YEAREND INVENTORY

Q: We are wondering if it makes sense to buy additional stock of product lines that we carry before a price increase takes effect given the fact that it will increase our inventory at the end of the year. Is there any way around this now that we are on an accrual basis?

A: Inventory at year end is a question that a lot of people have.  For some reason many people think that if their inventory is high they will have to pay more in tax.  That is just not true.  I think the reason that people have this misconception is that if you overstate you inventory then, working through the calculation of cost of sales, you will be understating your cost which brings your income up and therefore your taxes up.  The opposite is true if you understate your inventory. 

Here is an example:

A business has a beginning inventory of $90,000; sales of $500,000; purchases of $250,000 and ending inventory of $75,000 their calculation of gross profit would look like this:

 

 

 

 

 

 

 

 

 

Let’s change the facts a little.  Let’s assume that the owner finds a deal on inventory and purchases $30,000 on inventory before the end of the year.  This inventory has not been sold and is still on the shelf.  Whether the owner paid cash, credit card or still owes for the inventory what would happen is that purchase would go up and ending inventory goes up so therefore no change in the bottom line.  The statement would look like this:

 

 

 

 

I think here is where the confusion comes in.  What if, going back to our first example with the ending inventory at $75,000, what if the owner miscounts and says that the ending inventory is $85,000, $10,000 higher than actual?  That is where there is a problem.  In that case the cost of sales would be lower and therefore the income mistakenly higher.  For example:

 

 

 

 

Let’s keep going.  This is true for retail sales for both cash and accrual basis taxpayers.  If cash basis taxpayers purchase inventory and include the amount in ending inventory they should record the payable even though they are cash basis.  There is a difference in back bar supplies for cash basis taxpayers.  Cash basis taxpayers do not have to inventory back bar supplies.  They can write them off when they write the check or pay by credit card.

I hope that this is helpful.

REIMBURSE EMPLOYEE MILEAGE

Q:  Hi Larry, I have a question about how to reimburse an employee for mileage. I just read what the deduction is but I need to know what the rate is for a business to pay back an employee for auto expenses they incur running errands for the business. I am assuming it is an amount per mile and I have asked them to keep a log.

 

A: You are correct that they should turn in a log (diary) of their miles.  By your question I am assuming that these are routine trips around town such as to the bank etc.  If this is true instead of a daily log the employee can determine the routine miles for the trip and then if they can somehow document the number of trips you can just multiply to determine total business miles.  Having said that in my opinion the IRS likes a detailed log but the other method works.

The mileage rate is 55.5 cents for 2012 and 56.5 cents for 2013.  The amount given to the employee is not added to the W-2 and you do not have to give the employee a 1099.  It is deductible to you and not income to the employee.

QUICKBOOKS 2013 UPDATE

In response to customer feedback, QB’s has released an update for QB 2013 that will allow you to change the black ribbon at the top to a lighter color which is easier to read and looks similar to the older versions of QB’s.  This is under Edit; Preferences; Desktop View; My Preferences; Switch to colored icons/light background.  Always run updates because they may contain more options to switch the color scheme back to “normal”.

 

Default

 

 

 

 

 

 

 

 

 

 

 

Preference

 

SCIENCE GOES WILD #2

Last week I mentioned the Ig Nobels.

 Our second winner:

A British-American group won the physics prize for

“Figuring Out How a Ponytail Bounces.”

 

HERE COME THE 1099K NOTICES

WE HAVE OUR FIRST CLIENT TO RECEIVE A 1099K NOTICE

You may remember that as part of ObamaCare credit and debit card companies are required to send a 1099K to companies reporting the amount of credit and debit card sales. The IRS receives a copy of the form. At first we were supposed to reconcile the 1099K to the companies Gross Income. Common sense prevailed and the IRS decided that that because of sales tax; tips; gift certificate sales; different year ends; cash given back and numerous other reasons this would be impossible to monitor. Because of this the IRS ruled that you do not have to reconcile on the tax return. But that is not the end of it.

Since the IRS gets a copy of the 1099K it's computer compares the form to the tax return and if the amounts are not within some unknown percent the taxpayer gets a notice and has to reconcile. Of course the IRS developed a form to file out explaining the difference. This is a lot of work.

www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/New-Notices-Related-to-Form-1099-K.


Here is the notice that the IRS just released:

The IRS compared 1099-Ks filed by credit card companies and third-party networks such as PayPal with income shown on returns by taxpayers who received the forms. It is now mailing notices to firms it believes may have unreported gross receipts. But the 1099-K matching program is imprecise. The form reports receipts for a calendar year, which doesn't jive for firms with fiscal years. And businesses don't have to separately report amounts shown on 1099-Ks. So the form's usefulness as a tool to spot under reporting is lessened. Nevertheless, IRS still asks businesses to explain discrepancies and will follow up with firms that don't respond to the notices.

SELLING SOME LOSERS CAN TRIM YOUR TAX BILL

Capital losses offset your gains, plus up to $3,000 of other income. Any excess losses are carried over to next year.

Note the wash-sale rule: If you buy the identical securities within 30 days before or after the sale, the loss isn't deductible. Instead the disallowed loss is added to the basis of the new shares. The rule can bite you if your IRA quickly buys stock that you sold at a loss in a taxable account. You can innocently run afoul of this rule if you sell a mutual fund at a loss within 30 days of the date a dividend is reinvested.

DON'T FORGET ABOUT THE 0% RATE ON LONG-TERM CAPITAL GAINS AND DIVIDENDS

If your income other than gains and dividends is in the 10% or 15% bracket, profits on sales of assets owned for over a year and dividends are tax free until they push you into the 25% bracket. That bracket starts at $70,700 of taxable income for couples and $35,350 for singles. The balance of your long-term gains and dividends is taxed at 15%. But short-term capital gains are taxed as ordinary income ... up to a 35% rate.

MAIL CHECKS FOR DEDUCTIBLE ITEMS BEFORE YEAR-END TO ENSURE A 2012 WRITE-OFF

You are able to claim the deduction this year even if the checks do not clear until January. And make sure you know the tax rules if you are charging deductible items. For charges that you make with a retail store credit card, you are allowed to claim the deduction for the item only in the tax year in which you pay the bill. For transactions made with a bank credit card, you take the write-off in the tax year that you charged the goods, even if you pay the bill next year.

CHECK THE BALANCE IN YOUR FLEXIBLE SPENDING ACCOUNT

Just a reminder~

 If your employer still has not implemented the 2½-month grace period that IRS now permits you must clean it out by December 31. If you do not, any money remaining in your account is forfeited.

Remember that in the Patient Protection Act there is a $2,500 annual ceiling on health FSA that takes effect for 2013.

CHRISTMAS CARD FROM THE IRS

The IRS just issued a gift to taxpayers.  It is their Tax Tips for the "Season of Giving."  Note that they stayed "politically correct."

IRS Offers Tax Tips for “The Season of Giving"

December is traditionally a month for giving generously to charities, friends and family. But it’s also a time that can have a major impact on the tax return you’ll file in the New Year. Here are some “Season of Giving” tips from the IRS covering everything from charity donations to refund planning:

• Contribute to Qualified Charities. If you plan to take an itemized charitable deduction on your 2012 tax return, your donation must go to a qualified charity by Dec. 31. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Exempt Organizations Select Check tool to check if your favorite charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if you pay the bill in 2013. A gift by check also counts for 2012 as long as you mail it in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
• What You Can Deduct. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
• Keep Records of All Donations. You need to keep a record of any donations you deduct, regardless of the amount. You must have a written record of all cash contributions to claim a deduction. This may include a cancelled check, bank or credit card statement or payroll deduction record. You can also ask the charity for a written statement that shows the charity’s name, contribution date and amount.
• Gather Records in a Safe Place. As long as you’re gathering those records for your charitable contributions, it’s a good time to start rounding up documents you will need to file your tax return in 2013. This includes receipts, canceled checks and other documents that support income or deductions you will claim on your tax return. Be sure to store them in a safe place so you can easily access them later when you file your tax return.
• Plan Ahead for Major Purchases. If you are making major purchases during the holiday season, don’t base them solely on the expectation of receiving your tax refund before the bills arrive. Many factors can impact the timing of a tax refund. The IRS issues most refunds in less than 21 days after receiving a tax return. However, if your tax return requires additional review, it may take longer to receive your refund.

For more information about contributions, check out Publication 526, Charitable Contributions. The booklet is available on IRS.gov or order by mail at 800-TAX-FORM (800-829-3676).

2013 RAPIDLY APPROACHING WHILE MANY PAYROLL TAX ISSUES REMAIN UNRESOLVED

There is a great deal of concern in the tax community generally about unresolved tax issues, including the sunsetting tax provisions, extenders, and lack of an alternative minimum tax (AMT) patch. However, one group in particular—payroll professionals—has an especially pressing need for certain tax issues to be decided in order to compute 2013 withholding. This article details a number of these key issues.

Withholding tables. Income tax rates are scheduled to increase on Jan. 1, 2013, if Congress does not act before then to keep the rates at the current levels. It's unclear whether IRS will release the 2013 withholding tables without congressional action.

Backup withholding. The backup withholding rate will increase from 28% to 31% on Jan. 1, 2013, if Congress does not act to keep the income tax rates at current levels.

Payroll tax cut. The “payroll tax cut” has temporarily lowered the Social Security withholding tax rate on wages earned by employees in 2011 and 2012 from 6.2% to 4.2%. Currently, there is no legislation in Congress that would extend the payroll tax cut beyond Dec. 31, 2012, but there has been some recent talk in Washington about either extending the cut or providing some other payroll tax stimulus.

Commuting benefits. Without congressional action, the annual tax-free exclusion for the combined value of employer-provided transit passes and transportation in a commuter highway vehicle ($125 a month in 2012) will remain unconnected to the tax-free exclusion for qualified parking expenses ($240 a month in 2012).

Employer-provided educational assistance.Through Dec. 31, 2012, employers may provide up to $5,250 annually in educational assistance to an employee on a tax-free basis. This provision will expire on Jan. 1, 2013, without congressional action. If the provision does expire, education expenses will only be able to be excluded from an employee's income if the expenses qualify as a working condition fringe benefit.

Adoption assistance. In 2012, employees may exclude from gross income up to $12,650 paid or reimbursed by an employer for qualifying adoption expenses under an adoption assistance program. This fringe benefit will not be available in 2013 without congressional action.

koa observation: Until some of the issues above are resolved, it is unclear whether IRS will release the 2013 Circular E (IRS Publication 15), 2013 Form W-4, and 2013 Form 941.

ACTING IRS COMMISSIONER: CONGRESS' FAILURE TO ACT ON FISCAL CLIFF COULD DELAY FILING SEASON

Taxpayers may face a significantly delayed filing season and a much larger tax bill for 2012 if Congress fails to timely resolve fiscal cliff issues, Acting IRS Commissioner Steven T. Miller said on December 6.

Speaking at the 25th Annual Institute on Current Issues in International Tax sponsored by IRS and the George Washington University School of Law in Washington, Miller said that “I remain optimistic that the fiscal cliff will be resolved by the end of this calendar fiscal year [but] if that turns out not to be true, then what is clear is that many of us will see a delayed filing season.”

Miller said that the uncertainty as to what the tax law will be in 2012 creates a risk for the entire tax system, including a strain on IRS, tax practitioners, and ultimately, taxpayers.

“There is currently a real discussion about the tax rates for the next year and beyond as well as the national debt and that is an incredibly important discussion,” he said. “But taxpayers and the IRS need to know what the tax provisions are for 2012 so you know what you owe and so we know how to process the return beginning in January.”

He noted that the alternative minimum tax (AMT) and other extender provisions had expired at the end of 2011, but that these had been overshadowed by other higher profile fiscal cliff issues. Miller said that in programming its systems, IRS has assumed that Congress will patch the AMT as it has for so many years in the past. However, he warned that if Congress fails to resolve fiscal cliff issues prior to the end of the year and the IRS's assumptions are incorrect, the filing season will be delayed for many taxpayers.

SCIENCE GOES WILD

Apparently, researchers can be as goofy as anyone else. The Ig Nobel Prizes the American parody of the Nobel Prizes, gives out yearly prizes for the strangest, weirdest and most incomprehensible research pursued by actual scientists.

Perhaps the greatest question raised by the Ig Nobles is: How do these people get funding for this, um, research?

This year's crop of winners is as daft as ever. We will "reveal" them over several weeks.

Our first winner:

Three psychology researchers from the Netherlands won for their study

       "Leaning to the Left Makes the Eiffel Tower Seem Smaller."

“IT’S LATER!”

We’ve been telling you since the start of the year that tax planning is the key to paying the minimum tax possible. We’ve urged you to come in for your free tax analysis, but we’ve been disappointed that you haven’t accepted our offer.

Most of you agree that tax planning is a good idea that can save you money. But you’ve procrastinated, and made excuses to avoid taking advantage of the opportunity. You told yourself “I’ll wait ‘til later, after April 15.” Then after April 15, you said “I’ll wait ‘til later, when it’s closer to the end of the year.” Then, as the year drew to a close, you said “I’ll wait ‘til later, after the election results are in.”

Well, guess what. It’s later.

December 31 is just a few short weeks away. If you we don’t sit down to talk before then, your best planning opportunities will vanish, just like Cinderella’s carriage turning back to a pumpkin. And trust us here — you do not want to be left without a ride home that night!

December 31 is even more important this year than usual, because there’s so much uncertainty in the air. Will the Bush tax cuts be extended? How much will the new Obamacare taxes cost you? What opportunities are you missing to save? We can’t give you the answers if we don’t sit down to plan.

Do it before it’s too late. We’ll find the mistakes and missed opportunities that may be costing you thousands today, and show you how smart planning can save thousands more tomorrow. So call now to schedule your Analysis!

TAXPAYER RUNS HER CAT HOBBY THROUGH HER CORPORATION AND GETS SKINNED

You don't want to run your hobby through your corporation. 

Financing a hobby through a corporation comes with a double tax whammy.  The firm can’t write off the losses. And the owner has a taxable dividend equal to the amount of out-of-pocket costs that the corporation paid for the activity.

A cat breeder and fancier found this out when she had her profitable consulting firm operate her cattery. The cattery won championships, but it was extremely unprofitable.  An Appeals Court held that the cattery wasn’t a trade or business of the corporation, but was instead the personal hobby of the shareholder (DKD Enterprises, 8th Cir.).

BOOTH RENTER PUTTING MONEY FOR TAXES ASIDE

Q: In the last year I decided I would finally use my nail license and start working in a salon. I started out as a booth renter, and am happy I did, even with little to no clientele in the beginning. I am now working full time in the salon, paying rent and buying my own supplies. I have tried to do some research but can’t figure out a percentage that I should be putting aside for taxes. I live in Colorado if that matters. I have been setting aside 20% so far since I worked another full time job in the beginning of this year. So I’m not worried about owing this year, but I want to know what percentage I need to be saving from now on!

A: Without knowing the clients tax situation as a whole, it is almost impossible to answer this questions.  There are so many variables involved such as, Income, deductions, number of dependents, withholdings from another job just to say the least.

Just know that the taxpayer will have to pay income tax on all their taxable income (Adjusted Gross income – Exemptions - Standard Deduction or Itemized Deductions =  Taxable Income) Depending on what that amount is, the taxpayer can start anywhere from 15% Federal tax up to 35% Federal tax plus the applicable state tax.  Also, the taxable income earned from the booth rental will also have an additional 13.3% self employment tax.  For 2013, this will increase to 15.3%.  For example, in 2012 a single taxpayer in Colorado who makes $40,000 net income from booth rental with no other source of income and take the standard deduction would have total tax of $9,862 of federal and state tax or right under 25% of total income.

It is highly recommended that the taxpayer speak with their tax advisor prior to the end of the year and have some pretax planning done.  This way all the taxpayers income and deductions can be projected out to see what tax bracket the client is in as well as estimate the tax liability so there are no surprises on April 15^th.

HERE IS WHAT EXPERTS ARE SAYING ABOUT THE FUTURE OF THE AFFORDABLE CARE ACT

I just spent 2 days attending the National Tax Conference.  One of the speakers was a specialist in health care reform.  The more I learn about the act the more confusing it is.  Here are a few of his comments of the unexpected outcome of the act that he thinks will come about as employers and taxpayers become more aware of the act. 

·         Many owners may consider transferring enough ownership to prevent combination of entities into one “employer” for tax purposes.  This will help keep the employee number under 50 to avoid providing expensive insurance for full time employees. 

·         Many employers will increase  the amount of self coverage that they pay for, but may eliminate or substantially reduce family coverage.

·         Because employers will be encouraged to keep employees under 30 hours, lower income workers will most likely need to work at least two jobs to make a living.   Therefore, these employees will need two jobs to have a chance at making a living.

·         Many employers may eliminate health insurance coverage completely.  This will place these employees into the “public” exchange plan.  Employers will consider this since it may be substantially cheaper to simply pay the penalty and adjust pay for upper level employees.

·         It is cheaper for employers to have younger employees to keep their average premiums downs, so there will be an advantage to reduce the number of older employees.

 

“BLACK FRIDAY” TAX PLANNING PUTS TAXES ON SALE

The holidays are here, and millions of Americans kicked off the season with “Black Friday” shopping. Braving the crowds and the cold, facing scorn from family they’ve left behind, they line up at obscenely early hours (or duck out of Thanksgiving dinner before the pumpkin pie is even served) to save $20 on a DVD player or $40 on a flat-screen television.

It’s sad, but true, that most Americans spend more time planning their “Black Friday” shopping than they spend planning their taxes. But that can be an expensive mistake!

What if the IRS had a sale? What if the IRS let you discount your taxes by thousands of dollars, this year and every year to come? And what if they let you do it from the comfort of your home or your office, without lining up in the pre-dawn hours of a chilly November morning? Would you give thanks for a sale like that?

You’re probably not holding your breath for the scrooges at the IRS to hold a “sale.” The good news is, you don’t have to wait for that to happen. You just need a plan. Tax planning is the key to paying the legal minimum, especially with the “fiscal cliff” looming on the horizon. And a good tax plan can pay for a holiday season full of gifts and fun.

Have we showed you how “Black Friday” tax planning can save thousands?

SALON AND SPA INDUSTRY HITS LOWEST LEVEL IN FOUR QUARTERS

Salontoday.com reports: After experiencing a modest increase in second quarter 2012, the Professional Beauty Association’s (PBA) Salon/Spa Performance Index (SSPI) fell to its lowest level in four quarters. The SSPI registered 101.9 in the third quarter of 2012, a 1 percent decline from second quarter 2012 and the same as third quarter 2011. Furthermore, the Current Situation Index fell 1.8 percent and the Expectations Index declined .2 percent versus second quarter 2012 respectively.

To read the article in full: CLICK HERE

BE CAREFUL - CANCELLATION OF A LIFE INSURANCE POLICY MAY BE A TAXABLE EVENT

I have seen this happen to unsuspecting clients a few times in my career. Payments are made on a life insurance policy. After a few good years, the policy builds up a cash value. This build up of cash value is not taxable. The policy holder quits making payment. In actuality what happens is the cash value of the policy makes the payments. This is not really a taxable event; what this is is the policyholder borrowing money from the policy. Still no tax.

But here comes the tax. If the policyholder cancels the policy, then this is treated as forgiveness of the loan and, as the case below shows, it is taxable.

The Tax Court has concluded that a taxpayer had taxable income when his life insurance policy lapsed with a loan outstanding. This constructive distribution was effectively a payment of the policy proceeds that was gross income to the taxpayer to the extent that it exceeded his investment in the contract.

 

White, TC Summary Opinion 2012-108

2013 STANDARD MILEAGE RATES UP

The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

BUSTED BY THE IRS

The New York Post reports Bumble and Bumble salon mogul busted after IRS says he hid $29.6M.  Just in case you have not seen the article: CLICK HERE

GET THEM WHILE YOU STILL CAN

OUTRAGEOUS MARKUPS YOU PAY EVERY DAY

I saw this in the December Reader's Digest. I thought you might find interesting.

Learn smart ways to avoid the hidden costs of convenience.

6,000% - Text Messages - Phone users commonly pay 10 cents per text message, but sending it might cost the carrier only a sixth of a cent.  If the same markup applied to a short phone call, the call would cost $120.

4,000% - Bottled Water - A $2 bottle of water costs only about 5 cents to produce.

1,275%  - Movie Theater Popcorn - Theaters know that viewers will pay more for movie snacks, so they hike up the prices:  A bag of popcorn that costs 37 cents to make can easily sell for $5.  One Michigan man found the price so outrageous that he is suing his local theater.

300% - Wine at a Restaurant - Restaurants routinely charge as much as $30 for bottles of wine that retail online for $7 or $8.  Check in advance whether the restaurant allows BYOB, or opt for a nonalcoholic beverage.

40% - Precut Produce - Precut fruits and vegetables may save you time, but they definitely won't save you money:  Grocery stores charge almost 1.5 times more for precut than for uncut produce.

IRS APPROVES LEAVE-SHARING PROGRAMS TO HELP HURRICANE SANDY VICTIMS

IRS has announced that employees won't be taxed when they forgo vacation, sick, or personal leave in exchange for employer contributions of amounts to charitable organizations providing relief to Hurricane Sandy victims. Employers may deduct the amounts as business expenses.

Treatment of leave based-programs.

Some employers have set up programs where employees can donate their vacation, sick or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for the victims of Hurricane Sandy. The IRS has announced that it will not assert that cash payments an employer makes to organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are:

(1) made to the qualified organizations for the relief of victims of Hurricane Sandy; and

(2) paid to qualified organizations before Jan. 1, 2014.

Nor will giving employees the choice to participate cause employees to be considered in constructive receipt of income. However, employees who participate in a leave-sharing donation program won't be allowed to claim a charitable contribution deduction for the value of forgone leave excluded from compensation and wages.

As for employers, IRS won't assert that payments made under a leave-sharing donation program are deductible as charitable contributions.

Thus, the employer will be able to deduct the payments without being subject to the various charitable contribution limits to C corporations.

Treatment of Form W-2. Amounts representing leave-sharing donations need not be included in Box 1 (wages, tips, or other compensation), Box 3 (Social Security wages, if applicable), or Box 5 (Medicare wages and tips) of Form W-2.

In other words, these amounts also will be free of income- and payroll-tax withholding.

Participation in these programs can help both employees who itemize and those who don't. For example, a non-itemizer who forgoes $2,000 worth of leave will get the equivalent of a $2,000 deduction that would not be available if he took the leave and contributed $2,000 in cash himself.

The lower adjusted gross income (AGI) from participating in the program may make it possible for the employee to achieve a greater tax benefit from any of the numerous deductions and credits that are reduced as AGI increases. For example, participation may yield a higher deduction for a contribution to a traditional IRA. Itemizers can also benefit from the lower AGI. Both itemizers and non-itemizers can save Social Security taxes on the amount foregone. On the downside, participation could result in smaller retirement plan contributions depending on how compensation is defined under the employer's retirement plan.

IRS WARNS CONSUMERS OF POSSIBLE SCAMS RELATING TO HURRICANE SANDY RELIEF

WASHINGTON – The Internal Revenue Service today issued a consumer alert about possible scams taking place in the wake of Hurricane Sandy.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.

The IRS cautions both hurricane victims and people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
• Call the IRS toll-free disaster assistance telephone number, 1-866-562-5227, if you are a hurricane victim with specific questions about tax relief or disaster related tax issues.

Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’identities or financial resources.

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities, in order to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources. Additionally, scammers often send e-mail that steers the recipient to bogus websites that sound as though they are affiliated with legitimate charitable causes.

Taxpayers suspecting disaster-related frauds should go to IRS.gov and search for the keywords “Report Phishing.”

More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

RELEIF FOR EMPLOYERS OWING BACK PAYROLL TAXES

During the Sept. 12, 2012 IRS webinar titled “Payment Alternatives – When You Owe the IRS,” Traci Suiter, lead public affairs specialist with IRS's Small Business/Self-Employed Division, explained the criteria that must be met for a business owing payroll taxes to qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These plans don't require detailed financial information and may help the owner to avoid a responsible person penalty.

Background on installment agreements.

IRS may enter into written agreements with any taxpayer under which that taxpayer may make payment on any tax in installment payments if IRS determines that the installment agreement will facilitate full or partial collection of the tax liability.

Before entering into such an agreement, IRS determines if it's appropriate for the circumstances and then sets up the agreement, processes the payments and monitors the taxpayer's compliance with the agreement. If a taxpayer fails to comply with any of the installment agreement's terms, the agreement is deemed to be in default and IRS has the right to terminate the agreement.

Guidance on IBTF-Express IAs.

In order to qualify for an IBTF-Express IA, a business owing payroll taxes must satisfy the following requirements:

• They must owe $25,000 or less at the time the agreement is established. If they owe more than $25,000, they may pay down the liability before entering into the agreement in order to qualify.
• The debt must be paid in full within 24 months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
• They must enroll in a Direct Debit installment agreement (DDIA) if the amount they owe is between $10,000 and $25,000.
• They must be compliant with all filing and payment requirements.

One of the advantages of applying for an IBTF-Express IA is that a business is generally not required to provide a financial statement or financial verification as part of the application process, so the agreement is likely to be approved more quickly than other payment alternatives. The Internal Revenue Manual (IRM) also notes that it is IRS policy not to pursue the trust fund recovery penalty against an individual in a business that has set up an IBTF-Express IA.

To request an IBTF-Express IA, a business may call the number on the tax bill, or (800) 829-4933. A business could also complete Form 9465, Installment Agreement Request, and send it to the address on the tax bill (or the address on page 2 of the instructions for Form 9465). Suiter noted that applications for the payroll tax installment agreement are not currently available online, but said that may change in the future.

Further information on the program is available on the Small Business/Self-Employed section of the IRS website on the webpage called “Fresh Start Installment Agreements.”