- Posts by Elizabeth M. NormanPartner
Elizabeth M. Norman is a partner in Nutter’s Tax Department. She advises private investment funds and public and private companies on a broad range of tax issues involved in mergers, acquisitions and restructurings. Clients ...
In a press release and IRS Notice (Notice 2018-54) issued Wednesday, May 23rd, the IRS warned taxpayers to be wary of state efforts to circumvent new federal limits on deductions for state and local taxes. Under the recent tax overhaul, deductions for state and local taxes (including property taxes) are capped at $10,000. This cap is particularly detrimental for residents of states with high property taxes and/or state and local income taxes (for example, California, Massachusetts, New Jersey, New York and Connecticut).
To mitigate the adverse impact of the new $10,000 cap on state and local taxes, states have been considering alternative methods to raise revenue that would avoid the cap. New Jersey Governor Phil Murphy and New York Governor Andrew Cuomo have both signed legislation permitting local governments to set up charitable organizations that can accept property tax payments as donations (which could be deductible, without limitation, against federal taxable income).
Notice 2018-54 announces that the Department of Treasury and the IRS intend to propose regulations regarding the SALT deduction cap, and signals their view that tax payments in excess of the cap (regardless of how structured) are not deductible. In particular, the Notice highlights the approach taken by New York and New Jersey (structuring tax payments to allow taxpayers to characterize the payments as deductible charitable contributions), and warns that federal law, not state law, controls the proper characterization of payments for federal income tax purposes.
For more information on federal tax reform’s impact on individuals see our earlier Legal Advisory, issued April 17, 2018, titled “Practical Insights on Tax Reform: Impact on Individuals”.
Nutter lawyers Elizabeth Norman and Crescent Moran Chasteen recently contributed an article to Tax Notes that reviewed the legal requirements, common practices, and resulting tax consequences of, or relating to, profits interests. In the article, “When Reality Collides With Legality: Profits Interests in Practice,” Elizabeth and Crescent discussed best practices that companies should consider when granting profits interests prospectively. Please contact the authors for more information if you’d like to learn more about this topic.
In light of the new final and temporary regulations issued by the IRS and the U.S. Department of Treasury (Reg. 301.7701-2T), partnerships that have been using wholly-owned disregarded entities to “employ” partners (in order to provide access to various tax benefits, including cafeteria plans, parking and transit benefits, and other employee benefit plans) will need to reevaluate their structure and treatment of partner/employee classification. In the new rules, which were published on May 4th, 2016, the IRS moved to halt this practice, providing that where partners of a partnership are separately working for a second (disregarded) subsidiary legal entity, such individuals may not be treated as employees of the subsidiary. Instead, they are considered self-employed individuals for both self-employment and employment benefit plan purposes.
In this blog, Nutter's Executive Compensation and Employee Benefits attorneys will provide updates on key developments and offer practical tips and best practices relating to executive compensation, employee benefits, and corporate governance matters.