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Tax Strategies Reference

Disclaimer: This is a working reference, not tax advice. Every item here needs to be validated with Pearce Bevill (Austin's US CPA) and, for Mexican items, JME Contadores; for Japanese items, the Japanese accountant. Claude is not a lawyer or tax advisor.

Priority order (revised)

The 2024 tax return revealed a $3,429,659 NOL carryforward. This re-orders strategy priorities materially: Austin currently has $0 federal income tax and extensive loss generators. The goal is not "reduce current tax" — it's preserve the NOL stack and position for eventual monetization.

  1. GK Form 5471 for 2025 return — new compliance requirement; first 5471 for the GK due with 2025 return (fiscal year ended Oct 31, 2025)
  2. PFIC analysis on the GK — if Mita rental income is treated as predominantly passive rather than real estate trade or business, PFIC treatment could be severe
  3. Check-the-box status on both RHG and GK — drives cost seg, STR loophole, and subpart F/GILTI exposure
  4. FBAR for 2026 tax year — Santander MXN crossed $10K threshold; GK Japanese bank account certainly crosses
  5. Augusta rule setup at W 3603 — RENFROE S-corp rents residence for up to 14 documented business meetings/year
  6. Red Farm §165(g) worthless security deduction for 2026 return — $120,833 investment in shut-down restaurant
  7. STR loophole eligibility for Casa Moksha — requires avg stay ≤7 days + material participation
  8. Cost segregation on Casa Moksha and Mita — after check-the-box is resolved
  9. Transfer pricing documentation — intercompany services agreement between RFH and RHG

1. Augusta rule (IRC §280A(g))

What: A US homeowner can rent out their personal residence to their business (or third parties) for up to 14 days per year with rental income fully excluded from gross income. The business deducts the rent paid, provided the rate is reasonable.

Applicability: - Austin's S-corporation E.A. Renfroe & Company (RENFROE) can rent W 3603 (Austin's personal residence, homestead protected) for board meetings, strategic planning sessions, quarterly offsites, client events - 14 days × ~$1,500/day market rate (W Austin event-space comparable) = ~$21,000/year tax-free to Austin + $21K deduction on RENFROE's 1120-S - Requires: documented business purpose, meeting agendas, minutes, attendees list; market rate supported by comparables; formal rental agreement between Austin and RENFROE; invoiced per use

W 3603 is the only property this applies to — Casa Moksha is in Mexico and is a business property, not a personal residence.

Renfroe Family Holdings (the family office) is not the right renter — it's a holding company, doesn't have a business purpose for meetings. Use RENFROE. (This is the key reason RENFROE, though otherwise out of scope for this repo, still matters here.)

2. Short-term rental loophole

What: Rental real estate is normally passive (losses blocked) unless one qualifies as a real estate professional. But if average rental period ≤7 days (or ≤30 days with substantial services), the activity is not a rental under §469 and can be non-passive if the owner materially participates — meaning losses can offset ordinary income.

Why this matters: With the $3.4M NOL already on the books, adding more STR-generated losses to the stack extends Austin's shelter against future ordinary income.

Requirements: 1. Average stay ≤7 days (calculated across all stays for the year) 2. Material participation — "more than 500 hours" or "substantially all participation" or "more than 100 hours and more than anyone else"

Applicability analysis needed: - Casa Moksha — likely qualifies on avg stay (boutique hotel + retreats), but material participation is the hard question since Miroslava (on the ground in Mexico) probably participates more than Austin. Need booking data for avg stay and hours-log for Austin's involvement. - Oceana 433 — same analysis; personally held via fideicomiso, simpler US tax treatment - W 3101 (legally merged W Austin 3101/3103) — depends on stay pattern; Revel is the property manager, so material participation for Austin is uncertain - Mita Garden Hills 1009 — GK-owned, different US tax path (see PFIC below)

For CPA: This interacts with the check-the-box question on RHG. If RHG is disregarded, Casa Moksha losses flow to Austin's 1040 where STR loophole applies. If RHG is a per-se corporation, losses stay inside RHG, STR loophole doesn't apply to Austin's 1040.

3. Foreign compliance (US side)

FBAR (FinCEN Form 114)

Any US person with financial interest in or signature authority over foreign financial accounts exceeding $10,000 aggregate at any point in the year.

Triggering accounts: - Santander MXN PYME (65-50994620-9) — first crossed $10K USD equivalent on Sep 24, 2025 when the $300K MXN OWNER CONTRIBUTION brought the balance to 329,122.55 MXN (~$17K USD at ~19 MXN/USD). October drained the account back below threshold; Nov 10, 2025 was the second crossing (+$300K MXN). Firmly triggered by Feb 12, 2026 ($450K MXN deposit, balance hit 471K MXN ≈ $25K USD). This means 2025 calendar-year FBAR is required, not just 2026. Exact daily-balance FBAR workup still pending (see todo/for-next-session.md). - Santander USD "Dolares Morales" (82-50113846-7) — dormant, individually below threshold, but aggregate with MXN account triggers reporting - Tokyo Star Bank (GK) — certainly triggers (holds Mita mortgage + rent flows for $14.5M property) - Banregio / Hey Banco — if any Austin-related accounts exist there; JME has been using these as their firm's receiving accounts, but not Austin's

Deadline: April 15 with automatic extension to October 15. Penalties: $10K+ per non-willful violation. Willful penalties substantially higher. Do not miss.

Form 8938 (Statement of Specified Foreign Financial Assets)

Filed with the federal return. Thresholds by filing status and residency.

Form 5471 (CFC reporting) — RHG

Already being filed for Renfroe Hospitality Group (confirmed on Austin's 2024 return; reports 99% ownership by Austin personally; 2024 gross receipts $5,270 USD — low due to Cindy-Canto-era bookkeeping gaps being caught up in 2025).

Status to confirm with Pearce Bevill: - What Category is Pearce filing as? Likely 4 (control) and/or 5a (CFC ownership). - Check-the-box election status — has Form 8832 ever been filed for RHG? If no, it's a per-se corporation; this is the default for S.A. de C.V. - Entity conversion handling — RHG is converting from S. de C.V. to S. de R.L. de C.V. in 2026. Pearce needs to treat this correctly on the 5471 for 2026.

Form 5471 — GK (NEW, first filing due 2025 return)

GK's first fiscal year ended October 31, 2025. First 5471 required with Austin's 2025 return (extending to October 2026).

  • Category likely 4 and/or 5a
  • Similar check-the-box question for the GK
  • Japanese corporate tax paid → foreign tax credit on Austin's 1040 if creditable

PFIC (Passive Foreign Investment Company) — GK

Serious risk and the real Japan-side compliance flag.

A foreign corporation is a PFIC if 75%+ of gross income is passive OR 50%+ of assets produce passive income. Rental income is passive unless the activity qualifies as a "real estate trade or business" (§162).

  • Mita is GK's only asset; rental income is GK's only income
  • If PFIC, Austin faces punitive tax treatment (QEF or Mark-to-Market elections with complex accounting; Excess Distribution default mode with interest charges)
  • To avoid PFIC: establish the GK's rental activity as a trade or business (regular and continuous management, multiple tenants or active services, etc.) — requires specific analysis
  • Real estate trade or business exception under §954©(2)(B) may help if the GK has employees/agents performing significant management

For Pearce Bevill: this is the single most important Japan-side question once check-the-box is resolved. If Pearce doesn't do international, engage a CFC/PFIC specialist alongside.

GILTI (Subpart F, §951A)

If RHG or GK are CFCs, undistributed earnings can be subject to GILTI. Relatively quiet currently — RHG shows low earnings due to bookkeeping cleanup; GK shows a loss (mortgage interest exceeds rent in early years). Becomes more relevant as earnings grow.

4. Cost segregation

What: Reclassify building components (fixtures, land improvements, personal property) into 5/7/15-year recovery periods instead of 27.5 or 39 years. Combined with bonus depreciation, front-loads substantial deductions.

Casa Moksha: Study eligibility depends on check-the-box on RHG. If disregarded, cost seg flows to Austin's 1040 and interacts with STR loophole. If per-se corporation, happens inside RHG's Mexican books with Mexican depreciation rules (different regime).

Mita Garden Hills: Same question on GK check-the-box. Mita is new construction / high-end condo; cost seg has real potential here given the ~$5M basis. But Japan-side depreciation rules may drive the answer more than US treatment if GK is per-se corp.

210 Lavaca #2612: Personally held, Schedule E. Cost seg applies directly to Austin's 1040. Straightforward.

W 3101 (3101 + 3103): Owned by W 3101 Holdings LLC (disregarded). Cost seg flows to Austin's 1040. Worth evaluating given $3.5M property value.

Oceana 433: Personally held via fideicomiso. Cost seg applies directly. Simpler than Casa Moksha since no CFC overlay.

5. Red Farm §165(g) worthless security

Austin invested $120,833 in Red Farm (RF Austin Operating LLC) in exchange for equity. Red Farm shut down in 2026.

Treatment on 2026 return: - If the investment is a security (stock/equity interest) that became worthless in 2026, §165(g) allows an ordinary or capital loss deduction - Character (ordinary vs. capital) depends on: whether the entity was §1244 small business stock, whether Austin held the interest as a dealer or investor, etc. - Worth $120,833 of ordinary loss at marginal rate (but given NOL status, this extends the NOL rather than generating current refund)

Pearce Bevill needs: (a) documentation that Red Farm is in fact dissolved/worthless, (b) original investment basis and date, © character analysis.

6. Mexican-side considerations

  • ISR (Impuesto Sobre la Renta): 30% corporate income tax on worldwide income for Mexican-resident entities
  • IVA (Impuesto al Valor Agregado): 16% VAT (or 8% in border/tourism zones — confirm Casa Moksha Tulum location)
  • Booking platforms: Airbnb and similar withhold Mexican ISR and IVA on behalf of Mexican hosts. But if Casa Moksha guest payments are routed to a US entity (RFH Brex) rather than the Mexican host's account, the Mexican withholding regime is bypassed. This is partially solved by the intercompany framing (RHG recognizes revenue regardless of where it lands), but CFDI invoicing on the Mexican side still needs to happen for the full amount.
  • JME handling the cleanup of prior-period (Cindy Canto era) tax filings — two $15K back-tax catch-up payments + the batch of 25 SAT debits in Sept 2025

7. Japanese-side considerations

  • Japanese corporate income tax on the GK's net income
  • Japanese fixed-asset tax on Mita Garden Hills
  • Japanese consumption tax (JCT) on rental receipts if exceeds threshold
  • The Japanese accountant handles all of this; summary to Austin's CPA for foreign tax credit calculation

8. Transfer pricing / intercompany services agreement

Documented intercompany framework is needed for the RFH ↔ RHG relationship (see context/entities.md for the flow). At minimum:

  • Written agreement: RFH acts as collection agent for RHG's USD-denominated revenue
  • Documented basis for why revenue is recognized where it is (all at RHG)
  • Arm's-length treatment of services RFH provides to RHG (USD banking, collection, FX management) — either no-fee with transfer-pricing memo explaining the structure, or arm's-length service fee
  • Similar framework may apply GK ↔ RFH for the narrow US-side banking role

Pearce Bevill + US legal counsel + JME + Mexican counsel are all needed to draft this properly. Mexican tax authorities and US tax authorities both look hard at this fact pattern.

9. NOL preservation strategy (overarching)

Given the $3.4M NOL generated in 2024 and continuing losses expected through 2026-2027 from: - Casa Moksha ramp-up (depreciation + operating losses) - Mita Garden Hills (depreciation + interest) - Red Farm worthless security - Ongoing passive losses from the stock trust

The NOL balance is likely growing, not shrinking. When Austin has a liquidity event (eventual), the NOL absorbs ordinary income to the carryforward limits (post-TCJA: 80% of taxable income in any given year, carryforward indefinitely for NOLs generated after 2017).

Implications: - Don't rush §1031 exchanges — sale with NOL absorption may be simpler - Don't over-optimize for current-year deductions — they extend NOL duration, they don't generate cash - Do position for long-term deduction timing flexibility (bonus depreciation elections, cost seg timing) - Do keep detailed basis records on every investment and property — critical when the NOL is eventually consumed

This document will be revised further as Pearce Bevill's positions on check-the-box, PFIC, and 5471 categories are confirmed. See tax/2025-filing-prep.md for the specific to-do list Austin needs to walk through with Pearce.