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Monday, February 20th, 2012

Consumer Alert- Compliance Services

Please be aware that COMPLIANCE SERVICES (not to be confused with the Florida corporation, Compliance Services, Inc.) is mailing notices to business entities requesting that “Annual Minutes” and a fee of $125.00 be sent to them for filing. These notices are NOT from the Dept. of State, Division of Corporations. “Annual Minutes” are NOT required to be filed with any agency. They are to be kept by the business entity itself. Do NOT confuse these notices with the messages sent by the Division of Corporations reminding each business entity to file its 2012 Annual Report.

Ross Whitley, Audit Partner & Heather McDonough, Tax Partner



Friday, February 10th, 2012

2012 CHANGES TO TAX BENEFITS

For tax year 2012, many tax benefits will increase due to inflation.

The personal and dependent exemption is $3,800, up $100 from 2011.

  •  The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200.
  •  Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
  •  The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.
  •  The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  •  The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  •  The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remains at the 2011 levels ($60,000 to $75,000).
  •  For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011.
  •  The annual exclusion for gifts remains at $13,000.

Written by: Alacia Wilson, Senior Accountant


Wednesday, February 1st, 2012

Take a look at Newt, Romney, and Obama’s Tax Returns

 There is so much out there about the tax returns for Romney, Gingrich and Obama that sometimes you wonder, what is the real story? What do their tax returns really say? Are they playing by the rules, or is there some obscure loophole that they are all using to lower their tax that the regular taxpayer is not entitled to?

 Jim Laham, Senior Tax Partner, has analyzed each of these returns and provided a one page summary on them. Mitt Romney’s by far is the most complicated and interesting one, but each one tells a very interesting story.

 Newt Tax Analysis                                     Romney Tax Analysis                                     Obama Tax Analysis


Tuesday, January 24th, 2012

New Foreign Bank Account Reporting Form TD F 90-22.1

    Taxpayers that have signature authority and/or a financial interest in a foreign bank account are required to file each year by June 30 what is commonly known as an FBAR Form (Foreign Bank Account Reporting Form TD F 90-22.1). This form allows the taxpayer to report specific details about such foreign accounts.

   In order to continue to enforce tax compliance and monitor international taxpayers, a new form is being developed by the IRS. Form 8938, “Statement of Specified Foreign Financial Assets.” Form 8938 will be used by individuals to report an interest in one or more specified foreign financial assets. The instructions indicate that under a transitional rule most taxpayers won’t have to file the form until 2012.

    If this applies to you, please do not hesitate to call us.  We can provide you with more information and directions on filing the form and send you the form itself.

 Tax Partner, Peter Hilera


Wednesday, January 18th, 2012

2011 New Tax Developments

Here are a few important tax developments from 2011 that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Standard mileage rates increase for last half of 2011. The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is increased 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also increases 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

FUTA surtax is no longer in effect. Beginning July 1, 2011, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect. Thus, the FUTA tax rate, before consideration of state unemployment tax credits, is now 6.0%. Employers need to separately track FUTA taxable wages paid before July 1, 2011, and FUTA taxable wages paid after June 30, 2011, since the FUTA tax rates are different during those two periods. Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on Aug. 1, 2011, but that payment is based on taxable wages paid through June 30, 2011, so it will be computed using the 6.2% FUTA tax rate. However, the payment after that is due on Oct. 31, 2011, and it will be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

Two bonus depreciation deductions for one expenditure. Under IRS regulations, businesses that trade in machinery or equipment for which they claimed bonus depreciation may qualify for another bonus depreciation deduction on the remaining depreciable basis if they swap for like-kind property that also is eligible for bonus depreciation. In effect, the business gets two bonus depreciation deductions for its expenditure on the traded-in property.

Real estate professionals allowed late election to aggregate rental real estate interests. The IRS has provided guidance that allows certain real estate professionals to make a late election under the regulations to treat all interests in rental real estate as a single rental real estate activity for purposes of the passive activity loss (PAL) rules. This election can make it easier to currently deduct losses from real estate activities. As a general rule, the election is made by filing a statement with the taxpayer’s original income tax return for the tax year. However, under new guidance, a taxpayer meeting certain conditions can make a late election on an amended return.

More courts treating basis overstatements as triggering 6-year limitations period. Late last year, the IRS issued final regulations under which an understated amount of gross income reported on a return resulting from an overstatement of unrecovered cost or other basis is an omission of gross income for purposes of the 6-year period for assessing tax and the minimum period for assessment of tax attributable to partnership items. The 6-year limitations period applies when a taxpayer omits from gross income an amount that’s greater than 25% of the amount of gross income stated in the return. Several courts had held that a basis overstatement is not an omission of gross income for this purpose. In response to these decisions, the IRS issued the new regulations to clarify that an omission can arise in that fashion. Recently, two Courts of Appeals (the Tenth Circuit and the District of Columbia Circuit) have upheld the regulations. While the momentum clearly is in favor of the IRS on this issue, others courts have rejected the regulations. Ultimately, the Supreme Court will have to resolve the dispute.


Monday, January 16th, 2012

275,000 Non-Profits Lost Their Tax-Exempt Status in 2011!

 There are close to 2 million tax-exempt organizations operating in theUnited States.  Until recently, once your organization received its determination from the IRS that it was exempt, it was permanent unless affirmatively revoked by the IRS.  Although a significant number of these tax-exempt organizations were required to file an annual return, many failed to do so; a majority were not required to because they did not meet the filing threshold.

 Filing Requirements

 Prior to 2007, most organizations whose gross receipts were less than $25,000 were not required to file an annual return.  Congress then passed the Pension Protection Act of 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS.  For tax years beginning after 2006, the IRS introduced the new annual electronic filing requirement for small tax-exempt organizations, the Form 990-N Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.  The new law states that an organization failing to file an annual return or notice as required for three consecutive years will automatically lose its tax-exempt status. 

 The First Revocations

 In June 2011, the IRS announced that 275,000 non-profits lost their tax-exempt status because they failed to file the required annual documents for three consecutive years.   Of that 275,000, over 17,100 were organizations inFloridaand 540 were organizations inBrevardCounty.  The IRS publishes a list of organizations that have had their tax-exempt status automatically revoked, updating it monthly.    

 Revocation of tax exempt status can have significant financial and social affects.  Once an organization’s tax exempt status is revoked and the revocation published, it is no longer eligible to receive tax deductible contributions.  The organization may still accept donations, but the donations would not be deductible.  Many organizations that provide grants will only do so upon proof of tax-exempt status. For private foundations and sponsors of donor-advised funds, payouts made to a charity that has received a revocation letter will no longer be qualified distributions, thus subjecting them to possible excise taxes.  An organization whose had had their exempt status revoked will be required to file a federal income tax return and pay federal income taxes, may incur penalties for failure to pay income taxes, and substantially risk losing donors and members. 

 Reinstatement

 Most of the organizations affected by the initial round of revocations are believed to be defunct.  However, groups that are still operating may apply to get their exempt status reinstated by filing Form 1023 or Form 1024.  Those who worked on filing the original Form 1023 or Form 1024 know that this may be a tedious and time-consuming task. 

 Organizations normally with annual revenues of $50,000 or less may apply for transitional relief by applying for reinstatement of exempt status by December 31, 2012. By doing so, they will be treated as having had reasonable cause for not filing and status will be retroactively reinstated to the date it was automatically revoked. 

 Organizations with annual revenues greater than $50,000 can apply for retroactive reinstatement.  The application must contain a statement of reasonable cause for failure to file, a statement describing the safeguards put in place to ensure it doesn’t happen again, evidence to substantiate these statements, annual information returns for all tax years during and after the consecutive three-year period that the organization was required, but failed, to file an annual return, and the applicable user fee.  The organization will also have to consider additional expenses should they require professional assistance with their reinstatement. Upon reinstatement, the IRS will issue the organization a new determination letter.  Unfortunately, the IRS will not expedite applications for reinstatement unless the organization can prove it has a compelling reason.

 Conclusion

 As with the revamp of the Form 990 in 2008, the IRS is hoping that this new revocation process will increase transparency and lead to a more accurate picture of the non-profit sector.  Donors, grantors, members, clients, and other stakeholders will have the confidence the organizations that receive their support have reported as required and deserve their trust.

 According to TaxExemptWorld.com there are currently 2,665 tax-exempt organizations inBrevardCounty.  If you are a calendar-year organization and filed for a second extension, your final filing deadline for the 2010 tax year is November 15, 2011.

 The process of qualifying for tax-exempt status with the IRS can be a long and tedious process and is far more stringent and difficult than in past years.  As of September 2011, the service was only working on applications received in March 2011; already a six month lag.  Don’t risk losing your tax exempt status by failing to file your annual return as the consequences are severe and costly.

 Juliana K.,  Tax Manager

 


Wednesday, January 11th, 2012

Employee Benefit Plans

 This is a special reminder to plan administrators for employee benefit plans that the new IRS Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, is due for most plans by January 17, 2012. This new form replaces the IRS Form SSA, which was a required attachment prior to 2009. As a result of the electronic filing system through the Department of Labor for Form 5500, this form was removed. Plans that file an annual Form 5500 are now required to submit this new form to the IRS for the 2009 and 2010 plan years. After the 2010 plan year, future filing due dates will generally coincide with the 5500 filing.

 The IRS Form 8955-SSA is used to report participants who have separated from a plan and have deferred vested plan benefits remaining in the plan. These participants will be reported to the Social Security Administration, who can notify these participants that they may be entitled to these benefits.

 For additional information on the form, including instructions for filling out and filing, please visit the IRS website dedicated to this form:

 http://www.irs.gov/retirement/article/0,,id=240820,00.html

 Mike Durante, Audit Partner


Tuesday, November 8th, 2011

5 Steps to Business Succession Planning

Business Succession – 5 Key Steps

1) Visualize how you want your life to look after you are gone from the business.

2) Run the business like you will have it forever.

3) Groom your managemnet and transition team

4) Document systems and processes buyers pay premiums for.  Document systems that consistently generate profits.

5) Focus on your best buyers and clean up your financial statements, as this will be the basis for their diligence.

By Jim LaHam,Partner and Certified Succession Planner


Friday, September 2nd, 2011

The Last Remaining Export Incentive Just Got Some Staying Power

International tax planning can often be a challenge.  The rules are complex and the ability to reduce your tax exposure is sometimes not clear.  However, U.S. exporters, both domestic and foreign owned, have can take advantage of a structure that can provide significant tax savings. An old and in most cases forgotten export regime known as the Interest Charge-Domestic International Sales Corporation (IC-DISC), which dates back to the ’70s, has reared its head again as an extremely beneficial tax savings strategy. It has staying power now, with support existing in both Houses of Congress and the White House.

In its most recent form, the IC-DISC can provide a permanent 20% tax savings (or even more) for qualifying U.S. exporters. In certain cases, it eliminates U.S. tax entirely on the majority of export income. It also has a number of sophisticated features that can be tailored to help export businesses meet their objectives and goals.

Prior to 2003, the major tax benefit of the IC-DISC to U.S. exporters was deferral of U.S. tax on the commission income for up to $10 million in annual export sales (qualified export receipts). The deferral can be indefinite and is only minimally taxed as an interest charge to the U.S. shareholder on the deferred tax liability.  In addition, distributions to individual shareholders are currently taxed at a maximum rate of 15%—providing a way to convert 35% ordinary income to 15% qualified dividend income.  Of course, this assumes that the U.S. exporter generates operating profits and is creating taxable income in the U.S. However, sophisticated transactional studies can be performed to ensure the IC-DISC benefit is obtained, even if the U.S. exporter generates a “tax loss.”

Written By: Peter Hilera, Tax Partner


Tuesday, August 30th, 2011

Proposal on Changes to Revenue Recognition for Long Term Contracts to be Reworked

Both US and International Standards Boards are going back to the drawing board to rework their proposal to change the way many companies recognize revenue. As with other controversial proposals, the standard setters did not think clearly about the ramifications of complying with the standard on those required to comply and users of financial statements. Out cry from industry as well as the public sectors were significant and diverse based upon the sheer volume of comments received.

The proposal would have primarily required Companies involved in long term contracts to only recognize revenue when the contract was complete ( or C.O. obtained for commercial contractors) instead of as earned over the term of the contract ( i.e. percentage of completion based on actual costs incurred to date to total contract costs). The intention was to streamline revenue recognition across industries and avoid inconsistencies. Companies defined contract terms, determined cost estimates and other factors differently, which could cause disparity between similar companies’ revenues and possibly confuse users of the financial statements.

Comments suggested the proposed method was neither practical nor operational. Also sited by commentators was the cost to employ. The AICPA’s Financial Reporting Committee agreed with many of the comments. The Boards agreed to rework the standards, taking into consideration the many comments and suggestions received and introduce a “new and improved” proposed standard and take all possible steps to avoid unintended consequences. Expect the “new and improved” version to be released toward the end of 2011.


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