Posts Tagged ‘EFTPS’

Tax Roundup, 2/26/14: House tax reform plan expands cash basis, boosts 179 limits. And: $133 million employment tax theft.

Wednesday, February 26th, 2014 by Joe Kristan

Cash basis expansion, permanent Section 179 increase highlight Camp tax reform plan.  The GOP House tax leadership has released their tax reform draft, nicely rounded-up by the TaxProf.  The plan would lower top individual and corporate rates to 25%, while making big changes in business taxation.

They have released two alternate plans for small business taxation.  One plan would tweak S corporation and partnership taxation, making elections easier and easing S corporation penalty taxes.  The other draft would do away with the current pass-through regimes and replace them with a single pass-through tax system.

The Camp draft would also greatly expand the availability of cash method accounting:

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I’m not sure how I feel about this.  I do like getting rid of the special rules for farmers and letting everybody have the same opportunity.  I less like the rule giving unlimited cash basis for sole proprietorships, as that would encourage people to keep things on their schedule C for tax reasons even if it is a bad structure otherwise.  Do we really need to preserve cash basis for a $100 million schedule C or Schedule F operation?  If something is that big, the “simplicity” argument doesn’t make sense.

I’m all for getting rid of the Section 263A stuff.

While I doubt that anything will happen with tax reform this year, there is a real possibility that things will start moving after the 2014 elections.

William McBride, Four Things to Look for in Chairman Camp’s Tax Reform Plan (Tax Policy Blog)

Renu Zaretsky, McConnell Throws Cold Water on Camp’s Tax Plan (TaxVox)

 

 

EFTPSTexans sentenced in massive PEO employment tax theft.  From Breitbart.com:

Federal prison sentences were recently handed down to three businessmen by Chief District Judge Fred Biery. The three defendants – John Bean, Pat Mire, and Mike Solis – are going to prison for their roles in a $133 million scheme involving numerous co-conspirators. The FBI and IRS conducted the investigations for the case, which is believed to be the largest criminal tax related case ever prosecuted in western Texas.

Bean and Mire both pled guilty to money laundering and mail fraud conspiracy charges. Solis plead guilty only to a mail fraud conspiracy charge.

The defendants admitted that from 2002 to 2008, they stole more than $133 million from clients of several of the Professional Employer Organizations (PEOs) that they owned and operated.

PEOs actually report client employees as their own, issuing W-2s and filing employment tax returns.  The danger of PEOs is that employers have no way to be sure their employment taxes are being deposited.  If the PEO is stealing them, the IRS will come back to the employers to collect.

With a non-PEO payroll service, the payroll tax returns are prepared for employers, who issue and sign them.  More importantly, non-PEO employers can go online using the Electronic Federal Tax Payment System and verify that their payroll taxes are being paid.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProfThe IRS Scandal, Day 293.  Among the items in his daily scandal roundup is a Wall Street Journal editorial, Liberals vs. the IRS: Even the Left Doesn’t Want the Tax Man Regulating Speech:

In the Nation magazine, Nan Aron of the liberal judicial lobby the Alliance for Justice writes that 501(c)(4)s aren’t merely groups like Karl Rove’s Crossroads GPS, but are “made up of over 86,000 mostly small organizations nationwide” that are active participants in civic life.

“They weren’t invented in the last election cycle; they’ve been around for generations. Their purpose isn’t to hide donors, it’s to advance policies,” Ms. Aron adds. “These groups are involved in elections, because it’s often impossible to advance a policy cause without being involved in the political process.”

There’s no principle that would justify suppressing political rights of 501(c)(4) outfits that can’t apply equally to other exempt outfits.  Furthermore, there’s no real reason to impose taxes on political outfits.  The answer to speech you don’t like is more speech of your own, not suppressing what you don’t want to hear.

TaxGrrrl, IRS Proposed Rules For Nonprofits Alarm Conservatives and Liberals Alike   

 

IRS fights ID theft with one hand, helps it out with the other.  From PC World:

This tax season you may have more to worry about than how much you owe. A new study from Identity Finder finds the IRS is not properly protecting social security numbers in some tax returns…

The research revealed an alarming failure to safeguard sensitive data. Identity Finder uncovered an estimated 630,000 Social Security numbers exposed online in form 990 tax returns.

The most affected group were tax preparers–many of which used their personal SSN rather than their PTIN (preparer tax identification number). However, directors, trustees, employees, donors, and scholarship recipients were all impacted as well. 

It’s fair to point out that preparers have some responsibilty — they are often including SSNs unnecessarily, especially their own.  But that doesn’t excuse the IRS.

 

uni-logoSome UNI workers filing taxes finding Social Security numbers have been used (WCFcourier.com):

According to UNI officials, more than 20 employees have received “error” messages when filing their individual tax returns online, and their returns were rejected. Others who have yet to file say they called the Internal Revenue Service and found their Social Security numbers had been used. One person reportedly received a refund check at home from the IRS though they hadn’t filed a return yet.

UNI officials are playing down the possibility of identity theft, but that’s how I’d bet.  Any organization that collects social security numbers needs to be very careful with them, restricting access and shredding documents on disposal.

Jack Townsend, Stolen Identity Refund Fraud in the News

 

William Perez, Reporting Social Security Benefits

Kay Bell, Don’t fall prey to the Dirty Dozen tax scams of 2014

David Brunori, Great Opportunity for Tax and Public Finance Students (Tax Analysts Blog). “We are conducting our first student writing competition. You should encourage students who have written quality papers to submit them to studentpapers@tax.org.”

 

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Tax Roundup, 11/25/13: Burning down the parsonage (allowance). And: Red Oak!

Monday, November 25th, 2013 by Joe Kristan

The Tax Update comes from beautiful Red Oak, Iowa, in the Southwest part of the state.  This is the sixth stop in the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School tour for 2013.  Register now if you want a seat in one of the final schools in Denison and Ames!

Flickr image courtesy dvs under Creative Commons license

Flickr image courtesy dvs under Creative Commons license

Sorry, Parson.   A U.S. District Court in Wisconsin ruled Friday that the Sec. 107 parsonage allowance exclusion violates the Establishment Clause of the constitution.  The allowance gives “ministers of the gospel” a much broader tax exemption for housing than is available to other employees.  The “parsonage allowance” even allows tax-free treatment for cash payments when no parsonage is supplied.

Sec. 107 reads in full:

In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The decision overturns the cash allowance exclusion, but does not affect the exclusion when an actual parsonage is supplied.  That would leave ministers a more generous exclusion than is otherwise provided under Sec. 119, which only allows employees to exclude housing from income if it is provided “for the convenience of the employer” and “on the business premises of his employer as a condition of his employment.”  Many parsonage are not attached to the church, so that’s an important difference.

The decision “shall take effect at the conclusion of any appeals… or the expiration of [the] deadline for filing an appeal,” so for now there is no effect.   But it’s not clear what happens next.  As the losing defendant, there’s no requirement for the Treasury to file an appeal.  Presumably they would at least file an appeal, if only to not disrupt the upcoming filing season, but then they could drop it.  We should know soon whether an appeal will be pursued.

Cite: Freedom From Religion Foundation v. Lew (W.D. Wisc. Nov. 22, 2013)

Peter Reilly provides background, and the TaxProf has a roundup.

 

EFTPSDo you know whether your payroll taxes are up to date?  Some Texas businesses learned the hard way they are not.  Courthouse News Service reports:

A Texas businessman admitted his role in a $133 million payroll scam that prosecutors called the largest fraud in San Antonio history.

Charles Pircher, 61, pleaded guilty Thursday to tax fraud conspiracy and mail fraud conspiracy. He faces up to 20 years in federal prison on the tax charge and up to 5 years for mail fraud…

Pircher managed several San Antonio-based professional employer organizations. From 2002 to 2008 they entered into staff leasing agreements with client companies to manage payroll and insurance programs.

If you use a “professional employer organization” for your payroll service, you may not be able to be sure.  PEOs typically operate as the nominal “employer” of their clients’ employees, so all employees are reported under the PEO’s number.  That makes it impossible for clients to go online on EFTPS, the Electronic Federal Tax Payment System, to check that their payroll taxes are being paid.  PEO clients need to find other ways to be sure their tax payments are getting made, as the IRS will still want their money from the “real” employer if the PEO pockets funds provided to make the payments.

 

Jana Luttenegger, IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog)

TaxProf, The IRS Scandal, Day 200

Kay Bell, Senate Finance chair wants to hear your tax reform thoughts

Paul Neiffer, Senate “Pool” Process to Increase SE Taxes? Sales of equipment would no longer be exempt.

Annette Nellen, California advertising its use tax

Scott Drenkard,  The Tax Bite on Thanksgiving Travel (Tax Policy Blog)

Tony Nitti,  As New Jersey Prepares To Launch Internet Gambling, Congress Has Plan To Tax The Industry

 

Russ Fox wisely advises us Don’t Try This at Home.  He quotes from a Department of Justice Press Release:

If clients were audited by the IRS, THORNDIKE would provide them with blank Goodwill receipts as well as instructions as to how they should create a list of charitable donations that would correspond with the donation value THORNDIKE had entered on their returns. He also would direct his clients to create mileage logs that would support deductions he had entered for employment-related travel.

You need to prepare the return based on the documentation, not the other way around.

 

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Tax Roundup, 7/16/2013: States to be in when it rains. And IRS advice for picking a payroll service.

Tuesday, July 16th, 2013 by Joe Kristan

States with umbrellas.  The Tax Foundation’s map this week shows how well the states are doing at maintaining “rainy day funds.”  Iowa does pretty well.

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 Some states don’t bother.  Unsurprisingly, Illinois is one of them. (Richard Borean, Tax Policy Blog)

 

The IRS has good advice in Tips for Employers Who Outsource Payroll Duties issued yesterday.  Many employers have had to pay their payroll taxes twice after unscrupulous payroll providers have made off with their funds.  Two tips worth repeating:

Enroll in the Electronic Federal Tax Payment System   and make sure the PSP or RA uses EFTPS to make tax deposits. Available free from the Treasury Department, EFTPS gives employers safe and easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their third-party payer is properly carrying out their tax deposit responsibilities…

And:

Refrain from substituting the third-party’s address for the employer’s address. Though employers are allowed to and have the option of making or agreeing to such a change, the IRS recommends that employer’s continue to use their own address as the address on record with the tax agency. Doing so ensures that the employer will continue to receive bills, notices and other account-related correspondence from the IRS.

Remember that if you are using a “professional employer organization,” you may not be able to monitor whether your payments are being made through EFTPS, making it critical to ensure the PEO’s trustworthiness in other ways.  Nobody wants to pay their payroll taxes twice.

 

TaxGrrrl,  As Debate Into Tax Exempt Scandal Continues, Here’s A Timeline Of Who Knew What And When.   “While it feels like this has all happened over a short period of time since the issue has only been in the spotlight for a few months, it’s actually taken us years to get to this point.”

Kay Bell, Cincinnati, D.C. IRS tax-exempt office employees, agency chief Werfel to testify this week at 2 more Congressional hearings

TaxProf, The IRS Scandal, Day 68

Lawyers, guns and money? When Earn-Outs Go Wrong: What Options Does A Seller Have When A Contingent Purchase Price Is Never Paid?  (Tony Nitti)

Peter Reilly, Fee Interest In Motels Not Like-kind To Leasehold

Jason Dinesen, Is the Patient-Centered Outcomes Trust Fund Fee Deductible as a Business Expense?

Keilly Strohmaier, (via Paul Neiffer),  Watch Out For Disregarded Entities When Someone Dies

 

Clint Stratch, 15,000 Poor Reasons to Do Tax Reform (Tax Analysts Blog):

Tax reform advocates say that because “Congress has made more than 15,000 changes to the tax code” since 1986, the code needs to be reformed. At first blush, this number leaves a pretty poor impression not just of the code but also of Congress. An alternative view could be that succeeding Congresses have been about continually improving the
code.

An alternative view could be that drinking a half-pint of bourbon for breakfast would make me a better accountant.  And that might be true if I were already in the habit of starting the day with a whole pint.

 

William Perez, Death Tax Repeal Act of 2013 Introduced in House and Sentate

Donald Marron,  The Fed and America’s Debt (TaxVox)

Jeremy Scott, Noem, Schweitzer Decisions Give Shape to Key Senate Races (Tax Analysts Blog)

Jack Townsend, Taxes and Morality.  Turns out that a lot more people think tax cheating is sinful than, say, binge drinking.

 Buzzing!  Get Robert D. Flach’s Tuesday Buzz roundup!

Me: If you are going to forge your travel calendar, at least get the year right.

 

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Tax Roundup, 1/7/2013: Economist says Iowa’s problem is income tax, not property tax. And: thieves don’t report all of their income?

Monday, January 7th, 2013 by Joe Kristan

O. Kay Henderson reports that maybe the Branstad focus on property taxes is misplaced in Economist: Iowa income taxes not competitive:

A Midwestern economist says Iowa policymakers should focus on cutting income taxes rather than property taxes. Ernie Goss, an economist at Creighton University in Omaha, says Iowa’s income tax rates are fifth highest in the country.

“In terms of what Iowa needs to look at, in my judgement, given what’s going on in Kansas, what’s about to go on in Nebraska — Iowa’s neighbors — you need to look at income taxes, in terms of being more competitive,” Goss says.

Iowa property taxes are too high, but income taxes  matter more for many taxpayers.  While property taxes are a big deal to companies that own real estate, like a manufacturer or a big insurance company, income taxes can mean a lot more to a start-up or a tech company.  Fortunately the Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready to go!

 

Making a dent in the deficit!  A chart shows how much the tax increases on “The Rich” will reduce the $1.2 trillion federal deficit (new taxes in green, deficit in red)

Fiscal cliff taxes vs deficit

Either the government spends a lot less, or taxes go up a lot for everyone. The rich guy isn’t buying

 

The IRS isn’t buying, either.   Tax Analysts reports Better IRS Enforcement Could Net $1 Billion More a Year, Says GAO ($link).   $1 billion is less than 1/1000 of the deficit.  They won’t audit their way to solvency.

 

Breaking tax news from the Eisenhower administration:

Amity Shlaes,   Think Obama’s Tax Hikes Are Low Compared With Rates Of The 1950s? Think Again.  (Via Instapundit)

Andrew Biggs,  Were taxes really higher in the 1950s?

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It’s Monday.  Do you know if your payroll taxes have been remitted?  Another sad story of a payroll service provider who decided he needed taxes withheld from his clients more than the IRS did.  Digtriad.com reports that Arthur Weiss of Winston-Salem, North Carolina is going away for 15 years:

Case documents show Weiss operated professional employer organizations (PEOs), which provided payroll-related services to client companies. For his client companies, Weiss agreed to pay the employees, withhold and remit federal and state taxes, prepare and file the federal and state employment tax returns  and provide workers compensation insurance (WCI).

Weiss did pay the employees and withhold the employment taxes, but he failed to remit the employment taxes, keeping them for his personal use.

PEOs that file taxes under their own names and ID numbers have a hidden danger: their clients can’t verify that the IRS has received their payments via the Electronic Federal Tax Payment System (EFTPS).  Employers can use EFTPS to monitor payments when they use a payroll service that reports employee taxes under the employer’s own name and Tax ID number.  This makes it necessary for taxpayers to investigate PEO-type providers very carefully before trusting them with payroll services.  If your payroll taxes are stolen by your payroll provider, the IRS will come after you to collect.  Not many employers can afford to pay payroll taxes twice.

Russ Fox has more.

 

Few thieves report their income honestly.  From WHOTV.com:

Disgraced former Peregrine Financial CEO Russell Wasendorf Sr. is in jail awaiting sentencing for embezzling over $200-million in customer funds, fraud, and lying to federal regulators.

Now the state says he may have also cheated on his taxes.

Records show the [Iowa Department of Revenue] filed an assessment in November against Russ  and Connie seeking $14.1-million in unpaid taxes and penalties to Iowa.

Good luck collecting anything.

 

Fiscal Cliff Notes:

TaxProf,  WSJ: The Stealth Tax Hike — Why the New $450,000 Income Threshold Is a Political Fiction

Elected representatives at work.  Tim Carney: Baucus rewards ex-staffers with tax breaks for their clients:

Tax breaks for Hollywood, NASCAR, windmills, algae and multinational corporations ended up in the “fiscal cliff” bill thanks to President Obama, according to Senate Republican sources. But they were spawned by a web of lobbyists, donors and staffers surrounding Democratic Sen. Max Baucus of Montana.

Baucus’ Finance Committee passed a bill in August extending 50 expiring deductions and credits for favored industries. At Obama’s insistence, the Baucus bill was cut and pasted word for word into the cliff legislation.

But it’s all for our own good, I’m sure.

William Perez, President Signs the American Taxpayer Relief Act into Law

The ‘fiscal cliff’ bill and Iowa entrepreneursMy new post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Paul Neiffer,  Up to Ten Capital Gains Tax Rates for 2013!

Janet Novack,  The Forbes Guide To The Fiscal Cliff Tax Deal

TaxGrrrl,  10 Things You Should Know About The Fiscal Cliff Deal

 

Kay Bell,  Ravens, Redskins and tax revenue

Brian Strahle,  Minimize Restructuring Costs with State Tax Due Diligence

Peter Reilly,  War Tax Resisters – Don’t Call Them Frivolous.

Patrick Temple-West,  Inquiry into tech giants’ tax strategies nears end, and more (Tax Break)

Kaye A. Thomas,  American Taxpayer Relief Act

Tax Trials,  Senate Confirms Two New Tax Court Judges

Robert D. Flach ponders whether he should rename his Buzz roundup of tax news.  Don’t do it, Robert!

 

Make up your minds!

Tax Analysts, New Congress’s Partisanship, Inexperience May Hurt Chances for Tax Reform 

The Hill:  Tax reform more likely after ‘fiscal cliff’ agreement, say House Republicans. (Via Instapundit)

 

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Tax Roundup, 10/23/2012. News of the obvious edition. And…look! Dead squirrels!

Tuesday, October 23rd, 2012 by Joe Kristan

Refundable credits are vulnerable to fraud, and IRS can’t recover the fraudulent payments.  The Treasury Inspector General for Tax Administration discovers the obvious,  reports Accounting Today (my emphasis):

A new report released Monday by the Treasury Inspector General for Tax Administration on refundable tax credits found that they are highly vulnerable to fraud. Refundable tax credits such as the EITC, the Additional Child Tax Credit, the First-Time Homebuyer Credit, and the American Opportunity Tax Credit for education also provide valuable tax breaks for low-income taxpayers and the middle class.

I call foul.  To say the “First-Time Homebuyer Credit” provides “valuable benefits for low-income taxpayers and the middle class” is lazy and dishonest propaganda.  That’s just the Accounting Today reporter’s assertion, and it appears nowhere in the TIGTA report.   The credit poured money into a declining housing market with little effect, other than blowing $30 billion.  The policy behind the other credits is at best arguable, and the benefits aren’t clearly “valuable” to taxpayers as a whole.

TIGTA initiated its audit to determine the effectiveness of efforts by the IRS to recover refundable credits disallowed during post-refund examinations and to consider options the IRS could implement to decrease the issuance of erroneous refundable credits. 

“Because of the susceptibility of these credits to fraud, and the low success rates in recovering erroneous credits once refunds have been issued, the IRS should take every reasonable step possible to identify potentially questionable credits and validate those credits before associated refunds are issued,” said TIGTA Inspector General J. Russell George in a statement.

So Doug Shulman’s IRS isn’t taking every reasonable step to keep from sending cash to thieves?  He’s been too busy terrorizing innocents abroad and setting up a vast, expensive and useless preparer regulation bureaucracy, apparently.

 

Attorney: West Des Moines firm’s outstanding liabilities to be paid soon (Des Moines Register).  The payroll service provider facing large bills for not remitting client payroll taxes timely says they will make good on them:

A West Des Moines human resources provider has paid its 2012 tax liabilities and has the funds necessary to pay off more than $4.8 million liabilities within the next three months, an attorney for the businessman said today

The Internal Revenue Service since 2006 has issued at least 15 tax liens against John Vratsinas and his collection of companies, InFocus Partners, Iowa Construction Logistics and ICL Staffing, according to court documents.

That’s good news for clients who might otherwise have to pay their payroll taxes twice, first to the payroll company and then to the IRS.  The taxman wants its payroll taxes, even when the payroll company already has received them.   Of course payroll providers shouldn’t fall behind on payroll taxes in the first place.  A wise employer will enroll in EFTPS and go online to monitor that the taxes are being paid, even when they outsource the job.

Also from the West Des Moines Patch: Attorney for West Des Moines Payroll Outsourcer Says 2012 Taxes Paid

Related Tax Update coverage here.

 

The TaxProf mentions an academic paper “Ranking State Tax Systems: Progressivity, Adequacy, Efficiency.”  From the abstract:

A good tax system must raise sufficient revenue – and do so fairly, efficiently, transparently, and coherently. How do the tax systems of the states stack up in terms of fairness, adequacy, and neutrality? To answer this question, we assess each state’s relative performance in terms of progressivity, growth, and administrative and economic efficiency.

Iowa rates 32nd by their measure. I think “progressivity” is a poor tool for measuring state tax systems.”Progressivity” is just a weasel-way of saying “high rates,” which create distortions and inefficiency, like in Iowa, while punishing pass-through businesses.  Any measure that rates the horrendous New York tax system as #1 is absurd.

 

Russ Fox, Bad States for Gamblers

Patrick Temple-West,  Essential reading: Democrats threaten payroll tax cut consensus, and more (Tax Break)

Trish McIntire,  Tax Backup.  Maintain your records.

Kay Bell,  Kiddie tax, gifts and other tax-related items do get 2013 inflation adjustments

William Perez,  IRA Contribution Limits for 2013

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Final Presidential Debate – Live Blog

Janet Novack,  10 Reasons Reagan Could Cut The Top Tax Rate To 28%, But Romney Can’t

Peter Reilly,  Debate Proceeds Despite Green Party Lawsuit – Hear Jill Stein On Defense Here

Anthony Nitti,  Clearing Up Confusion Created By The Debates: President Obama’s Tax Proposal And The Fate Of The Small Business Owner.  Anthony unfortunately repeats the pointless fact that increasing the Obama plan only affects “2.5 of small business owners.” That’s true when you rate your Shacklee-selling neighbor the same as a business with dozens or even hundreds of employees.

As the Tax Foundation notes, the Obama plan affects a much higher percentage of pass-through income, a more important measure than the number of Schedule C 1040s.  Anthony dismisses this as just a concern of hedge-funds and private equity millionaires.  My pass-through clients would disagree.

 

The Critical Question:  So Jason … How’s that Guidebook About Same-Sex Marriage and Taxes Coming?  (Jason Dinesen)

Stretch your coffee break:  How to Weaponize Office Supplies (Bloomberg Business Week, via Instapundit)

So the dog can do this, but I can’t?  Man cited for backyard squirrel hunt (KCCI.com)

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Tax Roundup, 10/9/2012: Area employers find their payroll provider hasn’t been remitting their taxes. Also: taxes are easy, for drug dealers.

Tuesday, October 9th, 2012 by Joe Kristan

http://www.rothcpa.com/misc/EFTPS.JPGIt can happen here.  IRS Files Liens to Recover $3.8 Million from West Des Moines HR Outsourcing Company.   From the West Des Moines Patch:

On Friday, court documents show the IRS filed a nearly $1.2 million federal tax lien against InFocus Partners and its subsidiary, ILC Staffing Inc., seeking to collect taxes that should have been paid on behalf of the company’s clients.

Not only did InFocus Partners fail to pay taxes for each of the past two quarters, according to the lien filing on the Iowa Secretary of State’s website, InFocus and its affiliated companies have been behind in tax payments off and on since 2006. The latest filing is part of an overall $3.8 million collection effort.

A woman answering the telephone at the InFocus office at 5930 Grand Ave. said company founder and owner John Vratsinas was not available for comment. She also said the company’s president, Charles Ganske, and at least two other top officers reportedly resigned Friday after learning of the liens against their employer.

The Des Moines Business Record quotes the company’s attorney as saying the nonpayment is an “administrative mistake” that will be corrected.  One hopes so.  If the company doesn’t remit the payroll taxes withheld for employees, the IRS and Iowa will come after the employers, who will end up paying the payroll taxes twice — a painful expense, and to some businesses a potentially fatal one.

That’s why you should verify your employment tax payments even if you outsource your payroll compliance function.  You can do this by signing up for EFTPS, the Electronic Federal Tax Payment System.  Employers enrolled in EFTPS can go online to verify that their employment taxes are being remitted.  If your payroll outsourcing provider doesn’t remit in a way that lets you verify via EFTPS, that means you can’t verify, but only trust.  That can end badly.

 

If true, the Romneys can start ordering furniture.    Election is a Referendum on Tax Hikes  (Martin Sullivan, Tax.com):

The latest predictions are that if Obama wins Republicans will allow passage of tax increases for the wealthy and if Romney wins Republicans will make no concessions.

Ask President Mondale how his advocacy of tax hikes worked out for his campaign.

Anthony Nitti,  The Tax Foundation: If You Account for Economic Growth, the Romney Tax Proposal Can Work, Be Revenue Neutral

 

TaxGrrrl,  Tax Deadline Approaching.  October 15 is it for extended 1040s; there is no second extension.

Kay Bell,  Tax procrastinators, the Oct. 15 final filing deadline countdown — and tax tips to help you get there — start today!

Paul Neiffer,  Maintain Flexibility with Deferred Payment Contracts.  One of the many great tax planning tools available to farmers only.

Bill Hanigan,  New Taxes on Farmland Sales for 2013 (Davis Brown Law Firm Tax Blog).  How Obamacare may make it best to sell the farm this year.

William Perez,  Consider Funding a Coverdell Education Savings Account:

Coverdell ESA’s are tax-advantaged savings plans combining tax-deferral on investment earnings and tax-free withdrawals if the beneficiary of the savings plan withdraws funds to pay for qualified education expenses. Coverdell ESAs are funded using post-tax dollars (no deduction is allowed for contributing to the account) and allow for contributions up to $2,000 per year per beneficiary.

How about next Friday night, then?  Smith: The Timing is Wrong to Reduce the Estate Tax on the Wealthiest Americans (TaxProf)

Russ Fox,  Escort Service Operator Charged with Structuring

Standing up to the menace of undocumented bugs:  Area men document Iowa’s moths (Gazette.com, via TheBeanwalker.com)

Who said taxes were hard?   Bogus tax returns easy money for drug dealers; Local law enforcement officials call on IRS to crack down on fraud (Reading Eagle)

Another triumph of tax simplification for Doug Shulman’s IRS.

 

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Tax Roundup, 8/27/12: Verify, then trust. Plus the tenant-free landlord!

Monday, August 27th, 2012 by Joe Kristan

http://www.rothcpa.com/misc/EFTPS.JPGPayroll taxes: Trust a little, verify a lot.   Sad stories all around in Binghampton, New York, after an executive at a payroll service provider admitted stealing tax deposits, rather than remitting them to the IRS and the state.  From WBNG.Com:

“It was almost like being kicked in the stomach because I had already paid the taxes and we were told we had to pay them again,” said President of Silo Restaurant Gary Kurz.

Kurz was another victim. He says he had to borrow money to pay the IRS a second time, in addition to cutting hours for employees, and working hard to save on electricity bills.

All of this in an effort to to fill a sudden $24,000 loss for the restaurant, a loss that’s still affecting his business.

Outsourcing payroll processing can be a good business decision, but it leaves a business horribly vulnerable if the processor has a thief on board.  That’s why even businesses that outsource their payroll should enroll in the Electronic Federal Tax Payment System.  EFTPS lets you go online to make sure that the payroll taxes you are sending to your payroll service provider are truly getting deposited on time.  It might seem like extra work, but it’s a lot easier than paying your payroll taxes twice.

 

Being a landlord is so much easier without tenants.  But it has its downsides, as a Connecticut attorney named Joseph Colbert has learned.  From the Wilton Patch:

According to court documents and statements made in court, Colbert  filed false federal tax returns in 2006, 2007 and 2008. In  each of the returns, Colbert falsely claimed that he had sustained  thousands of dollars in losses on a rental property in New Jersey when,  in fact, the New Jersey property was not a rental property, but was  exclusively for his personal use. In total, Colbert underpaid his federal tax obligation by more than $133,000.

Folks, this sort of thing isn’t hard for the IRS find.  If you have a Schedule E property that year after year shows little or no rental income and lots of expenses, the IRS computers are likely to notice.  That’s especially true if you find a way deduct those losses, which will normally be non-deductible “passive” losses absent other passive income.

Of course, there are times in real life when commercial properties go a long time without being rented.  Residential rental properties, though, aren’t likely to sit empty for three years in most markets.

 

Bad tax ideas of the northlands.  An Alaska couple apparently didn’t take their tax evasion conviction well.  From the Alaska Dispatch:

According to documents filed in court Thursday, Lonnie and Karen Vernon, of the so-called “241″ militia trial, are planning to enter guilty pleas to some of the eight counts against them, the Fairbanks Daily News-Miner reports.

The couple faces charges related to tax evasion, weapons possession and conspiracy to commit murder.

Independent of the “241″ militia trial, the Vernons are charged as a couple for allegedly plotting to kill an Internal Revenue Service agent and U.S. District Judge Ralph Beistline following the outcome of their tax evasion trial. Judge Beistline was allegedly targeted because he ruled against the Salcha, Alaska, couple.

Maybe this has something to do with long winters.  A few years ago Minnesotan Robert Beale got in trouble for similar reasons.

I’ll be the last person to discount the seriousness of tax convictions.  Nothing disrupts personal plans like a stretch in the federal can.  Yet, according to the story, this couple owed about $180,000 –  good for maybe a three year stretch before you can resume your previously-scheduled programming.  Conspiring to kill a federal judge will extend that time away considerably, without any chance of making the original sentence go away.  Poor move, north or south.

 

 

It’s Guest Post Week on Taxgirl!

Russ Fox ponders Jason Dinesen’s series on identity theft and asks, Why Is the Death Master File Still Available?  Why, indeed?

William McBride, Sweden’s Corporate Rate is 13 Points Lower than Ours, and Going Lower (Tax Policy Blog)

Jack Townsend,  Prominent Neurosurgeon Convicted for Offshore Accounts.  A Milwaukee case.

Janet Novack, Romney’s Taxes: It’s The Carried Interest, Stupid

Jim Maule, Using Taxes to Measure Generosity

Christopher Bergin,  Taxing With the Stars

Robert D. Flach has a new Buzz on.

Isn’t that what Hell is for anyway? Pennsylvania Court Gives No Relief To Investor In Tax Shelter From Hell (Peter Reilly)

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Tax Roundup, June 28, 2012: Obamacare Judgement Day and other masterminded schemes

Thursday, June 28th, 2012 by Joe Kristan

Flickr image courtesy Evil Erin under Creative Commons license.

Haven’t filed your FBAR Form TD F 90.22-1 for foreign financial accounts?  File it now!  It’s due June 30.

Today is Judgement Day for the Supreme Court decision on the Affordable Care Act, AKA Obamacare.  Key tax-related provisions on the line:

- A .9% surtax on single taxpayer wages over $200,000 and joint wages over $250,000, effective in 2013.

- A 3.8 % surtax on “unearned” income – interest, dividends, capital gains and “passive” income from pass-through business activities, when AGI exceeds $200,000 for single filers and $250,000 for joint filers, effective in 2013.

- A $2,500 limit in flexible spending account contributions, effective in 2013

- Increase in the AGI floor for medical deductions starting in 2013 from 7.5% of AGI to 10%.  The increase will be deferred through 2016 for taxpayers over age 65.

- The IRS-enforced penalties for failure to buy health insurance, effective in 2014.

Of course, the 10% tax on tanning booths has been in effect for some time.  We will post on the decision later today.

Why are capital gains taxed at a lower rate? The Tax Policy Blog has a post appropriately-titled “Why Capital Gains are taxed at a Lower Rate.”

First, the tax is not adjusted for inflation, so any appreciation of assets is taxed at the nominal instead of the real value. This means investors must pay tax not only on the real return but also on the inflation created by the Federal Reserve.

Second, the capital gains tax is merely part of a long line of federal taxation of the same dollar of income.  Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains.  This puts corporations at a disadvantage relative to pass through business entities, whose owners pay personal income tax on distributed profits, instead of taxes on corporate income, capital gains, and dividends.  One way corporations mitigate this excessive taxation is through debt rather than equity financing, since interest is deductible.  This creates perverse incentives to over leverage, contributing to the boom and bust cycle.

Finally, a capital gains tax, like nearly all of the federal tax code, is a tax on future consumption.  Future personal consumption, in the form of savings, is taxed, while present consumption is not. By favoring present over future consumption, savings are discouraged, which decreases future available capital and lowers long term growth.

The capital gain rate is the biggest reason why the highest-income taxpayers have a lower effective rate.  The reason their income is high is usually becuase they have a once-in-a-lifetime windfall from the sale of a business or asset.  It is the biggest reason used for the push for the inane “Buffett rule.”  As the Tax Policy Blog post points out, though, the U.S. already has one of the highest effective tax rates on capital gains amoung the major economies, behind only Italy, Denmark and France.

Tax Court Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (TaxProf)  The Tax Court once again held that allowing a fire department to burn down a home is not the same thing as giving a home to the fire department.  The right to burn a building is a very different thing than full ownership of the building.  The decision should be no surprise, as we discussed back in February.  More from Anthony Nitti.

Why you should use the EFTPS program to monitor your payroll tax deposits online, even if you outsource your payroll function: Operator of Payroll Companies Charged in North Carolina with Federal Fraud and Money Laundering Crimes.  If your payroll service steals money  you set aside for payroll taxes, the IRS still wants you to pay up. 
 
 
 
 
Jason Dinesen, Planning for Alternative Minimum Tax in 2012.  If Congress doesn’t re-enact the “AMT Patch,” you might have an $8000 or so tax increase due in April.
 
Watching the watchdogs:  Tax Court Finds IRS Compliance Officer Liable for Civil Fraud Penalty (Jack Townsend).  She claimed deductions that the court decided were bogus.
 
 
Is it right to call somebody who organizes a really stupid crime a “mastermind?” From Kansascity.com:

A California man pleaded guilty Tuesday to a tax fraud scheme that federal prosecutors allege was masterminded by a Kansas City man.

The plea of John V. Perdido of Temecula, Calif., is the second among 14 defendants in the alleged conspiracy to receive nearly $100 million in fraudulent refunds from the Internal Revenue Service. Perdido received a refund of $805,749 and spent more than half of it on property and a car in the Philippines among other things.

The alleged conspirators filed for big federal refunds based on the idea that we all have huge amounts of cash on deposit with the federal government in our names, which we can tap if we file the right tax forms. Another Professor Moriarty, that mastermind.
 

 

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Eight years or Eighty, the IRS still wants its money

Thursday, February 23rd, 2012 by Joe Kristan

Jeffrey Sykes’ victims may have gotten grim satisfaction yesterday when he received an 8-year sentence for stealing withheld taxes from his payroll service. Still, grim satisfaction doesn’t help them get right with the IRS.
Mr. Sykes’ payroll tax service had about 1,100 clients, according to reports. Instead of using client money to pay their payroll tax obligations, he apparently spent it on a more important obligation: himself.
Unfortunately, the IRS still wants the money. The victims get to pay their payroll taxes twice: first to Mr. Sykes, and then to the tax man. That’s why employers should sign up with the Electronic Federal Tax Payment Service. Even if you outsource your payroll, EFTPS lets you go online to make sure that your provider is remitting your tax deposits on time. These online visits should be part of your internal control routine, because nobody can really afford to pay payroll taxes twice.
Prior coverage: Payroll outsourcing: trust (a little), but verify (a lot).

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Lessons learned the hard way: why employers should use EFTPS to check their payroll tax deposits

Wednesday, January 26th, 2011 by Joe Kristan

EFTPS.JPGWe mentioned yesterday a sad story about small businesses allegedly swindled by their third party payroll provider. But keeping your payroll in-house doesn’t always keep you out of payroll tax trouble either, as a case decided yesterday against a Des Moines businessman shows.
The businessman owned a distribution company. Somehow the company got behind on its payroll taxes, but the owner apparently didn’t find out until he asked his outside accountant to respond to notices from the IRS looking for the taxes. Then, according to the court, the owner made what proved to be a terrible mistake — he paid other creditors ahead of the IRS.
Last February a U.S. district court judge in Des Moines ruled that paying the other creditors was a “willfull” act that triggered personal liability for the owner, Charles Colosimo, as a “responsible person.” The Eighth Circuit Court of Appeals upheld the decision yesterday. The appeals ruling explains (citations omitted):

“The term willfully does not connote a bad or evil motive, but rather means a voluntary, conscious, and intentional act, such as the payment of other creditors in preference to the United States.” Willfulness is generally a question of fact, but if a responsible person knew of payments to other creditors after he was aware of the failure to pay over withholding taxes to the government, his actions are willful as a matter of law.

Being surprised by a bill for unpaid payroll taxes is a severe, sometimes even fatal, blow to a business. It’s even worse if you are a “responsible party,” because that follows a responsible party even if the business was incorporated. That’s why business owners should know how to use the Electronic Federal Tax Payment System to check online to make sure their payroll taxes are current.
Cite: Colosimo, CA-8, No. 10-1593
Link: Prior Tax Update coverage.

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Texas-sized payroll-provider scam

Tuesday, January 25th, 2011 by Joe Kristan

Terrible news out of San Antonio for many small businesses, from MySanAntonio.com:

An employee leasing services executive was arrested Monday in one of San Antonio’s largest-ever tax fraud cases, accused of keeping $66 million in payroll taxes that should have gone to the IRS.

That means thei IRS will be visiting the leasing service’s clients to get that money.

The indictment accuses Mire of having management roles in professional employer organizations (PEOs) that collected payroll taxes from their clients

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EFTPS phishing

Friday, October 8th, 2010 by Joe Kristan

Businesses almost universally pay their taxes using the Electronic Federal Tax Payment System, or EFTPS. Failure to remit your taxes timely via EFTPS can be very expensive. That’s why it would be natural to click through the link on an e-mail that says EFTPS rejected your tax payment.
Don’t do it. It’s a scam. From the IRS:

The IRS recently became aware of a fraudulent scheme targeting EFTPS users, the scheme uses an e-mail that claims your tax payment was rejected and directs you to a website for additional information. The website contains malware that will attempt to infect your computer.
If you receive a message claiming to be from the IRS or EFTPS, please:
1. Do not reply to the sender, access links on the site or submit any information to them.
2. Forward the message as-is immediately to us at phishing@irs.gov.

The IRS doesn’t initiate taxpayer contact via e-mail.
More coverage:
Trish McIntire
TaxGrrrl
William Perez

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Des Moines businessman ‘responsible’ for nearly $700,000 payroll taxes not remitted by his bookkeeper

Wednesday, March 3rd, 2010 by Joe Kristan

EFTPS.JPGImagine how it feels to suddenly find out that your trusty bookkeeper has fallen three years behind on remitting payroll taxes for your business, and the IRS wants it now. That may have happened to Charles Colosimo, the owner of a Des Moines delivery business with 30 employees; now a federal judge has ruled that Mr. Colosimo is personally on the hook for back taxes of nearly $700,000.
Mr. Colosimo is stuck with the taxes even though the court found that his bookkeeper may have gotten him in trouble to begin with. The problem came to light when Mr. Colosimo asked his outside accountant to follow up on IRS notices looking for missing payroll tax returns. The judge said that once he got the bad news, the tax problems should have been his only priority:

It is undisputed that Colosimo knew of the unpaid taxes by June 4, 2004. It is also undisputed that between June 4, 2004 and Labor Day 2004, C&C Distribution disbursed funds totaling $902,084.99 to creditors other than the United States. C&C Distribution made further large payments to creditors other than the United States after that time. Under any view of the facts, Colosimo knew about these payments. This evidence is proof of willfulness as a matter of law.

Because he was considered a responsible person who “willfully” paid other creditors while owing the taxes, the judge says Mr. Colosimo is on the hook.
What could he have done differently? Here’s a hint:

Colosimo

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Trust your payroll service, but not too much.

Monday, February 1st, 2010 by Joe Kristan

Vincent Mangione, an upstate New York payroll service provider was a small businesman’s worst nightmare. Russ Fox reports:

Assistant US Attorney Michael DiCiacomo told the Buffalo News,”Unbeknownst to the businesses, Mangione would secure from the businesses the proper amount of quarterly tax due to the IRS and then submit a false tax return on behalf of the business that underreported the amount of tax due,” DiGiacomo said. “According to the indictment, Mangione would then keep the difference for his personal use.” Mr. Mangione, through his attorney, denies any wrongdoing.

The worst part:
None of the small businesses that hired Mangione to handle payroll have been criminally charged in the case, but they face potential tax problems with the IRS.
“They still have obligations to the IRS for taxes not fully paid,” DiGiacomo said of the companies.

Having to remit payroll taxes and withholding twice — once to the IRS, and once to a thief — is enough to kill many businesses. That’s why anybody who uses a payroll service should still enroll in the Electronic Federal Tax Payment System, EFTPS, so they can go online and verify that the money that goes to the payroll service actually gets to the IRS.
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Payroll outsourcing: trust (a little), but verify (a lot).

Thursday, August 20th, 2009 by Joe Kristan

How would you like to read this news about your payroll service provider:

A Monroe County grand jury charged Jeffrey A. Sykes with the felonies of second-degree grand larceny and second-degree criminal tax fraud.
Sykes, 49, of Wayland, Steuben County is expected to be arraigned within the next few weeks. He is free on $30,000 bail.
Sykes, owner of Paybooks Inc., was arrested in June after the office of Attorney General Andrew M. Cuomo froze the company

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