WIDE ANGLE 2021, Quarter 4
The Ventura Pranas Quarterly Newsletter: April – June 2021

The Ventura Pranas Quarterly Newsletter (October – December 2021)

Contents Overview


Welcome to 2022! This newsletter is a bit delayed only because we’ve been busy advising clients across two continents, and informing some of you about new services we offer (such as wealth advisory, estate planning and the work we do for our corporate clients). We also welcome you to a new year of filing deadlines for 2021 returns, and given Covid-related stimulus packages, there are more aspects than usual to keep in mind.

We have the following important announcements:

1. We’re back to working from our office space! We are thrilled to announce that our teams in LA and Chennai are mostly fully back to working from the office. We’re excited to be reunited after working remotely on and off for a larger part of the last 24 months (which the teams pulled off very well with the cooperation of our clients, we might add).

2. Both our office locations have changed. Aside from having moved offices in Los Angeles, we are also moving office in Chennai. Our new Chennai office commencing

  • May 1st 2022 is:
  • 1st Floor, Meridian House
  • 121/3 Manickam Avenue,
  • Off TTK Road,
  • Alwarpet
  • Chennai 600018

3. Look out for our new client portal:

  • We have redesigned our Client Portal so we can alert clients of annual deadlines as they approach, tailored to their filing requirements – tax and otherwise. Standby for a document explaining how this new feature works. We are currently testing these features and you will be provided adequate notice before the old handle is replaced with the new one.

4. New Engagement Letters:

  • You must have received the 2021 engagement letters. We have enabled an easy e-acceptance to speed up the process and cut down on future back-and-forth during urgent matters that need a timely response. Please send in your acceptances (follow the instructions on how to accept our 2021 engagement letters online that come along with the letter).

  • Here is what is different in the new engagement forms:

  • NROR to ROR transitions – if you are a resident of India, you will understand that an ROR return in India requires worldwide income disclosures, foreign relief and asset disclosures requiring significantly more time and effort. Since there can be a degree of uncertainty on whether you are an ROR or RNOR we have provided for this situation. If you are sure your status has changed and your engagement letter does not reflect this status let us know and we will be sure to get back.

  • Also our fixed fee quote assumes certain number of capital gains and form 8621 ( mutual fund scripts). We have provided for situations when these exceed the numbers assumed for the base quote.

5. E- organizers:

  • This year we send E-Organizers to enable clients to see what information made up their returns last year which can then serve as a checklist to provide the relevant information this year.

  • Please note that if you are using a MAC unfortunately this E-organizer is not yet compatible.

6. If you are a corporate client: Please stand by for a comprehensive corporate request list that will endeavor to cover all information needed for :

  • a. State allocations
  • b. Apportionments
  • c. FATCA filings
  • d. Disclosures

  • Our tax prep is only as good as the information provided to us, so please do provide information as comprehensively as you can.

7. If you are a Bookkeeping client:

  • a. We will be providing MISs and Monthly Financials for each month.
  • b. Please review your January statements and make an appointment for our team to review this so that changes can be incorporated early in the year.

Ten Year Milestone

Ventura Pranas completed 10 years in December 2021. This milestone is meaningful for us because we’ve managed to grow, overcome hurdles to stay in business, expand through partnerships and acquisitions while specializing and growing in the niche field of cross-border accounting.

Celebrations with our team, clients and well-wishers on December 21st (2021) included a live band, dinner and a party! Here’s a recap of our journey and our future plans.

In 2011, our founder Prabha Srinivasan had just finished a stint as a managing director and CEO of an Indian subsidiary of a US firm. She was at a crossroads, and chose entrepreneurship over employment and founded Ventura Pranas. At first, Ventura Pranas was largely an outsourcing partner for US firms, with the exception of having one Indian client in Bangalore. The next few years called for wearing her boots out in prospecting the market for business, traveling 3-4 days in a week. In addition to the soft pitches, a proposal was also shared on the R2I website, a company Ventura Pranas recently acquired.

As we slowly started getting clients, it affirmed our belief that we were in a unique space. In 2015 we got a massive jolt when we lost the only outsourcing client we had at the time. Our revenue dwindled by over 50% overnight. We realized we had to be more self-reliant; it was also the time that some of our clients came on board to form our advisory board.

As we continued to sell and gain footfall in 2016, largely by word-of-mouth. We entered a strategic partnership with another US based firm which was keen on acquiring us at that point. What unfolded over the course of the next 18 months was that our own work was far outstripping any outsourced arrangement we had in place.

2019 saw the emergence of our consulting group thanks to our ever-ambitious set of clients. In 2020 we acquired a firm in the US and most of 2020-2021 was spent in stabilizing the practice and integrating it with ours.

In 2021, we acquired the R2I website (http://www.r2iclubforums.com/). We also emerged with a renewed sense of belief that we would function successfully as an independent cross-border firm. We go into the future completely dependent on our own clients.

Something that must be pointed out is that transitioning from faceless operators (typical for a firm doing back-end work) to becoming advisors to our captive clients has been transformational for our team. Our team is really the cornerstone of everything we’ve been able to achieve, and I’m ever grateful.

Covid has been a game changer for our business. It has brought about scalability to our practice by forcing us to get out of the noise of the office. It has given me, in particular, the opportunity to view the business from a 10,000 foot level allowing me the visibility to realign the business as we take on the next decade

The future

We wish to take this firm from good to great, to establish it as an exemplary hallmark of client service in this space, to stay relevant (laws are changing everyday), and to harness technology to get more efficient. We would like to offer our clients a 360 engagement. We have expanded our services but not done enough to tell our clients what else we do. Our team is very important, and we plan on investing in them and giving them a sense of purpose so they know they can build a career being in this niche space of advisory.

Lastly, we want this organization to be an authority in this space of US-India cross border practice. We hope to make Singapore our next stop as we go into the future!

If you’d like to watch a video of the event (the main speeches, especially), click here for
Prabha’s speech https://youtu.be/tsc3gHC3iVQ
And here for the awards: https://youtu.be/HBZsVLKDqrg

You Ask, We Answer

Parallel Universes

It’s tough to be aware of the intricacies between state laws in taxation, or how tax laws in the state where you have a business entity can impact your income tax even though you might live in another state. Well, that’s why we’re here: to keep a track of tax laws, and tell you what to look out for. This time we are covering two topics- the Employee Retention Credit and State tax Nexus questions

Q: Is DE a tax free state?

A: We need to clarify a thing or two about how state taxation works, and the state of Delaware specifically. Many of our clients are in the Technology start-up space and building IP - the type of IP that may be deployed across the world. The holding interest almost always is by US persons of a C-Corp in the US that owns the IP.

What’s important to understand here is that while DE is tax friendly for those who run an investment or holding company only from DE, regular income tax in the state is quite high. It’s important to distinguish between income that is truly intangible and not tied to any operation in DE so that it is not subject to DE state income tax.

Anything that is tied to operations out of DE will carry a tax rate of 8.7%, which isn’t significantly lower than CA’s tax of 8.84%.

Q: Can you explain CA domicile rules and how can one abandon it?

A: We have clients who are moving to India to take care of their parents. Covid seems to have rekindled the need amongst NRIs to remain closer to their aged parents in India. The wider acceptance of remote working seems to have triggered an overwhelming cross-border movement of people. If you are seriously considering this move, look closely at what it takes to abandon domicile in the state. CA rules look through facts and circumstances such as holding onto a primary residence, attorney and banking connects. In addition, the state of CA has a look-back period of a continuous duration that the individual would have had to stay out of the state.

Q: Is physical presence is the state necessary to trigger state income tax, especially in CA?

A: The Quill Corp vs. North Dakota case from many decades ago was a US supreme court ruling on use tax. The decision effectively prevented states from collecting any sales tax from retail purchases made over the Internet or other e-Commerce routes unless the seller (the corporation) had a physical presence in the state, such as an office or an agency. This ruling has since been overturned.

Now, with this in mind, here’s how doing business in the state of California could impact your taxes:

Ever since January 2011, California moved away from the Quill’s law that attached important to physical presence in the state to trigger state income tax implication. Prior to this, it was more likely that you had a state income tax filing obligation in CA if you fulfilled physical presence tests in the state. This is no longer the case. CA now has other factors that trigger state income taxation. It is a function of how much your total revenues in the state bear to your overall revenue. Even if you do not have rent or employees in the state, the fact that you have sales to customers in the state alone can be enough. Be sure to provide the granular data your CPA needs to carefully evaluate this.

Q: Can I live in CA and set up a business in TX where the tax is lower (and avoid CA tax)?

A: We have clients who are living in California who are under the assumption that if they set up an entity in a state like Texas, they can escape taxation in the state of CA. Well, here’s how it really works: an out-of-state entity that has its primary officer living in CA will be treated as an entity that does business in the state of CA. Bottom line: where the officer lives and operates out of is what matters when it comes to income taxation (Place Of Effective Management), especially for CA. Who said POEM only applied between countries, it does between states as well. You will have to ensure the entity gets permission to do business in CA anyway.

Q: Is foreign tax credit allowed in computing income taxes for CA?

A: Many of our clients have property in India. Almost always, a sale of this property triggers a tax that they avail as credits for federal tax purposes. However, what comes as a shock to them is that CA does not allow a credit for taxes paid in another country. This is not new- it’s just that one wouldn’t be aware of it until you have reason to pay capital gains taxes. Most states do not allow credit for taxes paid outside of the United states. Something you can consider is selling the property in the name of someone you trust in India. Even this can be a bit tricky, and it involves a careful balance between tax savings and the ability to take funds out of India under FEMA.

Q: If my company has a presence in more than one state, how will the taxable income be split between the states?

A: General business-related income must be apportioned, because this is income generated from an activity which by its very nature represents the primary trade or business that the taxpayer is engaged in.

Apportionment can be a single factor based allocation (sales only) or can be based on the three factor approach (sales, rent and payroll). With 2021 out of the way be sure to discuss with your CPA what changed in 2021 relative to 2020 so they can better assess additional state tax filing requirements. Not all states use three factor, so be sure to provide your CPA with the appropriate data so he can make that assessment before it is too late. Covid might have added another wrinkle because your employees would have been more scattered than ever in the past. Some states have provided Covid-triggered exceptions. It is up to your CPA to evaluate your state exposure based on all the information you provide.

Q: Is an Income tax filing requirements for a state and permission to do business in the state essentially the same thing?

A: One does need to register to do business in the state if that person needs to return income in the state. So the short answer is most often ”yes”. You will need a statement of good standing from your state of incorporation and then will need to apply for a corporate ID in the state where you are considered to be doing business.

Each state will have its own procedures on how to obtain this permission, and tax laws do vary from state to state.

Q: Tell me about QSBS and State compliance

A: There are updates and changes to tax laws every other week. So far, and as of now, the QSBS rules remain untouched.

This may be short lived given that the Biden administration and the build-back-better plan don’t appear to be in favor of this. It’s possible that the benefits to QSBS might be reduced going forward. However, in all the planning for QSBS, one must take into account that not all states are QSBS compliant. (Taxation and the law are full of caveats, right?)

California is not QSBS compliant. It is the hotbed of startups and yet one of the most tax advantageous rules do not apply in this state. Think carefully about your residency before an exit of QSBS stock.

The following are states that do not allow QSBS exclusion: Alabama, Mississippi, New Hampshire, Pennsylvania, New Jersey and California

Q: What is the Employee Retention Credit (ERC)?

A: The pandemic might seem like it’s old news, but its fatigue and ongoing virulence lives on, as does its stimuli related. One such stimuli is the Employee Retention Credit, or ERC. For 2021, the ERC is a quarterly tax credit against the employer's share of certain payroll taxes. The tax credit is 70% of the first $10,000 in wages per employee in each quarter of 2021. We’re in 2022, but businesses still have time to claim credit on their 2021 returns.

If you are in a business that was negatively impacted by the pandemic – as have our clients in the hospitality and travel industry - you may be eligible for the ERC. This is essentially a refund of some of the payroll deposits made by an employer on behalf of their employees during 2020 and 2021. If your income declined by more than a certain threshold when comparing it to 2019, and you incurred payroll because of employees, you might be eligible for a sizeable credit. Part of this credit is refundable and part of it is not.

Q: If I apply for the ERC and received PPP1 (Payroll Protection Program) as well as PPP2, will I still be eligible for ERC?

A: When the ERC was first announced, there was language that seemed to indicate that the two (ERC and PPP) were mutually exclusive. In other words you could not double up. Since then, clarity has been provided. While it is true that the PPP1 and PPP2 loans and their forgiveness might reduce the amount of ERC, they do not stop you from making an application for the credit. ERC is a refund of some of the payroll deposits made by an employer on behalf of their employees during 2020 and 2021. This is easy to calculate if you provide us with the information that was used to avail the PPP loans. We will also need your payroll returns filed for 2020 and 2021.

Contact us at ea@venturapranas.com to book an appointment, and we will tell you if you might qualify or not. This could provide you the much needed oxygen as you rebuild your business post pandemic

Q: I have a parent company with a cost center in India. Will I still be eligible for ERC?

A: Several of our US based clients have cost centers in India with most of the developmental staff in India. The question arises on whether this is considered qualified wages for the purposes of the ERC. The answer is a hard No. In order to be eligible to avail the credit, this payroll cost should relate to employees on US shores, not your offshore centers. This is actually not surprising at all; after all these are US driven stimuli intended to spur spending and resilience in the US rather than your operations abroad. It will no doubt still help you because the cash flows from the ERC still can be dispensed towards funding your developmental activities.

Q: Is the ERC a fed program only?

A: Since our last few posts on the Employee Retention Program (ERC), we have been inundated with questions from our clients if this is a Federal-only credit, or if states have something as well on the same lines. The ERC is a federal program.

Q: Am I too late to apply for ERC? Is it based on 2020 or 2021 numbers?

A: There is still time to apply for ERC. You may be eligible for the credit based on 2020 and 2021 numbers and there is no drop-dead deadline by which you need to have submitted the application for consideration. So get a jump on it while you can.

Q: How long does it take for the IRC to process my ERC credits?

A: Be prepared for a 6-month wait. The IRS will likely want explanations to establish that the claims are valid. Budget for this time, potential back-and-forth, and overhead costs in between.

Parallel Universes (Property Sale)

Parallel Universes

Stories and scenarios you can relate to, for families in the US and in India, to help you understand the complexity (and humour) involved in financial planning. Please note that the following is simply a case study. Any references to names and situations are entirely coincidental.

In this issue of parallel universes, through the scenarios of Dev and Sukriti, we’d like to illustrate how citizenship and residency can impact the taxes you pay on property sales, and life-stage and timing can influence your decision making.

Dev grew up in Nasik, and moved to the US when he was in twenties to study and then to work. Many years later, when he had children, nostalgia for his hometown kicked in and that led him to purchase a beautiful piece of land with papaya and banana trees, in anticipation of vacationing there more frequently with his children and perhaps spending a few years there when they were older. However, as the years went by, Dev and his wife found it harder to take long breaks from their careers to take their children to Nasik, and as the children grew up, they developed interests and an independence of their own. Today, although Dev’s children are grateful to have a connection to India via trips they made during their growing years to spend time with their cousins, they do not plan on living in India. Dev is not so sure he wants to retire there either, and as he grows older he worries that this isn’t an easy asset to manage.

In the last month Dev has called us several times. He has decided to sell his farm house in Nasik, and wanted us to advise him on the capital gains taxes he might have to pay. Here’s what we wanted to caution him about before the sale took place:

The US has a Net Investment Income Tax of 3.8% at a Federal level and some states have a state tax in addition. To avoid this, Dev could consider selling the property via one of his siblings or many nieces and nephews in India. That way, it would still attract the Indian tax (which would be incurred either way), but he avoids the US Net investment income tax. Also, an Indian resident selling a property is subject to a low 1% TDS on the sale proceeds vs a non-resident Indian who is subject to the 20% plus Cess and surcharge withholdings at source. So in addition to saving on taxes, by selling through one of his relatives (or anyone else he trusts), Dev lowers his risk of having to labour with the Indian tax authorities to secure a refund; after all, his TDS far exceeds his tax bill on the sale were he to sell as an NRI.

All this considered, we also made Dev aware that the downside of selling through an Indian person is that his ability to take funds out of India will be drastically decelerated by FEMA. If Dev is going to need those funds for a life event in the next few years, such as his children’s college, this might be something to take into account.

Those aren’t the potential pitfalls Dev needs to consider. As a US citizen, the transfer of the Indian asset will entail using some part of lifetime exemption. The current limits are at $12MM approx. per person, and Dev’s property, despite the stunning

landscape, is worth much less because of real estate value in the area, so it may be worth it to do the transfer. He will just have to file gift returns for the transfers.

While advising Dev, we examined his situation to see if we could use Section 121 (exemption of gains on sale of primary residence). If Dev is subject to taxes in the US on worldwide income, he is entitled to use the US rules to his advantage too, which in this case would mitigate the need to transfer to an Indian person or make the sale happen via his relative. Unfortunately in Dev’s case, since he hardly spent more than a few weeks every year at his Nasik home, it would be difficult to apply for Section 121.

Really, what Dev needs to take a call on is whether he wants to use some tax saving strategies that are available in India. It is a fine balance. He needs the taxes paid in India to credit the tax bill in the US. If he uses options in India to save taxes, he might be robbed of the option to use up credits in the US. As a result his tax bill in the US could be large. This coupled with a reinvestment in India (were he to have one) could pose severe cash flow challenges.

Property sales in India can still result in a state tax bill because states do not allow foreign tax credits. Abandoning state domicile in a taxable state may not be easy practically speaking, because Dev and his wife have an active career in California. One way to approach this is to realize that the very purpose of these property investments was to provide financial independence for retirement years. We recommended making the most of it rather than giving away a significant chunk in state taxes. Breaking domicile could be worth it if the transaction runs into many millions.

There are rules, loopholes, and then there’s your specific financial situation and financial planning for the near future. We had a long chat with Dev over lunch and then coffee to take all of financial and life planning into account before advising him.

Oddly enough, we also heard from Sukriti, our client in Bangalore, around the same time, which made for some very interesting internal discussions with our team on how the two cases compared and contrasted with each other. Sukriti had spent a long while in the US, in Massachusetts and then California. She had gone to Swarthmore for her undergraduate studies in Political Science and Philosophy, and after a law degree she worked with several firms on policy making. Sukriti is in her fifties today, and she has been keen on moving to India to work with non-governmental and research bodies on policy making in India. Sukriti is a US citizen today, and she owns a charming brownstone in Massachusetts.

Before her move to Bangalore last year, Sukriti leased her property and was claiming the rent received as rental income. Around 12 months into her move, it became clear to Sukriti that she would live in Bangalore for many years. Sukriti now wants to sell her home in Massachusetts.

Since Sukriti’s property is located in the US, taxes would hit her the same way whether she made the sale from India or the US. In that sense, there is no converse equivalent to Dev’s situation of selling property in India. However, if Sukriti waits for another 2 years, by which time she would have lived in India for 3 out of the previous

5 years, she would be eligible for capital gains exemption. Since she still lived in her US property for 2 out of the last 5 years, from a US standpoint, she can claim Section 121, or principal home residence (the maximum window for this is 5 years, after which you can no longer claim that physical property as your Principal Home). If a US person sells their Principal Home Residence (i.e. their primary/ main residence), the capital gains for a single person is tax free up to $250,000 (it’s $500,000 for a married joint filing couple). What we usually advise is to not lease your US property for more than 2-3 years. Once you fulfil the 2 out of 5 years, sell your property so that you qualify for the $500k exemption.

To maximize her tax saving from an Indian standpoint, Sukriti can also be vigilant about the timing of her sale. If she sells just as two years in Bangalore comes to a close, she would be selling while she is still a RNOR (Resident, but Not Ordinarily Resident), which means she will not have to declare worldwide income in India. If she waits too much longer, She would be an ROR, and will have to declare the income from the US property sale. If she waits for much longer, she will not even qualify for the Principal Home Residence tax exemption. The goal here is therefore to balance the tax savings under the Primary Home exemption in the US with the RNOR status in India.

Recommendations (Everest Corp and Veda Financial)

Our Analysis

Ventura Pranas works closely with partners and many of our clients are also in the field of financial advisory and wealth management. Since some of our clients do great work in these allied fields and we have a close relationship to them, we make use of this column to share information about their service offering.

For Personal Wealth Management

Most families have a mix of investments, spread across banks, brokerages, real estate, and retirement plans, amongst others. At first glance this might seem like a good mix. But rarely is this planned in a holistic manner, with rationality, across the dimensions of risk, taxes and costs. As a result, returns at the household level are often quite weak.

Working with a wealth manager can improve this situation, often quite substantially. Taking a holistic view of the family’s finances can avoid mistakes, lower taxes, improve returns and when done with proper estate planning considerations, help pass on a greater amount of wealth to the next generation.

Everest Management Corp is a boutique personal wealth management firm headquartered in the San Francisco Bay Area that we recommend. They draw an analogy to family doctors: just as a family doctor serves as a central point of contact for health, a personal wealth manager functions in a similar capacity for all matters relating to wealth.

Founded by Ranga Srinivasan and Ramprasad Satagopan, who were dissatisfied with the services available post the dot com collapse for assistance in managing their personal finances. They were employed as engineers at the time, and found that conflicts of interest, inferior solutions and the overall services available were unsatisfactory. In an attempt to do better, they gained insights into systematic techniques that could be applied to grow household wealth, and from there was born Everest Management Corp.

An SEC registered Investment Advisory firm based in Silicon Valley, Everest Management Corp services 60 families with $145m under their management. Their clients are typically successful executives, entrepreneurs, professors, and medical professionals.

There are three pillars of differentiation for Everest Management Corp that work together to create better financial outcomes –

  • 1. They work in a fiduciary capacity with the highest levels of integrity in serving families.
  • 2. They create a unique investment solution at the household level that incorporates products from leading financial firms executed through their proprietary software.
  • 3. Their service is hyper-personalized.

Families that are domiciled in USA and US expatriates with investable assets of $1 Million USD (or more) are well suited to benefit from their service.

To learn more, visit the website of Everest Management Corp at https://everest-mgmt.com or simply email the founders to make an appointment: emc@everest-mgmt.com

For Investment Management

One aspect of investment management that deserves a lot of attention is the return on one’s investment assets. You work hard to build up your wealth, but are those assets working as hard to make you more money? With compounding interest, $250,000 invested today at a rate of return of 2% will grow to $451,000 in 20 years. The same portfolio could easily amount to a sizable $1.7 Million for a return of 10%.

Most of our clients are still actively engaged with their career and young-ish family, so the idea of spending a lot of time managing their money is not appealing. It’s also hard to get up to speed in an area where experts already exist. An investment manager we recommend is Dr. Toni DasGupta. . With a Ph.D. in Physics from University of Minnesota and an MBA in Finance from UCLA, Dr. DasGupta is an Investment Advisor with the registered investment advisory,Veda Financial Inc., an approved practice on the award-winning TD Ameritrade wealth platform. She specializes in managing investment portfolios for individuals, corporations, and trusts, in regular, IRA and 401(k) accounts.

Dr. DasGupta uses her analytical background to actively manage investments and achieve superior returns with less risk Each client's portfolio is treated as unique and management is custom tailored to their needs. Their edge is a proven research-based strategy of growth investing, with a diversified asset allocation that seeks to maximize returns and reduce volatility.

What also stands out is that no matter what the account size, Dr. DasGupta’s team is responsive, and they provide ongoing support for all their clients. Their objective is to achieve the best growth rate with less risk, they are transparent (the funds are custodied by TD Ameritrade), and clients have full control of funds and 24x7 access to their accounts. The portfolios are actively managed and complimentary financial assessments are provided to re-evaluate goals and optimize the plan as the client’s needs change.

The best way to get in touch with Dr. Toni DasGupta is to send an email to tdasgupta@vedafinancial.com or WhatsApp her at +1 213 500 8764. They will set up a 20 minute consultation to learn about your investment needs and discuss how they can help you achieve your financial goals (feel free to mention Ventura Pranas to give your introduction some context).

Prabha’s Office Location + appointments

Prabha will be in the US, at the firm’s Santa Monica office, from March 10th until April 23rd. If you’re looking to meet with Prabha, please make a note of her time zone during those weeks. This might be a good time to reach out to go over individual or corporate returns in detail.

Just send in an email to ea@venturapranas.com to book an appointment, along with details of what you would like to discuss and your time zone. Alternatively, email Prabha directly at psrinivasan@venturapranas.com