Washington Changes Challenge the IRS

Challenges are currently occurring at the IRS. No I am not referring to the time it takes for taxpayers to get assistance from the IRS or even the TAS (Taxpayer Advocate Service). I am talking about the problems the IRS is having with implementing many of the new tax law changes that have been enacted in recent legislation.

I had a chance to review a report from the Treasury Inspector General for Tax Administration and there are currently about 100 new tax provisions that the IRS will have to implement.

Did you know that the IRS is currently dealing with one of the largest tax law changes in the past 20 years? With all the changes on the horizon, the IRS has increased their collection and enforcement personnel (one would think that IRS would increase their efforts to implement the tax changes) and not in enforcement.

What does this mean? Basically that IRS is increasing their collection and enforcement efforts on taxpayers and small businesses (the number of tax returns examined increased for individual, corporate and S-Corps over the past 5 years). Bottom line, the IRS is getting tough on the taxpayer.

The best thing for taxpayers to do is to take a proactive approach to their tax planning and know what to expect in the future. Many of the tax changes can swing in favor of taxpayers and small business owners so now is the time to start thinking about tax savings and not getting caught in any IRS traps.

The Tech Accountant

The IRS Gives Notice

In an effort to collect on the 300 billion plus  tax gap, the IRS will be ramping up the amount of notices they send to everyone. Currently there are about seven different kinds of notices that the IRS will send to taxpayers and small business owners and most of designated with the initials "CP" and a number. The CP stands for Collection Process meaning that the taxpayer' account is in collections with the IRS. Get more details of the different notices here:



If a taxpayer receives any of the notices outline in the audio, the first step is to get a copy of the tax return in question and review it. If there is a discrepancy, be sure to contact the IRS as soon as possible to get the issues resolved. There may be a chance that interests and penalties have accrued on the taxpayer's account, so be sue to speak with your tax professional on ways to have the penalties abated.

Be on the lookout in your mailbox taxpayers and small business owners, there may be a chance that the IRS notices you.

The Tech Accountant

5 Taxpayers the IRS is Targeting

There was a great deal of news that occurred over this past weekend but one of the more important stories was probably the deal between AT&T and T-Mobile to merge pending government approval. This will make AT&T the largest mobile provider and will affect a great deal of customers. There is however a little bit of other news that many tax payers may want to know regarding a new list out from the IRS.


According to the IRS, they are targeting specific groups of taxpayers for audits this year and taxpayers need to ensure that their return will not be flag by the IRS’s “Discriminant Function”. The 5 areas where the IRS is putting more focus is:

1. Schedule A Filers – Those that itemized their deductions

2. Schedule C – Those solo entrepreneurs that are not corporations

3. Schedule E – Those that own rental properties

4. Cash Basis Businesses – Those businesses that only use cash and not credit

5. Sales of Assets and other investments – Those taxpayers that have investments or assets for investments

What’s a taxpayer to do to ensure that their return is not flagged by the IRS? The most important factor is keeping good records that proved your deductions or credits are valid and that you qualify for them. Keeping good records can also help if your tax return is selected for an audit. Audits go a bit more smoothly when your paperwork is organized and typically result is no change or maybe even a little more money back for you.

The Tech Accountant

Is the IRS "Lien"ing on You?

The IRS recently announced changes to the lien filing process and OIC (Offer in Compromise) changes that are suppose to help taxpayers meet their tax obligations. The changes are the following:



1. The dollar threshold for when liens are generally issued is being increased, to at least $10,000 in back taxes. The previous threshold was $5,000.

2. The IRS will make it easier to withdraw a lien once a person pays off their tax debt. However, the withdrawal is not automatic. Once full payment is made, you will have to request the lien be removed. To speed up the withdrawal process, the IRS will streamline its procedures to allow collection personnel to withdraw liens.

3. The IRS will withdraw liens in most cases where a taxpayer signs up for a direct debit installment agreement, which means the IRS will pull the money directly out of your bank account. If you currently have an installment agreement but switch to a direct debit agreement, you can request that the lien be withdrawn. There is a catch. The IRS says liens will be withdrawn after a probationary period to make sure the direct debit is working.

4. Small businesses with $25,000 or less in unpaid taxes can now get an installment agreement over 24 months. It used to be that only small businesses with under $10,000 in liabilities could participate.

5. The IRS will revise the Offer in Compromise rules to allow participation by taxpayers with annual incomes up to $100,000. In addition, those with a tax liability of up to $50,000 may now submit an offer, double the old limit of $25,000 or less.

The Tech Accountant

You Can't File Your Tax Return Yet

After notifying taxpayers recently that many tax forms would not be ready for filing until February 14th, the IRS added some more forms to the list and these have an indefinite date for filing. Here are 6 tax forms that the IRS said will be delayed until a later date for filing.



Hopefully the IRS will give a specific date when these forms can be file in the near future.

The Tech Accountant

Tax Relief and Your Small Biz

For most small business owners, the year 2010 was a continuation of hard economic times felt during the past two years. The economic indicators now state that there are signs that the economy is starting to recover, however many small business owners are still waiting to feel the effects of the recovery. In an effort to assist the small business owners, Congress passed and the President signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17. The multi-billion dollar tax package includes a great deal of modifications to current tax law affecting small business owners and extends many tax provisions that expired at the end of 2009.


Small Businesses Modifications

The 2010 Tax Relief Act provides businesses with better incentives for investing in property that will help them run their businesses more efficiently. The Act increases the bonus depreciation limit from 50-percent to 100-percent for property purchased during periods September 8, 2010 thru December 31, 2011. The Act also extends 50-percent bonus depreciation on property purchased from December 31, 2011 thru December 31, 2012. Small business owners that have certain long lived property or transportation property may be eligible for 100-percent expensing for property placed in service before January 1, 2013.

The depreciation incentives for small business owners do not stop there, in addition to bonus depreciation; Code Sec. 179 Expensing (named after the IRS Code) has been modified. The investment limits were increased under previous legislation and the 2010 Tax Relief Act grants a $125,000 limit and a $500,000 limit on investment for tax years beginning in 2012. Depreciation allows small business owners to expense property purchased against their taxable income. The modifications to the tax law allow small business owners to recover the cost of property used in the businesses fast than traditional depreciation methods.

Small Business Extensions

There were quite a few extensions of previous tax law that were set to expire or expired in 2009. Among those extensions includes:

• 100 percent exclusion of gain from qualified small business stock

• Transit benefits parity

• Work Opportunity Tax Credit (with modifications)

• New Markets Tax Credit (with modifications)

• Differential wage credit

• Brownfields remediation

• Active financing exception/look-through treatment for CFCs

• Tax incentives for empowerment zones

• Special rules for charitable deductions by corporations and other businesses

Keep in mind that many of the 2010 Tax Relief Act’s provisions are temporary. It is important to plan early to maximize your tax savings. Be sure to speak with your tax professional to get all the details regarding the tax law changes.

The Tech Accountant

Tax Extenders...The Gift that keeps giving

The lame duck session of Congress finally made a move on the tax issues looming for the rest of the year and going forward. Here is a quick video outlining some of the individual tax updates that will affect your taxes.



The Tech Accountant

Small Biz vs. Form 1099's

I was under the impression that I would have more details regarding the proposed repeal of the Form 1099 reporting requirements today, but did not know it would be bad news.


Yes folks the Senate failed to repeal the 1099 requirements that many small business owners were hoping they would finish before the year end.

This means in 2012 small businesses will have the burden of providing a 1099 for any purchases that total $600 or more. Additionally very little information had been provided regarding the increased 1099 reporting requirements for landlords (in another bill this year) that starts in 2011.

Get ready for increased workloads small businesses for the score right now is Form 1099 (1), Taxpayers (0).

The Tech Accountant

You Deserve a Cool Credit

In these cooler weather months it's good to know that the IRS is offering us a cool credit that may warm our wallets and our homes. Check out all the details in this quick video.



The Tech Accountant

A Lame Duck still Quacks

All the votes have been tallied and all the precincts have reported…some people are happy with the outcome and some are not. Whether your Congress person won or not is not the issue at this point, the issue lies in what is going to happen in the lame duck session of Congress for the rest of the year and will you as a taxpayer be prepared. Here’s a quick rundown of what is on the table for taxpayers before the year ends:


• Bush Tax Cuts extended?

• Estate Tax?

• AMT?

• Health Care Reform?

I am not a betting man but would have to think that more than likely some taxes are going to go up. What taxpayers do before this year ends is important but you may need to call the psychic hotline or a crystal ball to assist you. When I looked into my crystal ball this is what I have come up with.


Be sure to speak to your tax professional (psychic) to ensure that all of your ducks are in a row for the upcoming tax season.

The Tech Accountant

Uncertain Tax Planning

The fall season typically brings about a change. Whether it is change in the temperatures, the changes in the leaves, or the change in the time (fall back) around this time of year everyone is experiencing a change. One thing that should not change during this time of year is a taxpayers’ ability to properly plan for the upcoming tax season. This year however, is one of the most difficult tax years to plan for due to the uncertainty in the Congress and our economy. The economy is currently filled with uncertainty making many small businesses hold on to their hard earned money and not hire more workers. Congress is adding their uncertainty to the pot by recently adjourning without addressing the expiring Bush tax cuts in addition to other important tax issues (AMT, estate tax, and more).


What is a taxpayer or small business owner to do in a situation of uncertainty? Listen to some of the ideas we have come up with for our clients here.



The Tech Accountant

A look back at the tax season

Now that the tax extension deadline is one day into the rear view mirror, many taxpayers (and us tax professionals too) would like to take a break away from taxes. This gives me the opportunity to sit back and reflect on some of the more memorable comments I heard during the year regarding taxes and filing. There were quite a few areas of tax law where some taxpayers I spoke with were unclear as to the rules but some of the major ones had to do with extensions with balances due, and failing to file a tax return.




Tax Extensions

When a taxpayer does not have all the information to accurately complete their return by the deadline, the IRS will allow for an extension of time to prepare the tax return. To request an extension, taxpayers must file Form 4868 (individuals) or Form 7004 (businesses) on or before the due date of the return. Typically this is where the misunderstanding starts. An extension of time to file your return does not include an extension of time to pay your tax liability. Taxpayers filing extensions should estimate to the best of their knowledge their tax liability and send a payment when filing their extension.



Failure to File

When a taxpayer does not file a tax return by the due date (including extensions) a failure to file penalty may be incurred. This rule has been in existence for quite some time, however many taxpayers are unaware of the penalty. This may also be a good time to notify taxpayers that the failure to file penalty has been increased for income tax returns filed more than 60 days after the due date (including extensions). Returns filed after 2008 qualify for the increased failure to file penalty in which the minimum penalty will be $135 or 100% of the tax not paid.

These are just two of the more frequent misconceptions that I personally heard about during the year, but there are more. With all the recent changes in tax law, there are sure to be more “grey” areas where many taxpayers may fall thru the cracks. One the reasons I always say taxes are a year round strategy that can be proactively done with your tax professional instead of reactively at year end.

The Tech Accountant

1099 Reporting...What's New???

Recently while speaking with a construction client, the topic of 1099’s came up and my client asked me if he was going to have to give a 1099 to every vendor that he does business with (he has a lot of vendors) and when would this start. As I gave him the details (i.e. requires businesses to file information returns if they pay more than $600 to a single vendor, won’t have to start until 2012) I could tell he did not want to deal with the burden of filing all those 1099’s. Well it seems Congress doesn’t want to deal with the burden of repealing the new 1099 reporting rules either.


The new 1099 reporting requirements will raise about $19 billion as part of the Patient Protection and Affordable Care Act. The burdens that the requirements put on the small business owner are sure to increase their administrative duties/costs considerably. There have been a couple of ideas being kicked around in Congress lately. One was to increase the amount required to file reports from $600 to $5000 and another was to exempt businesses with 25 or fewer employees. Obviously neither idea was passed.

So where do we stand now? Congressional leaders say that they have heard the cry from the masses and will repeal the law sometime before the first of the year (hopefully). I guess this will have to be as separate legislation since it was not attached to recent small business legislation signed into law. We will be sure to keep you posted on any changes in the 1099 reporting requirements as they are made.

The Tech Accountant

Bankruptcy and Your Taxes

Bankruptcy filings are at an all time high according to statistics released by the Administrative Office of the U. S. Courts, the highest number since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Taxpayers that file bankruptcy need to know the rules regarding bankruptcy protection and how tax debts can come into play. Before a taxpayer attempts to include federal tax debts under their bankruptcy protection they must determine what tax liabilities might be dischargeable.

Find out which tax liabilities are dischargeable here:



Taxpayers also must attempt to salvage their credit history by researching other options before including tax debts in bankruptcy filings. Tax administrative options can include a request for abatement of penalties, installment agreements, offers in compromise, and innocent spouse relief. If these options have been exhausted or are not viable for the taxpayer, including tax debts in bankruptcy may be the only solution.

Taxpayers can find assistance with bankruptcy and their tax situation by seeking the assistance of a good bankruptcy attorney and their accountant. Working in conjunction with the attorney and accountant, the taxpayer can determine which type of bankruptcy they need to file, what tax debts if any will qualify for discharge in bankruptcy, and how a bankruptcy filing will affect their tax situation in the future. Filing for bankruptcy is not the end of the world and for some taxpayers may be the only option to help them rebuild their lives.

The Tech Accountant

Form 1099 reporting - Need Your Input

Small business owners are in for a treat starting in 2012 if they do not voice their opinions. Under Section 9006 of the Healthcare Act all businesses, tax exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors who they make purchases from totaling over $600 during the calendar year.

What?!?!

So if you are a small business owner, the new law is going to increase your paperwork burden for the end of the year and may possibly increase your accounting fees. Currently there is a bipartisan effort to have this portion of the law repealed, but nothing has changed as of yet.

I would recommend that small business owners take the time to leave comments with the IRS regarding this new law. At the following link:

IRS Requests Pubic Input on Expanded Information Reporting Requirement

To hear my personal input, listen below.

The Tech Accountant

Time to start your business engines

Aspiring entrepreneurs that have been thinking about starting their own business are in luck if a current House Bill is passed. The Small Business Jobs Tax Relief Act of 2010 (H.R. 5486) would increase the Code Sec. 195 deduction for qualified start-up expenses. The current law allows small business taxpayers to deduct up to $5,000 in qualified start-up expenses with the deduction being reduced by the amount of total start-up costs exceeding $50,000. For tax years beginning in 2010 and 2011, the proposed House bill would increase the start-up expense deduction from $5,000 to $20,000 and the threshold will be increased from $50,000 to $75,000.


The bill is an attempt to spur the economy by allowing small businesses to recover more of their initial start-up investment on the front-end (instead of spreading the expense over many years) increasing their cash flow, and giving them the ability to invest in the economy and hire employees.

We will keep our eyes and ears focused on the developments coming out of Congress for more information on planning to start a small business, be sure to speak with an accountant, attorney, and do your own research at the Small Business Administration and other small business resources.

The Tech Accountant

QuickBooks Helping IRS Audit Your Books?

The IRS and Intuit are joining forces to make it easier to audit your small businesses. This information was provided from a recent liaison meeting. Does this allow auditors the ability to review QB data that is NOT within the audit scope allowing the audit to be expanded? Let me know your thoughts.



ISSUE:

I was informed yesterday by a Revenue Agent that a national directive has been issued to all Revenue Agents to obtain a copy of the QuickBooks file for any taxpayer being audited who uses QuickBooks. Apparently each audit group has one license from Intuit.

What I plan to do is to use the utility feature to condense prior years so that no detail can be accessed. My audit is for 2008, but obviously other periods can be opened if they want. Hopefully this is not their intention....I have asked for a copy of the directive.

My main concern is the cost of audit representation for our clients if the IRS goes crazy with this. I would love to get your thoughts on this.


RESPONSE:

There have been some substantial changes in the last six to twelve months regarding the issues raised. The IRS has purchased 1500 to 2000 licenses from Intuit and will have one agent trained and licensed per group to assist others in the examination of taxpayers who use QuickBooks. Agents are instructed to obtain a copy of the taxpayer's data base for the year under examination only when it is necessary. This examination tool will not be used in all cases - it is the judgment of the examiner.

IRS has found that many taxpayers do not save hard copies of their records or the copies they have are incomplete. The Service also found that taxpayers reuse an old version and over write the prior year. The examiner may request the data base to verify the integrity of the internal controls. A definite problem could arise where a client thinks they have turned off the internal audit feature to avoid  tracking of adjusting entries but the program does not totally delete these items.

If the qualified representative (power of attorney) considers the Revenue Agent's request for the data base as totally unnecessary, he/she should speak to the agent's group manager. If the taxpayer/representative refuses to provide the data base and the revenue agent/manager determines it necessary, a Summons to obtain the information would be issued.

I spoke with our SB/SE national Technical Advisor for electronic records in our Exam Special Processes unit regarding the issue stated below. The Revenue Agent referenced in the question may have been referring to a memo issued by Monica Baker, the Examination Director, in late April announcing the implementation of the QuickBooks software availability to Revenue Agents. However, there is no written directive that has been issued instructing Revenue Agents to request the electronic data file in every instance where the taxpayer uses QuickBooks or other electronic records.

While Rev Proc 98-25 provides the authority for the IRS to request electronic records, in most cases (with exceptions), the Service will generally request the data file if some sort of electronic system was used. It is indeed up to the agent's and manager's judgment at the group level to make the request.

Although the data file generally retains information from the date of initial input to the date of backup which could obviously include multiple years in addition to the actual audit year, agents are instructed to look at the information only for the year under exam. If there is a decision to expand the examination to prior/subsequent years, then information for those years could be reviewed. As mentioned, using the cleanup utility condenses prior year information into a summary, rather than a detailed, format.

As the software finds its way into RA groups and more agents are trained in its use, we could definitely be seeing a trend in the way exams are conducted since so many small businesses use QuickBooks.


Gerry Kelly-Brenner
ID #94-06950
Senior Stakeholder Liaison Specialist
SBSE Communications, Liaison & Disclosure

Internal Revenue Service
1301 Clay Street, Suite 1090S
Oakland, CA 94612

The Tech Accountant

S-Corp’s…a change may be a coming

Those professional small business owners that have organized their businesses as S-Corporations may want to take a look at the American Jobs and Closing Tax Loopholes Act of 2010. Contained within that bill is a little provision that will have a big consequence for professional corporations that are organized as S-Corps. Professional corporations consist of doctors, lawyers, architects, engineers and the like and if the new law is passed, the profits for these small business professional corporations will be taxed (currently proposed to be 15%).


Why Professional S-Corps should care?

Currently S-Corps owner/shareholders can minimize their tax liability by taking part of their earnings from “reasonable compensation” and the rest from distributions from profits. Reasonable compensation is taxed thru payroll and distributions are not subject to payroll taxes. With the passage of this bill, distributions will now be taxed. There are tests that must be tried to see if your S-Corp will be deemed a disqualified S-Corp so be sure to speak with your tax advisor to see if your S-Corp is considered disqualified.

What’s a Professional S-Corp to do?

Now is the time to contact your senator and tell them your thoughts about the proposed changes for professional S-Corps. If the bill is finally passed, there may be a chance that some professional S-Corps will close down in the coming years.

The Tech Accountant

New HIRE Form

For those small business owners that will be adding employees in the future, there is a new proposed form that will need to be filled out to ensure that your new employees qualify for the HIRE Act's tax break.

To view the draft of the form click here.

The Tech Accountant

Small Biz Hiring 2010

Here is an interesting article that I came across this morning regarding the steps small business owners should take when hiring for positions next year. I found the article to provide some very good ideas that many small business owners can benefit from. The advice to consider converting employees to independent contractors (IC’s) and/or hiring contractors is pretty sage, but I personally would seek out independent contractors outright. Converting employees to IC’s can be pretty dangerous and is frowned upon in the eyes of the IRS and other regulating bodies. The best advice in the article to me was the last suggestion to change your thinking and get away from the 8-5 work day. There is currently a change occurring in the working environment and many jobs can be done from the comfort of one’s home and at a cheaper price. This is definitely on way for a small business owner to save money in the long run. Let me know what you think small business owners.

B. N. S.