Summing It Up

Keeping you ahead of the curve with timely news & updates.

Historic Tax Reform Bill Will Benefit Many Companies


Author: Lindsey Miller

There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.

In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.

Key Changes in the New Tax Plan for Companies

The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:

1. Corporate tax rate     

  1. Cut from 35% to 21%
  2. Repeals the corporate AMT

Freed Maxick Insights

With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.

2. Pass Through businesses   

  1. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. 

Freed Maxick Insights

As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate.

But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.


3. Deductions and Credit

  1. Numerous deduction and credits eliminated including Domestic Production Activities, non-         real property like kind exchanges and others
  2. Research and development expenses are now amortized over five years, beginning in 2023
  3. Rehabilitation credit remain but have been modified
  4. Interest expenses limited to 30% of modified taxable income number 

Freed Maxick Insights

With a 40% decrease in the corporate tax rate, the effect of losing these deductions or credits could increase your effective tax rate. Tax credits are still available, so if your business largely relies on tax credits, it will be important to understand the impact and what remains. 


4. Bonus Depreciation

  1. Increased from 50% to 100% deduction of costs of depreciable assets can be taken in one year but equipment must be purchased after September 27, 2017, and before January 1, 2023

Freed Maxick Insights

This will be a huge planning opportunity for many businesses; with no taxable income limitation on bonus depreciation (unlike Section 179 expensing), businesses will be able to take advantage of fully expensing acquisitions (new or used!) in the year placed in service.


5. International Tax

  1. Current "worldwide" tax system changed to a territorial system where corporations will not         be taxed on foreign profit
  2. Companies can repatriate cash held overseas by paying a one-time mandatory tax, based on foreign earnings and, at a tax rate of 15.5% on cash and 8% on property 

Freed Maxick Insights

With the new tax on deemed repatriation, it may be great time for businesses to bring money back and invest in the U.S.

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Congress Passes Historic Tax Reform Bill


Author: Lindsey Miller

After months of debate, acrimony and drama, the US Congress passed the Tax Cuts and Jobs Act, and sent it to President Trump for signature.

Starting January 1, 2018, many individual taxpayers will see significant change in how they plan and prepare their taxes.


Key Changes in the New Tax Plan for individuals

The 500-page bill includes the following key changes for individual taxpayers and their families:

1. Seven tax brackets remain, but income taxes cut
  1.   Rate changes expire in 2025, unless extended by congress
  2.   Look for initial withholding guidance from the IRS in January
  3.   Indexed for inflation by a chained CPI

Freed Maxick Insights

This will give rise to many planning opportunities in the year before the new brackets expire. In addition, with the new brackets taking effect in 2018, it does not allow much time for pre-change planning.

2. Standard deduction

  1.   Nearly doubled
  2.   Indexed for inflation by chained CPI
  3.   Personal exemptions eliminated

Freed Maxick Insights

With some itemized deductions being eliminated or limited, there will be an increase in the amount of taxpayers taking the standard deduction. However, the increase to the standard deduction amount will most benefit those taxpayers who have not itemized in the past.

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3. Other Itemized Deductions
  1.   Mortgage interest deduction remains, but is modified
  2.   State and local tax deduction is limited to $10,000, may choose to include sales taxes as an alternative. Congress also acted to prevent pre-payment of taxes to avoid future limitations
  3.   Medical expenses deductions temporarily enhanced by lowering the threshold to 7.5% of AGI in the 2018 and 2019 tax years
  4.  Alimony no longer tax deductible and the associated income is no longer taxable

Freed Maxick Insights

It was originally thought that the state and local income tax deduction would be completely eliminated. While that did not end up being the case, it is worth it to note that the $10,000 limit includes both income and property taxes. Therefore, this provision will still severely limit the itemized deductions of many taxpayers. But don’t consider prepaying your 2018 state income taxes in 2017. Those amounts will not be deductible until 2018.


4. Alimony

     a. For divorce or separation decrees after 2018, alimony is no longer tax deductible to the             payor and the associated income is no longer taxable to the recipient 

5. Affordable Care Act

     a. The bill does not repeal the Affordable Care Act’s taxes on net investment income, the             additional Medicare tax, medical device tax and others
     b. The bill does repeal the individual mandate requirement (starting 2019)

6.. Estate tax exemption

     a. Doubles the exclusion amounts
     b. Generation skipping tax exemption is also doubled

Freed Maxick Insights

Time to revisit your Estate Planning. There should be many opportunities to minimize the estate tax burden. 

7. Alternative Minimum Tax
  1.  The exemption increased from $54,300 to $70,300 for singles and from $84,500 to $109,400       for joint filers

Freed Maxick Insights

Maybe next time this will finally go away! Contact us and let’s see how this affects you.

8. Education

  1.  Up to $10,000 in 529 savings plans can now be used for tuition at private and religious K-12       schools
  2. Deductions for classroom supplies bought by a teacher remains
  3. Tax free status of graduate student tuition waivers remains
  4. Student loan interest deduction remains

9. Families
  1.  Child Tax Credit increased from $1,000 to $2,000. Credit is refundable up to $1,400. The plan also increases the income level from $110,000 to $400,000 for married tax filers
  2. $500 credit for each non-child dependent now allowed

Freed Maxick Insights

This provision will offset some of the impact of eliminating personal exemptions for families with multiple children.


Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Oklahoma 2017 Voluntary Disclosure Tax Amnesty Program

Oklahoma 2017 Tax Amnesty ProgramOklahoma has currently enacted a tax amnesty program for the period beginning September 1, 2017 and ending November 30, 2017. Taxpayers should take this opportunity to voluntarily file delinquent tax returns and avoid potentially high penalties, interest, and other possible collection fees.

What Oklahoma Taxes are Eligible for Tax Amnesty?

There are a wide variety of taxes eligible for Oklahoma’s amnesty program, including:

  • Mixed beverage tax
  • Gasoline and diesel tax
  • Gross production and petroleum excise tax
  • Sales tax
  • Use tax
  • Income tax for periods ending prior to January 1, 2016
  • Withholding tax

Who is Eligible (and not Eligible) for the 2017 Oklahoma Voluntary Disclosure Initiative?

Individuals, businesses, and other entities with Oklahoma tax delinquencies are generally eligible to participate in the program.

The following taxpayers do not qualify for the program:

  • Taxpayers with delinquent taxes other than those listed in the section above.
  • Taxpayers that have already been contacted by the Oklahoma Tax Commission regarding potential delinquency.
  • Taxpayers that have collected sales and use tax or payroll taxes from others, but have not remitted them to the state.
  • Taxpayers that have participated in a voluntary disclosure program for that tax in the past three years.

What Are the Benefits of Voluntary Disclosure?

For taxpayers that take advantage of the limited window of opportunity for voluntary disclosure, Oklahoma will waive all the penalties, interest, and other fees for any taxpayer who participates in the program. It’s important to note, however, that the period that additional taxes can be assessed is limited to three years for annual returns and thirty-six months for all other filings.

For taxpayers that have collected taxes from others but not reported the taxes, a modified voluntary disclosure agreement is available where penalties are waived. Interest may still be charged and the time period includes all periods in which taxes were collected and not remitted to the state.

How to Participate in the 2017 Oklahoma Voluntary Disclosure Initiative

To participate, taxpayers must file all delinquent tax returns and make the required payments (or enter into an accepted payment program) within the disclosure period. Taxpayers should also be aware that for one year following the initiative period, they must continue to pay and remit applicable taxes, otherwise the penalties, interest, and other fees will not be waived.  

Get Assistance for Voluntary Compliance

If you are a delinquent Oklahoma taxpayer, you should consider getting assistance from experienced tax professionals that can help you navigate through the program, and ensure that you are in full compliance with program requirements.

We can help.

Freed Maxick’s State and Local Tax (SALT) team is among the nation’s leaders when it comes to assisting taxpayers with voluntary disclosure and compliance.

Contact a member of the Freed Maxick SALT Team here for a no cost consultation.

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Good News from the IRS for S-Corp Shareholders!

Bona fide indebtedness determination lowers hurdle to obtain debt basis.

For S corporation shareholders, borrowing from one company they own to fund another is a common way to inject some cash into a growing business—especially in these days of conservative lending. But previously, if the funded company experienced losses and you wanted to take deductions for those losses on your personal tax returns, you had to meet a high bar to prove that loan increased your debt basis in the company.

As a result of the previous position of the IRS and tax courts, shareholders who borrowed from one related entity in order to loan to another had a particularly hard time defending their debt basis. But thanks to final rules from the IRS, that bar has been lowered and S corporation shareholders are now more likely to qualify for tax deductions for entity losses that have been passed through to them.

Bona Fide Indebtedness Determination

On July 23, the IRS issued final regulations on debt basis determinations for S corporation shareholders (T.D. 9682). These final rules implement a “bona fide” debt basis determination as opposed to the controversial “economic outlay” doctrine that has been developed by the courts over the last several years. 

Under the economic outlay doctrine, in order to obtain debt basis an S corporation shareholder must incur a true economic outlay through a transaction, which when fully consummated, left the taxpayer poorer in a material sense.

On the other hand, bona fide indebtedness is determined under general Federal tax principles and depends on all the facts and circumstances. Basically, a bona fide debt is one that creates a true debtor-creditor relationship that is based on a valid and enforceable obligation to pay a fixed or determinable amount of money. This means that shareholders who structure and document their loans to an S Corporation in the correct way can now qualify for debt basis in that S corporation, and as a result, can claim current tax deductions for their share of any losses that S corporation experiences.

This is a win for both the shareholder and the company.  The shareholder has potential for additional deductions and the company gets a cash infusion that has potential tax minimizing opportunities for the shareholder.

Back-to-Back Opportunity

Previously, the IRS and tax court often used the economic outlay doctrine to deny debt basis to shareholders for funds borrowed from a related entity and then loaned to the S corporation by the shareholder. These transactions are often referred to as back-to-back loans. The reasoning was that, by borrowing from Peter to pay Paul, the shareholder was not considered to be making a true economic outlay.

But with the new debt basis rules, shareholders who structure and document their back-to-back loans to qualify as bona fide indebtedness (see below) are more likely to obtain debt basis—and claim tax deductions—as result of those loans.

The Look-Back Opportunity

While the final debt basis rules were issued with minimal changes to the proposed regulations, one significant highlight is that the final rules did expand their application to open tax years.

What does this mean for you? In addition to the potential tax benefits of restructuring related entity loans going forward, shareholders who have made back-to-back loans in any open tax year and didn’t increase their debt basis now have the opportunity to go back and claim deductions for any previously disallowed losses—if they can demonstrate there was bona fide indebtedness.

Determining Bona Fide Indebtedness

While there is no bright-line test to prove that a debt is bona fide, the key is to demonstrate that there is a true debtor-creditor relationship. Based on federal tax principles, the following steps can help support the determination of bona fide indebtedness:

  1. Make sure there is documentary evidence of the transaction (i.e. a written loan agreement).
  2. Both parties should reflect the transaction as a loan in their records.
  3. Setup a fixed repayment schedule and make efforts to follow the schedule in order to create a history of regular repayments.
  4. The loan should require interest and the rate should be at least as much as the Applicable Federal Rate (AFR).
  5. Consider collateral to secure the debt.
  6. A demand for repayment should be issued if necessary.
  7. There needs to be intent to create a valid debtor-creditor relationship and the lender must have an expectation of receiving repayment at the time of the loan.

Review S Corporation Financing Strategy

If you are a shareholder in one or more S corporations, work with your tax advisor to review any existing or prospective loans for the opportunity to demonstrate bona fide indebtedness—and therefore obtain debt basis to claim current tax deductions for any entity losses in the future and/or any suspended losses in open tax years.

Going forward, you and your CPA might find that funding S corporations with properly structured back-to-back loans provides a tax-advantaged way to finance a new venture with funds from a more established company.

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Samuel C. DiSalvo to Speak at the Knowledge Group’s ASC 740

New York, NY, May 17, 2014 --(PR.com)-- The Knowledge Group/The Knowledge Congress Live Webcast Series, the leading producer of regulatory focused webcasts, has announced today that Samuel C. DiSalvo, Tax Director, Freed Maxick CPAs, P.C. will speak at the Knowledge Group’s webcast entitled: “ASC 740: Income Tax Accounting for 2014.” This event is scheduled for October 16, 2014 from 12:00pm – 2:00pm (ET).

For further details, please visit: http://theknowledgegroup.org/event_name/asc-740-income-tax-accounting-for-2014-live-webcast

About Samuel C. DiSalvo
Samuel C. DiSalvo is a Director with Freed Maxick’s Tax Practice. Prior to joining the Firm, Sam spent over 25 years in the accounting profession with both Big Four firms and private industry. During this time, he gained significant experience with mergers and acquisitions, corporate taxes and compliance, and financial statement tax accounting.

Sam is responsible for providing day-to-day tax advisory services, coordinating, and supervising the preparation of the corporate income tax returns, and reviewing the annual and quarterly provisions for income taxes for both publicly held and privately held corporations. Sam concentrates his practice on joint venture tax matters, merger and acquisition issues, and corporate taxes as well as ASC 740 issues such as purchase accounting, valuation allowances, and international issues. He also has significant experience in identifying tax opportunities in connection with the due diligence reviews of companies’ prior year tax returns.

About Freed Maxick CPAs, P.C.
Freed Maxick CPAs, P.C. is one of the largest accounting and consulting firms in Upstate New York and a Top 100 largest CPA firm in the United States. Serving SEC companies, closely held businesses, governmental and not-for-profit clients across New York as well as nationally and internationally, Freed Maxick mobilizes high-performance professionals to guide client growth, compliance, and innovation. They specialize in the healthcare, manufacturing, real estate, banking, agribusiness and private equity sectors and have more than 280 professional and administrative personnel, with offices in Buffalo, Batavia, Rochester and Syracuse, New York. Freed Maxick’s Tax Practice is the largest of any accounting firm in Upstate New York with over 110 personnel, including 12 tax directors. Freed has built a significant SEC Practice through years of experience in auditing a wide variety of companies and has extensive knowledge in handling public and private capital transactions.

Event Synopsis:
In this two-hour Live webcast, a panel of distinguished professionals and thought leaders will help Finance Executives, CPAs, Attorneys, Enrolled Agents, Tax Practitioners, and other related professionals understand the important aspects of this significant topic. They will provide an in-depth discussion of the significant issues related to tax accounting rules and latest developments in ASC 740. Speakers will also offer best practices in developing and
implementing an effective income tax accounting strategies.

Key topics include:

− An overview of ASC 740: Income tax accounting

− Review issues/considerations on significant areas including valuation allowances, business combinations and uncertain tax positions

− Guidelines and best practices

− Latest tax accounting and regulatory developments and a lot more.

About The Knowledge Group, LLC/The Knowledge Congress Live Webcast Series
The Knowledge Group, LLC was established with the mission to produce unbiased, objective, and educational live webinars that examine industry trends and regulatory changes from a variety of different perspectives. The goal is to deliver a unique multilevel analysis of an important issue affecting business in a highly focused format. To contact or register to an event, please visit: http://theknowledgegroup.org


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Corporate Tax Reform Update

On March 31, 2014, New York State enacted comprehensive corporate franchise tax reform with the passage of the 2014-2015 NY budget legislation. This legislation includes new rate structures, new rules for banks, changes the economic nexus rules, changes the rules on combined reporting, revises the net operating loss provisions, and changes sourcing of income and apportionment.  

The changes take effect over multiple years and this legislation will result in planning for the most advantageous entity structure for N.Y. State purposes for both existing and new businesses. 

Unfortunately, these changes will negatively impact utilization of non-refundable N.Y. State income tax credits by qualified NY manufacturers. 

Check out our educational alert, providing an overview of the corporate franchise tax reform. 

If you have additional questions, or need assistance with N.Y. State entity structuring to maximize utilization of tax incentives under the new corporate tax regime, CONTACT US today.

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Obama Emphasizes Individuals, Targets Business Tax Incentives in FY 2015 Budget

FY2015 budget proposals 1As we approach the tax day deadline, we’ve compiled a summary of proposed changes to tax
law that will affect you next tax season.

President Obama renewed his call for expanding child, family and education tax credits in his fiscal Year (FY) 2015 budget proposals as well as for curbing some tax preferences for higher income individuals and businesses. Many of the proposals are familiar from past budgets, but for FY 2015 the White House is placing special emphasis on passing tax reform for families and lower income individuals.

To learn more, check out this SPECIAL REPORT.


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IRS Releases New Interactive Online Application for Tax Exempt Status- Form 1023

By: Sandra DeSimone, CPA, Manager

If your organization is considering applying for tax exempt status with the Internal Revenue Service (IRS), you may want to consider doing it on-line.

Peter Lorenzetti, the IRS Northeast Exempt Organization Exam Manager, recently presented at the New York State Society of Certified Public Accountants Exempt Organizations Conference. The presentation discussed the September 2013 IRS launch of the much anticipated interactive on-line Form 1023 Application for Recognition of Exemption under 501(c)(3) of the Internal Revenue Code.

The online version of the form 1023 was designed to make the application process more efficient and user friendly. When the application is being filled out on-line, there are pop-up boxes with instructions and information to assist the user. According to Lorenzetti, since its launch, 166 applications for tax exempt status have been completed using the new interactive Form 1023 and the comments from users have been positive.

How long will it take for an application to be approved? 

Recently, the IRS has come under scrutiny for long wait times of application approvals. Lorenzetti noted the average application takes six months to be approved. Some causes for delayed applications are submission of incorrect user fee, and/or inaccurate or incomplete applications. Key wording also needs to be targeted in the narratives, to demonstrate the mission of the organization. It is suggested that the application be thoroughly reviewed before submitting it to the IRS.

We suggest your organization obtain professional advice with your organization’s application for tax exempt status. Freed Maxick CPA’s is an expert in the process. We can either prepare your application or review it before it is submitted. Contact Us today to get connected to a professional who can help.


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Don’t Forget to Carve out your Sales Tax this Halloween

By: Amanda Roth, Senior Tax Manager

HalloweenHalloween is a signifier of many things. It brings to mind the fall season, children running around in costumes, carving pumpkins, baking apple pies, and eating candy. Few look at the picture at right and think about paying sales tax. But sales tax applies to many things- including Halloween items. Here are a few sales tax facts to consider this Halloween.

In New York State, sales of pie pumpkins, gourds, and other items sold in supermarkets that are used by a purchaser in cooking pies, cakes, breads, cookies, etc., are exempt from New York sales tax because they constitute food sold for human consumption. However, decorative and carving pumpkins (including decoration gourds) are not being marketed or sold in their normal or intended use for human consumption. Thus, decorative pumpkins and gourds, and carving pumpkins, whether sold in supermarkets, farm stands, nurseries, or other businesses, are not sold as “food” and constitute tangible personal property subject to sales tax.  So if you are buying a pumpkin which you will use to bake a pie then it is exempt from New York sales tax.  However, if you are buying a carving pumpkin to carve a jack-o-lantern, that pumpkin is subject to New York sales tax.

In addition, generally, food, food products, beverages, dietary foods and health supplements sold for human consumption are not subject to New York sales tax. However, the exemption does not apply to candy and confectionery. Therefore, Halloween candy is subject to New York sales tax.

Also, beginning April 1, 2012, there is an exemption from New York state sales and use tax for clothing, footwear, and items used to make or repair clothing, costing less than $110 per item or pair. This exemption does not apply to locally imposed sales and use taxes unless the county or city imposing those taxes elected the exemption.  For purposes of the exemption, the term "clothing and footwear" is defined to mean: clothing and footwear to be worn by human beings. This does not include costumes or rented formal wear;  fabric, thread, yarn, buttons, snaps, hooks, zippers and like items that are used or consumed to make or repair such clothing (other than costumes or rented formal wear) and become a physical component part of the clothing. Therefore, the pants you buy to take you child “trick or treating” are exempt from New York sales tax but your child’s Halloween costume is subject to New York sales tax.

New York state sales tax is complicated and most areas are not straight forward. Sometimes the use of an item dictates whether and item is subject to sales tax. If sales tax is this complex for Halloween items, imagine how complicated they can be when considering whether your business needs to collect sales tax.

For information about how Freed Maxick can help guide and manage your individual or business tax strategies, contact us to learn more.



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Depreciation Incentives Scheduled to Expire at the End of 2013

2013 may be the last opportunity for taxpayers to take advantage of bonus depreciation, an enhanced Code Section 179 expensing deduction, and Code Section 179D deduction for energy efficient improvements to commercial buildings. 

By: Jennifer A Birkemeier, CPA
Senior Manager, CSP360

Taxpayers considering making significant capital investments in property in the near future should consider making such investments by December 31, 2013 to enjoy these lucrative tax benefits. These tax benefits may allow the entire cost to be expensed  for the 2013 tax year instead of a deduction claimed over a period of years under the MACRS depreciation rules. Given the tax increases and new taxes effective beginning with the 2013 tax year, the ability to deduct capital investments in property could result in a significant tax savings.

Bonus depreciation, as defined in Code Section 168(k), was first introduced in 2001 and has been extended & enhanced several times over the past 12 years. This tax incentive allows for a percentage of an asset’s basis, currently 50%, to be expensed immediately while the remaining basis is depreciated over the MACRS recovery period. If the law is not extended, bonus depreciation will not be available for property placed in service after December 31, 2013. To qualify for bonus depreciation, the asset must qualify as new property that has not been previously used by another taxpayer.

Code Section 179 currently allows a taxpayer to expense up to $500,000 of qualifying property placed in service during the 2013 tax year. The property must be personal property and the maximum amount of qualifying property that a taxpayer may place in service during 2013 is $2,000,000 before the deduction begins to phase out. Beginning with the 2014 tax year, the Code Section 179 deduction will be lowered to $25,000. The ability to expense up to $500,000 has helped many taxpayers decide to proceed with asset acquisitions in 2013.  

Taxpayers have the opportunity to receive immediate tax deductions for energy efficient improvements that they have made to a building since 2006. Code Section 179D provides a deduction of up to $1.80 per Square Foot for energy efficient lighting, HVAC and building envelope improvements that a taxpayer has placed in service by December 31, 2013. There is also an opportunity to review improvements since2006 and claim deductions that a taxpayer may have missed. There are several requirements to receive the Code Section 179D deduction that include receiving a specific certification from a qualified individual. In addition, for government owned buildings the deduction can be allocated to the architect or engineer who is primarily responsible for the design of the energy efficient improvements.

CSP360 is a subsidiary of Freed Maxick, CPAs in Buffalo NY. Freed Maxick CPAs is a Top 100 accounting Firm, and one of the leading providers of Cost Segregation and consulting services. Our philosophy is to offer clients a 360 approach to a taxpayer’s fixed assets; pairing engineering and LEED specialists with accountants for a truly unique tax advisory team. Since 1995, our in house team has provided specialty studies to CPAs in a private label arrangement. Products include Cost Segregation, Code Section 179D Energy Studies and Code Section 263(a) repair studies. CSP360 is Circular 230 compliant and has proven methodologies that are sustainable in the event of an IRS examination. To learn more about our unique approach click here.




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