Michael Gray, CPA's Tax and Business Insight

July 23, 2017

© 2017 by Michael C. Gray

ISSN 1539-395X

A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!

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Clive Baker reads to Daddy Dan Baker on Father's Day
Clive Baker reads to Daddy Dan Baker on Father's Day

We're sending this newsletter early because Dawn Siemer will be on vacation the next two weeks.

Happy Independence Day!

"There are some partial civilizations scattered around over Europe. Pretty lofty civilizations they are, too. But who begot them? What planted that seed? There are dates and statistics which suggest it was the American Revolution that planted it. We hoisted the banner of revolution and raised the first genuine shout for human liberty that had ever been heard." -- Mark Twain, July 4, 1890.

(Travel safely. We will be closed July 3 through 5 for the holiday and a little vacation.)

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The year is half over!

Time is sneaking by us again! How is 2016 going for you? Is there any way we can help you reach your goals? How is your tax picture shaping up this year? Call Dawn Siemer at 408-918-3162 or Michael Gray at 408-918-3161 to make a planning appointment now.

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Our schedules.

Michael Gray will be away from the office starting July 1, returning July 6. Dawn Siemer will be away from the office starting June 26, returning July 10. We won't be available for telephone calls or emails during our absences. While Dawn is away, please call Michael Gray directly at 408-918-3161.

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Family celebrations.

My son, James Gray, is celebrating his birthday this month.

My daughter (and office manager), Dawn Siemer, and her husband John are celebrating their wedding anniversary this month.

Kyan Baker, who is my grandson, was awarded his black belt in Mixed Martial Arts.

Congratulations!

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'Tis the season for extensions.

If you need help preparing your income tax returns for which you have filed an extension, call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Live presentation by Michael Gray for tax professionals, lawyers and financial advisors.

Michael Gray, CPA will give a lunchtime presentation, "Estate Planning without an estate tax", on June 20, 2017 for the Estate & Trusts discussion group, Silicon Valley San Jose Chapter, California Society of Certified Public Accountants (CalCPA.) Locatioin is Abbott, Stringham & Lynch, 1530 Meridian Ave., San Jose. This is an introductory-level presentation focusing on providing for the support of the family and key planning issues. The investment, including lunch, is $20 for CalCPA members and $30 for nonmembers. You can register here www.calcpa.org/events-and-programs/event-details?id=a795efd2-3325-43c6-8f6e-42e0137cf1db or call Susie Riffel at 650-522-3168.

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Health care reform introduced in U.S. Senate.

The Republican leadership has introduced its version of health care reform.

Under the proposal, the 3.8% net investment income tax would be repealed, effective January 1, 2017. The other taxes and the penalty for failing to get medical insurance coverage enacted under the Patient Protection and Affordable Care Act would be repealed, but the "Cadillac tax" on high-dollar health plans wouldn't be repealed until 2026. The tax credit for health care plans provided by qualified small employers would be eliminated after 2019.

Under the proposal, there would be severe cutbacks to medical benefits available to the poor under Medicaid (MediCal in California). Government subsidies for medical reimbursements for abortions, excluding those for pregnancies resulting from rape or incest, or when necessary to save the life of the mother, would be eliminated.

The limitations on health flexible spending accounts would also be repealed and health savings accounts would be expanded.

The GOP leadership wants to see this legislation passed in the Senate next week. President Trump says he would approve the legislation, if passed. Since the Democrats oppose the legislation, defections by more than two Republicans would defeat passing it. Four have said they wouldn't accept the legislation in its present form.

If the Senate passes the legislation, there will have to be a conference to reconcile it with legislation passed by the House of Representatives so it can then be approved by both houses of Congress.

Stand by. This battle isn't over yet.

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ESOP ownership of S Corp attributed to plan participants.

The Tax Court has ruled that the ownership of stock in an S corporation is attributed to the plan participant of an Employee Stock Ownership Plan (ESOP). The ESOP is a trust and the participants are beneficiaries.

In this case, ESOP owned 20.4% of the stock during 2009 and part of 2010, and was the sole owner of the S corporation's stock as of October 1, 2010.

Since the S corporation used the accrual basis of accounting and the employees used the cash method of accounting, accrued wages owed to the employees as of December 31 couldn't be deducted by the S corporation until it was paid.

(Petersen v. Commissioner, 148 TC No. 22, June 13, 2017.)

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Computer software fees weren't domestic production income for credit.

The IRS Chief Counsel said that a taxpayer's analysis of its fees for internet access to software didn't meet the requirements to qualify for the tax credit for domestic production gross receipts. The Chief Counsel also suggested the fees might be more in the nature of a service than lease or use fees. Taxpayers and their advisors who claim the credit for these activities should study this ruling.

(CCA 201724026, February 27, 2017.)

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Taxpayer, not payroll service, is primarily liable for payroll taxes.

An S corporation hired a "professional employer organization" to handle its payroll. Payroll taxes withheld by the service company weren't paid to the IRS. The taxpayer claimed it should be excused from the payment, because it gave the money to the payroll service. The IRS Chief Counsel said the arrangement with the payroll service didn't excuse the employer from depositing the tax with the IRS.

(CCA 201724025, June 19, 2017.)

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Church-affiliated pension plan not subject to ERISA.

Employees of hospitals affiliated with a church claimed the plan was subject to the rules of ERISA. The Supreme Court ruled they weren't, consistent with long-established practices of the IRS and other federal agencies.

(Advocate Health Care Network et. al. v. Stapleton, et. al., U.S. Supreme Court, June 5, 2017.)

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IRS can't charge for registering tax return preparers.

A federal district court ruled that, although the IRS can require tax return preparers to use preparer tax identification numbers (PTIN), it can't charge them for issuing or renewing the numbers.

The IRS temporarily closed its PTIN site, and has reopened it. It has stopped charging a fee to issue PTINs.

(Steele v. United States, 2017-1 U.S.T.C. 50,238, June 5, 2017.)

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Please share your good experiences with Michael Gray, CPA.

As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm<. Some of the sites where you can share your experiences include yelp.com and siliconvalley.citysearch.com.

We use Angie's List to assess whether we're doing a good job keeping valued customers like you happy. Please visitAngiesList.com/Review/4258970 in order to grade our quality of work and customer service.

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Financial Insider Weekly broadcast schedule for July and August.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for July and August:

July 7 and 14, Scott Haislet, CPA and attorney at law, "Section 1031 exchanges"
July 21, Scott Haislet, CPA and attorney at law, "Real estate reassessment change of ownership"
July 28, Scott Haislet, CPA and attorney at law, "Sale of a principal residence"
August 4, 2017, Greg Carpenter, BTI Mergers & Acquisitions, "Buying a business"
August 11, 2017, Greg Carpenter, BTI Mergers & Acquisitions, "Selling a business"

Financial Insider Weekly is also broadcast as follows:

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on "Past Episodes."

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.

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Visit our new article!

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Follow me on Social Media!

Want to see new episodes of Financial Insider Weekly as soon as they're posted on Youtube? Want to see Michael Gray's blog posts as soon as they're live? We post them (and more) on social media!

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

I'm also on Facebook, LinkedIn, and Google+.

you can also follow me on other social media sites, Facebook, LinkedIn, and Google+.

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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Real estate investors, have you subscribed to Michael Gray, CPA’s Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com

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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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P.S.

My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at www.taxtrimmers.com/directions.shtml.

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Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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