New Partner Brings Expertise, Enthusiasm and Insight to DGC
On July 6, Donna Marr officially joined DGC as the firm’s newest Partner in the Audit Department. Her presence is significant as it lends even greater depth to the firm’s Commercial Practice. For the past nineteen years, the former Ernst & Young Partner has serviced clients in the technology, telecommunications, software, and life science industries. Now she brings her expertise, enthusiasm, and insight to DGC.

From early stage, seed companies to billion dollar, multi-national enterprises, Donna has significant experience with public and private companies alike. At DGC, however, her focus will be on privately held companies. “It is an adjustment coming from a larger firm,” admits Donna. “DGC occupies a unique space in the marketplace, says Donna. “I’m looking forward to building new networks and joining new organizations, while servicing the same industries I’ve come to enjoy and know so well.”

Donna is well-versed in the biotechnology and high technology industries, explaining that the genesis for both is similar. On the biotech side, she knows what it’s like for clients who must rely on investors—burning through cash in the research and development phase with no revenue—while developing new drug candidates and ultimately striving toward FDA approval. Meanwhile, high technology companies face a similar challenge, from an R&D perspective, in that technology products frequently obsolete so quickly that companies must be continually working to upgrade their product. Over the years, Donna says she has developed a true appreciation for the entrepreneurial spirit, adding “This is exciting stuff. It gives me a charge!”

Clearly, Donna will play a major role in the Commercial Practice at DGC. Going forward, the firm plans to venture deeper into servicing the life sciences, including medical devices, and high technology industries. Having come from a larger firm, Donna will have much to contribute from a management perspective as well.

Please join us in welcoming Donna. She can be reached at 781-937-5145 or dmarr@dgccpa.com.

Estate Planning
With the number of high profile deaths that have happened recently, it brings to mind the idea of estate planning and the incredible tax savings that can be gained by executing and implementing a well thought out plan.  Today, smart money is taking advantage of the silver lining that this depressed economy has provided.  Drastically reduced valuations in the securities and real estate markets, the lowest interest rates the country has ever seen, and a number of estate planning opportunities still available, have given wealthy individuals the opportunity to pass enormous amounts of wealth on to their heirs at a tremendous estate tax savings. 

Some of the estate planning techniques that are being used to take advantage of the current economic climate are transfers to Grantor Retained Annuity Trusts (GRATs), Sales to Intentionally Defective Grantor Trusts (IDGTs)/Intentionally Defective Irrevocable Trusts (IDITs), transfers to Qualified Personal Residence Trusts (QPRTs – see article in this issue), Family Limited Partnerships (FLPs), straight installment sales to family members and straight gifts to family members. Transfers to Charitable Remainder Trusts (CRTs), Charitable Lead Trusts (CLTs), Private Foundations, Donor Advised Funds, or straight transfers to a charity, are also excellent choices for those who are charitably inclined as they also provide for significant income tax savings on top of the estate tax savings they can achieve. 

For more information, come talk to us and we will show you how to take advantage of what may be a once in a life time opportunity.

Steve Colella, Principal 781-937-5377 scolella@dgccpa.com

Current Real Estate Values Make QPRT an Attractive Estate Planning Vehicle
By Kara Cefalo, CPA and Laura Barooshian, CPA

Now may be a good time to consider a Qualified Personal Residence Trust (QPRT), due to the drop in real estate values. A QPRT can generate significant estate and gift tax savings.

The typical structure involves a transfer of a vacation home or other personal residence to a trust (the QPRT). The donor (owner of the residence) retains the right to live in or use the home for a term of years, for example 15 years. The donor continues to be responsible for all of the expenses of the property, including real estate taxes, maintenance, repairs, etc. during that time period. After the expiration of the term of the trust, the remainder interest in the property would then pass to the beneficiaries named in the trust instrument, usually your children or grandchildren, if you outlive the term of the trust.

The advantage of a QPRT is that the taxable value of the home is reduced at the time of the transfer using IRS published tables that take into account the term of the trust, your age and the monthly interest rate. Further discounts may be available if you gift fractional interests in the property. Often, the QPRT discounts reach 50% to 60% of the fair market value. For example, your home may be discounted to around $500,000, if your home is currently valued at $1,000,000.No current gift tax would be due on the transfer of the home to the QPRT, if you have not used up your gift tax lifetime exemption (currently $1,000,000). In this example, all future appreciation in the the home would pass to the beneficiaries without further estate and gift taxes, if you survive the term of the trust.

The entire value of the home is includable in your estate and the amount allocated as a gift when the QPRT was set up is refunded if you pass away during the term of the trust. Therefore, it is important to choose a term for the QPRT that you expect to survive.

You will have to pay rent after the expiration of the term of the trust, which is another way to pass money to the beneficiaries free of gift/estate tax if you wish to retain use of the property at that time. Although the rent is taxed as ordinary income to the beneficiaries, related deductions are allowed and income tax rates are lower than the estate/gift tax rates.   

There are a number of other considerations and planning opportunities, including what happens if you sell the property prior to the end of the trust term. Please contact a member of your DGC client service team if you are interested in learning more.

Get Ready for MA Sales/Use Tax Rate Hike
By Shirleyann Soltys, CPA, with Joel Rothenberg, CPA

Effective August 1, 2009, the Massachusetts sales tax rate will increase to 6.25%. While the legislature is still fine-tuning the regulations, here is a summary of what can be expected.

The Massachusetts sales tax is applicable to purchases of tangible goods, meals, and telecommunication services. In addition to the rate increase, the new legislation repealed the sales/use tax exemption for alcoholic beverages sold at retail. Therefore, alcoholic beverages sold at retail on or after August 1, 2009 will now be subject to the sales/use tax.

Contracts may also be affected. For certain contracts related to the sale of tangible personal property, the old rate of 5% will apply as long as the product is delivered within 90 days of the August 1 deadline. Similarly, the sale of the building materials will be subject to the old rate of 5% if the materials are to be used under a contract that was entered into prior to August 1st. Sales tax on items such as motor vehicles, recreational vehicles, boats, or trailers will be based on the actual date of sale.

Keep in mind that the sales tax increase also applies to the use tax. For any taxable item that is purchased from outside of the state for use within the state (New Hampshire for example), the use tax of 6.25% must be paid. This includes all tangible goods and now, it also includes alcohol.

This is a significant rate increase and the application of sales/use tax can be tricky. If you have questions or concerns about the sales tax rate increase, contact Joel Rothenberg at 781-937-5135 or jrothenberg@dgccpa.com.

Treasury Department Issues Fiscal 2010 Tax Proposals
On May 11, 2009, the Treasury Department released the Green Book which is the "General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals." There are not too many surprises in these most recent proposals, but many of them will affect business owners and depending upon the final votes in the House and Senate, they may influence year end tax planning strategies for 2009. The proposals cover individual, business and international tax matters. The proposals are far reaching, but the following are the key proposals which would affect closely held businesses and their owners:

Business proposals:

• Research and Development Credit – One of the benefits of the budget proposal for business are that the research credit which is set to expire at the end of 2009 would be permanent. Many businesses are not aware that they may be eligible for the R&D credit. This credit is a direct tax credit as opposed to a tax deduction.
• Net Operating Loss Carrybacks – Current law allows most businesses to carryback net operating losses two years and forward for twenty years. The new proposal would increase the carryback period for either three, four or five years. The proposal suggests changing the requirements for businesses which may elect the longer carryback period to include more business.
• Taxation of Profits interest in a Partnership – Currently owners of an LLC or LLP who own their membership interest in the form of a “profits interest” or “carried interest” pay taxes based upon the category of income passed through to the partner from the partnership. The green book proposal would tax all income related to these interest as ordinary income, regardless of the characterization at the partnership level.
• Taxation of Qualified Small Business Stock - The percentage of the exclusion for qualified small business stock (QSBS) issued after February 17, 2009 sold by an individual or other non-corporate taxpayer would be increased to 100% and the AMT add back for the gain would be eliminated.

International tax proposals:

• Foreign Companies Owned by U.S. Entities - The proposal would allow only first-tier foreign entities that are wholly owned by a US person to continue to use the "check-the-box" rules to be treated as a disregarded entity for US tax purposes.   In a multiple tier structure, only the first tier (if wholly owned by a US person) will be able to be treated as a disregarded entity.  All other tiers will be treated as foreign corporations for US tax purposes, unless a lower tier entity is organized in the same country as its owner.
• Expenses Related to Foreign Subsidiaries – Currently, a U.S. company that has subsidiaries overseas, is allowed to deduct the subsidiary expenses without recognizing income. Under the budget proposal, the deduction of expenses (other than research and development expenses) of a U.S. entity that are properly allocated and apportioned to foreign source income would be deferred to the extent the foreign -source income associated with the expenses is not currently subject to U.S. tax. The amount of the deferred expenses would be carried forward to subsequent years until it is allowed to be deducted.
• Foreign Tax Credit - The proposal also would change the way that a U.S. taxpayer would determine its deemed paid foreign tax credit. A U.S. taxpayer would calculate its deemed paid foreign tax credit based on the amount of consolidated earnings and profits of the foreign subsidiaries repatriated to the U.S. taxpayer in that tax year. Business leaders have been very critical of the Obama administrations attack on offshore tax avoidance because the deferral system was put in place to put U.S. companies on equal ground as their foreign counterparts. The administration argues that the offshore tax avoidance hurts domestic counterparts and does not encourage job growth in the United States.

Individual tax matters:

• Income Tax Rates - The Green Book proposals would cause significant tax planning challenges for high income individuals. In 2011, the proposal calls for the highest income tax rate to be increased to 39.6% from 35% and the second highest rate to be increased to 36% from 33%. The exact income level for the highest bracket of 39.6% has not yet been determine but is expected to be $373,000 of income or higher. People with an adjusted gross income of around $250,000 but less than $373,000 would be subject to the second highest rate of 36%. In addition to the tax rate increases, the tax value of itemized deductions will decrease. The tax value of itemized deductions will be limited to 28%. Therefore, if itemized deductions would reduce income in the 36% or 39.6% tax bracket, the benefit of the itemized deductions will be capped at 28%.
• Capital Gains Rates - The 15% capital gains and qualified dividend rates will expire December 31, 2010. The administration plans to raise the long term capital gains and dividends rate to 20% for married filing jointly taxpayers with income over $250,000 less the standard deduction and two personal exemptions. The 15% rate will remain for all other taxpayers.
• Estate and Generation Skipping Transfer Taxes - The repeal of the estate and generation-skipping transfer taxes is not expected to occur. Instead, estate and gift taxes would be extended at parameters in effect for calendar year 2009, which is a top rate of 45% and an exemption amount of $3.5 million.
• Term of GRATs – The Green Book proposes setting a minimum term for GRATs (Grantor Retained Annuity Trusts) at 10 years.  This would increase the risk that the assets won’t appreciate sufficiently enough to leave anything for the beneficiaries of the GRAT once all of the annuity payments are made over this period.  It also increases the risk that the taxpayer may pass away during the term of the GRAT, resulting in an inclusion in the taxpayer’s estate of all of the remaining GRAT assets.
• Discounts for FLPs -  The Green Book proposes to eliminate certain types of valuation discounts that may be applied when valuing FLPs (Family Limited Partnerships).  The intent is to disallow the types of discounts that have the effect of reducing the value of the transferred interest for estate tax purposes under existing law, but do not ultimately reduce the value of such interest to the transferee with particular emphasis on disallowing valuation discounts for restrictions related to the liquidation of a partnership or corporate interest.

August 5 – Greater Boston Chamber of Commerce - Annual Summer Reception
August 6 – Association for Corporate Growth (ACG - Boston) - Emerging Professionals- Summer Networking Event
August 11 – Boston Young Professionals Association - August Professional Networking: Leads and Referrals, Series
August 13 – Small Business Assoc. of New England (SBANE) - After Hours Summer Networking
August 20 – Turnaround Management Association (TMA) - Summer Networking Social

If you wish to UNSUBSCRIBE click on the "Update Profile / Unsubscribe" link below.
Copyright (c) DiCicco, Gulman & Company LLP
150 Presidential Way, Suite 510 | Woburn, MA 01801 | Tel: 781-937-5320