The New LLC Act in California – What Does it Mean for You?

California has a new Limited Liability Company (LLC) act which took effect January 1, 2014. The new law automatically applies to existing LLCs and the new law contains provisions that can result in forfeiture of LLC member rights, if action is not taken. If you are a member of a LLC, now would be a good time to have an attorney review the LLC operating agreement to ensure you are protected against possible forfeiture of your member rights. This is applicable to existing California LLCs and does not apply to foreign LLCs that have qualified to do business in California. Also, the new rules are not important for single-member LLCs or husband-and-wife LLCs. Please contact us if you need a referral to an attorney that can review your current operating agreement and make amendments to prevent forfeiture.

Important Tax Filing Deadlines

Some upcoming dates to be aware of for your 2013 tax year filings:

• Tax filing deadline, or extension requests, for calendar year C-corporations and S-Corporations is March 17, 2014
• Tax filing deadline, or extension requests, for calendar year for individuals, partnerships, and trust returns is April 15, 2014
• Tax filing deadline, or extension requests, for a calendar year non-profit organizations is May 15, 2014

• Payment deadline for Q1 estimated taxes for all calendar year taxpayers is April 15, 2014, including California minimum franchise taxes and fees for C and S Corporations and Limited Liability Companies.

Please call us if you have any questions or require further assistance at 408-252-1800.

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2013 Client Organizer

The attached client organizer is designed to help you gather tax information needed to prepare your 2013 personal income tax return.  Click on the link below to access the client organizer.

Blank Organizer

Remedies for resolving Taxpayer disputes with the Internal Revenue Service

The Internal Revenue Service was created in 1862 as the federal agency responsible for collection of tax and interpretation and enforcement of the Internal Revenue Code. As with any collection of laws and regulations the Internal Revenue Code is open to varying levels of interpretation. Congress and the IRS have developed, over time, an effective set of tools and remedies for taxpayer disputes with the IRS arising out of the varying interpretations of the complex set of laws and regulations that compromise the Internal Revenue Code.

The remedies provided to taxpayers and the IRS in resolving disputes can be divided into four major categories:

1. Determination Letters and Rulings – These are letters or rulings with varying degrees of binding effect to transactions. The transactions can be proposed or contemplated transactions, or completed transactions that have not been subject to the examination process
2. Examination Process – During the examination process discussions are opened with the IRS and the taxpayer is afforded the opportunity to explain the stance taken under the laws and regulations for specific transactions. The examination process is a period for both finding of fact as well as discussing application of law to specific transactions. Audit determinations, if agreed to, are final and binding.
3. Appeals Process and Tax Court – The Appeals Process and the US Tax Court afford the taxpayer an additional avenue for dispute resolution when the taxpayer disagrees with the finding at the examination level. Appeals are an informal process that focuses on determining rule of law to the transactions that were considered in examination. New issues are generally not raised at Appeals. The US Tax Court is the taxpayer’s last step after appeals (before Appellate Courts or the US Supreme Court) to litigate issues under examination.
4. Taxpayer Advocate Service – The Taxpayer Advocate Service is available to taxpayers as an independent source within the IRS to help resolve taxpayer disputes. This function is mostly related to resolving issues with communication between the taxpayer and IRS personnel.  Read more

Trusts Pay More Tax than Individuals Beginning in 2013

One of the most common tools used in estate planning is a revocable living trust that splits into one or more irrevocable trusts upon the death of the grantor. Most often, the income earned by these irrevocable trusts is distributed to the income beneficiary during his or her lifetime and is taxed on the income beneficiary’s individual tax return. The problem is that not everything we think of as income is considered trust income. For example, capital gains are generally considered principal and not income.

Who Pays Tax on Trust Income? Income received by the trust is taxed either on the trust return (Form 1041) or on your individual income tax return (Form 1040). In order for you to pay the tax, rather than the trust, the income must be distributed to you. Please see more details about distributions later.

What Governs Taking Trust Distributions? The short answer is that most trust documents provide that income earned by the trust may be distributed to the income beneficiary at least annually. However, some receipts of a trust are considered principal rather than income. Unless the trust documents specifically permit the trustee to allocate these receipts to income, receipts such as capital gains are not permitted to be distributed to an income beneficiary and are taxed on the trust return.

Who Pays the Higher Tax? Prior to The Affordable Health Care Act and The American Taxpayer Relief Act of 2012, it made little difference to the ultimate tax bill whether the income beneficiary or the trust paid taxes. Generally, long-term capital gains and qualified dividends were taxed at 15% regardless of who paid the tax.  With the passage of these two new laws, the question of who pays the tax will become quite significant. Read more