by Jean Miller | Accounting News, News, Resources, Retail & Distribution, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
On September 19, the Center for Audit Quality (CAQ) released its sixth annual “Main Street Investor Survey,” which shows that investor confidence in capital markets has increased 4 percentage points since 2011, with 65 percent saying they have “a great deal of confidence, quite a bit of confidence, some confidence, very little confidence, or at least some confidence.” The survey defines “investors” as those with $10,000 or more in such investments as mutual funds, stocks, IRAs, 401(k)s.
By way of comparison, confidence in capital markets outside the United States fell 8 percentage points, to 35 percent.
Confidence in investing in US publicly traded companies leveled off at 71 percent this year, a 1-point drop from 2011, and a 5-point drop from years 2008 through 2010.
CAQ Executive Director Cindy Fornelli said, “Individual investors, as a group, have confidence in audited financial information released by public companies and believe that auditors are effective in looking out for investors’ interests.”
Other findings:
- 69 percent of those surveyed say they have confidence in audited financial information released by public companies.
- 70 percent believe the American economy will either stay the same or improve over the next year; 20 percent believe it will get worse.
- 25 percent expect their personal financial situation to improve; 64 percent expect it to stay the same over the next year.
- The top four economic concerns are: (1) not having enough money for retirement, (2) not being able to afford health care in case of serious illness or injury, (3) not being able to maintain their current standard of living, and (4) fear of losing their jobs
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The survey was conducted after some disappointing news that was expected to dampen consumer confidence but didn’t: the lackluster initial public offering of Facebook and news that JPMorgan Chase and Co. lost more than $4 billion in derivatives trading. But, according to an InvestmentNews.com report, Fornelli said, “I don’t know that the average investor is that attuned to individual companies and individual stocks.”
The CAQ conducted just one of a flurry of consumer confidence surveys. The National Association of Home Builders says the “builder confidence index” is at its highest point since 2006, and new-home construction is up nearly 30 percent from a year ago, New York magazine reports.
In his New York magazine article, “The Confidence Game: The Economy Is Recovering, Most of Us Think,” Kevin Roose says, “So, with a pile of imperfect polls and statistics mostly pointing in the same direction, it’s relatively safe to say that four years after the near-collapse of the financial system, we’re seeing the light at the end of the tunnel – or at least we think we are.”
Yet another survey indicates that perceptions don’t always match the facts. BusinessWeek reported on a survey by Franklin Templeton that asked individual investors about their perception of markets since the previous year. In 2011, 48 percent of investors said the markets were down over the course of 2010, when the Standard & Poor (S&P) 500-stock index rose more than 15 percent. Data released September 18 shows that 53 percent thought the S&P had dropped 2011, but it actually rose 2 percent.
Full article: http://www.accountingweb.com/article/investor-confidence-us-companies-inching-upward/219889
by Jean Miller | Accounting News, Audit and Accounting, Bookkeeping, Business Consulting, Financial Statement Reporting, IRS, News, Tax Consulting, Tax Planning
In a recent decision that considers the authority of the IRS to issue retroactive regulations, the Supreme Court ruled in United States v. Home Concrete that the IRS may not apply an extended six-year limitations period in certain tax shelter cases. The extended limitation period applies under IRC 6501(e) when a taxpayer “omits from gross income an amount properly includible” in excess of 25 percent of gross income. The court’s decision in Home Concrete has reversed cases where the government won in lower courts.
In 2009, the IRS issued temporary and final regulations that reinterpreted the established precedent for IRC 6501(e), Colony Inc. v. Commissioner, where the court had ruled on the language of the Code. The IRS regulation claimed that an overstatement of basis in property was an “omission” of gross income under the statute. The regulation would apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. The IRS then used this regulation as the basis for challenges to certain taxpayers. The Supreme Court rejected the 2009 IRS interpretation and reaffirmed its ruling in Colony.
In a recent exchange with AccountingWEB, Todd Welty, a partner in the Tax Litigation practice of SNR Denton in Dallas, reviewed the facts of United States v. Home Concrete and discussed its significance for the IRS and accountants. In 2007 through 2009, Welty, along with Senior Managing Associate Laura Gavioli, achieved rare taxpayer victories under the IRS’s six-year statute of limitations, including Grapevine Imports, Ltd. v. United States and MITA Partners v. Commissioner. These cases – like Home Concrete – test the boundaries of an agency’s authority to issue retroactive regulations, and the consequences have broad-reaching effects beyond tax law.
Q: What were the facts of the Home Concrete case? What was the government’s argument? What did the court conclude?
A: These cases began because the government alleged that the taxpayers had engaged in Son of Boss transactions, which the IRS has characterized as abusive tax shelters. Most taxpayers at issue disputed this characterization. Despite the IRS’s claim that failing to audit these taxpayers would result in massive losses of government revenue, the IRS had failed to open examinations against these taxpayers within the normal three-year window for examination and assessment under IRC 6501. According to a Treasury Inspector General report, the IRS “deliberately delayed” examining these taxpayers and allowed the three-year statutes to lapse, citing a need for further issue development.
The IRS instead sought to rely on a statutory exception under IRC 6501(e), which gives the IRS six years to pursue taxpayers who “omit” items of income exceeding 25 percent of the amount shown on the return. According to the IRS, since the taxpayers substantially underreported their taxable income due to the alleged Son of Boss transactions, the taxpayers met the statutory test, and the IRS argued it was entitled to three additional years to audit them.
Q: What was the problem with this view?
A: The IRS’s position was in direct conflict with the Supreme Court’s interpretation of the predecessor statute to IRC 6501(e) in Colony Inc. v. Commissioner, 357 U.S. 28 (1958). In that case, the Supreme Court had examined the exact same language relied on by the IRS and reviewed the legislative history of the statute. The court concluded that the statute was designed to give the IRS additional time to examine returns not just because the amount at issue was large. Rather, the statute gave the IRS this additional time only when the taxpayers’ reporting left the IRS at a “special disadvantage” in detecting errors. Thus, the focus was not on the size of the amount at issue, but on what the IRS could have known or should have known from looking at the return.
Consequently, the Supreme Court in the Colony case held that the term “omits” in the statute should have its plain meaning, that is, to “leave out” entirely. Since the taxpayer in the Colony case had adequately disclosed the disputed transaction and his tax position – even though that position disagreed with the IRS’s view – the IRS had no recourse in the extended statute of limitations. At the end of Colony, the court noted that the predecessor statute had been recently replaced with the current IRC 6501(e) and that the court’s result was “in harmony” with the current statute.
The present taxpayers further argued that Colony was directly on point because, like the taxpayer in Colony, all of the present taxpayers were alleged to have underreported their income due to an overstatement of their basis in property. In Colony, the property was a series of residential lots. In the present cases, the property usually was a short position in Treasury notes. Many of the taxpayers’ disclosures on their returns met or exceeded the disclosures that the taxpayer had made in Colony.
In 2009, after the IRS had lost numerous high-profile cases on this issue, the IRS issued temporary and final regulations that purported to reinterpret IRC 6501(e) in a manner that directly conflicted with the central holding of Colony. The regulations explicitly held that an overstatement of basis in property was an “omission” of gross income under the statute. This regulation purported to apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. In other words, the regulation was intended to apply to any pending cases that had not become final following an appeal, even if the IRS had already litigated and lost these cases. Essentially, the regulation was meant to undo unfavorable judicial decisions that the IRS had received.
The Supreme Court decision in Home Concrete soundly refused to deviate from Colony. The regulation at issue was an act of overreaching on the government’s part. In particular, the majority noted that it would be difficult to distinguish between the predecessor statute and IRC 6501(e) because they use identical language, the term “omits.” Further, because the court in Colony found the language of IRC 6501(e) to be “unambiguous” on this issue, the court held that the IRS had no discretion to issue a regulation that contradicted a prior controlling interpretation from the court.
Q: On May 1, CCH published a list of cases: Supreme Court Docket: Cert Granted and Cases Remanded Due to Home Concrete. Does this mean that the cases are no longer before the court?
A: This means that the cases are no longer before the court and that the IRS has effectively lost all of the cases. The Supreme Court has reversed any cases where the government won in lower courts and has sent instructions to the lower courts to enter judgment for the taxpayers.
Q: How should accountants use this case in their practice?
A: This case has several important consequences for accountants. First, it is an important reminder that when the IRS intends to rely on an exception to the statute of limitations to audit your client beyond the normal three-year window, the IRS must have a sound argument for relying on that exception and must be able to back that up with solid proof. Accountants should seriously scrutinize any late-received audit notices and carefully consider whether to advise their clients to consent to extending any statutes of limitations in this situation.
Further, this case will have implications for the proper deference to give any Treasury Regulation or other administrative regulation. Under the court’s decision last year in Mayo Foundation v. United States, 562 U.S. (2011), Treasury Regulations are generally entitled to heightened deference. However, Home Concrete shows that not all regulations are created equal and not all are infallible. A regulation issued much later than its originating statute (here, more than fifty years later) may be subject to greater scrutiny. Also, a regulation motivated by an improper purpose (here, interfering with unfavorable judicial decisions) may also be subject to challenge.
Full Article: http://www.accountingweb.com/topic/tax/irs-cannot-extend-three-year-limitation-due-overstatement-basis
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
Gina Noy offers her clients stress-free tax preparation.
It’s not often you find “stress-free” and “tax” in the same sentence, especially during busy season, but for Noy, it’s a philosophy that carries through her Manhattan-based CPA firm.
Noy, who offers tax planning, budget advice, and bookkeeping services, works with a variety of different clients – from individuals and small businesses to start-ups and medium-sized companies. However, she said her sweet spot tends to be start-ups and companies in their second or third year of business – those moving toward a big growth stage.
According to Noy, many new businesses will experience a net loss in their first year – especially in the start-up phase – and she said that’s not necessarily a bad thing.
“If you have other income (such as W2), losses from your business can offset it, reducing your overall tax burden,” she said. “In other words, losses don’t have to be a total loss. However, they can impact your cash flow, your ability to grow your business, and attract investors and financing.”
She said many of her clients – especially those just starting a business – have to deal with correctly identifying whether they’ve hired an employee or a contractor. In the case of an employee, the business owner will be responsible for self-employment tax and keeping and filing additional documentation. Incorrectly identifying an employee’s status may expose the business owner to potential audits and penalties.
“My role in my clients’ business is to educate them,” Noy said. “Spending extra time, especially with new clients . . . educating them, helps them to succeed. I give my clients baby steps in tax, finance, and budgeting.”
It may only be a part, but for Noy, if her clients don’t understand the importance of tax in their business, they’re most likely not going to understand the importance of other financial matters.
“Especially with people who make a transition from working with a company and being self-employed, you feel like you’re floundering in the ocean. The income you earn isn’t always yours to keep, and you have to be responsible enough and realize that with the freedom of being a freelancer, you get a lot of responsibility.”
Noy recommends individuals just starting out to wait on incorporating and operate as a sole proprietor. She suggests saving the money on those start-up fees by purchasing insurance instead, and perhaps incorporating later on.
Many small business owners underestimate the responsibilities of running their business, and simply providing good service isn’t enough, Noy said.
“It’s very important to bill your clients, it’s very important to collect money from those clients and pay your bills on time. One thing leads to another. I find a lot of business owners will work extremely hard but will take a back seat to the financial part.”
And often, entrepreneurs and those just starting out will listen to advice from their friends and family rather than a professional, and they start making decisions, such as forming an LLC, without really having the information they need.
In January, Noy was a presenter at the Reboot Workshop in New York City, a networking event and “unconference” for freelancers and entrepreneurs. She said 90 percent of attendees’ questions were about incorporation and how entrepreneurs should move forward – “Should I incorporate, what type of incorporation should I be, when should I incorporate,” she recalled. “A lot of people incorporated but didn’t know what to do with it.”
Most new business owners are misinformed about write-offs as well. Noy said there are several that aren’t taken advantage of, including setting up a business retirement plan.
“Many clients don’t realize that they can put away as much as $49,000 for 2011 or $50,000 in 2012. Instead of looking for small deductions, business owners should start thinking big. By putting away money for retirement, they can save on taxes and provide for their future.”
Noy also added that many freelancers and entrepreneurs think health insurance is unapproachable and too expensive; therefore, they just put it to the side.
“There’s a way to offset a high deductible – put away pretax money into a Health Savings Account (HSA),” she said. “Tax savings are there. A little planning can go a long way.”
Cash flow management is vital to the successful operation of a small business. Noy says that once she walks her clients through their financial records, figures out how the money is flowing in and out, helps them value their business, and discusses how to price their services, the stress for the client goes away.
For many small business owners, especially freelancers, coming up with rates for services is often a trying and daunting process. Noy said she doesn’t figure out the rates for them, but she does walk them through their expenses and overhead to do some budgeting.
“A lot of people ask me what they should be charging. Of course, it really depends on what the industry expectations are, but it also depends on what their costs are,” she said.
If business owners’ costs are high due to their industry or overhead, then they may need to target corporate clients or more high net worth individuals. On the flip side, if business owners or entrepreneurs have low overhead and work out of a coffee shop on a laptop for the first two years, they can keep their pricing low and target a higher volume of clients – as many as they can service – and grow their business. They can raise their rates later.
The other piece, Noy points out, is knowing your market and pricing competitively. A business or entrepreneur charging too little, say $75 an hour for a service where everybody else is charging $125, could actually deter potential clients.
“I’m going to think something is wrong with your service because it’s too cheap,” she said. “I advise clients that you might want to offer $125, but offer a discount and say ‘I love your business, I really want to do work with you and I can give you a 20 percent discount.'”
Noy stresses that the most important thing for a small business owner or freelancer to remember is to learn how to budget and realize that money management is the key to their success.
“Without managing what’s coming into their business and what expenses have to be paid to come out of their business, it will be harder for them to grow.”
Full Article: http://www.accountingweb.com/topic/tax/making-taxes-less-taxing
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
Beginning this year, IRS Taxpayer Assistance Centers (TAC) generally will not accept bulk returns for processing and mailing, particularly when it affects taxpayer services. The IRS hopes to eliminate the practice of taxpayer representatives dropping off completed returns for processing, especially during peak operating periods.
The intent of this policy change is not to limit assistance to taxpayers or their authorized representatives. Nor is it intended to limit taxpayer representatives’ visits to support their clients, particularly in situations where the taxpayer is facing financial harm or undue hardship, such as delinquent returns or to start or stop an installment agreement. It is designed, primarily, to stop the practice of dropping off returns solely for processing and mailing when the returns can be mailed directly to the IRS processing center. The TACs will accept returns with imminent statute implications, with remittances or other situations where it’s in the best interest of the taxpayer and the Service to accept them.
Local TAC managers have the authority to make exceptions to this policy and will accept drop-off returns if, in their opinion, tax preparation and other customer account services are not impacted.
The IRS encourages all tax preparers to take advantage of available e-file options to file returns electronically to avoid the need to have returns accepted and mailed at the local Taxpayer Assistance Center.
Full Article: http://www.accountingweb.com/topic/tax/irs-discourages-tax-return-drop-offs-taxpayer-assistance-centers
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
By AccountingWEB Staff
Time is running out before the payroll tax rate automatically increases in two weeks, and the dispute over how to fund it continues.
The tax measure at issue would maintain the payroll tax rate at 4.2 percent for the year 2012 instead of allowing it to revert to 6.2 percent January 1. It’s a tax cut worth about $1,000 to families earning $50,000 a year. The payroll tax bill also would renew benefits for the long-term unemployed and prevent a cut in Medicare benefits for seniors.
This morning (December 19), the Associated Press reported that “Boehner spoke after a chaotic weekend in which Senate leaders first failed to agree on a full-year bill, then coalesced around the two-month extension that passed overwhelmingly, only to spark a revolt among GOP conservatives in the House.”
Here’s a summary of what’s been happening:
While the GOP-led House passed a bill on December 14 extending the tax cut, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees. In addition, it raised Medicare premiums for seniors, and it raised a fee that’s charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac. The bill didn’t have the votes to pass the Senate.
On Friday, December 16, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement requires the administration to decide within 60 days if the controversial 1,700-mile Keystone XL pipeline is in the nation’s best interests. Some environmental groups oppose the project, but several unions support it.
Senate Republican Leader, Mitch McConnell, said Keystone XL would create about 20,000 jobs. Critics say the figure would be fewer than 3,500, including fewer than 1,000 that would be permanent.
House Speaker, John Boehner, said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.
Obama would prefer to postpone the controversial matter, and he threatened to veto any bill that forces a decision. Because the project crosses international borders, it requires White House approval. The administration complained that House Republicans are injecting “ideological issues into what should be a simple debate about cutting taxes for the middle class.”
Original Article: http://www.accountingweb.com/topic/tax/wrangling-continues-over-payroll-tax-cut
