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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 IRS, in recent guidance, concluded that the “rents” from many short-term rental arrangements are subject to U.S. self-employment taxes (“SE Tax”). In this guidance, the IRS ruled that a taxpayer was subject to SE Tax in the following situation.

The taxpayer (i) purchased real estate located near a beach, (ii) rented it to third parties., (iii) average rental was less than seven days; and (iv) materially participated in the rental activity (i.e., it was not operated by a management…
Continue Reading Did know you may be able to reduce self-employment tax on short-term rental income?

As noted in a prior “Did You Know”, investing in real estate through a self-directed IRA can be a great strategy for increasing returns on that financial resource. However, IRAs, which are generally not taxed, are subject to income tax known as UBIT (unrelated business income tax) on certain types of income from real estate investments. The tax is imposed at the highest marginal rate (37%).

One way to reduce UBIT liability in a self-directed IRA is to invest through…
Continue Reading Did you know you can avoid UBIT on self-directed IRA investments by investing through a blocker?

Taxpayers may take a charitable income tax deduction when they place a conservation easement on their property for the benefit of a charity. The amount of the deduction is equal to the excess of the value of the land without the easement (at its highest and best use) over the value of the land with the easement. A conservation easement is a legal agreement between a landowner and a charity or governmental entity that permanently limits the uses of the…
Continue Reading Did you know a charity that receives a donation of a conservation easement could be liable for prohibited tax shelter penalties under recently proposed regulations?

The purchase price on an acquisition of the stock or assets of a business often includes an “earn out” component. Under the earn out, additional installments of purchase price are paid if the business achieves certain agreed upon metrics. Earn outs may be paid in either cash or stock. Whenever a payment on a sale transaction is to be received in the future, a portion of that payment is taxable as interest. The buyer and the seller may have explicitly…
Continue Reading Did you know you can avoid converting capital gain to interest income on a stock earn out?

The pandemic has created the opportunity for people to work remotely and 10,000 baby boomers retired each day in 2022. It is not uncommon for people to become “digital nomads” and travel around the country or internationally in an RV or from one Airbnb to another. Many people may see this as an opportunity to reduce or eliminate their Minnesota income tax liability. (Minnesota was ranked 5th highest for state incom tax by Wallethub in 2021).

Under Minnesota law, once…
Continue Reading Did you know in order to change your tax residency from Minnesota you need to stop someplace else for a while?

You might be thinking “why would I ever do that in the first place?” You might do it to avoid having ordinary income on the sale of subdivided property. For example, let’s say you have owned a parcel of property for a while that is in the path of development and you would like to subdivide it and sell the subdivided lots to homeowners or home builders. If you make enough improvements to the property and/or sell enough lots, you…
Continue Reading Did you know if you sell a capital asset to a related company you might accidentally trigger ordinary income?