Back to top


Reality TV stars Todd and Julie Chrisley indicted for tax evasion

By Michael Cohn


Todd and Julie Chrisley, the stars of the reality TV series “Chrisley Knows Best,” were indicted by a federal grand jury in Atlanta on charges of tax evasion, bank fraud, wire fraud and conspiracy, while their accountant Peter Tarantino was also indicted on tax-related charges Tuesday.


Their show, which revolves around the lives of Todd Chrisley, 51, a Georgia real-estate mogul, his wife Julie, 46, along with their family, has run on the USA Network since 2014.


According to prosecutors, starting around 2007 until about 2012, the couple provided multiple banks with personal financial statements containing false information, and fabricated bank statements when applying for and receiving millions of dollars in loans. After receiving the loans, the Chrisleys are accused of using much of the money for their own personal benefit. They are also accused of physically cutting and pasting or taping together fabricated bank statements and a fabricated credit report in 2014 when applying for and getting a lease for a home in California.


The couple also is accused of ensnaring their accountant into a tax fraud scheme. In February 2017, Todd Chrisley publicly claimed on a national radio program, “Obviously the federal government likes my tax returns because I pay $750,000 to $1 million just about every year so the federal government doesn’t have a problem with my taxes.” However, the couple allegedly didn’t timely file their income tax returns for tax years 2013, 2014, 2015 and 2016 tax years on a timely basis or pay their income taxes on time. Instead, the Chrisleys and Tarantino allegedly took steps to obstruct IRS collection efforts, which included hiding income, lying to third parties about their tax returns, and, in Tarantino’s case, lying to FBI and IRS Criminal Investigation Special Agents.


“Todd and Julie Chrisley are charged not only with defrauding a number of banks by fraudulently obtaining millions of dollars in loans, but also with allegedly cheating taxpayers by actively evading paying federal taxes on the money they earned,” said U.S. Attorney Byung J. “BJay” Pak in a statement. “Celebrities face the same justice that everyone does. These are serious federal charges and they will have their day in court.”


The couple’s attorney denied the charges to the Associated Press. “The allegations contained in the indictment are based on complete falsehoods,” Chrisley attorneys Bruce H. Morris and Stephen Friedberg wrote in an emailed statement to the AP. “The Chrisleys are innocent of all charges.”


A woman who answered the phone at Tarantino’s accounting firm, CPA Tarantino, declined to comment to both the AP and Accounting Today.


Todd Chrisley posted an Instagram message on Monday blaming his problems on a disgruntled employee. “I’ve never talked about this publicly before, but there’s been a cloud hanging over Julie and me and our entire family for the past seven years,” he wrote, according to Fox News. “It all started back in 2012 when we discovered that a trusted employee of ours had been stealing from us big time. I won’t go into details, but it involved all kinds of bad stuff, like creating phony documents, forging our signatures, and threatening other employees with violence if they said anything. We even discovered that he illegally bugged our home. Needless to say, we fired the guy and took him to court — and that’s when the real trouble started. To get revenge, he took a bunch of his phony documents to the U.S. Attorney’s office and told them we had committed all kinds of financial crimes, like tax evasion and bank fraud. That got their attention all right, but once we had a chance to explain who he was and what he’d done to us, they realized it was all a bunch of nonsense and they sent him on his way.”


In the federal indictment, prosecutors noted that Todd Chrisley had earlier discussed his tax compliance with a radio show interviewer, pointing out that he has been a resident for 15 years of Florida, where there are no state income taxes. "And obviously, the federal government likes my tax returns because I pay $750,000 to a million dollars just about every year, so the federal government doesn't have a problem with my taxes," he told "The Domenick Nati Show," which has posted a clip on YouTube.


Separately, the couple’s 23-year-old son Chase Chrisley was reportedly also hit with a tax lien for $16,886 in taxes dating back to 2014.




IRS axes estimated tax penalties for 400,000 taxpayers

By Michael Cohn

The Internal Revenue Service said Wednesday it would automatically waive the estimated tax penalty for over 400,000 eligible taxpayers who have already filed their 2018 federal income tax returns but didn’t claim the waiver.


Earlier this year, in response to complaints from taxpayers who discovered they hadn’t withheld enough from their paychecks last year after passage of the 2017 tax overhaul and ended up with high tax bills, the IRS lowered the usual 90 percent penalty threshold to 80 percent to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The agency also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019. The 90 percent threshold was initially lowered to 85 percent on Jan 16 and, after further complaints from lawmakers, it was lowered once more to 80 percent on March 22.


The IRS said it would apply the waiver automatically to the tax accounts of all eligible taxpayers, so there’s no need to contact the IRS to apply for or request the waiver. The automatic waiver will be given to any individual taxpayer who has paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but didn’t claim the special waiver available to them when they filed their 2018 return earlier this year.

“The IRS is taking this step to help affected taxpayers,” said IRS Commissioner Chuck Rettig in a statement Wednesday. “This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.”


In the months ahead, the IRS also plans to mail out copies of notices CP21 granting this relief to affected taxpayers. Any eligible taxpayer who has already paid the penalty will receive a refund check approximately three weeks after their CP21 notice regardless if they asked for penalty relief. The IRS stressed that eligible taxpayers who have already filed a 2018 return don’t need to request penalty relief, contact the IRS, or take any other action to receive this relief.


For those taxpayers who haven’t filed their 2018 taxes yet, such as those who asked for an extension until Oct. 15, the IRS is urging every eligible taxpayer to claim the waiver on their tax return when they do file. The quickest and easiest way is to file electronically and take advantage of the waiver computation built into their tax software package. Those who opt to file a paper return can fill out Form 2210 and attach it to the return, as per the instructions for Form 2210.

The IRS is again urging every taxpayer to do a “Paycheck Checkup” and review their withholding status for 2019. There’s a new Tax Withholding Estimator tool available on to help. More information about tax withholding and estimated tax can be found on the IRS’s Pay As You Go web page, along with Publication 505. That’s particularly important for anyone who encountered an unexpected tax bill or a tax penalty when they filed this year, along with taxpayers who made withholding adjustments last year or had a major life change. Those at high risk also include taxpayers who itemized in the past but now claim the increased standard deduction, along with dual wage earner households, employees with non-wage sources of income, and people with complicated tax situations.




The shifting landscape of vacation rental taxes

By Rob Stephens

It’s been said that the vacation rental industry is a bubble or a fad. And, conversely, that the rapid adoption of vacation rentals as a travel option is going to drive the hotel industry out of business and completely upend the travel industry. The truth lies somewhere in the middle. Vacation rentals aren’t a passing fad, but they aren’t going to replace the hotel industry anytime soon either.


Local governments and regulatory bodies are coming to this realization on a state, city and even a neighborhood homeowners association level — and they are taking action. Montana recently announced a lodging sales tax increase. Portland, Oregon, has begun issuing fines for unregistered vacation rental properties. And so has Vail, Colorado. Massachusetts has implemented a statewide vacation rental registry, with the aim of regulating Airbnb and other vacation rental platforms.


These initiatives are popping up more frequently, with city and county tax agencies adopting new and often complex requirements for vacation rentals. These tax agencies are increasingly looking to collect hotel occupancy taxes from these properties as well. And while many are only beginning to realize it now, short-term rentals, like those offered on Airbnb and VRBO, have always been required to collect and remit sales and lodging taxes.


Until recently, the large vacation rental websites viewed these occupancy taxes as the host’s or homeowner’s responsibility, not the platform’s. The platform was positioned simply as an advertising website or marketplace, and transactions occurred directly between homeowner and traveler. These taxes, however, were often overlooked and not well understood by homeowners and hosts. As the short-term rental industry has continued to grow, these lodging taxes are increasingly part of the industry narrative and are becoming much better understood. Short-term rentals are now ubiquitous, which has sparked pushback in some communities, with a new and heightened focus on regulation and collection of lodging taxes.


As the short-term rental industry continues to grow and moves closer to maturity, we’re seeing major shifts in how occupancy taxes are handled. Years ago, when short-term rentals were still relatively new, many owners renting their homes were simply unaware of the requirement to collect sales and lodging taxes. These are the same taxes collected by hotels. Hosts and homeowners automatically think of income taxes when they hear the word “tax”; many hosts are simply not familiar with the class of business taxes known as lodging taxes.


The evolution of occupancy tax legislation

There is no denying the extensive and ongoing changes in the tax environment for short-term rentals. Most states tax short-term rentals in the exact same way as hotels. Up until several years ago, only a handful of states exempted small operators or residential properties from the requirement to collect and remit hotel-type taxes.


Several states in the Northeast with exemptions for short-term rentals have since changed their tax rules, including Maine, Rhode Island and Connecticut. More recently, New Jersey and Massachusetts have eliminated their room tax exceptions for short-term rentals in the last year. In the West, New Mexico recently updated its statutes, now requiring short-term rentals to pay the same local lodging taxes as hotels.


There are now very few locations that treat taxes on short-term rentals differently than hotels. New York State sales tax is one of the few examples of an exclusion still in place, known as the “Bungalow Exemption.”


Misunderstandings and misinterpretations abound

It’s become clear there is a lot of confusion around lodging taxes, but what’s the cause? When short-term rental platforms are engaged in paying the hotel taxes, they are usually only paying state-administered sales and lodging taxes. Unlike sales taxes, which are almost universally administered by state revenue agencies, a large number of lodging taxes are administered by local tax agencies, meaning city and county governments. The platforms are not paying many of these cities and counties — instead focusing on state taxes, at least to date.


For example, in large vacation rental states such as Florida and Colorado, there are anywhere from several dozen to hundreds of local taxes that the platforms are not collecting and remitting. For owners and operators in Florida, Airbnb and HomeAway are collecting state-administered taxes, but they are not (at least not yet) collecting most county tourist taxes. As a result, many hosts and homeowners are unclear about what taxes the platforms are paying, and what taxes they still need to handle directly.


For example, in Kissimmee in Osceola County, which is the heart of the Disney World area, the total lodging tax rate is 13.5 percent, but Airbnb is only collecting 7.5 percent paid to the state. The remaining 6 percent county tax is still the host’s responsibility, paid each month to the Osceola County Tax Collector. This scenario has become increasingly common across the U.S.

To date, Airbnb and VRBO are the only two major platforms broadly collecting and remitting lodging taxes, but we expect this trend to continue. It is unclear if other platforms, both large and small, will adopt — or be forced to adopt — platform tax remittance per new legislation.


As mentioned, we are also seeing an increase in state legislation mandating that platforms collect and remit tax. But these state regulations typically exclude city and county taxes, similar to the voluntary tax agreements entered into by the large platforms. This creates a patchwork tax solution where platforms collect and remit a portion of the tax, but hosts are still required to manage a portion of the tax themselves.


The big vacation rental platforms tackle compliance

In the past, the lodging tax obligation was always a requirement of the host or homeowner. Up until recently, the platform was simply an advertising or distribution platform. Under that model, the host was required to collect occupancy taxes from the traveler, and then remit those taxes to the correct agencies. The host or homeowner was required to know the tax rate, collect the appropriate tax from guests, register with various state and local tax agencies, and pay the tax when due, typically monthly or quarterly.


Now, the emerging trend in short-term rentals is “platform tax compliance.” Platforms are large short-term rental websites where rental transactions take place, such as Airbnb or VRBO. Platform tax compliance means these large players directly collect and remit lodging taxes for transactions on their platform. When platforms collect tax, the implication is that hosts are then off the hook for collecting and remitting those taxes.


Platform tax compliance is helping more owners and hosts be compliant, but has also created more complexity. Platforms often pay state taxes, but not city and county taxes. There is often confusion because homeowners and hosts are not always clear on what taxes are being handled by the platform. The platforms paying tax often remove some, or all, of the requirements for hosts to collect and remit taxes, but frequently the platform is not paying all the taxes and the host must still manage a portion of the taxes.


State governments are increasingly passing legislation looking to require platforms to collect and remit lodging taxes. These platforms are voluntarily complying in certain markets, and now also complying with new laws, as new tax legislation is enacted across the U.S.


In 2016, Airbnb began collecting and remitting taxes in a few of their largest markets, such as Portland and San Francisco. In mid-2016, Airbnb also started paying statewide lodging taxes with North Carolina. Three years later, Airbnb is paying taxes in over 40 states. Here is a list from Airbnb’s website, disclosing the tax jurisdictions in which Airbnb is collecting and remitting lodging taxes.


Last year, VRBO jumped into the lodging tax collection game. It started paying lodging taxes in a few cities and is now gradually expanding its footprint to pay taxes across a growing number of markets. Here is a list of locations where HomeAway is collecting and remitting lodging taxes.


What’s next?

It’s clear the big platforms want a tax-compliant industry and will help with tax compliance where they can. We expect the big platforms to continue expanding their tax compliance footprint, and that other platforms will start following suit. However, it is important to note that a significant number of tax jurisdictions will not be covered in these platform tax initiatives, and compliance will remain an operator and host responsibility. The large platforms are paying taxes to many states, but there are still thousands of cities and counties that are not included in these programs.


If you have clients who are unsure how these taxes are being handled, we suggest you or they contact the platform, or study the links in this article to go directly to Airbnb and VRBO tax information pages. The platforms are communicating these tax details in various levels of detail. Hosts and homeowners should review listings for tax details and watch for any tax communications received from the platforms and any published tax-related FAQs.




Could the next sin tax fall on red meat?

Krisztian Bocsi/Bloomberg

Meat could be a target for higher taxes given criticism of the industry’s role in climate change, deforestation and animal cruelty, according to a report by Fitch Solutions Macro Research.

The idea is still in its infancy and faces a lot of opposition from farming groups, but it’s emerging as a trend in Western Europe, said the research group. If taxes gain traction, it could encourage more people to switch to poultry or plant-based protein and help drive the popularity of meat substitutes.


“The global rise of sugar taxes makes it easy to envisage a similar wave of regulatory measures targeting the meat industry," Fitch Solutions said. However, "it is highly unlikely that a tax would be implemented anytime soon in the United States or Brazil."


In Germany, some politicians have proposed raising the sales tax on meat products to fund better livestock living conditions. A poll for the Funke media group showed a majority of Germans, or 56.4 percent, backed the measure, with more than a third calling it “very positive” and some 82 percent of voters for the environmentalist Greens in favor. Similar proposals have been introduced in Denmark and Sweden since 2016, Fitch Solutions said.


Goldsmiths, University of London, announced on Monday that it’ll stop selling beef on campus as part of a push to combat climate change. The decision was met with opposition from the U.K.’s National Farmers Union, which said it was “overly simplistic’’ to single out one food product as a response to global warming.


Taxes on meat and sugar have long been controversial. Shortly after coming into office in July, Prime Minister Boris Johnson suggested he would abolish the U.K.’s tax on sugary drinks and said there there are better ways to address obesity.


Fitch said prices of pork and beef in Western Europe are relatively low, so any added tax would have to cause a big change in retail prices to change customer buying habits.


The loudest argument against meat at the moment is not based on health but climate change. In a report this month, the United Nations said agriculture, forestry and other land use contributes about a quarter of greenhouse emissions.


The meat industry has also been under fire after studies linked eating too much red and processed meat to illnesses ranging from heart disease to cancer. Fitch Solutions linked these concerns to the health issues that prompted the sugar tax saying, “A meat tax could therefore emerge as a policy sibling to the sugar tax, supported on the basis that meat does play a role in a balanced diet but over-consumption is a public health issue.’’




Ghost assets can haunt companies for years

By Scott Avery

Companies doesn’t need to be haunted by ghost assets. And yes, ghost assets are very real and can have a scary impact on the bottom line.


What is a ghost asset, you ask? Well, it’s a fixed asset in a general ledger that cannot be accounted for because it is physically missing or otherwise rendered unusable. This may not sound like a big deal, but it really is for companies of all sizes, because when they are haunted by ghost assets, they still pay taxes on those assets – something no company wants to do.


Historically, we find it happens often for equipment, property, vehicles and real estate. Just think: if a company is no longer using a large piece of machinery in a certain city or state — but the accounting team doesn’t know that — the company continues to pay property tax and income tax potentially on that piece of equipment. And it then causes incorrect reporting.


The most common scenarios that leads to ghost assets is when the field doesn’t report that an asset is lost, stolen, broken, damaged, replaced or sold without the correct paper trail to accounting. The field doesn’t mean to create these ghosts, but they do, unintentionally, and the costs can be huge.


Think it can’t happen? Think again. A study by Gartner showed approximately 30 percent of organizations don’t know what fixed assets they own, where the fixed assets are, and who is using these assets. But you can scare away all those nasty ghosts if you augment your general ledger with the right fixed asset accounting processes and systems.


Impacts of ghost assets

The same Gartner study found that the average company will have anywhere from 15-30 percent of ghost assets in their inventory. When you take into consideration the value of fixed assets used by utility, oil and gas, transportation, and manufacturing companies, ghost assets can represent a significant chunk of the balance sheet. So, when they are not accounted for properly on the balance sheet, it can have negative ramifications across the business, especially when it comes to income and property taxes. A company can overpay on income and property taxes for assets that aren’t actually owned anymore.


In addition to overpaying taxes, ghost assets can financially impact the business through decreased productivity. An asset that only exists on paper or in the wrong location, and is not available for use or cannot be maintained properly will lead to additional expense from down time and potentially have to be purchased again.


How to scare away ghost assets

These four steps can help companies better manage their ghost assets:

  • Create a process that specifically tackles ghost assets. Companies should start with a physical inventory of all large fixed assets to determine what is gone, and then implement a tracking solution through automated processes. Regularly educating the field is a key component in this process.
  • There are solutions that can help manage ghost assets and remove the manual process, which is prone to error and tracking problems. The reliance on outdated systems or spreadsheets could be one reason why the problem started.
  • Companies should track fixed assets from purchase to retirement on the accounting side of the organization.
  • In addition, fixed asset financial systems can automatically run depreciation studies to forecast asset lives and remove assets once they have reached the end of life stage. These systems can also integrate with other financial systems to reduce errors across the organization.
  • When tracking tax liability, automated solutions that can act as a data gathering and preparation systems will minimize errors, optimize tax strategies, reduce audit risk and help maintain compliance.


Ghost assets don’t stand a chance when asset data and tracking are brought to light. By eliminating ghost assets, companies can reduce associated tax costs, improve projections, and mitigate risks based on more accurate and complete reporting.




Companies penalize audit firms for flagging their own weaknesses

By Michael Cohn

Auditing firms that tend to find material weaknesses in companies’ internal controls are seen as less attractive in the audit market, according to a new study.


The study, by Stephen P. Rowe and Elizabeth N. Cowle of the University of Arkansas, looked at 13 years of data from 885 local offices of 358 audit firms in the U.S., and found offices that reported material weaknesses in internal controls over financial reporting for one or more clients in the course of a year saw their average fee total in the following year grow by about 8 percent less than would have been the case had they issued none. That decline was in addition to lost fees from clients who were found to have internal control material weaknesses, or ICMWs, and responded by switching auditors, which was something that companies tagged with ICMWs were often found to do by the researchers. They are presenting their study, entitled "Don't Make Me Look Bad: How the Audit Market Penalizes Auditors for Doing Their Job," this week at the American Accounting Association’s annual meeting in San Francisco.


The requirement for auditing internal controls over financial reporting is mandated by the Sarbanes-Oxley Act of 2002, but efforts are underway at the Securities and Exchange Commission to relax the requirement for smaller companies. In any case, the researchers note that flagging material weaknesses in internal controls are exactly what auditors are expected to do, and they shouldn’t be penalized for doing their jobs.


“The issuance of an ICMW should neither impair the issuing auditor’s reputation, nor deter clients from selecting auditors with a history of issuing ICMWs," wrote Rowe and Cowle. If auditors who uncover material weaknesses are perceived as less attractive in the audit market, they added, that “disincentivizes auditors from disclosing internal-control information that could make their clients look bad.”


Even companies who receive a clean bill of health on their internal controls may decide to avoid an audit firm that tends to flag material weaknesses.


“The issuance of an ICMW affects auditor selection and retention decisions even among clients that do not receive an ICMW," said the study.


“What our research measures is reputation,” said Rowe. “When an auditor issues an ICMW opinion, word gets around. … In the informal conversations we have had with practitioners, we’ve often found they already had a notion of what we document. In other words, what we've been the first to do in this study is provide confirmation on a large scale for what is already part of the day-to-day calculus of many in the audit profession.”


For the study, the researchers analyzed approximately 5,000 office-years’ worth of data from 2004 through 2016, starting with the first year when opinions on internal controls became available after passage of Sarbanes-Oxley. On average, approximately 25 percent of the firms issued at least one material weakness opinion per year. Since only offices with more than three clients were included in the sample, one ICMW opinion could affect as many as 25 percent or as little as 2 or 3 percent of a firm’s clients.


Even in fairly large audit firm offices, the study's results suggest a considerable negative effect from a single material weakeness opinion. For example, in one year the San Francisco office of one Big Four firm issued no ICMW in the 12 public audits it conducted, while the office of another Big Four firm in the same city reported one ICMW in 26 public audits. The following year, the former firm issued 14 audit opinions, an increase of about 17 percent, while the latter’s drop in business indicated that it issued 21 audit opinions, a drop of nearly 20 percent.


Along with uncovering significant negative impacts on client numbers and fees in the year following as little as a single ICMW report, the researchers found both impacts worsened even more when an office issued two or more such reports; when ICMWs were issued for large companies (with higher market capitalization, and probably more visibility, than the median of an office’s clients); and when ICMW reports involved multiple issues (they found the more issues, the more negative the effect).


Rowe and Cowle also discovered that companies in the sample who switched offices mostly migrated to auditors with lower incidences of ICMWs; that the ratio of clients with high F-scores (that is, with heightened likelihood of manipulating or misstating earnings) tended to drop when an office issued an ICMW; andthat the negative after-effect on office business of ICMW opinions persisted beyond the subsequent year to a second year before apparently petering out.


Seventeen years after enactment of Sarbanes-Oxley, the study raises some doubts about SOX as well as about the Public Company Accounting Oversight Board's recently requirement for auditors to include a discussion of critical audit matters in their audit reports, which the researchers see as having evolved from SOX.


“Sarbanes-Oxley represented the principal legislative response to a severe crisis not only for the accounting profession, but for the free-market system," said Rowe in a statement. "While some studies have found SOX to be of value, the issue, as this study suggests, is far from settled. To anyone who believes in the free-market system, this needs to be concerning.”




Treasury and IRS unveil new Form W-4 for 2020

By Michael Cohn

The Treasury Department and the Internal Revenue Service released a redesigned Form W-4 on Friday for tax year 2020, making a number of changes to earlier draft versions of the form after hearing complaints from tax professionals.


The Treasury said it doesn’t expect to make further changes to the redesign beyond some minor updates for inflation adjustments.


“Our dedicated staff at the Treasury and IRS worked tirelessly over the past year to produce a Form W-4 that is more accurate, transparent and simplifies the tax withholding experience for hardworking Americans,” said Treasury Secretary Steven T. Mnuchin in a statement. “We are proud that the Tax Cuts and Jobs Act lowered taxes for most Americans and are enthusiastic that the improved W-4 will help taxpayers better determine the correct withholding amount for their personal financial situation to more readily reap the benefits of historic tax reform.”

Form W-4 for 2020 draft

The redesigned Form W-4 employs a building block approach to replace complex worksheets with more straightforward questions that make it simpler for employees to figure a more accurate withholding. While it uses the same underlying information as the old design, the new form uses a more personalized, step-by-step approach to better accommodate individual taxpayer needs.


Employees who have submitted a Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.


The Treasury and the IRS are releasing the nearly finalized improved Form W-4 now, to give employers and payroll processors extra time to learn about the new form and update their systems for next year. As usual, the IRS also plans to release withholding tables with routine adjustments for inflation in November.


Several accounting and tax professional groups had complained that earlier draft versions of the form required taxpayers to reveal too much information to their employers about outside sources of income for employees and their spouses. The Treasury and the IRS redesigned the W-4 withholding form in the wake of the Tax Cuts and Jobs Act, which eliminated the traditional exemptions for dependents and the taxpayers themselves along with a host of deductions. Many taxpayers discovered this year as a result of the changes that they unexpectedly ended up owing taxes because they didn’t have enough money withheld from their paychecks last year. The IRS urged taxpayers to do a “paycheck checkup” last year using an online withholding calculator, but the process was complicated and relatively few taxpayers did it. Earlier this week, the IRS unveiled an improved Tax Withholding Estimator tool to aid in the process (see IRS offers new tax withholding estimate tool).


The IRS is once again urging taxpayers to do another paycheck withholdings checkup this year to ensure they have the correct amount withheld for their personal tax profile.




Companies find lease accounting more challenging than expected

By Michael Cohn

Both public and private companies are underestimating the challenges of transitioning to the new lease accounting standard, according to a new survey.


The survey, by lease accounting technology company LeaseQuery, found that only 37 percent of companies in the early stages of implementation anticipate that their transition would be difficult. However, 67 percent of companies in the latter stages of implementation reported actual difficulty.


The Financial Accounting Standards Board recently voted to propose delaying the leases standard, along with several others, including the credit losses, hedging and long-duration insurance standards (see FASB to propose delays in major accounting standards). The leases standard has already taken effect for public companies since this past January, and it was scheduled to take effect for private companies next January. The FASB proposal would defer the effective date of the leases standard until January 2021, giving businesses an extra year to implement it.


The LeaseQuery survey found that over half of public companies (54 percent) have already completed their transition to the new standard, seven months after the deadline. But only 5 percent of private companies have completed the transition, with 58 percent of the companies polled saying they’re still in the early stages of assessing their implementation plans. LeaseQuery engaged Encoursa to conduct the survey, polling 200 accountants.


“While organizations await the FASB decision, one thing is clear: a delay is just a false sense of security,” said LeaseQuery CEO George Azih in a statement. “Transitioning to the new standard is a complex, time-consuming process, even when you have the best team and tools on your side. Private companies, nonprofits and government organizations should continue to move transition plans forward, and with haste.”





Sales tax holidays affected by Wayfair

By Michael Cohn

There’s a new wrinkle in the annual wave of sales tax holidays that arrive in states around the country every summer around the time of back-to-school sales, and that’s the Supreme Court’s decision last year in the case of South Dakota v. Wayfair.


In that much-heralded ruling, the justices allowed South Dakota to impose sales taxes on internet retailers who sell items to consumers out of state, even if the merchant doesn’t have a physical presence, or nexus, in the other state, as long as they have more than 200 transactions or $100,000 in sales there.


“The sales tax landscape has changed quite a bit this year with Wayfair, and that’s going to affect the sales tax holidays as well,” said Sonya Daniels, state and local tax manager at CBIZ MHM. “You’ve got a lot of companies out there that had to register, and a lot of marketplace facilitators that have to handle sales tax on behalf of people that sell on their sites that are having to register. They have to deal with sales tax holidays and back-to-school clothing and all those kinds of things that they probably haven’t had to deal with before, as they didn’t have true physical nexus, as opposed to economic nexus.”


She pointed to the e-commerce site Etsy, which is used by many small craft merchants to sell their goods. “Think about a group like Etsy that makes personalized clothing and other things,” said Daniels. “They only had physical nexus in maybe a couple of states. Now they have to be a marketplace facilitator in the states that have that, so they’re having to deal with all of these exemptions, in addition to registering for the first time in some of these states. It’s probably a huge change for them.”


Besides the Wayfair issue, there has been little change in how the states themselves are dealing with sales tax holidays, according to Daniels, aside from Louisiana and Wisconsin deciding not to participate this year.


“What happens a lot of times with these states that drop out is basically they look at the cost of administering the sales tax holidays as well as looking to see if they saw any economic growth, and what they’re seeing is they lose money,” she said. “There’s not the economic growth that they talk about, and there’s a lot of cost involved. The thought around that is they can have actual tax cuts that affect more than this small segment of society, and do better for their people as a whole then just having these sales tax holidays.”


Other than that, she’s still seeing similar sales tax holidays this year as in previous years on clothing and school supplies. At other times of the year, some states also have sales tax holidays on Energy Star-rated appliances, as Texas does during May, and so-called “Second Amendment holidays” on hunting supplies, firearms and ammunition in Mississippi and Louisiana. Some states, like Alabama in February, also have severe weather preparedness sales tax holidays.


Massachusetts also decided this year to make its sales tax holiday permanent, instead of renewing it from year to year. This year, it will be on Aug. 17-18. “For several years they exempted the sales tax on anything that was $2,500 or less,” said Daniels. “They have been doing it from year to year like other states. They missed a few years and then they came back and they reiterated that they were going to take care of the sales tax holiday last year, and then they went ahead and passed a law so that it would be permanent going forward.”


Daniels has seen little impact this year from the Tax Cuts and Jobs Act, even though its $10,000 limit on state and local income and sales tax deductions will apply. But the public may be growing so used to constant markdowns at struggling retailers that sales tax holidays may make little difference to them.


“I was in my local Walmart, and honestly the aisles weren’t packed like they have been in years past,” said Daniels. “I was a little surprised to see that. “People have gotten used to getting their items. I wonder if it’s Wayfair, with them selling online, if it’s impacted that a little bit. But you didn’t see them lined up at the cashiers like you have in years gone by.” 




The IRS is intensifying ACA enforcement efforts

By Joanna H. Kim-Brunetti

Accountants may see some of their business clients getting caught up this summer in IRS activities to enforce the Affordable Care Act.


The IRS has started issuing Letter 226J penalty notices for the 2017 tax year, along with other penalty assessments related to ACA enforcement. Agency staff are spending more time reviewing potential ACA violations, and putting the onus on employers to prove they have complied with the law.


Here are some signs that the IRS is becoming more assertive in efforts to enforce the ACA:

  • The IRS has started issuing Letter 226J penalty notices for ACA noncompliance under IRC Section 4980H for the 2017 tax year. The tax agency just completed sending its Letter 226J penalty notices in June to employers that it believes failed to comply with the ACA in the 2016 tax year. This is the quickest we have seen the tax agency transition from issuing penalty notices from one tax year to the next, a sign that IRS ACA enforcement activities are escalating.
  • The IRS has indicated it is now limiting extension requests to one 30-day extension for each IRS notice received in the penalty process, requiring employers to act with even more urgency in responding to a penalty notice.
  • IRS staff is paying greater attention to the methodology and data used in employers’ determination of full-time employees in ACA filings for the 2017 tax year. This is a deeper level of review than undertaken for previous tax years. ACA penalties are often triggered by employers providing inaccurate information on the number of full-time workers they employ.
  • The IRS is asking individual taxpayers to obtain documents from their employers to prove they were entitled to receive premium tax credits to offset health insurance purchased through government exchanges.

Employers are being required to provide proof that they filed ACA information with the IRS. Over the past few years, many employers relied on do-it-yourself software and payroll companies to submit ACA information to the IRS on their behalf. In some cases, the software and payroll companies thought they submitted the information electronically to the IRS, not realizing the submissions were never accepted. Now, many employers are realizing the IRS never received their submissions and, as a result, they are being issued ACA penalty notices. Expect IRS staff to insist that employers obtain submission acceptance notices to prove they filed with the IRS as part of their defense to have ACA penalty assessments dismissed.


With the IRS becoming more aggressive in its enforcement activities and with ACA penalties potentially in the millions of dollars, accountants may want to advise clients they believe to be vulnerable to undertake an ACA penalty risk assessment. This assessment can determine if employers are considered to be an applicable large employer by the IRS, and if they are at risk of receiving IRS penalties under Section 4980H. This assessment involves a review of IRS Forms 1094-C and 1095-C. Some outside experts may offer to undertake this assessment at no cost.


It’s also a good time for accountants to check with clients that have more than 50 full-time employees to determine if they have been filing ACA information with the IRS annually, as required by law. If they have not, they may be at risk of significant ACA penalties under IRC Section 6721/6722. Accountants should work with these employers to file this information as soon as possible to avoid receiving an IRS Letter 5005A penalty notice.


Now is the time for accountants to check in with their business clients to discuss their ACA compliance process to determine if they may be at risk of paying significant financial penalties to the IRS because they have failed to comply with the ACA.




Bags stuffed with cash add to pressure for cannabis banking law

Senator Jeff Merkley once shadowed a cannabis grower and dispenser as he tried to pay his state taxes. He stuffed a backpack with $70,000 in $20 bills and drove 50 miles — unguarded — with the bulging bag in the back seat. Once he arrived at the Oregon Department of Revenue, he went through multiple rounds of security to deposit his satchel in a room packed with guards looking after the millions of dollars pouring in from other cannabis companies.


Merkley, a Democrat from Oregon, likes to recount the story to show the lunacy of the federal government’s treatment of the cannabis industry. Legal sales exceeded $10 billion in 2018, the annual Marijuana Business Factbook reported, and are expected to hit $80 billion by 2030, according to research firm Cowen Inc. Yet the substance remains illegal on a national level, so banks must forego a lucrative revenue stream — or risk prosecution or the loss of their charter.

Operating a business in cash isn’t just inconvenient. It also leaves thousands of growers, retailers and employees vulnerable to crime and handicaps growing businesses. Banks can’t accept cash deposits, process credit-card payments, clear checks, make loans or underwrite stocks and bonds, even though tax authorities have figured out workarounds. Like Oregon, the Internal Revenue Service has built “cash rooms” to receive federal taxes paid by marijuana companies, Treasury Secretary Steven Mnuchin said in April.


The door to a solution may finally be opening. On Aug. 5, Rodney Hood, the chairman of the National Credit Union Administration, said his agency won’t punish federally chartered credit unions for working with cannabis companies in states where marijuana is legal. Credit unions still must follow anti-money-laundering and other banking laws. Some state-regulated credit unions have already been providing banking services to pot companies, but often charge higher prices because of the extra paperwork and risks involved.


Credit unions, though, are only a partial answer. A new regulator could easily reverse Hood’s policy. “The crux of it is that it’s still illegal,” said Joanne Sherwood, the chief executive officer of Colorado’s Citywide Banks and chair of the Colorado Bankers Association. “We need to make cannabis legal or we need” a federal law to clarify the rules for banks, she said.

A growing number of U.S. lawmakers from both parties is trying to do just that. A House measure that would protect financial institutions that serve cannabis businesses now has 206 cosponsors and is teed up for a floor vote in the fall.


Most of the Democrats seeking the 2020 presidential nomination would also make marijuana legal nationally. Former Vice President Joe Biden is a notable exception, yet even he would decriminalize the drug so that the national ban would remain but sanctions would be lighter.


But perhaps the biggest breakthrough came on July 23 at a Senate Banking Committee hearing. Its Republican chairman, Idaho Senator Mike Crapo, for years refused to even discuss letting banks serve the cannabis industry. So it was a surprise when he agreed to use his committee as a platform to consider ways around the cash conundrum.


That’s when Merkley told his story and explained how legislation he is proposing, the Secure and Fair Enforcement Banking Act, would help. His measure would provide a safe harbor for banks by barring federal law enforcement and regulatory agencies from punishing banks for working directly or indirectly with cannabis-derived cash.


Merkley’s tale dates back to 2016. Since then, the federal-state conflict has only gotten worse: Marijuana is now legal for recreational use in 11 states and allowed for medicinal use in another 22. More than half of Americans live in those 33 states.


Idaho isn’t among them. It hasn’t legalized pot for recreational or medicinal use. And Crapo for years has publicly resisted greenlighting financial industry involvement. Just in April he said it would be “difficult” as long as cannabis is illegal under federal law.


Behind the scenes, though, the pressure for him to reconsider has been mounting. Earlier this year, the Idaho Bankers Association began talking to the senator about the issue for the first time. When Trent Wright, the group’s chief executive officer, asked Crapo to hold a hearing, he was surprised when the answer was yes.


Meanwhile, a consensus has been building among other senators, Wright said. Colorado Republican Cory Gardner, whose state pioneered liberalization of marijuana laws and who is co-sponsoring the SAFE Banking legislation, might have been especially persuasive. “I have spoken many times with Senator Gardner on this bill,” Crapo said at the hearing.


National associations have also been weighing in, according to James Ballentine, the executive vice president of congressional relations at the American Bankers Association. Lately, Ballentine has sensed a change in the air. “When Crapo started looking at this issue five to six years ago, there weren’t 33 states that had legalized marijuana in some form,” he said. “I’m sure he’s now been hearing quite a bit on this issue, and I think the groundswell of input” convinced him to take a deeper look.


An April letter to Crapo from Don Childears, president of the Colorado Bankers Association, explained how cash generated by out-of-state marijuana businesses can end up in Crapo’s state.

For example, a bank in Idaho might open an account for a commercial property owner whose tenants operate a marijuana dispensary in nearby Washington. In that case, it’s the bank’s responsibility to close that account or face possible money-laundering charges or regulatory action. Similarly, an Idaho utility that sells power to a marijuana grower in Oregon could risk its own banking relationship by accepting cannabis cash.


“The reality is that marijuana businesses will go wherever they can to get services, even to states where marijuana is illegal,” he told Crapo in the letter. “Banks in every state are vulnerable.”


Childears said other Republican politicians have found their comfort level with cannabis banking after realizing how difficult it is to deal with large amounts of cash. John Boehner, the former House speaker, is an example. In 2011, he wrote to constituents that he was “unalterably opposed to the legalization of marijuana.”


But in 2018, less than three years after leaving office, he joined the board of cannabis investment firm, Acreage Holdings Inc. In April, Acreage agreed to sell itself to Canada’s Canopy Growth Corp. for $3.4 billion, contingent on the U.S. legalizing weed at the federal level.


That’s where Boehner comes in: In February, he formed the National Cannabis Roundtable to lobby for marijuana reform. He now calls for removing the drug from Schedule I, the federal government’s list of the most dangerous substances. A lower classification would ease restrictions on research, allow the U.S. Department of Veterans Affairs to prescribe weed as an opioid alternative and allow financial companies to provide services to growers and dispensers.


“It’s just taking that cultural change in and realizing at the same time there are tremendous economic benefits,” said Terry Holt, a roundtable spokesman. The benefits for Boehner could also be huge: His 625,000 Acreage shares would likely jump in value if the Canopy deal closes.


Even U.S. Attorney General William Barr seems to be coming around. In April, he said he would address the conflict between federal and state laws by allowing states to opt out of the federal pot prohibition. Senators Elizabeth Warren of Massachusetts and Colorado’s Gardner back that route.


But Christopher Barry, a lawyer who advises cannabis companies on regulatory matters, said that that could be even harder to get through the Senate. An incremental approach — one that just deals with the banking problem — is more realistic, he said.


That’s why Crapo’s hearing mattered. A hearing isn’t the same as lending support, of course, but finance industry officials believe it has built momentum behind the SAFE Banking proposal, which could result in a breakthrough in the coming year. “We continue to believe this Congress will enact legislation by [the] end of 2020 to give cannabis firms access to banking services,” Cowen analyst Jaret Seiberg wrote on Aug. 6.


Even Crapo seems to agree. “This is a very important and complex issue that we need to get right,” Crapo said. “At this point, we’ve got a lot of interest and information coming in to us. And we’re going to work to see if we can find the answers to these questions.”

— With assistance from Austin Weinstein




Amended tax returns still prone to fraudulent refunds

By Michael Cohn

The Internal Revenue Service hasn’t done enough to improve its procedures for reviewing amended tax returns to reduce erroneous and fraudulent tax refunds, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, followed up on earlier reports by TIGTA that found risks of fraudulent and erroneous tax refunds from amended returns. In the new report, TIGTA reviewed a valid sample of 235 of more than 1.1 million amended tax returns processed in 2017 and identified 33 (that is, 14 percent) questionable amended returns with refunds totaling $74,974. Based on the results of the sample, TIGTA estimated the IRS issued nearly $359.9 million in potentially erroneous tax refunds claimed on 158,397 amended tax returns in 2017. It forecast that the IRS could issue nearly $1.8 billion over the next five years.


Of the 33 returns identified as questionable, 23 resulted from employee processing errors totaling $58,204 in potentially erroneous tax refunds. Based on the results of the sample, TIGTA estimates the IRS issued nearly $279.4 million in potentially erroneous tax refunds claimed on 110,398 amended tax returns in 2017. It also forecast that the IRS could issue nearly $1.4 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.


In previous reports, TIGTA has recommended that the IRS revise Form 1040 to allow taxpayers to amend their original tax return using that same form. In addition, TIGTA had also recommended that the IRS expand electronic filing to include amended tax returns. It estimated the IRS could potentially save more than $17 million in processing costs during fiscal year 2012 if it had allowed taxpayers to e-file their amended tax return. The IRS disagreed with this recommendation at the time, but said it would consider the format and appearance of the Form 1040X to include more specific information related to changes to income in conjunction with the implementation of e-filing of amended returns.


In the new report, TIGTA recommended that the IRS review the questionable amended tax returns it identified and implement adequate processes to identify and correct employee errors to reduce erroneous refunds. It also suggested the IRS should request funding to expand electronic filing for the 2020 filing season. TIGTA recommended the IRS update its internal processes to identify and review amended tax returns with claims for refundable credits that were denied during the original tax return processing, as well as modify the Form 1040X to allow individuals to use the Identity Protection Personal Identification Number when filing an amended tax return.

IRS management agreed with five of TIGTA’s seven recommendations, but disagreed with one suggestion on the need to hold amended tax returns for processing until a taxpayer confirms their identity when they are a victim of identity theft. The IRS believes its current verification processes provide enough account protections. The IRS partly agreed with TIGTA’s recommendation that it evaluate amended tax returns for potential identity theft. The IRS plans to conduct a study to assess the feasibility of using an Identity Protection Personal Identification Number on amended returns and develop processes for them.


“As the IRS has incrementally modernized its tax return processing systems over the past decade, we have maintained the goal of introducing amended returns into the electronic processing environment,” wrote Kenneth C. Corbin, commissioner of the IRS’s Wage and Investment Division. “... In its current state, amended return processing is reliant on manual processes; however, we developed automated tools for our employees to use that replicate, to the greatest extent possible, the systemic checks and validations to which original returns are subjected.”




Hacker accesses 100M Capital One customer records

By Ranica Arrowsmith

In a breach rivaling the biggest of the 21st century, a hacker has gained access to 100 million customer credit card applications and accounts at Capital One.


The bank reported that it was “unlikely that the information was used for fraud or disseminated" by the hacker and that no credit card numbers or passwords were exposed.


The hacker was determined to be Paige Thompson, a former Amazon employee who goes by the name “erratic” online. Thompson has been charged with computer fraud and abuse in the Western District of Washington, where she is located. Authorities said Thompson took advantage of a misconfigured firewall to access the bank’s credit card customer data.


According to the criminal complaint, Thompson posted on the information sharing site GitHub about her theft of information from the servers storing Capital One data. On July 17, 2019, a GitHub user who saw the post alerted Capital One to the possibility it had suffered data theft. Capital One contacted the FBI on July 19 after it determined there had been an intrusion on its user data. On July 29, agents executed a search warrant at Thompson’s residence and seized electronic storage devices containing a copy of the data.


“Capital One quickly alerted law enforcement to the data theft, allowing the FBI to trace the intrusion,” said Brian Moran, U.S. Attorney for the Western District of Washington, in a statement. “I commend our law enforcement partners who are doing all they can to determine the status of the data and secure it.”


While computer fraud and abuse is punishable up to five years in prison and a $250,000 fine, organizations can face much higher fiscal ramifications — the Equifax breach of 2017 which affected 143 million people resulted in a $650 million consumer settlement.


Capital One has said it will “notify affected individuals through a variety of channels,” so firm clients who believe they may have been affected should monitor their emails for possible communication from the bank. However, accountants should also urge their clients to be careful and not click on links or respond to emails that appear to come from Capital One, as other cybercriminals may use this opportunity to phish for customer information. Clients have been asked to forward any suspected phishing emails to


Capital One has promised to make free credit monitoring and identity protection available to anyone affected by the breach, a precedent set by recent breaches.


Accountants can also direct their clients to Capital One’s FAQ page regarding the incident.




Crypto tax avoiders face IRS roulette: Fess up or try to hide

More than 10,000 cryptocurrency investors face a decision as they open letters from the Internal Revenue Service informing them that they may owe taxes on their digital holdings.


Should they quickly file amended tax returns correcting prior omissions or mistakes and hope that’s enough to avert an audit? Should big-time dodgers come forward and acknowledge their actions — all while risking that the IRS might audit them or charge them with criminal tax evasion?


What about investors who didn’t get a letter, but think they might have failed to report some


“For 90 percent of people it’s not worth the time or the effort to fight or hide from the IRS,” said James Creech, a tax lawyer in San Francisco. “Amend the returns, take the lumps, pay the tax and penalties and consider yourself lucky to have crypto gains instead of crypto losses.”


The warning letters, which the IRS started sending in late July, represent a new front in the agency’s attempts to curb tax evasion involving virtual-currency transactions. The IRS has been slow to stay abreast of the evolving industry as it has exploded in size and value.


Top priority

But cryptocurrency tax compliance is now a priority. IRS criminal chief Don Fort has described digital and virtual currencies as a “significant threat” to tax collection and said the agency will soon announce criminal tax evasion cases involving them. In 2017, the IRS won a lawsuit that required digital currency exchange Coinbase to hand over data on customers who bought or sold at least $20,000 in cryptocurrency during any year from 2013 to 2015.


It’s unclear how much in unpaid taxes is owed by crypto investors. The $11.1 billion collected from more than 56,000 Americans who voluntarily confessed to dodging taxes through offshore bank accounts over the previous decade “is one analogy, which I don’t think is a crazy one,” said Robert Wood, a tax lawyer in San Francisco.


The agency’s likely goal is to force crypto tax evaders into compliance rather than prosecute them, said Guinevere Moore, a tax litigator at Johnson Moore in Chicago. But future criminal cases could be levied against some of the 10,000 letter recipients.


The IRS took two distinct tones in the letters. Some mailings informed recipients that they may have tax obligations of which they weren’t aware and simply urged them to file an amended or delinquent return.


Another version took a harsher approach. Those letters give recipients a deadline to respond in writing and reveal everything about their crypto dealings from 2013 through 2017. And they must do so under penalty of perjury — a sign that the nation’s tax collector may think they’re concealing high-dollar transactions that the agency could potentially turn into a legal test case.


‘Strong cases’

The letter also warns that the agency will crosscheck the taxpayer’s response against information “received from banks, financial advisors, and other sources for accuracy” and warns of the potential for audits.


People with lots of virtual-currency transactions they haven’t previously reported shouldn’t amend their returns — that’s basically admitting that you committed a crime, Creech said. Those taxpayers should immediately talk to a lawyer, he said.


“The IRS generally looks for very strong cases at the outset if they are considering criminal prosecution,” said Mark Matthews, a tax lawyer at Caplin & Drysdale and a former deputy IRS commissioner. “Anyone who got the harsh letter and who doesn’t respond truthfully and completely could become a test legal case.”


‘Big fish’

“Most of the big fish” are disclosing their crypto transactions on tax returns “because they know they have a lot to lose” if they don’t, said Sean Ryan, chief technology officer of NODE40, a blockchain accounting and tax software company. Still, some aren’t putting details on their returns. “When you have millions of dollars on the line, sometimes people are willing to take on that risk.”


Those who got the gentler letters likely include parents of dependent high-school and college-age children who may have bought and sold crypto without their parents knowing or understanding how to report it, Moore said. Such people should file an amended return, she said.


Other taxpayers who got letters may occasionally dabble in Bitcoin and might not even owe any tax because they’re holding on to their virtual currency. The IRS requires taxpayers to report all crypto sales, even if no tax is owed because they produced a loss.


Crypto’s infancy

The IRS’s only real guidance came in 2014, when Bitcoin was in its infancy and trading at a fraction of its current value of about $10,000. IRS Commissioner Charles Rettig said in May that further guidelines would be coming soon. But in the meantime, investors and their tax advisers have had to make educated guesses about how to report income and pay taxes from virtual-currency transactions.


Bitcoin and other crypto assets aren’t currencies but property, the IRS said in 2014, and thus taxable at capital gains rates.


Whether you’re the investor or the tax accountant, tallying crypto tax bills is difficult. Virtual currencies operate on blockchain technology, which links computers to verify and record transactions. To calculate a taxable gain or loss, investors need the ledger of every transaction between a crypto asset’s purchase and sale date. Separately, the crypto industry has long trumpeted the values of decentralization and lack of government control, so some investors simply may not disclose their holdings.


Shown leniency

The IRS occasionally has shown leniency if taxpayers voluntarily disclose that they’ve evaded taxes, including U.S. citizens who hid income in offshore accounts. That program has since ended and the IRS doesn’t have one specifically for cryptocurrency noncompliance. However, the agency says it makes a practice of taking into account whether a delinquent taxpayer comes forward on their own accord when levying penalties and fines.


“Either you reported the income or you didn’t — there’s not really a way out, other than for a lawyer to potentially negotiate less prison time,” said Jason Tyra, a certified public accountant focused on cryptocurrency. “The IRS does not lose on this issue.”




Judge overturns IRS rule to shield political donor identities

A federal judge in Montana overturned an Internal Revenue Service rule that would allow many political nonprofit groups to keep their donor lists private.


The ruling upends a change the IRS made last year that permitted so-called Section 501(c)4 groups, known as “social-welfare” organizations, to keep their donor lists private. A federal judge said the IRS didn’t follow proper procedure in writing the rule and needs to allow the public to weigh in on the change before altering the tax code.


“Then, and only then, may the IRS act on a fully informed basis when making potentially significant changes to federal tax law,” U.S. federal Judge Brian Morris said in the opinion published Tuesday evening.


Montana Governor Steve Bullock, who is also a Democratic presidential candidate, sued the IRS, saying that the change limited information states received about political donors. The IRS rule only required the groups to disclose their donors if an auditor requested to see it.


The ruling is a blow to Treasury Secretary Steven Mnuchin who touted the rule, saying it protected donor privacy because the IRS didn’t need the information to enforce tax laws. Democrats had criticized the agency’s move, saying it opened up the possibility for foreign interests to influence elections.


Among the organizations with 501(c)4 status are the National Rifle Association, the Democratic Socialists of America, the AARP and Americans for Prosperity, the conservative group backed by the billionaire brothers Charles and David Koch.


The groups can be engaged in politics, so long as they don’t spend more than half of their money on campaign advertisements or activities to sway an election. Donors do not have to be disclosed to the public.


The case is Bullock v. Internal Revenue Service (4:18-cv-00103)




How far can states go after Wayfair? 'Not this far'

By Roger Russell

In the aftermath of the Supreme Court decision in Wayfair, the question that many asked was, “How far can states go in taxing entities with a tenuous connection to the state?” Now, the high court has given a partial answer in its Kaestner decision: “Not this far!”


The court decided unanimously in favor of the taxpayer in North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, holding that North Carolina violated the Due Process Clause of the Constitution by taxing a trust based solely on the residence of a beneficiary of the trust. Justice Sonia Sotomayor delivered the unanimous opinion, while Justice Samuel Alito, joined by Justices John Roberts and Neil Gorsuch, issued a somewhat narrower concurring opinion. (For more, see A deep dive into Kaestner.)


 “Quill is not dead,” said Steve Wlodychak, principal and state tax leader for the Center for Tax Policy of Big Four firm EY, referring to the 1992 Supreme Court decision requiring physical presence to create nexus for sales and use tax.


The Wayfair decision seemed to subsume Quill, but this points out where SCOTUS sees its remaining importance, according to Wlodychak: “Justice Sotomayor made clear that the opinion is quite narrow and limited to striking down state trust tax laws that apply merely based on the residence of a beneficiary with not more. In Footnote 12, she expressly lists those states ... and I believe only California is left as a state to address.”


David O’Neil, a partner at law firm Debevoise & Plimpton, argued the case before the Supreme Court in April. “The decision was very gratifying,” he told Accounting Today. “We were confident based on the lower court decisions, but it’s always a different ballgame when you go before the Supreme Court.”


“The ruling emphasizes the Constitution’s most profound guarantee,” he added. “The government cannot order a citizen to do something that is fundamentally unfair, and that includes forcing someone who has nothing to do with a state to pay taxes for services that they didn’t use.”

The details

The original trust was established by settlor Joseph Lee Rice III. Its situs, or location, was New York. The primary beneficiaries of the original trust were Rice’s descendants, none of whom lived in North Carolina at the time of the trust’s creation. In 1997, Rice’s daughter, Kimberley Rice Kaestner, moved to North Carolina. The trustee later divided Rice’s initial trust into three separate subtrusts, and North Carolina sought to tax the Kimberly Rice Kaestner 1992 Family Trust, formed for the benefit of Kaestner and her three children, under a law authorizing the state to tax any trust income that is “for the benefit of” a state resident.


The state assessed a tax of more than $1.3 million for 2005 through 2008. During that time Kaestner had no right to, and did not receive, any distributions, nor did the trust have a physical presence, make any direct investments, or hold any real property in the state.


The trustee paid the tax under protest, and sued the Department of Revenue in state courts. Representatives of the trust argued that applying the tax to the trust violated the Fourteenth Amendment’s Due Process Clause. The trust won at three different levels of state courts, which held that the connection between North Carolina and the trust was insufficient to satisfy the requirements of due process.


The Supreme Court agreed. It held that the presence of in-state beneficiaries alone does not empower a state to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to receive it.

The ramifications

The case will impact states that have a law similar to North Carolina’s, where tax is imposed solely on the residence of a beneficiary, as well as states where residence is one factor among many, O’Neil observed. “But the real next battle will be where tax turns on the state the settlor lived in when the trust was created,” he added.


“This decision is narrow,” said Ed Zollars, a CPA, instructor and author with Kaplan Financial Education. “It was intentionally written not to answer the question in any state that doesn’t do it exactly like North Carolina.”


The decision was not a surprise, according to Diana Zeydel, shareholder at Greenberg Traurig and global chair of its private wealth practice. “Many wondered why North Carolina bothered to appeal to the Supreme Court,” she said. “The outcome seemed quite clear based on the facts of this particular trust. People were hoping that, because the beneficiary did not have a right to mandatory distributions, but instead had a contingent interest to receive a discretionary distribution, that would be sufficient for a broader ruling. But the court was careful to limit its decision to the facts.”


Dave Lehn, a tax partner at Withers Bergman, agreed. “The holding was very narrow in the sense that Justice Sotomayor said it would only apply to these particular facts,” he said. “The trustee was outside the state, and the beneficiary was not receiving distributions in the state. The fact that the beneficiary had the potential to receive distributions in the state was not enough.”


“From a planning perspective, it’s a good idea to review trust documents and see where the trustees are, where the beneficiaries live, and where the trust is being administered,” he said. “You want to limit exposure to state income tax. Trustees are generally a corporation, but individuals can move from state to state.”


“Trusts with multiple generations of geographically mobile beneficiaries could easily be subject to income tax many times over, on the same dollar earned, in many jurisdictions under statutes such as North Carolina’s,” Lehn stated as counsel of record in an amicus curiae brief.


In “Brief for Certain State Trust and Bank Associations as Amici Curiae in Support of Respondent,” Lehn added: “Without carefully crafted tax credit mechanisms, this would run afoul of the internally consistent standard refined under the Commerce Clause’s ‘fairly apportioned’ rule.”


“It is easy to imagine how quickly concurrent taxation may compound if three discretonary beneficiaries live in three different states with such a statute, and each of those first-generation beneficiaries then has children who all live in different states,” he added.




IRS sends letters to 10,000+ cryptocurrency users urging them to pay taxes

By Michael Cohn

The Internal Revenue Service has started sending letters to over 10,000 taxpayers who own virtual currencies, such as Bitcoin and Ethereum, advising them to pay back taxes on any income they failed to report.


The IRS announced on Friday that it began sending the educational letters to taxpayers last week. More than 10,000 taxpayers are expected to receive the letters by the end of August. The IRS obtained the names of the taxpayers through various ongoing compliance efforts. For example, the IRS filed a John Doe summons with Coinbase, one of the largest Bitcoin and Ethereum exchanges in the U.S., in 2016, to obtain the names of all its users, although it later limited the probe to those who engaged in transactions of $20,000 or more (see IRS scales back Coinbase investigation).


There are three different types of letter being sent to taxpayers, but all three versions aim to help taxpayers understand their tax and filing obligations and how to correct previous errors. The letters also tell taxpayers where they can find relevant information on the IRS website, including which forms and schedules to use and where to send them.


"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS commissioner Chuck Rettig in a statement. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."


Last year, the IRS announced a Virtual Currency Compliance campaign to deal with tax noncompliance related to virtual currency by doing more outreach and examinations of taxpayers. The IRS intends to stay actively engaged in addressing noncompliance related to crypto transactions through various efforts, ranging from taxpayer education to audits to criminal investigations. Virtual currency is also an ongoing focus area for the IRS Criminal Investigation unit.


Accountants and tax practitioners can help any cryptocurrency-using clients who have been contacted by the IRS. “The IRS and additional government authorities continue to focus on cryptocurrency transactions, and the tax reporting by investors engaged in such transactions,” said Tim Speiss, partner-in-charge of the Personal Wealth Advisors Group at EisnerAmper in New York. “Tax professionals have also been striving to assist investors with the proper federal and state tax reporting rules. The proper tax reporting of these transactions can be very complex. Therefore, assisting investors and taxpayers so they are in compliance with reporting rules is critical in assisting them to avoid potential penalties and interest attributable to non-reporting.”

Back in 2014, the IRS issued Notice 2014-21, which said that virtual currency is property for federal tax purposes and offered guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles, but the IRS has also been looking to update the guidance, as the cryptocurrency market has grown dramatically in recent years. The IRS plans to continue to consider and solicit feedback from both taxpayers and tax practitioners on its education efforts and future guidance.


The IRS said it anticipates issuing additional legal guidance in this area in the near future. In the meantime, taxpayers who don’t properly report the income tax consequences of digital currency transactions could be liable for tax, penalties and interest, and in some cases, may even be subject to criminal prosecution.


More information on virtual currencies can be found on




France digs in on digital tax as Trump floats tariffs on wine

France stuck to its plan to tax big multinational tech companies, defying U.S. President Donald Trump’s suggestion that he might impose tariffs on French wine.


“It’s in all of our interest to move toward a just taxation worldwide for digital companies,” French Finance Minister Bruno Le Maire said in Paris. Wine tariffs and the digital tax are “completely different issues” and shouldn’t be lumped together, he told reporters on Saturday.

It’s the latest face-off between the self-proclaimed “Tariff Man” in the White House and a major European Union economy. The French tax and Trump’s response threaten to further strain trans-Atlantic ties as the U.S. and EU prepare to negotiate a limited trade agreement on industrial goods.


Trump on Friday raised the possibility of “substantial” retaliation against France. “It might be on wine, it might be on something else,” he later told reporters in Washington.


The law signed by President Emmanuel Macron imposes a 3 percent tax on the revenue of technology giants such as Facebook Inc. and Inc.


“We tax our companies, they don’t tax our companies,” Trump said.


The tax, retroactive to January, affects companies with at least 750 million euros ($845 million) in global revenue and digital sales of 25 million euros in France. While most of the roughly 30 businesses affected are American, the list also includes Chinese, German, British and French companies.


France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!


“I’ve always liked American wines better than French wines, even though I don’t drink wine,” the president said Friday. He said he may impose the wine tariffs before a meeting of the Group of Seven meeting in late August.


Trump has imposed or threatened to levy tariffs on several countries to force changes in their trade or immigration policies. Last month, he promised to do “something” about French wine that he said is allowed into the U.S. virtually tariff-free while France imposes duties on U.S. wine, calling the arrangement unfair.


Wine is France’s second-biggest export after aerospace equipment. The U.S. is the biggest market, accounting for about a quarter of France’s 13.2 billion euros in wine exports last year.


Trump has complained about France charging tariffs on U.S. wine in the past without taking action. He tweeted in November that it’s too hard for American wine producers to sell in France but that the U.S. makes it “easy” to import French wines, which he said “must change.”


The U.S. charges a tariff of 5 cents per 750 milliliter bottle of imported still wine and 14 cents for sparkling wine, according to the Wine Institute, an advocacy group for California winemakers. European Union tariffs for imported wine range from 11 cents to 29 cents per bottle, according to the group.


France hasn’t backed off from its planned digital tax even after the U.S. suggested it may use trade tools against the levy.


The U.S. has said it will examine whether the tax would hurt its tech firms, using the so-called 301 investigation, the same tool Trump deployed to impose tariffs on Chinese goods because of the country’s alleged theft of intellectual property.


France isn’t alone among European nations in arguing that internet companies aren’t paying their fair share into public coffers.


Because they’re often domiciled in other countries — including low-tax jurisdictions such as Ireland or Bermuda — and shift money seamlessly across borders, companies that sell online can easily avoid paying taxes in nations where they nevertheless make significant sales.


France argues that the structure of the global economy has shifted to one based on data, rendering 20th-century tax systems archaic. According to 2018 figures from the European Commission, global tech companies pay a 9.5 percent average tax rate compared with 23.2 percent for traditional firms.


While France is the first EU country to impose such a levy, it says it would prefer an EU-wide digital tax. Some other European countries are considering similar taxes.


— With assistance from Helene Fouquet, Hamza Ali, William Horobin and Aoife White




Jeffrey Epstein’s wealth boosted by Virgin Island tax breaks

There are a lot of theories about the sources of Jeffrey Epstein’s wealth and how he earned his one-time reputation as a brilliant money manager. One thing that isn’t disputed is that he knew how to cut his tax bills by setting up shop in the U.S. Virgin Islands.


That didn’t require any particular skill on Epstein’s part. The rules set by the Economic Development Commission in St. Thomas allow some businesses in the U.S territory to, after meeting certain conditions, significantly lower their exposure to federal corporate and personal income taxes by possibly 90 percent.


The rules have tightened since Epstein made his first major investment in Virgin Islands in the late 1990s. But the question remains: Since one of his self-professed specialties was helping the ultra-rich reduce their tax income, what role did the Virgin Islands play in enriching Epstein and his clients?


Six years passed between Epstein’s buying a private island in the territory and 2004, when authorities began enforcing stricter rules on tax-break eligibility. By then Epstein was a veteran player — and perhaps wizened adviser — who has incorporated multiple dozens of businesses.


Huge Gift

Even now, what’s legally on offer there “is a huge gift” for people of means, said Tim Richards, a lawyer specializing in international tax at Richards & Partners in Miami.


The rules could allow businesses like Epstein’s to avoid paying regular U.S. taxes, for example, by counting the company’s income where its computer servers are located.


The tax systems of U.S. territories like the Virgin Islands mirror those of the mainland except that the recipient is not the U.S. Treasury but the local government. For non-U.S. income, they have the authority to reduce taxes in some cases, such as to bolster economic development.


“It’s one of the only places that U.S. citizens can actually reduce their federal income tax liability,” said William Blum, an international tax lawyer at Solomon Blum Heymann LLP, who served as counsel to a former governor of the USVI.


Epstein started benefiting around two decades back, when he moved his firm, originally called J Epstein & Co., from New York to St. Thomas. Mystery still surrounds the operations of the business, renamed Financial Trust Co., though a few investments have come to light, including $80 million invested into hedge fund DB Zwirn & Co. between 2002 and 2005.


He made another tax play in 2012, securing approval for his Southern Trust Co. to join the tax-incentive program as a designated service business, documents show. His 50-50 partnership in a local marina with New York real estate developer Andrew Farkas is also a beneficiary of the program.


Southern Trust received a 90 percent exemption on its US VI income taxes and a 100 percent exemption on gross receipts and excise taxes for a decade starting in February 2013, according to its filing with the island.


The economic development tax breaks can go even further for Virgin Islands residents, with a 90 percent reduction in personal income tax also available.


“The USVI is unique in that it has congressionally approved tax benefits found in the Internal Revenue code, but at the same time, the American flag flies, there’s a U.S. federal court, appeals go to the U.S. Third Circuit, you’re not outside the U.S. banking system and you even have a U.S. area code,” said Joseph DiRuzzo, a long-time USVI tax attorney.


“It provides all the accouterments of the U.S., with some of the tax benefits that one would typically only see offshore,” he said.


Residency Rules

It’s not clear whether Epstein — who owns a Manhattan townhouse, a Florida villa, a New Mexico ranch and an apartment in Paris in addition to two private islands off St. Thomas — was ever a USVI resident.


Typically a taxpayer must spend at least 183 days a year on the islands. Flight records provided by JetTrack suggest Epstein spent just 56 days in the region in 2017 and 13 in 2018. A former employee who spoke on the condition of anonymity said Epstein always traveled to his island via private jet.


If Epstein moved around between his properties, mostly those outside the Virgin Islands, Southern Trust was putting down roots. To secure its tax status, Epstein agreed to invest more than $400,000 in the business and to employ 10 full-time employees by the end of its sixth year of operation, 80 percent of whom had to be Virgin Island residents.


What the company does is unclear. The EDC certificate describes it as “providing an extensive DNA database and to develop a data-mining platform.”


Just a Little Sign

There’s little sign of the company’s local presence at the commercial plaza on St. Thomas, featuring a Sami’s Mini-Mart and the Happy Nails salon, where its office is registered. Its name is listed only on a dockside building directory. It doesn’t appear to have a website.


The last compliance review was completed in November, according to Kamal Latham, chief executive officer of the jurisdiction’s Economic Development Authority, and Southern Trust was found to be within the law.


The reviews are more rigorous than before 2004, when reports about abuses caused the Internal Revenue Service to clamp down on designated service businesses — typically high-income hedge funds, consultancies and investment services — that were dominating the program.


Some wealthy U.S. taxpayers, for example, were piggy-backing onto existing EDC corporations and claiming residency simply to enjoy the island’s tax benefits. A Senate Finance Committee investigation concluded some taxpayers were able to falsely claim USVI residency based only on a driver’s license or voter registration card, not time lived there.


Crackdown in 2004

The crackdown came in 2004, after the IRS began investigating businesses on the island.


“Certain promoters are advising taxpayers to take highly questionable, and in most cases, meritless positions in order to avoid U.S. taxation and claim a tax benefit under the laws of the Virgin Islands,” the IRS said in its 2004 notice that resulted in far more stringent rules.


Such changes didn’t put Epstein off the jurisdiction. As well as Southern Trust Co., he has at least a dozen other entities there, holding assets such as his planes and properties.


“It’s great for international businessmen with overseas assets,” said Richards, the lawyer. “You employ people, you have your servers there and your tax rates go down dramatically.”


— With assistance from Jonathan Levin




DeVos wants IRS to provide income information on student loan borrowers

By Michael Cohn

Secretary of Education Betsy DeVos is calling on Congress to allow the Internal Revenue Service to give the Department of Education information on the income of student loan borrowers, warning that student loan applicants are misrepresenting their income and family size to qualify for reduced payment plans.


She urged a comprehensive review of income verification of income-driven repayment plans in response to a report from the Government Accountability Office recommending the Department Education verify borrowers' information to qualify for reduced repayment plans.


"The GAO report released today further proves what I've long said: there is significant risk in the federal student loan portfolio,” DeVos said in a statement. “For years there have been deliberate efforts to make the maze of student aid more complex for students and less accountable to the American taxpayers who underwrite it. Today's report is just the latest proof that many of the policy ideas previously pursued were poorly implemented. Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it. We didn't create that problem, but rest assured we will fix it.”


The GAO said the Department of Education should do more to verify borrowers' income and family size because of the risk of potential error or fraud. More than 76,000 borrowers making no monthly payments may have had enough income to pay something, according to the report, and more than 35,000 borrowers had approved plans with atypical family sizes of 9 or more


DeVos said the GAO report highlighted the lack of accountability built into income-driven repayment plans that creates significant risk for taxpayers, and she wants the IRS to provide that information to her department, which depends on Congress giving it the statutory authority to do so. “That's why the Department has already looked at ways to better verify income and family size for all borrowers enrolled in income-driven repayment programs,” she said. “However, without Congressional action, we are unable to partner with the Internal Revenue Service to independently verify this information. I am again calling on Congress to provide the Department the authority to independently verify income using IRS data. If Congress provides the Department with this authority, we could significantly reduce the risk of fraud and improper payments, save taxpayers money, and reduce the burden on borrowers when they annually recertify their income with the Department. While access to this IRS data is vital, until Congress passes legislation, we will work to be responsive to the GAO recommendations. The Department is also working to identify and refer cases of suspected fraud to the Department of Justice for prosecution."




Kevin Costner, Hillary Clinton & IRS Whistleblower Rewards

 by Brian Mahany

This post has all the makings of a television special on E! or MTV. Given the political overtones and alleged involvement of Hillary Clinton, maybe the FOX News network too.


This story involves TV star Kevin Costner, Russian oligarch Igor Olenicoff, cosmetic billionaires Leonard and Estée Lauder, Abdul Aziz Abbas (a shady character with direct ties to Saddam Hussein), Hillary Clinton and porn stars. If you want to know how they are all connected, keep reading. This jaw dropping story of wealth and privilege will leave you astounded.


Our story begins with my friend Bradley Birkenfeld. In the history of whistleblowers, no one has earned more than Bradley. In 2012 he received an IRS whistleblower reward of $104 million.


Why so much? Because the IRS whistleblower program lets the government pay whistleblower rewards of up to 30% of whatever the agency collects from tax cheats. In Bradley’s case, that was $780 million from Swiss bank UBS.


Birkenfeld says that UBS was helping rich Americans evade taxes and hide accounts. Federal law doesn’t prevent Americans from having offshore accounts but they must be reported to the IRS and they can’t be used to evade taxes. For many Americans, however, numbered Swiss accounts were used to hide money from the tax man, creditors and even divorcing spouses.


Part of the settlement with UBS was the payment of the $780 million but there was more. UBS agreed to disclose the names of American clients to the IRS. Not only did the IRS want to punish the bank for helping Americans evade taxes, it wanted to make sure that the secret account holders were properly reporting their accounts and paying taxes. Many were not.


Birkenfeld says that UBS only disclosed 4,700 names of secret accounts holders with ties to the United States. He claims, however, that there 19,000 such accounts.  In his words, “UBS provided names and account information for only 4,700 of the 19,000 wealthiest Americans complicit in tax fraud through secret undeclared numbered accounts. Many important and well-known UBS clients were knowingly omitted by UBS from the list provided to the IRS, including [Kevin Costner and Leonard Lauder].


Why not everyone? Great question. Birkenfeld says “Evidence supports the inference that the leniency of the United States towards UBS was exchanged for political or financial favors, including an email published by Wikileaks in which former Secretary of State Hillary R. Clinton states that a ‘political’ solution must be engineered for UBS’ decades-long massive tax fraud.”


And how does Bradley Birkenfeld know this? He was a former director of UBS and involved in overseeing the offshore accounts.


Bradley served 31 months for his involvement in the scheme. It is not uncommon for some of the best whistleblowers to also be involved in the underlying misconduct. For many folks, it is better to come clean than spend a life looking over one’s shoulder.


Long out of jail, Bradley Birkenfeld wrote a bestselling book in 2016 called Lucifer’ Banker. Bradley wasn’t afraid to name names but his publisher needed to be careful. And that brings us to Kevin Costner and Leonard Lauder.


Bradley Birkenfeld Discloses Secret Accounts of Leonard and Estée Lauder and Kevin Costner

Birkenfeld says his original manuscript named Leonard Lauder LAUDER and his mother, Josephine Esther “Estée” Lauder, the founder and namesake of the Estée” Lauder cosmetic.


Specifically, he says the manuscript said, “At least two of [Hillary Clinton’s billionaire friends], Jack Manning and Leonard Lauder, had undeclared secret numbered accounts at UBS in Geneva and had been contributing money to her political campaigns for years.”


He also claimed his manuscript identified Kevin Costner as having an account at UBS.


In September 2016 on the eve of publication, Birkenfeld’s publisher received threats from Leonard Lauder and Kevin Costner. According to him, both threatened legal action against “unless references to them as owners of secret, offshore, undeclared, numbered accounts at UBS, Switzerland in Lucifer’s Banker were censored.”


Costner alleged claimed that he “never had an account with UBS” and in fact, never had “any offshore bank account.” Lauder allegedly didn’t deny the accounts but claimed they were legal, properly reported and that all taxes were properly reported.


Birkenfeld’s publisher took out references to both men.


In May 2019 Birkenfeld sued both Lauder and Kevin Costner. He basically claims they are liars,

“Defendants LAUDERS’ and COSTNER’S false insinuations, averments or denials and legal threats to Plaintiff [Bradley Birkenfeld] and Plaintiff’s publisher coerced the deletion of references to them in the original manuscript of Lucifer’s Banker as owners of secret, offshore, undeclared, numbered bank accounts in Switzerland with UBS, an offshore bank mecca for billionaires with locations in Zurich, Geneva, and Lugano, Switzerland.”


The last minute decision to drop references to Lauder and Costner in the book required thousands of copies to be destroyed and cost Birkenfeld additional legal fees.

In July, Leonard Lauder asked the court to dismiss the lawsuit. He says,

In 2016, Plaintiff Bradley Birkenfeld, a former UBS banker and convicted felon who served time in prison for conspiracy to defraud the United States, sought to defame renowned businessman and philanthropist Leonard Lauder in an about-to-be-published book, Lucifer’s Banker, by stating falsely that Lauder used a Swiss bank account to avoid paying U.S. taxes. The perverse premise of this lawsuit is that Lauder should be liable to Birkenfeld as a result of the “injury” he sustained arising from diminished sales of the book (and associated expenses) allegedly occasioned by Birkenfeld’s inability to peddle such falsehoods publicly. In support of this premise, as well as to disseminate the very defamatory statements concerning Lauder that Plaintiff’s publisher wisely removed from the book, Plaintiff asserts three facially deficient causes of action. This frivolous case—an abuse of the judicial system—should quickly be nipped in the bud.


Nowhere does Lauder directly address whether he had offshore accounts and whether they were legit. Instead he says that Birkenfelld would have no way of knowing whether any taxes were paid on offshore accounts.


It will be interesting to see how Birkenfeld responds.


As to Kevin Costner, he submitted a two page affidavit. Once again, nothing in the affidavit says whether or not he had offshore accounts and whether taxes were paid on any income from any such accounts. A copy of Costner’s affidavit can be found here.


Costner’s lawyers say, however, that Costner has no offshore account. In their words,

In an apparent gambit to raise his own profile and continue to seek his “fifteen minutes of fame,” Birkenfeld has repeatedly spread outrageous malicious lies claiming that Defendant Kevin M. Costner supposedly hid millions of dollars in a secret UBS Swiss bank account to evade US taxes. Birkenfeld has done so despite the fact that Mr. Costner never had any UBS Swiss account or any offshore accounts whatsoever.


What the lawyers and Costner don’t say, however, is whether Costner had interest in any offshore accounts. The IRS reporting rules look not only to the name on the account but also who may be considered a beneficial owner or who has signature authority.


This might sound like splitting hairs but Birkenfeld is extremely savvy and smart. And he remains clear in saying that both Lauder and Costner had offshore accounts at UBS.


What will happen remains to be seen. We expect a ruling later this year. The court could dismiss Birkenfeld’s claims, toss it for procedural reasons (which usually means it can be refiled) or simply say it can proceed.


This is one case we will follow closely.


As noted above, Bradley Birkenfeld received $104 million for stepping forward as a whistleblower. Costner and Lauder attempt to paint him as a felon and con man but that doesn’t mean he is lying. Both the IRS and SEC thought he was credible and he also was called to testify before the United States Senate Permanent Subcommittee on Investigations.


People, banks and companies don’t properly report taxes, underpay or avoid paying federal taxes cost the U.S. taxpayers billions each year. If you select have inside (non-public) information on tax fraud, you may be eligible to collect a significant cash reward for reporting the fraud.


Tax fraud can include unreported offshore accounts as well as false tax returns, overstated deductions, misrepresentation of transfer pricing data, money laundering, abusive tax shelters, abusing foreign tax credits and the like.


The formal IRS whistleblower program looks for unpaid or unreported taxes of $2 million or more although awards are available in smaller cases.


To learn more visit our IRS whistleblower and offshore tax fraud whistleblower pages.


Ready to see if you qualify for a reward? Contact us online, by email or by phone 202-800-9791. You need not be an American citizen to receive a reward. (We handle IRS whistleblower cases worldwide) All inquiries are kept strictly confidential.


Top Concern For Small Businesses? Cybersecurity

By Thomas Fox


While some might assume that fear of an economic recession would be at the top of the list of key issues small business owners concern themselves with, a recent survey found that another issue is of much greater concern: Cybersecurity.


This is no surprise.


For the past several years, cybercrimes and data breaches among companies large and small, governments, and even individual citizens have risen drastically.


While it’s true that many business owners still assume a data breach at their own company is highly unlikely, with the ultimate price tag of such attacks ramping up to the millions of dollars (and recovery being hardly successful), it makes sense that companies are taking notice.


What Does a More Concentrated Focus on Cybersecurity Mean for Companies?

Company owners who are most concerned with cybersecurity are naturally becoming more involved in their companies’ defense strategies. After all, a breach of data isn’t just about the loss of money.


It can also mean the loss of customers (or the entire business) and a permanent label as someone who can’t secure their company.


Furthermore, even if a breach doesn’t close down the company, customers, clients, and investors are sure to drop their interest in a company that’s lost data, money, and trustworthiness after a cyberattack. Large companies like Yahoo, Target, Equifax, and others have all felt the blow of such fallout.


How Do Most Cyber Attacks Originate?

When most people think of a cyberattack, images of an ultra-sophisticated Russian hacker sitting in a darkened basement with glowing green and blue lights comes to mind.


However, cyberattacks can come from anywhere and from anyone. They may be performed on public computers, from office buildings, at public Wi-Fi cafes, from residential homes, or even in airports.


Your own cyber attacker could be coming from across the world... or down the street. Once you find out that your company’s data’s been compromised... it may not really matter anyway.


Because of their cloak and dagger way of operating, cyber attackers and criminals are rarely located and seldom caught or prosecuted. Part of being a cybercriminal, after all, means knowing how to confuse and reroute IP addresses through a multitude of countries. This makes retracing the invader’s steps a serious challenge — even for the most advanced IT specialists.


Therefore, the key to avoiding such attacks is, of course, to prevent them in the first place. This is the goal of an increasing number of savvy business owners.


It means putting cybersecurity first and foremost on their priority list and recruiting the help of highly-educated and trained information technology specialists.


How Can You Prevent Cyberattacks in Your Company?

The key to preventing cyberattacks is knowing how they start in the first place — and remember, it’s not where most people would think.


Again, many people assume that cybercriminals work by being absolutely amazing at breaking into super-advanced and complicated security systems. But nearly all mid- and large-sized companies have advanced security systems, and they still get hacked.


Assuming that cybercriminals can simply break into these systems is giving them too much credit. Instead, most cybercriminals gain access much in the way vampires are said to gain access to their victims:


Essentially, by being invited.


While lore claims that vampires must be invited into a home before they can step foot inside, cybercriminals also work their magic by essentially being given access to sensitive data by unknowing company employees — or even CEOs and other upper management members themselves.


It’s called phishing, and it’s the number one way cyber attackers gain security access to companies’, organizations’, governments’, and individuals’ data.


If you are a business owner who’s concerned about the cybersecurity of your company in 2019, you’re on the right track. While the growth of your business and the frightening possibility of a recession are surely important to you as well, everything can be lost in an instant if your company is attacked by a cybercriminal.


Taking steps now to better train your employees and enlist the right cybersecurity professionals to protect your business is wise and responsible.



Five Social Media Mistakes Businesses Must Avoid

By Thomas Fox


Social media is an incredible chance for your brand to interact directly with your audience and grow it even further. If you’re not able to manage your social media marketing properly however, you’ll simply waste time and resources, or worse, actually harm your brand’s reputation.


Here are five key social media marketing mistakes that your business must avoid at all costs:


Discussing Hot-Button Topics

Some topics, especially political and religious ones, are simply not worth bringing up. This is especially true in today’s divisive political environment.


You’ll end up dividing your audience and perhaps even bringing negative attention onto your brand. It’s better to avoid these issues altogether and playing it a bit safer with your choice of topics.


Winging It

Social media marketing is the same as any other digital marketing strategy. You need to know what you want to get from it. If you don’t have specific goals for your social media strategies, you’ll never know exactly what to do or when they’re successful.


Take the time to think about what you really want from each social media platform, and brainstorm about what you must do to get there.


Posting For the Sake of It

Research has found that the number of social media posts you need to be making on a daily and weekly basis is quite frequent in order to truly engage with and grow your audience.


On Twitter, for example, you may need to Tweet up to 15 times per day. However, you cannot forego quality for the sake of quantity.


Treating All Platforms the Same

It’s likely that you have a presence on a wide variety of social media platforms. At the very least, Facebook and Twitter, and then probably a couple out of Snapchat, Instagram, YouTube, Pinterest, etc. The problem is when you treat all social media platforms the same. The average audience on Facebook and Twitter are much different. People use Instagram differently than they use Pinterest. If you want to truly thrive on social media, you need to understand each platform and what your audience is looking for on it.


Ignoring Negative Activity

It’s critical that you don’t get defensive on social media, but you cannot simply let negative feedback go unanswered. Not only does it further harm the relationship between you and the individual complaining, but it also adds some legitimacy to the complaint for everybody else to see.


After all, if you had a reasonable response to the complaint, why wouldn’t your company voice it? Make sure that you have dedicated customer service resources handling your social media comments in a professional, expedient manner.


By avoiding the key social media marketing mistakes listed above, your business will be in a great position to not only survive on social media platforms, but thrive on them. Your audience will be engaged and energized, and you’ll reach more people than you ever thought possible!

Thomas Fox is president of Tech Experts, southeast Michigan's leading small business computer support company.


6 key Medicare questions



6 key Medicare questions

  • What is Medicare?
  • What are my options?
  • How do I sign up?
  • Which plan is right for me?
  • How much do plans cost?
  • Where can I go for help with Medicare?


Diane turned 65. Having also retired, she filled her days with volunteer work, babysitting her grandchildren, and enjoying time with her friends.


Diane was the first among her friends to turn 65 and enroll in Medicare. This made her the go-to expert for all things health care-related.


As her friends neared 65, they called Diane for help. Since she had made her way through the Medicare maze, they figured Diane could answer their questions.


Her friends' health care needs weren't the same as Diane's. She pointed them to places where she had found information but wasn't able to give them the specific answers they needed for their unique situations. She didn't feel ready for Medicare, and neither did her friends.


To help you prepare for enrolling in Medicare with confidence, here are answers to some of the most common questions people like you ask.


1. What is Medicare?

You may have an idea of what Medicare is, based on what you've read or heard up to this point. But, not everyone describes it the same way.


As the Centers for Medicare and Medicaid Services (they're the official federal organization responsible for Medicare) describe it, Medicare is a federal health insurance program for:


  • People age 65 and older
  • Certain younger people with disabilities
  • People with End-Stage Renal Disease (ESRD), which is permanent kidney failure that requires dialysis or a kidney transplant



Getting started with a few Medicare basics

You might not know that Medicare only offers individual coverage. Unlike health insurance plans before age 65, there is no family coverage plan with Medicare. That means your spouse or partner won't be covered by your Medicare coverage; they have to enroll on their own when they become eligible for Medicare.


Medicare gives you a 7-month time frame to sign up/enroll. For those who are eligible when they turn 65, that 7 months begins 3 months before the month you turn 65 and ends 3 months after the month you turn 65. This is the Initial Enrollment Period.


Medicare offers a Special Enrollment window for people age 65 who are still working and/or have health insurance through their employer or spouse's employer. This window is also available to you if certain events happen in your life, such as moving or losing other insurance coverage.


If you miss the Initial Enrollment Period without qualifying for the Special Enrollment Period, you may have a big gap in your health care coverage. You would have to wait until the following January when the General Enrollment Period begins (it ends in March).


But here's where missing the Initial Enrollment Period can hurt you: Signing up between January and March means your coverage doesn't go into effect until the following July—and you'll be charged a late enrollment penalty that's tacked on to your monthly premium (what you pay each month for health care coverage).


2. What are my options?

Before Medicare, picking health insurance coverage while working for your previous employers was fairly straightforward: You picked a single plan for your doctor visits, prescriptions, and medical needs.


Medicare is very different. Medicare is made up of parts. Each part covers different things.

And to make it a little more complicated, each part has lots of different options within them. Let's take a look:


Part A: Hospital insurance

Medicare Part A coverage was first introduced in 1965 to help seniors manage the high cost of hospital care. Part A covers hospital visits, certain hospital treatments and procedures, skilled nursing facility care, and hospice care.


Part B: Medical insurance

Medicare Part B covers certain health care costs not covered by Part A, such as doctor visits and services, outpatient hospital care, physical and speech therapy, lab tests, blood transfusions, medical equipment and supplies, and ambulance services.


Part A and Part B together are also known as Original Medicare.


Medigap (Medicare Supplement)

A Medigap policy is private health insurance that helps supplement Original Medicare. This means it helps pay some of the health care costs that Original Medicare doesn't cover (such as copayments, coinsurance, and deductibles). These are "gaps" in Medicare coverage. If you have Original Medicare and a Medigap policy, Medicare will pay its share of the Medicare-approved amounts for covered health care costs. Then your Medigap policy pays its share.


While the federal government provides Parts A and B, private health insurance companies offer Medigap plans. There's a wide variety of Medigap plans to choose from that address services you need that Parts A and B don't cover.


Tip: You can find out which insurance companies sell Medigap policies in your area at Medigap Policy Search and read Viewpoints on Medigap 101: What you need to know


Part D: Prescription drug coverage

Original Medicare and Medigap plans do not provide prescription drug coverage, which means you may want to purchase a Part D plan or a Medicare Advantage plan that includes prescription drug coverage. Enrolling in a Part D plan is not required. However, if you don't enroll in a Part D plan when you first become eligible you may wind up getting penalized financially should you enroll later.


Regardless of the coverage you choose for prescription drugs, it's important to consider the ones that cover the medications you need, how often you need them, and where you purchase them.

Medicare Advantage


This coverage is an alternative to Part A, Part B, and Medigap. Medicare Advantage (which is also called Medicare Part C) is an "all-in-one" managed care plan that provides the coverage you'd find under Original Medicare and Medigap, and can also include Part D prescription drug coverage, vision coverage, or dental care.


Sounds great, right? Well, there's a catch. Medicare Advantage plans provide coverage for what's called "in-network services." Each Medicare Advantage plan works with a network of doctors and health care facilities. Most Medicare Advantage plans require a beneficiary to go through their network for services, but plans vary: For example, while HMOs provide only in-network services, PPOs have a network but allow you to go out-of-network with higher cost sharing.


Tip: If you're considering a Medicare Advantage plan, think about which doctors you see, what your current medical needs are (such as prescription medications) and whether the doctors you now see are in-network for the Medicare plan you're considering. If they aren't in-network, would you mind switching doctors?


3. How do I sign up?

You may know which Medicare coverage you will choose. But how do you go about making it official?


Parts A and B

1.Apply online at Social Security. If you started your online application and have your re-entry number, you can go back to Social Security to finish your application.

2.Visit your local Social Security office.

3.Call Social Security at 800-772-1213 (TTY: 800-325-0778).


Medicare Advantage

There are a few options for signing up for a Medicare Advantage plan. You can enroll during:

  • The same enrollment period for Parts A and B (3 months before the month you turn 65 to 3 months after the month you turn 65).
  • The annual Open Enrollment Period for Medicare Advantage plans, which starts on October 15 and ends December 7. You can also switch or drop a Medicare Advantage plan during this time. To enroll in a Medicare Advantage plan, you must be enrolled in Part A and Part B.
  • The Special Enrollment Period, which depends on your personal situation. The Medicare websiteprovides more details about this kind of period.



How you enroll (an online form, a paper application, over the phone) depends on whether you go through a health insurance company, an agent, or a health insurance marketplace website.



If you are 65 or older, you have a so-called guaranteed issue right within 63 days of when you lose or end certain kinds of health coverage. At this point, companies must sell you a Medigap policy at the best available rate, regardless of your health status. They cannot deny you coverage. You can purchase a Medigap plan through a health insurance company, an agent, or a health insurance marketplace when you are first eligible for Medicare or during the Medicare Open Enrollment Period. Some insurance companies may allow the purchase of a Medigap plan at different times of the year.


Part D

If you're new to Medicare, you might consider enrolling in a prescription drug plan during the Initial 7-month Enrollment Period that begins 3 months before the month you turn 65, depending on your coverage needs. A person enrolled in a Medicare drug plan may owe a late enrollment penalty if they go without Part D or other creditable prescription drug coverage for any continuous period of 63 days or more after the end of their Initial Enrollment Period for Part D coverage. After you enroll, you can always change to a different prescription drug plan during the annual Open Enrollment Period from October 15 to December 7.


4. What do the plans cost?

Bear in mind that you and your spouse will make separate purchasing decisions since all Medicare policies are individual policies.


Part A

As long as you or your spouse or partner paid Medicare taxes for at least 40 quarters (approximately 10 years), Part A coverage is free. But you are still responsible for paying a deductible per each benefit period ($1,364 in 2019), and a daily coinsurance for extended hospital stays.


Individuals who don't qualify for free Part A because they didn't pay Medicare taxes long enough can purchase Part A coverage (in 2019, $437 monthly if you paid Medicare taxes for less than 30 quarters; and $240 monthly if you paid Medicare taxes 30–39 quarters).


Part B

Medicare sets the cost (premium) for Part B each year at a fixed rate for most participants ($135.50 a month for 2019), but it increases for individuals with an annual income over $85,000 and married couples with an annual income above $170,000. The cost for these higher-earning participants can range from $189.60 to $460.50 per month in 2019. Part B premiums also can be higher if you don't enroll when you're first eligible, unless one of the exceptions discussed above applies. A 10% penalty fee per each year you missed enrolling on time is added to the premium—for the rest of your life.


As with Part A, you will pay an annual deductible for Part B ($185 in 2019). And some covered services require that you pay a percentage of the charges or a copayment amount approved by Medicare (which is 20% of costs for many items or services).


If you are already receiving Social Security benefits, payment for your monthly Part B premium is deducted from your Social Security checks. If you're not yet collecting benefits, Social Security will send you a quarterly bill.


Medicare Advantage

Itmes & services not covered by Medicare Part A & Part B: Eye exams and prescription glasses, cosmetic surgery, routine foot care, hearing aids and exams for fitting them, most dental care (including dentures, acupuncture and long-term care (also called custodial care)

Source: What Part A & Part B doesn't cover


When you enroll in a Medicare Advantage plan, you continue to pay premiums for your Part B benefits. Everyone who enrolls in the same Medicare Advantage plan pays the same premium, regardless of age, gender, or health status.


Tip: You can compare Medicare Advantage plans in your area with's Medicare Plan Finder.


Part D

The amount that insurance companies charge for prescription drug coverage differs. The variation is based on how health insurance companies set up their deductibles and copayments, and the brand name and generic drugs (drug formulary) they cover.


For higher income individuals and couples, you'll pay more in monthly premiums for Part D coverage. Premiums (PDF) vary depending on modified adjusted gross income (MAGI) and marital status.


There is also an unpopular feature of all Part D coverage plans known as the "donut hole" (that is, a temporary limit on what Medicare will pay for your prescription drug costs). After you and your plan have spent $3,820 on covered drugs, you enter into the donut hole coverage gap and become responsible for paying a much greater percentage of the cost of each prescription until you reach catastrophic coverage levels under your plan, at which point your cost-sharing responsibility significantly decreases again. In 2019, once you are in the donut hole, you'll pay no more than 25% of the plan's cost for covered branded drugs and 37% of the price of covered generic drugs.


Tip: Compare Part D costs at or your local State Health Insurance and Assistance Programs (SHIP) office.



Although the benefits offered under a Medigap plan are standardized across the country, premiums for these plans vary. If you plan to purchase a Medigap plan, compare costs before you buy one. Medigap policies are priced 3 ways: (1) Community rated (i.e., priced the same for all enrolled in the same Medigap plan); (2) Issue-age rated (based on your age at the time of application); and (3) Attained-age rated (based on your current age and continues to increase as you get older). Bottom line: Your premium varies by the way the insurance company has priced their plan, along with your geographical location, gender, and smoking status.


5. Which plan is right for me?

To figure out which Medicare option is the right one for you, it's always good to start by looking at the coverage you have now with your current health care insurer. What would you keep or change?


Narrow your options by asking yourself:

  • How much can I afford to spend to pay for my insurance (premiums) and to pay for my care (in the form of deductibles, copayments, and coinsurance)?
  • What benefits do I need? (You might save money if you don't buy coverage for benefits you don't mind paying for out of pocket.)
  • Do I want to choose my own doctors or health care providers?
  • Does the plan include coverage for my unique situation? (Paying for emergencies outside your state or country may be important if you plan to travel.)
  • How does the cost of each plan compare with other plans that have the same benefits?



Tip: and your local SHIP office can help you compare plan features and costs for Medigap and Medicare Advantage plans in your state.


6. Where can I go for more help?

Now that you have the answers to some common Medicare questions, you're likely to have more questions. There are good sources of information available that can provide answers:

  • The official Medicare site,, offers several helpful guides and interactive tools to help you compare your options
  • The Social Security site for guidance with Original Medicare
  • Your local SHIP office for free one-on-one help from a SHIP program counselor. Plus, SHIP offices offer additional services, seminars, and publications to help you.



Plan ahead

Having the right Medicare coverage is a key part of your retirement plan—along with your overall health and wellness in retirement. Among the many factors to consider in your Medicare decision: health status, cost, coverage, amount of travel you plan to do, and access to existing or preferred doctors and hospitals. Consider working with a Fidelity financial advisor to explore options and check out the resources listed within this article to learn more.




Midyear $ checkup: 5 things to review now



Key takeaways

  • Review your financial goals—and the investments that go along with them—to see if anything has changed.
  • Get a tax break by saving in tax-advantaged accounts.
  • Protect yourself and loved ones with insurance and important paperwork like wills, health care proxies, and more.



These days you're probably thinking about the beach, the mountains, or a road trip with the family. But summer, when life may be a little slower and your mind a little less cluttered, is actually a good time to do a quick midyear financial reality check.


A midyear checkup can accomplish several things. You can stop and think about your financial goals, such as saving for retirement, a house, a child's education, or a financial cushion, and then make sure that you are investing appropriately for those goals. And while you are looking at your accounts, take care of "housekeeping" items too, like checking beneficiaries, which isn't complicated but can have serious consequences if neglected.


Here are 5 things to do in a midyear review.

1. Review your financial goals

You probably have several savings goals and accounts. Your annual financial review should revisit each of your priorities. If your situation has changed, make adjustments as necessary.


For instance, if you've been saving for a new home or your children's college education, you might want to adjust those goals based on the current real estate market and college tuition costs.


While you're reviewing your finances, it's a good idea to revisit the amount you're saving for retirement. See if you're saving enough already or if you could bump up your savings a bit.


At the same time, check the beneficiaries you've listed on your accounts, no matter what age you are. Your retirement account assets (for instance money in a 401(k) or IRA) pass directly to the beneficiaries you designate with your account custodian, trustee, or plan administrator. Your beneficiary designations supersede any directions in your will for your retirement account—so who you name as beneficiary is important.


You can also name beneficiaries on a regular bank or brokerage account.

Tip: Find out how to update your beneficiaries


2. Check your investments

This is also the time to see what you own, ensure that your investment mix continues to meet your needs, and make any changes that might be necessary due to the past year’s market performance. Start by assessing your mix of stocks, bonds, and cash to see if it still matches your time frame for investing, risk tolerance, and financial situation. You may need to make changes if there have been any big life events since your last portfolio review. It's also a good idea to make sure your investments still align with your target investment mix. In general, if any of your allocations are more than 10% away from your target, you may want to rebalance it back to your desired investment mix. And if you don't have a target investment mix, you can create one in our Planning & Guidance Center.


Then, look at specific investments and evaluate the role of each in your portfolio. If you own mutual funds, see whether they are performing as you expected and if there have been any changes to the fund's investment approach. If you own stock in individual companies, evaluate each company’s current status and prospects, and decide whether they justify keeping it in your portfolio.


3. Get a tax break

A simple way to reduce your taxes is to take advantage of opportunities to lower your taxable income by contributing to tax-advantaged retirement accounts like a 401(k) or IRA. If you have a high deductible health plan (HDHP) eligible for a health savings account (HSA), contributing to the HSA can also give you a tax break. A taxpayer with a marginal tax rate of 24%, for example, could potentially realize a tax savings of $240 for every $1,000 in pre-tax dollars contributed to an HSA, traditional 401(k), 403(b), or IRA.


If you have an HDHP, it can be a good idea to contribute at least enough to your HSA to cover your anticipated health care expenses. If you’re not sure how much your health care expenses may be, it’s a good idea to put in at least enough to cover your deductible. You can always change the contribution amount later if you find you need to. HSA contributions are pre-tax and tax-deductible. When you use money saved in an HSA on qualified medical expenses now or in retirement, the withdrawals—of contributions and any investment returns—are tax-free.


If you have a retirement plan at work, make sure you’re contributing at least enough to get the entire match from your employer. If you can save more, contribute the maximum to your HSA. You can change your HSA contribution at any time. If your HSA is funded for the year and you’ve gotten your match, see if you can save more in your retirement account. For 2019, you can contribute $19,000 of pre-tax dollars to your 401(k) or 403(b). Also, those aged 50 and older may make a catch-up contribution of as much as $6,000, meaning they can contribute $25,000 in total.


Eligible taxpayers can contribute up to $6,000 (or up to the level of earned income, if lower) to a traditional or Roth IRA, or $7,000 if they have reached age 50, for 2019. Self-employed individuals with a simplified employee pension (SEP) plan can contribute 25% of their compensation, to a maximum of $56,000.


If you received a big tax refund or wrote a sizeable check for tax due with your 2018 return, or experienced any life changes, you should evaluate whether you’re having too much or too little in taxes withheld from your pay. The IRS withholding calculator can help you determine how much—if any—of an adjustment to make.


Now may be a good time to see how the new tax laws could impact you next year when you file 2019 taxes. Some tax breaks you got last year may be suspended or reduced in 2019. For instance, the state and local tax deduction is now capped at $10,000 for sales and state and local property taxes or sales and state and local income taxes.


The potential good news is that the standard deduction increased from $12,000 in 2018 to $12,200 for individuals in 2019. For married couples filing jointly, it's up from $24,000 in 2018 to $24,400 in 2019.


4. Protect what's yours

It's wise to evaluate your insurance needs annually to make sure you have the right amount and type of insurance to cover unforeseen circumstances that can derail your finances.


Life insurance may be a good place to start. If your family is growing, you might want to increase the amount of your life insurance to protect your loved ones. Life insurance is mainly designed to replace lost income. As you get older, there are fewer years of income in the future, so the amount of income to replace decreases.


Tip: Estimate your insurance coverage needs with our Term Life Insurance Needs Estimator


If you choose to reduce your life insurance, you could apply the savings toward your retiree health care savings—the cost of health care in retirement continues to increase so it can be a good idea to prepare specifically for those expenses. Fidelity estimates a 65-year-old couple retiring today will spend, on average, $285,000 on out-of-pocket health care costs in retirement.1 If you have an HSA, consider contributing money above and beyond the amount you need for the current year’s health care expenses. Saving and investing in an HSA for the long-term could help you pay for health care expenses in retirement.


You might also benefit from looking into long-term care insurance, which may offer a variety of features and options.


Don't forget disability insurance as well. You may be covered at work. But it’s a good idea to make sure you're adequately covered just in case anything prevents you from working and earning a paycheck for an extended period of time.


Check your insurance beneficiary designations. It's easy to do, but it could have a huge negative impact if it's neglected. For example, if you forget to change the beneficiary after a big life event like a divorce, insurance proceeds could go to the wrong person if anything were to happen to you.


5. Review important paperwork

Thinking about a will, health care proxy, and power of attorney can be an uncomfortable topic, but consider the alternative. Do you want someone else making important financial and health decisions on your behalf without any input from you? If you don't have any of these key documents, take the time to set them up.


If you have them, review your paperwork and think about any life events you’ve been through. Marriage, divorce, birth, and death are the 4 big events that affect estate plans, but there are other factors that could affect your planning.


Make sure the people you care about know where to find relevant documents and information too. Consider using a secure virtual safe like FidSafe®2 to store copies of important documents and other information, such as passwords, financial statements, and wills.

It's worth it


While this might sound like a lot of ground to cover, a midyear checkup is well worth the effort when you consider the hard work you have invested in building and protecting your savings.




Indexed annuities: Look before you leap


Key takeaways

  • An annuity is only as good as the insurance company's ability to honor its commitment to you, so be sure to review the financial strength of the insurance company.
  • Indexed annuities are not considered securities, so they are not regulated by the SEC or FINRA. However, they are regulated by state insurance departments.
  • By imposing caps, participation rates, and spreads, the insurance company can reduce your upside in exchange for guarantees.1



Can you get principal protection and investment growth? That's what indexed annuities promise. But despite their popularity, this complex investment product doesn't always deliver. So, it is important to know exactly what you are buying before taking the plunge—and to consider the alternatives.


What is an indexed annuity?

An indexed annuity is a contract issued and guaranteed1 by an insurance company. You invest an amount of money (premium) in return for protection against down markets; the potential for some investment growth, linked to an index (e.g., the S&P 500® Index); and, in some cases, a guaranteed level of lifetime income through optional riders.


How is the return calculated?

One element of indexed annuities that is often misunderstood is the calculation of the investment return. To determine how the insurance company calculates the return, it is important to understand how the index is tracked, as well as how much of the index return is credited to you.


Index tracking. The amount credited to your account depends, in part, on how much the index changes. Insurance companies use various methods to track changes in the index value. For example, they may use different time periods, such as a month, a year, or even longer periods of time. It is important to understand how the index is tracked, as it will have a direct impact on the return credited to you.


The amount an insurance company credits to you depends on a variety of factors (any of which can potentially be combined), such as:

  • Cap, which is an upper limit put on the return over a certain time period. For example, if the index returned 10% but the annuity had a cap of 3%, you receive only a maximum 3% rate of return. Many indexed annuities put a cap on the return.
  • Participation rate, which is the percentage of the index’s return the insurance company credits to the annuity. For example, if the market went up 8% and the annuity's participation rate was 80%, a 6.4% return (80% of the gain) would be credited. Most indexed annuities that have a participation rate also have a cap, which in this example would limit the credited return to 3% instead of 6.4%.
  • Spread/margin/asset fee, which is a percentage fee that may be subtracted from the gain in the index linked to the annuity. For example, if an index gained 12% and the spread fee was 4%, then the gain credited to the annuity would be 8%.
  • Bonus, which is a percentage of the first-year premiums received that is added to the contract value. Typically, the bonus amount plus any earnings on the bonus are subject to a vesting schedule that may be longer than the surrender charge period schedule.2, 3 Given the typical vesting schedule, the bonus may be entirely forfeited upon surrender in the first few contract years.
  • Riders, which are extra features, such as minimum lifetime guaranteed income, that can be added to the annuity for additional costs, further reducing the return.




"One challenge here is that insurance companies typically have the flexibility to lower the participation rate, increase the spread, or lower the cap, which lowers your potential returns," says Tom Ewanich, a vice president and actuary at Fidelity Investments Life Insurance Company. "If this happens during the surrender charge period after you've invested in the annuity, you have very little recourse."


In addition, an often overlooked point is that for the purposes of the insurance company calculation, an index return excludes dividends, so your return from an indexed annuity will also exclude dividend income. This is important because history indicates that dividends have been a strong component of equity returns over the course of time. Since 1930, dividends have made up approximately 40% of the S&P 500's average annual total return.4


How does a cap impact potential returns?

Let's consider the following chart, which uses a representative indexed annuity with a monthly cap of 1.50% on upside returns.


Over the 10 years ending December 31, 2018, the S&P 500 average annual return was 13.12% (10.75% without dividends), while the indexed annuity returned only 3.53% annually—despite an 8% initial bonus and guaranteed annual floor of 0%.


10-year illustration

Results of monthly point-to-point crediting 
Dec. 2008 to Dec. 2018



S&P 500 Close

S&P 500 Change

Credited Result













































Indexed annuity average earnings


Indexed annuity average earnings including initial bonus


S&P 500 average return


S&P 500 Return with dividends





For illustrative purposes. Rates as of December 2018.

1-year illustration

Results of monthly point-to-point crediting 
Dec. 2017 to Dec. 2018



S&P 500 Close

S&P 500 Change

Credited Result























































Indexed annuity earnings


S&P 500 average return


S&P 500 return with dividends




For illustrative purposes. Rates as of December 2018. 
The indexed annuity annual crediting rate is based on the sum of the monthly changes in the S&P 500 index. Each month's return is capped at 1.5%. A floor of 0% is applied to the annual total. For the 1-year illustration chart, the S&P 500 index returned –4.38% including dividends while the annuity's credited rate is calculated to be 0%.


Taking a deeper dive, over the 10-year period ending December 31, 2018, there were times (2 times in this 10-year period) where the representative indexed annuity provided protection against the negative returns in the US equity markets, but there were many more times (8 times in this 10-year period) where the indexed annuity returned only a small portion of the positive US equity market returns.


Looking at this past year, the annual period ending December 31, 2018, the indexed annuity guarantee provided protection, preventing losses in this past year as the S&P 500 annual return was –6.24%. However, there are 7 years where the S&P 500 significantly outpaces the annuity because of the indexed annuity's cap on upside returns, as highlighted by years ending 2009, 2010, 2012, 2013, 2014, 2016, and 2017 (for these years, the S&P 500 returned 23.45%, 12.78%, 13.41%, 29.60%, 11.39%, 9.54%, and 19.42%) while the indexed annuity returned 0.00%, 0.00%, 2.26%, 9.98%, 3.28%, 0.19%, and 12.55% each year respectively).


As can be seen from this example, with indexed annuities you are giving up equity market return potential in exchange for downside market protection.


In reality, indexed annuity returns are typically comparable to a conservative investment product's returns, and not to the stock market, a stock market index, or stock fund returns.


"Investors often mistakenly think they are investing in the market directly with an indexed annuity and are surprised when their actual return does not measure up," says Tim Gannon, a vice president of product management at Fidelity Investments Life Insurance Company.


How much do they cost?

Indexed annuities typically do not have an up-front sales charge, but there are often significant surrender fees—fees you pay if you need access to your money before the surrender period ends—and other hidden costs. "While indexed annuities are often sold as 'no-fee' products, investors still incur a cost to own these products, by giving up higher returns in exchange for guarantees," explains Gannon. In addition, surrender fees for the 10 top-selling indexed annuities averaged 9% in the first year.5


"Also, indexed annuities have significant opportunity costs that are passed on to customers by the insurance company, by limiting potential returns through a participation rate, cap, or spread," notes Gannon. "That's why it is important to ask your agent to explicitly define how the product works, so you will know up front about any factors that could put a drag on your potential return."


Can you lose money?

The answer, in some cases, is "yes." If the market index linked to your annuity goes down and you receive no or minimal index-linked return, you could lose money on your initial investment if you withdraw assets before the surrender period is up.


"Your principal is protected only if you hold the annuity through the surrender period, which could be 10 years or longer," says Ewanich. "Unfortunately, many investors believe that, regardless of what happens in the market, they get all their money back with these products. But this is not always true."


So what is the minimum amount you might get back? According to state insurance laws, indexed annuities must guarantee a minimum of 1% to 3% interest each year on 87.5% of the premiums you invest,6 depending on prevailing interest rates at the time. So, if you invested $100,000, you might be guaranteed from 1% to 3% a year on $87,500.


What's more, in an effort to attract more customers, these products are offering certain riders for an additional cost. For example, many companies offer a guaranteed living withdrawal benefit at an average cost of nearly 1% that promises a guaranteed withdrawal amount7 for life with upside potential. Because of the indexed annuities' participation rates, spreads, and caps, however, upside potential is generally limited. Be sure to determine whether the benefits outweigh the extra cost.


Does it fit your needs?

"Indexed annuities can be a challenge to understand, so be sure to do your homework," advises Gannon. Depending on what you are looking to address, it may be in your best interest to consider a different type of annuity or a combination of investment products.


For example, for principal protection and market participation, you may benefit from a strategy that invests a portion of your assets in a conservative investment, such as bonds, and the remaining portion of your assets in the stock market, for upside potential.


"A financial representative can help you build a comprehensive plan that takes into account your specific needs and objectives," says Gannon.




Social Security tips for couples

See 3 ways that may help married couples boost their lifetime benefits.


Key takeaways

  • A couple with similar incomes and ages and long life expectancies may want to consider maximizing lifetime benefits by both delaying their claim.
  • For couples with big differences in earnings, consider claiming the spousal benefit, which may be better than claiming your own.
  • A couple with shorter life expectancies may want to consider claiming earlier.



Married couples may have some advantages when deciding how and when to claim Social Security. Even though the basic rules apply to everyone, a couple has more options than a single person because each member of a couple1 can claim at different dates and may be eligible for spousal benefits.


Making the most of Social Security requires some strategy to take advantage of the basic benefit rules, however. After you reach age 62, for every year you postpone taking Social Security (up to age 70), you could receive up to 8% more in future monthly payments. (Once you reach age 70, increases stop, so there is no benefit to waiting past age 70.) Members of a couple may also have the option of claiming benefits based on their own work record, or 50% of their spouse’s benefit. For couples with big differences in earnings, claiming the spousal benefit may be better than claiming your own.


What's more, Social Security payments are guaranteed for life and should generally adjust with inflation, thanks to cost-of-living increases. Because people are living longer these days, a higher stream of inflation-protected lifetime income can be very valuable.


But to take advantage of the higher monthly benefits, you may need to accept some short-term sacrifice. In other words, you'll have less Social Security income in the first few years of retirement in order to get larger benefits later.


"As people live longer, the risk of outliving their savings in retirement is a big concern," says Ann Dowd, a CFP® and vice president at Fidelity. "Maximizing Social Security is a key part of how couples can manage that risk."


A key question for you and your spouse to discuss is how long you each expect to live. Deferring when you receive Social Security means a higher monthly benefit. But it takes time to make up for the lower payments foregone during the period between age 62 and when you ultimately chose to claim, as well as for future higher monthly benefits to compensate for the retirement savings you need to tap into to pay for daily living expenses during the delay period.


But when one spouse dies, the surviving spouse can claim the higher monthly benefit for the rest of their life. So, for a couple with at least one member who expects to live into their late 80s or 90s, deferring the higher earner's benefit may make sense. If both members of a couple have serious health issues and therefore anticipate shorter life expectancies, claiming early may make more sense.


How likely are you to live to be 85, 90, or older? The answer may surprise you. Longevity has been steadily increasing, and surveys show that many people underestimate how long they will live. According to the Social Security Administration (SSA), a man turning 65 today will live to be 84.3 on average and a woman will live to be 86.6 on average. For a couple at age 65, the chances that one person will survive to age 85 are more than 75%. Further, the SSA estimates that 1 in 4 65-year-olds today will live past age 90, and 1 in 10 will live past age 95.2


Tip: To learn about trends in aging and people living longer, read Viewpoints on Longevity and retirement


Strategy No. 1: Maximize lifetime benefits

A couple with similar incomes and ages and long life expectancies may maximize lifetime benefits if both delay.

How it works: The basic principle is that the longer you defer your benefits, the larger the monthly benefits grow. Each year you delay Social Security from age 62 to 70 could increase your benefit by up to 8%.

Who it may benefit: This strategy works best for couples with normal to high life expectancies with similar earnings, who are planning to work until age 70 or have sufficient savings to provide any needed income during the deferral period.

Example: Willard's life expectancy is 88, and his income is $75,000. Helena's life expectancy is 90, and her income is $70,000. They enjoy working.

Suppose Willard and Helena both claim at age 62. As a couple, they would receive a lifetime benefit of $1,100,000. But if they live to be ages 88 and 90, respectively, deferring to age 70 would mean about $250,000 in additional benefits.

This chart explains potential benefits of claiming Social Security later in life.

All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 88 and 90 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.


Strategy No. 2: Claim early due to health concerns

A couple with shorter life expectancies may want to claim earlier.

How it works: Benefits are available at age 62, and full retirement age (FRA) is based on your birth year.

Who it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.

Example: Carter is age 64 and expects to live to 78. He earns $70,000 per year. Caroline is 62 and expects to live until age 76. She earns $80,000 a year.

By claiming at their current age, Carter and Caroline are able to maximize their lifetime benefits. Compared with deferring until age 70, taking benefits at their current age, respectively, would yield an additional $113,000 in benefits—an increase of nearly 22%.

This chart explains that a couple with a shorter life expectancy may want to claim Social Security early.

All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 78 and 76 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.


Strategy No. 3: Maximize the survivor benefit

Maximize Social Security—for you and your spouse—by claiming later.

How it works: When you die, your spouse is eligible to receive your monthly Social Security payment as a survivor benefit, if it's higher than their own monthly amount. But if you start taking Social Security before your full retirement age (FRA), you are permanently limiting your partner's survivor benefits. Many people overlook this when they decide to start collecting Social Security at age 62. If you delay your claim until your full retirement age—which ranges from 66 to 67, depending on when you were born—or even longer, until you are age 70, your monthly benefit will grow and, in turn, so will your surviving spouse's benefit after your death. (Get your full retirement age)

Who it may benefit: This strategy is most useful if your monthly Social Security benefit is higher than your spouse's, and if your spouse is in good health and expects to outlive you.

Example: Consider a hypothetical couple who are both about to turn age 62. Aaron is eligible to receive $2,000 a month from Social Security when he reaches his FRA of 66 years and 6 months. He believes he has average longevity for a man his age, which means he could live to age 85. His wife, Elaine, will get $1,000 at her FRA of 66 years and 6 months and, based on her health and family history, anticipates living to an above-average age of 94. The couple was planning to retire at 62, when he would get $1,450 a month, and she would get $725 from Social Security. Because they’re claiming early, their monthly benefits are 27.5% lower than they would be at their FRA. Aaron also realizes taking payments at age 62 would reduce his wife's benefits during the 9 years they expect her to outlive him.

This chart shows how waiting to claim may increase the Social Security survivor benefit.

All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 85 and 94 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.


If Aaron waits until he's 66 years and 6 months to collect benefits, he'll get $2,000 a month. If he delays his claim until age 70, his benefit—and his wife's survivor benefit—will increase another 28%, to $2,560 a month. (Note: Social Security payout figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.)

Waiting until age 70 will not only boost his own future cumulative benefits, it will also have a significant effect on his wife's benefits. In this hypothetical example, her lifetime Social Security benefits would rise by about $69,000, or 16%.

Even if it turns out that Elaine is overly optimistic and she dies at age 90, her lifetime benefits will still increase approximately 34% and she would collect approximately $129,000 more in Social Security benefits than if they had both claimed at 62 (vs. both waiting until age 70 to claim Social Security).

In situations where the spouse's Social Security monthly benefit is greater than their partner's, the longer a spouse waits to claim Social Security, the higher the monthly benefit for both the spouse and the surviving spouse. For more on why it's often better to wait until at least your FRA before claiming Social Security, read Viewpoints on Should you take Social Security at 62?


In conclusion

Social Security can form the bedrock of your retirement income plan. That's because your benefits are inflation-protected and will last for the rest of your life. When making your choice, be sure to consider how long you may live, your financial capacity to defer benefits, and the impact it may have on your survivors. Consider working with your Fidelity financial advisor to explore options on how and when to claim your benefits.




Tips for raising a saver

Start teaching kids about money early with our age-appropriate lessons.



Key takeaways

  • Encourage good habits in children in age-appropriate ways.
  • Money lessons can start as early as age 3 with a small, regular allowance.
  • As children get older, reward good choices to reinforce your lessons.


Will your children be smart about money? The answer depends a lot on you.


Many people get their money values from their parents. That’s why it can be important for parents to teach by example, and talk with their kids about money at an early age. "Handing children money without showing them what to do with it can set them up for bigger money mistakes later in life," says Ann Dowd, CFP®, a vice president at Fidelity.


It is possible to instill smart money values in children starting at a young age. Here are some strategies for each stage of a child’s development that can help you raise a money-smart child.


Ages 3 to 6: Make saving a visual experience

You may think that teaching money values to a 3-year-old child is an exercise in futility, but experts suggest otherwise. The more you can "show" children things related to money, the more they will absorb. "It's very difficult for young children to delay gratification," says Ian Gotlib, David Starr Jordan professor of psychology at Stanford University. "So you have to be creative about teaching them to save. The key is to make saving visual and very concrete."


Ages 3-6: Eye on the prize. Use a clear, childproof jar for saving, with a line marked, and tell your children to fill the jar with their own money in order to get a specific toy.Young children can understand having a goal and making progress toward it—as long as they can see it happen. You might begin by giving them a small, regular allowance. Giving children an allowance can help teach them to manage their own money. But, it depends on how and when you do it. "If you give a young child a dollar and then walk away, you've taught her that she'll get the money handed to her for nothing," Gotlib says.


Instead, ask what they want to do with the money. With young children, consider having them put the money in a piggybank, where they can see it accumulate, or let them use it to buy something. That way they can start to understand, in a broad sense, that money can get them what they want. "Those principles can help build a foundation for more serious saving later on," Gotlib says.


Eye on the prize

Another idea is to use a clear jar for saving, with a line marked on the side, and tell your child to fill the jar up to that line with their own money in order to get a specific toy. Better still, put a picture of the toy on the jar as an incentive. Each time your child puts money in the jar, he or she can see the progress toward a goal. The idea is to connect the buildup of money to the desired toy.


Ages 7 to 10: Learn through trial and error


Ages 7-10: Time for trade-offs. If your child chooses to buy something less expensive and less desirable now, rather than waiting for the bigger prize, consider letting them do it.At this point, your children are starting to understand what money can buy, and are learning the value of coins and bills, but they may still need visual aids to help them save. Gotlib says it’s a good idea to stick with the savings jar, but increase the number, perhaps giving your child one for day-to-day spending, another for big-ticket items, and a third for charity. Using these different jars continues to encourage goal setting, and starts to introduce the idea that there are different things kids can do with their money.


What’s more, since your kids are starting to learn what things cost, it’s a good time to introduce the idea of "needing enough money," and waiting until you have it. Take your child shopping and talk about how you don’t have enough money to buy an item now, but will be able to purchase it after you save more money. "Kids learn by modeling what their parents do," says Gotlib, "so if you can model a delay in spending, they’ll get the message."


Time for trade-offs

Try letting your children experience "not having enough money yet" on their own. Let them pick out something special at a store, something they can’t afford at the moment, and demonstrate that in 3 weeks, for example, if they save their entire allowance, the item they want can then be purchased. If your child chooses to buy something less expensive and less desirable now, rather than waiting for the bigger prize—consider allowing it. This can be a valuable lesson in trade-offs: If you spend now rather than save, you might not get what you really want later.


Ages 11 to 14: Show a variety of purposes for money

Make a match. Try picking a point at which to match what your child saves, laying the groundwork for more disciplined saving later in life.By this time, children are generally old enough to understand that money can have multiple uses. They need to understand that money can be saved for the long term (such as for a college education), stashed aside for emergencies or a rainy day, donated to those in need, and, of course, spent on things they want.


Try teaching your kids the value of money through a “bucketing strategy.” This means putting a certain amount of money away for different purposes. They might have short-term goals such as buying a new phone or donating to charity, and longer-term goals like saving for a car. "A bucketing strategy can help you teach kids that saving isn’t meant for ‘leftover’ money," Dowd says. "In fact, saving should ideally come before any discretionary spending."


Sit down together and plan how much of your children’s money (whether it’s their allowance or money they’ve earned) will go into each bucket. Choose a good place to put the money. A piggy bank or jar at home might still be a great place for short-term saving goals because it can reinforce the visual aspect of saving, and this money probably won’t have enough time to earn any appreciable interest.


For your child’s longer-term goals (e.g., a car or personal computer), consider opening an account that earns compound interest or one that allows investments. To illustrate the benefit of letting money grow and the power of compound interest, run an experiment: Put the same amount of money into the piggy bank and the investment account for several months. Then compare the amount in each.


And, to keep those savings growing, your child should make a habit of putting at least part of any money received for birthdays, holidays, and special occasions into a savings account.


You could take it a step further by introducing the concept of long-term savings versus short-term by opening a Roth IRA on behalf of your child. As they earn money from chores or an after-school job, a portion of their savings could be earmarked for the distant future, while money meant to be spent in the next few years could be put into a savings account or another short-term option.


Make a match


Reward good saving habits! Children of all ages and young teens may not find saving as rewarding as spending all their money, so try picking a point at which to match what your child saves. For example, if your kid’s goal is to save $20, you could add an additional amount to the savings once the goal is reached. This might lay the groundwork for more disciplined savings later in life when, say, your child reaches adulthood, and potentially earns a company match through a 401(k) plan.

Ages 15 to 18: Keep track

Ages 15-17: Try new tools. You might help set up an online budget for your tech-savvy teen through which he or she can track and adjust it with a click.

With college on the horizon, you need to set the foundation for budgeting. While children may not be financially independent in college, they will likely have to manage their own money to a certain extent. One way to do that may be through an after-school or weekend job. "Kids may be more careful with what they’ve earned than with money that is just handed to them," says Gotlib.

Learning how to budget is a matter of building off what the child has learned up to this point:

  • Money is a means to an end.
  • Money has different purposes.
  • There are always trade-offs.


Keep it simple. Help your child write a list of what they have to pay for with their own money and assign a cost to each item (gas, clothing, entertainment). Split the list into needs and wants, and then have your child try living on what they have budgeted for a few months as a "trial run" before college. Build saving into the budget, which may help kids see how money may grow over time and even learn some of the basics of investing.


Try new tools

High school kids are tech savvy, so put budgeting on their terms. Help set up an online budget that they can track and adjust with a click of the mouse. Or, create a simple budget spreadsheet showing your child’s income and expenses, and have them update and track the numbers each month as they spend and save money.


To raise a saver, you should model good financial habits and understand how to motivate your child at different ages. Above all, since children learn by doing, let them have real money experiences—whether it’s setting a goal and saving for it or making the mistake of overspending and learning from it. These life lessons are priceless when they translate to a financially comfortable future.




IRS budget cuts cost $34.3B in lost revenue from big business

By Michael Cohn


A series of budget cuts at the Internal Revenue Service has led to an estimated $34.3 billion in lost tax revenue from large companies, according to a new study.


New research from the Indiana University Kelley School of Business backs up previous statistics indicating that the IRS is auditing fewer tax returns from corporations because it has fewer people and resources available to identify potential errors and follow up on questionable tax returns. However, the researchers say this is the first study to actually quantify the amount of corporate tax revenue lost during the audit process per dollar of IRS budget cuts.


"We're quantifying the effect of budget cuts on collections by trying to better understand how cuts impact the entire enforcement process — from audit rates to ultimate settlements between taxpayers and tax authorities," stated Casey Schwab, an associate professor of accounting at Kelley.


The research study, "How do IRS resources affect the corporate audit process?" is slated to be published by The Accounting Review, a journal from the American Accounting Association. It uses IRS audit data from 2000 through 2010 of large, public corporations. The professors estimate the IRS could have collected an extra $34.3 billion from just this subsample of companies with relatively little in extra overall resources from Congress. The $34.3 billion estimate accounts for approximately 19.3 percent of the estimated corporate tax gap from 2002 through 2014.


In recent years, especially since the passage of the Tax Cuts and Jobs Act at the end of 2017, Congress has appropriated more funding for the IRS to implement the new tax law, as well as deal with issues such as taxpayer identity theft, taxpayer service and computer modernization. However, relatively little funding has been designated for increasing IRS tax audits, even though audits and examinations more than pay for themselves.


"The scope of the audits is substantially reduced," Schwab said in a statement. "The IRS has fewer resources to actually dig into the details. While the IRS appears to still target the most aggressive positions, they can't audit as many positions within the return. They just don't have the resources."


When adjusted for inflation, the 2019 IRS budget of $11.3 billion is less than in 2000 and 19 percent beneath its highest level of funding in 2010, according to the Government Accountability Office. The agency now has 21 percent fewer employees than it did eight years ago. Meanwhile, the number of examiners has declined by 38 percent since 2010.


"Given the continued cuts to the IRS budget, the amount of lost tax revenue from public companies could be even higher than what we estimate," stated Bridget Stomberg, also an associate professor of accounting at Kelley. She jointly conducted the study with Schwab, along with Michelle Nessa, an assistant professor at Michigan State University, and Erin Towery, an associate professor at the University of Georgia and an academic research consultant to the IRS.

The researchers believe their study should be of interest to lawmakers when Congress weighs the amount of funding to appropriate to the IRS, particularly as the IRS faces further resource constraints as a result of the new responsibilities of implementing not only the Tax Cuts and Jobs Act, but also the more recent Taxpayer First Act, which promises to reform many of the practices of the IRS, including the appeals process.


"By eliminating the role of the IRS, you're effectively reducing corporate tax burdens. On the one hand, this could be used to spur economic growth," Schwab stated. "On the other hand, there's a notion that everyone should pay their fair share. The IRS is fundamental in preventing businesses from engaging in transactions that aggressively reduce their tax liability."




The most common tax problems for 2020

By Ralph Carnicer


We’re roughly halfway through 2019, which means the 2020 tax season will soon be upon us. But rather than wait until next March or April to think about their tax returns, taxpayers — and their advisors — should proactively consider some of the challenges that they could face.


While it’s been more than a year since the Tax Cuts and Jobs Act went into full effect, many Americans are still relatively uncertain of how these changes impact them. The 2020 tax season could be the season that we see old problems resurface and a set of new issues emerge.


Here are some of the common tax problems of 2020 that we should all be aware of.


The individual mandate penalty


Almost all of the Tax Code changes stemming from the Tax Cuts and Jobs Act went into effect during 2018. However, a few didn’t become active until this year. The change to the shared responsibility payment is one of these.

The shared responsibility payment, which is commonly referred to as the individual mandate penalty, was previously introduced under the Affordable Care Act. It essentially required people to have some form of health insurance (Obamacare, private or otherwise). If a taxpayer couldn’t prove they had health insurance, they owed a penalty with their taxes.

Starting with the 2020 tax season (fiscal year 2019), there’s no longer a federal penalty. However — and this is where the confusion exists — there are still some state-based penalties. For example, New Jersey, Massachusetts and Washington, D.C., all still have some form of penalty in place. Taxpayers will need to be cautious in this regard and do their research.


Changes to HSA contribution limits

In addition to increasing the amount of money taxpayers can contribute to qualifying retirement plans, health savings accounts are also getting a tiny boost this year. For those with high-deductible policies that qualify under HSA guidelines, the changes are as follows:

  • Self-only coverage: now $3,500 (up from $3,450 in 2018); and,
  • Family coverage: now $7,000 (up from $6,900 in 2018).

Again, these slight adjustments won’t make anyone rich, but they are worth noting and could cause some confusion come April 2020.

The medical expense deduction threshold

There’s been a lot of back and forth regarding the threshold for deductible medical and dental expenses over the past decade. In 2010, the Affordable Care Act raised the number from 7.5 percent to 10 percent of adjusted gross income. This made it a lot more difficult for people to qualify.

Then came the Tax Cuts and Jobs Act, which brought the threshold back down to 7.5 percent in 2017 and 2018. Unfortunately, it’s returning to 10 percent this year.

What does all of this mean? Basically, if a taxpayer plans on itemizing in 2019, their unreimbursed medical and dental expenses need to exceed 10 percent of their adjusted gross income in order to qualify as a deduction.


Confusion over alimony deduction

The elimination of the alimony deduction is another one of the Tax Cuts and Jobs Act changes that starts this year. This means that alimony payments tied to any divorce or separation agreement that’s made this year or thereafter will not be deductible. For some taxpayers, this is a pretty significant change that could cost thousands of dollars.

6. Failure to report all income


Reporting income used to be a pretty straightforward process. Most people were either W-2 employees or self-employed with one or two 1099s. But as the gig economy has expanded, more and more taxpayers have three, four or five different streams of taxable income that nobody else is reporting. Expect to see less-organized taxpayers fail to report all of their income in 2020. Some of this will go undetected, while others will get slapped with penalties.


No quarterly estimated taxes

With more freelancers than ever before, this also means more taxpayers will be required to pay quarterly estimated taxes for the 2019 tax year. Unfortunately, some people are not aware they have to do this, or don’t know how and when to make their payments.

A failure to pay quarterly estimated taxes does a couple of things. First, it leaves the taxpayer with a massive tax bill come April. Second, it can actually trigger late fees and interest on top of the base tax figure. For high earners, this could amount to thousands of dollars in additional taxes.

The IRS has a pretty good resource on self-employment and how to pay taxes. It explains who is required to pay quarterly taxes, how to make the payments, when to submit the payments, and how these payments impact the annual return. Freelancers and self-employed professionals should read it to ensure they don’t run into problems come April.


Underpaying estimated tax payments

Making quarterly estimated tax payments on time is only half the battle. For inexperienced freelancers, underestimating the amount of taxes they owe is another huge problem.

As the name suggests, quarterly tax payments are estimates of what a taxpayer thinks they’ll earn over the course of a given year. In order to accurately estimate their tax burden, they must keep meticulous records and run calculations to generate a ballpark estimate. It’s OK if they slightly underpay, but it’s much better if they slightly overpay. This ensures they end up getting a small amount of money back in April (as opposed to forking over even more money).

While every taxpayer has different earnings and deductions, it’s a good rule of thumb for most taxpayers to set aside somewhere between 22 and 25 percent of every payment into a savings account that’s explicitly reserved for making payments throughout the year.


Failure to file on time

Finally, there’s the problem of not filing taxes on time. For most people, this seems like a pretty black-and-white issue, but 20 percent of people continue to file their taxes late. As a result, they face penalties, fees and other inconveniences. Expect this problem to continue in 2020.




IRS sends second round of warnings to cryptocurrency investors

— Lynnley Browning, Bloomberg News

Some cryptocurrency investors are receiving a new round of letters from the Internal Revenue Service telling them that their federal tax returns don’t match the information received from virtual currency exchanges, a new front in the agency’s burgeoning scrutiny of the industry.


The letters acknowledge that trading exchanges, not the taxpayers, may have made the errors.


The letters are a fresh signal that the IRS is increasing its focus on cryptocurrency tax compliance, after first being slow to stay abreast of the growing industry.


The agency’s top criminal chief has described digital and virtual currencies as a “significant threat” to tax collection and said the agency will soon announce criminal tax evasion cases.


In 2017, the IRS won a landmark lawsuit that required digital currency exchange Coinbase to hand over data on customers who bought or sold at least $20,000 in cryptocurrency from 2013 to 2015.


The letters, which accountants say clients began receiving in recent weeks, are in addition to mailings the IRS began sending in late July to more than 10,000 investors warning that they may owe taxes on cryptocurrency transactions.


Some letters told recipients that they may be unaware of their tax obligations and urged them to file amended or delinquent returns. A harsher version gave other recipients a deadline to respond in writing and disclose crypto dealings from 2013 through 2017.


Unlike its release of the three letter types, the IRS didn’t formally announce its mailing of the latest letters. Instead, a page about what the latest letters mean and require appeared on the agency’s website.


“We received information from a third party (such as employers or financial institutions) that doesn’t match the information you reported on your tax return,” the website says. It adds that “this discrepancy may cause an increase or decrease in your tax, or may not change it at all.”


The latest letters are “unusual, because they are targeting a class of investors,” said Timothy Speiss of EisnerAmper LLP’s personal wealth advisers practice. “The first volume of letters I call ‘warning’ letters. Now it’s the IRS saying, we’ve got the records.”


A spokesman for the IRS, who requested anonymity because of agency rules, said that the latest letters will go out to a taxpayer any time the agency detects a mismatch between the trading profits or losses that taxpayers report on their returns and what third parties report to the IRS through forms known as 1099-B.


The person declined to say how many crypto taxpayers had received the latest letter, but added that they typically go out one or two years after a taxpayer has filed a return.


The IRS deemed crypto assets to be property rather than currency in 2014, the last time its only substantive guidance came out. That means the agency taxes crypto profits and losses like those for stocks, at capital gains rates.


IRS Commissioner Charles Rettig has promised further guidelines about how to record cryptocurrency transactions on tax returns. Accountants have said that the lack of official rules from the agency has meant many crypto investors and their tax advisers frequently have to guess at how to comply with the law and pay all the tax they owe.





The ABCs of 529 savings plans



Key takeaways

  • Alleviate the impact on financial aid.
  • Be more flexible thanks to fewer account restrictions.
  • Control the money and choose among many investment options.


Whether you've got toddlers, teenagers, or even grandchildren, one thing is certain: Paying for college seems to get more expensive every year. Given that the average annual cost (tuition, fees, and room and board) for a 4-year, in-state public college is $21,370 for the 2018—2019 tuition year, and $48,510 per year for a 4-year private college,1 it's no surprise that college expenses can be overwhelming.


Footing college bills these days often takes every source of potential funding available to a parent, and there may be no better place to start than by opening and contributing to a 529 savings plan account. Why? The restrictions are few, and the potential benefits can be significant for the account holder, including certain tax advantages, potential minimal impact on the financial aid available to the student, and control over how and when the money is spent.


What's more, tax reform law expanded the value of 529 plans. Now you are able to spend up to $10,000 per beneficiary per year on elementary or high school tuition expenses from a 529 plan.2

Understanding the ins and outs of a 529 savings plan may help you unlock one of the biggest bangs for your education-savings buck.


A 529 savings account offers many advantages

While there are several ways to save for college—such as opening a custodial account (Uniform Gifts to Minors Act [UGMA]/Uniform Transfers to Minors Act [UTMA] account), a Coverdell Education Savings Account (ESA), or even setting money aside in a taxable account (see the detailed chart below)—the potential advantages of a 529 savings plan may help you save for your child's education.


529 savings plans are flexible, tax-advantaged accounts designed specifically for education savings.


You can take withdrawals from a 529 plan to pay for qualified education expenses at the elementary through high school levels, or for college-level and beyond.


At the college or graduate level, funds from a 529 plan can be used for tuition, fees, books, supplies, approved study equipment, and room and board for a full-time student at an accredited institution.


When 529 funds are used for these qualified purposes, there is no federal income tax on investment gains (no capital gains tax, ordinary income tax, or Medicare surtax).


Typically, a parent or grandparent opens the account and names a child or other loved one as the beneficiary. Each plan is sponsored by an individual state, often in conjunction with a financial services company that manages the plan, although you don’t have to be a resident of a particular state to invest in its plan.


The ABCs of 529 plan benefits to consider:

A. Alleviate the impact on financial aid

Many families worry that saving for college will hurt their chances of receiving financial aid. But, because 529 savings plan assets are considered parental assets, they are factored into federal financial aid formulas at a maximum rate of about 5.6%. This means that only up to 5.6% of the 529 assets are included in the expected family contribution (EFC) that is calculated during the federal financial aid process. That's far lower than the potential 20% rate that is assessed on student assets, such as assets in an UGMA/UTMA (custodial) account. Learn more about how the EFC is calculated.


"This lower rate means that every dollar saved in a 529 college savings plan can go a long way toward helping to pay for college without significantly affecting financial aid for the student," says Melissa Ridolfi, vice president, Retirement and College Leadership at Fidelity Investments.


How do college savings plans compare?


*For 529 accounts only, the new beneficiary must have one of the following relationships to the original beneficiary: 1) a son or daughter; 2) stepson or stepdaughter; 3) brother, sister, stepbrother, or stepsister; 4) father or mother or an ancestor of either; 5) stepfather or stepmother; 6) first cousin; 7) son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; or 8) son or daughter of a brother or sister. The spouse of a family member (except a first cousin's spouse) is also considered a family member. However, if the new beneficiary is a member of a younger generation than the previous beneficiary, a federal generation-skipping tax may apply. The tax will apply in the year in which the money is distributed from an account. 
†In order for an accelerated transfer to a 529 plan (for a given beneficiary) of $75,000 (or $150,000 combined for spouses who gift split) to result in no federal transfer tax and no use of any portion of the applicable federal transfer tax exemption and/or credit amounts, no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary may be made over the 5-year period, and the transfer must be reported as a series of 5 equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If the donor fails to survive the 5-year period, a portion of the transferred amount will be included in the donor's estate for estate tax purposes. 

‡For 529 savings plans, contributions are considered revocable gifts; owner controls the account; child is the beneficiary. For UGMA/UTMA accounts, contributions are considered irrevocable gifts; distributions must be used for minor; custodian controls the account until it is transferred to the minor at the age of majority. For Coverdell accounts, contributions are considered irrevocable gifts; account owner controls the account; child is beneficiary.


One important caveat is the difference in treatment if someone other than the parents or student—such as a grandparent—owns the 529 plan. In that case, while these 529 savings are not reported as a student asset on the Free Application for Federal Student Aid (FAFSA), any distribution from this 529 plan is reported as income to the beneficiary, potentially resulting in a significant reduction in eligibility for need-based aid the following year. Consider using funds in a 529 plan owned by a nonparent for the last year of college, after the last financial aid forms are filed.


B. Be more flexible

In many ways, a 529 college savings plan has fewer restrictions than other college savings plans. These plans have no income or age restrictions and the upper limit on annual contributions is typically about $300,000 (varies by state). The Coverdell ESA limits contributions to $2,000 annually and restricts eligibility to those with adjusted gross income of $110,000 or less if single filers, and $220,000 or less if filing jointly.


Anyone can open and fund a 529 savings plan—parents, grandparents, other relatives and friends. You can even open one.


C. Control the money and choose among many investment options

Unlike a custodial account that eventually transfers ownership to the child, with a 529 savings plan, the account owner (not the child) calls the shots on how and when to spend the money. Not only does this oversight keep the child from spending the money on something other than college, it allows the account owner to transfer the money to another beneficiary (e.g., a family member of the original beneficiary) for any reason. For example, say the original child for whom the account was set up chooses not to go to college—or doesn't use all the money in the account—the account owner can then transfer the unused money to another named beneficiary.


Each 529 savings plan offers its own range of investment options, which might include age-based strategies; conservative, moderate, and aggressive portfolios; or even a mix of funds from which you can build your own portfolio. Typically, plans allow you to change your investment options twice each calendar year or if you change beneficiaries.


"Whatever age-based portfolio you choose, the first step in the process is defining the investment objective," says Chris Pariseault, institutional portfolio manager for the Fidelity-managed 529 plans. "With appropriate, age-based investments, the objective is to grow the assets while maintaining an age-appropriate balance between risk and return."


Think carefully about how you invest your savings. A strategy that's too aggressive for your time frame could put you at risk for losses that you might not have time to recoup before you need to pay for college. Being too conservative can also be a risk because your money might not grow enough to meet costs.


"This is where an age-based strategy may really help people who don't want to actively manage their investments, because it maintains a mix of assets based on when the beneficiary is expected to start college, and rolls down the risk as that time gets closer," says Ridolfi.


Potential tax benefits

If your 529 is used to pay for qualified education expenses, no federal income taxes are owed on the distributions, including the earnings. This alone is a significant benefit, but there are other tax benefits as well.


A 529 savings plan may offer added estate planning benefits. "Any contributions made to a 529 savings plan are considered 'completed gifts' for estate tax purposes, so they come out of your taxable estate, even though the account remains under your control," Ridolfi says.


Gifts to an individual above $15,000 a year typically require a form to be completed for the IRS, and any amount in excess of $15,000 in a year must be counted toward the individual's lifetime gift-tax exclusion limits (the federal lifetime limit is $11,400,000 per individual). With a 529 plan, you could give $75,000 per beneficiary in a single year and treat it as if you were giving that lump sum over a 5-year period.3 This approach can help an investor potentially make very large 529 plan contributions without eating into their lifetime gift-tax exclusion. Of course, you could make additional contributions to the plan during those same 5 years, but these contributions would count against your lifetime gift-tax exclusion limit. Consider talking with a tax advisor if you plan to make contributions exceeding $15,000 a year.


Dispelling 529 plan myths

Here are 4 common myths, and actual truths, about 529 college savings plans:

1.If I don't use my 529 savings plan savings for education, I lose the money. 
Actually, the money is still yours, but you'll pay both a 10% penalty and ordinary income taxes on the earnings if you don't spend it on qualified higher education costs. To avoid these penalties, you could transfer the account to another beneficiary who plans to go to college. "Also, if a child gets a scholarship and you don’t need all the money for college, you pay only ordinary income taxes on the earnings portion of the money you take out to offset the scholarship, not the penalty," Ridolfi says.


2.I can only invest in my own state's plan. 
Not true. Most plans have no state residency requirements for either the account owner or the beneficiary. Also, most plans have no restrictions on where (which state) you can go to college. It's important to note, however, that some state plans have extra fees for nonresidents that you should consider before deciding to invest with that plan.


3.The federal tax benefits associated with a 529 college savings plan will eventually disappear. 
The Pension Protection Act of 2006 indefinitely extended the federal tax-free qualified withdrawals on 529 college savings plan savings.


4.Once I choose a 529 college savings plan and its underlying investments, I am locked in and cannot make changes. 
Actually, you are typically allowed to roll your 529 account savings over to another college savings plan. Additionally, you are allowed to change investments within your plan twice per calendar year or when you change beneficiaries.


Who may want to consider a 529?

Anyone with children or grandchildren likely going to college, whether they are babies or teenagers, may want to consider investing in a 529 savings plan account. The sooner you start, the longer you have to take advantage of the tax-deferred growth and generous contribution limits.


Investors also may want to consider setting up regular, automatic contributions to take advantage of dollar cost averaging—a strategy that can lower the average price you pay for fund units over time and can help mitigate the risk of market volatility. Besides, many investors don't have the financial capacity to make meaningful, lump sum contributions to a 529 college savings plan.


"It cannot be stressed enough that asset allocation cannot solve poor savings behavior," Pariseault says. "Regular, disciplined saving is the most important factor in growing the amount you put away for college."


Being smart about the way you save for college also means being mindful of your other financial priorities. "Fidelity believes that retirement saving should be a priority, because while you can't borrow money to pay for retirement, you can for college," Ridolfi says. Still, if college saving is among your financial goals, choosing to invest in a 529 savings plan may be one of the most educated decisions you can make to help pay for qualified college costs.




IRS adds more countries to information exchange lists

By Michael Cohn


The Internal Revenue Service issued a revenue procedure Tuesday adding one country, Georgia, a former Soviet republic that’s located between Europe and Asia, to the list of countries with which the U.S. has in force an information exchange agreement so that interest paid to the residents of those jurisdictions must be reported by payors.


Revenue Procedure 2019-23 adds Georgia to the list of countries as required under the Nonresident Alien Deposit Interest Regulations.


The revenue procedure also adds two other jurisdictions — Curaçao, a Dutch Caribbean island, and Cyprus, an island republic in the East Mediterranean, to the list of jurisdictions with which the Treasury and the IRS have decided that it’s appropriate to have an automatic exchange relationship with respect to bank deposit interest income information under those regulatory provisions.


The revenue procedure also includes a list of the other jurisdictions where the deposit interest reporting requirement applies, along with a list of jurisdictions where the Treasury and the IRS have determined that automatic exchange of deposit information is appropriate.


The regulations go back to 2012 and have been updated over the years in an effort to discourage people and businesses from hiding their income in jurisdictions where they can avoid paying taxes.




Deutsche Bank has tax returns sought by House Democrats

By Chris Dolmetsch


Deutsche Bank AG confirmed that it has tax returns requested by U.S. lawmakers seeking financial information for President Donald Trump and his family. Whose returns are those? That’s still a secret.


The disclosure was made by the bank in a letter filed Tuesday in response to a question from an appeals court. The panel is considering a request from Trump to block access to financial records at Deutsche Bank and Capital One Financial Corp. subpoenaed by House Democrats. In a separate letter, Capital One said it does not possess the tax returns being sought.


The appellate judges had asked if the banks actually had the records. Deutsche Bank and Capital One declined to answer the question in open court, citing laws and customer privacy agreements, but agreed to file the information under seal.


Trump, his children Donald Jr., Eric and Ivanka, and his businesses, sued the banks in April to block them from complying with the demand from lawmakers to turn over financial information. A federal judge in May rejected that request, and Trump has appealed.


In its filing Tuesday, Deutsche Bank said it has tax returns — in either draft or as-filed form — responsive to the subpoenas. The names were redacted. The bank also said it has “such documents related to parties not named in the subpoenas but who may constitute ‘immediate family’ within the definition provided by the subpoenas.”


Deutsche Bank said it does not believe it possesses tax returns responsive to the subpoenas for any individuals other than the people it identified. The bank said it is reluctant to publicly identify information related to tax returns for specific individuals because of “statutory, contractual and privacy concerns.”


The Gramm-Leach-Bliley Act generally prohibits banks from disclosing nonpublic personal information of customers to a third party if the customer hasn’t consented, although the law may allow financial institutions to give out some nonpublic personal information to comply with a subpoena or other legal request, Deutsche Bank said.


Confirming possession of tax returns confirms a bank’s relationship with individuals and reveals information about the nature of the business the company has had or has contemplated with them, according to the letter.


Names redacted

The names of certain individuals were redacted to strike an appropriate balance with the court’s order and client privacy considerations, according to the letter. The bank also said it has contracts that include provisions related to how confidential information is treated — including circumstances when limited disclosures are allowed.


Spokespersons for the committees and their members declined to comment on the letter.


It is unclear if the bank’s acknowledgment that it possesses some tax returns will be regarded or argued by the House Democrats as a possible waiver against the privacy of those records, having been shared with a third party. There has been no immediate response to the news from Speaker Nancy Pelosi’s office or Democrats who control the House Ways and Means and Judiciary Committees.


The House committees told the court in a letter earlier Tuesday that a law prohibiting certain disclosures of tax returns or return information doesn’t apply if the banks obtained that information from Trump or any of the other plaintiffs, and not from the Internal Revenue Service. They also said it wouldn’t apply if wouldn’t apply if they got the information from the IRS at the request or consent of Trump or any other plaintiffs.

— Chris Dolmetsch, with assistance from Billy House




Intuit adds health insurance benefits to QBO Payroll

By Ranica Arrowsmith


Intuit has added medical, dental and vision benefits capabilities to QuickBooks Online Payroll through an integration with SimplyInsured.


SimplyInsured is an online platform that helps small businesses compare and purchase employee medical, dental and vision insurance plans. Users of QuickBooks Online Payroll can now compare plans side by side to find the one that best fits their business and budget. Once a business owner has chosen a plan, he or she can apply through QuickBooks Online Payroll. Employers can also manage relevant business details, including payroll and health insurance benefits, within QuickBooks.


The move is one step closer to making QuickBooks a one-stop shop for small businesses and their accountants. QuickBooks recently conducted a survey of small business owners and HR professionals, and found that 71 percent of small businesses with 1 to 50 employees already offer their employees some kind of health insurance benefits. Two-thirds of the respondents said offering health insurance is very important for attracting employees and 58 percent said it was very important for retaining employees. For the 29 percent of small businesses who don’t currently offer health benefits, more than one-third (36 percent) said they had no idea how much offering health insurance for employees would cost, and nearly half (45 percent) said they did not know what steps to take to get group health insurance for their employees. The majority (56 percent), however, said they would be more inclined to purchase health insurance if it were linked to another product, like payroll. Given these findings, QuickBooks aims to encourage more business owners to offer health insurance for their employees, as it’s now easier to navigate and manage.


Additional features of the integration with SimplyInsured include:

  • QuickBooks will automatically calculate employee benefit deductions so business owners don’t have to.
  • Business owners will be able to see quotes from SimplyInsured based on zip code, without having to enter any data.
  • Full-time customer support is available to help business owners with their insurance questions. Customer support is available Monday through Friday between 7 a.m. to 5 p.m. PT.


“We know that many small business owners want to do right by their employees and offer health insurance benefits, but many feel it’s too expensive or confusing,” said Olivier Bartholot, director of QuickBooks Payroll, in a statement. “When we focus on helping small business owners with the many aspects of managing their employees, we can turn one person’s dream into a thriving team. By connecting them with affordable medical, dental and vision insurance directly within QuickBooks, we’re making it easy, fast and cost effective for small businesses to offer their employees insurance plans, helping them to attract and retain top talent.”




Fighting ransomware: Breaking down walls between private sector and law enforcement

By Christian Mairoll


Accounting firms are an attractive target to ransomware authors. Not only do accounting firms store a lot of valuable and sensitive information, but the vast majority consist of just a handful of people who may or may not have the technical chops to implement and maintain a robust cybersecurity strategy.


Of course, it’s not just accounting firms who are at risk. The number of ransomware attacks on businesses almost tripled between Q4 2018 and Q1 2019, while dozens of county, city and state government systems have already been hit this year.


In many instances, the affected organizations have chosen to pay the ransom — sometimes to the tune of hundreds of thousands of dollars. This willingness to pay a ransom can be partly attributed to a lack of guidance from law enforcement, who have struggled to promote public awareness about ransomware.


How do cybercriminals evade authorities?

Although there are about 4,000 ransomware attacks per day, very few people have ever been arrested for committing a ransomware-related crime. There are a few reasons for this.


Firstly, most ransomware attacks that affect U.S. organizations originate overseas, often in countries that don’t have particularly close ties to the U.S. Coordinating international investigations with foreign law enforcement agencies is logistically challenging, resource intensive and often not feasible. Even in the event that someone is indicted, there’s no guarantee that the accused can be extradited to the U.S. to face their charges, as was the case with the two Iranian citizens allegedly behind the SamSam ransomware attack which affected 200 organizations and caused $30 million in damage.


Secondly, tracking payments to a specific person or group is difficult. Ransomware payments are made exclusively in cryptocurrencies, which are paid to anonymous wallets and often laundered through mixer or tumbler services that are designed to further obfuscate the criminals’ tracks. Local police departments simply do not have the resources to investigate complex cybercrime. In some cases, it’s local police themselves who are the victims of ransomware.


Thirdly, lawmakers are still playing catch up when it comes to ransomware. As it stands, only five states — California, Connecticut, Michigan, Texas and Wyoming — have laws in place that expressly address ransomware. Ambiguous laws make it more difficult to take the appropriate legal action against those involved with ransomware.


Law enforcement is working alongside antivirus companies

Law enforcement agencies aren’t the only ones trying to put a stop to ransomware. Tasked with protecting their users by stopping ransomware at the point of infection, antivirus companies are law enforcement’s natural allies.


Positioned on the front lines, they’re often the first to catch wind of information — say, a new malware strain, or a vulnerability that may allow researchers to crack a particular ransomware variant — which may be extremely valuable to law enforcement agencies.


Antivirus companies also benefit from this sharing of information. In some cases, antivirus companies are able to strengthen the protection capabilities of their software based on the information provided by law enforcement. In other situations, antivirus companies may have access to data that could help authorities catch the criminals who wish to extort their paying customers.


In 2016, the National High Tech Crime Unit of the Netherlands’ police, the European Cybercrime Centre (EC3) and McAfee launched No More Ransom, an initiative that aimed to bring together law enforcement and IT security companies to disrupt the criminal ransomware business model. Since its inception, No More Ransom has saved ransomware victims more than $100 million.


A big part of No More Ransom’s success comes down to efficient communication between the public and private sector. Its partners include 42 law enforcement agencies, five EU agencies and 101 public and private entities.


The need for greater cooperation in the U.S.

It’s a different story in the U.S. At both the local and federal level, law enforcement agencies have been hesitant to cooperate with private organizations, which makes combating ransomware difficult for agencies and antivirus companies alike.


With no established channels of communication between the public and private sector, it's not easy — and sometimes downright impossible — to get the information into the right hands.


However, there are signs that things are changing as policymakers begin to recognize the importance of sharing information. In July, Senator Maggie Hassan emphasized the importance of collaboration while visiting Strafford County, New Hampshire, which was hit by a cyberattack in late June.


“We need to invest in resources that allow there to be information-sharing between and among the private sector, federal government, state, local and county government,” said Hassan, as quoted by New Hampshire Public Radio.


Meanwhile, a bill was recently introduced to Congress which could allow for greater collaboration between public and private entities regarding cybersecurity.


“To make grants to and enter into cooperative agreements or contracts with States, local governments, and other non-Federal entities as the Secretary determines necessary to carry out the responsibilities of the Secretary related to cybersecurity and infrastructure security…” the bill states.


More collaboration between public and private sector

No More Ransom and EC3 are proof that improving the lines of communication between government and private companies can reduce cybercrime.


As ransomware continues to wreak havoc on accounting firms and other organizations around the globe, it’s important for U.S. law enforcement agencies to establish structures that will allow for information to be efficiently exchanged between organizations in the public and private sectors. Improving cross-sector cooperation could ultimately make cybercrime less profitable, disincentivize cyberattacks and disrupt the ransomware cycle.


Christian Mairoll 

CEO, Emsisoft




IRS program to prevent personal data loss is delayed

By Michael Cohn


Taxpayers’ personal information and tax account data remain at risk of being leaked from the Internal Revenue Service’s computer networks despite progress on a data loss prevention program, according to a new report.


The IRS began a program known as the Safeguarding Personally Identifiable Information Data Extracts Project, which is responsible for implementing the data loss prevention solution, in 2010. The report, from the Treasury Inspector General for Tax Administration, found that the first phase of the IRS’s solution is working, but the remaining phases in the ongoing project are still experiencing delays.


So far, the project team has implemented and expanded a program component known as “Data-in-Motion,” which includes reviewing unencrypted email and attachments, file transfers and web traffic for the most common types of personally identifiable information used by the IRS. TIGTA’s testing found that the Data-in-Motion component was generally successful in identifying and blocking the most common types of personally identifiable information from being “exfiltrated” by email, and that potential incidents identified by the solution were reviewed and resolved correctly. However, there are continued delays with implementing the other components of the project. That’s preventing the IRS from realizing the full benefits of the data loss prevention solution.


“The causes of the delays include technical, project management and administrative issues,” said the report. “Because of the delays, two key components involving data in repositories and data in use are still not operational more than eight years after the project started. Without these components, personally identifiable information continues to be at risk of loss. The delays have also resulted in the inefficient use of resources of approximately $1.2 million in software costs for the components that are not operational.”


TIGTA recommended that the IRS’s chief information officer deploy the rest of the components of the solution, ensure that project documents are prepared and maintained as required, and ensure that any issues requiring negotiations with the National Treasury Employees Union are identified and negotiations started promptly.


Negotiations with the labor union representing IRS employees have also been blamed for being a hurdle. But the IRS is close to signing an agreement with the National Treasury Employees Union and plans to notify the union of any issues regarding the production implementation of the remaining components. Under certain circumstances, the IRS is required to negotiate and reach a formal agreement with the NTEU before it can take certain actions. The IRS negotiated with the NTEU about the data loss prevention solution, and a memorandum of understanding was approved in July 2014 that spelled out certain stipulations and limitations related to how the solution affected employees. IRS management cited the negotiations as the cause of delays with implementation of the data loss prevention project.


The IRS agreed with all three of TIGTA’s recommendations. It plans to deploy the remaining components of the Data Loss Prevention solution and ensure that project documents are consistently prepared and maintained during the deployment of the remaining components. The data loss prevention effort is just one part of the IRS’s cybersecurity efforts, according to the agency.


“The deployment of the full DLP product suite is just one of numerous ongoing efforts to secure our systems and protect sensitive information," wrote IRS acting CIO Nancy Sieger in response to the report. “Our dedicated focus on cybersecurity has positioned the IRS to withstand approximately 1.4 billion cyberattacks annually (including denial-of-service attacks, unsuccessful intrusion attempts, probes or scans, and other unauthorized connectivity attempts). Many of these attempts are sophisticated in nature and or represent advanced, persistent threats. To continue successfully defending our systems and combatting tomorrow’s threats, the IRS is committed to continued investments and program improvements in our cyber defenses.”




Retirement plan distribution can be taxed even when check isn’t cashed

By Michael Cohn


The Internal Revenue Service issued a revenue ruling explaining what happens when a distribution check from a qualified retirement plan isn’t cashed by the recipient and found that even when the check isn’t cashed, it still counts as taxable income.


In Revenue Ruling 2019-19, which the IRS released last week, the IRS gave the example of an individual who failed to cash the distribution check she received in 2019 and whether that allowed her to exclude the amount of the designated distribution from her gross income in that year. It also discussed whether her failure to cash the distribution check she received changed her employer’s (or plan administrator’s) obligations in terms of withholding and reporting.


The IRS said the individual’s failure to cash the distribution check she received in 2019 doesn’t permit her to exclude the amount of the designated distribution from her gross income for that year under Section 402(a) of the Tax Code. Also, her failure to cash the distribution check she received doesn’t alter her employer’s obligations with respect to withholding under Section 3405 or reporting under Section 6047(d).


The revenue ruling applies to a specific situation, and the IRS and the Treasury Department are continuing to analyze issues that could arise in other scenarios involving uncashed checks from eligible retirement plans, including situations involving missing individuals with benefits under those plans.


“The ruling does indicate that there may be a different answer when the facts are somewhat different,” wrote Ed Zollars of Kaplan Financial Education in his Current Federal Tax Developments blog.




We must talk more about men and work/life balance

By Jennifer Briggs


I believe, we, collectively, must talk more about men and work/life balance. How often do you hear a man praised for having both a family and a career? I’m guessing not that often. And I’m guessing it’s because it is not assumed men’s careers will be impacted significantly by having a family. Shouldn’t we encourage men to seek more work/life balance? Shouldn’t all professionals today want, and ask for, opportunities traditionally offered to women in the name of work/life balance?


This has been on my mind for a while, but two recent news items have made me seek to spread this message. One of those stories was about a recent JPMorgan Chase class action settlement regarding who can be a “primary caregiver.” Fathers working at JP Morgan Chase were routinely denied time off as a primary caregiver even though it was clearly outlined as an employee benefit (with no mention that it was only for women). Unfortunately, culturally, the company expected only women to take this opportunity, so when men asked for the time they didn’t get it. Now those men are being awarded $5 million in compensation.


The second story I’ve seen revolves around the current presidential primary candidates. It has been well-documented that female candidates running for office are asked frequently about their work/life balance, travel schedules, and even directly – who is taking care of your children? You rarely hear men asked these questions. Why not? Because there isn’t an expectation that they’re worried about this in the first place?


Let me be clear: There are men who not only care about work/life balance but spend a considerable amount of time as caregivers. And there are also companies that are offering more benefits to men, and men who are taking them. But there aren’t enough. Again, perhaps if we talk more about an expectation that this is an area of concern for men, we will see more progress. Change is happening — I just think it’s taking too long.


For anyone in the workforce, there should be options to consider related to work and family. Some ways to address this:

  • Organizations should offer “caregiver leave” to men and women. And, more importantly, it needs to be acceptable within the organization for both men and women to actually take the leave. Many large companies and firms have these benefits, but it’s often just not used by men due to unspoken pressures or assumptions.
  • Ask your male colleagues how they’re feeling about their work/life balance and encourage them to speak up and ask, if interested, for accommodations that may be currently labeled as “women’s initiatives” — things like alternative schedules, part-time partnerships, or the ability to take a leave, but stay connected to the organization, so they can come back full-time in the future.
  • Leadership can set an example that home life is important. For everyone. Talk openly about work/life balance (or whatever term you want to use). Have dialogue about what works and what doesn’t work for each team member. Just as the business world has become comfortable with “dress for your day” policies and telecommuting, we need to also be comfortable addressing who we think of as a caregiver.


I am always quick to point out that I don’t have all the answers. My husband’s job is incredibly flexible, we share caregiver duties and for several years he stayed home with our youngest child. I understand everyone’s individual situation is unique. All I ask is that we consider for a moment the idea that men should want, and should ask for, work/life balance.


Correction: An earlier version of this story incorrectly identified Jennifer Briggs' state society; she is president and CEO of the Indiana CPA Society.

Jennifer Briggs 

President and CEO, Indiana CPA Society




On ransomware: How to stay safe in the cloud

By Tomas Suros


The recent spate of ransomware attacks against cloud-based accounting platforms has left many firms on edge, wondering about the security of data within their own firms — and rightly so. When a cyberattack strikes a hosted accounting system, it impacts the firm’s data and, more importantly, can expose critical client data.


Ransomware, which is frequently delivered through spear-phishing emails (emails that use social engineering to trick the receiver into giving out private information), is a type of malicious software that blocks users from accessing critical systems and data until a ransom is paid. According to FBI statistics, in 2018 alone U.S. businesses paid more than $3.6 million to hackers in these kinds of attacks. And that number doesn’t even include lost business, time, wages, files, equipment or third-party remediation services.


Law enforcement, government agencies and even leaders within the accounting profession have become more aggressive in the fight against such cybercrimes; however, cybercriminals have also become more sophisticated, more tailored in their attacks and more successful in damaging enterprise networks.


In fact, Cybersecurity Ventures predicts that there will be a ransomware attack on businesses every 14 seconds by the end of 2019 and every 11 seconds by 2021. Cybersecurity Ventures also predicts that global ransomware damage costs will reach $20 billion by 2021 — that’s 57 times more than it was in 2015.


As trusted advisors and keepers of vast amounts of sensitive client data, firms of all sizes can be dealt a devastating blow by ransomware. Falling victim to such attacks could lead to a loss of sensitive information (permanent or temporary), a disruption to regular business operations, financial losses and damage to a firm’s reputation.


Earlier this year, hosting provider Cetrom fell victim to a malicious virus that began encrypting files. Without other recourse, Cetrom took its systems offline to safeguard data as it scrambled to find the source of the breach. Meanwhile, CCH, a suite of accounting products under the Wolters Kluwer Tax & Accounting umbrella, also suffered a recent malware infection, Accounting Today reported.


We at AbacusNext also know how distressing a cyberattack can be. Just months after we acquired the hosting service Cloud9 in 2017, the service experienced a ransomware attack.Per our incident response plan, we immediately shut down the Cloud9 network and deployed engineers to our data centers. Ultimately 100 percent of our clients’ files were recovered successfully, but the incident did leave them without access to their data as our staff worked around the clock to restore files and ensure that the threat was contained.


These examples serve as an important reminder to accounting firms of the cyberthreats facing their business and the importance of taking a proactive approach to mitigate risks.


To help safeguard your clients’ data and your business, consider the following proactive measures.


Review a provider’s security capabilities

To ensure that your clients’ data is safe and secure when in the hands of a cloud-hosting provider, it is important to review the provider’s capability to secure data. Factors to consider include:

  • Is the provider a full-spectrum electronic protected health information (ePHI) and HIPAA compliance-ready solution?
  • Are its data centers in compliance? Given the current cybersecurity threat landscape and increasingly strict compliance standards, it has become common for organizations of all sizes to require strict assurance of certifications when contracting with third-party professionals. Those without certification are at a disadvantage. Common compliance standards include, but are not limited to, SOC1/SOC2/SOC3/SSAE16.
  • Does the provider offer multifactor authentication? If so, ensure universal implementation throughout your firm.
  • Do the data centers leverage biometric authentication?
  • Does the provider encrypt all data at the database level, both in transit and at rest?


Educate staff

“You can take all the cybersecurity steps in the world, but tax professionals and others in the business world should remember you are only as safe as your least educated employee,” said Chuck Rettig, IRS commissioner, in a recent press statement.


Rettig is right. Do not underestimate the importance of staff education. Take steps to raise staff awareness of cyberthreats and educate them on what to look for to help protect against attacks. As outlined by the IRS, encourage staff to adhere to the following:

  • Use separate personal and business email accounts.
  • Never open or download email attachments from unknown senders, including potential clients; make contact first by phone.
  • Send only password-protected and encrypted documents if files must be shared with clients via email.
  • Do not respond to suspicious or unknown emails.

Some additional security measures that firms must consider:

  • Patch all operating systems and applications (vulnerability management).
  • Make backup copies of important business data and information.
  • Secure wireless access points and networks.
  • Limit access to data and information by employees, and restrict the authority to install software.
  • Install and activate software firewalls on business systems.
  • Provide security for internet connections.
  • Plan faux-phishing campaigns to educate employees on best practices.
  • Conduct quarterly reviews of your security plan.


Have an incident response plan

Securing sensitive client data isn’t just good for your business and reputation. It’s also the law. Under the Federal Trade Commission’s Safeguards Rule, tax preparers must create and enact data security plans.


According to the FTC, the written information security plan, which describes a company’s program to protect customer information, must be appropriate to the company’s size and complexity, the nature and scope of its activities and the sensitivity of the customer information it handles.


Threats evolve as hackers become increasingly savvy and sophisticated, so it’s important to regularly evaluate and test your firm’s security plan and other safeguards you have in place.


And remember: If your firm suffers a breach, how you respond—and how quickly you respond—can significantly impact your firm and its reputation. Therefore, it’s important to create an action plan outlining the steps your firm would take in the event of an attack. This can save your firm time and help mitigate further damage should an attack occur.


Ransomware poses a threat to firms of all sizes. Safeguarding your clients’ sensitive data and protecting your business start with taking proactive measures to mitigate risks. For help, turn to a technology partner that understands your firm’s unique needs and can assist with disaster recovery planning and reliable backup solutions.

Tomas Suros 

Chief solutions architect, AbacusNext




New IRS impersonation scam spreading by email

By Michael Cohn


The Internal Revenue Service is warning taxpayers and tax practitioners about a new email phishing scam in which criminals are impersonating the IRS, sending unsolicited emails with subject lines like “Automatic Income Tax Reminder” or “Electronic Tax Return Reminder” that appear to come from the IRS.


The IRS and its partners in the Security Summit also reminded taxpayers and tax pros Thursday that it doesn’t send unsolicited emails and never emails taxpayers about the status of their tax refunds. The Security Summit is an initiative teaming up the IRS with major tax prep chains and tax prep software providers, plus state tax authorities, to combat tax-related identity theft and expose tax scams. They detected the new scam this week, although it sounds like it’s a more sophisticated variation on an older tax scam.


The emails include links that show an website with details purporting to be about the taxpayer’s refund, electronic return or tax account. The emails contain a "temporary password" or "one-time password" to "access" the files to submit the refund. But when taxpayers try to get access, it turns out to be a malicious file.


“The IRS does not send emails about your tax refund or sensitive financial information,” said IRS Commissioner Chuck Rettig in a statement Thursday. “This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be on-guard at all times.”


The new scam illustrates the growing sophistication of cybercriminal organizations. The scam now relies on dozens of compromised websites and web addresses that pose as, making it a challenge to shut down. By infecting computers with malware, these impersonators can get control of a taxpayer’s computer or secretly download software that tracks every keystroke, eventually giving them access to passwords to sensitive accounts, such as financial accounts.


The IRS, state tax authorities and the tax industry that are part of the Security Summit effort noted that they have made progress in fighting stolen identity tax refund fraud, but victims remain vulnerable to scams by IRS imposters who send them bogus emails or make harassing phone calls.


The IRS emphasized that it doesn't initiate contact with taxpayers via email, text message or social media to ask for personal or financial information. That includes requests for PIN numbers, passwords or other access information for credit cards, banks or other financial accounts.


The IRS also doesn’t call taxpayers to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS typically will first mail a bill to a taxpayer who owes taxes.

For more information, see the IRS’s web page on how to report phishing and online scams.

Michael Cohn 





China and the U.S.: Unexpected bedfellows in global digital tax wars

By Richard Asquith


As the U.S. prepares retaliatory measures against European and Indian digital service tax plans, it has found an unexpected ally: China. While the two nations ratchet up their tariff and currency confrontations, they have found common ground in checking a big-tech tax grab by the rest of the world.


So far, China has let the U.S. do all the saber rattling around the DST proposals from a growing list of countries. The U.S. threats against French wine or a U.K. post-Brexit free trade deal have quietly delighted China since they also serve to protect its own global digital offensive, led by the big four: Alibaba, Baidu, JD and Tencent. But the recent Chinese domestic slowdown may soon end this restraint.


While the anxious European fixation around lost tax revenues has been focused on U.S. multimedia companies, China is encouraging its own homegrown digital talent to expand abroad. China is already a much larger e-commerce market than the U.S., and the largest players are looking for new markets.


Alibaba, the e-retail frontrunner in China, is bolstering its Alipay and AliExpress subsidiaries to push international payment and logistics offerings to rival the likes of PayPal and Amazon. It has purchased India’s most popular web browser, UCWeb, to provide it with the deep insights into consumer behaviors that Google pioneered through Chrome. And its consumer-to-consumer platform facsimile of eBay, Taobao, is making major inroads into Southeast Asia.


JD, the junior Chinese digital contender, is stretching its reach beyond China too. Its Amazon-style mix of its own and third-party inventories is proving to be a hit throughout Asia. Its partnerships with Walmart and Google across the U.S. and Asia are also set to directly challenge Amazon.


It’s a similar story with Chinese social media homegrown talent. Tencent QQ, the messaging service, is now the world’s seventh most visited website and is quickly going global. Weibo, the highly profitable blogging site, already has close to half a billion users outside of China.


Chinese fiscal reticence wears thin as the economy slows and U.S. tariffs take toll

This all means that China does not welcome (any more than the U.S.) other nations attempting a tax land-grab on its national champions’ international digital success. It sees the French, British, Italian, Spanish and Indian plans for a turnover tax on sales on their residents as a flagrant breach of long-established global treaties.


To date, China has been shy about throwing its weight around on the global stage. But its own slowdown is set to reverse this back-seat policy. As the Chinese government collects over 80 percent of its income from businesses, which are on the downturn with a global recession looming, it can ill afford to have Europeans pick its fiscal pockets.


So expect the Chinese to start speaking up, starting with next year’s OECD discussions about a global solution to the digital carve-up. And the U.S. may end up wishing it’s still the lead act.

Richard Asquith 

Vice president of global indirect tax, Avalara


Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.


15427 Vivian - Taylor, Michigan 48180 – voice (734) 946-7576  fax (734) 946-8166

website:    email: