryfield School, the New Hampshire High Technology Council and the New Hampshire Board of Accountancy.

A partial list of Rick’s publications can be found here: Publications

A list of cases in which Rick has testified and which have been reported by the New Hampshire Supreme Court can be found here: Cases

Kevin C. Kennedy, CPA, CFE

Kevin Kennedy has been a certified public accountant since 1995 and is a graduate of Southern New Hampshire University (Previously New Hampshire College) in Manchester, New Hampshire and has worked both in the private and public sectors of accounting. Kevin focuses on assisting small businesses, and customizing services based on the needs and requests of the client.

Kevin holds memberships with the American Institute of Certified Public Accountants, the New Hampshire Society of Certified Public Accountants and Association of Certified Fraud Examiners. Kevin is also a Justice of the Peace.

Kevin’s latest article written for the Greater Concord Chamber of Commerce news letter can be viewed here.  Affordable Care Act KCK Chamber Pub

Kevin Kennedy is elected Treasurer

Kevin Kennedy has been elected as Treasurer of First Congregational Church of Pittsfield, NH.

Jessica Parasco, CPA

Jessica Parasco comes to us after graduating from Southern NH University in 2013 with a Bachelor of Science in Accounting.  She also has a Graduate Certificate in Taxation from Southern NH University. Jessica was licensed as a Certified Public Accountant by the state of New Hampshire in January 2016. Jessica’s focus is on tax preparation, corporate and individual, as well as financial statement preparation. She also provides assistance with litigation and valuation engagements.

Maloney and Kennedy Join the Concord Chamber of Commerce

In 2011 Kevin Kennedy CPA was admitted as a member of the Concord NH Chamber of Commerce

Jan Sorrentino, EA

Jan is a graduate of Hesser College with her Associates Degree in Accounting.  Jan was licensed as an Enrolled Agent as of October 2014.  Enrolled Agents are federally licensed tax practitioners who specialize in taxation and who also have unlimited rights to represent taxpayers before the IRS.  Jan has worked for Maloney & Kennedy, PLLC since January 2001. Jan’s primary focus is on Individual taxation, as well as fiduciary and estate taxation. Jan provides assistance and training to clients on accounting packages and bookkeeping issues including QuickBooks, tax accounting and estate accounting. Jan assists with various New Hampshire Probate Court filings for estates, trusts, and guardianships. Jan also provides first level technical support and trouble shooting for the firm’s internal systems.

Trish Mantone, EA

Patricia “Trish” Mantone has been with the partners of Maloney & Kennedy since 2007.  Trish has been licensed as an Enrolled Agent since March 2016. Enrolled Agents are federally licensed tax practitioners who specialize in taxation and who also have unlimited rights to represent taxpayers before the IRS. Trish is a 1988 graduate of Sanborn Regional High School in Kingston, NH. Trish is a staff accountant and became an Enrolled Agent in 2016. Trish also provides tax preparation and bookkeeping services for clients.  Trish is a member of the National Association of Enrolled Agents.

Rick Maloney Elected Treasurer of BIA

Richard J. Maloney was reelected Treasurer and Director of the Business and Industry Association.  Based in Concord, the Business and Industry Association is New Hampshire’s statewide chamber of commerce and leading business advocate. The BIA represents more than 400 members in a variety of industries, including advanced manufacturing, high technology, professional services, financial services, health care, hospitality and tourism, public utilities, higher education and insurance. Member firms employ 86,000 people throughout the state and contribute $4.5 billion annually to the state’s economy.

Peer Review

We are pleased to announce we have passed our recent peer review.  The New England Peer Review has accepted our report.

Jan Sorrentino becomes Certified Bookkeeper

Jan Sorrentino successfully completed testing to become a Certified Bookkeeper by the American Institue of Professional Bookkeepers.

Maloney & Kennedy Open Concord Office

On January 3, 2012, Maloney & Kennedy, PLLC will open its Concord office at 9 Triangle Park Drive.  See directions.  The firm will be located in the office building housing D’Amante Couser Pellerin & Associates, P.A. and Generations Dental Care.  Laconia Savings Bank is located in an adjacent building.  The Firm looks forward to serving the Concord area community.

Photo to come – Derek Gelineau

Derek is a 2017 graduate of Southern NH University with a Master of Science in Accounting.  Derek is a staff accountant and provides tax preparation and bookkeeping services for clients.

Steven Bouchard

Steven is a graduate of Bentley College, Waltham, MA where he has earned a Bachelor of Science in Finance and an Associate’s Degree in Accounting. With over 20 years experience at State Street Corporation in Boston. Steve will be assisting clients with their tax and accounting needs.

Kevin C. Kennedy Earns CFE Credential

Austin, TX – May 3, 2012 — The Association of Certified Fraud Examiners (ACFE), the world’s largest anti-fraud organization and leading provider of anti-fraud training and education, is pleased to award Kevin C. Kennedy, CPA, CFE, of Chichester, NH, the globally preferred Certified Fraud Examiner (CFE) credential. In order to become a CFE, Mr. Kennedy has met a stringent set of criteria and passed a rigorous exam administered by the ACFE.

Mr. Kennedy has successfully met the ACFE’s character, experience and education requirements for the CFE credential, and has demonstrated knowledge in four areas critical to the fight against fraud: Fraudulent Financial Transactions, Fraud Prevention and Deterrence, Legal Elements of Fraud and Fraud Investigation.

CFEs have the ability to: examine data and records to detect and trace fraudulent transactions; interview suspects to obtain information and confessions; write investigation reports; advise clients as to their findings; testify at trial; understand the law as it relates to fraud and fraud investigations; and identify the underlying factors that motivate individuals to commit fraud. CFEs on six continents have investigated more than 1 million suspected cases of civil and criminal fraud.

Linda Silva

Linda Silva is our office manager, joining Maloney & Kennedy in November, 2010.  Linda comes to us with over 20 years’ experience working in CPA firms.  Her duties include handling all aspects of the business office.  Linda studied Business Management at Hesser College and Kaplan University.

Affordable Care Act: Taxing My Teeth and My Tan? Some Facts vs. Fiction

Article

October, 2013 Blog

OBSERVATIONS

INDIVIDUAL TAX LAW CHANGES: 2013

October 15, 2013 T 2013- 1

The last fiscal crisis resulted in a compromise that was (tongue-in-cheek?) entitled the American Taxpayer Relief Act of 2012. This followed tax changes contained within the Patient Protection and Affordable Care Act (PPACA or Obamacare), numbers 5 and 6 below. The focus of the tax changes were upper income taxpayers and a combination of déjà vu reversions to older laws and entirely new taxes.

1. Personal Exemption: Under the old rules, the personal exemption was phased out for taxpayers with adjusted gross income over $300,000; that rule was suspended for several years, and has now been brought back.

2. Itemized Deductions Reduced by 3% AGI: The old rule is back; itemized deductions are reduced by an amount equal to 3% of adjusted gross income, if the adjusted gross income is over $300,000.

3. Tax Rates: Taxable income over $450,000 will now be subject to a tax rate of 39.6%.

4. Capital Gains (Qualified Dividends): If you are in the 39.6% tax bracket, then the capital gains rate is now back to 20% rather than 15%.

5. High-Income Hospital Insurance Tax (new): There are two Obamacare taxes; one on earned income and one on investments. The earned income tax is an additional 0.9% Medicare tax on earnings over $250,000. It is only assessed on the employee so the company does not have to match the tax. If the wages exceed $250,000, there will be withholding but there is no withholding on lesser amounts. This could be a surprise for married couples that individually earn less than $250,000, and therefore not subject to withholding, but who earn more than $250,000 jointly and therefore will be subject to the tax.

6. Medicare Investment Income Tax (new): This is an additional 3.8% tax on net investment income (interest, dividends, capital gains, and passive income). If the total Modified Adjusted Gross Income (essentially gross income reduced by IRA contributions, alimony, and certain self-employed expenses) exceeds $250,000, then the lesser of net investment income or MAGI over the threshold is taxed at 3.8%.

The biggest surprises will come to individuals with large capital gains, where the tax changes result in a net rate of at least 23.8% (and probably higher). A later article will discuss capital gains in more detail.

The future concern is the two Obamacare taxes. Once a concept is enacted, changing rates and thresholds are just refinements. For now, April of 2014 could be a cruel month for some taxpayers, mixing memory of lower tax rates with the desire for a better economy.

RJM

*References: The Waste Land. T.S. Eliot 1922.

*All discussions assume taxpayers filing joint tax returns; single, married filing separate and head of household taxpayers may have different rates and/or limitations.

*IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Download the pdf

Kevin C. Kennedy presents at Tax Forum

Kevin C. Kennedy, CPA, CFEOn November 18, 2013, Kevin C. Kennedy, CPA, CFE presented at the University of New Hampshire’s 34th Annual Tax Practitioner Institute. Kevin covered tax information on the Affordable Care Act. Pictured at right is Kevin along with presentor Anthony L. Olson, CPA/PFS.

December, 2013 Blog

OBSERVATIONS

 MASTER LIMITED PARTNERSHIPS (MLPs)

 December 11, 2013 

T 2013-2

 Master Limited Partnerships (MLPs), also known as Publicly Traded Partnerships (PTPs) have become popular investment vehicles in recent years.  They are a refinement of the limited partnerships (Shelter LPs) that were in vogue in the tax shelter era of the 1970s.  The following discussion addresses the tax implications of MLPs and is subject to the prime directive that investments should be evaluated as investments first, and then consideration should be given to the tax issues as a refinement to that analysis. 

Unlike the Shelter LPs, MLPs trade like stocks on pubic exchanges, are priced like stocks (i.e. not in terms of thousands of dollars per units), and usually own operating businesses rather than real estate.

Unlike stocks, however, MLPs are subject to an entirely different tax structure and this gives rise to the complications of owning MLPs.  MLPs operate within the partnership tax rules, which were first enacted in the simpler days of local businesses and professional firms operating in partnership format.  Thus, today’s MLPs operate under tax rules that really are a suit made for a thinner and shorter person.  Add the complexity of the passive loss rules and you have tax reporting that is a quantum leap from that associated with stock ownership. 

First, MLPs do not pay tax; the partners pay tax on their pro rata share of the partnership income.  As an economic concept, this is a plus (avoiding the double layer of taxes in the corporation/shareholder relationship).  But this is where complications start.  Under the partnership rules, the partnership activity must be ‘separately stated’, i.e. unlike a corporate dividend, where the income is one number, reported as a dividend,  partnerships report the activity on a Schedule K-1 (copy attached).  Therefore, operating income (or loss) is reported on Schedule E (either page 1 or page 2, depending on the type of activity), interest and dividend income on Schedule B, credits on the applicable credit schedule, etc.

Second, operating losses and real estate losses in turn are subject to the passive loss restrictions, which means that, generally, the losses are not deductible until there are items of passive income or until the investment is sold.   Curiously, passive losses for non-public partnerships are reported on the tax return and tracked as a carry forward; however, MLP losses are not reported and therefore must be tracked on separate work papers.

Third, MLP distributions are not subject to tax (unless the distribution exceeds the remaining basis).  In many cases, that means that investors receive tax deferred (not tax free) distributions. On the other hand, if distributions exceed basis, then income is recognized.

Fourth, when the MLP is sold, the difference between the sales price and the basis will be taxable gain.  Now we arrive at a complication.  The amount of cost basis reported on the brokerage statement is in fact not the real basis.  For an MLP unit, the cost basis is increased by any income reported to the partner, but reduced by any losses, deductions or distributions.  However, these amounts are not tracked by the brokerage firm.

All of this means that when an MLP unit is sold,   the basis must be recalculated to determine the gain or loss, and how much is capital gain and how much is ordinary gain.  On the other hand, the suspended losses (see above) that have floated in the background now become deductible.

Fortunately, some of the information is usually available at the MLP’s website; log onto the website, enter the taxpayers Social Security Number, and the underlying tax data is reported.   The  other will have been maintained by the tax return preparer.  Nonetheless, there will be a significant amount of information to be inputted to cover all the tax bases.

With MLPs, as with any investment, the first question is the investment quality.  Once the investor is comfortable with the MLP as an investment, consider the tax ramifications.  The fact that the MLPs do not pay taxes is, economically, an additional advantage.  The caveat is the cost of dealing with  tax complexity and the taxes due at sale. 

RJM

 *IRS CIRCULAR 230 DISCLOSURE:  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 

  

Download pdf version : Blog T 2013 2

Jan Sorrentino, EA

The certified public accounting firm of Maloney & Kennedy, PLLC in Auburn, NH, is pleased to announce that Janeen A. Sorrentino of Manchester, NH is now an Enrolled Agent. Enrolled Agents are federally licensed tax practitioners who specialize in taxation and who also have unlimited rights to represent taxpayers before the IRS. Jan is a graduate of Hesser College with her Associates Degree in Accounting.  She has been employed with Maloney & Kennedy, PLLC since 2001.

Jan is a member of the National Association of Enrolled Agents.

Jan is a member of the Manchester Young Professionals Network.

Jan ’s primary focuses are in tax preparation, planning and representation for both business and individual clients.

Welcome Steven Bouchard

Maloney & Kennedy, PLLC is pleased to announce and welcome Steven P. Bouchard of Hooksett  as its newest staff accountant.  He will be assisting clients with their tax and accounting needs.

Steven is a graduate of Bentley College, Waltham, MA where he has earned a Bachelor of Science in Finance and an Associate’s Degree in Accounting.  With over 20 years’ experience at State Street Corporation in Boston, Steve most recently was a senior financial accounting manager.

Richard J. Maloney Helps Prove Motive in Murder Case

Recently, Richard J. Maloney appeared on the TV documentary series “Snapped”. This episode was aired on July 26, 2015 on the Oxygen Network.   The show recounted the Diane Saunders case (State of New Hampshire vs. Saunders) involving a murder in Dover in 2010. Rick served as an expert witness for the prosecution. This show recounted how a contractor’s murder led to a second death and three arrests. Rick was an integral part of the prosecution to convict Saunders by conducting a financial analysis and testifying proving that money was the motive in this murder. Episode S15/EP9 can be viewed from the Oxygen website.

Jessica Parasco earns her CPA

Maloney & Kennedy, PLLC  is proud to announce that Jessica Parasco has earned her Certified Public Accounting License (CPA) from the State of New Hampshire. A CPA license is the accounting profession’s highest standard of competence, a symbol of achievement and assurance of quality.

Join us in congratulating her.

Trish Mantone is an Enrolled Agent

Maloney & Kennedy, PLLC  is proud to announce that Trish Mantone is an Enrolled Agent (EA).

Join us in congratulating her.

Kevin C. Kennedy, CPA, CFE scheduled to speak at upcoming seminar

Kevin will present during the Advanced Issues in Family and Divorce Law seminar.  Scheduled for June 14 & 15, 2016 at the Executive Court Banquet Center, Manchester, NH.  Check out the link for registration information. http://www.nbi-sems.com/Details.aspx/R-72012ER%7C?ctname=SPKEM

Information for Taxpayers on Tax-Related Identify Theft: 2016

OBSERVATIONS

 

Information for taxpayers on Tax-Related Identity Theft: 2016

 

June 27, 2016

The rate of tax related identity theft crimes has significantly increased over the past several years. Below are answers to several common questions regarding tax related identity theft and how it affects individuals.

What is identity theft and how does it affect my taxes?

This is when someone uses your social security number and files a fraudulent tax return to generate a refund. This is typically done early on during the tax filing season. You will not be able to E-file your tax return because the IRS will determine your legitimate return as a duplicate filing under the same social security number. Any tax refund will be delayed.

How do I know if I am a victim?

You will not know this is an issue until you attempt to file your own tax return. Other ways that you may find out you are a victim is by the delay in your refund. You may receive correspondence from the IRS indicating that you already have a return filed, your refund is different or you owe money. You may also receive a notice from the IRS indicating that they received a suspicious return and would like to confirm whether or not the return is legitimate before they process the return.

What can I do to protect myself from becoming a victim?

There are many ways scammers attempt to retrieve your personal information. The ways to help keep your information safe is:

  • Do not respond to emails or mail that look suspicious.
  • Do not respond to emails from the IRS. They will always contact you by mail first.
  • Never give your information over the phone unless you have initiated the call and you have verified the party whom you are speaking.
  • You should keep all personal documents containing social security numbers safe and never carry them with you.
  • You can obtain a PIN from the IRS to prevent others from e-filing a tax return under your social security number.
  • Check your credit reports annually.

I am a victim, what do I do now?

The IRS has compiled a list of actions you can take if you find you are a victim.

  • Call the IRS and inform them that you believe you are a victim as soon as possible at the IRS Identity Protection Specialized Unit at 1-800-908-4490. They will place an identity theft indicator on your account.
  • File Form 14039, IRS Identity Theft Affidavit to explain to the IRS your particular situation and how you have become aware.
  • Apply for PINS with the IRS to help prevent fraudulent filings with the IRS at http://www.irs.gov/Individuals/Electronic-Filing-PIN-Request.
  • Contact one of the three credit bureaus to place a fraud alert on your credit file.
  1. Equifax 1-800-525-6285
  2. Trans Union 1-800-680-7289
  3. Experian 1-888-397-3742
  • Review your credit report for any activity you cannot explain.
  • File a police report with your local station for identity theft or with their cyber-crimes unit.
  • File a complaint with the Federal Trade Commission online at https://www.identitytheft.gov/ or by phone at 1-877-438-4338.

 

BIA Meet the Legislature

Kevin Kennedy, CPA, CFE, attends the Business Industry Association Meet the Legislature

Governor’s Inaugural Ball

Jan Sorrentino, EA, attends the Governor’s Inaugural Ball

Jan Sorrentino, EA, Appointed To Enrolled Agent (EA) Board

Join us in congratulating Jan Sorrentino, EA, in her appointment to the Board of Directors of the Northern New England Society of Enrolled Agents.

Jan is a Director at Large, with her term beginning on July 1st, 2017.

 

 

http://www.nnesea.org/

 

 

 

 

 

 

 

 

 

 

NEW PARTNERSHIP AUDIT RULES

NEW PARTNERSHIP AUDIT RULES

 Beginning 2017, partnerships are subject to new IRS audit rules as a result of the Bipartisan Budget Act of 2015. Owners of partnerships/LLCs should review these new audit rules and consult with their attorneys to update their operating agreements.

I.  Historically

a.  Partnerships were audited at the partner level and not the partnership level because partnership net income was reported by and paid by the individual partners and not the partnership directly, unless an election was made by the partnership.

b.  If there were adjustments to a partnership return because of an IRS audit, the partners were then responsible to update their individual returns and address any underpayment.

c.  However, partnerships with more than 10 partners were audited under the “TEFRA” procedures in which the IRS audits a partnership and passes on assessments to each individual partner who was a partner for the reviewed year.

II.  New Rules

a.  These new procedures are effective for taxable years beginning January 1, 2018.

b.  Generally, the new rules require audit adjustment of all items of income, gain, loss, deduction, or credit at the partnership level, with the partnership liable for any resulting underpayment of tax.

c.  Additional taxes, as well as penalties and interest, arising from an audit are payable by the partnership. The adjustment is referred to as an “imputed underpayment” amount.

d.  If the IRS determines there is an imputed underpayment, the amount is generally calculated by netting all adjustments for the reviewed year and multiplying the net amount by the “highest rate of tax in effect for the reviewed year under section 1 or 11” (i.e., the highest individual or corporate rate).

e.  There are three problems with this approach:

i.  Individual partners may not be taxable at the highest rate;

ii.  The partnership ends up paying the partner’s tax liability; and,

iii.  Partners in the tax year may no longer be partners when there is an audit.

III. Alternatives to having the partnership pay the underpayment include:

a.  Small partnership elect out

i.  Audits will be conducted on the individual partner level.

ii. The election must be made annually.

iii.  A small partnership is defined under the Act as having:

1.  No more than 100 partners;

2.  Can only have individuals, corporations, S corporations, foreign entities taxable as a C corporations and estates are eligible partners for this test; and,

3.  Meaning if one of the partners is another partnership, the partnership is not eligible to elect out.

b.  Push Out/Pass through election

i.  Audit adjustments taken into account by the partners who were partners during the reviewed year.

ii.  Each partner is required to include the audit adjustments in the year in which the audit concludes (i.e. not an amended return).

iii.  A partnership may elect:

1. Within 45 days after notice of adjustment

2.  To furnish each partner in the reviewed year a statement of the partner’s share of the adjustment,

3.  Who are then responsible for reporting the adjustment in the year of the review (meaning not amending a prior year return but reporting the adjustment in the current year), and

4.  The payment of the tax in the year of adjustment.

iv.  If the push-out election is made, the applicable underpayment interest rate is increased by two percent.

c.  Amended K-1s for partners

i.  A partnership may elect to issue amended K-1s to each partner, who was a partner for the reviewed year, incorporating the partnership audit adjustments.

ii.  Then:

1. If a partner files an amended tax return and

2. Pays the taxes within 270 days of the partnership receiving notice of a proposed partnership adjustment, then

3.  Such amount would be deducted from the amount the partnership owes at the entity level.

IV.  Partnership Representative.

a.  Tax matters partner is replaced with a “partnership representative” under the Act. The partnership representative:

i.  Has exclusive authority to represent the partnership in an IRS audit.

ii.  Does not have to actually be a partner in the partnership.

iii.  Is required to have a “substantial presence” in the United States.

iv.  Has more power than the tax matters partner and can bind partners to a settlement with the IRS without their input or consent.

V.  Other provisions of the new law

a.  No statutory requirement under the new rules to notify partners that an audit has commenced.

b.  Partners have no statutory rights to participate in a partnership audit.

c.  Certain partnerships are eligible to apply new audit rules prior to January 1, 2018.

VI.  Potential adjustments to partnership/LLC agreements

a.  Permit the partnership to pay the tax

i.  This may require partners to make contributions; or,

iii.  Take on debt.

b.  Determine Push Out Adjustment in case of audit (effects the current partners), or

c.  Determine if Amended returns would be filed by partners/partnership (partners of the reviewed year effected).

d.  Require the partnership representative to provide notice to the partners regarding any material tax audits.

e.  Require the partnership representative to consult with the partners during the course of an audit.

We can work with partnerships and their counsel to amend partnership/LLC agreements to adjust to these new tax rules.

 

Maloney & Kennedy, PLLC

Small Business Day

Kevin Kennedy, CPA, CFE, will speak at the Twelfth Annual Small Business Day  on tax issues that impact small businesses. This event is coordinated by the Business and Industry Association of New Hampshire in partnership with the New Hampshire Division of Economic Development and the New Hampshire Small Business Development Center. Small business owners from across the state are invited and the event will be an opportunity for business owners and managers to learn how to help their companies to advance.

Small Business Day will take place at The Holiday Inn, 172 North Main Street, in Concord, New Hampshire. Please visit http://web.biaofnh.com/events/Twelfth-Annual-Small-Business-Day-282/details for information on registrations and to view a preliminary agenda.

 

Maloney & Kennedy, PLLC

BIA’s Twelfth Annual Small Business Day

Kevin Kennedy, CPA and Partner at Maloney & Kennedy, PLLC, participates in the BIA’s Twelfth Annual Small Business Day on February 10, 2017, at the Holiday Inn in Concord, New Hampshire. Kevin was part of a four team panel who discussed Taxing Issues for Small Businesses.  The discussion addressed a multiple of issues including state apportionment, new partnership audit regulations, company benefits and the Affordable Care Act.  They discussed recent state and federal tax changes affecting the small business community and responded to questions on taxes impacting individual businesses.

Information for Taxpayers on Tax-Related Identify Theft: 2017

OBSERVATIONS

February 22, 2017

 

The rate of tax related identity theft crimes has significantly increased over the past several years. Below are answers to several common questions regarding tax related identity theft and how it affects individuals.

What is identity theft and how does it affect my taxes?

This is when someone uses your social security number and files a fraudulent tax return to generate a refund. This is typically done early on during the tax filing season. You will not be able to E-file your tax return because the IRS will determine your legitimate return as a duplicate filing under the same social security number. Any tax refund will be delayed.

 What is the IRS doing to protect me from becoming a victim?

 The IRS is comparing W-2s to the employer W-3s filed with the Social Security Administration to make sure that the information matches up. If it does not match or other information appears to be missing then you will receive one of the two following notices:

  • LTR12C: This states that the IRS has received your December 31, 2016 Form 1040 or Form 1040EZ federal individual income tax return, but that more information is needed.
  • LTR4883C: This states that the IRS has received your federal income tax return, Form 1040, for the tax year specified on the form, and that it includes your name and social security number. The letter indicates that to protect you from identify theft, they need to verify your identify before the return is processed.

If the IRS does not detect it, how will I know I am a victim?

You will not know this is an issue until you attempt to file your own tax return and find that your return is rejected due to a duplicate filing.

Other ways you may find out:

  • You owe additional tax, have had a refund offset, or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received wages from an employer unknown to you.

What can I do to protect myself from becoming a victim?

There are many ways scammers attempt to retrieve your personal information. The ways to help keep your information safe is:

  •  Do not respond to emails or mail that look suspicious.
  • Do not respond to emails from the IRS. They will always contact you by mail first.
  • Never give your information over the phone unless you have initiated the call and you have verified the party whom you are speaking.
  • Keep all personal documents containing social security numbers safe and never carry them with you.
  • Obtain an identity protection PIN from the IRS to prevent others from e-filing a tax return under your social security number.
  • Check your credit reports annually.
  • Do not email personal documents or information unless they are secured.

I am a victim, what do I do now?

The IRS has compiled a list of actions you can take if you find you are a victim.

  • Call the IRS and inform them that you believe you are a victim as soon as possible at the IRS Identity Protection Specialized Unit at 1-800-908-4490. They will place an identity theft indicator on your account.
  • File Form 14039, IRS Identity Theft Affidavit to explain to the IRS your particular situation and how you have become aware.
  • Contact one of the three credit bureaus to place a fraud alert on your credit file.

Equifax 1-888-766-0008

Trans Union 1-800-680-7289

Experian 1-888-397-3742

  • Review your credit report for any activity you cannot explain.
  • File a police report with your local station for identity theft or with their cyber-crimes unit.
  • File a complaint with the Federal Trade Commission online at https://www.identitytheft.gov/ or by phone at 1-877-438-4338.
  • Request a redacted copy of the fraudulent return by filing Form 4506-F, Request for Copy of Fraudulent Tax Return, with the IRS. You can acquire the form by visiting www.irs.gov/form4506f.

Jan Sorrentino, EA, Appointed to Board of Directors for NNESEA

Join us in congratulating Jan Sorrentino, EA, in her appointment to the Board of Directors for the Northern New England Society of Enrolled Agents.

Jan is a Director at Large, with her term beginning on July 1st, 2017.

Welcome

INCOME DEFINED FOR CHILD SUPPORT

 

July 12, 2017

New Hampshire courts continue to address different issues related to the calculation of self-employment income for child support purposes.

In a recent 3JX order (Makris[1]), the Supreme Court addressed two issues involving the calculation of income to be used for child support purposes: capital gains and depreciation. The bulk of the opinion actually addressed another issue, the effective date of a recalculated child support order.  However, the income calculation issue could have broader implications.

The Court quickly affirmed its prior holdings that capital gains are income for child support purposes (citing Maves/Moore[2]).  However, the Court then dealt with the more subtle issue of the interplay of capital gains and depreciation.

The trial court had used the capital gain as reported on the father’s tax return to determine the amount of income available for child support purposes. However, the father argued that the capital gain was calculated on the tax return using the tax basis, which had been reduced by depreciation in prior years. In determining income for child support in prior years, the trial court had disallowed depreciation as an expense. The father argued, and the Court agreed, that to treat the gain attributable to the prior depreciation (“depreciation recapture”) would double count income. The deduction had been disallowed (thus increasing income) in year of occurrence, but allowed to reduce basis (increasing capital gains) in the year of the sale.

A primer on depreciation:  Unfortunately, courts have various approaches to depreciation, which is understandable given the ever changing and arbitrary rules of the Internal Revenue Code.[3] The economics can be illustrated as follows:

Assume a piece of equipment is purchased for $100,000 with a loan to be paid over 5 years at $20,000 per year in principal payments. The annual rental income generated from that equipment is $30,000 and the equipment is depreciated on an accelerated basis. In a given year, the net income and the net cash will differ.

Year Income Depreciation Loan Principal Net Income Net Cash
1 $         30,000 $         (40,000) $         (20,000) $       (10,000) $       10,000
2 $         30,000 $         (30,000) $         (20,000) $             – $       10,000
3 $         30,000 $         (10,000) $         (20,000) $         20,000 $       10,000
4 $         30,000 $         (10,000) $         (20,000) $         20,000 $       10,000
5 $         30,000 $         (10,000) $         (20,000) $         20,000 $       10,000
Total $       150,000 $       (100,000) $       (100,000) $         50,000 $       50,000

Arguably, the net income will be different each year but if the same standard is applied, over time the total will be the same.

The Court did not expressly accept or reject the add back of depreciation in calculating income in Makris; the issue was consistency. Along the way, the Court made two interesting observations:

  1. The relevant inquiry is whether the income is available to pay child support (citing the Albert case[4]).
  2. Calculating a parent’s ability to pay child support requires the deduction of legitimate business expenses (citing the Woolsey case[5]).

Albert stands for the proposition that income from a partnership or S Corporation is income for child support purposes but that the calculation of the income is made under New Hampshire domestic relations law, not tax law.  In Albert, the income reported exceeded the cash available because the underlying asset had been depreciated on a more rapid basis than the mortgage payment so now the depreciation expense was smaller than the mortgage payment. The implication is that depreciation should be disregarded; however, debt payment should also be a factor in calculating available income.

In Woolsey, the Court required that deductions be “actually incurred and paid,” as well as “reasonable and necessary for producing income”.

With Makris, the Court implicitly restates that, in calculating income, depreciation could be disregarded as an expense under the Woolsey standard of income. Additionally, capital gain is income for child support purposes. When an asset is sold, the gain is the difference between sales price and the basis, i.e. cost of the property. However, if the asset sold was depreciable property, the cost basis for tax purposes was reduced by the depreciation deduction. This depreciation is recaptured, to the extent of gain.

Going back to the example on page 2, if the asset were sold for $120,000 in year 6, the gain would be $120,000 of which $100,000 would be depreciation recapture and $20,000 would be the capital gain. Because, under the New Hampshire child support standard as applied in Makris, the depreciation expense was not a reduction of income, the capital gain income attributable to the depreciation recapture is likewise not income.

The Makris fact pattern appears to be relatively straight forward.  However, there are possible complications:

  1. What if the depreciation was deducted prior to the divorce and thus never a factor in calculating child support?
  2. What if child support had in fact been calculated by allowing a deduction for depreciation; presumably the gain attributable to depreciation would not be a double count.
  3. What if child support had been calculated by adjusting both the depreciation deduction and actual debt payments?
  4. What if the gain exceeds the available cash, e.g. the asset had been used as collateral for a refinancing loan and the sale proceeds were used for family expenses (e.g. to pay off a home mortgage); the subsequent sale of the asset generates income but the sale proceeds/income must repay the refinanced loan?

Whatever the theoretical issues, it is clear that counsel will need to have a grasp of the accounting and tax details to provide guidance to the trial court. Moreover, in cases involving long term child support, these details may need to be tracked for a long period of time.   Undoubtedly, this is an area that will have further developments in the future.

Richard J. Maloney, CPA, ABV                                       Kevin C. Kennedy, CPA, CFE                                      Jessica L. Parasco, CPA

 

[1] Case No. 2016-0505, In the Matter of Sonya J. Makris and Paul B. Makris, decided June 28, 2017

[2]  In the Matter of Maves & Moore, 166 N.H. 564, 567 (2014)

[3]  In Maves/Moore, the Court referred, in passing, to depreciation as one of the “…expenses that were not necessary for producing income…”  ibid. at page 569

[4] In the Matter of Albert & McRae, 155 N.H. 259 (2007)

[5] In the Matter of Woolsey & Woolsey, 164 N.H. 301 (2012)

NEW PARTNERSHIP AUDIT RULES

August 25, 2017

 

Beginning in 2018, partnerships are subject to new IRS audit rules as a result of the Bipartisan Budget Act of 2015. The good news is that these rules can be avoided; the bad news is that this requires affirmative action by the partnership.

Historically, when partnerships with fewer than 10 partners were audited, the tax adjustments were made at the partner level. If there were adjustments to a partnership return because of an IRS audit, the IRS would then adjust the individual returns of the partners.

Under the new rules (effective for taxable years beginning on or after January 1, 2018), the audit adjustment of all items of income, gain, loss, deduction, or credit are made at the partnership level, making the partnership liable for any resulting underpayment of tax instead of the individual partners. The net change in income is taxed at the highest individual or corporate rate.

There are three problems with this approach:

    1. Individual partners may not be taxable at the highest rate;
    2. Partnership assets are used to pay the tax liability; and,
    3. Partners at the time of audit may not have been partners when the activity took place.

There are relief opportunities: A “small partnership” can affirmatively elect out of these rules annually with the filing of the partnership tax return, in which case the existing rules will apply (audits will be conducted at the individual partner level). A small partnership is generally defined as having no more than 100 partners, none of which is another partnership.

In addition, partnerships subject to an audit can seek to mitigate the imposition of the highest individual or corporate tax rate on any imputed underpayment through the following processes:

  1. Push Out/Pass through election
    • Audit adjustments taken into account by the partners who were partners during the reviewed year.
    • The partnership must notify partners within 45 days after notice of adjustment is received from the IRS
    • Each partner is required to include the audit adjustments in the year in which the audit concludes (i.e. not an amended return).
    • The normally applicable underpayment interest rate for such partner is increased by two percent, and penalties may apply.
  2. Amended Schedule K-1s for partners
    • Issued to each partner, who was a partner for the reviewed year,
    • If a partner files an amended tax return and pays the taxes within 270 days of the partnership receiving notice of a proposed partnership adjustment, then such amount would be deducted from the amount the partnership owes at the entity level.

Another significant change resulting from the new rules is the replacement of a “tax matters partner” with a “partnership representative”. The IRS will select a partnership representative if the partners fail to make an appointment, which would be binding upon a partnership. The partnership representative:

  1. Is the only person that will receive any notice from the IRS.
  2. Has exclusive authority to represent the partnership in an IRS audit.
  3. Does not have to actually be a partner in the partnership.
  4. Is required to have a “substantial presence” in the United States.
  5. Has more power than the tax matters partner and can bind partners to a settlement with the IRS without their input or consent.

Other provisions of the new law:

  1. No statutory requirement under the new rules for the IRS or the partnership representative to notify other partners that an audit has commenced.
  2. No statutory rights for any partner other than the partnership representative to participate in a partnership audit.
  3. Certain partnerships are eligible to apply new audit rules prior to January 1, 2018.

The IRS is currently in the process of issuing additional guidance relating to the imposition of these changes. In light of these new rules, we strongly recommend that all partnership and limited liability company agreements be reviewed to confirm whether they are in line with the intent of the partners, and if necessary, be amended to elect out of the new rules and provide appropriate guidance and procedures if an election is inadvertently overlooked, including the designation of a partnership representative and the imposition of any requirements for it to provide partners with notice or obtain consent. In addition, it is important to consider these rule changes in the event of any partnership changes, including the addition of any new partners.

Special thanks to Attorney Timothy Condon for his review and comments.

Richard J. Maloney, CPA, ABV                                        Kevin C. Kennedy, CPA, CFE                                      Jessica L. Parasco, CPA

Equifax Data Breach

 

September 26, 2017

 

The data breach of Equifax exposed approximately 143 million American consumer’s sensitive personal information. Equifax is one of the major credit agencies in the United States and has information on most adult Americans, even if they do not know it.

Equifax indicated the breach took place from May through July. The information that was accessed included: names, Social Security numbers, birth dates, addresses, driver’s license numbers and some credit card information. However, this is an evolving story with new information being disclosed on an almost daily basis.

The Attorneys General in many states have filed a class-action suit against Equifax (including New Hampshire). The suits claim that Equifax was negligent in their security and delayed their disclosure of the breach. The delay caused harm in consumers from further protecting themselves related to any potential fraud. At this time we have no information on what the class action suit may mean for consumers seeking protection. Equifax has provided free credit monitoring services related to the breach. Initially, Equifax had a provision that prohibited individuals from participating in legal action if they utilized the credit monitoring service. After backlash, this provision was removed.

The Federal Trade Commission, FTC, has suggested steps that you should take to keep your information from being misused after a data breach, which include:

  1. Check your credit reports for free by visiting www.annualcreditreport.com.
  2. Consider placing a credit freeze on your account (however, remember that you may need access to credit).
  3. Monitor your existing credit cards and bank accounts closely.
  4. Consider placing a fraud alert on your account.
  5. Utilize existing credit monitoring services you are currently enrolled in.
  6. File your taxes early for 2017.

You can check to see if you were affected:

  1. Visit Equifax’s website, www.equifaxsecurity2017.com.
  2. Click on “Potential Impact” tab and enter your last name and last six (6) digits of your social security number. (Please make sure that you are using a secure computer any time you enter your social security number.)
  3. You must enroll on their site by November 21, 2017 to receive the free credit monitoring for one year.

For more information please visit:

  1. Federal Trade Commission, at https://www.consumer.ftc.gov/topics/identity-theft;
  2. Equifax Security, at www.equifaxsecurity2017.com.

Richard J. Maloney, CPA, ABV                                        Kevin C. Kennedy, CPA, CFE                                      Jessica L. Parasco, CPA

Repeal of Alimony Deductions for Paying Spouse via the Tax Cuts and Jobs Act

November 3, 2017

The House Ways and Means Committee Chairman Kevin Brady (R-TX) released the proposed Tax Cuts and Jobs Act. This bill details the various proposed changes to overhaul the Internal Revenue Code. However a few key changes may influence divorce negotiations and should be discussed with clients that are closer to finalizing their divorces. Although these are proposed changes and have not yet passed, it is best to discuss these potential changes in the tax law.

The most notable change for divorcing clients is the repeal of Alimony deductions for the paying spouse. Under the current law the spouse paying alimony gets a deduction and the spouse receiving alimony reports it as income. Under the proposed provisions the alimony would no longer be a deduction to the spouse paying and the spouse receiving alimony would not report it as income. This proposed change is for any divorce decree or separation agreement executed or modified after 2017. There may be other issues as a result of this proposed change such as IRA deductibility, tax credits and limitations, issues with applications for loans and or other financial support including education costs, medical and mortgages and potentially other non-tax issues.

Other notable changes that may influence divorcing clients in negotiations are reforms to deductions and exemptions.

  • Changes to the standard deduction:
    • Increased the standard deductions for Single individuals from $6,500 to $12,000.
    • Individuals Married filing joint returns from $13,000 to $24,000.
    • Single individuals with a qualifying child increase the Head of Household standard deduction from $9,550 to $18,000. Additional children do not increase this deduction.
  • The personal exemptions will be eliminated with the increases to standard deductions.
  • Enhancement of the child tax credit and new family tax credits. Increased child tax credits and new non-child dependents credits.
  • Repealed of several itemized deductions.
  • Changes in exclusion of gain from sale of principal residence.

Given the uncertainty of the potential issues with the proposed tax changes, we encourage you to advise your client to consider the potential impact of these changes should they become law and seek professional assistance as needed.

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE       Jessica L. Parasco, CPA          Janeen A. Sorrentino, EA

Tax Reform – Tax Cuts and Jobs Act H.R. 1

November 6, 2017

The House Ways and Means Committee Chairman Kevin Brady (R-TX) released the Tax Cuts and Jobs Act. This bill details the various cuts and changes to overhaul the tax code. The last major tax overhaul was done 31 years ago.

Some key highlights to the proposed bill are as follows.

Individuals – Reform to tax rates, deductions and exemptions:

  • Reduce the number of tax brackets from seven (7) to four (4).
  • Reduces the tax by increasing the level of income allowed in lower brackets.
  • Increase the standard deductions for Single individuals from $6,500 to $12,000 and Individuals Married filing joint returns from $13,000 to $24,000. Single individuals with a qualifying child increase the Head of Household standard deduction from $9,550 to $18,000.
  • The personal exemptions will be eliminated.
  • Eliminates the above the line deductions for alimony, medical expense, student loan interest and moving deductions.
  • Overhauls itemized deduction eliminating mortgage interest on a second home, state and local income or most sales taxes, casualty losses, and medical expenses.
  • Reduces the itemized deductions for interest deductions on newly purchased homes
  • Caps real estate taxes at $10,000.
  • Reduce tax rates on pass-through business entities to 25%.
  • Overhauls the education deductions and credits to a more simplified credit.
  • Repeals the Alternative Minimum Tax.
  • Changes in eligibility from exclusion of gain on sale of a principal residence.
  • Double the exemption for estate tax.
  • Maintains retirement programs such as 401(k)s and IRAs.

Business Tax Reform

  • Reduce the corporate tax rate from 35% to 20%.
  • Reduce tax rates on pass through business entities to no more than 25%.
  • Establishes safe guard to distinguish individual wage income and “pass – through” business income.
  • Allows for immediate write off for the cost of new equipment.
  • Protects the write off of interest on loans for small businesses.
  • Preserves the Research and Development Tax Credits.
  • Reduces US taxes of foreign earnings.
  • Allow for easier and less costly repatriation of foreign earnings.

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE        Jessica L. Parasco, CPA         Janeen A. Sorrentino, EA

Kevin Kennedy Presents at the 35th Annual New Hampshire Tax Forum

Kevin C. Kennedy, CPA, partner at Maloney & Kennedy, PLLC joined Peter M. Colbath, M.S., CPA, of the NH Department of Revenue Administration in presenting the New England States Tax Update at the 35th Annual New Hampshire Tax Forum.   This is a continuing education seminar for CPAs and Attorneys sponsored by the New Hampshire Society of CPAs and the New Hampshire Bar Association.

Kevin and Peter covered a variety of the more significant updates from the states of New Hampshire, Massachusetts, Maine and Vermont including information on tax law changes, recent developments on nexus and apportionment, Department of Revenue initiatives, tax processing updates, e-filing updates and updates on other existing issues.   The seminar was held in Manchester and attended by 160 CPAs and Attorneys.

Congratulations to Jan Sorrentino – Elected NH Director of the NNESEA!

Join us in congratulating Janeen Sorrentino on her election as New Hampshire Director on the Northern New England Society of Enrolled Agents (NNESEA). Jan was elected in December of 2017 for a two year term to commence in June of 2018 and to expire in June of 2020.

An enrolled agent is a federally licensed tax practitioner who can represent tax payers before the IRS. NNESEA is the Northern New Hampshire branch of the National Association of Enrolled Agents, an organization providing a network and educational opportunities, as well as other programs and services, to enrolled agents.

Congratulations to Trish Mantone – Elected Secretary of the NNESEA!

Join us in congratulating Trish Mantone on her election as Secretary to the Northern New England Society of Enrolled Agents (NNESEA). This is an officer position that carries a term of one (1) year and expires in 2019.  She will officially take her seat as secretary in June 2018.

An enrolled agent is a federally licensed tax practitioner who can represent tax payers before the IRS. NNESEA is the Northern New Hampshire branch of the National Association of Enrolled Agents, an organization providing a network and educational opportunities, as well as other programs and services, to enrolled agents.

Tax Reform – Tax Cuts and Jobs Act H.R. 1

December 6, 2017

The Senate has passed its version of the Tax Cuts and Jobs Act. This bill details the various cuts and changes to overhaul the tax code and has some significant differences from the bill passed by the House. A Conference Committee will reconcile the differences and each chamber will then vote.

To see the key differences between the House and Senate, as compared to current law, please follow this link to our full blog:  Proposed GOP 2018 Senate passed Tax Cuts and Jobs Act

 

 

Repeal of Alimony Deductions for Paying Spouse via the Tax Cuts and Jobs Act

 

December 19, 2017  

An update to our blog of November:

Congress is set to pass the Tax Cuts and Jobs Act this week.  Over the weekend, Congress released the Joint Explanatory Statement of the Committee of Conference (all 570 pages), which provided detail of the final proposed legislation. Three proposals will directly impact divorcing parties.

  1. Alimony: Effective for divorce decrees dated on or after January 1, 2019, payors will no longer be able to deduct alimony payments and alimony payments will not be taxable to the recipients. This obviously impacts the economics of divorce planning.
  2.  Child Exemptions: Effective for tax years beginning on January 1, 2018, there are no more personal exemptions. Therefore, the right to claim an exemption for a child (including students under age 24) is moot.
  3.  Child Tax Credit: Effective for tax years beginning on January 1, 2018, the child tax credit is increased from $1,000 to $2,000 per qualifying child. The phase out threshold is increased to adjusted gross income of $400,000 for married couples and $200,000 for all other taxpayers. Present law phase out amounts are $110,000 for married couples, $75,000 for single taxpayers and $55,000 for married filing separately.

A qualifying child generally must be under the age 17, have a certain relationship to taxpayer (child, grandchild, nieces, nephew, etc.), and live in the same house for more than half of the year. However, there is a special rule in the case of divorced or separated parents. The custodial parent may sign a written declaration giving the ability to claim a qualifying child to the non-custodial parent.

Once the legislation is passed, it will take time to digest the details. Additionally, there will be Treasury Regulations which will provide additional details.  However, it is clear that the tax aspects of divorce law have changed significantly.

 

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE       Jessica L. Parasco, CPA          Janeen A. Sorrentino, EA

 

Kevin Kennedy Named Treasurer to the NH Association of Certified Fraud Examiners

On Wednesday, December 2oth, at the Annual meeting of the New Hampshire Association of Certified Fraud Examiners, Kevin C. Kennedy was named Treasurer.  The new board members are seen here and include:

Wayne Geher, President
Nancy Cavalieri, Vice President
Kevin Kennedy, Treasurer
Joanne Stratoti, Secretary
Kevin Bannon, Director at Large
Diane Withee, Director at Large
Debbie Noury, Director at Large
Shirley Bhutto, Director at Large/Web Management

Dependents, Exemptions, and Credits via the Tax Cuts and Jobs Act

January 17, 2018

The new Tax Cuts and Jobs Act has significantly reworked the tax treatment of dependents.

    1. Child Exemptions: The statute was kept in place but a new subsection was added that defined the exemption amount as zero. The significance is in the case of non-married parents, the definition of dependent stays in place with the provision that the parent with more than 50% custodial time may claim the exemption and the Child Tax Credit. A written release of the dependency exemption from the custodial parent to the non-custodial parent will still be required to release the exemption for the credit.
    2.  Child Tax Credit: The Child Tax Credit (CTC) is increased from $1,000 to $2,000 per Qualifying Child. A Qualifying Child must be under 17 and reside more that 50% of the time with the parent (subject to the release noted above). The CTC is refundable up to $1,400 per child, i.e. if there is no tax due, the CTC will still be paid to the parent. The phase out of the credit begins at adjusted gross income of $400,000 for married couples and $200,000 for all other taxpayers.
    3.  Other Credits: There is Partial Child Tax Credit of $500 allowed for those dependents who meet the tests of a Qualified Relative. A Qualified Relative has a certain relationship to a taxpayer (child, grandchild, parent, nieces, nephew, etc.), does not provide over one-half of his/her own support and lives in the same house as the taxpayer for more than half of the year.  Children over 17, disabled children and parents may be covered by this provision.

 

The key feature is the increase to the Child Tax Credit and the reduction of the dependency exemption amount.

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE       Jessica L. Parasco, CPA          Janeen A. Sorrentino, EA

Rick Maloney Speaks on the new Tax Law to New Hampshire Family Law Mediators

On January 25, Richard Maloney led a panel discussing “What Family Mediators and Lawyers Need to Know About the 2018 Tax Changes” sponsored by the New Hampshire Conflict Resolution Association (NHCRA).  The presentation was intended to guide family law mediators on relevant issues effected by the new Tax Cut and Jobs Act, including significant changes to tax rates, alimony, exemptions, deductions, the “kiddie tax” and child tax credits.

Meals & Entertainment via the Tax Cuts and Jobs Act

February 1, 2018

The Tax Cuts and Jobs Act (TCJA) made substantial changes to the income tax rules for the deduction of entertainment expenses and meal expenses. These changes are effective for amounts incurred or paid after December 31, 2017, regardless of the taxpayer’s tax year. We encourage businesses to consider how their record keeping may need to be revised to address proper accounting for these changes, including possibly setting up separate accounts.

  • Entertainment Expenses:  No deduction is allowed for entertainment, amusement or recreation activities, facilities, or membership dues relating to such activities or other social purposes. In addition, no deduction would be allowed for benefits in the form of on-premises gyms and other athletic facilities, or for amenities provided to an employee that are primarily personal in nature and that involve property or services not directly related to the employer’s trade or business.

Historically, the restrictions on deducting entertainment did not to apply to certain types of expenses (Code Sec. 274(e)). One exception includes amounts treated as taxable compensation to an employee (or includible in gross income of a recipient who is not an employee). Another exception from the 50% limitation includes expenses for recreational, social, or similar activities (including related facilities) primarily for the benefit of the taxpayer’s employees, other than highly-compensated employees. In other words, entertainment for a client would not be deductible but entertainment for the benefit of employees would be fully deductible. Currently the TCJA does not specifically address these exceptions and it appears they continue to apply. However further guidance and/or regulations may be provided to address this.

  • Meal Expenses: There were no significant changes to the meal expense deduction. A deduction for any food or beverage expense is generally limited to 50% of the otherwise deductible amount. All qualifying business meals must be directly related and associated with a substantial and bona fide business discussion.

The one change provides that the 50% limit now applies to an employer’s expense of providing food and beverages to employees at an employer-operated eating facility that qualifies as a de minimis fringe benefit. These expenses were previously allowed at 100%.

  • Transportation Services: Employers can no longer deduct any expense incurred for providing any transportation, or any payment or reimbursement, to an employee for travel between the employee’s residence and place of employment (e.g., parking and mass transit). The exclusion from income for such benefits received by an employee is retained.

Based on the new law, we recommend setting up separate general ledger accounts for client/customer entertainment (nondeductible), business meals (50 percent deductible), and recreational/social employee expenses (100 percent deductible).

Dowload pdf version:  2018.02.01 Tax Blog – Meals Entertainment

Kevin Kennedy Presents at Business Industry Association’s Small Business Day

Presenting on February 9, 2018 in Concord New Hampshire at the New Hampshire Business and Industry Small Business Day, Kevin Kennedy, CPA, CFE on the new federal tax law “The Tax Cut and Jobs Act” and its implications to small New Hampshire businesses.  Presenting along with Kevin were Karl A. Heafield, CPA MST, John Rich, Jr., Esquire and Steve Lawlor, CPA.

 

 

 

Rick Maloney Speaks at the Annual NHAJ CLE on Family Law

Richard Maloney presented “The New Tax Law” at the New Hampshire Association for Justice’s annual Continuing Legal Education Seminar on Family Law on February 9.  Attended by over 100 attorneys, speakers included judges and experienced family law practitioners. The seminar was intended to assist trial attorneys in understanding and navigating through the complex issues associated with the new Tax Cut and Jobs Act as it relates to families and taxation.

Supreme Court Ruling – Sales Tax

June 28, 2018

In a 5-4 vote and an opinion written by Justice Kennedy on June 21, 2018, the US Supreme Court decided South Dakota v. Wayfair, Inc.  Basically, this opinion states that physical presence is not a necessary requirement in determining nexus rules (i.e. whether a business has a connection to a state). The Court overturned Quill Corp. v. North Dakota, 504 U.S. 298 (1992) which had set forth a constitutional requirement that a business have a physical presence in a state in order for a state to assess a sales tax.   The Court ruled that Quill is “unsound and incorrect” and that “stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power.”

The new ruling permits states to subject businesses which conduct sales online as remote sellers to collect sales taxes if the customer is a state resident. Currently, 46 of 51 jurisdictions assess a sales tax; some states, such as New York, have both a state and local sales tax.  This opinion only addressed nexus for sales tax purposes, leaving open for now the issue for income tax purposes.

This opinion provides that states are not constitutionally barred from requiring companies not physically in a state, but which ship to a resident in a particular state, to collect sales and use tax. In South Dakota v. Wayfair, Inc., the South Dakota legislature had enacted a law to require out of state sellers, with no South Dakota presence, to collect and remit sales tax.  The threshold for an out of state seller was annual South Dakota sales of $100,000 or 200 or more transactions. The Supreme Court decision paves the way for other states to enact similar laws.  Although the Supreme Court acknowledged South Dakota’s de minimus requirement for applicability, the Court did not require such a requirement to pass constitutional muster (but the majority opinion stated that a de minimus argument could be made under other theories).  On the other hand, the Court acknowledged that Congress could pass legislation to limit the imposition of state sales tax on interstate trade.

This ruling potentially imposes the burden of knowing and understanding state sales tax laws nationally and, to the extent that a state imposes a tax, the obligation of collecting and remitting the sales tax.

For business in the State of New Hampshire, which does not have a sales tax, this will probably force New Hampshire businesses to collect taxes for other states. The burden of this obligation could severely impact small businesses when implementing systems to comply.  The majority opinion express faith that “…software that is available at a reasonable cost…” will become available.   For now, online retailers face the prospect of complying with sales taxes in a multitude of jurisdictions.

Download pdf version: 2018.06.28 Tax Blog – Sales Tax

199A Qualified Business Income Regulations

September 19, 2018

The Tax Cuts and Jobs Act enacted one of the most significant tax deductions in history for small businesses. New Section 199A creates a deduction for many owners of sole proprietorships, partnerships, trusts and S corporations of up to 20% of their qualified business income (QBI). The deduction is available for tax years beginning in 2018. The statute is extremely complex. The Internal Revenue Service has recently issued several proposed regulations to provide clarification.

The deduction is available without limitation for taxpayers with taxable income less than $315,000 for joint returns and $157,500 for other taxpayers. Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited. There are other limitations outlined in the Code.

The proposed regulations clarify several items which were unclear within Code Section 199A including, but not limited to, the following:

  • Gains on the sale of certain assets which might otherwise be considered capital gains (and therefore not eligible for the QBI deduction) will be allowed and available to qualify for the deduction
  • Portions of proceeds from the sale of a partnership interest, which appear capital in nature and not eligible for the QBI deduction, would be allowed to qualify for the deduction
  • Some adjustments to income relating to pre-2018 years which are spread out over a period of years (Section 481 change of accounting methods and/or suspended losses) that are deductions in years after 1/1/2018 would not constitute QBI and therefore would not be eligible for the deduction
  • Net operating losses generally are not taken into account in computing QBI, even though deducted in a year after 1/1/2018.

We will continue to provide additional blogs with additional information on these and other matters as newer regulations are issued by the IRS.

Family Law and the 2017 Tax Act

The 2017 Tax Act (formally, the Tax Cuts and Jobs Act) will have indirect and direct impacts in family law cases. The following (except alimony) are effective January 1, 2018.


1. Tax Rates:

Most tax brackets have been reduced and the income range within each tax bracket has been widened, so effectively almost all taxpayers will have a lower tax rate. The categories of taxpayers (Single, Head of Household (HOH), Married Filing Separate (MFS) and Joint (MFJ)) have been retained. However, the rate differential has narrowed and, beginning at taxable income of $82,500, the tax rates are the same for each category except joint. This means that single, married separate and head of household taxable income over $82,500 is taxed exactly the same. Below that amount, single and married separate have exactly the same level of tax; head of household would have up to $1,392 less in tax.

2. Deductions- Standard:

In an attempt to simplify the tax return process (and an offset for the loss of itemized deductions and personal exemptions), the standard deduction was increased to $12,000 per person for Single and Married, Separate filers. However, Head of Household filers can claim $18,000 as a standard deduction. Bear in mind that this $6,000 translates into tax savings of between $600 to $1,920 depending on the person’s tax rates (this applies for taxpayers with taxable income up to $200,000; presumably over this amount the taxpayer would have itemized deductions and the standard deduction would not apply).

3. Head of Household versus Tax Exemptions (Tax Credit):

This gets a little confusing.

Filing status is determined by the factual determination of an unmarried taxpayer who maintains a household for a qualifying child who spends more than 50% of his/her time with that parent. That parent is entitled to file as Head of Household and to claim the child as a dependent.

However, the parent can assign his/her right to claim the child as a dependent to the other parent.

Effective 2018, the dollar amounts of dependency exemptions (for children, individuals and other miscellaneous family members) are zero.
However, the child tax credit (CTC) is available for children under the age of 17 to the parent who has the right to claim an exemption for the child. Thus, one parent could claim Head of House status (and the larger standard deduction and lower tax rate) and the other parent can claim the tax credit.

The CTC is up to $2,000 per child. This is a credit, i.e. applies dollar for dollar against the tax. The CTC is reduced (“phased out” in tax jargon) at upper income limits. For a single individual, the CTC begins to phase out at $200,000 at the rate of $50 per $1,000 of income so, for one child; it is gone at $240,000. For joint taxpayers, the threshold is doubled to $400,000.

Finally, the CTC is “refundable” for the credit not absorbed by the tax liability up to $1,400 per child and will be paid by the government, i.e. not really refunded, but essentially paid as a stipend. The maximum refundable portion is calculated based on earned income.

Partial credit: A credit of $500 is allowed for each “Qualifying Relative”; generally this is a dependent that is not a qualifying dependent for the CTC. This includes otherwise qualifying children 17 and over, college students under age 24, disabled children of any age, parents and other relatives.
Finally, the parent who qualifies for the Child Tax Credit also qualifies for any education tax credits.

4. The Elephant In The Closet Waiting To Come Into The Room:

One of the more interesting provisions of the new Tax Act is that the deduction for alimony will be eliminated. The alimony provision is repealed for “any divorce or separation instrument (as defined in Section 71 (b) (2)) executed after December 31, 2018.”

Section 71 (b) (2) (A)) defines “a divorce or separation instrument” as a “decree of divorce or separate maintenance or a written instrument incident to such a decree” (ii). There are no Regulations or other guidance from the Internal Revenue Service at this point. Presumably, the minimum requirement is a judge’s signature. In New Hampshire, a divorce decree is final 30 days after the date on the clerk’s notice of decision. It is possible (but unlikely) that this later date will be the effective date. It is clear that cases pending on December 31, 2018 (but not finalized with a decree) would be under the new law disallowing the alimony deduction.

A separate issue is post December 31, 2018 modifications of divorce decrees. The effective date language states that if the original decree was before January 1, 2019 and the modification does not expressly state that new law applies, then the old law will apply (i.e., alimony is deductible). Thus, alimony paid in 2020 under a 2019 modification will still be deductible.

 

i Adapted from an article in Bar News for February 21, 2018 published by the New Hampshire Bar Association
ii There is also a provision for a written separation agreement or an alimony decree not described in A

 

2018.9.20 Tax Blog – Family Law and the New Tax Act

RICHARD J. MALONEY, NOMINATED TO BOARD OF DIRECTORS OF GIRLS, INC.

Maloney & Kennedy, PLLC, Certified Public Accountants, would like to announce the appointment of Richard J. Maloney, CPA, ABV (Rick) to the Board of Directors for Girls, Inc.

Rick is honored to be involved with this organization, where he hopes to apply over 30 years of business planning and financial experience in a way which can notably benefit this worthy and gracious cause. Rick brings to the table a rich background of charitable service, including having served as treasurer and director of New Hampshire Public Television and the Business and Industry Association of New Hampshire. He has also headed the Tax Section of the New Hampshire Bar Association and the Tax Committee of the New Hampshire Society of CPAs, as well as having served on other boards including the Derryfield School, the New Hampshire High Technology Council and the New Hampshire Board of Accountancy.

Girls Incorporated of New Hampshire offers research-based informal education programs that encourage girls to take risks and master physical, intellectual and emotional challenges. They strive to help girls achieve their personal best through one-on-one attention, leadership development, a talented staff and volunteers, a wide range of enrichment programs, and a caring family environment. Girls Incorporated of New Hampshire knows that every girl – regardless of her age, background, interests or dreams – has the potential for greatness.

Please join us in welcoming Rick to this wonderful organization.

 

Maloney & Kennedy, PLLC has offices in Auburn and Concord New Hampshire.

 

New Partnership Audit Rules

2019 New Partnership Audit Rules Blog

A long, long time ago (well, 2015), a Republican Congress enacted and President Obama signed the Bipartisan Budget Act of 2015. One feature of that legislation was the enactment of new IRS audit rules for partnerships. The effective date was set as January 1, 2018. Now, with preparation of the 2018 tax returns,  the time has come to talk again about the impact of these rules.

First, some background. Partnerships are clearly subject to the IRS partnership rules. However, partnerships are fading as the entity of choice for businesses and are being replaced by limited liability companies (LLCs).  Under the Internal revenue Code, LLCs do not have an existence.  Instead, to paraphrase an old joke, they are what you want them to be. If there are at least two members of an LLC, the default provision is that the LLC will be taxed under the partnership rules.  However, an LLC can elect out of the partnership rules and be taxed as a corporation (C or S corporation). For now, we will assume that an  LLC is being taxed as a partnership. That being said, if partnership agreements or LLC operating agreements have not been updated to reflect the new tax audit rules, now is the time.

The good news is that these rules can be avoided; the bad news is that this requires affirmative action by the partnership. On the 2018 pa2019 New Partnership Audit Rules Blog – TDCrtnership tax return, there is a question on page 3 (#25). There is also a reference[1] to Schedule B-2. If the tax return preparer is unaware of any changes in the partnership/LLC agreement, he/she will probably make an assumption that no election is to be made and thus, with the return, bind the partnership.

Are the new rules really that bad?  They very well could be, especially for a minority partner. Historically, when partnerships with fewer than 10 partners were audited, the tax adjustments were made at the partner level. If there were adjustments to a partnership return because of an IRS audit, the IRS would then adjust the individual returns of the partners.

Under the new rules, the tax audit adjustment of all items of income, gain, loss, deduction, or credit are made at the partnership level, making the partnership liable for any resulting underpayment of tax instead of the individual partners. The net change in income is taxed at the highest individual or corporate rate, regardless of the rate applicable to the individual partner.

There are three problems with this approach:

  1. Individual partners may not be taxable at the highest rate;
  2. Partnership assets are used to pay the tax liability; and,
  3. Partners at the time of audit may not have been partners when the activity took place.

There are relief opportunities: A “small partnership” can affirmatively elect out of these rules annually with the filing of the partnership tax return, in which case the existing rules will apply (audits will be conducted at the individual partner level).  A small partnership is generally defined as having no more than 100 partners, none of which is another partnership.

In addition, partnerships subject to an audit can seek to mitigate the imposition of the highest individual or corporate tax rate on any imputed underpayment through the following processes:

  1. Push Out/Pass through election
    1. Audit adjustments taken into account by the partners who were partners during the reviewed
    2. The partnership must notify partners within 45 days after notice of adjustment is received from the IRS
    3. Each partner is required to include the audit adjustments in the year in which the audit concludes (i.e. not an amended return).
    4. The normally applicable underpayment interest rate for such partner is increased by two percent, and penalties may apply.
  2. Amended Schedule K-1s for partners
    1. Issued to each partner, who was a partner for the reviewed year,
    2. If a partner files an amended tax return and pays the taxes within 270 days of the partnership receiving notice of a proposed partnership adjustment, then such amount would be deducted from the amount the partnership owes at the entity level.

Another significant change resulting from the new rules is the replacement of a “tax matters partner” with a “partnership representative”. The IRS will select a partnership representative if the partners fail to make an appointment, which would be binding upon a partnership. The partnership representative:

  1. Is the only person that will receive any notice from the IRS.
  2. Has exclusive authority to represent the partnership in an IRS audit.
  3. Does not have to actually be a partner in the partnership.
  4. Is required to have a “substantial presence” in the United States.
  5. Has more power than the tax matters partner and can bind partners to a settlement with the IRS without their input or consent.

Other provisions of the new law:

  1. No statutory requirement under the new rules for the IRS or the partnership representative to notify other partners that an audit has commenced.
  2. No statutory rights for any partner other than the partnership representative to participate in a partnership audit.

The IRS will continue to issue additional guidance relating to the imposition of these changes.

Action Items: In light of these new rules, we strongly recommend that all partnership and limited liability company agreements be reviewed to confirm whether they are in line with the intent of the partners and, if necessary, be amended to elect out of the new rules and provide appropriate guidance and procedures if an election is inadvertently overlooked, including the designation of a partnership representative and the imposition of any requirements for it to provide partners with notice or obtain consent. In addition, it is important to consider these rule changes in the event of any partnership changes, including the addition of any new partners.  If the partnership wishes to elect out of the new rules, the agreements should be amended and the tax return preparer notified.

 

Richard J. Maloney, CPA, ABV  | Kevin C. Kennedy, CPA, CFE  | Jessica L. Parasco, CPA  | Janeen A. Sorrentino, EA

Safe Harbor for Rental Income for Qualified Business Income Deduction

Recently the IRS released additional guidance on a large number of issues related to the Qualified Business Income (QBI) Deduction (Section 199A). This deduction allows certain taxpayers who have flow thru businesses (S Corporations, partnerships, sole proprietorships) to take a 20% deduction on the related income. To qualify, the activity has to rise to the level of a trade or business. Question: is rental activity a trade or business?

IRS Notice 2019-07 provides a safe-harbor rule for rental real estate businesses. Rental property would be treated as a trade or business for purposes of the QBI deduction if at least 250 hours of services are performed each tax year with respect to the enterprise.[1] These hours of service are not limited to owners and include hours spent by employees and independent contractors. The time spent must be on operational activities (providing services to tenants, repairs and maintenance, finding renters, collection of rents, etc.). Hours spent would not include financing arrangements or hours spent in the owner’s capacity as an investor or travel.

The safe harbor requirement applies to a “rental real estate enterprise [RREE]” which is defined as an interest in real property held for the production of rents. Several properties can be owned and can be treated individually or grouped. Real Estate held in separate LLCs could elect to be aggregated for purposes of meeting the safe harbor requirement. If there is an election to group, all similar properties would be required to be grouped, and once made this grouping is required for all subsequent years. Ownership can be either direct or via a single member limited liability company.[2]

Grouping has some exceptions including commercial and residential properties cannot be group together. The Safe Harbor requirements also have limitations for property leased under a triple net lease or property used by the taxpayer at any time as a residence (there are special rules for vacation property). The safe harbor requires that separate books and records be maintained for the rental real estate enterprise. Also relevant pass-through entities may also rely on the safe harbor rules. [3]

It should be noted that often taxpayers segregate rental property from operating businesses.  Recently finalized Regulation § 1.199A-4 allows taxpayers to make an election on their tax return to aggregate their trades or businesses. An entity which rents tangible or intangible property to a business which is commonly controlled (generally majority ownership is the same), and that business is a qualified trade or business, could elect to be aggregated for purposes of the QBI deduction assuming all other requirements of 199A are met. The aggregation is separate from that of the RREE grouping.

These rules provide an opportunity for owners of certain rental properties to take advance of the QBI deduction. However taxpayers will have to take affirmative steps to utilize these rules. We recommend that taxpayers who believe they may meet these qualifications arrange to have adequate record keeping in place which includes details of the time spent and services provided by themselves, employees and contractors. If the qualifications are met, taxpayers will need to look at properly making the grouping election on their timely filed tax returns.

 

Richard J. Maloney, CPA, ABV  | Kevin C. Kennedy, CPA, CFE  | Jessica P. Wiley, CPA  | Janeen A. Sorrentino, EA

[1] 2019-07 Section 3.03

[2] 2019-07 Section 3.02

[3] 2019-07 Section 3.01

 

 

2019 Rental Property andQBI Deduction