More on the Fresh Start Program

IRS Announces New Voluntary Worker Classification Settlement Program;
Past Payroll Tax Relief Provided to Employers
Who Reclassify Their Workers as Employees

The Internal Revenue Service today launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.

This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.
This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.
To be eligible, an applicant must:

• Consistently have treated the workers in the past as nonemployees,
• Have filed all required Forms 1099 for the workers for the previous three years
• Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Full details, including FAQs, are available on the Employment Tax pages of IRS.gov, and as always, we are here to help! Contact our office today and let us take the confusion out of tax law for you and your business.  Focus on making money and leave the rest to us.

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

IRS Shows Continued Progress on International Tax Evasion

The Internal Revenue Service continues to make strong progress in combating international tax evasion, with new details announced today showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.

The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program — a figure that will increase because it doesn’t yet include penalties.

“By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”

Global tax enforcement is a top priority at the IRS, and Shulman noted progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.

The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009. The programs gave U.S.taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.

The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.

“My goal all along was to get people back into the U.S. tax system,” Shulman said. “Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion.”

In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.

The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.

“This dollar figure will grow in the months ahead,” Shulman said. “But just as importantly, we have changed the risk calculus. Americans now understand that if they try to hide assets overseas, the chances of being caught continue to increase.”

The financial impact can be seen in a variety of other areas beyond the 2009 and 2011 programs.

• Criminal prosecutions. People hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars.
• UBS. UBS AG, Switzerland's largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government.

The two disclosure programs provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion, and the IRS will use this information to continue its international enforcement efforts.

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Hire your spouse for some great tax benefits - Appeals Court agrees!

Small businesses often rely on family members to help with the work. When a family member is also an employee, complicated tax and benefits issues can arise. The Court of Appeals for the Tenth Circuit recently reversed the Tax Court's decision that the wife of a small business owner was not an employee of the business. Treating the wife as an employee allowed the business to deduct as an expense the cost of reimbursing her for medical expenses.

In this case, the husband began farming in 1978. He operated his farming business as a sole proprietorship. His wife started working on the farm in 1982. Typically, she worked 40 hours each week engaged in activities such as planting and harvesting crops, feeding farm animals, doing maintenance and repairs, and some bookkeeping. Her husband directed all of her work activities. Beginning in 2001, the husband reimbursed his wife for out-of-pocket medical expenses and health insurance premiums under a medical reimbursement plan. The husband also began paying her $100 monthly; previously, she apparently received no compensation. In 2001, the husband also purchased a pre-packaged medical reimbursement plan for small farms.

On their joint federal returns, the couple deducted medical expenses not covered by insurance as ordinary business expenses for the employee benefit program. According to the couple, the business expenses were justified by designating the wife as her husband's employee for the work she did on the farm. The IRS disagreed. The Tax Court also ruled against the couple, finding that the wife was not a bona fide employee.

The appeals court looked to a similar IRS decision from 40 years ago. In Rev. Rul. 71-588, the taxpayer operated a small business as a sole proprietorship and employed his wife in the business. The IRS determined that amounts reimbursed under a health plan covering all bona fide employees, including the owner's wife were excluded from employees' gross incomes and were deductible by the owner as business expenses. The court noted that the Tax Court had decided similar cases in favor of taxpayers (Speltz, TC Summ. Op. 2006-25; Fraham, TC Memo. 2007-351).
 

The court also found that the couple had "cross all the Ts and dotted all the Is" in maintaining very good records. The wife kept a daily log of her farm activities. The husband paid payroll taxes on the monthly amounts issued to his wife. The court found no problem with the monthly payments coming from the couple's joint checking account. Opening another account would merely create another layer of business complexity, the court observed.  The court also noted the wife's testimony at trial. The wife testified she never identified herself as her husband's business partner. Rather, she represented herself as an employee. The court remanded the case to the Tax Court. The court instructed the Tax Court to take a fresh look at whether the wife was an employee.

Many small businesses employ family members to save tax money and grow the business. If you have any questions about employing a family member in your business, as always, we are here to help! Contact our office today and let us take the confusion out of tax law for you and your business.  Focus on making money and leave the rest to us.

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Hurricane Irene Tax Relief

The Internal Revenue Service is providing tax relief to individual and business taxpayers impacted by Hurricane Irene.

The IRS announced today that certain taxpayers in North Carolina, New Jersey, New York and Puerto Rico will receive tax relief, and other locations are expected to be added in coming days following additional damage assessments by the Federal Emergency Management Agency (FEMA).
The tax relief postpones certain tax filing and payment deadlines to Oct. 31, 2011. It includes corporations and businesses that previously obtained an extension until Sept. 15, 2011, to file their 2010 returns and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter of 2011, which would normally be due Sept. 15.

How does this change effect you or your business? Call us now for a free consultation!

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

      www.securitytaxservices.com

California Lawmakers Give Amazon Tax Reprieve

California lawmakers overwhelmingly approved a compromise bill Friday night giving Amazon.com a one-year reprieve from having to collect a sales tax from its customers in the state. Under the new measure, Amazon agreed to start collecting the tax in September 2012 unless there was federal legislation on the issue. Senator Richard J. Durbin, a Democrat from Illinois, has proposed a national law requiring e-commerce companies to collect sales tax, but it has not gained much traction. Legislatures around the country, supported by struggling bricks-and-mortar stores, have been seizing on the sales tax issue as a means of raising much-needed funds. Amazon is fighting in the courts against a New York law compelling it to collect taxes, and has used the prospect of either opening or closing warehouses as a bargaining chip in negotiations with Texas and South Carolina. The deal with California might embolden other states, said Robert W. Wood, a tax lawyer here. “Other states needing money will look and say, ‘It wasn’t a smooth process, but California is going to come out ahead,’ ” Mr. Wood said.

California lawmakers spent much of the summer trying to compel Amazon to collect the tax, but the Seattle-based retailer aggressively resisted, spending $5 million to gather a half-million signatures to take the matter to voters in a referendum next June. The battle pitted Democrats and the California Retailers Association against Amazon and Republicans, who called attempts to collect the tax a tax increase. Consumers are supposed to pay a use tax on material they buy online, but few do. Under the deal, the referendum will now be dropped. Amazon called the new measure “win-win legislation” that would allow it “to bring thousands of jobs and hundreds of millions of investment dollars to California.”

Lawmakers had hoped to collect $200 million in taxes from Amazon and other online retailers for the current state budget. That money will now have to be found elsewhere. Nevertheless, the legislators said they were pleased.  Loni Hancock, a Democratic state senator from Berkeley, said: “We would have liked them to begin collecting the tax already, but this is a positive step forward.” She mentioned another benefit: avoiding a noisy referendum campaign that the state could easily have lost.
Left unmentioned by either side was the possibility that Amazon might be trying to buy some time. If it moves several small subsidiaries out of the state, it could argue that it no longer has the physical presence in California that requires it to collect the tax. The measure now goes to Gov. Jerry Brown, who has not spoken publicly about it. The vote occurred Friday night, with only a few dissenters in either chamber.

By DAVID STREITFELD Via The New York Times

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

The IRS announced that interest rates will decrease for the fourth quarter of 2011.

The Internal Revenue Service today announced that interest rates will decrease for the calendar quarter beginning Oct. 1, 2011. The rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
  
• three (3) percent for underpayments;
  
• five (5) percent for large corporate underpayments; and
  
• zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during July 2011 to take effect Aug. 1, 2011, based on daily compounding.

How does this change effect you or your business? Call us now for a free consultation!

Robert A. Branting, Sr., EA

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com