Back to top

September

5 Reasons Your Small Business Needs an Accountant

BY LEVI KING

 

As a small-business owner, you probably thrive in a DIY environment; but the more hats you wear, the less you’ll accomplish successfully. Accounting is one of the most important areas for keeping your company profitable. As you start out and your company grows, software can only take you so far. Accountants can help your company move forward. Below are reasons why your business needs an accountant in all stages of your growth.

 

1. Your business is in the startup phase

There are many things to think about when you’re just starting out:

  • Business structure
  • Business plan
  • Bank accounts
  • Government regulations
  • Location
  • Financing

 

You might think it’s too early to hire an accountant, but the way you set up your operations can have a serious impact on your future success. An accountant can help you determine the most appropriate business structure, analyze your business plan for financial compatibility, and assist you with making sound financial decisions throughout the startup process so you don’t have to spend more money to correct mistakes later.

 

2. Your business has employees

In the first few years of operation, you may not feel you have enough work for an accountant. The truth, though, is that an accountant will have the specialized knowledge to make your money work for you even though you don’t have a huge workforce. The accountant can:

  • Help ensure employees and independent contractors are classified correctly
  • Oversee payroll and payment processes
  • Create appropriate timelines for sending W2s and 1099 forms

 

3. Your business structure requires audits

Not all small businesses are required to conduct audits, but unless you consult with an accountant you might not know until it’s too late. Publicly owned businesses are required to comply with the Sarbanes–Oxley Act (SOX), and private companies that are preparing for an initial public offering might also need to comply with certain SOX provisions. Furthermore, all businesses should comply with local generally accepted accounting principles (GAAP). Hiring an accountant can ensure your records are compliant with the appropriate regulations.

 

4. Your lender requests a financial statement

The Small Business Administration reports that small businesses borrowed over $6 billion last year. At some point your business will probably need additional funding, whether it’s for expansion, new equipment, purchasing property, or even establishing an emergency fund. Before you approach a lender, having an accountant prepare a financial statement can increase your chances of getting approved.

 

5. Your budget is falling short

According to the Bureau of Labor Statistics, about half of all businesses will fail within five years of opening. Although there are many factors related to failure, not meeting budget goals can decrease the chances of your business survival. Having an accountant on hand to analyze your budget, assist in making changes and catch errors will help you make sure your budget is on target for success.

 

Questions to ask yourself before hiring an accountant:

  • Does your business planning match your financial forecast?
  • Have you read the tax code?
  • Do you have enough time to take care of all of the accounting duties yourself?
  • Are you sure your employees are classified correctly?
  • Do you know what auditors look for when conducting an audit?
  • Do you know what needs to be in a financial statement?
  • Is your budget working for you?

If you answered “no” to any of these questions, you can benefit from hiring an accountant.

 

How to find an accountant

You could do a quick Google search, but how would you know if the accountant is qualified? There are numerous databases of accountants, but to ensure that the accountant you choose has the knowledge and experience you need, look for a certified public accountant (CPA). These professionals will have passed a rigorous CPA exam and are licensed by the state in which they work. Enrolled agents are another option for tax preparation and tax resolution. Enrollment agents are authorized by the federal government to represent taxpayers before the IRS. They specialize in taxes, whereas CPAs often specialize in tax, accounting, and financial services to businesses in the state in which they are certified.

 

Accountant Bridge is a great place to start your search for a CPA that matches your needs.

Levi King is CEO of Nav, a business financing company.

 

 

 

Trump's Offshore Tax-Cut Pitch Falls Flat in Silicon Valley

BY LYNNLEY BROWNING

 

Republican Donald Trump is proposing a big tax cut for companies like Apple Inc., which would see its tax rate slashed on about $200 billion of profit it keeps offshore.

 

Donald Trump and Mike Pence

Yet Apple’s boss is co-hosting a fundraiser on Wednesday for Trump’s Democratic opponent for the White House.

 

Apple itself has no political action committee; Chief Executive Officer Tim Cook is acting in his personal capacity to help raise money for the Hillary Victory Fund, which contributes to the campaign of Democratic nominee Hillary Clinton and other Democratic party committees.

 

Still, Cook’s support for Clinton, who hasn’t tried to match Trump’s tax cuts for corporations, reflects how the Republican nominee’s proposals haven’t won him much support among U.S. technology leaders—many of whom have expressed concern about his campaign-trail bombast. Apple didn’t respond to requests for comment for this story.

 

“This is woefully inadequate in terms of an olive branch to Silicon Valley from Donald Trump,” said Tucker Bounds, a startup founder and former deputy communications director for Republican Senator John McCain’s 2008 presidential campaign. Bounds was referring to Trump’s proposal to tax companies’ accumulated offshore profit at 10 percent—down from the current top corporate income tax rate of 35 percent.

 

‘Indefinitely Reinvested’
 

Apple isn’t the only company that would benefit. U.S. companies overall have more than $2.4 trillion in earnings that they have “indefinitely reinvested” overseas, based on analyses of their public disclosures. That’s because federal law allows corporations to defer paying taxes on their foreign profit until they return it to the U.S., a process called “repatriation.”

 

Trump’s tax plans call for ending deferral and cutting the top corporate tax rate to 15 percent. For the trillions in offshore profit that U.S. companies have already accumulated, he suggests the one-time tax rate of 10 percent—a bargain that he says would lure that cash back to the U.S quickly and deliver economic growth as well as tax revenue for infrastructure spending.

 

“This is a major way to raise revenue,” said Stephen Moore, a senior economic adviser to Trump’s campaign. He also said: “We’re not in this to carry water for the tech companies.” Under Trump’s proposal, U.S. companies would repatriate more than $1.5 trillion over a 10-year window, Moore said, paying at least $150 billion in taxes.

 

Technology Earnings
 

Clinton hasn’t proposed anything similar; she’s said little about corporate tax reform or the current 35 percent corporate rate, which is one of the highest statutory rates in the world.

 

Much of the offshore earnings in question are held by technology and pharmaceutical companies—a reflection of their global reach and tax-planning strategies. In a July 29 research note, Tobias Levkovich, the chief U.S. equity strategist at Citigroup, estimated that Apple had $214.9 billion in offshore cash; Microsoft Corp. had $108.9 billion; Cisco Systems Inc. had $57.2 billion; and Alphabet Inc. had $45.4 billion. All of those companies declined to comment.

 

Naturally, technology industry executives care about political issues beyond tax policy, and Trump’s positions on international trade and immigration don’t necessarily align with their business interests. Last month, more than 100 industry executives put their names on an “open letter” that said Trump “campaigns on anger, bigotry, fear of new ideas and new people, and a fundamental belief that America is weak and in decline.” He would be “a disaster for innovation,” the letter said.

 

Feeling ‘Besieged’
 

International tax policy ranks high among the industry’s business issues, said Joe Kennedy, a senior fellow who focuses on trade, regulation and tax at the Information Technology and Innovation Foundation, a policy group with board members including representatives from Microsoft, Alphabet, Amazon.com Inc. and International Business Machines Corp.

 

“For major U.S. tech companies, tax reform is a big one because they are getting pressured by Europe and others to pay more taxes to those jurisdictions,” Kennedy said. “They feel like they’re besieged.”

 

Cook told CBS News in December that he would “love to” repatriate Apple’s offshore earnings. “Why don’t you?” interviewer Charlie Rose asked. “Because it would cost me 40 percent to bring it home,” Cook said, evidently adding state taxes to the federal tax rate. “And I don’t think that’s a reasonable thing to do.”

 

European Reviews
 

European Union regulators are examining the tax structures that U.S. companies including Apple, Alphabet, Amazon and Starbucks Corp. have set up in their member states. That potential crackdown may spur U.S. officials to act on overhauling corporate tax laws, said Rohit Kumar, co-leader of Tax Policy Services for PricewaterhouseCoopers LLP.

 

“There is increasingly awareness that if you don’t tax it, other states will,” he said.

That growing realization may help explain why Clinton’s lack of a proposal for repatriation tax break hasn’t hurt her among technology companies: Some observers think the U.S. government will adopt one regardless of who wins the presidency.

 

“There’s a fair amount of general agreement that repatriation would be a feature of broader tax reform under a new president, which I would say is inevitable,” said Jon Traub, the managing principal of tax policy at Deloitte Tax LLP, the tax arm of accounting firm Deloitte LLP.

 

Clinton’s ‘Code’
 

Others see clues on Clinton’s campaign website. She has proposed $275 billion in infrastructure spending, and her website says her administration will “fully pay for these improvements through business tax reform”—though it doesn’t include any specifics.

 

That’s “code for repatriation,” said Henrietta Treyz, an analyst who follows the issue for Height Securities LLC, a financial research firm. “Repatriation is the linchpin in both Trump and Clinton’s infrastructure packages.”

 

Asked about Clinton’s position on repatriation, Tyrone Gayle, a Clinton campaign spokesman, said: “Hillary Clinton has been clear throughout the campaign that she supports business tax reform consistent with the principle of rewarding investment here in the U.S., and closing loopholes that distort our tax code and result in shifting profits and jobs overseas.”

 

Alternative Plans
 

Trump told Fox Business Network on Aug. 2 that he would “at least double” Clinton’s proposed infrastructure spending. Moore estimated that Trump’s repatriation tax proposal would raise “around $200 billion” in taxes.

 

A few alternative plans have already surfaced in Washington. In his last two budget proposals, President Barack Obama called for a 14 percent tax rate on companies’ offshore earnings. This summer, House Republicans released a blueprint for a major corporate-tax overhaul that would create a repatriation tax rate of just 8.75 percent. The GOP plan would also move the U.S. toward a “territorial” approach to taxation—meaning companies would owe taxes only on their domestic income. (The U.S. is the only developed economy that uses a so-called worldwide tax system.)

 

The House tax plan was released just four days before Cook hosted another political fundraiser. That one was for House Speaker Paul Ryan, the Wisconsin Republican who has made overhauling federal-tax policy a top policy priority.

 

New Model
 

Whatever plan advances, it seems clear that policy makers want to steer away from an approach that Congress took in 2004, when it granted a “repatriation holiday.” Companies including Pfizer Inc. and Hewlett-Packard were allowed to pay a one-time tax rate of 5.25 percent to return their offshore earnings to the U.S., and they voluntarily brought back a collective $312 billion.

 

Think tanks and the nonpartisan Congressional Research Service later found that most companies used the bonanza to buy back their own shares or pay dividends instead of investing infrastructure or hiring new employees.

 

“A rifle-shot, one-time tax holiday is kind of not going to happen,” said Matt Tanielian, a co-founder of Franklin Square Group, a lobbying firm in Washington that has technology companies among its clients. “The new model is that it will be part of some sort of tax-reform package along the lines of what Ryan is talking about.”

 

Trump’s advisers are still hammering out details of his tax plan—but it doesn’t include any limitations on how U.S. companies could spend their repatriated earnings.

 

“Ideally, we’d like it used for building more plants and stuff, but if they use it for shareholders and buybacks, that’s fine,” said Moore, the campaign adviser. “That just benefits American shareholders and goes into Americans’ 401(k)s.”

 

 

 

Comparing the Trump and Clinton Tax Plans

By Michael Cohn 

 

Donald Trump’s revamped tax plan stands in stark contrast to his rival Hillary Clinton’s plan, although many of the differences go back to the traditional split between the Republican and Democratic approaches to tax reform.

 

“In terms of the big picture, it tends to be traditional Republican vs. traditional Democrat on the tax side,” said Bill Smith, managing director of CBIZ MHM’s National Tax Office, who has compiled an infographic contrasting the two candidates’ tax plans.

 

“Hillary is not surprising,” he noted. “Most of what she thinks is kind of in alignment with what President Obama has been putting forth in his budget every year and getting nowhere with. There’s not that much that’s new.”

 

Trump’s latest plan changes the tax rates he originally proposed and refines his approach to taxing carried interest income earned by hedge fund managers.

 

“Initially he was talking about it as if he had come up with the idea, whereas it has been pushed by everybody for years and years on both sides of the aisle,” said Smith. “Under his original plan it’s either going to be a tax break for them if carried interest is covered under his 15 percent pass-through business tax, and then it would be an even lower rate than they were paying, or if it was taxed as ordinary income, assuming they were paying 23.8, and he came in at 25 percent, it was only a bump up of 1.2 percent. The fact that he was talking about carried interest at all, given the rest of his plan, seemed kind of silly to me. Now that he has gotten with the Republican powers that be and upped the brackets to 12, 25 and 33 [percent], it’s a much more important question about how that is going to be taxed, if it’s going to be subject to the 15 percent business income flow-through rate or whether it will truly be taxed as ordinary income, because then it would be a significant increase if it’s subject to the 33 percent.”

 

Clinton wants to tax carried interest at ordinary income rates as opposed to the lower capital gains rate, a frequent proposal by the Obama administration and Democrats in Congress.

“Hillary wants to tax carried interest also, but she’s not changing the tax rate, so that would be a significant impact,” said Smith.

 

Trump had originally proposed to significantly increase the standard deduction to $25,000 for individuals and $50,000 for couples filing jointly, but it’s unclear whether that proposal remains in the plan he unveiled this week (see Trump Tax Plan Seen as Boon for Rich, Question Mark for Others).

 

“It would essentially quadruple the standard deduction,” said Smith. “Then that would be a boon to some of the lower- and middle-class taxpayers, but most of what he’s doing tends to benefit the wealthy, and most of what Hillary is doing takes away from the wealthy. She’s got the Buffett tax, and she’s got the 4 percent surcharge on adjusted gross income over $5 million, and she wants to scale back on the estate tax exemption and increase the maximum rate on the estate tax. Donald Trump wants to repeal it. He wants to limit the pass-through income to 15 percent, and Hillary doesn’t have any changes there.”

 

Trump has also proposed to allow parents to deduct the cost of childcare expenses, although the proposal has been criticized for only benefiting parents who earn enough to write off the expenses from their taxes.

 

On the business tax side, Trump is proposing a top rate of 15 percent. “It wasn’t exactly clear what he meant about that, but it seems clear now that any K-1 income you get on pass-throughs is going to be limited to a maximum rate of 15 percent,” said Smith. “To me that’s the biggest single change. It’s a sort of sea change in the way things are taxed in his plan. He’s basically trying to keep a consistent business rate, if you will. That’s been part of the fight historically between Democrats and Republicans. They are generally in line with lowering the corporate rate, maybe not the same amount, but Republicans said we’re not going to let you do that piecemeal because so much business is done through pass-throughs that you have to deal with individual rates at the same time. The Donald has done that with his proposal that if you’re getting basically active trade or business income on a K-1, that’s also going to be limited to 15 percent when you get it. That’s huge and Hillary has no changes on that side. Her individual rate still stays at 39.6. She still has the Net Investment Income Tax on top of that. So she’s not making any major changes in that respect.”

 

For more details on the two plans, Wolters Kluwer Tax & Accounting has produced a tax briefing contrasting the Trump and Clinton tax plans.

 

The implications of the proposed tax reform plans could be big for tax practitioners and their clients after the election. BDO USA surveyed a group of American tax directors earlier this year, and found that 77 percent of them believe tax reform will pass under a Republican president, in contrast to 33 percent who expect tax reform to pass if the next president is a Democrat. With Republicans currently in control of both the House and Senate, that opinion should not be too surprising. BDO’s survey also found that one out of five tax directors surveyed consider planning for tax reform under the next president to be their top tax concern for 2016. 

 

Tax professionals have good reason to anticipate the results of the November election to have a “yuuge” impact on the clients they service.

 

 

 

Three Good Ideas in Clinton’s Small Business Tax Plan

By Scott Greenberg

 

Earlier today, Hillary Clinton’s presidential campaign released a small business policy plan, which includes several proposals aimed at simplifying tax filing for small businesses.

 

So far, during the campaign, Clinton’s tax proposals have largely focused on raising taxes on high-income individuals and multi-national companies, rather than reforming the structure of the U.S. tax code. The policy plan released today is a welcome departure from this approach, as it includes several proposals that would make the federal tax code less burdensome and distortionary:

 

1. Allowing small businesses to immediately deduct up to $1 million in capital investments

When calculating their taxes, businesses are generally not allowed to immediately deduct the full cost of their investments. Instead, they are required to spread out the deduction over time, according to a set of depreciation schedules. For many small businesses, calculating depreciation deductions can be exceedingly complicated. In fact, the IRSestimates that U.S. businesses spend 448 million hours a year complying with federal tax depreciation rules.

 

Under Clinton’s proposal, small businesses would be able to “expense,” or immediately deduct, up to $1 million in capital investments every year. Currently, Section 179 of the tax code allows certain small businesses to expense up to $500,000 in capital investments, so it looks like Clinton’s plan would effectively double the Section 179 threshold.

 

Allowing small businesses to expense up to $1 million of investments would mean that many businesses would no longer have to go through the complex process of figuring out their depreciation deductions. It would also be good economic policy: lengthy depreciation schedules can discourage business investment, and there is strong evidencethat allowing businesses to expense their capital expenditures leads to higher investment.

 

2. Quadrupling the start-up deduction

One category of business expenses that the Clinton plan addresses specifically is start-up expenses, the costs of setting up a new business. Under the current federal tax code, small businesses are only able to deduct up to $10,000 in start-up and organizational costs. Any start-up costs above that threshold must be deducted over a longer period of time.

 

As a result, new businesses are disadvantaged by the federal tax code: they face significant up-front costs, but are unable to deduct those costs until sometime in the future. By quadrupling the maximum deduction for start-up costs, Clinton’s plan would make it easier and less expensive to start a new business.

 

3. Allowing businesses with less than $25 million in gross receipts to use cash-flow accounting

When a business files its taxes, it is required to use a standard accounting method to calculate how much income it has earned. The two primary accounting methods used in the United States are accrual accounting and cash accounting. The major difference between these methods has to do with timing. To take an example: a business that purchased a building in 2015 and paid for it in 2016 would report the expense in 2015 under accrual accounting and in 2016 under cash accounting.

 

Generally, cash accounting is much simpler and easier than accrual accounting. However, the U.S. tax code does not allow corporations or partnerships with more than $5 million of gross receipts (or sales) to use the cash accounting method. Clinton’s proposal would raise this threshold to $25 million, allowing more businesses to use a simpler accounting method.

 

Allowing businesses to use cash-flow accounting for tax purposes is also economically sound policy. Because cash accounting allows businesses to deduct their expenses in the year that they occur, it is functionally very similar to full expensing, with comparable economic benefits.

 

All in all, Clinton’s proposed tax changes for small businesses would improve the federal business tax code and make tax filing simpler for many companies.

 

It’s worth asking, though: why just small businesses? Why not try to reform the tax code for businesses of all sizes? If expensing and cash-flow taxation are good policies, then the Clinton campaign should push to extend them to all U.S. businesses, not just the smallest ones.

 

It's also worth noting that several of Clinton's other tax proposals would raise taxes on some small businesses, including the Buffett Rule and her proposed "millionaire surcharge." As much as the three policies listed above would simplify small businesses' tax compliance burdens, Clinton's overall tax plan would increase some companies' total tax bill.

 

Note: In addition to these three proposals, Clinton’s small business plan would create a new standard deduction for small businesses, which would give businesses the option to stop keeping track of their business expenses for tax purposes. It’s unclear exactly how this proposal would work, and the campaign hasn’t specified how large the standard deduction would be, so it’s hard to tell whether this would be a good policy change.

 

from the Tax Foundation

 

 

 

Trump and Clinton’s Tax Plans Leave Out Key Details

By Scott Greenberg

 

This week, both Donald Trump and Hillary Clinton gave speeches in Michigan outlining their respective economic policy platforms. Tax policy featured prominently in both speeches: Trump took the opportunity to announce revisions to his tax plan, while Clinton reiterated her call for higher taxes on corporations and the wealthy.

 

However, one important takeaway from both speeches is that neither Trump nor Clinton has released all of the details of their tax plans, leaving large gaps up to the public’s imagination.

 

While Trump’s speech on Monday clarified several details of his revised tax plan, it also raised several new questions. For instance, Trump called for three brackets of 12 percent, 25 percent, and 33 percent, but didn’t specify the thresholds at which each bracket would apply. His original plan called for a very wide 0 percent bracket, but Monday’s speech did not address whether the revised tax plan would retain this large tax cut for middle-income taxpayers. More generally, Trump has called for closing tax “loopholes” for high-income individuals, but has only specified one tax provision he would change, the current treatment of carried interest.

 

Meanwhile, Clinton said in yesterday’s speech that she would “cut taxes for middle-class families,” as her campaign has been promising for over half a year. However, the Clinton campaign has yet to specify the details of this tax cut: how large it would be, whether it would take the form of lower rates or expanded credits, which taxpayers would benefit, and so on. Given that the Clinton campaign has released dozens of very detailed policy proposals, it is surprising that the campaign hasn’t yet specified what its middle-class tax cut would look like.

 

Certainly, this presidential election hasn’t focused much on policy questions so far. However, we should continue to hold candidates to the expectation that they spell out the details of their policy proposals. In this sense, the Trump and Clinton campaigns both have more work to do.

 

from the Tax Foundation

 

 

 

Trump and Clinton under Fire for Foundation Donations

By Michael Cohn 

 

Both presidential candidates, Donald Trump and Hillary Clinton, have come under scrutiny by the Internal Revenue Service for running afoul of rules governing tax-exempt foundations.

 

In the case of Trump, his Donald J. Trump Foundation reportedly was forced to pay a $2,500 penalty to the IRS for making a $25,000 contribution in 2013 to a group supporting the reelection of Florida Attorney General Pam Bondi, according to the Washington Post. The contribution was made around the same time Bondi was reportedly considering an investigation of Trump University, which has been accused of fleecing students. Bondi decided not to pursue the fraud investigation. Trump paid the IRS a $2,500 penalty for the donation and agreed to reimburse his foundation for the $25,000 contribution.

 

His campaign claimed his foundation’s accountant made a mistake by listing a charity known as “Justice for All” as the recipient of the donation on its tax return, instead of the Bondi political action group, “And Justice for All.” Bondi for her part has denied that the gift had any influence over her decision not to pursue an investigation of Trump University.

 

The watchdog group Citizens for Responsibility and Ethics in Washington filed a complaint Wednesday with the IRS calling for an investigation into the Trump Foundation for violating the tax code by providing a private benefit to Trump and his business interests and falsely representing its political giving on its tax returns. The complaint also calls for an investigation into Trump for engaging in prohibited self-dealing.

 

Meanwhile, his rival, Clinton, has seen her own family’s Clinton Foundation attract controversy over accusations that some wealthy donors were able to get special access to meetings and events with State Department officials when she was Secretary of State. Clinton has denied those allegations, but the IRS agreed in July to open an investigation into the Clinton Foundation in response to a request from Rep. Marsha Blackburn, R-Tenn. The foundation was also forced last year to file five years’ worth of amended tax returns after questions arose over donations by foreign governments (seeClinton Foundation Expected to Amend Tax Returns).

 

Whichever candidate wins the presidency in November, one certainty is he or she will be forced to deal with the IRS before even getting into the Oval Office.

 

 

 

Pence's 2015 Return Shows $8,956 Tax on $113,026 in Income

BY LYNNLEY BROWNING

 

Indiana Governor Mike Pence and his wife, Karen, earned adjusted gross income of $113,026 in 2015 and paid $8,956 in federal income taxes, according to a copy of the Republican vice presidential nominee’s return that was released Friday—a move toward transparency that his running mate, Donald Trump, has yet to make.

 

The Pences paid an effective tax rate of 7.9 percent and donated about that same portion of their adjusted gross income to charity, the return shows. In all, the couple released 10 years’ worth of their tax records, going back to the 2006 tax year. Over the decade, they earned a total of almost $1.6 million, paid total federal taxes of $142,343 and donated $119,500 to charity.

 

Trump has departed from 40 years of tradition for presidential candidates by refusing to release any of his tax returns for public inspection. The billionaire businessman has said he’s under an audit by the Internal Revenue Service and won’t release his returns until that audit is concluded—which may not happen before the Nov. 8 election. IRS officials have said there’s no law preventing taxpayers from releasing their returns to the public, even if they’re under audit.

 

Contrast with Clintons
 

Pence’s spokesman, Marc Lotter, said the couple’s comparatively modest returns reflect a stark contrast between them and Democratic nominee Hillary Clinton and her husband, former President Bill Clinton.

 

“These tax returns clearly show that Mike and Karen Pence have paid their taxes, supported worthy causes, and, unlike the Clintons, the Pences have not profited from their years in public service,” Lotter said in a news release.

 

Hillary Clinton, a former secretary of state and U.S. senator, has posted nine years of tax returns on her campaign website—and her campaign has said repeatedly that she and Bill Clinton have made their returns public “for every year dating back to 1977.” Clinton’s running mate, Virginia Senator Tim Kaine, has posted 10 years of returns.

 

The Clintons’ returns show that they’ve made tens of millions of dollars in speaking fees and book royalties. In 2015, they reported adjusted gross income of $10.6 million—almost 94 times the amount the Pences reported.

‘Fake Excuses’
 

Clinton’s campaign responded by faulting Trump’s lack of disclosure.

 

“Trump has continued to hide behind fake excuses to avoid coming clean with the American people, thumbing his nose at a basic level of transparency practiced by every major party nominee since 1976,” spokeswoman Christina Reynolds said in an e-mailed statement. Clinton and others have speculated that Trump’s returns might indicate that he’s not as wealthy as he claims, or reveal embarrassing details about business dealings in Russia or levels of charitable giving.

 

“We won’t know until we see them,” Reynolds said.

 

The Pences’ returns, combined with a federal financial disclosure form he filed last month, contrast with public information about Trump’s finances—in terms of both their modesty and their simplicity. The vice presidential candidate had quipped that his tax documents would be a “quick read” depicting a middle-class life in public service. Pence, 57, and his wife have three children.

 

Governor’s Salary
 

For example, the couple’s 2015 income comprises mostly $109,807 in wages—which reflects Mike Pence’s gubernatorial salary in Indiana. Trump in May filed a financial disclosure that claimed income of $557 million over a 16-and-a-half month period that began Jan. 1, 2015. (However, Trump’s income disclosures listed such items as “rent,” “golf-related revenue” and “land sales,” which may conflate income with revenue—or his receipts before certain expenses.)

 

Trump has claimed he’s worth more than $10 billion—a scope that can’t be captured by the federal disclosure forms on which candidates value their assets. Those forms, which require candidates to apply value ranges to their assets, top out at $50 million for each. Others have questioned Trump’s net-worth claims; Bloomberg News in July estimated it at $3 billion.

 

Pence’s Pension
 

Pence last month filed a financial disclosure form that listed his most valuable asset as a “defined benefit pension” from Indiana state government worth between $500,001 and $1 million. He also listed liabilities: seven student loans worth between $95,000 and $280,000.

His tax returns contain a handful of notable elements:

 

The Pences claimed the “Making Work Pay” tax credit for $50 in 2009 and $55 in 2010, the years it was available through the American Recovery and Reinvestment Act of 2009, which Congress approved to spur consumer spending. Pence, who served in Congress from 2001 through 2012, voted against the act, House voting records show. In 2014, the Pences took an early withdrawal of retirement funds worth $40,000. Karen Pence reported earning a net profit of $634 as a watercolor artist in 2014. She’d reported earning $27 in net profit as an artist in 2009. Also in 2014, the Pences took advantage of energy-efficiency credits for windows, a “metal roof with appropriate pigmented coatings” and for owning a non-farm property. Economist Stephen Moore, a Trump campaign adviser, has said he’s encouraging Trump to recommend scrapping those kinds of credits.

 

Tax specialists have said that if Trump releases his returns, he’d expose them to additional scrutiny—perhaps revealing issues that IRS auditors haven’t discovered. Nonetheless, specialists say, there’s little reason why he couldn’t disclose his adjusted gross income, the total tax he has paid, how much he has given to charity and other details from the returns.

 

Trump’s campaign released a letter from his tax lawyers in March that said his tax returns for the years 2002 through 2008 were no longer under any audit, but Trump hasn’t released those documents.

 

 

 

Historic Tax Fraud Rocks Denmark as Loss Estimates Keep Growing

BY PETER LEVRING

 

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher.

 

Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big.

 

The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments. Denmark has long had one of the world’s highest tax burdens—government revenue as a percentage of gross domestic product—and a well-functioning tax model is essential to maintaining its fabled welfare system.

 

 “We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg.

Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

 

“We don’t know whether the information was obtained legally,” Soerensen said. “If we find something that could be of interest to the Economic Crimes Squad, we will obviously inform them.”

 

Going Private
 

Lauritzen said his ministry is also looking into the option of using private debt collectors.

 

He says “one reason things have gone wrong is that a different set of rules applies to collecting public debt than applies to the collection of private sector debts.” The size of the challenge means the government is “open to discussing private debt collection to help resolve this huge pile of debt,” he said.

 

Danes don’t have the same access to bankruptcy protection that Americans have and debt collection companies can tap private bank accounts and even seize paychecks. In contrast, government debt collection has so far had to live up to requirements that seek to ensure a debtor is left with enough money to cover basic living needs. Social benefits and other welfare payments are off limits.

 

Lauritzen says he would expect private debt collectors used by the government to adhere to the same rules that apply in public debt collection. “I’ll have a constructive approach to this,” he said.

 

Missing Dividend
 

The minister is exploring new avenues two weeks after unveiling a package of reforms that included 7 billion kroner ($1.06 billion) in additional spending to improve revenue collection. The plan also entailed hiring about 2,000 more employees.

 

The pledges followed revelations in August that Denmark lost 12.3 billion kroner on tax dividend rebates to offshore recipients. The government is also missing about 14 billion kroner in taxes that Danes owe.

 

Lauritzen said any success his ministry has in reclaiming Denmark’s tax debts will help the government achieve its goal of cutting taxes.

 

“Obviously, one of the reasons I want a better functioning tax collection system is that it will make it easier to cut taxes in the future,” he told Bloomberg. “There’ll be more money available for that.”

 

 

 

IRS Warns about Fake Tax Notice Scam

BY MICHAEL COHN

 

The Internal Revenue Service is alerting tax professionals and taxpayers alike about a new scam involving fake CP2000 notices that are being sent to unsuspecting taxpayers, billing them for unpaid taxes related to the Affordable Care Act.

 

The IRS is issuing the alert in conjunction with its partners in the Security Summit initiative, in which the IRS has been teaming up with state tax authorities, tax software companies, major tax preparer chains and tax professional associations. The IRS has been partnering with the outside groups in an effort to battle the wave of identity theft, tax fraud and tax scams victimizing innocent taxpayers.

 

The IRS said it has received numerous reports across the U.S. of scammers who are sending fraudulent CP2000 notices for tax year 2015. The scam typically involves an email that includes the fake CP2000 attached to it. The IRS has reported the problem to the Treasury Inspector General for Tax Administration to investigate it.

 

The CP2000 can be a legitimate notice that the IRS mails to taxpayers through the U.S. Postal Service, but the IRS noted the notice is never sent as part of an email to taxpayers. Taxpayers and tax professionals should be suspicious of any notices that are sent electronically. The IRS does not initiate contact with taxpayers by email or through social media such as Twitter or Facebook.

 

The IRS’s Automated Underreporter Program generates a CP2000 notice when income reported from third-party sources such as employers does not match the income reported on a tax return. It includes instructions to taxpayers about what to do if they agree or disagree that additional tax is owed. The notice also requests that a check be made out to “United States Treasury” if the taxpayer agrees additional tax is owed. If taxpayers are unable to pay the additional tax, the notice provides instructions for payment options such as installment payments.

 

The fraudulent CP 2000 notices appear to be issued from an Austin, Texas address and request information regarding 2014 coverage under the Affordable Care Act. The payment voucher lists the letter number as 105C.

 

The bogus CP2000 notice includes a payment requesting taxpayers mail a check made out to “I.R.S.” to an “Austin Processing Center” at a P.O. box address. There is also a “payment” link within the email.

 

To determine if a CP2000 notice is real or not, see the IRS web page Understanding Your CP2000 Notice, which includes an image of a real notice. The IRS advised taxpayers or tax pros who receive this scam email should forward it to phishing@irs.gov  and then delete it from their email account. Taxpayers and tax professionals generally can do a keyword search on IRS.gov for any notice they receive. Taxpayers who receive a notice or letter can view explanations and images of common correspondence on IRS.gov at Understanding Your IRS Notice or Letter.

 

 

 

New Overtime Rules: What You Need to Know Before December 1

Experts suggest implementing new rules now, to work out the kinks.

BY DEBBIE ROOS

 

In a few months, businesses and some white-collar employees may be feeling some changes to their pocketbooks. In May, the Department of Labor published the final rules revising the “white collar” overtime exemption regulations. Since then, HR experts across the country have been scrambling to help their stakeholders—bosses, clients and employees—figure out what this means to their business, and more importantly, how it will be implemented.

 

The new rules don’t apply to non-exempt, hourly workers, who are eligible for overtime no matter their earnings.

 

On September 20, the great state of Texas partnered with Nevada to lead 21 states in filing suit against both the Labor Secretary and the Department of Labor to try to stop the implementation of the overtime rules. The suit outlined the extreme monetary impact it will have on entities, including state and local governments, and even public universities. The lawsuit requests a declaratory judgment that the new rules are unlawful to the named states and seeks to prevent immediate implementation of the rules by the federal government. 

 

The case currently resides in the U.S. District Court for the Eastern District of Texas, with the Honorable Judge Ron Clark presiding. As it is unlikely the court will hold an injunction hearing and issue a decision before the Dec. 1, 2016 deadline, businesses are being advised to continue making any necessary changes to comply.

 

The Facts


All changes will be effective Dec. 1, 2016.

 

1. White-collar exempt employees must earn at least $913 per week ($47,476 annually) to be disqualified from overtime pay (time-and-a-half in excess of a 40-hour work week). The old threshold was $23,660.

 

2. Nondiscretionary bonuses can satisfy up to 10 percent of the new salary requirement as long as they are paid on a quarterly or more frequent basis.

 

3. Highly compensated employees must be paid at least $134,004 annually to be disqualified from overtime pay.

 

4. Automatic updates to these salary level requirements will now occur every three years, beginning Jan. 1, 2020.

 

The Warning


 

1. Given the December 1 deadline, HR and legal professionals highly recommend that companies implement any changes resulting from the new regulations a month or two before the deadline to iron out any kinks in the new system. Penalties will apply for those out of compliance.

 

2. Many companies have not budgeted for such a significant payroll increase, nor can they necessarily afford it. They will have to assess their workforce strategy and make adjustments.

 

3. “Salary level requirements” are new terms in our business lexicon for many business owners and employees alike. Much like cost-of-living adjustments, salary requirements for exempt employees will change on a periodic basis, and will impact employee salaries and company budgets.

 

The Plan
 

As overwhelming as it might seem, businesses shouldn’t be doomed to financial ruin due to these changes. Here are some immediate steps companies can take:

 

1.Assess your current job descriptions and their salary levels.
 

  1. Which exempt positions are close to the new salary level? 
  2. Which positions should be reclassified as non-exempt? 

 c. Move people as appropriate.

 

2. Choose wisely and creatively from the following options based on the economics of your business: 
 

 a. Raise exempt employees to the new levels or pay no overtime. 

 b. Leave exempt employees’ salaries below the new levels and pay time-and-a-half for overtime worked.
 c. Limit workers’ hours to 40 hours per week by reorganizing, adjusting schedules or hiring additional people.

 d. Combine some of the above suggestions.

 

3. Develop, implement and train time-keeping processes and procedures for any affected employees. For those not used to tracking their time, there will be a learning curve. Ensure you allow sufficient adoption time.

 

4. Communicate. Any change to your employees’ pay, even if it is an increase, will be a sensitive matter. More information can provide for an easier transition.

 

5. Get help. New rules can be complicated, and the downside of getting it wrong may be costly. If you don’t have onsite staff to help you or if you’re not sure, contact a trusted advisor to help you work out the details.

 

The Aftermath
 

According to the DOL, these changes will result in $1.2 billion in extra earnings, either through pay raises or overtime compensation, across the country. In Texas alone, it is estimated that 370,000 employees will be affected—the second highest impacted workforce just behind California.

 

As you move forward, help employees keep an open mind about any new timekeeping procedures and policies. Whether they’re fast food employees or retail workers, lawyers or consultants, exempt and non-exempt employees alike track their time. Also, be clear about responsibilities, job positions and hours, especially if there is movement. Try to be transparent throughout the process and provide employees with as much information as possible. It might alleviate uncertainty and provide for a much smoother transition.

 

Debbie Roos is the chief operating officer for ATKG LLP, a San Antonio, Texas accounting firm.

 

 

 

Here Come the Private Tax Debt Collectors … Again

Seven things you need to know about the upcoming IRS program

BY JIM BUTTONOW, CPA, CITP

 

There are almost 19 million people who owe more than $400 billion in back taxes to the U.S. Treasury.

 

Right now, 4 million taxpayers are paying the IRS through installment agreements, and the IRS is chasing 7 million more taxpayers for payment.

 

In late 2015, Section 32102 of the Fixing America’s Surface Transportation, or FAST, Act was put into law, requiring the IRS to use private debt collectors for delinquent tax debts.

 

The details of how the IRS implements this program will determine how successful it is – and how it will impact taxpayers and their advisors.


Previous attempts

This is the not the first time the IRS has been instructed to use private debt collectors.

 

The first attempt started in 1996 and lasted a little more than a year. The second lasted from 2006 to 2009. The first program collected about $3 million, at a cost of more than $1 million. The 2006-2009 program yielded $98 million, at a cost of $47 million.

 

During these initial attempts, there was widespread concern about how private debt collectors treated taxpayers and their personal information. The private debt collectors didn’t necessarily explain all the available payment options to taxpayers facing economic hardships. Those options include alternatives to full payment, such as installment agreements and penalty abatement. Many taxpayers were also concerned that private debt collectors would share their tax information.

 

Ultimately, the government scrapped both programs because they weren’t cost-effective and were fraught with potential risks to taxpayer rights and privacy.


Suspicions raised

Enter the third wave of private debt collectors, set to begin in the next few months. This time, the IRS faces new challenges in implementing the program, because the information security landscape has changed a great deal since 2009.

 

Today, taxpayers are increasingly wary of IRS imposter phone schemes that are prevalent during tax season and all year long. When private debt collectors call taxpayers this year, collectors will face skeptical individuals, wary of IRS imposters trying to scam them into paying “taxes” over the phone.


Seven facts you need to know

1. It’s coming soon. The IRS plans to select its authorized private debt collectors in the next two months and then begin using them in early 2017. The IRS will publish the names of these collectors on IRS.gov.

 

2. Private debt collectors will try to pursue the old, uncollectible accounts. The IRS wants private debt collectors to go after cases the IRS would never pursue – that is, outstanding, inactive receivables. The case criteria for private debt collectors are:

  • More than one-third of the 10-year collection statute has expired;
  • No IRS employee is assigned to collect the debt; and,
  • The IRS hasn’t contacted the taxpayer in a year, and the taxpayer isn’t requesting a payment alternative or relief (such as innocent spouse relief, a collection due process hearing, an offer in compromise, an installment agreement, etc).

Private debt collectors won’t pursue taxpayers younger than 18, those who have been a victim of tax identity theft, or taxpayers in a federally declared disaster area or combat zone.

 

3. The private debt collectors will try to locate “missing” taxpayers. When the IRS can’t locate taxpayers, it removes them from active collection. In the FAST Act, private debt collectors will pursue those accounts. As the National Taxpayer Advocate has pointed out, the methods these collectors might use to find and collect from these taxpayers could conjure up fears about how the IRS will protect taxpayer rights, information, and privacy.

 

4. Private debt collectors won’t have enforcement authority. Private debt collectors won’t be able to file liens or issue levies. Keep in mind, however, that the IRS may have already filed a tax lien on some taxpayers before the private debt collector ever calls. Collectors also won’t be able to help taxpayers get liens removed. To address enforcement actions, taxpayers or their advisors will need to contact the IRS directly.

 

5. Collection alternatives are still available through the IRS. If taxpayers need a payment alternative, such as an installment agreement, currently not collectible status, or an offer in compromise, they should contact the IRS.

 

6. The IRS will notify taxpayers if a private debt collector is assigned to their case. Before starting the private collection process, the IRS and the collector will send two letters:

  • First, the IRS will send a letter notifying the taxpayer that the IRS has assigned their case to a private debt collector.
  • Second, after assignment and before contacting the taxpayer, the private debt collector will send a letter.

According to the IRS, these notices will also go to the taxpayer’s representative on file, if any. The IRS hopes that these steps will notify taxpayers of the impending collection and relieve their fears about IRS imposter schemes.


7. Taxpayers experiencing economic hardship aren’t included. Taxpayers who are experiencing severe economic hardship and have an outstanding tax debt can apply for a special status that suspends their obligation to pay (referred to as currently not collectible status). Taxpayers who have negotiated this status with the IRS appear to be excluded from the private debt collection program. The IRS has not finalized this exclusion, but it appears likely that these taxpayers would be treated similarly to those who have requested a payment agreement with the IRS on their outstanding debt.


Third time’s a charm?

Navigating the IRS can be difficult. With imposter schemes running rampant, adding a third-party collector to the mix could add to taxpayer confusion.

 

According to IRS plans, taxpayers and their advisors should expect two letters to come before a private debt collector calls. And if a legitimate collector calls for payment, taxpayers and their advisors should first consider whether the client qualifies for a payment alternative with the IRS.

Congress hopes that the third private debt collector program will work better than the previous two initiatives. Time will tell, because the third round starts soon.

 

Jim Buttonow, CPA/CITP, directs tax practice and procedure product development for H&R Block. He has more than 28 years of experience in IRS practice and procedure.

 

 

 

Reid Says Trump Used Tax-Exempt Charity as 'Personal ATM,' Citing Reports

BY ZACHARY R. MIDER AND STEVEN T. DENNIS

 

Donald Trump used a charitable foundation he controls as a "personal ATM machine," Senate Minority Leader Harry Reid said on the Senate floor Tuesday, escalating his party’s attack on the Republican presidential nominee over reports that he mixed charitable and business interests.

 

Reid’s comments follow a report in the Washington Postthat Trump used $258,000 from the Donald J. Trump Foundation to settle legal disputes, and that he used other foundation money to buy mementos including portraits of himself.

"Self-dealing is when a person spends charity money on themselves," Reid said. "It’s against the law."

 

Jason Miller, a spokesman for the Trump campaign, defended the foundation, saying there was no intent or motive for the Trump Foundation to make improper payments.

 

"All contributions are reported to the IRS, and all Foundation donations are publicly disclosed," Miller said in a statement. "Mr. Trump is generous both with his money and with his time. He has provided millions of dollars to fund his Foundation and a multitude of other charitable causes."

 

The Post’s report focused on two legal disputes that Trump apparently settled using money from the tax-exempt charity.

 

In 2006, Trump’s Mar-A-Lago resort in Florida ran into legal trouble when the town of Palm Beach accused it of erecting a flagpole that was higher than local ordinances allowed, and hit the club with fines that eventually amounted to $120,000. The club responded with a lawsuit challenging the fines.

 

As part of the terms of settling the case the following year, Mar-A-Lago agreed to move the flag and pay $100,000 to a charity jointly selected by him and the town. Trump eventually paid $125,000—$100,000 to a veterans group known as Fisher House, and $25,000 to Disabled Veteran’s Life Memorial Foundation.

 

But copies of the checks provided by the town show that the money was paid by the nonprofit Trump foundation, not by Mar-A-Lago or Trump himself.

 

In the other dispute, the Post reported that a man named Martin Greenberg made a hole-in-one during a charity golf tournament on a Trump course in Westchester County, New York, in 2010, claiming a $1 million prize. After the award was disputed on the grounds that the hole was too short, Greenberg sued. The case was settled after the parties agreed to make a donation to a charity of Greenberg’s choice, the Post reported. On the same day, the Trump foundation gave $158,000 to the Martin Greenberg foundation, the Post said.

 

Hillary Clinton’s campaign also used the report to call on Trump to release more information about his personal finances.

 

"Once again, Trump has proven himself a fraud who believes the rules don’t apply to him," Clinton campaign spokeswoman Christina Reynolds said in a statement. "It’s past time for him to release his tax returns to show whether his tax issues extend to his own personal finances."

 

 

 

Colleges Face Congressional Hearing on Tuition Hikes and Tax-Free Endowments

BY JANET LORIN

 

It’s back to school for university endowments and U.S. lawmakers.

 

A Sept. 13 hearing of a House Ways and Means subcommittee is set to look at how colleges, through their tax-exempt endowments, are trying to reduce tuition. The hearing in Washington, which will feature testimony from policy experts and college representatives, comes as many endowments are expected to post investment declines for fiscal 2016.

 

While school funds have enjoyed double-digit growth for years, sustained low investment returns are becoming more evident now that results are being reported for the year through June 30. Endowments have come under scrutiny, especially at the richest schools, as the cost of college has risen faster than inflation for decades.

 

Another Step
 

“This is another step that the committee is taking to understand what colleges are doing to address soaring college costs through their endowments and nonprofit-tax status,” said Lauren Aronson, a spokeswoman for the House Ways and Means Committee.

 

Among the expected panelists is Jeff Amburgey, vice president for finance at Berea College, said Tim Jordan, a school spokesman. The private school in Kentucky’s mission is to serve low-income students, and about three-quarters of its operating budget comes from investment returns from its $1.1 billion endowment.

 

“We are certainly serving the public good with our endowment,” Jordan said.

 

The oversight subcommittee’s hearing is separate from its joint inquiry with the Senate Finance Committee, which in February asked the wealthiest 56 private schools questions ranging from endowment spending and fees paid to investment managers to naming rights for donors.

 

U.S. law doesn’t call for endowments to spend 5 percent annually like foundations. Some schools have said they plan to spend less from their funds, given the expected negative returns this year. 

 

The two congressional committees oversee tax policy. Colleges don’t pay taxes on investments earned by their endowments and donors also receive tax deductions. Colleges defended their spending on financial aid in their responses, explaining that schools can’t spend their endowments like a bank account because of gift agreements.

 

Members of the House oversight subcommittee “are deeply concerned that college tuition is spiraling out of control, making higher education out of reach for American families, even when most colleges and universities enjoy significant tax benefits,” Peter Roskam, the Illinois Republican who chairs the subcommittee, said in a statement.

 

Parents welcome the scrutiny. Leslie Detwiler is among some 175 parents who signed a petition in the spring on Change.org protesting Duke University’s spiraling cost to attend. Detwiler, who lives in the San Diego area, questions why schools with large endowments and favorable tax status don’t do more to help middle-income families that don’t qualify for aid. Duke costs $70,000 annually for tuition, room and board, and other expenses.

 

Middle Class
 

“It’s overwhelming to me the amount of money the schools have obtained and is available for them, and I think there could be very positive actions done with it to help those who are in the middle class,” said Detwiler, 54, whose daughter is a sophomore.

 

Tom Reed, a Republican from upstate New York and member of the House subcommittee, has said he plans to introduce a bill that would help middle-income families with tuition, with funding coming from endowments. Reed’s staff continues to work on the bill, said Brandy Brown, a spokeswoman.

 

The joint committees are reviewing the inquiry responses submitted in April. The committees on Thursday asked more than a dozen schools for additional information, with a deadline set for this fall, said Aaron Fobes, a spokesman for the Senate Finance Committee.

 

 

You Do Not Want to Be On the Radar of the IRS Wealth Squad

BY SUZANNE WOOLLEY

 

The very rich are different from you and me. They even have their own IRS audit squad.

 

Saturday marks the start of the fourth quarter, a time of financial reckoning, of crashing toward quotas and scrambling to reach year-end targets. Corporations and individuals alike rush to cut the income tax they'll need to pay next year. Some go too far (or just miss things, or misunderstand what and how they need to report). The IRS collected $6.3 billion last year assessing taxpayers for underreported income. Among them are the big fish, honored with the IRS equivalent of a SWAT team.

 

It's called the Global High Wealth Industry Group, and it falls under the Internal Revenue Service's Large Business and International Division. It's also been called "The Wealth Squad." The unit, launched in 2010, aims to "take a holistic approach in addressing the high wealth taxpayer population; to look at the complete financial picture of high wealth individuals and the enterprises they control, " according to a description in an IRS revenue manual. The unit's cases involve an individual's tax return "and related income tax returns where the individual has a controlling interest and significant compliance risk is deemed to exist." Things that can get sucked into these cases include "interests in partnerships, trusts, subchapter S corporations, C corporations, private foundations, gifts, and the like."

 

Any audit of Donald Trump's tax returns, for example, would be by the Wealth Squad, said Charles Rettig, a principal with Hochman, Salkin, Rettig, Toscher & Perez, of Beverly Hills, and past chairman of the IRS Advisory Council. What are these examinations like? Rettig once described them as "the audits from hell that your grandfather warned you about."  The teams involve "highly capable, experienced examination specialists, which include technical advisers to provide industry or issue-specialized tax expertise, specialists regarding flow-through entities (such as trusts, partnerships, LLCs), international examiners, economists to identify economic trends within returns, valuation experts and others," he said.

 

As of 2013, almost 25 percent of taxpayers whose adjusted gross income topped $10 million were audited. The Wealth Squad may aim higher. "I have a client with a net worth close to $1 billion, and their return was a small return for that group," said Rosalind Sutch, a certified public accountant at Philadelphia-based Drucker & Scaccetti. "They are super focused on, like, the top 50 percent of the 1 percent-ers."

 

One area the Wealth Squad is always interested in is aircraft and whether it is "being adjusted for correctly," Sutch said. "There are ways of accounting for personal use whether you're an employee or not."

 

Mark Nash, a tax partner with PricewaterhouseCoopers LLP in Miami, has said personal aircraft and charitable contributions are two particular areas of interest, according to a Bloomberg BNA article.

 

"Airplanes generate very large deductions in terms of depreciation and expenses relative to the income that taxpayers would have to pick up if they are using simple computations," Nash told Bloomberg BNA.

 

One way the IRS investigates is by looking at the logs of corporate aircraft. The unit also "wants to see where the taxpayer sits with respect to all the entities that he or she controls, and there is always a focus on maintaining the integrity of that structure," he said.

 

Fall: time to dig out the cozy sweaters, get antifreeze for the Subaru, and take a good hard look at your Learjet logs, not to mention the integrity of your structure. When it comes to the IRS Wealth Squad, it's best to be prepared.

 

 

 

How the IRS Helps the Rich Get Richer

BY SUZANNE WOOLLEY

 

This U.S. presidential campaign, and particularly that of Democratic Senator Bernie Sanders of Vermont, moved the issue of income inequality front and center. Now there are some new numbers in that department, and they won’t make many people happy.

 

The top 1 percent of Americans as measured by income rake in 17 percent of all U.S. income on an annual basis—before taxes, of course. And that caveat is important, according to a new analysis by the Tax Policy Center (TPC), because that select group of your fellow citizens gets 27 percent of the tax breaks doled out by the federal government.

 

The TPC’s calculations show an estimated $1.17 trillion in federal revenue last year going to individual tax expenditures (a fancy way of saying taxes we didn’t have to pay because of deductions, like for giving old clothes to the Salvation Army—or, in this case, collections to the Metropolitan Museum of Art). While the wealthy see an outsize benefit compared with their share, the lowest-income households get just about 4 percent of federal tax breaks, close to their portion of all pretax income. That same trend holds for taxpayers in middle- and upper-middle-income households.

 

Those 1.1 million folks in the 1 percent, as measured by the TPC, have annual income that averages a little less than $700,000. The top one-tenth of that group, some 110 households, average about $3.6 million, according to Howard Gleckman, a senior fellow at the TPC.

 

The middle of the pack, some 33 million people, have pretax income ranging from $45,000 to $80,000. The lowest one-fifth of taxpayers, a universe of about 47 million Americans, have income up to about $24,000.

 

Among the biggest of these givebacks, courtesy of the Internal Revenue Service (well, really Congress), are capital gains and dividends—these are the biggest way the wealthiest benefit. Characterizing capital gains and dividends as government spending is somewhat controversial, noted Gleckman. “The IRS considers them a tax expenditure, but there is a question of whether they really are. There are tax-preferential rates, but are those preferential rates really a government spending program?” The terminology does sound like it’s already government money, and only if your accountant finds the appropriate deduction can you have some back.

 

Using the IRS nomenclature, the top 1 percent got more than 60 percent of the benefit from a basket of subsidies including the preferential tax rates on capital gains and dividends, the step-up basis for inherited assets, and the exemption of most gains from the sale of a primary residence. The top 1 percent also gets a big serving of benefits from itemized deductions, which include gifts to charitable organizations, gobbling up 32 percent of that category. That’s a lot of old Chanel suits.

 

Low- and middle-class people have very few investments in taxable accounts, noted Gleckman, with most of their savings in tax-free accounts on which they don’t pay capital gains tax. The mortgage interest deduction is most helpful to the upper-middle-income people, he said, but not the superrich, since there’s a cap on the deduction.

 

What the lowest-income households benefit from will come as no surprise: refundable tax credits. These are going to people who likely don’t make enough to pay any income tax, so they get a direct cash subsidy through the tax code. “The lowest 40 percent of the households receive about 60 percent of the benefits of refundable credits, such as the Earned Income Tax Credit (EITC) and the child tax credit (CTC), including its non-refundable portion,” according to the TPC analysis.

 

Gleckman says most of these tax subsidies are here to stay. Both the mortgage deduction and charitable deduction are supported by very powerful lobbying groups. There’s been some interest in past years in capping the benefits from the deductions, which is something both Democratic presidential nominee Hillary Clinton and Republican nominee Donald Trump have included in their policy proposals, with varying degrees of detail.

 

“If you are going to reduce tax rates, the money has to come from someplace,” said Gleckman. “Tax preferences are ingrained in the system, in people’s behavior, and it’s really hard to get rid of them. So if there is any broad-based tax reform, my best guess is that it will involve some sort of a cap.”

 

 

 

IRS Updates Per Diem Rates for Lodging and Meals

BY MICHAEL COHN

 

The Internal Revenue Service has issued a notice outlining the special diem rates that taxpayers can use to substantiate the amounts they are claiming for lodging, meals and incidental expenses when traveling away from home.

Notice 2016-58 announces the new per diem rates for travel expenses, which take effect Oct. 1, 2016. The same notice also provides the special transportation industry rate, along with the rate for the incidental-expenses-only deduction, plus the rates and list of high-cost localities for purposes of the high-low substantiation method. 

 

As in the General Services Administration’s definition of “incidental expenses” in the Federal Travel Regulations, the IRS said incidental expenses include only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.

 

 “Transportation between places of lodging or business and places where meals are taken, and the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses,” said the IRS. “Accordingly, taxpayers using the per diem rates may separately deduct or be reimbursed for transportation and mailing expenses.”

 

 

 

IRS Warns about Fake Tax Notice Scam

BY MICHAEL COHN

 

The Internal Revenue Service is alerting tax professionals and taxpayers alike about a new scam involving fake CP2000 notices that are being sent to unsuspecting taxpayers, billing them for unpaid taxes related to the Affordable Care Act.

The IRS is issuing the alert in conjunction with its partners in the Security Summit initiative, in which the IRS has been teaming up with state tax authorities, tax software companies, major tax preparer chains and tax professional associations. The IRS has been partnering with the outside groups in an effort to battle the wave of identity theft, tax fraud and tax scams victimizing innocent taxpayers.

 

The IRS said it has received numerous reports across the U.S. of scammers who are sending fraudulent CP2000 notices for tax year 2015. The scam typically involves an email that includes the fake CP2000 attached to it. The IRS has reported the problem to the Treasury Inspector General for Tax Administration to investigate it.

 

The CP2000 can be a legitimate notice that the IRS mails to taxpayers through the U.S. Postal Service, but the IRS noted the notice is never sent as part of an email to taxpayers. Taxpayers and tax professionals should be suspicious of any notices that are sent electronically. The IRS does not initiate contact with taxpayers by email or through social media such as Twitter or Facebook.

 

The IRS’s Automated Underreporter Program generates a CP2000 notice when income reported from third-party sources such as employers does not match the income reported on a tax return. It includes instructions to taxpayers about what to do if they agree or disagree that additional tax is owed. The notice also requests that a check be made out to “United States Treasury” if the taxpayer agrees additional tax is owed. If taxpayers are unable to pay the additional tax, the notice provides instructions for payment options such as installment payments.

 

The fraudulent CP 2000 notices appear to be issued from an Austin, Texas address and request information regarding 2014 coverage under the Affordable Care Act. The payment voucher lists the letter number as 105C.

 

The bogus CP2000 notice includes a payment requesting taxpayers mail a check made out to “I.R.S.” to an “Austin Processing Center” at a P.O. box address. There is also a “payment” link within the email.

 

To determine if a CP2000 notice is real or not, see the IRS web page Understanding Your CP2000 Notice, which includes an image of a real notice. The IRS advised taxpayers or tax pros who receive this scam email should forward it to phishing@irs.gov  and then delete it from their email account. Taxpayers and tax professionals generally can do a keyword search on IRS.gov for any notice they receive. Taxpayers who receive a notice or letter can view explanations and images of common correspondence on IRS.gov at Understanding Your IRS Notice or Letter.

 

 

 

Here Come the Private Tax Debt Collectors … Again

Seven things you need to know about the upcoming IRS program

BY JIM BUTTONOW, CPA, CITP

 

There are almost 19 million people who owe more than $400 billion in back taxes to the U.S. Treasury.

 

Right now, 4 million taxpayers are paying the IRS through installment agreements, and the IRS is chasing 7 million more taxpayers for payment.

In late 2015, Section 32102 of the Fixing America’s Surface Transportation, or FAST, Act was put into law, requiring the IRS to use private debt collectors for delinquent tax debts.

 

The details of how the IRS implements this program will determine how successful it is – and how it will impact taxpayers and their advisors.


Previous attempts

This is the not the first time the IRS has been instructed to use private debt collectors.

 

The first attempt started in 1996 and lasted a little more than a year. The second lasted from 2006 to 2009. The first program collected about $3 million, at a cost of more than $1 million. The 2006-2009 program yielded $98 million, at a cost of $47 million.

During these initial attempts, there was widespread concern about how private debt collectors treated taxpayers and their personal information. The private debt collectors didn’t necessarily explain all the available payment options to taxpayers facing economic hardships. Those options include alternatives to full payment, such as installment agreements and penalty abatement. Many taxpayers were also concerned that private debt collectors would share their tax information.

 

Ultimately, the government scrapped both programs because they weren’t cost-effective and were fraught with potential risks to taxpayer rights and privacy.


Suspicions raised

Enter the third wave of private debt collectors, set to begin in the next few months. This time, the IRS faces new challenges in implementing the program, because the information security landscape has changed a great deal since 2009.

Today, taxpayers are increasingly wary of IRS imposter phone schemes that are prevalent during tax season and all year long. When private debt collectors call taxpayers this year, collectors will face skeptical individuals, wary of IRS imposters trying to scam them into paying “taxes” over the phone.


Seven facts you need to know

1. It’s coming soon. The IRS plans to select its authorized private debt collectors in the next two months and then begin using them in early 2017. The IRS will publish the names of these collectors on IRS.gov.

 

2. Private debt collectors will try to pursue the old, uncollectible accounts. The IRS wants private debt collectors to go after cases the IRS would never pursue – that is, outstanding, inactive receivables. The case criteria for private debt collectors are:

·      More than one-third of the 10-year collection statute has expired;

·      No IRS employee is assigned to collect the debt; and,

·      The IRS hasn’t contacted the taxpayer in a year, and the taxpayer isn’t requesting a payment alternative or relief (such as innocent spouse relief, a collection due process hearing, an offer in compromise, an installment agreement, etc).

Private debt collectors won’t pursue taxpayers younger than 18, those who have been a victim of tax identity theft, or taxpayers in a federally declared disaster area or combat zone.

 

3. The private debt collectors will try to locate “missing” taxpayers. When the IRS can’t locate taxpayers, it removes them from active collection. In the FAST Act, private debt collectors will pursue those accounts. As the National Taxpayer Advocate has pointed out, the methods these collectors might use to find and collect from these taxpayers could conjure up fears about how the IRS will protect taxpayer rights, information, and privacy.

 

4. Private debt collectors won’t have enforcement authority. Private debt collectors won’t be able to file liens or issue levies. Keep in mind, however, that the IRS may have already filed a tax lien on some taxpayers before the private debt collector ever calls. Collectors also won’t be able to help taxpayers get liens removed. To address enforcement actions, taxpayers or their advisors will need to contact the IRS directly.

 

5. Collection alternatives are still available through the IRS. If taxpayers need a payment alternative, such as an installment agreement, currently not collectible status, or an offer in compromise, they should contact the IRS.

 

6. The IRS will notify taxpayers if a private debt collector is assigned to their case. Before starting the private collection process, the IRS and the collector will send two letters:

·      First, the IRS will send a letter notifying the taxpayer that the IRS has assigned their case to a private debt collector.

·      Second, after assignment and before contacting the taxpayer, the private debt collector will send a letter.

According to the IRS, these notices will also go to the taxpayer’s representative on file, if any. The IRS hopes that these steps will notify taxpayers of the impending collection and relieve their fears about IRS imposter schemes.


7. Taxpayers experiencing economic hardship aren’t included. Taxpayers who are experiencing severe economic hardship and have an outstanding tax debt can apply for a special status that suspends their obligation to pay (referred to as currently not collectible status). Taxpayers who have negotiated this status with the IRS appear to be excluded from the private debt collection program. The IRS has not finalized this exclusion, but it appears likely that these taxpayers would be treated similarly to those who have requested a payment agreement with the IRS on their outstanding debt.


Third time’s a charm?

Navigating the IRS can be difficult. With imposter schemes running rampant, adding a third-party collector to the mix could add to taxpayer confusion.

 

According to IRS plans, taxpayers and their advisors should expect two letters to come before a private debt collector calls. And if a legitimate collector calls for payment, taxpayers and their advisors should first consider whether the client qualifies for a payment alternative with the IRS.

 

Congress hopes that the third private debt collector program will work better than the previous two initiatives. Time will tell, because the third round starts soon.

Jim Buttonow, CPA/CITP, directs tax practice and procedure product development for H&R Block. He has more than 28 years of experience in IRS practice and procedure.

 

 

 

W-2 and 1099 Filing Deadlines Compressed Next Year

BY MICHAEL COHN

 

The deadlines for filing the Form W-2 with the Social Security Administration and the Form 1099-MISC with the Internal Revenue Service are changing next year.

 

Starting in 2017, for the 2016 reporting year, both the W-2 and 1099-MISC recipient copies need to be submitted by January 31, whether by paper or electronic filing. That is months earlier than previous year and promises to increase both workloads and stress levels for companies and their accountants alike.

 

Making matters even more complicated, the new filing deadline, as it relates to Form 1099-MISC, only affects filers that report nonemployee compensation payments in box 7. The overwhelming majority of 1099-MISC filers will report information in box 7, so there’s sure to be plenty of confusion.

 

Greatland Corporation, a provider of W-2 and 1099 products for businesses, is stressing the importance of understanding the new deadlines and the impact they will have on filers. “In the 40+ years Greatland has been helping businesses with W-2 & 1099 reporting, I would rank this as one of the most significant changes,” said Greatland CEO Bob Nault in a statement.

 

Historically, filers have been required to provide both W-2 and 1099-MISC forms to their recipients by January 31. However, in the past they were not required to submit the forms to the Social Security Administration or the IRS until February 28 for paper forms or March 31 for e-filing.

 

With three months of work being condensed into 30 days, the change is likely to add plenty of work for filers next January. On top of that, the filing deadlines for Forms 1095-B and 1095-C also come on January 31 for recipient delivery, Greatland pointed out. This compressed schedule means businesses will face a time crunch when they need to do wage, income, and Affordable Care Act-related reporting for 2016.

 

Before the deadline change, businesses would be able to file W-2 and 1099-MISC recipient copies first and then wait to learn if any changes are needed before filing with the Social Security Administration or the IRS, which reduced the risk for possible corrections. Unfortunately, thanks to the advanced deadline next year, businesses might need to abandon that strategy and consider filing with the recipients and the SSA and IRS at the same time.

 

But that’s not all. To further complicate the multiple filing deadlines in January, the IRS recently eliminated the automatic 30-day extension of time to file W-2 forms. Before that, filers could automatically get a 30-day extension by submitting Form 8809 to the IRS on or before January 31. Filers were also able to request an additional 30-day extension, so they could push their e-file deadline out to the end of May. Now those automatic extensions won’t be available for business that need to file their W-2 forms for tax year 2016.

 

 

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: www.rigotticpa.com    email: rigotticpa@gmail.com  Tax ID # 38-3083077