Diesel Engine Company Executive Sentenced To Prison in Tax Case

In this recent tax case, an executive failed to pay taxes to the IRS and created false records, ultimately sinking his company.

He failed to pay taxes to the IRS and created false records, ultimately sinking his company.

A Nebraska businessman was sentenced to one year and one day in prison for failing to pay federal taxes.

Delving Deeper

Rolley D. Bennett Jr., 53, of Omaha, Nebraska, was also ordered to pay $31,576.19 in restitution.

Bennett was the controller of the Diesel Power Equipment Company, headquartered in Omaha. During the period of 2013 and 2014, he failed to pay approximately $879,000 in payroll trust fund taxes to the IRS.

tax case

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The Business

Diesel Power distributed and repaired diesel engines, generators, pumps, parts, and accessories, primarily to the mining, railroad, industrial equipment, and agricultural irrigation industries.

Bennett’s failure to make the payroll tax payments resulted in Diesel Power ultimately going out of business.

Bennett took steps to conceal the nonpayment of Diesel Power’s employment taxes, including creating cash flow reports that reported the employment tax liabilities had been paid and creating journal entries in the company’s general ledger, which accrued the employment tax liabilities and their associated payments.

tax case

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This Tax Case Verdict

“Failure to remit those employment taxes resulted in the loss of tax revenue to the government and the possible loss of future Social Security or Medicare benefits for the employees,” said Karl Stiften, Special Agent in Charge of IRS Criminal Investigation.

©2019

Featured image by Larry Farr on Unsplash

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New Regulations for Global Intangible Low-Taxed Income

Learn about the new final and proposed regulations that will affect U.S. shareholders eligible for global intangible low-taxed income.

A key component of the Tax Cuts and Jobs Act of 2017 (TCJA) was the implementation of global intangible low-taxed income foreign tax credits (GILTI) for controlled foreign corporations. GILTI taxes U.S. shareholders currently on income earned through their controlled foreign corporations (CFC) even though their profits are not repatriated.

Affect of Global Intangible Low-Taxed Income (GILTI)

According to the recently issued final GILTI regulations, partners are treated as they would be for any foreign partnership. Consequently, any partner who indirectly owns less than 10% of a CFC (by voting or value) will not have a GILTI inclusion. The final GILTI regulations are retroactive for any CFC tax year after December 31, 2017.

Application of the Regulations

This created a problem, however, because treating income at the partnership level is inconsistent with the treatment of Subpart F Income, which traditionally has been determined at the partnership level. The Internal Revenue Service issued proposed regulations to resolve this. The proposed regulations extend the aggregate treatment of domestic partnerships to Subpart F and Section 956 inclusions — which is a fundamental change to the treatment of Subpart F income. These proposed regulations are effective for tax years beginning after December 31, 2017.

The proposed regulations also address the high-tax exclusion from GILTI by allowing CFCs to elect to exclude certain income that is subject to a foreign effective tax rate of at least 18.9% if that income is also excluded under Subpart F. (CFCs that don’t have Subpart F income still may be subject to GILTI.) This exclusion will become effective once the proposed regulations are final and effective.

Opportunities and Challenges

Global Intangible Low-Taxed Income

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These new rules pose potential opportunities and challenges for taxpayers:

  • Partners who don’t meet the 10% threshold are not considered a U.S. shareholder for purposes of these rules. These partners, however, still may be subject to the passive foreign investment company rules.
  • If the high-tax exclusion is elected, it applies to all CFCs owned by the controlling U.S. shareholder group.
  • Once the high-tax exclusion is elected, it applies to subsequent tax years unless it is revoked. If revoked, the election would not be available to that CFC for 60 months. Any subsequent elections cannot be revoked for 60 months.
  • U.S. companies that have a high-taxed CFC and a low-taxed CFC may face unfavorable consequences if they elect the high-taxed exclusion.
  • Coordinating the GILTI rules with the Subpart F rules may have tax consequences for CFCs with de minimis income as defined by Subpart F. Under the new regulations, Subpart F income is taxed solely under the Subpart F rules, whereas de minimis Subpart F incomes falls solely under the GILTI rules.

Companies will need to consider carefully how all these issues affect them. For help evaluating these considerations, contact us today.

©2019

Featured image by Sean Pollock on Unsplash.