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James Duffy

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Jim is a partner in Taft’s Tax practice and practices principally in the areas of federal tax law; tax credit financing; individual, partnership and corporate tax planning; M&A; tax-exempt organizations and general commercial and corporate law.

Jim has been actively practicing in the area of the New Markets Tax Credits (NMTC) program since its inception in 2001. He has organized community development entities (CDEs) and represented CDEs, borrowers and other parties in structuring and closing numerous NMTC transactions. Jim also advises clients regarding Qualified Opportunity Zone matters.

Jim advises LLCs, partnerships, corporations and individuals in connection with the formation of new companies, mergers and acquisitions, formation of joint ventures, like-kind exchanges, ownership succession planning, and general business operations. These clients are involved in a variety of industries, including banking, venture capital, real estate, construction, consulting and investing.

Jim also advises charitable and non-charitable tax-exempt organizations, including health care entities, schools, religious and civic organizations. In addition to advising management of these organizations with respect to matters pertaining to general operation and maintenance of tax-exempt status, Jim has assisted clients in forming, restructuring and dissolving tax-exempt organizations, as well as forming donor- advised funds.

Prior to joining the firm, Jim worked at the law firm of Lewis Rice and Fingersh in St. Louis, Missouri, where he concentrated his practice in federal and state taxation. He also clerked for the Hon. Robert P. Ruwe of the U.S. Tax Court in Washington, D.C.

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The numerous technical requirements for qualifying and maintaining status as an S corporation create many opportunities for loss of S corporation status.  In recognition of this, the law provides that taxpayers may get relief from accidental terminations of a corporation’s S election if the termination is “inadvertent,” the corporation takes action to correct the termination within a reasonable time after discovery, and consents to certain adjustments required by the IRS.

By contrast, if an S corporation files a statement of…

Continue Reading Did you know you can rescind a revocation of S corporation status but only if the rescission is filed prior to the effective date of the revocation?

S corporations provide valuable tax advantages for businesses with simple capital structures. Unfortunately, they are subject to stringent requirements creating multiple opportunities for missteps and potential loss of S corporation status. Recently, in. Rev. Proc. 2022-19, the IRS provided methods for addressing some such missteps, without the need to incur the time and expense to seek a private letter ruling.

The IRS guidance identifies six potential problems (1), non-identical governing provisions; (2) principal purpose determinations relating to the single class…

Continue Reading Did you know there are self-help and streamlined ways to fix defects in S Corporation status?

This is the case in California, and soon will be the case in Minnesota and New York.  For over six decades, businesses have avoided multistate income taxation relying on a federal law (P. L. 86–272) adopted in 1959.  P. L. 86–272 prohibits states from imposing income tax on income derived by an out-of-state business if the seller’s only business activity in that state is solicitation of orders for tangible personal property.  Orders must be sent outside the state for approval…

Continue Reading Did you know that your business may be subject to income tax in a different state solely by virtue of interacting with customers via the Internet?

Often times when a partnership or LLC is selling a real estate investment, some partners may be ready to cash out, while others would like to defer the gain and reinvest in real estate.  If the partnership simply sells the property and uses part of the proceeds for a like- kind exchange under Section 1031 and distributes the remaining proceeds to the cash out partners, the gain on the sale that was not reinvested would be taxable to all of…

Continue Reading Did you know you can use a ‘drop and swap’ when selling real estate so that some partners can defer gain and other partners can cash out?

As you are probably aware, the Federal tax code was amended in 2017 to limit the deduction that individuals can take for state and local taxes to $10,000.

As noted in prior installments of Did You Know, both Minnesota and Indiana have adopted laws that  enable owners to avoid that limitation by having their partnership or S corporation pay the income tax on the company’s income (rather than the owners pay it on their share of the income).  As a…

Continue Reading Did you know 36 states have enacted PTE tax laws to enable owners of partnerships and s corporations to avoid the $10,000 annual limit on the deductibility of state taxes?

This approach not only benefits the charitable cause but can also provide significant advantages for the property owner, including liquidity, tax savings, and reduction of holding costs.

A bargain sale involves selling a property to a tax-exempt charity at a price below its fair market value.  If the sale is to the right type of tax-exempt organization (known as a public charity), the seller is entitled to a tax deduction for the full fair market value of the property in…
Continue Reading Did you know a bargain sale to a tax-exempt charity may be an effective strategy to dispose of hard-to-sell real estate assets?

In order to make a tax free like kind exchange, replacement property must be identified within 45 days of the sale of the old property and the replacement property must be acquired within 180 days of the sale. As you might expect, these timelines can be challenging to meet.

Taxpayers can also defer gain by investing in a Qualified Opportunity Zone (QOZ) investment. The QOZ rules also require that the investment (in a Qualified Opportunity Fund (QOF)) be made within…
Continue Reading Did you know that a Qualified Opportunity Zone investment may be a good fallback for a failed 1031 like kind exchange?

First of all, you may be thinking, “Why would you ever want to do that?” Sometimes in transactions (such as a merger or acquisition), it is desirable to have management exchange otherwise vested equity for equity that vests over time in order to retain the key individuals. Aside from the obvious business considerations, the first thought that would likely occur to the holder of the equity is that this arrangement would convert the capital gain inherent in the equity to…
Continue Reading Did you know you can impose vesting restrictions on otherwise fully vested equity without losing the beneficial capital gains treatment?

We are all familiar with common business structure in which the operating business is owned by the individual(s) through one entity, the real estate is owned by the same individual(s) through a separate entity and the operating business pays rent to the real estate entity. This is a great method of protecting the value of the real estate from the operating risks of the business. It does however create a self-rental situation under the Internal Revenue Code.

Under the self-rental…
Continue Reading Did you know under the ‘self-rental’ rule, income from rental activity is deemed active income and losses are deemed passive?

You’re probably familiar with rep and warranty insurance in M&A transactions, but did you
know that you can get insurance against an undesired tax result in a transaction?

Tax insurance can apply to almost any transaction where there is a “known” tax question, but the result is uncertain. Tax insurance can cover a number of circumstances, including:

  • Issues that arise during diligence in an M&A transaction and as a “known” issue,
    are no longer covered by reps/warranties insurance (e.g., failure

…
Continue Reading Did you know you can buy tax insurance for transactions?