Tax Update

IRS Launches Program to Ensure Forms 1099 and Payroll Compliance
The Internal Revenue Service has announced a National Research Program focusing on payroll and Form 1099 issues. (This is information reporting of payments made to service providers and landlords.)

Starting in mid-February 2010 and extending over three years, the IRS will be sending letters to 6,000 randomly selected businesses advising them that they are subject to a “compliance research audit.” The letters will be designated “3850-B.”

We urge all of you to review the Forms 1099 requirement set forth by the IRS (we distributed this to clients in December and the information is available on the “Client Documents” section of our website) to make sure you are in compliance. Failure to issue complete Forms 1099 may result in the IRS asserting that you owe 30 percent back-up withholding on payments made to independent service providers.

HIRE Act
Under the new Hiring Incentives to Restore Employment (HIRE) Act that was signed into law on March 18, 2010, employers hiring workers after February 3, 2010 and before January 1, 2011 who were previously unemployed or working part-time for a minimum of 60 days, may be able to enjoy two tax benefits.

Qualifying employers will get a 6.2 percent payroll tax incentive, which would essentially exempt them from their share of Social Security taxes on wages paid to these workers after the date of enactment. In addition, for each qualifying worker who continues to work for at least one year, employers could claim an additional general business tax credit, up to $1K per worker, when they file their 2011 returns.

These two tax benefits should be particularly helpful to employers who are adding new positions. New hires filling existing positions will also qualify IF the previous employee left voluntarily or for cause. Family members and/or relatives do not qualify, and household employers cannot claim these tax benefits.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all quality to claim the payroll tax benefit for eligible newly hired employees.

Forms associated with this Act and other details are posted on www.IRS.gov.
IRS Alert: Foreign Bank and Financial Account Reporting

The Internal Revenue Service has increased its scrutiny of offshore accounts and foreign income, and has been successful in breaking some longstanding foreign bank secrecy laws to gain access to the identities of U.S. taxpayers who have foreign financial accounts.

Please make you aware of your obligations with respect to non-U.S. located (i.e., offshore) bank and financial accounts. Also, you should be aware of an opportunity to file with the IRS a delinquent foreign financial account form (TD F 90-22.1) for all past years by September 23, 2009 and avoid a potential penalty of $10,000 that may otherwise be imposed for filing that form late.

Click here for More on IRS Alert…

For U.S. citizens or residents of the U.S., any income earned on foreign financial accounts, whether located in the U.S. or located outside of the U.S., is required to be reported on your U.S. income tax returns. Foreign financial accounts include bank accounts, securities accounts, savings accounts, time deposits located in a foreign country, debit cards and prepaid cards charged to or backed by foreign financial accounts.

Additionally, Treasury Department Form TD F90-22.1 must be filed by June 30 each year following any calendar year in which you have foreign financial account ownership, or signature or other authority over, a financial account(s) located in a foreign country with an aggregate value exceeding $10,000 at any time during the calendar year. Form TD F 90-22.1 is filed separately from your tax returns, and the 2008 form was originally due by June 30, 2009.

The IRS recently announced that if you have reported all of your foreign income on your tax returns and paid the tax but failed to file the TD F 90-22.1 for any past year, penalties for the delinquent TD F 90-22.1 can be avoided if it is filed by September 23, 2009 with an explanation of why it was late. Should you have failed to file the form TD F 90-22.1 for any past year including 2008, please contact me immediately so that we can discuss issues related to this form.

There are very significant penalties (both civil and criminal) for failing to report offshore income and failing to file the reporting forms. These penalties can amount to tens of thousands of dollars on even a small account.

The IRS has announced a partial amnesty program that applies to prior tax years. There are two categories of amnesty filers.

  1. If you were required to file Form TD F 90-22.1 for any year and have not filed it, but you did include all foreign account income in your U.S. tax return(s), then there may be no penalty for filing the prior year’s Form(s) TD F 90-22.1. However, in order to avoid any penalties you must file all delinquent Forms TD F 90-22.1 by September 23, 2009. See the earlier discussion on this issue.
  2. If you did not include all of your foreign income in your U.S. tax return(s) from all sources, including income related to a foreign account, there is a special IRS amnesty procedure available to you regardless of whether or not you filed Form TD F 90-22.1 for that year(s). Entering this program could result in criminal penalties not being imposed for not fully reporting your offshore income, though the decision as to whether or not to enter into the VDP can be complex. You must decide whether to enter into the VDP and actually enter it by September 23, 2009. If this description fits your situation, you should immediately read the letter we have sent you addressing the VDP for unreported foreign income, which states the need to immediately consult with a criminal tax attorney concerning the VDP.
    The IRS has warned that those who do not take part in the VDP amnesty filing by the September 23, 2009 date will potentially face far greater civil penalties and possible criminal charges than if they entered the VDP.

If you have a financial interest or signature authority in any foreign financial account, it is your responsibility to file the TD F 90-22.1. We will assist you in completing that form when you have provided us with the necessary information. It is also your responsibility to ensure that all income is reported on your tax return and all required foreign accounts are reported to the Treasury Department.

If you have any questions regarding these foreign financial account filing requirements, please contact us at your earliest convenience.
When a Bad Economy Brings Out the Bad in Your Employees

There's nothing more disheartening than learning that an employee - someone you trust and have been PAYING! -- has stolen from you or the business you've worked so hard to build. Unfortunately, history has shown that a struggling economy such as the one we are currently experiencing witnesses an increase in employee theft.

Employee theft is a serious threat to the success of small and middle size businesses. The Association of Certified Fraud Examiners (ACFE) in its 2008 Report to the Nation estimates that seven percent of U.S. revenue is lost to occupational fraud. The U.S. Chamber of Commerce recently conducted a survey that reported that 1/3 of bankruptcies are caused by employee theft. Why are these businesses letting this happen? Because most small and middle market business owners do not see a need to be proactive in addressing this potential problem; they tell themselves that THEIR employees just wouldn't do that. To view the full article, click here.
About BNKJ

 

  
Proud Members of the American Institute of Certified Public Accountants (AICPA) and the AICPA Employee Benefit Plan Quality Center
 
BNKJ is proud to have been a founding sponsor and 21 year supporter of the Kennesaw State University Cox Family Enterprise Center. Congratulations to KSU, Coles College of Business, which Fortune Small Business named one of the six best places in the United States for family business education.
 
Babush, Neiman, Kornman & Johnson, LLP (BNKJ, LLP)
Certified Public Accountants and Consultants
5909 Peachtree Dunwoody Road, Ste 800 | Atlanta, GA 30328
Tel 770-261-1900 | www.bnkj.com

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