2019 B&V Insights June 4, 2019 The Briar Club Tax Cuts & - - PowerPoint PPT Presentation

2019 B&V Insights

June 4, 2019 The Briar Club

Tax Cuts & Jobs Act Updates

Presented By Jason Sanders, CPA Briggs & Veselka Co. Tax Shareholder & Department Chair

• Tax Cut & Jobs Act Amended Code §274 (for-profit) & §512

(non-profit)

• Provides that no deduction is allowed for the expense of any qualified

transportation fringe benefit (QTF) as provided by the taxpayers to their

• employees. QTFs are defined as transportation in a commuter highway

vehicle, any transit pass, and qualified parking.

• Qualified Parking--provided to an employee on or near the

business premises of the employer or on or near a location from which the employee commutes to work.

• QTF can be excluded from employee gross income up to

$260/mo. for 2018.

• What counts as employee parking expense?
• Based on Employer Cost; not the FMV of the benefit to employee

Parking Fringe Benefits

3

• Excludes
• Depreciation
• Amounts paid for items outside of the parking facility
• Includes
• Rent or lease payments
• Insurance
• Property Taxes
• Utilities
• Repairs & Maintenance, cleaning, removal of snow/leaves/trash
• Parking lot attendant/security expenses.

Parking Fringe Benefits

4

Step 1: Calculate Non-deductible cost for reserved employee spots

• Until 3/31/19, employers can eliminate these

retroactive to 1/1/18 Step 2: Determine primary use of remaining spots

• If more than 50% available to public, don’t include

those costs in calculation

• If less than 50% available to public, go to Step 3

Step 3: Calculate any reserved nonemployee spots

• Determine % of such spots vs. the remaining total # of

spots Step 4: Determine remaining use and allocable expenses

• Allocate expenses based on reasonable determination of

employee usage of parking during typical business day

IRS Safe Harbor for Calculating Cost of Employer-Paid Qualified Parking (Notice 2018-99)

5

New Meals & Entertainment Summary

6

Description Non- Deductible 50% Deductible 80% Deductible 100% Deductible Meals with client

X

Meals with coworkers

X

Office Meals

X

Employer-Provided Snacks and Other Food Products

X

Subject to Department of Transportation (DOT) "hours limits"

X

Meals while traveling

X

Celebratory meals:

X

Holiday Parties

X

Birthday and Anniversary Celebrations

X

Company Picnics

X

Entertainment:

X

Sporting events, country clubs, golf and athletic clubs

X

Hunting, fishing, vacation, similar trips

X

Membership dues/fees

X

Sponsorship events

FMV of Entertainment (green fees)

X

FMV of Meals (lunch/drinks)

X

Remainder Sponsorship (hole sponsorship)

X

• Sec. 163(j) disallows a deduction for business interest for any

year to the extent that net business interest expense exceeds the sum of a taxpayer's business interest income, 30% of adjusted taxable income, plus floor plan financing interest.

• Business interest expense that is disallowed for a tax year is

treated as paid or accrued in the succeeding tax year and may be carried forward indefinitely.

Disallowance of Business Interest Deduction

7

• An entity (other than a tax shelter that cannot use the cash

method of accounting under Sec. 448(a)(3)) that meets the gross-receipts test of Sec. 448(c) is exempt from the Sec. 163(j) interest limitation.

• An entity meets the gross-receipts test if its average annual gross

receipts for the previous three tax years does not exceed $25 million.

• Real property trades or businesses or farming businesses may

elect to be exempt from the business interest expense limitation.

• An electing real property trade or business must use the alternative

depreciation system (ADS) for all nonresidential real property, residential rental property, and qualified improvement property, so the property is not eligible for the special allowance for certain property (bonus depreciation).

Disallowance of Business Interest Deduction

8

It is important to note that the exemption to the limitation on business interest under Sec. 163(j) does not apply to a tax shelter prohibited from using the cash-receipts-and- disbursements method of accounting under Sec. 448(a)(3). The term “tax shelter” includes any syndicate.

Disallowance of Business Interest Deduction – Syndicates

9

Syndicates defined:

• A syndicate is defined by Sec. 1256(e)(3)(B) as any

partnership or other entity (other than a corporation that is not an S corporation) if more than 35% of the losses of the entity during the tax year are allocable to limited partners

• r limited entrepreneurs.
• “Limited entrepreneur" is provided in Sec. 461(k)(4)

as a person who has an interest in an enterprise other than as a limited partner and who does not actively participate in the management of that enterprise (e.g. passive LLC members and S Corporation shareholders).

Disallowance of Business Interest Deduction – Syndicates

10

• Qualified improvement property (QIP) is an improvement

to an interior portion of a building that is nonresidential real property placed in service after the date the building was first placed in service.

• QIP does not include the enlargement of the building or

improvements to any elevator, escalator, or the internal structural framework of the building.

• It appears that QIP acquired and placed in service after

2017 should be depreciated as nonresidential real property. Depreciation as nonresidential real property would require QIP to be depreciated over a 39-year recovery period, and it would not be eligible for bonus depreciation.

Qualified Improvement Property (QIP)

11

• Although the TCJA Conference Report described a 15-

year recovery period, QIP was not included as 15- year property. As a result, a technical correction will be needed to provide the 15-year recovery period for QIP and for QIP to be included as qualified property under the bonus depreciation rules.

• QIP is eligible for Section 179 expensing subject to phase-
• ut limitations.

Qualified Improvement Property (QIP)

12

• The gross receipts test is satisfied for a tax year if a

taxpayer's average annual gross receipts for the prior three tax years do not exceed $25 million.

• A taxpayer that meets the gross receipts test may use the

cash method regardless of whether the purchase, production,

• r sale of merchandise is an income-producing factor.
• A taxpayer not in existence for the entire three-year period

applies the test on the basis of the period during which it, or its trade or business, was in existence.

Cash Method of Accounting

13

• Gross receipts for a tax year of less than 12 months (e.g., due

to a change in accounting period, or for an initial year) are annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.

• The $25 million amount is adjusted for inflation for tax years

beginning after 2018. For tax years beginning during 2019, the gross receipts test is met if the average annual gross receipts do not exceed $26 million.

Cash Method of Accounting

14

• The gross receipts test is satisfied for a tax year if a

taxpayer's average annual gross receipts for the prior three tax years do not exceed $25 million.

• Small construction contracts may use a completed-

contract method, the exempt-contract percentage-of- completion method, or any other permissible method. A "small construction contract" is expected to be completed within the two-year period beginning on the contract commencement date.

• Applied on a “cut-off” method – only applicable for new

contracts.

Long-Term Contracts

15

Questions

16

Data Protection in a Dangerous Cyber Environment

17 Jeff Eckert Pathway Forensics Ryan Shinkle Insgroup, Inc.

• L. Renée Lowe

Harris County Health System Sheryl Falk Winston & Strawn LLP Bill Penczak Briggs & Veselka Co.

18

19

Data Protection in a Dangerous Cyber Environment

20 Jeff Eckert Pathway Forensics Ryan Shinkle Insgroup, Inc.

• L. Renée Lowe

Harris County Health System Sheryl Falk Winston & Strawn LLP Bill Penczak Briggs & Veselka Co.

Houston Economic Outlook

Prepared by Josh Pherigo Manager, Research

12-Month Running Totals

Payroll Employment

22

• 20

20 40 60 80 100 120 140

'14 Apr Jul Oct '15 Apr Jul Oct '16 Apr Jul Oct '17 Apr Jul Oct '18 Apr July Oct '19

Jobs (000s)

Source: Texas Workforce Commission

Houston Job Growth, 000s

23

• 110.5

50.5 82.9 117.5 90.0 116.7

• 2.5
• 2.4

54.2 73.3

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Source: U.S. Bureau Labor Statistics

2/13, 64.2 3/19, 64.0 30 35 40 45 50 55 60 65 70 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: Institute for Supply Management - Houston

Houston Purchasing Managers Index

What’s driving Houston’s Economy?

25

The ene e energy gy busin iness ess is is pr profit itabl able e ag agai ain. n.

Energy

26

27

Average response = $52.01

April 2019, 61.59 20 30 40 50 60 70 80 90 100 110 120

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

$ Per Barrel

Source: U.S Energy Information Administration

Crude Spot Price, Weekly Average

West Texas Intermediate

Lost st Money Ea Earned ned a Profit

Financial Performance in Q3/16

29

Financial Performance in Q4/18

Lost st Money Ea Earned ned a Profit

30

U.S. Economy

Strong

• ngest

est GDP gr growth wth sin ince e Q3/1 /14. 4.

31

1.5 3.7 3.0 2.0

• 1.0

2.9

• 0.1

4.7 3.2 1.7 0.50.5 3.6 0.5 3.23.2

• 1.0

5.14.9 1.9 3.33.3 1.0 0.4 1.5 2.3 1.91.81.8 3.02.8 2.32.2 4.2 3.4 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: U.S. Bureau of Economic Analysis

Growth Rate, % Change from Previous Quarter

U.S. Real Gross Domestic Product

32

2 3 4 5 6 7 8 9 10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

% Unemployed Source: U.S. Bureau of Labor Statistics * seasonally adjusted

U.S. Unemployment Rate*

Houst uston

• n expo

ports ts at a r rec ecord d hig igh.

Foreign Trade

34

Sep-14, 136.1 Dec-18, 140.5 60 70 80 90 100 110 120 130 140 150 160 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 $ Billions

Source: WISERTrade

12-Month Moving Total

Exports Imports

Houston Customs District Traffic

35

Houston Customs District Traffic

130.5 109.2 91.6 109.1 140.5 121.9 86.2 69.8 83.0 92.7 50 100 150 200 250 300 2014 2015 2016 2017 2018

$ Billions Source: WiserTrade

Exports Imports

36

Houston’s po popu pulati tion

• n conti

tinues es to gr grow.

Metro Houston Population Growth

108,957 128,495 145,796 172,961 172,947 135,695 93,435 91,689 '11 '12 '13 '14 '15 '16 '17 '18 Source: U.S. Census Bureau

Corporate Expansions

Compan mpanie ies s conti tinue ue to move e to Hous uston.

• n.

39

Significant Relocations and Expansions

40

Expansions and Relocations

396 244 223 272 374 50 100 150 200 250 300 350 400 450 2014 2015 2016 2017 2018

Source: Greater Houston Partnership Research

Announcements in Houston

41

What could slow us down?

42

200 220 240 260 280 300 320 5 6 7 8 9 10 11 12 13 Jobs (000s) Million Barrels Per Day

Source: U.S. E.I.A., Texas Workforce Commission * Exploration, oil field services, related manufacturing, engineering

Crude Output Oil Jobs

U.S. Crude Output vs. Houston Oil Jobs*

Jobs bs Lost t Peak ak to Trough

• ugh*

Rec ecoup

• uped

ed To

• Date

% R Rec ecouped ed

Exploration & Production

• 21,

1,700 700 0.0 Oilfield Services

• 20,800

800 8,200 39.4 Oilfield Equipment Mfg

• 18

18,000 000 4,300 23.9 Fab Metal Products

• 20,700

700 10,100 00 48.8 Engineering

• 11,2

1,200 00 6,600 58.9

* Peaks and troughs vary by sector Source: Greater Houston Partnership calculations based on Texas Workforce Commission data

Energy Employment in Houston

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Sources: Federal Housing Finance Administration, Moody Analytics, John Burns Real Estate Consulting

Home Prices Income

Change, Home Prices & Household Income

23.0% 22.2% 22.6% 21.9% 22.1% 25.7% 26.5% 26.2% 27.5% 27.6% 29.1% '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Source: John Burns Real Estate Consulting

Housing Cost to Income Ratio

Executive Order 13678

Enhancing Public Safety in the Interior of the United States

Executive Order 13769, 13780

Protecting the Nation from Foreign Terrorist Entry into the United States

Executive Order 13767

Border Security and Immigration Enforcement Improvements

Reforming American Immigration for Strong Employment Act Deferred Action for Childhood Arrivals Immigrant Investor Program (EB-5) H1-B Visas

Immigration

24.1 .1 25.2 .2 25.5 .5 32.3 .3 37.5 .5 35.0 .0 43.1 .1 44.5 .5 21.6 .6 40.5 .5 55.6 .6 65.9 .9 61.8 .8 28.1 .1

• 10.4

.4

• 9.1

.1

'11 '12 '13 '14 '15 '16 '17 '18

Source: U.S. Census Bureau

International Domestic

Net Migration (000s)

• 20

20 40 60 80 100

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Residents (000s)

Source: U.S. Census Bureau ‘06 data distorted due to Hurricane Katrina evacuees

International Domestic

Net In-migration

338 38,650 ,650 261,350 ,350

Source: Partnership calculations based on U.S. Census Bureau data

Native-Born Foreign-Born

• Approx. 600,000 residents joined local workforce (’06 – ’16)

Houston Workforce Growth

73 80 92 106 117 120 Hou Housin ing B g Bubb ubble '01 le '01 - '

• '07

World W rld War ar II Ec II Econom

• nomy '3

'38 - '

• '45

Re Reagan Years agan Years '8 '82 - '9

• '90

60s B Boom

• om '6

'61 - '6

• '69

Curren Current Boom t Boom J Jun une ' e '09 t to Pres

• Presen

ent Tec ech B h Boom

• om '9

'91 - '

• '01

Source: National Bureau for Economic Research

Months nths

Longest U.S. Expansions

When will the U.S. enter recession?

When will the U.S. enter recession?

9.9% 41. 1.6% 6% 24.8% 8% 10.9% 9% 12.8% 8%

2019 2020 2021 Later Than 2021 Don't know

Source: National Association for Business Economics

% of Survey Respondents

When? Cause se

’69 – ’70 Interest rate hikes, fiscal austerity ’73 – ’75 Stock market crash, oil price spike ’80 - ’82 Interest rate hikes, oil price spike ’90 – ’91 High debt levels, consumer pessimism, oil price spike, ’01 – ’02 Dot-com bust, weak business investment, 9/11 ’08 – ’09 Subprime mortgage crisis

Six Most Recent Recessions

Houston’s 2019 Economic Outlook

57

Energy U.S. Expansion Foreign Trade* Business Relocations Consumer Confidence

All align in Houston’s favor

+ Health Care + Wholesale + Construction + Oil and Gas + Administrative Support + Real Estate + Professional Services + Other Services + Manufacturing + Educational Services + Restaurants + Finance and Insurance + Retail + Arts & Entertainment + Government + Hotels + Transportation + Information

Employment Forecast for ’19

71,0 ,000 Jobs 00 Jobs

Employment Forecast for ’19

• 110.5

50.5 82.9 117.5 90.0 116.7

• 2.5
• 2.4

54.2 73.3 71.0

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19*

Source: U.S. Bureau Labor Statistics * Partnership forecast

Houston Job Growth, 000s

What could give us a boost?

62

63

Venture Capital Deals by U.S. Metro

39 39 48 57 58 68 70 71 76 78 95 95 99 109 123 165 206 215 215 225 254 302 551 573 987 1,962

• St. Louis

Cleveland Nashville, TN Baltimore Indianapolis Houston Pittsburgh Phoenix Portland, OR Minneapolis Raleigh-Durham, NC Dallas Salt Lake City Area Miami Atlanta Philadelphia Washington D.C. Chicago Austin, TX San Diego Denver Area Seattle Los Angeles Boston New York SF Bay Area Source: Pitchbook data analyzed by National Venture Capital Association, 2017

64

65

Houston PE and VC Investment Activity

Data provided by:

310 297 273 279 322 50 100 150 200 250 300 350 2014 2015 2016 2017 2018

Houston Private Placement Deals (yearly)

66

Houston Investment Activity by Sector

Data provided by:

84 34 34 9 8 15 14 18 18 66 42 42 16 14 14 13 12 12 10 20 30 40 50 60 70 80 90

Houston Private Placement Deals by Sector – 2014 v. 2018

2014 2018

67 Data provided by:

He Health th Care re

Top Deals in Houston (Jan ’14 – Feb ’19)

68 Data provided by:

Infor

• rmation

ation Techn hnolog

• logy

Top Deals in Houston (Jan ’14 – Feb ’19)

www.houston.org

Houston Economic Outlook

Prepared by Josh Pherigo Manager, Research

15 Minute Break

Recruiting, Retaining, Levering Diversity

72

Sheryl Lyons CultureSpark Jon Silberman NAI Partners John Arcidiacono Houston Health Museum Adam Dimmick Briggs & Veselka Co.

73

Recruiting, Retaining, Levering Diversity

74

Sheryl Lyons CultureSpark Jon Silberman NAI Partners John Arcidiacono Houston Health Museum Adam Dimmick Briggs & Veselka Co.

SAVE THE DATE

75

DISCUSSION: State of the current market conditions for the middle-market merger and acquisition activity

76

...join us in the Ballroom for hors d’oeuvres and drinks