August 9, 2012
As a Forensic CPA, I often hear stories about clients or their partners, employees, or spouses who have stolen or have hidden assets. But there’s one scam which you don’t hear about very often and which should scare every business owner: what happens when your trusted payroll service fails to make your tax payments to the IRS?
Just today a small business owner confessed to me that his payroll service stole $7 million from him and other businesses. The payroll service collected tax monies from their clients, and instead of making the payments to the IRS, the owners of the service simply pocketed the money. The trusting small business owner was required to pay the IRS nearly $40,000; in effect paying the payroll tax obligation twice.
Who is responsible?
More and more we hear about trusted people and businesses stealing from their clients and associates. Violation of fiduciary responsibility inevitably escalates during periods of economic hardship, but the potential to be a victim of ‘white collar crime’ is always present. As a business owner, it is important to continually verify that employees and business partners are doing what is expected of them.
Who is responsible in the case of non-payment of payroll taxes when a payroll service has been engaged? The Internal Revenue Service regulations state quite clearly:
- The employer is ultimately responsible for the deposit of Federal tax liabilities.
- The employer is liable even if a third party payer fails to make the payroll tax deposits in a timely manner.
- It is the employer, not the payroll service, who is liable for unpaid taxes, penalties and interest.
- The employer has a duty to review their EFTPS account to verify that the third party payer actually paid the taxes.
An ounce of prevention is always worth the proverbial pound of cure. To avoid the headaches and financial distress of misplaced trust, CJBS recommends that business owners follow this Five Step Anti-Swindle procedure:
- Examine checks clearing the bank accounts monthly.
- Have someone verify payroll tax deposit credits on-line.
- Examine customer credit memos regularly.
- Examine delinquent accounts receivable.
- Spot check cash payments.
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at firstname.lastname@example.org if you have any questions about this posting or if I may be of assistance in any way.
December 13, 2011
by Matthew Bergman, CPA
The IRS has released the 2012 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes.
The 2012 standard mileage rate remains at 55.5 cents per mile for business uses, is reduced to 23 cents per mile for medical and moving uses, and remains at 14 cents per mile for charitable uses. For purposes of computing the allowance under an FAVR plan, the standard automobile cost may not exceed $28,200 ($29,300 for trucks and vans). The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2012, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2012.
November 1, 2011
Speaking at the University of Colorado in Denver recently, President Obama announced new executive actions to lower student loan payments. The initiative accelerates an income-based repayment plan that reduces the maximum required payment on student loans to 10% of annual income.
The measure was supposed to go into effect in 2014, but the president now wants it to start next year. The president says by lowering loan payments, people will feel more confident buying houses and making other purchases that will give the economy a much needed boost.
This sounds great, right? Student loans are the No. 2 source of household debt, and who can argue with lower loan payments? But I am concerned that many Americans fail to understand the whole picture.
Two years ago, the president took student loans out of the private sector and decreased bank profits. Banks are bad and they do not vote.
The net result was more Pell grants and more students going to college. As an economics major (or even an English major who understands the principle of supply and demand) you could have predicted this would lead to a substantial increase in tuition, making it harder for middle income families to send their kids to college.
People in my income bracket do not generally qualify for need-based grants and scholarships and we also generally do not have the income after taxes to pay for college without loans,
Nationally, student loan debt is greater than credit card debt because without the involvement of private companies, we now have higher school costs and increased debt defaults.
With Obama’s recent actions there will be greater loan forgiveness by the government which means that this entitlement program will be a casualty increasing the American debt. As I am part of the 50% of Americans who pay taxes, why should my burden be greater than others?
Now you may say that college education creates the future of our country, which is true. And there are students who will have their dreams of a better life realized in this way. But is the country to serve a few or are we the people to serve the country? Or is the middle class to serve the majority and suffer a greater share of the financial burden?
Our country’s challenges require complete and considered programs, not patchwork solutions. The current student loan programs are an example of policies that sound good to the masses, yet create a greater debt crisis and future problem. And you don’t even need a college degree to see that one, right?
September 19, 2011
by Larry Goldsmith, C.P.A., J.D., C.F.F.A.
Just a brief note to let people know that this is an excellent time to work out unpaid tax obligations with the Internal Revenue Service. I recently negotiated what I think are excellent settlements for two clients:
1. A real estate developer and contractor with $1,000,000 of payroll tax trust fund tax obligations settled for $20,000.
2. A real estate owner of apartment buildings had $400,000 of unpaid income tax obligations settled for $100,000.
My experience with the IRS program and the willingness of the IRS to accept reasonable offers and compromises make this a great time to settle tax disputes and unpaid tax obligations. Obviously, this will not work for everyone, but as you can see, the strong possibility of an advantageous settlement offers hope to many.
Feel free to call (847-945-2888) or email me if you have questions regarding your tax situation, or are backed up with the IRS and are considering your alternatives.
August 17, 2011
Many states are becoming aggressive in taxing corporations based on the privilege of conducting business or deriving income within a state. Florida has just ruled on a case subjecting a corporation to income tax even though it has no physical presence in Florida.
A corporate taxpayer had nexus with Florida and was subject to the state corporate income tax because some of its products were shipped or delivered inside the state. The taxpayer’s business activity in Florida consisted of the solicitation of sales of gifts and products the taxpayer’s customers use to reward their employees. Some of the products were shipped from the taxpayer’s warehouse outside the state while others were shipped directly to the customers from unrelated vendors’ warehouses, some of which are in Florida. To be protected from nexus, shipment or delivery must be from a point outside the state. Despite the fact that the taxpayer had no other business activity in Florida, because some of the shipments were made from within Florida, the taxpayer was not protected and was subject to Florida corporate income tax.
For sales tax purposes, states watch for is internet activity as many states have implemented “click through” nexus standards as well. From a recent seminar I attended, the following states have enacted “click through” nexus standards for sales tax –
- North Carolina - 8/1/09
- Rhode Island – 7/1/09 ($5,000 threshold)
- Illinois – 7/1/11 ($10,000 threshold)
- Arkansas - 7/1/11 ($10,000 threshold)
- Connecticut – 7/1/11($2,000 threshold)
- Texas – letter ruling 3/24/11.
We expect many other states will be following suit.
The following states have enacted economic nexus standards in addition to Florida –
- California – effective for taxable years beginning after 1/1/11
- Iowa – case that went to Iowa Supreme Court, 4/28/11
- New Jersey – issued 1/10/11, applies retroactively to tax years beginning in 2002
An important facet of tax planning is the minimization of corporate income tax nexus with unfavorable taxing jurisdictions. This can be accomplished by segregating activities from income producing operations. The first method of segregation is to separately incorporate certain portions of the business. Examples include creation of sales and distribution companies, contract manufacturers, service companies, or research and development companies. A second method of segregation is to create a pass-through entity, such as a limited liability company. A third method is the creation of an intangible holding company to license out the intellectual property of the corporation. Each of these methods of segregation has benefits and attendant risks, varying from state to state, but consideration of one or more of these tools can lead to successful tax planning through isolation of income producing activities from less favorable taxing jurisdictions.