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June 1, 2018

 

IRS Will Issue Guidance on Tax-Reform-Inspired SALT Transactions

(Forbes) May 23, 2018 –As the details of the Tax Cuts and Jobs Act were being worked out, one provision attracted a great deal of attention: state and local tax caps (SALT caps). Ultimately, deductions for state and local sales, income, and property taxes typically deducted on a Schedule A remain in place but are limited.

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New Federal Tax Law

Under the new law, the amount that you may claim on Schedule A for all state and local sales, income, and property taxes together may not exceed $10,000 ($5,000 for married taxpayers filing separately). This cap is concerning for taxpayers in high-property-tax states like California and Texas, as well as those in high-income-tax states like New York and New Jersey.

Following the new law, states scrambled to come up with novel ways to re-characterize tax payments to keep taxpayers happy (and clearly, inside their geographic borders). Some states have proposed variations on state and local charitable funds or trusts which would accept payments from taxpayers in satisfaction of state and local tax liabilities. The idea, of course, is that those payments would then be re-characterized as fully deductible charitable contributions for federal income tax purposes.

Pretty brilliant, right?

Not so fast.

The Internal Revenue Service (IRS) has released Notice 2018-54 (downloads as a pdf), advising that it intends to propose regulations “addressing the federal income tax treatment of certain payments made by taxpayers for which taxpayers receive a credit against their state and local taxes.” While the IRS hasn't indicated what exactly those regulations would entail, the agency did offer some insight, noting the proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers.

The substance-over-form principle can be boiled down to the adage, “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” In other words, you typically can’t repackage one thing (like a deduction for state and local taxes) as another thing (like a charitable deduction) and pretend it’s not the first thing. Or put another way, intent matters: Your tax return and financial records should reflect the economic reality of a transaction and not be an attempt to hide the real intent.

The notice continues, “The proposed regulations will assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction for state and local tax payments.”

The notice does not indicate when the proposed regulations will be released. So what should you do in the meantime? The IRS suggests that you “be mindful that federal law controls the proper characterization of payments for federal income tax purposes.” While it’s tempting to throw your dollars at new schemes, even well-intentioned ones blessed by your state legislature, this is new ground. Proceed with caution.

 

 

 

 

Why Compliance is a CPA’s Competitive Weapon for 2018

(CPA Practice Advisor) Christoph Hutten, May 23, 2018 – As economies, businesses, and people progress through innovation, so must accountants adapt to the evolving role of finance. The days of the one-dimensional CPA number cruncher are long gone. Accountants are increasingly expected to master areas outside of finance such as regulation, risk management, financial technology, process management and business transformation.

While accountants are no strangers to governance, risk and compliance (GRC), they commonly acknowledge GRC only as it relates to their day-to-day activities, and not as it relates to larger company initiatives. Without fault, most financial positions in a company operate to satisfy their own responsibilities. However, there’s a strategic advantage to CPAs who break out of their silos and support a more comprehensive compliance and risk framework.

Companies should not think of GRC as solely a mandate that protects them from liability. GRC is much more than a mandate – it allows collaboration across the enterprise and can be leveraged as a competitive edge over businesses that have not made compliance a priority. Accountants can play a powerful role in supporting overarching GRC processes. Specifically, CPAs can help ensure their company remains agile among competitors by improving transparency, enhancing performance and preventing fraud.

Improving Transparency: Providing insight into a company’s financial performance is at the very heart of the accounting role. With new accounting standards such as IFRS 15 / ASC 606, and data privacy laws such as GDPR, the level of transparency increases and so does the challenge for accountants to manage these GRC efforts. However, most organizations treat these efforts by simply trying to “check the boxes” to ensure they meet statutory requirements, but little more. Processes are established at the lowest level of sophistication needed to provide the required data and avoid material errors. As companies gain expertise, however, they often improve their processes. By using tools and technology to automate accounting and reporting processes, they achieve a trifecta of benefits:

  • The processes to produce the required data become more efficient and less prone to errors resulting in accelerated cost savings.
  • The processes produce data beyond the scope required by accounting standards with the additional data being useful to steering the company and identifying and managing risks.
  • The processes embed risk management procedures through automated internal controls, early risk indicators and scenario analysis.

Enhancing Performance: While transparency is critical for gaining trust, improving performance is yet another benefit of a successful GRC program – and one that has a direct impact on the bottom line. By breaking down silos and working across the enterprise to support GRC initiatives, accountants can play a role in increasing operational efficiency. Exxaro Resources Limited is a prime example of a company that proactively restructured its GRC processes to integrate risk, compliance and audit to drive business efficiency and resilience. Not only has enterprise-wide GRC collaboration lead to an improvement in the visibility of risks, but Exxaro has seen a 10 percent reduction in auditing costs and 20 percent savings in costs through better resource allocation. The next wave of innovation is to put core traditional integrated GRC applications and processes into the cloud.

Preventing Fraud: In today’s connected world, the need to properly screen business processes and evaluate the integrity of third parties is critical for potential fraud risks. GRC solutions that provide insight into where sensitive data is stored in the cloud, when and where it’s being moved, and allow control such as defining geo locations for where data and resources can and cannot be stored, are helpful for mitigating risk. Think about how many companies struggle with false, inflated, or duplicate invoices for goods and services. Many incidents are discovered after the fact or never at all. Even when fraudulently dispersed monies are identified, they are not always recouped from the bank. In fact, the Association of Certified Fraud Examiners estimates that the average company loses five percent of its annual revenue through fraud. A comprehensive compliance program that includes real-time monitoring of fraud and fraud prevention can add both top-and bottom-line benefit.

Changing the perception of accounting’s role in GRC might require a mental shift. Right now, compliance may seem like a necessary evil – a chore with punishments for tardiness or deviation. However, companies that embrace enterprise-wide GRC initiatives have the ability to detect and prevent catastrophic losses. Though accountants face compliance tasks on their to-do lists every day, by leveraging their insights to support GRC across the company more broadly, they can arm themselves with a competitive advantage heading into the second half of the year. Compliance initiatives can add real value to the business by helping to take advantage of new market opportunities, especially when competing against other companies that haven’t made compliance a priority.

 

 

 

 

 

Why the GDPR Will Make Your Online Experience Worse

(Fortune) By Daniel Castro, Michael McLaughlin, May 23, 2018 –Early computer programmers created the Y2K bug by failing to consider if computers would know the date 00 meant the year 2000. Fixing this simple oversight cost an estimated $500 billion worldwide with little to no added value to the global economy. But at least it was a one-time only cost.

On May 25, the world faced another massive and ongoing techno-spend with no added value: the European Union’s General Data Protection Regulation (GDPR).

The GDPR is a set of regulations imposed by the European Union on all organizations processing European personal data. Companies face several requirements under the legislation, which goes into effect May 25, including explaining to their customers how their algorithms make decisions, alerting data protection authorities of breaches within 72 hours, and deleting an individual’s data upon request. While privacy advocates are swooning over the new rules, the reality is that the new regulations will harm not only the organizations that must comply with them, but consumers—the very people the GDPR is intended to help.

The regulation places significant burdens on organizations. To comply with the GDPR’s requirements, organizations have to buy and modify technology, create new data handling policies, and hire additional employees. For Fortune Global 500 companies, the biggest firms worldwide by revenue, the costs of compliance will amount to $7.8 billion. In the U.S., PwC surveyed 200 companies with more than 500 employees and found that 68% planned on spending between $1 and $10 million to meet the regulation’s requirements. Another 9% planned to spend more than $10 million. With over 19,000 U.S. firms of this size, total GDPR compliance costs for this group could reach $150 billion. And this does not include smaller firms and nonprofit organizations, most of which, if they have European customers, will have their own compliance costs.

Compliance is not an easy or one-time cost. For example, the task of deleting individuals’ data upon request is one of the most difficult obligations to fulfill for organizations. Firms will also face significant fines for noncompliance as soon as the rules go into effect. The fines can be as much as €20 million or 4% of a company’s worldwide annual revenue, whichever is larger.

This means that the EU could fine a company like Amazon over $7 billion. Smaller companies that do not comply may be at a more significant risk, because €20 million can be substantially more than 4% of their global revenue. Given that a Gartner study found that more than 50% of organizations affected by the GDPR will not be compliant with all of its requirements by the of end 2018, fines could be hefty.

Privacy rules can have a significant impact on the digital economy. When the European Union implemented data protection rules in 2003 restricting how advertisers collect and use consumer information, the effectiveness of online ads dropped by 65%. The GDPR will likely have a similar effect. After the GDPR goes into effect, 82% of Europeans plan to view, limit, or erase data collected about them. As more people delete their data and do not allow it to be collected, advertisements will become less effective and revenues from online advertising will fall.

Many organizations will pass these costs on to consumers either by erecting paywalls or forcing users to view more ads. Others may choose to operate with less revenue, which means they will have less money to invest in innovation and service quality improvement will stagnate.

But even though firms face massive expenses, the indirect costs of the GDPR will likely be even larger, as organizations in Europe shy away from using data-driven innovation to cut costs or improve quality. Why would organizations take the risks of using the limited data that is available if they can be fined 4% of revenue? It is better to play it safe and dumb.

Some firms will simply eliminate services. In a sign of things to come, one online gaming company announced it would shut down one of its multiplayer video games rather than take on the cost of making it GDPR-compliant. Another decided to simply block all European gamers. Bigger companies that can spend more on compliance are also being cautious. Facebook, for example, has turned off facial recognition by default in the EU to avoid running afoul of privacy rules. Google has notified users of its popular website traffic monitoring service, Google Analytics, that they must adjust their data retention settings.

Services directly linked with personal data are most at risk. For example, Lithium Technologies, which acquired Klout a few years ago for $200 million, announced it was shutting down its service on May 25. Another company, Parity Technologies, announced that it would shut down its growing identify verification service, used by blockchain services to comply with anti-money laundering laws that apply to initial coin offerings.

Other European companies will reduce the data they collect, thereby limiting their ability to use data to train sophisticated algorithmic models. The result will be less accurate algorithms and less use of automation by European companies, reducing EU productivity growth and putting these firms at a competitive disadvantage.

Y2K and the GDPR are both manmade mistakes. But whereas most people did not discover the Y2K problem until it was too late to avoid, EU policymakers have known about these coming costs for years. And unlike the Y2K bug, which could only be fixed with massive recoding of computer systems, the GDPR problem could be fixed relatively easily by updating legislation. Unfortunately, EU policymakers show no signs of acknowledging their mistake.

 

 

 

 

 

F.B.I.’s Urgent Request: Reboot Your Router to Stop Russia-Linked Malware

(The New York Times) May 27, 2018 – Hoping to thwart a sophisticated malware system linked to Russia that has infected hundreds of thousands of internet routers, the F.B.I. has made an urgent request to anybody with one of the devices: Turn it off, and then turn it back on.

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The malware is capable of blocking web traffic, collecting information that passes through home and office routers, and disabling the devices entirely, the bureau announced on Friday.

A global network of hundreds of thousands of routers is already under the control of the Sofacy Group, the Justice Department said last week. That group, which is also known as A.P.T. 28 and Fancy Bear and believed to be directed by Russia’s military intelligence agency, hacked the Democratic National Committee ahead of the 2016 presidential election, according to American and European intelligence agencies.

The F.B.I. has several recommendations for any owner of a small office or home office router. The simplest thing to do is reboot the device, which will temporarily disrupt the malware if it is present. Users are also advised to upgrade the device’s firmware and to select a new secure password. If any remote-management settings are in place, the F.B.I. suggests disabling them.

An analysis by Talos, the threat intelligence division for the tech giant Cisco, estimated that at least 500,000 routers in at least 54 countries had been infected by the malware, which the F.B.I. and cybersecurity researchers are calling VPNFilter. Among the affected networking equipment it found during its research were devices from manufacturers including Linksys, MikroTik, Netgear and TP-Link.

To disrupt the Sofacy network, the Justice Department sought and received permission to seize the web domain toknowall.com, which it said was a critical part of the malware’s “command-and-control infrastructure.” Now that the domain is under F.B.I. control, any attempts by the malware to reinfect a compromised router will be bounced to an F.B.I. server that can record the I.P. address of the affected device.

“This court-ordered seizure will assist in the identification of victim devices and disrupts the ability of these hackers to steal personal and other sensitive information and carry out disruptive cyberattacks,” Scott W. Brady, United States attorney for the Western District of Pennsylvania, said in the Justice Department statement.

The analysis by Talos noted significant similarities between VPNFilter’s computer code and “versions of the BlackEnergy malware — which was responsible for multiple large-scale attacks that targeted devices in Ukraine.”

In Talos’s assessment, the threats posed by VPNFilter extend far beyond the personal problems created by stolen passwords: Under the right circumstances, an attack could have a global reach.

“The malware has a destructive capability that can render an infected device unusable,” it said, “which can be triggered on individual victim machines or en masse, and has the potential of cutting off internet access for hundreds of thousands of victims worldwide.”

 

 

 

 

 

AICPA Wants More IRS Guidance on Virtual Currency Taxes

(Think Advisor) May 30, 2018 –The American Institute of CPAs is urging the Internal Revenue Service to issue immediate guidance about the tax treatment of virtual currencies to supplement existing guidance that the group says fails to meet taxpayers’ needs.

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“The rapid emergence of virtual currency has generated several new questions on how the tax rules apply to various transactions involving virtual currency and activities and assets related to it,” Annette Nellen, chair of the AICPA Tax Executive Committee, told the IRS in a letter.

“Moreover, the development in the number of types of virtual currencies and the value of these currencies make these questions both timely and relevant to a growing number of taxpayers and tax practitioners.”

Nellen suggested that the guidance on virtual currency transactions could supplement guidance in IRS Notice 2014-21.

AICPA asked the IRS to issue a FAQ addressing the following 12 areas:

  • Expenses of obtaining virtual currency
  • Acceptable valuation and documentation
  • Computation of gains and losses
  • Need for a de minimis election
  • Valuation for charitable contribution purposes
  • Virtual currency events
  • Virtual currency held and used by a dealer
  • Traders and dealers of virtual currency
  • Treatment under Internal Revenue Code (IRC) section 1031
  • Treatment under IRC section 453
  • Holding virtual currency in a retirement account
  • Foreign reporting requirements for virtual currency

AICPA suggested the new FAQ address issues such as:

Q: Are taxpayers allowed to use an average of different exchanges?

A: Yes. Taxpayers are allowed to use an average of different exchanges as long as they are consistent in how they calculate the valuation.

Q: May taxpayers use the average rate for the day to calculate the exchange rate?

A: Yes. Taxpayers may use the average rate for the day to calculate the exchange rate, provided they are consistent in how they make this determination for every virtual currency transaction.

Q: May taxpayers rely on virtual currency tax software as a reasonable and consistent method for determining fair value?

A: Yes. Taxpayers may rely on virtual currency tax software as a reasonable and consistent method for determining fair value if the software is consistently using aggregated price data.

 

 

 

 

 

Why Fintechs, Not Advisors, Are Driving Change in Financial Planning

(Financial Planning) By Davis Janowski, May 23, 2018 – Financial planning development is speeding up, but the pace is not being set by the advisor industry.

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“I believe we are right at the beginning of a supercycle,” says Cinch Financial CEO and founder Sean Collins.

The Boston-area based startup is at the bleeding edge of how I have come to think young consumers will expect to embrace financial planning — that is, without them even knowing what they are engaged in is financial planning.

Cinch tends to refer to what it is building as autonomous personal finance. Their free direct-to-consumer online service acts as an always-on holistic fiduciary software agent. It takes in a user’s financial life, inclusive of debts, savings, day-to-day cash flow, insurance, and large monthly bills.

Cinch then takes this data and applies behavioral science and predictive analytics to help their users make the smartest financial decisions in their day-to-day lives. This ranges from how much to save, to how to prioritize payment of their debts from month to month, whether student loans, credit cards or when it will be best to get a mortgage if that is among their goals.

Cinch primarily targets millennials who have debt and not a lot of assets.

“We start with someone’s everyday finances and then turn to big goals like buying a home and building retirement savings,” Collins adds. Unlike quite a few fintech founders, Collins is not a young visionary right out of college. His Twitter profile quips that he is a “financial services lifer now redeeming myself through Cinch.”

Wealthfront is doing something similar in terms of longer-term goal planning with ongoing developments of its Path product. Though it is not helping a user prioritize monthly budgeting and spending, it has evolved from an initially simple, straightforward planning process that began with account aggregation and morphed into a tool tackling some of life's biggest financial decisions, like buying a home.

The startups are employing data scientists and working with various forms of artificial intelligence, including machine learning, in a way I have yet to see when it comes to the financial planning software available to advisors.

“It is a gap,” says William Trout, who heads research firm Celent's global wealth management practice.

“There is a pretty big divide between financial planning technology and AI, this is kind of unchartered territory,” he adds. He made clear though, that while direct integrations between planning software and types of AI are yet uncommon in the advisor universe, the same is not true of CRM.

“Today, the rubber hits the road with the CRM platform,” says Trout. He cites Salesforce, which has gained among advisor clients, and the company’s Einstein AI.

“Enabling the CRM to connect wildly disparate information points by leveraging AI is going to be a work amplifier for advisors, enabling them to better scale their practices to work with more clients at greater depth,” says Trout.

eMoney Advisor CEO Ed O'Brien argues against the notion that AI and planning connections don’t exist in the incumbent advisory industry.

“Every one of them [the large incumbent firms] is working in those domains; one of the advantages with machine learning is that it gets better with more scale,” he says.

“Artificial intelligence is all about the algorithms and smart people anywhere can build a good algorithm but when it comes to machine learning it requires some scale to make the thing actually learn,” O’Brien adds.

While prototyping AI and machine learning will lead to future tools, applying it to task automation in the near term holds the key to improving advisors’ lives and growing their businesses.

“I think all of us are concluding the focus on integration for now is to automate and eliminate manual tasks,” says O’Brien. He agrees that planning-led relationships can evolve to a point where they can become entirely digital, entirely autonomous processes.

However, clients will inevitably want to talk to a human that possesses emotion, and can relate to emotion and factor it in to helping making decisions. “But it is hard to say; is it 5%, 10% of the time?” he asks rhetorically.

Others suggest that there is plenty left to do without enlisting the absolute most cutting-edge technology.

“There is a race among companies that are progressive and startups like ourselves,” says Steve Chen, founder and CEO of NewRetirement.

“What we are doing is not AI, rather very personalized, pretty intelligent and precise suggestions,” he says of his company’s direct-to-consumer free online retirement software. It was developed for those over 50 who are approaching retirement but find themselves unprepared, a crisis that confronted Chen's own educated, professional mother.

He said his users do not share the same mindset as millennials who are much more comfortable with account aggregation and sharing their account credentials.

“We do projections based on what they do tell us they have, and are capturing very granular data from them,” says Chen. Then the application applies what is in its knowledge database. He illustrated this by talking about industry Social Security expert Mary Beth Franklin, who he recently interviewed for a podcast.

“Think of the permutations around taxes or even Social Security alone, for example, for those married more than 10 years in certain circumstances,” he says. “It’s those types of things we have built or are building into the software.”

 

 

 

 

 

Law Change Affects Moving, Mileage and Travel Expenses

(IRS) May 25, 2018 – The Internal Revenue Service has provided information to taxpayers and employers about changes from the Tax Cuts and Jobs Act that affect:

  • Move related vehicle expenses
  • Un-reimbursed employee expenses
  • Vehicle expensing
  • Changes to the deduction for move-related vehicle expenses

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Several other live tax seminars and Webcasts are also available.

The Tax Cuts and Jobs Act suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, and goes through Jan. 1, 2026. Thus, during the suspension no deduction is allowed for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.

Changes to the deduction for un-reimbursed employee expenses

The Tax Cuts and Jobs Act also suspends all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects un-reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Thus, the business standard mileage rate listed in Notice 2018-03, which was issued before the Tax Cuts and Jobs Act passed, cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance today in Notice 2018-42.

Standard mileage rates for 2018

As mentioned in Notice 2018-03, the standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:

  • 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
  • 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
  • 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Increased depreciation limits

The Tax Cuts and Jobs Act increases the depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017. Previously, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

More information

Notice 2018-42 is posted on IRS.gov and contains information about the update to the standard mileage rates, including the details about the suspension of the deduction for operating a vehicle for moving purposes.

 

 

 

 

 

Chicago’s ‘Netflix Tax’ OK, But Appeal in Queue

(BNA) May 29, 2018 – A libertarian think tank challenging Chicago’s “Netflix tax” will appeal a court order rejecting the group’s assertions that the tax on streaming services violates the federal and state constitutions and the federal Internet Tax Freedom Act.

An attorney for the Chicago-based Liberty Justice Center said May 29 he would appeal a ruling by Cook County Circuit Court Judge Carl Anthony Walker granting Chicago summary judgment in a case targeting Amusement Tax Ruling No. 5, a revenue program created in 2015 to impose the city’s 9 percent amusement tax on streaming entertainment services.

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The case may be the first in the country to contest a municipality’s authority to tax consumer purchases from online entertainment providers such as Apple Inc. and Pandora Media Inc. in the music-streaming sphere, Netflix Inc. and Amazon Instant Video for television and movies, and Sony Corp., Microsoft, and Nintendo Co. for gaming.

Walker’s May 24 ruling found no basis for the plaintiffs’ objections to the tax under the ITFA, the commerce clause of the U.S. Constitution, and the uniformity clause of the Illinois Constitution. Walker also rejected the Liberty Justice Center’s assertion that Chicago has no authority to impose a tax on streaming activity occurring beyond the borders of the city.

“We are going to appeal. We still believe the tax is illegal and we will continue to litigate the case until we can’t anymore,” Jeffrey Schwab, a senior attorney at the Liberty Justice Center, told Bloomberg Tax.

Bill McCaffrey, a spokesman for Chicago’s Law Department, said “the City has at all times been confident in its position that the amusement tax properly applies to streaming video, music, and games, and we are pleased with the judge’s decision.”

Voluntarily Dismissed

The Entertainment Software Association filed a similar challenge under the ITFA in June 2017.

Catherine Battin, a tax partner with McDermott Will & Emery LLP in Chicago and counsel to the software association, said the action was voluntarily dismissed on April 26.

Jeremy Gove, a tax associate in the New York office of Reed Smith LLP, said tax practitioners and elected officials were watching the Netflix case closely because Chicago is one of the few jurisdictions to go after streaming services with a focused taxation plan. While some units of government thirsted for the same tax dollars, they were also unsure Chicago would survive a legal challenge.

“With the shift to streaming services, it is certainly something where municipalities see they may have another string of revenue available to them,” Gove said.

Chicago raised eyebrows three years ago when it sought to extend its amusement tax to electronic entertainment venues. Under Tax Ruling No. 5, Chicago’s amusement tax applies not only to charges paid for the privilege to witness, view, or participate in amusements in person, “but also charges paid for the privilege to witness, view or participate in amusements that are delivered electronically.” The ruling offers a list of examples, including charges paid for the privilege of watching electronically delivered television, movies, and videos; listening to electronically delivered music; and participating in online games.

Tax Freedom Rationale

The Liberty Justice Center, a legal advocacy think tank focusing on economic liberty and private property rights, quickly challenged the tax on behalf of consumers.

The center placed great faith in its arguments under the ITFA, which generally prohibits political jurisdictions from imposing discriminatory taxes on various forms of electronic commerce. The group asserted that the tax was discriminatory as it applied to streaming services compared with similar forms of entertainment provided in different ways, such as coin-operated entertainment services and live performances, which are taxed by the city at a lower rate.

Walker rejected the ITFA claims, however, finding no discriminatory effect because there are “real and substantial differences” between the traditional entertainment vehicles cited by the plaintiffs and the streaming services subject to Ruling No. 5. He added that municipalities are entitled to structure their tax regimes differently to accommodate similar services delivered to taxpayers in different formats.

“Administrative convenience and expense in the collection or measurement of the tax alone are sufficient justification for the difference between the treatment in taxes,” Walker wrote.

Walker pushed away the center’s commerce clause arguments, pointing to the U.S. Supreme Court’s four-part test in Complete Auto Transit, Inc. v. Brady. Walker said the tax was consistent with the commerce clause because it is “applied to an activity with a substantial nexus with the City; it is fairly apportioned; it does not discriminate against interstate commerce; and it is fairly related to services which the City of Chicago provides to the taxpayers.”

Extraterritorial Tax

Walker also rejected the Liberty Justice Center’s assertion that Chicago had created an “extraterritorial” tax, seeking to impose duties on activities occurring beyond the city limits. The group specifically cited the recent Illinois Supreme Court ruling in Hertz Corp., which found Chicago’s lease transaction tax on rental vehicles to be an illegal extraterritorial exercise of Chicago’s authority under the home rule article of the state constitution.

Walker said the Hertz precedent doesn’t apply because the two taxes are “distinguishable.” While the rental vehicle tax attempted to capture activity occurring at facilities within three miles of the city limits, the tax on streaming services carries no such extraterritorial intent because it applies to “Chicago residents with billing addresses located within the City of Chicago.”

Schwab said Walker failed to properly analyze the way consumers use streaming services against the precedent in Hertz.

For instance, taxpayers paying for streaming services with a credit card linked to a Chicago address but using those services while living in another city in Illinois or another state are nonetheless charged the amusement tax. In a reverse context, individuals living in the suburbs who listen to streaming radio at work in Chicago aren’t taxed at all, even though they are using an amusement in the city limits.

“The problem with the tax is it’s not really a tax on use in Chicago,” Schwab said. “It’s a tax on people that live in Chicago, regardless of where they use it. Ultimately, it’s taxing something someone might be using outside of the city.”

The case is Labell v. Chicago , Ill. Cir. Ct., No. 15 CH 13399, 5/24/18.

 

 

 

 

 

Here's Why Your Inbox Is Filled With Privacy Policy Emails

(Entrepreneur) May 29, 2018 – As you settled back into work after a relaxing holiday weekend, you probably had a larger-than-average influx of emails to sift through. Their subject lines read along the lines of, “Please update your information and consents,” “Updated terms of service and privacy policy” and more.

This is all thanks to a new law out of Europe, the General Data Protection Regulation (GDPR). But don’t blame European lawmakers for the fact that you’re getting all of these messages at once.

The European Union passed the GDPR in April 2016, and tech companies had more than two years to prepare before enforcement of the law began on May 25, 2018. Given that the web is a global network, the GDPR has required that all digitally operating companies that have European citizens as users to make changes to the ways in which they collect, store and process user data -- or else pay hefty fines.

In a nutshell, organizations can’t collect data without user consent, and they are required to fulfill users’ requests to delete any information they’ve collected on them. Users will also be able to download all of the data an online service provider has on them and see how that organization has been using it.

It’s a tall order to get companies and users alike to care about data privacy at scale. It’s complicated, because laws have frequently come into effect reactively, not proactively. People take privacy for granted, and often, it takes a massive breach for people to get concerned, such as when it came to light in March that years-old Facebook data -- from 87 million users -- had gotten into the hands of political consultancy Cambridge Analytica.

That scandal inspired congressional hearings with Facebook CEO Mark Zuckerberg in the hot seat, and given the impending GDPR, he testified before the EU as well. The scandal hasn't made a dent in Facebook usage.

The same passiveness goes for the GDPR: Many online service providers scrambled to get their policies updated and their users in the know, thus the 11th-hour emails that arrived en masse leading up to May 25. It’s likely that most people won’t read them, but in one way or another, many organizations’ email subscriber lists are going to dwindle because of them.

Several of the emails lead with desperate pleas, e.g. “Please don’t go!” because their aim is for the user to opt in, giving organizations permission to continue the data-sharing relationship, a.k.a. keep them on their marketing lists. They want you to renew your vows, if you will. If you don’t, companies are supposed to unsubscribe you. That might sound like a long overdue spam spring cleaning. But the problem is, the service providers are making users do all the work -- and all at once -- if they want to stay in the loop.

Then, there have been reports that these emails are all for naught, based on a misunderstanding of the GDPR. Some companies already have the necessary consent from their user contacts. Now, the emails they’re sending might backfire if people get unsubscribe-happy amid the email flood.

Even though tech giants such as Facebook and Google have been more publicly under fire for their misuse of data, some have argued that the GDPR gives bigger organizations an advantage. If a lesser-known entity asks a user to consent to data access, it might be met with more skepticism, or seen as less legitimate. This is an opportunity for users to think hard about which organizations they trust and why.

“You’re quite likely to click ‘I Consent’ or ‘Yes’ when a GDPR form is put in between you and your next hit of Facebook dopamine,” John Battelle writes for NewCo Shift. “You’re utterly unlikely to do the same when a small publisher asks for your consent via what feels like a spammy email.”

As for the updated service agreements themselves, you’ve probably wondered, do these companies really expect every user to read every new contract that’s dropped into their inbox? Despite the fact that the GDPR specifies that companies must write their privacy policies in “clear and plain language,” many of the updated policies consist of the opposite. Google’s, Facebook’s, Twitter’s and LinkedIn’s are now more verbose, according to The Wall Street Journal. It seems like a classic case of cramming: the dilemma of, I would have written you a shorter note if I’d had more time to edit down my rambling first draft.

This is just one way in which companies were unprepared for the May 25 enforcement. Publications under the Tronc family, such as The Chicago Tribune and The Los Angeles Times, are among those that have blocked European citizens from accessing their websites while they continue getting their GDPR ducks in a row. Many other U.S.-based publications presented opt-in messages or pared-down websites to their audiences.

Even if you click the “x” on policy update prompts, and even if you (inevitably) don’t read all of the emails, it can’t hurt to keep them on file. You never know when you’re want to take a glimpse at the data you’ve shared with a social network, app or other service -- and possibly wipe the record clean. Some of those emails might point you in that direction if that day ever comes.

 

 

 

 

 

New Law Gives Individuals and Businesses More Time to Challenge a Wrongful IRS Levy; Newly-Revised Publication Can Help

(IRS) May 25, 2018 – Individuals and businesses have additional time to file an administrative claim or to bring a civil action for wrongful levy or seizure, according to the Internal Revenue Service.

Related CPE Programs

Several other live tax seminars and Webcasts are also available.

An IRS levy permits the legal seizure and sale of property including wages, money in bank or other financial accounts, vehicles, real estate and other personal assets to satisfy a tax debt.

The Tax Cuts and Jobs Act of 2017, the tax reform law enacted in December, extended the time limit for filing an administrative claim and for bringing a suit for wrongful levy from nine months to two years. If an administrative claim for return of the property is made within the two-year period, the two-year period for bringing suit is extended for 12 months from the date of filing of the claim or for six months from the disallowance of the claim, whichever is shorter. The change in law applies to levies made after Dec. 22, 2017, and on or before that date, if the previous nine-month period hadn’t yet expired.

The timeframes apply when the IRS has already sold the property it levied. As under prior law, there is no time limit for the administrative claim if the IRS still has the property it levied. Also, as under prior law, taxpayers may not file a wrongful levy claim or bring a wrongful levy suit as the law only applies to those other than the taxpayer. Usually, wrongful levy claims involve situations where an individual or business believes that either the property belongs to them, or they have a superior claim to the property that the IRS is not recognizing.

Anyone who receives an IRS bill titled, Final Notice of Intent to Levy and Notice of Your Right to A Hearing, should immediately contact the IRS. By doing so, a taxpayer may be able to make arrangements to pay the liability, instead of having the IRS proceed with the levy.

It’s also important that those who receive a levy for their employees, vendors, customers or other third parties comply with the levy. Failure to do so may subject the party receiving the levy to personal liability. For more information, see the What is a Levy? page on IRS.gov.

To file an administrative wrongful levy claim, send a letter to the IRS Advisory Group for the area where the levy was made. For a list of Advisory Group offices, see Publication 4235, Collection Advisory Group Numbers and Addresses, available on IRS.gov. For more information on wrongful levy claims, including details on what information to include in the letter, see newly-revised Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code Section 6343(b), also available on IRS.gov.

If, following a claim, the IRS determines it has wrongfully levied property, it will return one of the following:

  • the property,
  • an amount of money equal to the amount of money levied upon, or
  • an amount of money equal to the money received from the sale of the property.

Anyone whose wrongful levy claim is denied by the IRS has the right to appeal through the agency’s Collection Appeals Program. For more information about these appeal rights, see Publication 1660, Collection Appeal Rights.

The right to appeal an IRS decision in an independent forum is one of many rights taxpayers have when dealing with the IRS. These rights have been grouped into 10 broad categories as the Taxpayer Bill of Rights. For more information, see Publication 1, Your Rights as a Taxpayer, available on IRS.gov.

For information on wrongful levy claims and other tax-reform-related issues, visit IRS.gov/newsroom/tax-reform.