RONI DEUTCH SUED BY CALIFORNIA ATTORNEY GENERAL

I presume that you have seen the Roni Deutch commercial on TV claiming that she can negotiate with the IRS and you will only have to pay pennies on the dollar. These ads always infuriate me because, as a tax professional, I know that she cannot do what she claims and her claims confuse the public. According to the lawsuit, the claims made in the ads are false and the people actually still owe the money. She spends over $3,000,000 per year on advertising.

The thing that upsets me the most is that the people that she is preying on are having financial problems in the first place and working with her just makes their problems worse. Look at the lawsuits. The 45 people working for her are not tax experts, but actually salespeople.

Now she gets what is coming to her. Roni Deutch, the so-called “Tax Lady” has been slapped with a $34 million law suit by California Attorney General, Jerry Brown.

According to the Attorney General’s web site, “Tax Lady Roni Deutch is engaged in a heartless scheme that swindled people with tax problems. She promises to significantly reduce their IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills.”

Brown’s office says that rather than reducing tax bills, Deutch actually increases taxpayer’s debt by putting them “in an endless loop of requests.” Brown claims the reason for the requests are to boost her bottom line at the expense of the taxpayer.

Further, Brown says that Deutch’s TV ads are “misleading” and feature fictional testimonials promising impressive results, despite the fact that Deutch’s success rate is said to be about 10% in tax cases. The claim states that “most clients never obtain a tax debt resolution” from Deutch.

In the complaint, Brown specifically cites an ad called, “It’s Your Turn” which features three clients whom Deutch claims to have “saved” from having to pay thousands of dollars to the IRS. According to Brown, those clients still owe the IRS the full amount of their taxes, plus interest and penalties.

Deutch’s practices inside her firm are called to the carpet in the complaint, as well. Brown’s office claims that Deutch’s law firm is actually a high pressure “boiler room” where she belittles her employees. “She screams at and berates sales agents who are not performing adequately,” according to the complaint. The complaint alleges that Deutch requires her employees to promise callers results that the potential clients are likely to never see.

Brown’s complaint seeks nearly $34 million in restitution for clients, including funds to refund taxpayer retainers which Brown’s office alleges were improperly retained. The complaint also seeks to prevent Deutch from engaging in unfair business practices and false advertising. The State has also asked for a preliminary injunction to force Deutch to cease her “illegal practices” prior to the resolution of the complaint.

Deutch and her office had to see this coming. In March, Brown posted an alert for California taxpayers warning them to avoid “phony tax-relief companies” that charge exorbitant fees, but provide no actual relief. At the time, Brown advised taxpayers, “Every tax season, phony tax-relief companies emerge to exploit cash-strapped Californians who owe back taxes to the IRS. Taxpayers should be on high alert, avoid paying up-front fees to these companies and never ignore notices from the IRS.”

This isn’t Deutch’s first public complaint. In 2006, she agreed to pay $300,000 to settle a lawsuit filed by New York City’s Department of Consumer Affairs for similar complaints about her misleading commercials.

I’ve heard a number of complaints from taxpayers who have worked with so-called tax debt relief companies who promise big results. I’ll just say this… If it sounds too good to be true, it probably is. There’s a reason that you don’t see most tax attorneys on TV promising you “pennies on the dollar.” I can’t stress enough how important it is to work with a trustworthy tax professional – one that returns phone calls and letters, one that keeps you posted about the status of your matter – to resolve your tax obligations.

Take a look at Deutch's website at: www.ronideutch.com. Listen to the testimonials, and then listen to what the California attorney general is saying about her:
http://www.washingtonexaminer.com/breaking/california-ag-sues-tax-lady-roni-deutch-for-34-million-accuses-her-of-defrauding-customers-101323199.html.

p.s. She doesn't really look like the picture on her website.

Larry Kopsa CPA

QUESTION ON WITHHOLDING FROM AN EMPLOYEE'S PAYCHECK

Larry, thanks for all the information. Could you answer this for me? I have an employee that broke a piece of equipment that cost over $300. I want to take $50 a pay period out of her payroll check. Before I start recovering my money I want to make sure that I am not getting into an trouble. Your thoughts?

Inus

Inus, making unauthorized deductions from an employee's pay can be a serious mistake. Employers can legally deduct from an employee's pay amounts that are only authorized or required by law (such as tax withholding), by court order (such as garnishments), and amounts authorized by the employee (such as the employee's share of health insurance).

What are unauthorized deductions? State laws vary and it can be tricky. In addition, federal wage and hour law requires payment of agreed upon and earned wages (with the allowed deductions listed above.)

I would recommend that you first talk with your attorney to see if this is permitted by your state law or your state department of labor. Even with the employee's permission, this could be a problem.

Larry Kopsa CPA

WANT TO SEE HOW THE TAX PROPOSALS WILL IMPACT YOU?

The tax foundation has updated their interactive calculator at www.MyTaxBurden.org to include the Democrats’ plan for the expiring Bush-era tax cuts recently scored by the Joint Committee on Taxation.

Now you can compare you 2011 federal income tax liabilities under four policy scenarios:

(1) All the tax cuts expire completely at the end of this year
(2) All the tax cuts are extended into 2011 or made permanent
(3) President Obama’s budget is adopted, which would allow the tax cuts to expire for families making over $250,000 a year (singles making over $200,000), extend some stimulus measures and impose new limitations on itemized deductions
(4) Congressional Democrats’ recent proposal is adopted, which is similar to the Obama plan but does not extend stimulus measures or include additional limits on itemized deductions.

All you have to do is type in basic information – such as filing status, wage income and number of dependents – along with optional more detailed information – such as capital gains and dividend income, state and local taxes paid and other itemized deductions – and determine what your federal income tax burden would be in 2011.

QUESTION ON PAYROLL DEPOSITS NOT MADE

Larry, what are your thoughts on this. My salon is not doing very well. I have some serious cash flow issues. I can't make my payroll tax deposits. How much trouble am I in?

Ted

Ted, sorry that you are having problems. My best advise is to do a cash flow budget to determine if there is a light at the end of the tunnel. As far as missing the deposits, this is a big mistake.

Failing to deposit withheld income taxes, Social Security and Medicare contributions, and employer matching amounts on time can be expensive. The government wants its money by strict deadlines. Penalties accrue quickly if your business or organization misses deposit deadlines. As far as the government is concerned this is money that you are holding from them. Not giving it to them timely is paramount to stealing. That is why the penalties are so high.

The penalty for not making deposits on time is:

1 to 5 days late, 2 percent of amounts due.
6 to 15 days late, 5 percent.
16 or more days, 10 percent.
15 percent if notice from the IRS is ignored, plus interest on the amount not deposited, plus 100 percent of the uncollected amounts if the failure to deposit is willful.

Note this grave, personal danger: These penalties can be levied personally against all responsible individuals in a business or organization. The corporate veil is no shield in these situations. Any individual with a responsibility for getting the money to the government on time faces possible exposure to penalties and fines. This includes non owners.

Let me know if there is anything I can do to help.

Larry Kopsa CPA

QUOTE OF THE WEEK

"And in the end, it's not the years in your life that count. It's the life in your years."

Abraham Lincoln

BETTER BUSINESS BUREAU WARNS ABOUT A PHISHING SCAM

The AP reports, "Companies in Nebraska and across the nation are being warned to be on the lookout for bogus e-mails supposedly sent by the Better Business Bureau." According to the story, "the e-mail's subject line includes a nine-digit complaint number," and the text of the message "claims that the recipient didn't respond to a complaint filed by 'Jason Harlow'" or other name. If the link is opened, "malware is downloaded." See the AP story by going to http://www.krvn.com/news/index/7019ed14-95d8-4c5b-97c5-c50df2a63b59>

HOW WOULD THE EXPIRATION OF THE BUSH-ERA TAX CUTS AFFECT AVERAGE MIDDLE-INCOME?

Nationally, the typical middle-income family, which has a median income of $63,366, would see its federal income tax burden increase by $1,540 if the Bush-era tax cuts expire.

A new report by the Tax Foundation shows how the expiration of the Bush-era tax cuts would affect the average middle-income family in each state and congressional district. The report looks at the average family in the middle 20 percent of the income spectrum and compares their 2011 federal income tax liability if all the tax cuts expire to their tax bill if all the tax cuts are extended.

CUSTOMER SERVICE TIP

I received this customer service tip from Kathy Jager. I thought it was a good reminder so I am passing it on. You can see her website at www.kathyjager.com.

Being Interested!
The number one skill that you need to develop is a genuine heart for other people. I use the word develop because for some people it is not natural to be interested in what other people have to say. They would prefer to be listened to than to hear you talk. In the beauty business it is all about the PEOPLE. We are in the people service business and as we cut, carve and create, we also listen, encourage, and console. That is the beauty of our world. As professionals we must understand and place enormous value on the human experience. People come back year after year because of a feeling they get when they are with you, so pay close attention to your customer service skills, and make sure they are in alignment with how you want to be perceived as their personal beauty professional.

Great customer service tips:

Look your client in the eye; make them feel your presence.

Be consistently good! Not occasionally great!

Make their time fun and light-hearted!

Consistently improve your customer service skills!

Remember...It's all about the feeling they get with their service that offers that extra edge and provides a valuable experience.

NO COMPROMISE BIKE TOUR

Last week I had the honor of participating in the first No Compromise bike tour organized by Neil Dukoff. The five day ride took place in western Vermont. There were 11 industry people on the trip. We rode about 45 to 60 miles per day (mostly up hill) and then after the rides sat around and discussed salon and spa issues. Vermont Bike Tours was our guide. We stayed in three different bed and breakfasts. One of the B and B's was the exterior that they filmed for the old Bob Newhart Show. Remember the Stratford Inn? I looked for Bob and Darrell and his brother Darrell and the other brother Darrell but could not find them. Beautiful country, great ride and great networking. I will not compromise next year so I plan on going on the Second No Compromise bike tour.

Larry Kopsa CPA

BUSH TAX CUTS

If you are interested in the debate on letting the Bush Tax Cuts expire I have harvested some of the pro and con articles. My thinking is that I agree with the first article that increasing taxes in actuality slows down revenue. I can give you examples of clients that did not expand their businesses during the high Carter tax years because the government was going to get up to 80% of any profit that was made. Here is a quote from President Kennedy on taxes that is in the Soak the Rich Catch-22 piece.

"Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues."
—President John F. Kennedy,
Economic Report of the President

The Soak-the-Rich Catch-22

To deal with the deficit, let the tax cuts expire

A tax increase in these uncertain economic times would be devastating.

Pending tax hikes cause Democratic tension

Liberal Tax Revolt Game-Changer

The calamitous effects of Obama's tax hikes

Pence promises full-fledged GOP campaign to keep Bush tax cuts

Tax hikes for the rich: Can the economy afford them?

Battle Looms in Washington Over Expiring Tax Cuts

Geithner says allowing tax cuts for wealthy to expire would be responsible thing to do

CREDIT CARD ISSUERS ROLL OUT NEW FEES

Consumer advocates claim that some of the largest credit card companies, including Citigroup, JPMorgan Chase, and Discover Financial Services are introducing new fees to recover lost revenue from the Credit Card Accountability Responsibility and Disclosure Act of 2009. Consumer groups are claiming some banks may even be breaking the law, which was set up to protect consumers. The Wall Street Journal

NOTICE ISSUED BY DOE

I wanted to make sure that you did not miss this. This is very concerning. In speaking to Jim Cox, the executive director of AACS, a week or so ago I know that he was very concerned about what is happening in Washington and how it will impact schools. Here is an email that I received from David Mesko CPA who is a friend of mine. His firm audits many of the accounts that we work with. I will keep you posted as this develops.

Larry Kopsa CPA

The DOE issued a wide ranging notice of Proposed Rulemaking last week that could have a negative effect on cosmetology schools. Please note that these rules have not yet been adopted; at this stage the DOE has only stated that it would like to impose these regulatory changes, soon. The first test of the “Gainful Employment” section at the bottom of my email will be very difficult for cosmo schools to meet. If these rules are put into effect, many cosmo schools could lose eligibility to participate in T4. The major elements of their proposed new rules appear below.

• Schools must develop a written policy and process regarding assessment of the validity of students high school completion.

• Students may take an ATB exam, but could also demonstrate the ability to benefit by completing 6 semester credits or 225 clock hours at your school or another institution. Students admitted under this condition are not eligible for Title IV aid until they complete the 6 semester credits or 225 hours

• If a school’s employee or contractor is found to be making written or verbal “misrepresentations” to students, the school could lose Title IV eligibility.

• The 12 Safe Harbors relevant to incentive compensation are to be removed. Schools can still pay merit increases if they are based on a variety of factors, but paying incentives based upon graduation rates will no longer be permitted.

• Accrediting agencies must more rigorously review and evaluate schools’ assignment of credit hours.

• Credit hours must have documented high levels of “seat time” unless the program is 2 years in length and lead to a degree.

• Suggests that a semester credit and quarter credit programs should be converted to clock hour if the programs’ graduates’ licensure requires its. For academic years that are less than 900 clock hours, Title IV aid is prorated.

• New conversion of semester and quarter credit hours from clock hours will be 37.5:1 and 25:1, rather than the current 30:1 and 20:1 levels. This could reduce Title IV award levels unless the school can demonstrate outside coursework and preparation is required much like a traditional college.

• The $400 tolerance and 30% limitation for Verification will be removed.

• Published SAP policies must include pace of progression and how often the pace is measured.

• Transfer credits must count toward academic progression.

• For programs with true modular delivery, R2T4 will now be required regardless if a course is completed.

• If the institution requires its instructors to take attendance then the actual LDA must be used for R2T4 purposes rather than midpoint. In addition, the school will only have 14 days to determine that a student has withdrawn.

• For Gainful Employment, the NPRM that ED issued last week has several onerous sections, as well as two safe harbors, although ED didn’t use those words to describe them. The page numbers below refer back to the NPRM that was published by ED, in case you wanted to read them more thoroughly. ED has estimated that proprietary schools will lose eligibility for approximately 5% of the academic programs that they offer as a result of these Gainful Employment proposed rules – many industry analysts expect the losses to be much higher.

• The first “Debt to Income” test. For full eligibility, it retains the 8% rate, but adds 20% of “discretionary income” (the earnings in excess of 150% of the poverty line) as an alternative that could qualify a program. Restricted program eligibility is possible with debt rates as high as 12% of wages or 30% of the discretionary income wage level. Transfer in debt is no longer included in the calculation. ED IS NO LONGER BASING WAGES ON A BLS TABLE – INSTEAD THEY’RE PROPOSING TO USE THE SCHOOL’S GRADUATES’ ACTUAL WAGES AS REPORTED TO SS OR SOME OTHER FEDERAL AGENCY. INSTEAD OF SCHOOL’S SELF-REPORTING THEIR DEBT TO INCOME TEST RESULTS, ED WILL NOW DO THE CALC AND TELL THE SCHOOLS WHICH PROGRAMS ARE INELIGIBLE.

• The second “Repayment Rate” test. For full eligibility, programs which have a four year repayment of at least 45% of Original Outstanding Principal Balance of loans that entered repayment in the past four years. Programs with Repayment Rates as low as 35% could retain restricted eligibility. THIS TEST INCLUDES ALL STUDENTS WHO “ATTENDED” THE PROGRAM, INCLUDING DROPS.

• PENALTIES:
o Programs which meet either 8% or 20% of Debt to Income test #1 and the 45% Repayment Rate of test #2 are fully eligible.
o Programs which meet only one of the two tests are still eligible for T4, but the school must widely publicize that students may have difficulty repaying their loans if they enroll in that program.
o Programs with Debt to Income Test #1 rates of 8-12% or 35-45%, and Repayment Test #2 rates below of 35-45% are Restricted (Must publicize that students may have difficulty repaying their loans, Must limit new enrollments to a trailing 3 year average level, and Must obtain demonstrated employer support for future placements).
o Programs which have Debt to Income Test #1 rates below 12% or 30%, or Repayment Rate Test #2 below 35% are ineligible for new students. These programs’ existing students can receive T4 for the rest of the current award year and the next award year.
o Penalties will be phased in during the Transition years beginning 7/1/11 and 7/1/12.

• A SCHOOL WHICH HAS ANY PROGRAMS THAT BECOME RESTRICTED OR ELIGIBLE WOULD BE PLACED ON PROVISIONAL STATUS.

• SCHOOLS MUST REQUEST ED APPROVAL BEFORE ADDING ANY NEW PROGRAMS:
o Each location of the school which wants to offer a new program must provide 5 years’ enrollment projections to ED.
o Each location of the school which wants to offer the new program must provide documentation from employers that there are projected job vacancies for the projected enrollments

QUOTE OF THE WEEK

"Do your little bit of good where you are; it's those little bits of good put together that overwhelm the world."
- Bishop Desmond Tutu