WEEKEND INSIGHTS: Illinois Charities and ROT

This is a weekend digest of Bloomberg Tax Insights, written by practitioners and featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a complete archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, Daily Tax Report: International and Financial Accounting.

This week, we look at creating and operating a 501(c)(3), Illinois’ ongoing tax problem to ease the market, the OECD plan, making the most of R&D credit in the fourth industrial revolution, and more. We will hear:

  • James Standard of Taylor, English & Duma on the requirements to form and operate a charity and the categories of tax-exempt purposes.
  • Jeff Friedman, Breen Schillerand Denis Jansen from Eversheds Sutherland on the Illinois Market Facilitator Sales Tax Collection Act
  • Daniel Bowie, Barry Freemanand John Lamszus from Crowe on the new and questionable direction of the OECD’s digital taxation project
  • Ford Shelby and Chelsea Alspaugh from Crowe on Industry 4.0 and R&D credit
  • Emine Constantin of the TMF Group on digital issues for global taxation
  • Jason Mutarelli of Valuation Research Corp. on valuation impairment in light of Q3 2020 results
  • Vinita Krishnan and Rahul Jain of Khaitan & Co. on cross-border agreements with an Indian branch
  • Andy Spencer de Sovos Accordance on tax representation of UK businesses in VAT registration
  • Daniel Gutman and Anais Okouda of CMS Francis Lefebvre Avocats on the finance bill
  • Harold McClure on the Use and Abuse of the Transactional Net Margin Method in Indian Transfer Pricing Cases

Medstar Washington Hospital in Washington DC is non-profit.

Photographer: Daniel Slim/AFP via Getty Images

Many considerations must be made when establishing and operating a 501(c)(3) charity. In Part 1 of a two-part article, James Standard of Taylor, English & Duma LLP reviews the requirements under the law and regulations and the consequences of not meeting those requirements. Read: The Basics of Establishing and Operating a Charity—Part 1 In Part 2, the author examines categories of tax-exempt purposes. Read: The Basics of Establishing and Operating a Charity – Part 2 – Categories of Tax Exempt Purposes

Like most states with a sales tax, Illinois enacted a sales tax collection law to facilitate the market after the 2018 law. Wayfair decision. The intention was to “level the playing field” between online and in-store sales, but the state still hasn’t been successful for marketplace transactions made with inventory in the state, write Jeff Friedman, Breen Schillerand Denis Jansen of Eversheds Sutherland. The authors explain how these marketplace sellers will still owe both Illinois Retailer Occupancy Tax (ROT) and state use tax for sales made in 2020. Read: Something Smells Bad: Illinois Still Needs to Fix Its Market Rot Problem

The original BEPS project was based on the principle that profitability should be aligned with value creation rather than legal ownership. Daniel Bowie, Barry Freemanand John Lamszus of Crowe see the latest iteration of the OECD’s digital taxation project moving in a direction that ignores long-established tax principles for taxing a small subset of businesses. Read: The OECD digital taxation proposal: a contradiction with the original BEPS project?

The fourth industrial revolution is underway. Ford Shelby and Chelsea Alspaugh de Crowe examine what this means for 21st century businesses and how they can make the most of the research and development tax credit. Read: Why Industry 4.0 is important for a tax service

Emine Constantin from TMF Group discusses the challenges that digital technology has created for the global tax system and examines how different countries are addressing them through digital services taxes. Read: The digital services tax, a necessary evil?

The Covid-19 pandemic has affected nearly every business – and for many in ways that hurt goodwill. Jason Mutarelli of Valuation Research Corp. (VRC) is updating its previous article to reflect third quarter results in its analysis of business valuations and impairment testing, including potential impairment of goodwill. Read: Barometer of impairments after the results of the third quarter

As valuations become attractive, more and more global players are eyeing multinational companies. Vinita Krishnan and Rahul Jain of Khaitan & Co discuss key points to consider in any cross-border deal involving an Indian leg. Read: Global transactions with an Indian branch: Tax nuances to watch out for

Andy Spencer of Sovos Accordance discusses the implications of tax representation for UK businesses and how to prepare from a financial perspective. Andy also discusses VAT registrations, reporting and reclaiming in relation to tax representation, and what businesses need to know. Read: Brexit and fiscal representation

Daniel Gutman and Anais Okouda of CMS Francis Lefebvre Avocats mention the tax measures concerning companies in the recently published finance bill. Read: France: finance bill for 2021

From archive

Bloomberg Tax contributors also researched nonprofits during the pandemic.

The Covid-19 economic relief legislation includes elements to help nonprofits. Franck Frit the lawyers explained how loans, tax benefits, unemployment benefits and emergency grants work for nonprofit entities.

Employers can establish employee relief funds under section 501(c)(3) of the tax code to provide tax-free financial relief to employees affected by the Covid-19 crisis. Richard Fox and Joshua Headley by Buchanan Ingersoll & Rooney showed how such funds could be created and administered.

Severance plans have historically disqualified many employees from receiving state unemployment benefits. David Fuller of McDermott Will & Emery looked at a financially attractive alternative known as “supplemental unemployment benefit schemes”.

Beyond tax

What is happening outside the world of taxation?

Understanding the corporate culture of merging companies is critical to a successful transaction, especially in mid-market mergers and acquisitions, Greenberg Traurig say the lawyers. A clear communication plan helps buy-side and sell-side advisors set the stage and guide employees with the information they need to understand, accept, and embrace what is happening and their roles. Read: Mid-market mergers and acquisitions bring two to tango: know your dance partner

The CARES Act has provided historic and temporary relief to mortgage holders facing financial challenges related to Covid-19. R. Aaron Chastainpartner at Bradley Arant Boult Cummings LLP, examines where mortgage lenders and managers stand as the pandemic continues and federal agencies and state governments continue to adjust compliance requirements and rules. Read: The CARES Act at six months: what awaits the mortgage sector

The U.S. Attorney’s Office for the Southern District of New York has come under fire this year for failing to provide defendants with exculpatory evidence and playing politics in a case involving the president’s former attorney. Miller & Knight attorneys review these cases and explain what the office needs to do to overcome any reputational damage. Read: SDNY grappling with court reprimands

Lowenstein Sandler Julie Levinson Werner explores diversity and inclusion efforts in the workplace and argues that it is legally risky to adopt quotas of a fixed percentage of individuals in certain roles on a certain date based on race, gender or other characteristics. She suggests steps employers can take to reconcile the prohibition of unlawful racial discrimination with the undisputed value and goal of enhancing diversity of thought, perspective and experience in the workplace. Read: Diversity in the workplace: getting it right with goals, not quotas

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Intentionally or (in some cases) unintentionally terminating, flipping or “disabling” the trust status of the settlor of a trust can create perilous pitfalls that can leave the settlor trapped in a harsh and nasty reality. Generally, if the grantor trust status is terminated, the trust will cease to be considered a grantor trust within the meaning of section 671 of the tax code. David Kirk, Nicholas Davidsonand Paul Schuh from EY explain the risks and pitfalls that await them in the event of termination and how to help ensure the grantor’s safe passage navigating a path that will (hopefully) support their planning goal, which is the ultimate prize.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts who discuss current tax developments and issues. To contribute, please contact Erin McManus at emcmanus@bloombergtax.com.