Category: News

Different countries have always handled the reporting of ownership in business entities that are subject to their jurisdiction in different ways. However, there is a growing trend towards requiring entities to report who has control over them in order to prevent illegal activities from occurring. This trend can most visibly be seen in the legal battels occurring in the European Union as well as the requirements in place in the United Kingdom and proposed regulations in the United States that will likely take effect in the coming years.

Until recently, legal entities incorporated in the European Union were required to disclose any beneficial owner to a publicly accessible registry as part of the European Union Anti-Money Laundering Directives. A beneficial owner is a natural person who directly or indirectly exercises control over the entity. On November 22, 2022, the Court of Justice of the European Union invalidated this publicity in WM & Sovim SA v. Luxembourg Business Registers. It was ruled to violate the privacy rights (articles 7 & 8) protected by the Charter of Fundamental Rights of the European Union. The Court acknowledged this law’s purpose as germane yet held that it was not “strictly necessary to prevent money laundering and terrorist financing.” This does not limit the government’s access, but does remove the public’s ability to view this information.

            The United Kingdom claims to be the progenitor of beneficial ownership databases publicly available online. Termed the “People with Significant Control” (PSCs) register, it also tracks “Overseas Entity” ownership of British real estate. A British trust registry also exists, , but it is not publicly accessible. There is not a discernable legal challenge to be made against the PSC register (the UK lacks a written constitution), and it is unaffected by the EU’s decision regarding its own similar registry. 

            The United States lacks an equivalent to these registers. Although there are listings of legal entities, they are neither comprehensive nor centrally organized and without a focus on beneficial ownership. For example, the Securities Exchange Commission’s database has a beneficial ownership reporting requirement, but the holder may be another legal entity, which applies only to public corporations. Nevertheless, the U.S. will begin to move slightly closer to establishing a registry like those that exist across the Atlantic beginning in 2024.

            The Financial Crimes Enforcement Network (FinCEN), a federal agency within the Treasury Department, promulgated final regulations on September 30, 2022, that will be effective on January 1, 2024, impacting 32,556,929 entities and beginning the motion towards centralized reporting. However, at this time there are 23 exceptions resulting in noncoverage for larger businesses and legal entities owned by other legal entities rather than natural persons. The resulting database will be confidential to combat abusive shell companies. The FinCEN estimated an annual compliance cost of $10.8 billion.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

The Internal Revenue Code has recent changes for tax incentives that will link two of its most popular investment vehicles. Beginning in 2024, a 529 plan holder can rollover up to $35,000 to a Roth IRA. In case you’re not aware, a 529 plan is an investment account that mitigates tax on gains when used to pay for qualified education expenses for its designated beneficiary, and a  Roth IRA is an individual investment retirement account for prost-tax earnings.

Although some 529 plans are used to prepay education expenses, tax-favored investment plans are far more prevalent. Funds saved in 529 plans for education are generally exempt from income tax, both upon distribution and while accumulating wealth within the plan. The 529 plan is extremely flexible, and may be used for almost any school, whether elementary or postgraduate, secular or religious, vocational or traditional, public or private. Section 529 investment plans must be established and maintained by a state. An individual can use any 529 plan offered by a state, but there may be plan-specific benefits for state residents.

Extraordinarily, there are not any income qualifications or annual contribution limits for 529 plans. In contrast, a Roth IRA has strict rules for both. A Roth IRA is the reverse of an IRA—contributions are not tax-deductible, but distributions are tax-exempt. This is ideal for taxpayers anticipating a higher income level later in life. The SECURE Act 2.0 passed at the close of last year will permit the transfer or “rollover” of 529 plan funds to a Roth IRA. However, there are conditions:

• The 529 plan must be 15 years old.
• The lifetime limit for rolling over 529 plan funds to a Roth IRA is $35,000.
• The annual limit for rolling over 529 plan funds to a Roth IRA is $6,500.

In effect, the income limits ($153,000/$228,000 for filing individually/jointly) for the Roth IRA can be surpassed. While this may sound dubious, the Internal Revenue Code explicitly encourages the use of this technique. The opportunity to take advantage of this will be available beginning in 2024.

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

Every Estate Planning attorney will have several stories about various families that came to them after their parent/grandparent died, and how the Decedent either didn’t leave a Will or Trust, or decided to get a discounted one, perhaps online, where it is causing more harm than good. This is because even the best Estate Plans will not work for every family.

Jeb Burton, managing partner of the Burton Law Firm was featured in Private Wealth [Source] and commented:

“While legal structures such as trusts and partnerships can guarantee the desired mechanical transfer of ownership of the family enterprise between generations, that does not negate the fact that family members can still fight over the assets with potentially devastating results[.]” “Therefore, smart succession planning using all the available strategies and structures while taking into account the objectives and personalities of family members is essential.”

As Jeb Burton points out, family dynamics  are as important as the planning documents themselves. Has the plan covered potential substance abuse potentialities, creditors, disability, and/or that one individual who may feel they’re owed more than provided and can challenge the plan, potentially wasting the assets in a needless litigation battle?

These are all factors that need to be reviewed with a quality Estate Planning attorney and can avoid severe headache after you pass. Remember, people grieve in different ways and may receive bad advice from non-attorneys or online sources and take actions you would never expect. It’s important you have a plan that can protect your loved ones, including those that might make mistakes based on bad advice.

Want to know more? Contact the Burton Law Firm at 916-822-8700 or info@lawburton.com and schedule a consultation. 

A business may generally deduct legitimate losses from its taxable income to reduce its tax due to the state and federal government. However, sometimes these losses are greater than income, and thus is called Net Operating Loss (“NOL”). Though obviously not a great sign for company longevity, NOL can still be utilized as a valuable asset for mergers and acquisitions because, if done correctly, a profitable company may merge with a non-profitable company with a NOL, and use the losses of the newly acquired company to offset its own profits, thus reduce its tax. Typically, NOL’s cannot be carried back, meaning that that a business suffering loss in one year cannot deduct them from previous years’ profits, only future years. However, the CARES Act of 2020 permitted net operating losses from some businesses from 2018, 2019, and 2020 to each be carried back for five (5) years each. Due to this allowance, the IRS refunded a total of $17.4 billion to 12,119 corporate taxpayers claiming this benefit through from March 27, 2020, to March 31, 2021. 

While internally reviewing submissions by the SE Division and the LB&I Division, the Inspector General found that 62.5% of the SB/SE Division allowances were incorrect as well as 33% of the LB&I’s Division, thus requiring refund in taxable reductions. The Inspector General has advised that the reasoning behind these errors is because the IRS has not change its examination plans and methodology to address the expanded carryback provision afforded by the the CARES Act, thus they were using outstated methods to process the forms. Despite its redactions, the Inspector General’s report still reveals a vital weakness for the IRS that can be resolved by comparing line 14 of form 1139 and assuring it reflects line 29a of Form 1120. A simple computer program would be capable of checking all Forms 1120 and 1139. A sinply computer program should be able to suffice, but perhaps not due to the 60-year-old state of its computer infrastructure. However, the IRS is set to received a $25,326,400,000 allocation for operations support, including information technology development, thus all companies who have utilized NOL in a merger and acquisition should prepare themselves for a potential audit. 

California has one of the lowest bar passage rates in the United States of America. For July 2022, only 52.4% of applicants passed the California Bar Exam [Source]. As such, we are proud to announce that our former Summer Associate and Law Clerk, Connor Deleuze has passed the July 2022 California Bar Exam, and now joins our team as our newest associate attorney.

Congratulations Connor Deleuze!!! We are proud of you and look forward to the great talent, enthusiasm, and hard work you bring to the Burton Law Firm.

As one is reminded upon every gasoline station visit, events on the other side of the world impact our lives. The Financial Crimes Enforcement Network (FinCEN) explained in its 99-page report to the Federal Register that its reporting regime is, in part, a response to the Russian invasion of Ukraine. FinCEN alleged that Russian actors have been using shell companies worldwide to evade sanctions. The well-publicized confiscation of Viktor Vekselberg’s 255-foot luxury yacht embedded in shell companies was given as an example. According to FinCEN, the United States is particularly vulnerable to this abuse due to an American reporting regime that is both decentralized and nearly anonymous. A business entity must be registered with the state when formed with varying disclosure requirements.

At least four states (Delaware, Nevada, New Mexico, and Wyoming) market themselves for LLC formation partially through the anonymity they afford. This will be impossible within a few years concerning the federal government. Entities formed before 2024 must file a report by January 1, 2025. Entities formed after 2023 must file their report within 30 days after formation. Any change in the reported information must be disclosed in an updated report within 30 days of the change.

The report identifies the reporting company and each “beneficial owner.” The term “beneficial owner” includes holders of at least 25% of the company’s equity and individuals with “substantial control” over the company, such as a senior corporate officer. An image of a document, such as a passport, must be submitted for each beneficial owner. Specifically, the image must be of a government-issued document used for identification with a unique identifying number must be submitted. Each report will be nonpublic, but the mechanics of government access have not been determined.

There are nearly two dozen types of entities that are exempt from these reporting requirements, usually because they are subject to different reporting requirements, such as publicly traded corporations. However, small businesses are targeted for returns through an exemption for large operating companies. A “large operating company” is an entity with a physical office in the U.S., 20 full-time employees in the U.S., and a tax return demonstrating more than $5 million in gross receipts.

Despite assurances to the contrary by commentators, “FinCEN intends that the reporting requirement will be accessible to the personnel of reporting companies who will need to comply with these regulations and will not require specific professional skills or expertise to prepare the report.” FinCEN estimates that most initial reports will cost $85.14. The proverbial fine print reveals an estimated range of $85.14 to $2,614.87 for each initial report and $37.84 to $560.81 for the annual report. The total reporting cost is estimated to be $22.7 billion for the first year and $5.6 billion annually after that, requiring 126.3 million hours and 35 million hours, respectively, affecting 32.6 million and 5 million companies. The penalty for willfully filing false information or for willfully failing to file is a fine of up to $10,000 and 2-years imprisonment with a civil penalty of $500 per day of violation.

If you have question or concerns about how these new reports may affect you or your business, please contact the Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

Inflation, aka increased prices on the items and services we all need and desire is bad news, right? Well, bad news and good news are usually intertwined when tax law touches reality, and inflation is no different. The Internal Revenue Service published its annual inflation adjustment to over 300 different thresholds and limitations across more than 60 tax provisions for the following year. On average, figures increased by approximately 7%. The exact increase varies with the rounding rules. The unified credit against the estate and gift tax increased to $12,920,000 for individuals, with a $1,720,000 increase for married couples, with a total of $25,840,000. For historical context, the individual increase of $860,000 is over 27% more than the 2001 total individual exemption. The annual gift exclusion increased from $16,000 to $17,000. Due to the combination of rounding rules (to the nearest $1,000) and previously low inflation, the annual gift exclusion was not adjusted for 2022. This announcement does not include changes to Individual Retirement Accounts (IRAs) or deferred compensation plans such as a 401(k) plan. However, the health flexible spending arrangement (FSA) contribution limit increased from $2,850 to $3,050, and the maximum carryover limit increased from $570 to $610. SO, there is good news from inflation; however, it can still harm the taxpayer by increasing specific penalties despite these benefits.

The personal income tax rates and long-term capital gains tax rates operate independently and differently. While individual income tax rates work on a marginal basis based on income, capital gains tax rates function categorically based on total income. As such, the first $11,000 of ordinary taxable income is taxed at 10% regardless of total income. So, whether the taxpayer is a high-net-worth individual or only has $11,000 of taxable income, their tax on the initial $11,000 will be the same. In contrast, the long-term capital gain rate for  individuals depend on total income. Thus it would then be 20% high-net-worth individuals, and 0% for those who make $11,00 or less, based on total income. In other words, different taxes treat income very differently. Therefore, inflation could be quite helpful…or it could be immaterial.

The updated Personal Income Tax Table and Capital Gains Table is below:

If you have question or concerns about how to maximize your tax efficnetcy, please contact the Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.

California is adding a $1,000.00 carrot with its bundle of sticks in the State’s efforts fight pollution. Recently, the legislature passed SB 457, which may give pedestrians a sizable refund. This change comes after California recently made national news for passing legislation that phases out new gasoline-fueled cars by 2035, and will soon vote on whether to tax multimillionaires an additional 1.75% to fund environmental safety. This new law provides a $1,000 refund for tax years 2023-2027, through the Franchise Tax Board, for households that satisfy two conditions.

First, the household must not own a vehicle that “is required to be registered with the Department of Motor Vehicles” and is not “moved exclusively by human power.” As such, surprisingly, even fully electric cars are exempt from this tax credit. Second, the household must not have gross income which exceeds $60,000 for spouses filing joint returns, or $40,000 for those filing as individuals. It is unsure how many individuals will qualify for this refund. Of note, Governor Newsom’s has not yet signed or vetoed the law as of the date of this posting; however, if no action is taken by September 30, 2022, SB 457 becomes law.

Want to know if you qualify? Contact the Burton Law Firm at 916-822-8700 or info@lawburton.com and schedule a consultation.

On September 2, 2022, Governor Newsom signed SB 971 into law, therein adding new Section 50466 to the Health and Safety Code. The law guarantees tenant’s rights to own “one or more common household pets within the resident’s dwelling unit” to prevent discrimination against domesticated pet-owning tenants by landlords. It applies to landlords receiving subsidies from the California Department of Housing and Community Development or certain low-income housing tax credits. The legislature advises that the law was necessary because “[a] majority of Americans consider their pets to be family members and nearly three-fourths of renters have pets[.]” Applicable landlords cannot require pet rent, prohibit pet breeds, or have pet weight limits. Landlords can, however, require a pet deposit for potential damages.

Per the statue, the new law only applies to “common household pet[s]” defined as “domesticated animal, including, but not limited to, a dog or cat, that is commonly kept in the home for pleasure rather than for commercial purposes.” Thus, it is likely to be broadly interpreted. The expressly allows “one or more common household pets” and does not provide clarification on just how many pets are allowed; however, it must assumable be on a objectively reasonable standards as Section 50466 also does not affect state laws or local ordinances relating to “public health, animal control, and animal anticruelty, or other statutes or laws that require reasonable accommodations to be made for an individual with a disability who maintains an animal to provide assistance, service, or support.”

Section 50466’s effective date is January 1, 2023. However, pets must be permitted for housing developments funded through the Zenovich-Moscone-Chacon Housing and Home Finance Act since January 1, 2018. Ultimately, approximately 352,000 households are expected to be impacted. The mechanism for enforcement are not mentioned; however, the Department of Housing and Community Development has a preexisting enforcement process that can begins with a complaint to ComplianceReview@hcd.ca.gov. The Department can also help landlords comply with this and other housing law provisions by emailing ComplianceReview@hcd.ca.gov, or the Burton Law Firm can also assure landlords are compliant with this law and several others unique to California.

For more information, please call 916-822-8700 or email info@lawburton.com.

As elections are near, it is important for 501(c)(3) organizations to remember that they must adhere to numerous rules if they choose to engage in non-partisan activities. Developing an internal policy for staff to reference during election season can help to ensure that your 501(c)(3) organization maintains its tax-exempt status. Although a 501(c)(3) organization’s exempt purpose may be political in nature, by law, none of its staff time or resources may be used for partisan political activities or purposes (i.e., to support or oppose a political party or candidate running for public office). Even a suspected violation of this law can result in costly investigations and may even cause the loss of such organization’s tax-exempt status. In addition to losing its tax-exempt status, the 501(c)(3) organization may be subject to severe excise taxes on spending deemed to be political expenditures. Consequently, it is crucial that each 501(c)(3) organization provide clear guidance to its governing body, staff, volunteers, and any other individuals who work for the organization.

Below are some of the more common political activities a 501(c)(3) organization should avoid:

• Contributing to a political campaign fund;
• Making Statements (verbal or written) that favor or oppose candidates of a political party
• Posting a website hyperlink to a specific candidate’s website

Determining whether a violation has occurred is on a case-by-case basis and is very fact-specific. Also, there are several non-partisan activities a 501(c)(3) organization is allowed to engage in. For example, a 501(c)(3) organization may engage in any of the following activities:

• Take a public stance upon a political issue, including ballot measures, so long as they do not suggest a preference for any candidate.
• Host a debate between candidates, so long as all of the candidates are treated equally and fairly.
• Encourage people to vote, so long as the 501(c)(3) doesn’t tell them who to vote for.

Lastly, although the 501(c)(3) organization may not engage in partisan political activities, it is important to remember that individuals who work for the 501(c)(3) are not prohibited from supporting or opposing candidates in their personal capacity separate from the organization, so long as they do not use 501(c)(3) resources. However, each organization should have detailed specific policies and procedures established to clearly distinguish between activities individuals undertake in the name of the organization and activities individuals take separate from the organization.

For a sample 501(c)(3) election policy, check out:

https://bolderadvocacy.org/wp-content/uploads/2022/01/Sample-Election-Season-Policy.pdf.

Additionally, if you would like more information on navigating the permissible activities a 501(c)(3) may conduct during an election year, please contact the Burton Law firm at: 916.822.8700 or email info@lawburton.com.