TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

The "Section 125 cafeteria plan" has become a popular way to offer fringe benefits in the workplace on a pre-tax basis. Essentially, an employee is able to pick and choose the benefits desired. The employer only has to pay for those benefits that the employee actually chooses. Both parties save on taxes so it's usually a win-win situation. The IRS recently issued new guidance for companies with these plans, which clarifies many issues. Click Here for the full story.

In the Wake of the Sub-Prime Meltdown: A Brave New World Commercial real estate owners-and homeowners-are justifiably concerned about the condition of the mortgage industry. The myriad of news stories about the sub-prime mortgage debacle and the ensuing financial crisis beg the following questions: How did we get here? What's Mortgage and Rate Primer The mortgage and lending industries contain principal elements that often move in tandem with each other. Below is a glossary explaining some of the terms: Discount Rate - The interest rate charged by the Federal Reserve for short-term loans to member banks. The Fed can raise or lower this rate. Federal Funds Rate - The interest rate banks charge each other for the use of Federal Funds (funds deposited by commercial banks at Federal Reserve Banks). It changes daily and is a sensitive indicator of general interest rate trends. The Fed can also raise or lower this rate. Prime Lending Rate - The lending rate banks charg...

Husband and Wife Partnership Election to be Treated as Sole Proprietors Under the Act, a husband and wife that report their joint business activities on their joint tax return may elect to be treated as sole proprietors and not as a partnership. Although some commentators believe this provision will be used infrequently, this will have a tremendous impact on Husband/Wife owned Limited Liability Companies. Because there were two owners, the LLC would have to file a 1065 US Partnership Tax Return. This makes no sense for a couple filing a joint return. So long as both the husband and wife materially participate in the business and the business, a Schedule C may be filed. This will save unnecessary accounting expense. If only one spouse materially participates in the business even though both spouses own the business, they will not qualify for this election. Also, the LLC must be a trade or business, not merely an investment to qualify.

Housing "Bust" Gets Worse The housing boom is long gone. In NJ, the housing boom ended in the Summer of 2005, and since 2006 the housing market has been crashing. New home builders are trying to unload excess inventory by cutting prices and offering incentives. The National Association of Home Builders reported builder confidence sank by two points to 22 which is the lowest reading since January 1991. The US Commerce Department reports new home construction rapidly declined 6.1% in July to a seasonally adjusted annual rate of 1.38 million which is down 20.9% over the past year. On top of the housing decline, the tightening credit standards is making it harder for homeowners with adjustable rates to refinance and avoid skyrocketing payments. This does not look good for the construction industry and the economy in general.

A New York Court permanently stopped Robert L. Schulz and his two groups, We the People Foundation for Constitutional Education Inc . and We the People Congress, from selling materials by mail, over the Internet or in person that falsely claim citizens do not have an obligation to pay federal income taxes. The phoney materials mislead people into believing they can opt-out of filing W-4 withholding forms. The scheme is to prevent withholding. The Court determined "Defendants' materials are intended to cause employees to believe that they need not pay an income tax and employers to believe that they need not withhold taxes from employees' wages or pay matching amounts." Part of Schulz' program is "Operation Stop Withholding." Watch out for anyone that claims you simply do not have to file or pay taxes.

Cong. Levin Bill (HR 2834) Proposing New §710, Treating Partnership Allocations To Investment Management Services As Ordinary Income. This bill is designed to attack REITs and large public partnerships which have some tax advantages. HR 2834 is that it would tax as ordinary income the income interests of "sweat equity" partners for a much broader class of partnerships than simply hedge funds and private equity. Examples are: A real estate property management company - not a REIT, just a parents and children apartment management company -- structured to give working kids a bigger percentage of the income than they'd earn on their capital contributions alone. A private holding company that owned operating companies as subsidiaries -- as the holding company owns those as "securities." The bill would convert income interests at the holding company level into ordinary income, while allowing income interests in each operating subsidiary (that's not based on...

Today's new reported mortgage rates for 30-year fixed loans hit 6.75%. This is the highest level in almost a year. Further, “sub-prime” defaults and foreclosures both are at record highs. More than 15% of“sub-prime” adjustable loans are delinquent and 3.75% are in foreclosure. This bad news for real estate certainly is a leading indicator of an economic decline.