On-Demand: Year-End Tax Strategies for Businesses

But the things that I do want to point out that are extremely important you need to look at when you're doing year-end planning is you look at your specific tax situation, and you need to look at it over more than one year. You need to consider whether, with your income and deductions, should you accelerate, should you defer, should you bunch items together to try to get the best deductibility? And with this, we never want to forget about state taxes. We seem to spend a lot of time right now with the states because they look for new funds. And there's also opportunities for protective refund claims. So, think about if you play the net investment income tax, or you paid the additional Medicare tax, you may have the opportunity to file a protective claim and get some of that money back. And we see what the Supreme Court does with that.

But some other things to think about at year-end, before we get to year-end, setting up a qualified retirement plan. To do that, a lot of them require it be there before. Basis and at-risk limitations, and your ability to deduct losses. Now's the time to make sure that you have the appropriate basis and at-risk. So, if you're an S Corporation, remember it's only shareholder loans. You can't guarantee debt in order to be able to deduct your losses. Or as a partnership or LLC, guarantees or a recourse, that may work to give you at-risk and basis.

For 2020, all K-1s for partnerships required tax basis capital. So, if you have a company or a partnership and you haven't been doing this, you're going to need to get it done before you file your 2020 tax returns. There are different methods to get there, they all basically get to the same answer. But now would be the time, as opposed to when we are in the heat of filing season.

And things that we talk about today, there's a small business exception. So, some of the items we talk about may not apply based on your business. So, if yours have annual gross receipts for the prior three years of 26 million or less, you're not going to be subject to interest limitation, inventory accrual method, and other items.And don't forget about tax credits. They're out there.

Or at this time of year, it's a good time to look and say, "Am I the right type of entity? Should I be a C Corp, should I be a pass-through entity?" Sometimes making that change could be very expensive, sometimes it may be as simple as checking a box, doing a check-the-box selection. But when you do that, make sure you're doing it correctly because you could create significant tax.

And what other things could you be eligible for, depending on what type of entity and where you kind of see the future? We don't know. While people talk about what they think the new administration will do, we don't know. So, in doing this, you need to kind of keep that in the back of your mind, if some of those changes went through, and how would that impact your decision?

But C Corp, there's net operating losses that now can be carried back for a couple years. We'll talk about that more later. Don't forget about the qualified business deduction. If you're an S Corp or a partnership or a schedule C. And also consider the excess business loss, that's been postponed under the CARES Act, so you don't have that disallowance anymore. And as we said before, don't forget about the states, where the entity is doing business. Because sometimes you could choose an entity type and a particular state or locality may not recognize it.

Now, if you were setting up a C Corporation, you should look and see if you are eligible to make a 1202 election. And if you make this election, it can give you some really nice capital gains, benefits, or exclusions in the future. Last week, we had a seminar that was put on by Ben Asper and Kayla Konovitch, and we posted the link here, if you think that this might apply for you, to go in and listen on-demand for this session.

So, first big topic we're going to talk about here are the paycheck protection loans. And remember, these were part of the CARES Act, and were provided to provide for payroll costs and rent, and they were supposed to be forgivable. And if they weren't forgiven, it was a 1% interest rate. The intention by congress was this was supposed to be excluded from income and that the expenses were going to be deductible. But that's not where we stand right now. So, we had noticed 2020-32, which basically said that if you are going to have this income excluded, you're not going to get a deduction for the expenses. But nobody knew what year this was going to be, which year you would have to exclude those expenses. And last week, there were two releases from the IRS.

One was Revenue Ruling 2020-27, which said that the expenses are not deductible in the year paid or incurred if the taxpayer reasonable expects the loan to be forgiven, even if they have not yet applied for forgiveness. So, even if you haven't applied, maybe your bank's not open to take your forgiveness application, you would still have to disallow those in the year that you either paid or incurred them.

We also had Revenue Procedure 2020-51, which gives a safe harbor. So, if a taxpayer was expecting but then the loan forgiveness is denied, then they're still able to take the deduction. So, here would be a place you might want to consider extending your return if you have any doubts, because you can take these deductions whether it's on an original return that's extended, you can amend, and there is some opportunity to take these deductions in '21 versus '20. But you do need to attach a statement to the tax return.

But we don't know if there's another stimulus package, will this be addressed, and will we go back to what congress initially intended? We don't know. This morning, I got an email from the American Institute of Certified Public Accountants, and in there, they expressed their opposition to the two IRS releases that came out this week, and asked people to write their congress members.

So, with that said, I would say in my planning, I'm going to assume they're not deductible, but kind of keep that in the event that it is cleared up and I do get a deduction for those.

We can't really have a conversation about year-end planning if we don't talk about bonus depreciation. It's an opportunity, if you're going to buy something, especially before year-end. So, the criteria for bonus depreciation is property with a recovery period of 20 years or less, computer software, you can see some of the other items that are on the slide. And the common disqualifiers are building and its structural components, like the 39-year property if you're doing a major expansion to a building. Residential property's not eligible. And also, if you just make a deposit that doesn't count. It's not in service. It has to be placed in service.

So, bonus depreciation. 100% for 2020 and '21, it goes up to '22 at this point.

So, the CARES Act, it made a technical correction for qualified improvement property. So, remember qualified improvement property includes the interior improvements to nonresidential buildings, qualified leasehold improvements, qualified retail improvements, and qualified restaurant improvements. It was kind of nice that they put this all in one category, but when they were drafting the Tax Cuts and Jobs Act, they left qualified improvement property as a 39-year life. The CARES Act corrected this, and made it a 15-year life, retroactive back to 2018. So, this was good. So, property with a class life of 20 years or less can now, you can elect bonus depreciation. Now keep in mind, if you're going to do bonus depreciation, you're not eligible if you made a real property trade or business election.

So, what happens if you placed property and service in 2018 and you did the 39-year life? Well, you have a couple of options. You can amend '18 to claim bonus depreciation, or a shorter life, 15 or 20. You could adjust your depreciation of the remaining basis. And I don't really like this answer because I think you're losing some deduction there. Or you could file a 3115, Change of Accounting Method, and that basically is a catch-up so that you're able to take all the depreciation in the year that you file the return.

Now, with bonus depreciation, keep in mind that it's not always allowed by the states.

Section 179, very similar to bonus depreciation, but it has a limit. Some states do allow the Section 179. Remember this Section 179, it can't produce a loss, where bonus depreciation, you can.

I have this page in here, but I'm going to skip it because it just has some numbers in here, just in the interest of time, and move on to fixed asset and depreciation reminders. I'm not going to go through all these, but I want to mention a couple of them. If you did do an improvement to real property, you might want to consider a cost segregation study to get shorter lives. The de minimis safe harbor expensing. So, this is when you have a written expensing policy in place at the beginning of the year, and what this means is you can write off $5,000 per item or per invoice when you have an applicable financial statement, that is an audited statement. On the applicable financial statement, they have to treat it as an expense. And if you don't have an applicable statement, it's $2,500 per item or per invoice.

So, I think this just comes in kind of handy and it's an easy thing to do. Let's say you have a policy and it's $2,000, and you bought ten computers and they were each $1,500, $15,000. Well, looking at your invoice, each item cost less than $2,000 and you can write those directly off. You don't even have to capitalize them. They're not going on your depreciation schedule, which means you also don't have a state tax adjustment for depreciation.

Carolyn Dolci:So, we move onto business interest expense limitation. Chip's going to talk about it a little more when he gets to his section. So, the business interest deduction is limited to your business interest income, your adjusted taxable income, depending on what year we're looking at it could be different, and your floor plan financing. Remember your adjusted taxable income equals the taxable income computed without regard to any non-business income, any capital gains or losses, without your business interest expense, no NOLs in there, no qualified business deduction, and no depreciation or amortization. It's applicable to all taxpayers and all debt. And there are some times it can be excluded, meaning if you made a real property trade or business election, or if you qualify as a small business under the exception that we talked about earlier.

So, the CARES Act increased the deductible amount from 30% to 50% of your adjusted taxable income. So, for tax years beginning in '19 or '20, the taxpayer, not a partnership, can elect out if you don't want to use the 50%. For years beginning in '20, a partnership can elect out if they don't want to use the 50%, but partners cannot. And there's also the ability to use the 2019 adjusted taxable income in '20. For tax years beginning in '20, a non-partnership taxpayer can elect to use their 2019 ATI to determine their interest expense deduction for 2020. Now, for a partnership, the election is made at the partnership level.

Once again, with this, there are lots of special rules and procedures, and if you have interest expense, you're going to want to delve into that further.

Meals and entertainment. Under COVID, I'm not sure how much entertaining was going on, but there were final regulations issued in September of '20. The one item I would just want to note in here was always a question, is the coffee, soda, and all the things you have in the break room, that is 50%. Some people were hoping that would be 100%, meaning that all employees are eligible, but it's 50%. There are some exceptions if you are a car dealer, a real-estate professional. And I still see it that these amounts are lumped together, so now especially might be a lighter year to go through and make sure that you are separating your meals, entertainment, and employee recreation, and to get the policies in place to have that going forward.

Qualified transportation fringes. No deduction by the employer for any qualified transportation fringes except as necessary for ensuring the safety of the employee. And this is when we get into the whole thing with the parking and the transit passes, and all that being not deductible. So, there were proposed regulations issued for certain types of fringe benefits, and it's basically around parking, and that proposed reg focuses on a general rule, and I think there was three simplified methods for computing the disallowance. There may not be much going on in this area, depending on what kind of business you are, due to COVID, but you can rely and note the Notice that was issued last year, 2018-99, until the proposed regs are finalized.

Employee achievement awards. So it's an award that goes to an employee, right? For either length or service or safety. It has to be tangible property. You can't give your employee cash. So, thinking about here we stand in the time of COVID, there may be some opportunities to give out some safety awards to some of your employees. Now, if you have a qualified plan, it's $1,600 employee per year, if you don't, it's $400. But a safety award is an award to an employee, other than other than a manager, an admin, or a professional in the organization. You can't give it to more than 10% of eligible employees, and the person needs to be full-time.

So, net operating losses. Those have changed. And this is like a little chart here, which we have Pre-Tax Cuts and Jobs Act, Post, and then the CARES Act. So, going to kind of jump into this and say, "Let's go where we are with the CARES Act right now." So, for years beginning after 12/31/17 and before January 1 of '21, you can carry it back five years without any limitation. Now, carrying it back, you may get yourself back to a year when you were paying at a higher rate and free up some refunds. There was no 80% limitation. And you can carry forward your losses indefinitely. For years beginning after January 1 of '21, there is no carryback. You can carry forward indefinitely, and the 80% limitation applies. And so, you're kind of back into the post-Tax Cuts and Jobs Act from above.

Some things to consider when you're doing your carry backs. It means you're going to have to recalculate AMT, the interest limitation, GILTI and the FDII limitations. If you're making an accounting method change, that may impact it. You may actually want to make an accounting method change knowing that you can carry that back, like we talked about with depreciation. So, you may be able to free up some more tax refunds. And if you sold the company, who gets the refund? The buyer or the seller? You may need to look at the contract. And you need to reassess any deferred tax accounts that you have.

So, the CARES Act also repealed the excess business loss limitation rules. This is for individuals. So, this affects the '18, '19, and '20 tax returns. So, their losses are not limited to $500,000 on a joint return. It can be carried back if you have excess losses, not subject to the 80%. Kind of starts to sound a lot like the corporations. So, this is in the sense to try to put it a little bit on parody.

And then we get to disaster losses. So, there was President Trump declared an emergency under the Stafford Act due to COVID-19, and it applied to all 50 states, D.C., and four territories. So, when you have a disaster loss, you can take it in the year of the disaster or the immediately preceding year. Now, the loss has to qualify as an actual loss. Right? You have to be allowed, it has to be closed and completed transaction, has to be a specific identifiable event, you have to actually have sustained it during the tax year.

So, you may have, as a result of COVID, you may have had your inventory impaired, destroyed. I think of some food companies or restaurants that couldn't open. Or you had to abandon fixed assets, dispose of inventory, or fixed assets. And if you do do this, you can have to make this election on either a timely-filed or an amended tax return.

Well, lastly we lead into the qualified business income deduction, QBI. And this allows owners, including trusts, estates, sole proprietors, partnerships, and S corporations to take a deduction of up to 20% of the earned income by the business. So, this sunsets in 2025. And in part of your planning, you need to think, "Am I going to change my type of entity? Is this going to be around?" We don't know. It basically takes this income and it gets your effective tax rate to be 29.6%. Doesn't matter if you're active or passive. It's allowed for regular and AMT. And it doesn't reduce your basis, and therefore final regs that were issued.

So, just to remember, with the QBI deduction, you have to have, with a qualified trade or business, you have to look at your income, see if it's eligible, to consider if it's a specified service, trade, or business. Remember certain types of businesses like law firm and accounting firms are not eligible. But engineering and architects, they made it through. Consulting firms, not eligible. And there are aggregation rules that you have to follow for multiple businesses. There are also threshold limitations to consider. If your taxable income exceeds the amount or is in a range. And then you have to look and say, "Well, am I an SSTB? Do I have to consider the W-2 and the wages?" And also, an adjusted basis in your property.

To net. You have to net them. If you have negative and positive in one, you do need to net them. It does carry over, and there are disclosure requirements on each of the K-1s.

And now I'm going to turn this over to Julia and she is going to talk about state taxes and she's got lots of different states packed in there. Onto you, Julia.

Julia Bennetsen:Thank you very much. I appreciate it. And let me thank everyone who on. What's probably a short week for most people, for jumping in here on a Monday afternoon to hear us talk about these topics. I know it's a fantastic way to spend an afternoon as we're nearing the holidays.

So, state and local tax. We are going to talk about, well, I guess, I'm going to talk about economic nexus developments, COVID-19 and remote employees, gross receipts taxes, and then just some general state updates, including a little bit on the PPP loans. So, the reason we care about these topics is you need to review your company's activities regularly. And there are some specific things you can look at, because there are pitfalls in each of these.

There are specific things you can look at, such as your sales by state number of transactions of those sales by state, payroll by state employee travel, where they are, where they're remotely working, whether it's temporary or permanent, if you have affiliate agreements. And then you also, some of the pitfalls that you can fall into, and why you want to look at these things, is if you were not on top of your nexus footprint, you could have sales tax exposure and that's a problem, right? Because you don't want to have to pay your customers taxes if your margins are slim. That sales tax, if you're in a state that has seven, eight, nine, 10% sales tax, that can really chew up your margin if it's coming out of your pocket.

Obviously, you don't want income tax exposure. If you're looking at due diligence, if you've got due diligence, you're buying or selling, these are issues you want to be careful of, business, personal property taxes, and customer relations. Right? All of these things matter to companies. You don't want to be that company that, you know, is in the news for some tax thing you did wrong and then, obviously, that's bad.

And all kinds of companies, right? E-commerce companies, software companies, sellers of tangible property, service companies, so that's why we keep an eye on all these different things. And this year it's especially challenging with COVID-19 and the remote employees, but let's not get ahead of ourselves. Let's start with our economic nexus.

I'm sure you guys have heard plenty about Wayfair. I put it in here because I just like to remind people, it was a big deal. And it's expanding, so that makes it an even bigger deal, right? So, all states, except that have a sales tax, there's only 5 of them, except Florida and Missouri, have some kind of economic nexus provision. Our rule of thumb that we've been telling people is, roughly, look at 100,000. If you look at your sales to your state and you see a lot of states where you're over $100,000, you want to take a closer look. And some states are higher and lower, and some care about the number of sales, some don't. You know, why would any of these states all be similar? But, in either way, you should take a look at that because that gives you nexus and the state's ability to tax you.

In the same way that physical presence could do it, agency nexus could do it, this idea of click-through nexus could do it. And then also remote inventory and that would be you're fulfilled by Amazon. So if you're a company that uses fulfillment by Amazon, you could end up having inventory in a state that you hadn't considered, so you want to think about that, too. And then Public Law 86-272, which is what allows companies to not have to pay income tax if they are sellers of tangible personal property, under the right set of facts, does not apply to sales tax.

All right. Next slide. Let's see here. So, a lot of the states in the early days went with this idea of broad "doing business" nexus provisions, so they sort of say whatever the constitution will allow. So they have now, Wayfair with a sales tax case, but we now have states that are for income tax, franchise tax, net worth taxes, other taxes, whatever tax you could think of it seems like, that they are expanding this idea of economic nexus to those sorts of taxes as well.

So, that is important to keep an eye on because the other issue that can come up is you may be filing a state for income tax and you think you for some reason, you're never there in person or you think you're never there in person, so you don't file sales tax. The state crosses their tax rolls and they see you there and then they come and send you a notice and then you have to deal with that and possibly pay taxes.

So here are an example of some of the non-sales tax state thresholds. So, as you can see, for the gross receipts and hybrid taxes, and then you have income taxes. I mean, you can obviously read the slide. One of the ones that for me is interesting is Ohio, because you have this $500,000 in receipts for the CAT. Don't forget, in Ohio if you're a partnership, you may have a partnership, a personal income tax filing responsibility as well, so it can sometimes get to twice there. Oregon, $750 for their CAT. I do have a quick slide to just touch on the origin CAT.

Pennsylvania, half a million. Tennessee, half a million for their gross receipts tax. Texas, half a million. Massachusetts, Colorado, boy, I didn't realize I had so many 500,000s in here. You know, the states are getting more and more aggressive. I think Carolyn had mentioned earlier that, with the pandemic and with the states losing so much tax revenue, they are going to be more aggressive in trying to make sure that everyone is paying tax and that they are "catching" the people who may not have been paying tax up to that point.

I foresee that activity is going to really ramp up and they're going to be much more stringent in their approach to taxpayers. So, we want to make sure that we are ahead of the curve, because if you didn't pay tax there's ways to remedy it that are going to be much more manageable than if you get caught by the states. Right? So, that's why we want to be sensitive to it.

Julia Bennetsen:So, let's move on to COVID-19 and nexus considerations. Remote employees. This topic has been coming up a lot lately. So, as teleworking employees can work anywhere with an internet connection, they can create tax obligations or liabilities for businesses because having remote workers in a state where business doesn't otherwise have nexus can create nexus. So, in the world before COVID, if you have remote employees working in a state, your company probably had nexus in that state. So you were kind enough to let your employee who lives in another state, who didn't want to move work in that state, it's for that employee's own convenience and they are working there, well, it doesn't matter if it's really for their convenience, but they're working there so that you now have nexus. Your company has nexus in that state.

This can be tricky and it can sneak by, so we want to be careful about this. When we talked about pitfalls and pitfalls in the beginning, you want to look at your payroll by state. Somebody in your company, in a different department that you're not considering, hired somebody into a state that you didn't realize and now you have nexus in that state. And the states will cross reference the payroll with the corporate income tax, or personal income tax, or the tax files or sales tax files, to make sure that you are filing everywhere where you're supposed to.

So some of the states have been kind enough to address whether or not having temporary employees in another state will create nexus. That's very different than a permanent employee. So, we have 20 states that have not released any guidance on whether these temporary employees will cause nexus. Some have said that they don't want to provide guidance and others have said they will address on a case-by-case basis, but some jurisdictions have expressly waved nexus for businesses that have remote employees.

So, these are the states that have said that they will wave nexus for those businesses that have remote employees or active official stay-at-home orders. This is a COVID consideration, right? Your state has said that your office needs to be closed, or you have people working remotely, either for your office or because of COVID.

This is a tricky area for a few reasons. The first reason is once your person decides that they want to work from home permanently and you okay that, that changes the answer. They're now no longer working remotely, simply because of the closed business or stay-at-home orders. So now you again have triggered nexus in, possibly, a new state. So that’s a very important thing to consider.

All right. Now, nexus where it may be created by remote workers. Maryland has not waived nexus and it doesn't intend to change its approach. So, they have this lovely, "It will consider the temporary nature of a business' interim workplace model and employee deployment in light of the current health emergency in making a nexus determination."

So here, as you can see, they are trying to leave the door open so they can decide that you have nexus in their state now. You know, I think it's a tax alert. It's just telling you how we think they're going to address it. So we think that they will likely create nexus for companies that didn't have nexus there before.

And then Kentucky is that case-by-case, which to me feels a little bit better. It feels like Kentucky, you can make your argument. Feels like Maryland, it's going to be a higher hurdle.

Okay. Now, I did see a question pop in on sales tax nexus and I'll talk about that right after I talk about the apportionment of service receipts.

So, for apportionment purposes, there are three types of apportionment. There's this cost of performance method. Right? So, when you do business in multiple states, you have to apportion your income to these different states in order to pay tax so that you hopefully won't have to pay 100% tax to all the different states you're working in, you can divvy it up.

So, under the cost of performance method, it looks to where the costs were incurred. Not a lot of those left, I don't think. Most states are moving away from that. Revenue earned in the state? Same idea. I think the states are moving away from that, as well, but if you're incurring the cost in a particular state, they say that's where your receipts should be included for apportionment numerator purposes.

For market sourcing purposes, that is revenue where the customer receives the benefit of the service. So, sometimes we may not know that. Sometimes you don't know where the benefit is actually being received, sometimes you may think it's one state, but it's really a different state. So, the way that this becomes more problematic under COVID, and with the remote employees, is because if you're a cost of performance state and employees have shifted out of that state because they're working remotely, how do we handle that? So, do we look at their remote locations or do we still treat them as in their initial state? In the state where they would be incurring the cost to do the work if they weren't working remotely. And that also works the other way, right? So if you have suddenly a lot of people in a cost of performance state working remotely, it can shift it the other way.

And then market and customer-based approach. This is tricky from two levels because the first thing is where is the market located? And then the second thing is if the person has moved, they're working remotely in a different state, and they're still the person placing the order and receiving the benefit, do you now have to source those sales to the new state? The states have begun issuing guidance on this issue, on all of these issues, actually. But the question then becomes how binding will it be?

If Philadelphia puts something on its website and says, "Here's what we think. Here's how we want to treat this." But it conflicts with the statute, you know, there may be some room there to decide how you want to approach that.

So, apportionment of service receipts, I have three states that have come out with some guidance and they're pretty much all the same. They don't want you to look at temporary placement of people. They all seem to say that whatever was happening before COVID, whatever office they're normally working in, that dictates apportionment. So, sort of status quo, same as last year.

This is fine, as long as everybody's temporary. Again, if you ask people who are permanently working from a new location, you have to rethink about how we want to approach these. You know, again, it's one thing to say they're temporarily sitting in a different place, it's another to say they're permanently now there.

Now, here is the sales tax. So, several states have also addressed waving nexus for sales tax purposes when we have remote employees working in different states. So here are the 12 states that have addressed it. So, working from these jurisdictions during these times should not create sales tax nexus for employers if that's all that's going on, but, again, be aware of economic nexus and some of the other things we discussed earlier because just because you have a person temporarily sitting there and you think, "Well, we're safe there because we have no other physical presence in the state." We're back to that economic nexus.

All right. So, now we don't want to payroll withholding. So, this COVID is the gift that keeps on giving when it comes to state tax. So, remote workers typically owe personal income tax to the state in which they physically do their work. So, in Pennsylvania, if there's no reciprocal agreement, the DOR says, "If the employee is working from home temporarily due to COVID, the department does not consider that a change to the sourcing of the compensation. And the employer is still required to withhold Pennsylvania compensation for Pennsylvania-based employees."

Philadelphia actually did something pretty reasonable and they came out with a pretty straightforward guidance. And it's not really a change in position, but it was more like a reminder, which was, I think, good. And Philadelphia, it says, "A non-resident employee is not subject to the Philadelphia wage tax when the employer requires him to work outside of Philadelphia, including working from home." The general rule in Philadelphia is if you are assigned to a Philadelphia office and you have an arrangement with your employer that you can work from home one day a week, that does not exclude them from withholding the Philadelphia wage tax on you for your full-time five days a week. It has to be that the employer requires you.

Obviously, under COVID, many employers have required people or the state, the different governments, have required people to work outside of their normal offices, so Philadelphia reminds you that that 4.5% of the Philadelphia wage tax for non-residents or if it isn't closer to four, does not need to be withheld while they're not working there. And as a reminder, you do get a credit for your Philadelphia wage tax, against your local earned income tax.

So, this could actually work out pretty well, because the employers, if they did stop withholding Philadelphia wage, there's probably still plenty that was withheld in the first few months of the year to cover that. So I think that would be nice for those people.

And then with reciprocity there's been no change. Reciprocity is what it is, right? So, you're a Pennsylvania employer, I live in New Jersey, they've been not withholding Pennsylvania on me already, nothing really changes there. State unemployment insurance is generally paid where the employee work is localized.

So, for employees temporarily working from home, most employers should continue to pay unemployment insurance to where their normal office is. I spoke to someone at Pennsylvania recently, and they said that although this has gone a lot longer than anybody expected, that, at this point, if they received an unemployment claim from someone, say me, who I've been working right in New Jersey for eight months now, but I do belong to a Philadelphia office. If I went to Pennsylvania to request my unemployment, that they would likely would, they said would, I hope that’s still right. That they would accept the claim and honor the claim.

But, if the remote work location is no longer temporary, you need to go and you need to update work locations for personal income tax and unemployment tax. And, again, review your nexus for economic nexus purposes and review it for where your people are located. You know, you don't want to get caught in that.

Convenience of the employer. Convenience of the employer is an interesting aggressive position that some of the states have taken. I've listed three here, Pennsylvania, Delaware, New York, but there's also Arkansas, Connecticut, Nebraska. And Massachusetts? We'll see how they end up in the end, I'll talk about them in a minute. So, under this test and this is similar to Philadelphia, as I mentioned earlier, if an employee works somewhere other than at their assigned location for their own convenience, then their wages should be sourced to where the office is located.

This comes up a lot, I feel like, in New York. I feel like a lot of people talk about this from a New York perspective. So, under this idea of the convenience of the employer, and for several of the states the case would be, if you have someone remotely working, say in New Jersey, and you're a New York company, New York doesn't really care that the person is sitting in New Jersey or sitting anywhere else. If they are assigned to the New York office, then they should pay, they should be withholding New York tax. They're a New York employee.

There are some provisions that say if there is an office in another location, and the person is working remotely from that office, then there may be some wiggle room. And then, like I said, Philadelphia has this whole employers necessity versus employees convenience, but the states are all over the place. And the reason why this is so important, right? So, you live in one state, you work in another state, you pay taxes to your work state, you do your personal income taxes, and you take credit for taxes paid to your work state on your home personal income tax return. So, that seems very straightforward, right?

Now, when your home state has no personal income tax, such as New Hampshire, this is where it gets more interesting. So, Massachusetts during COVID has decided that they have this temporary income sourcing rule that effectively makes them a convenience of the employer state. So, if you have a New Hampshire person who typically would work in Massachusetts or typically would not work in Massachusetts. Excuse me. They would work in New Hampshire remotely, but they would be effectively assigned to the Massachusetts office, that is the office the company has, Massachusetts now says, "You need to withhold Massachusetts tax on these individuals and they owe tax to Massachusetts on their wages for the time-" you know, for their wages.

The problem is, is that in New Hampshire you have no tax to take the credit against. So, even if you could take a credit for taxes paid, you cannot because you don't owe any taxes in New Hampshire. Now, if you're a New Hampshire person who's always worked in Massachusetts and you've sort of come to accept that you'd much rather live in New Hampshire and pay the Massachusetts tax, that's fine. But if you've been to work at home New Hampshire person all this time and Massachusetts was not a convenience of the employer state, they were withholding no tax on you because you were New Hampshire, suddenly you are now paying Massachusetts tax. And that is, I don't know if any of you have heard, there's stirrings of a court case. They're trying to get this up to the Supreme Court to say that this is an unreasonable result.

I don't know how that's going to go, but they sure can try. And they often try I feel like to make things uniform across the states, taking things up to the Supreme Court or doing other remedies, trying to get federal remedies. And other than 86-272, there's not a lot of them. It's hard to get the states to all do the same thing. They all have different priorities and different things they think that affect them so they all want to kind of do their own thing.

The other problem with the credit for taxes paid to another state is some states say that the work has to be physically performed in the other state. If you want to take a credit for taxes paid to another state, but the work is no longer being physically done in that other state, so for New York, you're paying tax to New York and you're sitting in New Jersey doing the work. I'm saying New Jersey. I don't know for sure if New Jersey has this rule, but arguably New Jersey could say, "Oh no, no, no, the work wasn't physically done in New York, we will not allow you the credit." There's a couple different pitfalls that you can fall into here with tax.

Now, and another nice thing that Philadelphia did before I keep going here is Philadelphia came up with, what's my next slide here? Oh okay. Convenience. That's fine. Philadelphia had a case last late last year and it was about severance payments. Philadelphia typically taxes severance payments to non-residents that are simply tied to the years an employee render services in Philadelphia. They say those are subject to wage tax. This is obviously nobody wants to pay wage tax on severance and these days this issue's coming up more and more as more and more people are unfortunately receiving severance and being laid off. In this case, the Philadelphia Court of Common Pleas upheld the tax review board and said that wage tax does not apply to severance, but there's a catch as there is always, when they are a part of a severance agreement to release.

If the taxpayer was required to sign an agreement in order to their severance, the court said that Philadelphia did not have the right to tax those severance payments to non-residents. But that being said, the flip side of that is that you just get your severance because you had a certain number of years of service and you worked in Philadelphia for those years of service, Philadelphia said that that should be subject to wage tax. Moving on, I think we have, there we go.

Julia Bennetsen:All right. I like that 36% of you who said it depends. State tax, that's our favorite answer and I'm sure many of you have heard that far too many times. That was the sort of trick answer. But I realize after the fact, I wrote the question wrong. Not all States conform to the current version of the IRC. False is the technical correct answer here. If I had been more clever, I would've said for income tax purposes, states conform to the current version because although it would still be false, it depends comes in a little bit more because some states conform for corporate income tax, but not for personal income tax or vice versa. Really the whole point of this, it depends was to say that obviously everything I'm saying today can be impacted by your facts of your company. It all seems very straightforward at first blush and then everything just tends to go crazy once you get your facts involved. But that's okay. That is the joy, the joy of state tax.

All right, gross receipts taxes. This is important because Public Law 86-272, which may protect you for purposes of, for sellers with tangible personal property, for purposes of income tax, does not apply to gross receipts taxes. And I'll take a step back because I did see a question come in about 86-272 and economic nexus. For Public Law 86-272, comes into play if you would otherwise have nexus in a state because you have salespeople in the state or you have other activity in the state that that's specifically exempt under Public Law 86-272. With economic nexus, you would still have nexus, but if you're a seller of tangible property and you otherwise would fall under 86-272, you would likely have a filing responsibility, but you would be able to still claim. You should still be able to claim your Public Law 86-272 protection.

All right, now, sorry. A little public service announcement there. Getting back to these taxes. These are gross receipts taxes. They're imposed on corporations, LLCs, some partnerships, S-corps and they're imposed on business receipts, regular old gross receipts and with little to no deductions for any costs. The tradeoff is the tax base obviously is going to be larger, but the tax rates are typically lower. And then there are also localities that impose gross receipts taxes, just to make it extra fun.

All right. General state gross receipts taxes and I'm sure many of you have seen these. You've got the Delaware gross receipts tax. You've got Kentucky limited liability entity tax. You've got the Nevada commerce tax that typically kicks in at about $4 million so you should be in pretty good shape there, unless you have a lot of business in Nevada. You have Ohio commercial activity tax. I mentioned this earlier, this is your pass-through considerations. You could own the CAT and still have personal income tax that you need to pay because you're a pass-through entity. You have the Oregon corporate activity tax, very similar to the CAT. We'll talk about that in a minute, just kicked in this year. It didn't replace the corporate income tax so you have both. You have the Tennessee business tax, the Texas franchise or margins tax. That was the bane of everyone's existence. Now we're sort of used to it, I guess. And the Washington business and occupation tax.

The Oregon corporate activity tax is based on commercial activity sourced to Oregon. The sourcing rules, so we would look at sourcing rules. It's sale, rental, lease or license a real property that's in Oregon or tangible personal property that's in Oregon or sale that's actually located in the state, sales of tangible properties that are delivered to Oregon, services that are delivered to Oregon and then intangible property used in Oregon. And then of course, there's the alternative sourcing may be allowed if these rules don't fairly represent the person's commercial activity in the state. Most states have that. I feel like that can cut both ways. I feel like you can use alternative sourcing if you really feel that it's not, you can request alternative sourcing. You sort of call attention to yourself. That's always risky.

Most of these sourcing rules should be okay. The state too, I guess, could arguably, so that maybe the way you're sourcing is not fairly representative of your commercial activity. A lot of the states have that same language. Just be aware that it's there. The tax calculation is $250 and then it's 0.57%. See, nice low rate on your gigantic tax base of your taxable commercial activity in excess of a million dollars. It's the total amount realized by a person arising from transactions and activity in the regular course of the business, without deductions for expenses, like we talked about earlier. There's a little caveat for financial institutions or insurers, commercial activity, not otherwise described as sourced to Oregon if it's from business conducted within Oregon. I love these states. They make it so clear. That's okay.

All right. Let's talk about some state tax developments. New Jersey. New Jersey is now market sourcing. I'm sure you guys have heard this a million times. It happened the beginning of 19, most of you have probably done your 19 returns, but it's just worth mentioning again. You're a corporate tax payer, you must use market sourcing for receipts and services. They have extended the surtax so it was one and a half percent surtax, now it's two and a half percent surtax tax for this year and next year and they will waive any penalties that may be incurred because you sort of picked it up late in your estimates. We have the expanded millionaires tax. Feel like that's been talked about quite a bit. Under the new rule, it says withholding should be increased by 21.3% before November 1st, 2020. Well, oops, sorry. Well, 22 days ago, sorry about that. And the HMO assessment rate increase has changed. For market sourcing, going back up to this, that did not change for personal income tax purposes or for partnerships that was simply for corporate taxpayers.

Okay. Moving on. Ah, New York City commercial rent tax. This is an interesting tax. Some people are initially surprised to learn that they even have to pay this tax. And we've done a fair amount of voluntary disclosure agreements, getting people up to date and current on their commercial rent tax. With this commercial rent tax, apparently a lot of questions were coming up, talking about payments made by a tenant to a landlord to get out of their lease early. You've decided that it's not cost effective for you to stay in New York City for whatever reason or whatever other reason you might have, maybe not just cost and you've decided it's time for you to get out of New York. You've done the analysis and you've decided that you want to pay your landlord money to break your lease. And the question is, is that money, is that subject to commercial rent tax? And this ruling from the New York City Department of Finance has stated that no, these payments are not subject to the commercial rent tax.

New York City, if you occupy or use a property for commercial purposes in Manhattan, south of 96th Street and your base rent is at least $250,000, then you are subject to this New York City commercial rent tax. This has been very, very helpful because there are people relocating, renegotiating or terminating your leases. It's good to know that it's another friendly one. We've had a couple of friendly ones from the city this year. I'm not sure the states have been all that friendly, but the cities have been.

All right. Paycheck protection program. I've given you these slides, there's 13 states here on the slides that have weighed in on this. Now, when I pulled these slides together, we didn't have all of the guidance that we have received from the IRS talking about deductibility and forgiveness of the loan. These states could come in and make some changes. More states may weigh in as we go. They have. And some have only covered individual tax and some have covered corporate and individual tax. Some have only covered corporate tax. My favorite is Washington.

Washington was kind enough to say, the Department of Revenue, businesses receiving federal assistance are not to report the amounts received as gross receipts and are not to pay B&O tax. That's great. Then they add, at the present time. They said that they're going to delay any final decisions until they've had the opportunity to think about it and the legislature has had the opportunity to act. You're good for today, but who knows what they're going to do later.

That is all of the state tax slides that I have. I hope everyone has a wonderful Thanksgiving and thanks so much and I will pass it on to Chip now and he'll talk to you about some international considerations.

Chip Niculae:Thank you, Julia. Thank you everyone. Today, I will be discussing some low hanging tax planning strategies that may be immediately actionable and impact your past, current and future tax filing in the US. I mention this just based on some of the materials or some of the strategies that we've seen and some of the new regulations that have come out in the last six months. When we put together this presentation, we try to take into account and give you some actionable items based on, let's say what we saw at the end of the tax season, the legislature that came out, like I said, in the last six months, but also some tax planning strategies that we're seeing that are coming of it.

Specifically I will be speaking about the GILTI high-tax exception, section 163(j) group election from an international tax perspective, the FDI deduction and we'll briefly discuss the Whirlpool case, which may have impact on some multinationals that have spent a lot in tax planning fees in order to restructure supply chain in order to take advantage of certain, let's say Subpart F exceptions that were really key prior to 2018. With that being said, I'd like to start on the GILTI high-tax exception election.

The final regulations dealing with new GILTI high-tax exceptions were issued onto July 20th, 2020 and are effective as of September 21, 2020. The regulations allow taxpayers to apply the GILTI high-tax exclusion to taxable years of foreign corporation beginning on or after July 23rd, 2020 and to tax years of US shareholders in which one or with which the above mentioned taxable years of foreign corporation ends. Under the new regulations and this is very important and this is one of the things that we are really keen on advising our clients to take advantage of, there's this option to retroactively apply the GILTI high-tax exclusion tax years beginning after December 31st, 2017 and before July 23rd, 2020.

I mention this because this is one of the things that this election may give a lot of clients a benefit to retroactively make this election in order to take advantage and receive a refund from prior years. This has resulted in a tangent; let's say some tangent refunds for some of my clients. Specifically, I could tell you I've had one client that we've been modeling out as we will discuss, we're modeling out from the beginning when the TCJ was passed. Potential benefits that they may have with making a high-tax exception, how are those rules as mentioned, only became final in the middle of last year, middle of this year, actually. Sorry, middle of this year. And it did change. In that respect, it's important to know that the regulations rejected CFC by CFC approach, that we were so used to on the Subpart F regime and adopted a tested unit instead.

The tested unit standard should be very familiar to us since it's something that we use with respect to calculating the GILTI inclusion. CFC tested income has become something fairly common in the last two years for us. It's important to note that this election is an annual election and it's not binding for five years as it was previously in the form of the proposed regulations. In order to benefit and utilize this exception, like I said, you need to proactively make this election. It's a statement that you should include with your tax return. The regulations also adopted a consistency rule, which limits the opportunity to pick and choose certain entities for the election. Remember under Subpart F regime, you had the option of going and calculating whether you could benefit from the high-tax exception on a CFC by CFC basis.

This is something that we also saw initially in the proposed regulations when it came to the GILTI high-tax exception, but as mentioned, in order to benefit from it, you have to apply it across the board. You may be operating in a jurisdiction like Ireland, where the corporate income tax rate is 12.5%. And you might be operating in Australia also where you have a corporate income tax of 25%. Now in order to make sure that you actually benefit from the high-tax exception, you should really lump that all together and apply it on a consolidated basis when calculating your tested income or your tested unit, applying your tested unit standard. Very important to note though here, when we had the July GILTI high-tax exception rules being finalized, regulations being finalized, the Treasury Department also decided to release proposed regulations with respect to Subpart F high-tax exception.

I think the message here is that they're trying to get to a point where calculating both the GILTI and Subpart F election will be done as one single election and you will not have two different methodologies, which may offer some lack of consistency and reporting and also in the way we calculate the numbers. With that, I also wanted to discuss some key considerations before you make the elections. The one thing that really everybody should be aware, when discussing or dealing with the high-tax exception, the magic number is really 18.9. 18.9 being 90% of 21%, 21% being the corporate income tax rate. In order to benefit from the high-tax exception, you have to have a rate that's higher than 90% of the US corporate income tax rate. In this instance, 18.9%. Once again, just quick circling back a little bit on something I just mentioned, when looking at this practically, you have to determine whether the CFCs with operation, you have to look at the TSEs with operations in foreign jurisdictions and look at the high-tax jurisdictions, low-tax jurisdictions.

They will be combined. It's not like Subpart F where you could pick and choose. And so you'll have 18.9%. you have to have a combined rate of 18.9% across the board and that's an effective tax rate, not a plain vanilla rate where you're just basically taking the average of the corporate income tax rates in those jurisdictions. Then you will have to also number two, I would say determine the effects of the new high-tax exception, taking into account such factors as the net operating losses in the US, foreign tax credits and expense allocation against foreign source income for foreign tax credit limitation purposes. I mention this because just a little, one other side note is in order to really benefit from a high-tax exception, the one thing that we notice is a lot of companies in the US that in a wealth position, but abroad they tend to be in the money. In that instance, and they will have potentially a GILTI inclusion. You don't want to have those inner walls being eaten up by the GILTI inclusion from the foreign jurisdiction.

High tax exception if possible would be very beneficial. At the same time, we also see the high-tax exception really having the full benefit where we could also mitigate, let's say the withholding tax obligations of foreign jurisdictions on dividend distributions and also taking out the complexity and difficulties in instances where you have a US company that's very profitable, but is highly leveraged to the point where they are not getting the full benefit of interest expense deduction in the US.

With that being said, I'd like to move to number three and note that, whether you have considered the high-tax exception election, how it might affect your foreign tax rate position. It's important to note here that once you make this election on the GILTI, the high-tax exception election; you will no longer be able to benefit from a foreign tax credit, the foreign tax rate here being very interesting because the GILTI FTC pool is limited to 80%, so there is leakage. And so with that being said, it’s very important that you’re basically having to choose between the foreign tax credits, not being able to benefit from high foreign tax credits. But also being able to use the foreign tax rates, only 80% in the GILTI bucket for FTC bucket. But at the same time, being able to combine the low tax and the high tax GILTI income.

Next, also, important to mention here, whether you have considered the high tax exception election and how it might affect the amount of feedback you can use to reduce your GILTI inclusion. Important to note is not only when you make this selection will you lose the foreign tax credit, but you'll also lose out on the UBTI, which basically allows you to bring 10% of your, let's say a part of your GILTI income back to the U.S. tax-free. I'm just summarizing that, but it's a little bit more technical than that. The other thing that's important here, it's also important that you also lose on the Section 250 deduction of 50% to the extent of the GILTI inclusion. So there's certain trade-offs here that you have to really take into account.

The next item is basically in something we'll be discussing a little bit later on, is whether you have also considered how the TSC grouping election under interest deduction limitation of 163(j) may be impacted. As mentioned, grouping an election can be beneficial in avoiding being subject to limitation of section 163(j) on intercompany debt. But, important to note here that you have to go through a calculation. You were limited to 50% for '19 and '20. 50% to 30% afterwards in '21 and in the future. But a lot of times where we've seen that interest expense allocation also eats into and erodes the benefit of the foreign tax credit. So, to skip over quickly and say number seven is important, because we discussed number six with respect to NOL utilization preservation. Important to note here, that the impact of the election on future repatriation of foreign earnings is also very important to keep in mind.

If you'll have a lot of foreign earnings sitting offshore, if you make the selection, that income, albeit without taking consideration of withholding tax, it will be able to be brought back to the U.S. because it's already been taxed locally at a rate higher than 18.9%. And when that dividend's income comes into the U.S., It will not be taxable again strictly because we have this new participation exemption regime on the 245A. So, tax planning theory is very key in order to really mitigate your holding tax obligation from a local perspective, and looking at holding company platforms for foreign jurisdiction may be key.

Now, moving on to section 163(j). As amended by the Tax Cuts and Jobs Act, TCJA, section 163(j) provides a taxpayer interest expense is deductible only to the extent of the sum of: the taxpayer's interest income; 30% of the taxpayers adjusted taxable income; and the taxpayer's floor plan financing interest. To revisit some of what we discussed about legislative development, from an international perspective as it applies to 163(j), it's important to note that on December 20, 2018, the U.S. Department of Treasury and the Internal Revenue Service released an initial set of proposed regulations under 163(j). One of the most important sections for my purposes was the proposed Treasury regulations under the 163(j)-7 which provided rules for applying section 163(j) to controlled foreign corporations.

This was something very new for us. Quickly because from an international tax perspective, 163(j) had never really been applied to controlled foreign corporations. Additionally, what we saw was 163(j) really being applied when we had inbound transactions into the U.S. with a foreign parent with a U.S. sub. And so now we had these new rules we had to model in, and then all of a sudden on July 28, 2020, we did have a little bit of a carrot from the Treasury Department when it issued a package which was finalized a portion of the former proposed regulations, and issued a new set of proposed regulations that allowed 163(j) to apply to CFCs for purposes of increased Subpart F income and GILTI tested income or loss, as well as determine income effectively connected to the U.S.

The new proposed regulations are allowed for a couple of elections which we will discuss right now. These elections change the roll-up rule that we had previously encountered in the proposed regulations under 163(j), prior to July 2020. So the CFC group election under the new proposed regulations generally applies to 163(j) CFCs on a group wide basis. Individual CFCs also do not have to separate the ATIs or separate section 163(j) once they reach this limitation. So, in this instance, in the past what we saw, where you had a multi-tiered CFC structure, you literally had to take the excess interest expense implementation and roll that up to the highest year CFC, and so on. The new proposed regulations also retained some of this roll-up, however, the roll-up is only applicable to the U.S. So, to really summarize in a way this election, it's basically now you're calculating the ATI for all the CFCs, but when you make this election, you're really treating it as a consolidated entity and then rolling up any excess up to the U.S shareholder.

So you need to have a formal statement in order to have this group election. And once made, it is binding for five years. This is key because five years is an interesting time period, strictly because it's the same time period that we have for purposes of the check-the-box selection. And it was also for purposes of the GILTI high tax exception when it was initially passed. But that reform was done away with, for GILTI purposes, but still retained for 163(j) purposes.

Now, moving on also to something that was really new when it came to the 163(j) as applying to the CFCs. Also, we have now a safe harbor election. The safe harbor are elections pursuant to which a CFC group is not subject to 163(j) limitation. The election is made annually. So it's not binding on a five-year basis. And it's available only if a CFC group election is in effect, or there is a stand-alone CFC. So a CFC group is eligible to make the safe harbor election if the group's interest expense is less or equal to 30% of the lesser of; the sum of the taxable income of the CFCs in the group determined without regard to section 163(j), or the sum of the Subpart F and GILTI inclusions with respect to CFCs in the group. For taxable years, beginning in 2019 and 2020, as mentioned previously, the 30% limitation is increased to 50%.

So to conclude also on 163(j), the former proposed regulations only apply to groups of CFCs. So, the roll-up to your shareholders do not apply in the context of a U.S. shareholder with a single CFC. The new proposed regulations modify the roll-up to permit it to be applicable to stand-alone CFCs. With that, I will defer to the poll.

Chip Niculae:Okay. So the answer is no. A U.S. multinational making the GILTI election cannot benefit from the section 250 deduction. So we can't take that 50% deduction, it loses out once you're basically making the election. Strictly because now your basic, all your income has been taxed locally by the foreign tax. By the local taxes and the rates above 18.9%. So, it assumes that that income is coming back to you free of any additional taxes. So getting a deduction on top of it would be a moot point. So, the answer is no here.

Absolutely. The answer is 21.875, and 26.2% of you got that correct. That will go into effect. So, it's going to go down from 37.5 down to 21.875 after December 31st, 2025. So now we're going to go back quickly, let's see if I may, to FDII, and we're going to skim through these. Because some of them are just definition, and to bring it into the new development. So the new development is very important to hear that. Once again, we had another legislative pronouncement in July from the Treasury Department and IRS. And as a result, what we have is basically a lapsed documentation goals. This is very key, because the FDII regime in my opinion, two years after TCGA was passed, is one of the most underutilized deductions in the middle market.

Just as brief, what we're seeing here, the benefit is where the Trump administration tried to bring back manufacturing jobs and basically provide a 37.5% deduction to U.S. multinationals. You'd need to be a C corporation or an LLC that has made the election to be characterized as a C corporation. And it basically offered an incentive on sales of products, services and licensing intellectual property from the U.S. to foreign third parties. So, you could still have a foreign branch in your structure. However, if you conduct, let's see, some of these transactions, FDII transactions, between, let's say, your U.S. parent and a branch, your foreign branch, you will not get the benefit of the deduction in the U.S. And then at the same time, you don't want to see a key planning opportunity this year that we've seen in the last two years. It's where corporations with losses at the local level, or U.S. multinational CFCs that have losses at the local level, are willing or able to bring back, repatriate, some of that intellectual property back to the U.S.

Which goes against the trend that we were seeing prior to 2018, where everybody was bifurcating the intellectual property and migrating offshore, specifically to places like Ireland. So skipping on to the mechanics, and some of these definitions really just goes back and shows the benefit of the new regulations. Which should help you, let's say with structure, your supply chain, and your intercompany transactions potentially benefit from this deduction. The IRS removed the specific documentation requirements for establishing a foreign person's status, foreign use of property for certain sales of general property, and the location of a consumer for general services. It also relaxed the rules for establishing foreign use for sales of general property for resale, currently used for sales with general property subject to additional manufacturer assembly of property outfitted in the U.S., and foreign use for sale and tangible property. Substantial documentation may include contracts or other credible evidence, such as invoices, obtained in the ordinary course of business.

So not as problematic as tracking every aspect of the transaction. You could still, let's say, have a sale of product to your Irish CFC. As long as that Irish CFC then sells the product to a third-party customer in a foreign jurisdiction and not in the U.S., You should be able to benefit from the FDII deduction. So, key takeaway this year, if you're a company selling goods and services to foreign customers, the net income could be taxed at 13.125 effective tax rate. Okay. Royalties will also qualify as all FDII is only applicable to C corporations, and you now have and can take advantage of the relaxed documentation requirements, in order to benefit from the regime. And to add a little bit an additional bonus here, is that you no longer have to coordinate and apply the ordinary rules between section 250, 163(j), and 172.

All right. Finally, just wanted to mention Whirlpool after GILTI. This was the first comprehensive judicial analysis. We're talking about Whirlpool Financial Corporation & Consolidate Subsidiaries versus the Commissioners. It was a significant IRS victory. Taxpayers appealing currently in the 6th Circuit. What came of it is that Subpart F income does not qualify for section 250 deduction, so Subpart F income is a CFC-by-CFC computation rather than having tested income and loss determined by your shareholder level. And it also looked at, and here's more important. I'm going to just quickly jump to the last one, because mechanics, the last two pages, or last page, specifically, to summarize it for you, is that the tax court here, sorry. The tax court analysis and rejection of tax rate disparity computation makes it more difficult to assert in the future as a defense. So they really did away with some of these, let's say, tax doctrines, that we have prior to 2018 under Subpart F rules.

The court looked at legislative intent of the branch rule, cutting through quite critically the purely technical arguments as a taxpayer. Right. And in the past what we saw CFCs having with branches in order to create this manufacturing exception. We're talking in the case, we had a Luxembourg sales company holding a Mexican branch, and different ruling based on Luxembourg not taxing any of the income and stating that the income was really trickled to Mexico. Mexico saying there's no permanent establishment, no tax there. So basically there was a loophole here that Whirlpool was taking advantage of, where in accordance with the rules as they state the technical aspect of it. So, you had the one thing to take away is that the territorial systems are more vulnerable to the application of the branch rule. Arguing two different approaches to different tax jurisdictions will make taxpayers vulnerable. The court will look at the end result. So expect additional scrutiny of holding company structures with manufacturing and sales disregarded entities. So take a look at your structure. And with that, I'd like to thank everyone for attending the session.

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