The IRS wants to know if your independent contractors are really employees.

[via: Regulatory: The IRS wants to know if your independent contractors are really employees at InsideCounsel]

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Will the sales tax man cometh for your company in 2012?

Earlier this year, online retailer Amazon.com battled the State of California over a proposal to require the site to collect sales tax from customers. Now, with the 2011 holiday shopping season in full swing, Amazon and other online sellers are facing the fact that the no-tax loopholes are almost certain to close in the new year.

[via: Amazon Facing End of Sales Tax Loopholes in 2012 at CorpCounsel]

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As the national economic debate twists and turns, wither corporate taxes? To help sort it out, CorpCounsel.com has collected a few good reads on corporate taxation.

[via: Talking About Corporate Taxes at CorpCounsel]

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New Jersey Tax Bulk Sales Guidance Issued

By Robert Daleo, Esq., Guest Contributor

The New Jersey Division of Taxation recently issued guidance in the form of “Frequently Asked Questions” in connection with requirements of purchasers, transferees and assignees (hereafter collectively referred to as “Purchasers”) under New Jersey’s bulk sales law. The guidance takes on added significance due to changes to the bulk sales law several years ago which significantly expanded the transactions that are subject to the bulk sales law and the liability of Purchasers that fail to comply with its requirements. The current bulk sales law, N.J.S.A. 54:50-38, applies to any sale, transfer or assignment (hereafter collectively referred to as a “Sale”) in bulk of any part or all of a person’s “business assets,” other than in the ordinary course of business of such person (i.e., the bulk sales law would not apply to Sales of assets considered inventory). [1] If a Sale is subject to the bulk sales law, the Purchaser is required to notify the Division of the proposed Sale and, among other things, the price, terms and conditions thereof by filing Form C-9600. The Division must be in receipt of such notice at least 10 days prior to Purchaser taking possession of or paying for the Sale assets. It is important to note that the Division has taken the position that 10 days for this purpose means “10 business days” (i.e., excluding weekends and holidays). The notice must be delivered by registered mail or such other method as the Division may prescribe (currently certified mail, overnight mail, Federal Express or UPS). Note that hand delivery, e-mail and fax are not permitted forms of delivery.

Within 10 business days of receiving a Purchaser’s bulk sale notice, the Division will notify the Purchaser of any possible claim for New Jersey taxes (i.e., all taxes payable to or collectible by the Division and all interest, penalties and additions thereon) and the amount of such claim. If the Division receives a complete and timely bulk sale notice from the Purchaser and fails to provide timely notice to the Purchaser that a possible claim for New Jersey taxes exists, the Purchaser will be deemed to have complied with the bulk sales law and will have no liability imposed pursuant to the bulk sales law.

However, if the Division provides timely notice to the Purchaser that there is a possible claim for New Jersey taxes, the Purchaser may not transfer to the seller, transferor or assignor (hereafter collectively referred to as a “Seller”) an amount of the purchase price or other consideration equal to the amount set forth in such notice. The Division typically requires the Purchaser to escrow such amount at the closing of the Sale. If the Division requests an escrow, the Purchaser must comply with the Division’s instructions regarding release of funds from such escrow and may not otherwise release any funds from the escrow until the Division issues a “clearance letter” to the Purchaser authorizing release.

A Purchaser’s failure to comply with the bulk sales law, including failure to provide the required bulk sale notice or complying with the Division’s escrow demands, results in the Purchaser being jointly and severally liable with the Seller for all of the Seller’s New Jersey taxes (and interest, penalties and additions thereon).[2] It is important to note that such liability is not limited to the purchase price or other consideration paid for the assets that are the subject of the Sale.

The Division has aggressively administered the bulk sales law. For instance, it is the Division’s position that a sale of a single family residence that was leased by the Seller would be subject to the bulk sales law, requiring the purchaser to provide the Division with a bulk sale notice and to otherwise comply with the bulk sales law, even if the Purchaser has no knowledge that the residence was leased.

Due to the severe sanctions imposed on Purchasers failing to comply with the bulk sales law, it is critical to determine whether transactions are subject to the bulk sales law and, if so, for the Purchaser to provide a complete and timely bulk sale notice to the Division and otherwise comply fully with the bulk sales law or make sure that Purchaser is fully protected on these issues through due diligence and an appropriate Seller indemnity.

Some important observations concerning the Division’s administration of the bulk sales law and traps for the unwary that can be gleaned from the recent guidance issued by the Division include the following:

- The Division’s interpretation of the term “business assets” used in the bulk sales law is very broad, thereby expanding the transactions that it views are subject to the bulk sales law. The Division interprets “business assets” to include any assets used in any endeavor from which revenue or consideration is realized for the purpose of generating a profit or loss. This would include both tangible and intangible assets. As noted above, the Division views all leased real estate (even single family residences) to be business assets.

- The Sale of all of a Seller’s business assets is not required for the bulk sales law to apply. The Division indicates that partial sales are covered by the bulk sales law. The Division did not clarify at what point a sale of business assets would be too insignificant to be subject to the bulk sales law.

- The Division had indicated that a Purchaser must fully complete Form C-9600 and attach a binding executed contract of sale or other applicable transfer agreement showing the consideration for and all other terms and conditions of the transfer. It is the Division’s position that if any required information is not accurate or if all required information and documentation is not received by the Division at least 10 business days prior to paying for or taking possession of the Sale assets, the bulk sale notice submitted by the Purchaser will be incomplete and invalid, resulting in Purchaser being liable for Seller’s New Jersey taxes as described above.

Note that the Division’s position regarding submission of a binding contract at least 10 business days prior to a closing effectively eliminates a Purchaser’s ability to comply with the bulk sales law in situations where the sale or transfer agreement is signed on the date of or just prior to closing.

- The bulk sale notice must be filed by the Purchaser or it is not effective.

- While the Division must receive the bulk sale notice at least 10 business days (per the Division) prior to a Purchaser paying for or taking possession of the Sale assets, the Division is required to merely notify the Purchaser within 10 business days that a possible claim exists for New Jersey taxes and the amount of such claim. There is no guidance that provides that the Purchaser must receive such notice from the Division. It is currently the Division’s policy to mail such notices. However, the Division has indicated that it will fax the notice at the Purchaser’s request. Therefore, if a Purchaser has not received the Division’s escrow notice, the Purchaser should not close after the passing of 10 business days from the Division’s receipt of the bulk sale notice without first contacting the Division to determine if it has mailed such notice, and, if so, obtaining a copy of the same.

- The Purchaser or its agent must hold all amounts required to be escrowed by the Division. The Seller or its agent may not have any right to hold or control such amounts.

- The Division has indicated that it is possible for the amount of the required escrow to exceed the purchase price or that an escrow may be required in situations where there are no sale proceeds (e.g., short sales or deed in lieu transfers). However, the Division does note that it will determine escrow amounts based on all facts presented.

- The Division has indicated that a bulk sale notice will be incomplete if the Division is unable to identify a Seller entity. Therefore, Purchasers should confirm that entity Sellers are registered with the Division prior to filing a bulk sale notice.

- The Division has indicated that residential real estate that is leased or otherwise used in a business is subject to the bulk sales law even if:

· The property is leased to friends and family;

· The property is only rented while the Seller is on an extended vacation;

· The Purchaser does not know that the property was leased or used in a business by the Seller (the Division’s position would not change even if the Purchaser received an affidavit from the Seller or the Seller makes a representation in the purchase agreement in this regard); or

· Only a portion of the property is leased or used in a business (e.g., a Seller expenses a portion of the residence as a home office or makes sales of merchandise from the home).

- Short sales and deed in lieu transfers are subject to the bulk sales law.

In summary, recent amendments to the bulk sales law which expand the scope of the transfers subject to the bulk sales law and the liability of Purchasers for failure to comply with the bulk sales law, in combination with the Division’s guidance regarding its administration, require Purchasers to take steps to determine if a transaction is subject to the bulk sales law and, if so, to carefully comply with such law or insure that other contractual protections are in place.
——————————————————————————–

(1) Prior to August, 2007, the bulk sales law applied only to Sales by a seller, transferor or assignor required to collect New Jersey sales tax. As such, the transactions subject to the prior bulk sales law were much more limited than under current law. For instance, many sales of real estate were not subject to the prior bulk sales law since in many instances sellers, transferors and assignors of real estate are not required to collect New Jersey sales tax.

(2) Prior to August, 2007, a Purchaser’s liability for failure to comply with the bulk sales law was limited to a Seller’s New Jersey sales and use tax. As such, the potential liability of a Purchaser for failure to comply with the current bulk sales law has significantly increased.

This article was written by Robert Daleo, Esq., of Riker, Danzig, Scherer, Hyland & Perretti LLP, who heads the Firm’s State Tax and Tax Controversy Practice Groups. If you have any questions about this article please feel free to reach out to Robert at your convenience.

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The Supreme Court recently ruled inLaRue v. DeWolff, Boberg & Associates that an investor in a 401(k) plan can sue to recover losses from the plan’s breach of fiduciary duty. Although LaRue dealt with the mishandling of investment selections, other areas of 401(k) plans may be affected in the future, writes attorney Joseph Musher, who says the consequences of the high court ruling are potentially far-reaching. How should companies respond?

New Worries for 401k Plans

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Tip of the hat to Tom Welshonce of Hull McGuire PC for a pointer to a recent post he co-authored with Julie McGuire on their firm’s What About Clients? blawg. The post discusses a corporate tax case (MeadWestvaco) that is pending at the Supreme Court – apparently this is the first case since a 5-4 decision in 1992 to define constitutional boundaries on the states’ power to tax corporate income. Oral arguments are on Wednesday – all corporations who do business in more than one state should follow this case closely.

Read on at The Supreme Court Revisits Constitutional Limitation on States’ Power to Tax.

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For those who are closely following the physical presence / nexus tax cases, Tom Goldstein reports in the Legal Times on a case that has been called “the single most important constitutional issue in state taxation of the last four decades”:

Can the state tax man cometh even for companies that dont actually come to the state? In its private conference Thursday, the Supreme Court will consider whether to grant review in No. 06-1228, MBNA America Bank N.A. v. Commissioner of the State of West Virginia, addressing the constitutionality of a state law that imposes income and franchise taxes on out-of-state companies that have customers — but not a physical presence — in the state.Banking giant MBNA America issues and services Visa and Mastercard credit cards for customers throughout the United States, including West Virginia. During 1998 and 1999, its gross receipts attributable to West Virginia customers totaled over $8 million per year, resulting in income and franchise tax bills for those years of over $200,000. After paying its bills, MBNA — arguing that the state lacked jurisdiction over it — unsuccessfully sought a refund from the state tax commissioner.

Tax Case Before High Court Could Mean Big Bucks for Business

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Who’s getting a bonus this year? Apparently it may be IBM’s tax lawyers:

“It looks like IBM’s tax lawyers are earning their keep. Just two days after they used a complex corporate tax loophole to save an estimated $1.6 billion, the IRS moved to close the loophole down.”

Read more at Big Blues Under-the-Wire Tax Break. Was this an in-house job or should outside counsel share in the accolades?

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You’ve been waiting for 18 months and they are finally here – the final 409A regulations from the IRS.  Grab a double venti and get ready to sift through 400+ pages of dense regulatory mish-mosh.  Or, head over to Mondaq to read summaries of the key points by the following law firms:

• Chadbourne & Parke LLP
• Thelen Reid Brown Raysman & Steiner LLP
• Jones Day LLP
• McDermott Will & Emery LLP

Free registration at Mondaq is required – but the process is quick and painless.

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They say that nothing is certain in life except death and taxes – and in the case of Jenkens & Gilchrist, the latter caused the former. The blawgosphere is abuzz with commentary – click below to read the details.

Blawgosphere Covers Jenkens & Gilchrist

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Someone in New Jersey may be looking for money from your company in the near future – and don’t blame it on InhouseBlog (we just live here).  So even if you haven’t taken a ride on our scenic turnpike (Exit 9 – holla), you may want to have your bean-counters review the New Jersey Supreme Court’s recent Lanco decision:

"The potentially broad scope of the opinion may result in all out-of-state companies being subject to the CBT—despite their lack of physical presence in New Jersey. The types of activities that could subject companies to the CBT based on the broad scope of the Lanco decision include:

* Providing financial services to New Jersey customers;

* Licensing franchises or intangibles for use with respect to products sold in New Jersey to unrelated parties;

* Licensing software for use in New Jersey; or

* Selling digital products or providing remote services to consumers located in New Jersey."

Link: Sutherland
Asbill & Brennan – United States – New Jersey Supreme Court Rejects
Physical Presence Nexus Standard In "Lanco Inc. V. Director, Div. Of
Taxation" from Mondaq (free registration required).

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In-house counsel dealing with deferred compensation issues – this article is for you:

Link: Article Providing In-House Counsel Focus on Code Section 409A.

Tip of the hat to BenefitsBlog for the link

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BenefitsBlog points to a new IRS fact sheet that can help you classify workers as independent contractors or employees – a determination that can impact benefits and intellectual property issues:

"I have written a lot here at Benefitsblog about how improper classification of workers as independent contractors/employees can sometimes wreak havoc with benefit plans. The IRS has issued a fact sheet – FS-2006-21 entitled "IRS Reminds Businesses to Classify Workers Correctly which provides helpful links and tips for those seeking to educate themselves on classifying workers properly."

Link: Benefitsblog: IRS Reminds Businesses to Classify Workers Correctly.

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Get up to speed on the SEC’s proposed rule on Executive Compensation Disclosure Requirements – including links to related commentary.

Link: Benefitsblog: Executive Comp Disclosure Requirements.

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Is the IRS on your mind? Unable to sleep because of a fear of an impending audit? Well, if you engaged in certain types of "abusive" transactions, you have until January 23rd to settle with the IRS.

Link: A Taxing Business: 10 7 Days to Settle.

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Courtesy of the venerable TaxProf Blog, your yearly round-up of tax stories for 2005.

Link: TaxProf Blog: The Top 10 Tax Stories of 2005.

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Mintz Levin PC sheds some light on Section 409A and its impact on stock options based on the current statutory and regulatory framework:

"As you may be aware, Congress enacted Section 409A of the Internal Revenue Code in October 2004 as part of the American Jobs Creation Act. Among other things, the Act broadly regulates deferred compensation, which is defined to include stock options. But the Act’s legislative history contemplates an exemption for certain non-discounted options. Congress directed the Internal Revenue Service (IRS) and the Treasury Department to draft regulations providing much of the detail. In December 2004, the IRS released Notice 2005-1 to provide initial guidance and on September 29, 2005, the IRS issued proposed regulations under Section 409A. Companies may rely on this guidance until final rules are enacted. Comments on these proposed rules may be submitted to the IRS and a public hearing is scheduled for January 25, 2006. The purpose of this alert is to provide you with the basic answers to common questions on Section 409A as it relates to stock options based on the statute and current guidance."

Link: Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. – United States -
Important Q&A on the Effect of New Section 409A of the Internal
Revenue Code on Stock Options and Other Types of Equity Grants
(21/12/2005) from Mondaq (free registration required).

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Bigger legal bills may be coming your way if you use legal services in Pennsylvania, as the Benefitsblog reports.  Apparently a bill pending in the Pennsylvania House of Representatives would impose a five percent sales tax on numerous things – including legal services.

Link: Benefitsblog: Legal Services Subject to Sales Tax?.

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The TaxProf points to an amazing set of tax charts – there are charts of all flavors and you are certain to find one you like:

• A Reorganizations
• B Reorganizations
• C Reorganizations
• D Reorganizations
• F Reorganizations
• Triangular Reorganizations
• Spin-Offs
• Continuity of Interest
• Section 351 Exchanges
• Section 338 Elections
• Pre-Sale Distributions
• Liquidations
• Redemptions
• Entity Classification
• Form vs. Substance
• International

Link: TaxProf Blog: More Tax Charts (tip of the hat to DealAttorney Anthony Cerminaro for the link).

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Need to search online benefits resources? Thanks to the BenefitsBlog, things have just gotten a bit easier.  Through its use of the Rollyo search-engine creation service, the BenefitsBlog has added functionality that should make your searches a snap.  No more need to sift through endless pages of search results – Rollyo lets you hone in on the sites that are most likely to have the information you need.  You can even create your own personal search engine with a few clicks of the mouse.

Link: Benefitsblog: A New Tool For Searching Benefits-Related Websites.

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Farella Braun Martel’s IP Blawg has a recent post on the Streamlined Sales Tax Project – if you haven’t kept up to date on the latest developments in e-commerce sales taxation, this article is a good starting point:

"…a number of states are participating in a program called the Streamlined Sales Tax Project, which seeks to harmonize state tax rules and definitions to address the Court’s concerns in Quill Corp. v. North Dakota, 504 U.S. 298 (1997).  Quill held that states may not require merchants to collect and remit state sales taxes unless the merchant is physically located within the state due to, among other things, an undue burden on interstate commerce.  States participating in the Streamlined Sales Tax Project hope that consistent state tax rules and definitions will address the Quill decision and facilitate the passage of a federal law requiring Internet firms to collect and remit sales tax from online purchasers.

Link: A New Tax On E-Commerce? | IP Blawg | Farella Braun   Martel.

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Sheppard Mullin LLP reminds all companies that the clock is ticking with regard to compliance with the new IRS deferred compensation rules:

"Less than six months remain until the December 31, 2005 deadline for amending deferred compensation arrangements to comply with Section 409A of the Internal Revenue Code. These complex new rules were enacted for nonqualified deferred compensation arrangements in late 2004 and are effective for 2005, although IRS guidance so far has been limited. While awaiting additional guidance, expected later this year, you need to act now to ensure compliance."

Link: Corporate Securities Law Blog: Time to Establish a Deferred Compensation Action Plan.

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Some of my colleagues at Riker, Danzig, Scherer, Hyland & Perretti LLP have published a couple of articles on the new rules that apply to the taxation of deferred compensation.  You can read the articles here and here.  These rules were put into effect by the American Jobs Creation Act of 2004.

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