Friday, June 21, 2013

Foreign Corrupt Practices: It Shouldn’t Happen to Any Business

According to the New York Times, in September 2005, a senior Wal-Mart lawyer received an email from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. The former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance.

Fast forward to 2013, when Wal-Mart recently disclosed in its SEC filing the ongoing impact of its alleged violations of the Foreign Corrupt Practices Act (FCPA), including:

  • Expanded investigations into additional allegations regarding potential violations of the FCPA in foreign markets such as Brazil, China and India
  • Lawsuits filed by several Wal-Mart shareholders
  • The threat of settlements, fines, penalties, injunctions, cease-and-desist orders, debarment or other relief, and criminal convictions and/or penalties
  • Costs in the ongoing review and investigations
  • Increased media and governmental interest
A recent study by Deloitte Forensics Center reports that only 29 percent of executives surveyed were very confident their company’s anti-corruption program would prevent or detect corrupt activities. This low level of confidence indicates that many businesses may need to evaluate and upgrade their anti-corruption efforts. All businesses, public and private, that operate in foreign markets need to take steps to avoid having to make a similar disclosure.

In general, the FCPA:

  • Prohibits U.S. businesses (incorporated or unincorporated “domestic concerns”), residents and citizens, and foreign companies listed on a U.S. stock exchange from paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business.
  • Requires any company (including foreign companies) with securities traded on a U.S. exchange or required to file periodic reports with the SEC to:
    • Keep books and records that accurately reflect business transactions.
    • Maintain effective internal controls.
  • Contains an Anti-Bribery provision that includes broad third-party payment provisions under which the actions of foreign subsidiaries and other third parties (including agents, consultants, distributors, joint venture partners, etc.) can result in FCPA liability to a parent company or the entity engaging the third party. Even without actual knowledge that an improper payment has been made, a company can be found guilty of a violation.

Contact Doeren Mayhew for more information.

Sunday, June 16, 2013

Vacation Homes: Are You Enjoying the Tax Benefits?

Vacation homes offer owners many tax breaks similar to those for primary residences, as well as the opportunity to earn tax-advantaged and even tax-free income from a certain level of rental income. The value of vacation homes are also on the rise again, offering an investment side to ownership that can ultimately be realized at a beneficial long-term capital gains rate.
Homeowners can deduct mortgage interest they pay on up to $1 million of “acquisition indebtedness” incurred to buy their primary residence and one additional residence. If your total mortgage indebtedness exceeds $1 million, you can still deduct the interest you pay on your first $1 million. If one mortgage carries a substantially higher rate than the second, it makes sense to deduct the higher interest first to maximize deductions.
As a vacation homeowner, you don’t need to buy an actual house (or even a condominium) to take advantage of second-home mortgage interest deductions. You can deduct interest paid on a loan secured by a timeshare, yacht or motor home so long as it includes sleeping, cooking and toilet facilities.
Below are two ways to account for your vacation home:

1. Capital gain on vacation properties.

Gains from selling a vacation home are generally taxed as long-term capital gains on Schedule D. As with a primary residence, basis includes the property’s contract price (including any mortgage assumed or taken “subject to”), nondeductible closing costs (title insurance and fees, surveys and recording fees, transfer taxes, etc.), and improvements. “Adjusted proceeds” include the property’s sale price, minus expenses of sale (real estate commissions, title fees, etc.). The maximum tax on capital gain is now 20 percent, with an additional 3.8 percent net investment tax depending upon income level. There’s no separate exclusion that applies when selling a vacation home as there is up to $500,000 for a primary residence.

2. Vacation home rentals.

Many vacation home owners rent those homes to draw income and help finance the cost of owning the home. These rentals are taxed under one of three sets of rules depending on how long the homeowner rents the property.
  • Income from rentals totaling not more than 14 days per year is nontaxable.
  • Income from rentals totaling more than 14 days per year is taxable and is generally reported on Schedule E of Form 1040. Homeowners who rent their properties for more than 14 days can deduct a portion of their mortgage interest, property taxes, maintenance, utilities, and other expenses to offset that income. That deduction depends on how many days they use the residence personally versus how many days they rent it.
  • Owners who use their home personally for fewer than 14 days and less than 10 percent of the total rental days can treat the property as true “rental” property, which entitles them to a greater number of deductions.
Own a vacation home, or thinking about buying one? Contact our tax advisors in MichiganHouston or Ft. Lauderdale to ensure you enjoy the associated tax benefits.