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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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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?

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?