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Week In Insights: Preparing and Dealing With the Unexpected

Sept. 19, 2021, 2:00 PM

Earlier this week, thousands of Twitter users, including me, were fixated on the saga of a homeowner whose electrician reported that he had a raccoon nesting in his attic eating snow king crabs. The homeowner, Drew Olanoff, who was new to the suburbs, was surprised on many levels—especially since they didn’t have any snow crabs.

Olanoff eventually called a service to remove the raccoon—humanely, of course.

Readers followed along in real-time, offering tips. Speculation was rampant about how the raccoon had obtained the crab legs and whether this might be a trend. And Olanoff, like others, worried there might be more than one raccoon family in the attic.

After some time had passed, readers received the following update:

I get that the ending was something of a letdown. I, too, wanted to know how a raccoon had secured snow crabs in the Philadelphia suburbs. The idea that a crab-pilfering raccoon was taking up residence in attics across Chester County had certainly grabbed my interest. But an opossum brandishing some fauna? Not nearly as gripping—even though the retelling had me in stitches.

There is, however, an excellent lesson to be learned from Olanoff’s suburban tale. When you encounter what feels like an impossible situation, it’s important to arm yourself with all of the facts before you act—and call in help when necessary.

It can be easy to speculate—especially when there’s validation—but that doesn’t always yield the best results. What if he had simply put out a raccoon trap? What if he hadn’t called in a specialist? Would he have ever gotten the right answers?

That’s something we should all strive to keep in mind over the next few months as we expect what could amount to a sea change in tax policy at home and abroad. It can be fun to guess what might happen to tax breaks and rates, but knowing what is certain—and who to rely on for key information—is what will benefit taxpayers the most.

And that’s what we aim to do this week as always. Our experts can keep you up to date with the latest federal, state, and international tax analysis—so that you can avoid the guessing game and instead, focus on practical solutions.

The Exchange… It’s where great ideas intersect.

—Kelly Phillips Erb

Quick Numbers Trivia

Congress may be raising tax rates at the top. The current top marginal rate for individual federal income tax—ignoring surcharges, capital gains, and extras—is 37%. In which two years did we actually see marginal income tax rates near 100%?
(Answer at the bottom.)

Our Roundup

This week, our experts touched on a wide range of topics, from VAT reform to cannabis outsourcing. For a look at what’s making news, here’s our roundup:

It’s important to know all of the details before you act. Outsourcing arrangements are viewed by some in the cannabis community as a way to not be deemed a “trafficker.” In Hidden Tax Dangers in Cannabis Outsourcing Arrangements, CPAs Rachel Wright, Simon Menkes, and Abraham Finberg of AB FinWright LLP and attorney Andrew Gradman warn the meaning of “traffic” and “produce” in an outsourcing context are still too imprecise to rely on an outsourcing arrangement to avoid tax code Section 280E.

Waiting for confirmation of facts doesn’t mean that you have to sit back on your heels. Planning for change can be beneficial. Most high-net-worth individuals and their financial planners expect rates to increase and exemption amounts to decrease. In How High-Net-Worth Individuals Should Prepare for Biden’s Tax Proposals, Tim Tikalsky of Sensiba San Filippo walks through the considerations and steps to take to minimize estate taxes.

Sometimes, a significant change in procedure can shake things up a bit. In EU’s Major VAT Reform Has Turned E-Commerce Upside Down: Part 2, the second of a three-part series, Roger Gothmann, Anna-Katharina Heidbüchel, and Moritz Lukas of Taxdoo discuss the EU VAT e-commerce reform and how it affects online retailers using marketplaces and cross-border fulfillment systems.

Understanding what you’re dealing with can help you resolve issues before they become problems. The Indian government is introducing measures to improve tax collection and transparency and reduce tax disputes. In India Moves to Resolve Tax Disputes, Tarun Jain and Divyasha Mathur of BMR Legal discuss these measures, and in particular the recent developments in the longstanding disputes with Vodafone and Cairn over retrospective tax rulings. They explain the background to these cases and the current response by the Indian government.

Northern Raccoon reaching for flower.

Sometimes what you expect to happen, doesn’t. It’s not uncommon for foreign corporations to “domesticate” using a merger of a foreign corporation into a newly created—and almost always Delaware—corporation. By operation of law, the new corporation succeeds to the assets and liabilities of the foreign transferor. In ‘Domesticating’ SPACs Gives Rise to Shareholder Level Tax Consequences, Robert Willens explains the unexpected tax consequences that can arise for special purpose acquisition companies referred to as SPACs.

Knowing what to expect can promote efficiency. Because of Brexit, many multinational insurance and other financial services companies have migrated their European operations from a U.K. subsidiary to a subsidiary formed in an EU country. In The Step Transaction Doctrine Meets Brexit, Alan S. Lederman of Gunster, Yoakley & Stewart explains that for some U.S.-owned U.K. insurance subsidiaries, two IRS private letter rulings may describe a U.S.-corporate-tax-efficient path to accomplish the U.K.-to-EU migration, even where there are significant regulatory delays.

Sometimes, those in charge get it wrong—and it’s up to you to find a solution. A federal appeals court recently ruled that an employer was entitled to a former employee’s 401(k) plan funds as restitution for that employee’s embezzlement. However, writes Dan Morgan of Blank Rome in Court: Federal Restitution Rights Override ERISA 401(k) Plan Protection, the court failed to acknowledge IRS guidance and case law regarding withholding and early distribution tax in a remand to decide such issues.

Understanding what’s coming can help you position yourself to be ahead of the curve. In the U.K., the government’s policy is to move all business-related tax reporting online. In U.K. Value-Added Tax and Digitization, Sarah Shears of Andersen provides an update on the program’s progress and discusses the role of technology for businesses in addressing compliance challenges.

Even settled matters can require a second look when there’s a change in circumstances. Interest payments by a Swiss company are only subject to Swiss withholding tax under specific circumstances. In Credit Financing of Swiss Companies, Jonas Sigrist of Pestalozzi Attorneys at Law Ltd. considers the related interest withholding tax implications with a focus on investment funds in light of pending tax reform and recent tax ruling practice.

Unexpected fact patterns can twist a routine matter to create surprising results. Doubling since the 1990s, “gray” divorce, or divorce for couples age 50 or older, is on the rise. In Six Strategies to Reduce ‘Gray Divorce’ Financial Complexities, Eric Bond of Bond Wealth Management focuses on what you need to know to reduce the tax consequences of a split.

Having an understanding of the process can help you better understand the final outcome. The OECD-led Inclusive Framework on BEPS intends to reach an agreement by mid-October related to its two-pillar plan calling in part for a reallocation of taxing rights regarding certain large multinational businesses, and in part for a global minimum tax regime. In Pillars One and Two: Six Weeks Left to Fill In the Blanks, Jeff VanderWolk of Squire Patton Boggs discusses the current state of play.

Opinion and Commentary

International discussions indicate that countries should be able to reclaim taxes from the largest profit shifters—frequently deemed to be U.S. digital companies. Some European countries have opted to enact unilateral digital services taxes rather than wait for an agreement. In Congress Must Confront Europe’s Punitive Targeting of U.S. Digital Firms, David Morse of the Coalition for a Prosperous America Education Fund says those countries may be inclined to keep those taxes—regardless of an international agreement—while ignoring their own tax avoiders and suggests sales factor apportionment as a way to level the playing field.

With his $3.5 trillion spending proposal, President Joe Biden would move toward extending the government’s reach from cradle to grave. This is the wrong goal, but that’s not the only reason to oppose it. Even measured by the Democrats’ expectations for its achievements, writes Michael R. Strain in Democrats’ Spending Plan Flunks Its Own Test, it fails.

A raccoon is pictured at the Sainte-Croix zoologic park, in the French eastern city of Rhodes, on July 24, 2013.
Photographer: JEAN-CHRISTOPHE VERHAEGEN/AFP via Getty Images

The House Ways and Means Committee released some long-awaited details Monday of how Democrats plan to raise taxes on top earners to help pay for social programs. It’s an effort to split some of the wide differences between the soak-the-rich tendencies of the party’s activist progressives and the be-careful-what-you-wish-for centrists, says Alexis Leondis in Two Big Misses in Democrats’ Plan to Tax Wealthy.

Democrats have released a $2.9 trillion tax proposal. They hope the plan might stifle debates about how they will fund a spending plan meant to boost the economy by addressing income inequality and decades of uneven prosperity. According to Nir Kaissar and Timothy L. O’Brien in Tax and Spending Plan Is Antidote for Neglect, Washington being Washington, those debates are about to get heated.

There are moments in a government’s lifetime that symbolize a change of ideological direction. Last week, U.K. Prime Minister Boris Johnson’s decision to raise taxes to pay for social care and bail out the National Health Service was one of them. Martin Ivens calls it An Undefining Moment for Britain’s Conservatives.

Columnists & Contributors

What would you do if you had information about tax fraud? IRS Criminal Investigation has partnered with New York State Crime Stoppers for a 12-week public service campaign to help bring tax criminals to justice. Erb explains the program and wonders: Would You Turn in Your Neighbor for Tax Fraud?

Listen In

The Ways and Means Committee advanced its portion of Biden’s multi-trillion-dollar economic and social spending plan this week. But Democrats still have a lot of work to do. In this week’s episode of Talking Tax, Bloomberg Tax senior reporter Colin Wilhelm looks at these issues with two lobbyists: Yasmin Nelson, former senior policy adviser to then-Sen. Kamala Harris and current senior principal at the lobbying and law firm Bracewell, and her colleague Liam Donovan, a former Republican campaign operative who now works on tax and energy issues and provides multi-platform political commentary.

The Employee Retention Credit is a direct response to the pandemic and was designed to help businesses keep employees on the payroll. Nearly a year and a half later, the IRS is still issuing guidance on the program, even as Congress is considering phasing it out. On a recent episode of the Taxgirl podcast, Kelly is joined by Dan Chodan to talk about what you can do now to claim ERC—even if you’re seeking retroactive relief.

Chime In

From hacks to best practices, I love hearing what my fellow tax professionals have to say about how they achieve success at the office. Last week, I asked:

We’re all dependent on our phones and tablets, but what non-tech-focused item in your office could you not do without?

I was surprised to see how many tax pros still rely on their 10-key machines (whether or not that’s considered non-tech was a separate debate). David V. Fazio, an enrolled agent with his own firm, says, “I know it’s old school but I can’t work a return without it. I still hash all numbers on the forms against the return to ensure accuracy.”

On the office supply front, I was in the minority with my Sharpie pens—most of you opted for gel pens of various brands. But almost all tax professionals agreed on Post-it notes, with Carolyn Leslie, Tax Director at The Wolf Group, PC, explaining, “Post-it notes keep me on track, with everything I need for the day in line of sight.”

The most surprising answer? Staple remover. When I asked why, Anthony DiPierro, a Florida tax attorney, replied, “Can’t scan things without it.”

Here’s this week’s question:

What continuing education or webinar topic did you find the most valuable in the past year?

You can leave your answer on social media or email your answer to kerb@bloombergindustry.com (subject line “Chime In”). Be sure to include your name, company, and title. I’ll assemble some of the best responses and include them in a future edition of the newsletter.

Spotlight

Our Spotlight series highlights the careers and lives of tax professionals across the globe. This week’s spotlight is on Nick Dulo, a tax partner at BDO’s Greater Washington D.C. office, with extensive experience consulting on matters involving partnership taxation.

Quick Numbers Answer

According to the Tax Policy Center, the top marginal rate was a whopping 94% in 1944 and 1945.

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To contact the reporter on this story: Kelly Phillips Erb in Washington at kerb@bloombergindustry.com

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