After deliberating for a decade, in the case G.H. Bartell, Jr. Est., U.S. Tax Court (August 11, 2016), the Tax Court has held that an intermediary with no benefits or burdens of ownership can hold title to real property outside of the established IRS “reverse” 1031 Exchange safe harbor without disqualifying the taxpayer’s 1031 Exchange.

In the case, the intermediary held the potential 1031 Exchange replacement property for over one year (longer than the 180-day period allowed by the IRS safe harbor) before transferring it to the taxpayer, following the taxpayer’s sale of its intended relinquished property. During this period, the taxpayer funded all costs (including acquisition and construction costs) associated with the property, and entered into arrangements that constructively prevented the titleholder from realizing the benefits of owning the property.

The “owner” of property from the IRS standpoint is usually the party with the “benefits and burdens” of ownership, not legal title. Under this standard, the 1031 Exchange would be disqualified because the taxpayer would be treated as owning the replacement property long before relinquishing their current property.  However, the Tax Court found that different rules apply in the 1031 Exchange context.  In this arrangement the intermediary “need not assume” the benefits and burdens of ownership of the replacement property in order to be treated as its owner for Section 1031 purposes before the exchange.

Essentially the Tax Court held that a taxpayer could contract with an intermediary to acquire land and construct a facility more than a year prior to using that property as the replacement property in a like kind exchange.   Whereas previously most practitioners would advise a client that a “construction” type exchange needed to be completed within the 180 day period, this recent ruling may be increasing the applicability of Section 1031 to construction exchanges.

It’s important to note that the Tax Court ruling relied heavily on a decision of the U.S. Court of Appeals for the Ninth Circuit. Nevertheless, this case is significant, substantially increasing the flexibility taxpayers have in structuring 1031 Exchanges.

Contact Us If you have questions regarding this case, and the rules surrounding this concept, please contact Laura by calling 513-241-8313, or have a member of the Barnes Dennig tax team answer your question here.

 

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The Perfect Order

by Tony Lane | on August 10, 2016

Many distributors are looking for ways to increase client satisfaction while also managing costs associated with their supply chain. One of the best ways that a distributor can accomplish the two is by working toward making sure all orders are “Perfect Orders”, and measuring what the perfect order rate is.  So what is a perfect order and how does actively measuring this metric payoff for the company?

First, we will start with the description of what it means to have a perfect order. The Supply Chain Council defines perfect order as an order:

  1. Delivered to the right place
  2. With the right product
  3. At the right time
  4. In the right condition
  5. In the right package
  6. In the right quantity
  7. With the right documentation
  8. To the right customer
  9. With the correct invoice

By missing even one of these nine conditions, a perfect order has not been obtained.

So how does this impact the company financially? It begins with client satisfaction: when client expectations are met, clients are less likely to look for a replacement supplier.  The other financial implication has to do with the reducing the cost of processing transactions.  Every step within the order process has a cost associated with it. By completing an imperfect order the company is adding additional steps to the sales transaction which can take away from the profit margin on the sale.  These additional costs can come in the form of any of the following:

  1. Processing a return transaction
  2. Issuing a credit memo
  3. Additional shipping and handling costs for getting a product back or sending a replacement
  4. The cost to fill an additional order
  5. The cost of a damaged product
  6. Collection costs for orders no completed with the appropriate paperwork

By measuring the perfect order rate, the company will get an idea of where they stand as a company, and can utilize this measurement to build a program for future improvements and refer back for benchmarking. This process may also identify areas where the company can improve processes or strengthen procedures.  Continued measurement should result in cost savings and happier customers!

Contact Us

If you have questions regarding perfect order, please contact Tony Lane by calling 513.241.8313, or have a member of the Barnes Dennig team contact you here.

 

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Friday, August 5th marks the beginning of a one-time sales tax holiday in Ohio, and you can save between 6.5% and 8% in state and county sales tax. The holiday begins on Friday, August 5, 2016 at midnight and concludes on Sunday, August 7, 2016 at 11:59pm. During the period, the following items are exempt from sales and use tax:

  1. An item of clothing prices at $75 or less (includes shoes, diapers, and baby receiving blankets);
  2. An item of school supplies priced at $20 or less; and
  3. An item of school instructional material priced at $20 or less.

Trade or business items are not exempt under the sales tax holiday. If the retailer doesn’t collect sales tax on an item you purchase to use in a trade or business, you should report the purchase on the Sales and Use Tax return or personal income tax return and pay use tax on the item.

There is not a limit on how many $20 items you can buy as long as each item costs $20 or less. If you spend around $100 on merchandise then you will save between $6.50 and $8 in sales tax, depending on which county you live in.

However, remember that some items are not included. For example, if you purchase a pair of gym shoes for more than $75 then they would still have sales tax. But if you purchase 3 boxes of pencils all under $20 then all 3 items would be exempt from sales tax.

Contact Us
If you have questions regarding this holiday, and the rules surrounding Ohio taxation, please contact us by calling 513.241.8313, or have a member of the Barnes Dennig team contact you here.

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Sometimes a situation occurs when individuals and businesses complete a transaction or series of transactions, and inform their tax advisor after the fact. Then, when the advisor crunches the numbers, he/she determines that the seemingly benign transaction triggers a substantial amount of income tax. In fact, the size of the tax bill causes the taxpayer to question the economics of the transaction. Can anything be done to unwind this deal?

In the past, advisors were able to run this by the IRS through the process of a private letter ruling; however, the IRS no longer issues private letter rulings on these types of transactions. [Rev. Proc. 2016-3, Sec 3.02(8)]. Fortunately, thanks to the rescission doctrine that originated 75 years ago in a court case involving contract law, and the merits of that case were later used by the IRS in drafting Revenue Ruling 80-58, advisors can pretend that the transaction never happened. Rescission is a mechanism whereby parties agree to undo a contractual arrangement.

The IRS generally respects a rescission for tax purposes if:

  • the original transaction and the rescission take place in the same taxable year
  • the rescission is carried out by the original parties to the transaction
  • the parties are restored to the positions they had before executing the agreement within the same taxable year as the original transaction

A rescission may be accomplished by mutual agreement of the parties, by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist, or by applying to the court for a decree of rescission. However, we recommend you consult with your attorney and enter into a written rescission agreement with the buyer to properly document your intention to rescind the transaction.

Again, in order to be valid, the rescission must be completed in the same tax year in which the transaction took place. Consult with your attorney who will need to formulate the terms of the rescission agreement. Once the agreement has been drafted, review it together with your attorney and tax advisor to ensure that it meets the requirements set by the IRS. It’s not every day that taxpayers are allowed to pretend something didn’t happen.

Contact Us
If you have questions regarding rescission, and the rules surrounding this concept, please contact Andy Bertke by calling 859.344.6400, or have a member of the Barnes Dennig team contact you here.

 

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New Ohio Law Exempts Digital Advertising Services from Sales and Use Tax

by Cheryl Ganim | July 22, 2016

Ohio House Bill 466 has been signed into law, resulting in a win for companies doing business in Ohio that advertise on the Internet (for example, inventory advertising). HB 466 amends the Ohio Revised Code to specifically exempt digital advertising services from sales and use tax..

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Ohio Announces 2016 Low-Income Housing Tax Credit Awards

by Andrew Bosserman CPA | July 21, 2016

On June 15th, the Ohio Housing Finance Agency announced the recipients of the 2016 Housing Tax Credit Awards (also known as Low-Income Housing Tax Credits or LIHTCs), which are used to fund the acquisition, construction, and rehabilitation of affordable housing.

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Kentucky Governor Introduces New “Red Tape Reduction” Initiative

by Andrew Bosserman CPA | July 19, 2016

On July 6th, the Governor of Kentucky, Matt Bevin, announced a new initiative called the “Red Tape Reduction.” The Red Tape Reduction program is intended to spur Kentucky business…

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Recent Tax Case on Non-Cash Contributions – Do Your Records Hold Up?

by Nicole Ward | July 18, 2016

On June 23, 2016, a U.S. Tax Court Summary Opinion concerning non-cash contributions resulted in the disallowance of deductions, and penalties for the petitioners.

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