1

give us a “tax act” each and every year in the early fall –

September to October timeframe. The 1986 Tax Act, a perfect

example, although complex and large, gave the tax professional

community and taxpayers the opportunity to learn the law and

implement it effectively for taxpayers.

With the holidays here and in the next few weeks let us

remember and be thankful for authors and instructors who

although they do not make the law easier, they make it easier

for us to understand. To Mr. Jerry and Mr. Wayne, we thank

you and appreciate you so very much for your knowledge and

skill in writing tax materials. To David and Mary Mellem, to John

Ayers and to Don Williamson, we thank you for presenting the

materials in such a way that it almost makes it look easy – the

sign of great work on your part. And to the ncpe staff, thank

you for getting us to the seminars, arranging for the seminars

and making our classes convenient.

I also want to thank all who provide timely and important tax

articles for the Fellowship including Marty Stein, Joan LeValley,

Bill Nemeth, Pat Hurley and Richard and Linda Odemar.

Happy holidays to all the ncpeFellowship! Safe holiday travels

and may these days be fi lled with good times and fellowship

with your friends and family. These days will pass and we

will be with our other family – those for whom we prepare tax

returns. Be well, be happy and be thankful.

Stay well and fi nish well.

Beanna

Beanna@ncpefellowship.com or 877-403-1470

Remarks from Beanna

How very quickly we traveled the road of preparing 2012

Federal Income Tax Returns to getting offi ce and staff ready

for 2013 preparation. What ever happened to the “off” season?

Most of us have already attended an ncpe fall update so we

feel confi dent in going into the fi ling season. We have sent

out our client letters, have organizers ready to go, supplies are

ordered and our Tax Practice Offi ce Policy Manual is current

as well as in many cases, new tax software purchased. What

could go wrong?

Congress could repeat last years performance and give

America a last minute tax law change or worse yet, come back

from the holiday and enact legislation that will be retroactive.

The Internal Revenue Service has already announced a delay

in ability to accept 2013 fi lings until mid to late January. This is

not the fault of the IRS. Late law changes and the complexity

of the legislation passed require analysis for regulations to be

written and forms and instructions to be formulated and printed.

Further delay is then thrust upon software providers to write the

programs and test for accuracy. Then we, who are charged

with assisting taxpayers with compliance, must learn the law

and implement it.

If we were surgeons, this is tantamount to learning how to

perform a critical operation, scheduling the surgery, bringing in

all needed for a successful operation and in the middle of the

operation fi nd out that the surgical instruments you thought you

would use are now being replaced with some new instruments

and procedures and you are on your own. And, let’s not forget,

we are responsible if the patient dies.

In a perfect world, such as we had years ago, Congress would

Monthly Newsletter for ncpeFellowship Members Vol. 4 No.12 December 2013

2

Remarks from Beanna (1)

Tax News (4)

Feds and New York State Jointly Target ‘Independent Contractor’ Misclassifi cation (4)

The DOL notes that deals with workers: (4)

Black Market Tax Preparers Continue To Defy IRS (4)

2014 Tax Rates and More (6)

Interstate Taxation/Mobile Workforce Bill (7)

Tax Delinquents by the Thousands Have Security Clearances, GAO Finds (8)

Medicare ‘Cost-Savings’ Rules Pushing Costs onto Patients (9)

Nanny Tax Threshold Increases to $1,900 for 2014 (11)

Preserving Cash Accounting (12)

How Being a Tax Dummy Cost the New York Times $60M (13)

Enrolled Agent Renewals (14)

Tax Shelters: Risky Business (14)

It Isn’t Time to Bury The Income Tax Just Yet (14)

Federal Budget Record $680 Billion (15)

Employers in 13 States Will Face Higher 2013 FUTA Rates (15)

IRS Announces 2014 Limits on Contributions to Retirement Plans, Caps on Other Benefi ts (16)

People in the Tax News (17)

IRS’ Lois Lerner Gave Confi dential Tea Party Tax Info to FEC, Violating Law (17)

Rizzo, Spaccia Discussed Falsifying Tax Returns, Prosecutor Says (17)

Philip Kossoy of Freehold Township Pays $1.1M After Admitting to Tax Fraud with His Cleaning Business (18)

IRS News (19)

IRS Guidance on Assessment Period for Penalty for Failing to File W-2s and 1099s (19)

EFIN Verifi cation (20)

Employer W-2 Filing (21)

IRS’s ‘Volunteer Tax Preparers’ Exhibit Incompetence (21)

IRS Urged to Improve Security at its Offi ces (21)

IRS Sent Erroneous Penalty Notices (22)

IRS and Identity Theft (22)

IRS Needs Help to Improve Small-Business Audits, Offi cial Says (22)

IRS Wastes Billions In Bogus Claims For Earned Income Tax Credit (23)

IRS Warns of Pervasive Telephone Scam (24)

Preparers Suspected of Filing Inaccurate EITC Claims Receive Warning Letters (24)

IRS Warns Consumers of Possible Scams Relating to Relief of Typhoon Victims (25)

IRS Relaxes “use-it-or-lose-it” Rule for Health Flexible Spending Arrangements (26)

Worldwide Identity Thieves Steal Millions in Tax Refunds (27)

Tax Pros in Trouble (28)

Dayton Tax Return Preparer Sentenced for Tax Return Fraud (28)

Feds Move to Bar Mississippi Tax Preparers (28)

Gerald A. Poynter, aka Brother Jerry Love Indicted (29)

Gloversville Woman Sentenced to State Prison for Tax Fraud (29)

Waterloo Woman Who Filed False Tax Returns Will Serve a Year in Federal Prison (30)

Five from Mo’ Money Tax Prep Offi ce in St. Louis Arrested in Scheme (30)

Instant Tax Service Shut by U.S. Judge for Fraudulent Practices (30)

Contents (Page)

3

Ragin Cagin (31)

Income Tax Turns 100 (31)

Taxpayer Advocacy (32)

Tax Excuses to Avoid Penalties....Or Even Jail (32)

Growing Use of Civil Forfeiture Creates Nightmares for Small Business Owners (33)

How Do You Report Suspected Tax Fraud Activity? (34)

Fast Track Settlement Program Now Available Nationwide; Time-Saving Option Helps Small Businesses Under Audit

(34)

Public Reaction A Valid Reason To Decline Offer In Compromise? Say What? (34)

IRS Urged to Improve Reviews of Correspondence Audits (35)

IRS Has Discretion as to How to Apply Criminal Restitution Payments (36)

International Tax (36)

Americans Dump US Citizenship at Record Rates (36)

U.S. And France Agree To Combat Offshore Tax Evasion (37)

Feds Expand Hunt for Offshore Tax Evaders (37)

Wayne’s World (38)

Tax Strategies for High Income Investors (38)

Letters to the Editor (39)

Tax Jokes and Quotes (39)

Sponsor of the Month (39)

AgriPlanNOW & BizPlanNOW Health Reimbursement Arrangements (39)

Contents (Page)

Quality Educationfor Today’s Tax Professionals

View Details of Courses and Sign Up For

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4

Tax News

Feds and New York State Jointly Target ‘Independent Contractor’ Misclassifi cation

The U.S. Department of Labor (DOL) and New York Attorney General are going after worker misclassifi cation in a sweeping sharing deal. Inking it puts federal and New York labor investigators on the same page. These are only the latest state agencies to partner with the DOL.

In the last 2 years alone, the DOL claims to have collected over $18.2 million in back wages for more than 19,000 workers who were misclassifi ed as “independent contractors.” That’s a 97% increase in back wages collected. Of course, the states generally collect their share too, and that motivates the deals.

Employers—even those who diligently try to follow the amorphous standards for who is an employee—should be looking over their shoulders. The dollars at stake in such contests can be catastrophic. And with a mix of state and federal taxing and labor, workers’ compensation and unemployment agencies all probing for dollars, one dispute often triggers another.

The press release on this New York and federal deal talks about getting employers that are bad actors, and leveling the playing fi eld. That kind of rhetoric should make New York employers take notice. Sharing data means the escalation in cases is faster.

And both the feds and New York note that the possibility of

criminal cases is real. The New York State Attorney General’s offi ce brings select cases to enforce the state’s labor laws, including civil and criminal cases..Does this mean everyone is an employee? Of course not. In fact, even the feds say that there’s nothing illegal about having bona fi de independent contractors. Still, what’s real and what isn’t?

The DOL notes that deals with workers:

“may not be used to evade compliance with federal labor law. Although legitimate independent contractors are an important part of our economy, the misclassifi cation of employees presents a serious problem, as these employees often are denied access to critical benefi ts and protections–such as family and medical leave, overtime compensation, minimum wage pay and Unemployment Insurance–to which they are entitled. In addition, misclassifi cation can create economic pressure for law-abiding business owners, who often fi nd it diffi cult to compete with those who are skirting the law.”

The DOL is not the only federal agency that cares about this issue. The DOL says its mission is to foster, promote and develop the welfare of wage earners, job seekers and retirees; to improve working conditions; advance opportunities for profi table employment; and to ensure work-related benefi ts and rights.

What other federal agency cares about misclassifi cation? The IRS cares big time. After all, it gets tax money right away via withholding on employee wages. It may never get money from independent contractors.

What’s more, Social Security taxes are collected via withholding on wages. The IRS has a notoriously hard time collecting self-employment taxes from independent contractors.

If you have a business in New York State and use independent contractors, expect more scrutiny. Other states with such deals include California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington. All have signed similar agreements.

Black Market Tax Preparers Continue To Defy IRS

When the Internal Revenue Service announced intentions to regulate tax preparers, the idea was to save taxpayers from “unscrupulous” (IRS’ favorite word in this context) preparers who wished to take advantage of them.

The IRS didn’t contemplate the notion that some taxpayers simply don’t wish to be saved.

Since 2006, the IRS has made efforts to increase oversight of tax preparers a key component of taxpayer services. The arguments for and against regulating preparers are, at this point, well known. The IRS claimed it needed to pass these regulations to “ensure uniform and high ethical standards of

5

with a rapid-refund type loan. Fees are advertised as very low to get taxpayers in the door but the costs for other services – like refund loans – quickly add up to thousands of dollars. And since many of these taxpayers can’t afford to pay high fees for returns, the preparers do them one more “service” by tying tax prep and loan fees to the size of the anticipated refunds. The result? Incentive after incentive to cheat.

Business for these preparers grows not because of newspaper advertising or LinkedIn profi les: it’s word of mouth. Around tax time, word on the street quickly becomes that “XYZ Preparer” can get you the biggest refund in the fastest period of time.And IRS is often none the wiser to all of this activity because it’s nearly impossible to track. Why? That box at the bottom for the PTIN? It remains empty. In fact, there’s no name or address listed for a preparer. The returns are fi led with IRS as though they were self-prepared.

It’s much more common than you think: in 2011, Lonnie Gary EA, USTCP Chair, National Association of Enrolled Agents, testifi ed before Congress that a “signifi cant number” of taxpayers use black market preparers. Our offi ce has witnessed the post-audit aftermath of these cases – and the potential for audit is fairly high since taxpayers are often talked into claiming bogus deductions and credits in order to boost refund dollars. Tactics rarely vary: the classic scenario involves Head of Household fi ling status (regardless of whether it’s appropriate), jacked up Earned Income Tax Credit (since it’s refundable), education credits (since they are often not checked) and Schedule C expenses (since the taxpayer doesn’t have to itemize to claim those). The thinking tends to follow the notion that once you’ve made up one little white lie, what’s to stop you from the next?

Eventually, all of those missteps do catch up to the taxpayers. By this time, however, the tax preparer is out of the picture. He or she won’t return calls – if taxpayer ever had a number to begin with. And clearly, there’s no audit support. In almost every case, the taxpayer braves the audit on their own. They have no documentation and no real excuses. Often, they never even mention the black market tax preparer at all out of fear of making their situation worse. The result? Refund repayments. Tax obligations. Penalties. Interest. And a lot of grief.

Chances are, you’d be surprised if you met a taxpayer who admitted using a black market preparer: they are surprisingly normal. I say “surprisingly” because I think we want to believe that the sort of folks who would engage in this activity are stereotypes or simply bad people – perhaps unemployed or engaged in illicit activities. But that’s not the case. They’re nurses and supervisors and retail workers. They’re moms and dads and sons and daughters. They have families and houses and jobs. And they’ve made poor choices – often at the urging of friends and families who swear they won’t get caught – which are exacerbated by pressures from these black market preparers.

I fully expect to see more – not less – of these results. The reality is, to quote Joe Kristan, tax is hard. And it’s getting

conduct for all tax return preparers.” Those opposed to the regulations argued that such mechanisms already exist under federal law and new regulations simply create unnecessary bars to competition.

The result was a licensing system, of sorts, that requires all preparers who are “paid to prepare or assist in preparing federal tax returns or claims for refund” to have a PTIN, or a Preparer Tax Identifi cation Number. If you have a paid preparer, you’ve seen the PTIN on your return, just below your own signature:

In addition to a PTIN, the IRS also sought to enforce a new designation, Registered Tax Return Preparer, for preparers who did not meet an exemption or exception. That designation was shot down earlier this year when a federal judge ruled in Loving v. U.S. that IRS did not have the lawful authority to regulate preparers in that way (the case is being appealed).

For now, however, in order to prepare returns commercially, you have to register with the IRS and get a PTIN. A PTIN doesn’t make you a better preparer. It simply means that you’re on a list. A list that cost you $64.25 each year.

That keeps taxpayers safe, right? Knowing that their tax preparers are on that list?

Not exactly. Notwithstanding that being on the list doesn’t guarantee that you have any idea what you’re doing, a number of tax preparers are still offering tax services without obtaining a PTIN.

In 2011, the IRS pegged the number of unlisted preparers at 100,000, or about 1 in 8 of every preparers. To bolster compliance, beginning in 2012, the IRS began sending letters to those preparers who prepared returns for the 2011 tax season but failed to register for a PTIN. That only worked, of course, if tax preparers signed the returns. The solution for tax preparers who didn’t want to register and pay the fee? They simply don’t sign the returns.

And yes, that’s against the rules. But a number of paid tax preparers do it anyway. They are referred to in the business as “black market preparers” or sometimes, “ghost” tax preparers.We tend to associate the black market with items like booze, drugs, guns and cigarettes – underground transactions to skirt existing laws. But that’s exactly what is happening in the tax world. It’s just maybe not as sexy.

Black market tax preparers don’t hide under the cover of night, only opening their doors with a secret handshake. They don’t guard their turf with automatic weapons. And they don’t live in fear of getting caught.

Black market preparers set up shop around tax time, usually as a short time rental in a busy area. Most will set up early since their target market tends to be taxpayers banking on a refund: statistically, those taxpayers fi le early (last year, one-third of all refunds were issued in February). They tout “big and fast” tax refunds to taxpayers, almost always in combination

6

harder. The Tax Code is becoming increasingly complicated. And tax preparers make it easier to navigate. A 2003 GAO study found that nearly 80% of taxpayers were “generally confi dent” that they would not pay more tax than was necessary by using a paid preparer and nearly 90% of those who used a tax preparer would use one in the future.

While the IRS initially signaled that PTIN registration would help ferret out black market preparers, it seems to be doing just the opposite: chasing more unscrupulous preparers underground. IRS Regulations impose signifi cant penalties on tax preparers who fail to sign and/or use a PTIN for commercially prepared returns. But – and there’s a huge but – all of the punishments in the world are meaningless if you can’t pin down the bad behavior. That’s exactly what these black market preparers are counting on.

2014 Tax Rates and More

Most of the infl ation adjusted amounts are indexed based on infl ation factors as of August 31st each year. Various tax reference sources, such as CCH and RIA, make projections based on these factors. We have chosen to wait until the offi cial numbers have been released. Here are the offi cial 2014 amounts.

Tax Rates – Ceilings

Single10% bracket tops at $9,07515% tops at $36,90025% tops at $89,35028% tops at $186,35033% tops at $405,10035% tops at $406,75039.6% applies to anything over $406,750

MFJ10% bracket tops at $18,15015% tops at $73,80025% tops at $148,85028% tops at $226,85033% tops at $405,10035% tops at $457,60039.6% applies to anything over $457,600

Head of Household10% bracket tops at $12,95015% tops at $49,40025% tops at $127,55028% tops at $206,60033% tops at $405,10035% tops at $432,20039.6% applies to anything over $432,200

MFS10% bracket tops at $9,07515% tops at $36,90025% tops at $74,425

28% tops at $113,42533% tops at $202,55035% tops at $228,80039.6% applies to anything over $228,800

Estates & Trusts15% bracket tops at $2,50025% tops at $5,80028% at $8,90033% at $12,15039.6% applies to anything over $12,150

- Exemption amount is $3,950.

- Standard deduction amounts are: MFJ-$12,400, Single& MFS-$6,200, HH-$9,100, Additional amounts for aged/blind-$1,550 for unmarried and $1,200 for married status.

- Exemption and itemized deduction phase outs begin forMFJ at $305,050, HH at $279,650, S/HH at $254,200, andMFS at $152,525.

- Kiddie TaxStandard Deduction is $1,000, the next $1,000 is taxed atchild’s rate, and the excess is taxed at parent’s rate. AMTExemption amount is the child’s earned income plus $7,250.

- AMT – The exemption amounts are:MFJ/QW = $82,100S/HH = $52,800MFS = $41,050Estates/trusts = $23,500

The excess taxable income level (where the 28% AMT rate applies) is:MFJ/QW/S/HH = $182,500MFS = $91,250

- Adoption Credit - $13,190 is the maximum for the credit orassistance amounts. The phase out starts at $197,880 and iscompletely phased out at $237,880.

- Child Tax Credit – refundable portion uses an income baseof $3,000.

- Education Credits. The phaseout for the AmericanOpportunity Credit starts at $80,000 ($160,000 for MFJ). Thephaseout for the Lifetime Learning Credit $54,000 ($108,000for MFJ)

- EIC maximum AGI/earned income for MFJ is $43,941 forone child, $49,186 for two children, $52,427 for three or morechildren, and $20,020 for no children. The EIC maximum AGI/earned income for other taxpayers is $38,511 for one child,$43,756 for two children, $46,997 for three or more children,and $14,590 for no children. Excessive investment incomelevel for EIC is $3,350.

- Transportation Fringe maximum exclusion for monthlyparking is $250/month and for commuter highway vehicle and

7

transit passes is $130.

- Savings Bonds for Education phase out level starts at$113,950 for MFJ and $76,000 for other fi ling statuses. Thisis completely phased out at $143,950 for MFJ and $91,000 forother fi ling statuses.

- §179 election changes to $25,000.

- Foreign Earned Income exclusion is $99,200.

- Long-term care premiums are limited to:Age40 or less-------$370>40, but not >50------$700>50, but not >60------$1,400>60, but not >70------$3,720>70------$4,660

- Long-term care contract benefi t amount is $330 per day.

- IRA Contribution Limits – The maximum contribution to anIRA is $5,500, plus the $1,000 catchup.

- IRA Phase out ranges – MFJ phase out for IRA contributionsstarts at $96,000. MFJ phase out for spouse contributionswhen spouse is not covered starts at $181,000. Single andHead of Household = $60,000. MFS starts at $0.

- Roth IRA AGI phase out limits increase to beginning levelsof $181,000 for MFJ, $0 for MFS, and $114,000 for othertaxpayers.

- Retirement Savers Credit – The indexed ceilings are: MFJ- $60,000, HH - $45,000, Others - $30,000.

- Student loan interest maximum is $2,500, with a phase outstarting at $65,000 ($130,000 for MFJ). This is completelyphased out at $80,000 ($160,000 for MFJ)

- Annual gift tax exclusion is $14,000, while the limit on giftsto noncitizen spouses is at $145,000.

- Attorney Fee Awards are limited to $190 per hour.

- MSASelf-only coverage annual deductible is not less than $2,200nor more than $3,250, with out-of-pocket limits not in excessof $4,350.

Family coverage annual deductible is not less than $4,350 nor more than $6,550, with out-of-pocket limits not in excess of $8,000.

- Cafeteria Plan – The dollar limitation for §125 health FSAsremains at $2,500.

- Nanny Tax – The wage threshold for the Nanny tax for 2014is $1,900.

- Small Business Health Insurance Credit – The dollar amountfor purposes of limiting this credit is $25,400.

- Exclusion amount for Estate/Gift tax is $5,340,000.2014 Pension Plan Limitations Announced

The 2014 pension plan limitations have been announced. Below are some of the more common amounts.

The defi ned benefi t plan limitation increases to $210,000 (up from $205,000 for 2013). The defi ned contribution plan maximum increases to $52,000 (up from $51,000 for 2013).

The annual compensation limit for most employer contributions increases to $260,000 (up from $255,000 for 2013).

A year of service for SEP coverage remains at $550.

The maximum elective deferral for §401(k), §403(b), §457, and SARSEPs remains the same at $17,500 with the catch-up amount staying at $5,500.

The maximum elective deferral to SIMPLE plans remains at $12,000 with a catch-up of $2,500.

The IRS Notice also has the other pension related indexed amounts such as key employee, top heavy, and “control employee” limits.

Editors Note: The above research and information

was provided by ncpeFellowship members and ncpe

instructors Mary and David Mellem.

Interstate Taxation/Mobile Workforce Bill

Businesses, including small businesses and family businesses that operate interstate, are subject to a signifi cant regulatory burden with regard to compliance with nonresident state income tax withholding laws. Rep. Howard Coble, a Republican from North Carolina, and Rep. Hank Johnson, a Democrat from Georgia, have introduced H.R. 1129, the Mobile Workforce State Income Tax Simplifi cation Act of 2013, to address this

8

problem.

The AICPA supports H.R. 1129 because a uniform national standard would eliminate an unnecessary burden on small business and the bill strikes a balance between interests of the states in taxing work being done within their borders and the needs of businesses to be able to operate effi ciently, especially in the current economic climate.

There are 41 states that impose a personal income tax on wages and partnership income, and there are many differing tax requirements regarding the withholding for income tax of nonresidents among those 41 states. Having a uniform national standard for state nonresident income tax withholding would signifi cantly ameliorate the current complex system of nonresident income tax withholding laws and increase compliance.

H.R. 1129 would create a uniform national standard and limited state or local taxation of the compensation of any employee who performs duties in more than one state or locality to: (1) the state or locality of the employee’s residence; and (2) the state or locality in which the employee is physically present performing duties for more than 30 days.

H.R. 1129 is the same bill sponsored by Reps. Coble and Johnson in the last Congress. That measure passed the House but stalled in the Senate. Sen. Sherrod Brown (D-OH) and former Sen. Kay Bailey Hutchison (R-TX) sponsored the same legislation in the Senate in the last Congress.

Tax Delinquents by the Thousands Have Security Clearances, GAO Finds

Thousands of tax delinquents -- including one who owes $2 million to the IRS -- have sensitive security clearances, posing a risk that has gone undetected by federal agencies.

A report by the General Accounting Offi ce obtained by NBC News found that 8,400 U.S. offi cials and contractors with access to sensitive government secrets have racked up $8.5 million in delinquent tax debts.

The report, due to be released at a Senate hearing, is the latest example of what members of Congress and investigators say are glaring weaknesses in the government’s system of vetting those receiving security clearances.

“It is absurd to give federal employees and contractors who have already failed to follow the law access to our nation’s classifi ed information,” said Oklahoma Sen. Tom Coburn, ranking Republican on the Senate Homeland Security Committee, who requested the GAO study. “Awarding security clearances to tax cheats puts the integrity of the federal work force, along with the confi dential materials entrusted with them, at greater risk.

Coburn, in a statement to NBC News, demanded that the administration take immediate steps to stop what he called the “egregious” practice of granting security clearances to tax delinquents.

A spokesman for Director of National Intelligence James Clapper declined comment, noting that the report had not yet been publicly released. But in written comments to the GAO, a Clapper aide noted that the intelligence offi ce and the Offi ce of Personnel Management were working with Treasury Department offi cials to develop a plan to check and more closely monitor government databases to identify tax delinquents with security clearances.

The GAO study did not examine members of the U.S. military or employees of U.S. intelligence agencies with clearances. Instead, it focused on a universe of 240,000 offi cials and contractors with clearances elsewhere in the government — such as the Homeland Security, State and Energy departments. It then took the Social Security numbers of those with clearances and plugged them into an Internal Revenue Service database of tax delinquents, yielding matches to about 4,800 individuals — about half of whom had top-secret clearances, the report says.

More than three-fourths of the tax delinquents amassed their debts only after receiving their clearances — an indication, congressional investigators said, that those with access to sensitive secrets were not being adequately monitored.

The report does not name any of the tax delinquents. But it cited several examples: One of the delinquents with a clearance owed $2 million in back taxes, the report states. Another federal contractor with a top-secret clearance didn’t fi le federal tax returns for several years and was granted a “conditional clearance” despite concerns among background checkers about his fi nancial problems.

The GAO report states that an offi cial or contractor with tax debts is “at risk of having to engage in illegal acts to generate funds” – and therefore could put national security secrets at

9

risk. (Some high profi le espionage cases, such as those of former CIA agent Aldrich Ames and FBI agent Robert Hanssen, sold secrets to Russia for cash, although neither was in debt.)

But the report notes that the current federal background check system does not check federal tax databases before granting clearances. Instead, it relies on “self-reporting” of debts and checking of credit reports – which do not disclose tax debts unless liens have been fi led.

The issue of federal background checks has taken on new urgency after revelations that Washington Navy Yard shooter Aaron Alexis was granted a secret clearance for 10 years despite multiple security problems in his background, including a 2002 arrest for shooting the tires of a neighbor’s car. Alexis’ arrest, which he blamed on anger problems and which did not result in criminal charges, was never fully investigated by the private company, USIS, hired to do his background check.

USIS, now the subject of a federal grand jury probe, also performed the background check of ex-NSA contractor Edward Snowden, failing to interview any personal references other than his girlfriend. Nor did the fi rm investigate a reported security violation in his past, according to a report by the Offi ce of Director of National Intelligence.USIS has denied any wrongdoing, saying its background checks in both instances met federal standards and that it is cooperating with the federal investigation.

Medicare ‘Cost-Savings’ Rules Pushing Costs onto Patients

THE COST OF Medicare, the top driver of runaway entitlement outlays, seems to be stabilizing at last. For the past three years, Medicare infl ation has moderated to an annual average of 3.9 percent. But if you look more deeply, a lot of these supposed savings are actually a shift in costs to patients. As Congress and the administration devise new ways to restrain Medicare, this disguised form of rationing is likely to worsen.

I had a vivid glimpse of this trend in my own family this past winter. In late February, my mother, age 99, had a bad fall. She was taken by ambulance to the closest hospital, Mass. General. Miraculously, she broke no bones, but her face was so badly swollen and bruised that she was unrecognizable and in severe pain.

My mother ended up staying four days. A couple of days in, we got an unpleasant fi nancial surprise. Even though she was placed in the MGH’s maxillofacial inpatient unit, where she got excellent care, my mother was classifi ed as being there “for observation” — meaning that she was considered an outpatient for billing purposes.

This meant that the bill — over $20,000 — was coded under the Medicare outpatient category (Part B) with a 20 percent patient co-pay. Being classed as an outpatient also disqualifi ed my mother from any Medicare benefi ts in a rehab facility or skilled nursing home after she was discharged.

How could a 99-year-old badly injured woman on an inpatient unit be an “outpatient?” And why would Mass. General, one of our most distinguished community resources, do such a thing?

While the big players spend a small fortune to game the system, patients remain in the dark.

The culprit, it turns out, is Medicare cost containment.

In order to cut costs — actually shift them, partly to hospitals and partly to patients — Medicare applies extreme fi nancial pressure on hospitals to book admissions as outpatients whenever possible. This shifts them from Medicare Part A (the hospital program) to Medicare Part B, which is designed to cover only doctor bills. The hospital gets paid a lot less and the patient gets stuck for a lot more.

Medicare does this through outside, for-profi t vendors known as “recovery audit contractors,” who are paid based on how much they save Medicare. They achieve savings by punishing hospitals after the fact if a patient who might have been booked as an outpatient is classifi ed by the admitting doctor as an inpatient. The contractor only gets paid when it overturns a medical decision — which sure seems like a gross confl ict of interest.

So if the emergency room doctors make the medical judgment that a patient needs to be admitted, and the audit later concludes that the condition turned out to be not serious enough and the patient should have been considered an outpatient, the hospital not only doesn’t paid at the inpatient rate, it doesn’t get reimbursed at all.

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The hospital can appeal, but appeals are often more expensive than just eating the cost. They typically take three or four years before they get to an administrative law judge. The patient can also appeal, but this is so unusual that the quality organization that supposedly monitors the process did not know how to handle my mother’s appeal. Mass. General reviewed my mother’s case and concluded that given Medicare rules, the “outpatient” classifi cation was appropriate even though my mother was not discharged for four days.

A recent study by the journal Modern Healthcare reported that Medicare reimbursements for complex “outpatient” procedures, such as pulmonary treatments and ultrasounds, paid the hospital as little as two cents on the dollar for its charges.

Hospitals, needless to say, hate this system, and for good reason. “It makes no sense medically,” says John Belknap, Mass. General’s director of corporate compliance. “We deliver the same care to patients whether the classifi cation is inpatient or observation. There is the presumption that the case is different, but it’s the same bed and the same nurse.”

The American Hospital Association has a lawsuit pending against Medicare to overturn the whole concept. Medicare, in an effort to settle the suit, partly modifi ed its policy last March and hospitals denied claims by auditors will now be permitted to rebill in a less expensive category. But the suit is going forward. An offi cial of the American Hospital Association told me that as hospitals have responded defensively to avoid getting punished, doctors end up getting second-guessed.

This system was the result of two George W. Bush-era laws aimed at reducing Medicare costs using “market incentives.” In 2003, the Medicare Modernization Act directed Medicare to conduct a demonstration project to use outside auditors to recover excessive hospital costs after the fact. After the three-year demonstration, held in fi ve states including Massachusetts, recovered $900 million, Congress made it national and mandatory in the Tax Relief and Health Care Act of 2006, to take effect in 2010.

Today, hospital resources are wasted in complying with these arbitrary rules, and a lot of money goes into the pockets of the Medicare contractors or is absorbed by patients. The system doesn’t deter patients from seeking unnecessary treatment, since the process is one of bewildering complexity and patients typically learn about it only when they get the bill.

Though Medicare administers these rules, Medicare offi cials don’t necessarily consider them a sensible way to balance good medical care with cost containment. Don Berwick, an expert on cost-effective medicine, was interim national head of the Medicare program in 2010 and 2011 until Republicans blocked his confi rmation as the permanent appointee. Berwick, who is now a candidate for governor of Massachusetts, is a critic of the current use of the categories of observation and inpatient to contain costs. “It’s a blunt instrument,” he told me. “The way it often nets out is that the patient pays more. The patient has far less sophistication and power in the system

than the hospitals and the medical specialty societies.”

The big players in the system — hospitals, doctors, insurers — spend a small fortune working to game it, while patients remain in the dark. Thirty years of cost containment efforts using market incentives, beginning with the creation of health maintenance organizations in the Nixon era, have not altered the fundamental ineffi ciencies in the system. The more complications the forces of cost containment add, the more money the big players spend working the rules.

In addition to imposing gimmicks to shift costs to patients, Congress works with the health industrial complex to deny Medicare far more consequential savings. The privatized Medicare drug benefi t, enacted in 2003, explicitly prohibits Medicare from negotiating bulk discounts with pharmaceutical companies. Medicare Part C allows commercial HMOs to target healthy seniors and reap big profi ts. These two gifts to big commercial players cost Medicare hundreds of billions of dollars.

The latest fad in the ideology of using commercial incentives and intermediaries to contain costs goes under the name of consumer-directed care. The idea is to combine tax-favored “health savings accounts” with high-deductible health insurance plans and to rely on the consumer’s capacity to shop around for the most suitable plan. But as the system becomes ever-more convoluted, the idea of consumers having the knowledge or market power to intelligently navigate it is laughable.

Converting Medicare to a voucher, as proposed by many Republicans, would make the cost-shifting trend explicit. People would get a fi xed sum to buy private health insurance. But the fi xed sum would likely cover only a bare-bones plan, and many seniors would have to bear more of the expense of getting sick — or forgo necessary care. The affl uent could pay out of pocket or buy more expensive policies. Unless Congress devises more sensible and fundamental reforms, cost cutting by cost shifting is our likely future.

Happily, my mother has fully recovered, and celebrated her 100th birthday last week. Happily, too, she avoided the out-of-pocket costs associated with her “observation” status, because she is one of a minority of seniors with supplemental insurance that covers bills that Medicare shifts to patients. But that policy costs over $3,000 a year, and most elderly people can’t afford such extra insurance.

Medicare has been one of the crown jewels of American social policy. Historically, it has been far more cost effective than the commercial parts of the system because it has far fewer middlemen. Today, however, instead of being a model of a comprehensive national system that provides Medicare for all, Medicare is at risk of being pushed into the commercialized model that has made the rest of America’s health system such a costly and ineffi cient mess.

The risk is that as Congress seeks Medicare savings, it will require the Centers for Medicare and Medicaid Services to

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come up with more such self-defeating cost-containment tricks. Gimmicks that take money out of Medicare are the wrong means to address the federal defi cit. The reform of Medicare is properly part of the larger project of getting a comprehensive and universal health coverage system.

Social Security And Medicare Amounts for 2014

The Social Security Administration has announced the new amounts for 2014. The gross Social Security benefi ts increase for 2014 by 1.5%.

The amount of earnings subject to Social Security taxes increases to $117,000 (up from $113,700 for 2013).

The amount of earnings required to be subjected to Social Security taxes in order to receive a quarter of coverage increases to $1,200 (up from $1,160 for 2013).

Earnings limitations for taxpayers who have not reached full retirement age (before having to repay Social Security benefi ts) increases to $15,480 ($1,290/month) (up from $15,120 ($1,260/month) for 2013).

Earnings limitations for taxpayers who reach full retirement age in the current year (before having to repay Social Security benefi ts) increases to $41,400 ($3,450/month) (up from $40,080 ($3,340/month) for 2013). (“Full retirement age” is age 66 for those born in 1943-1954.)

The maximum monthly Social Security benefi ts increases to $2,642.

The amount of the SSI Federal Payment Standard increases to $721/month. For a married couple this increases to $1,082/month. The SSI Student Exclusion Limits increases to $1,750/month with the annual limit increasing to $7,060.

The Substantial Gainful Activity earnings increase to $1,070/month for non-blind disabled recipients while the blind disabled recipient amount increases to $1,800/month. The Trial Work Period earnings increase to $770/month.

The base Medicare Part B monthly premiums remain the same in 2014 as they were for 2013 at $104.90/month.

The higher premiums some taxpayers have to pay vary depending on the taxpayers’ income as shown on their income tax returns and their fi ling status increased slightly, although the income levels did not change.

Editors Note: Again a thank you goes to Mary and David

Mellem for sharing this timely information.

Nanny Tax Threshold Increases to $1,900 for 2014

The Social Security Administration has announced that for 2014, cash remuneration paid by an employer for domestic service in the employer’s private home isn’t FICA wages if the amount paid during the year is less than $1,900 (up from

$1,800 for 2013).The dollar threshold applies separately to each domestic employee.

Where Not To Die In 2014: The Changing Wealth Tax Landscape

Despite the new generous federal estate tax law, there’s reason to worry about estate taxes. There are 19 states and the District of Columbia that impose separate state levies. And just because you live in a no-estate-tax state now, don’t get complacent. What if you move in your old age to the estate-tax-happy Northeast to be closer to your family? Or what if your state gets revenue-hungry like Illinois which reinstated its estate tax in 2011, Delaware which made a “temporary” estate tax permanent this summer, or Minnesota that recently tweaked its law to disallow common ways folks now get around estate taxes?

The crazy, changing patchwork of state death tax laws has led to a new subspecialty of estate planning–“domicile planning”–not to sidestep income taxes but estate taxes. “It’s picking a state where you die,” says Charles Bender, an estate lawyer with Fox Rothschild in Warrington, Pa. who spends a lot of his time getting Pennsylvania and New Jersey clients “down to Florida.” Florida has no income tax and no state death taxes.

Here’s the big picture. The federal estate tax exemption of $5 million per person, indexed for infl ation, is now permanent. So for 2014, up to $5.34 million of an individual’s estate will be exempt from federal estate tax, with a 40% tax rate applied to any excess over the exemption amount. By contrast, states with estate taxes typically exempt far less per estate from their tax and impose a top rate of 16%. As in the federal system, bequests to a spouse are tax-free.

New York, for example, sets its exemption at $1 million. So the estate of a person dying in 2014 in New York with $5.34 million would owe no federal tax, but would owe New York $431,600, calculates Donald Hamburg, an estate lawyer with Golenbock Eisenman in New York City.

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Six states levy only an inheritance tax, with the rate depending on the relationship of the heir to the deceased and the taxes kicking in, in some cases, on the fi rst dollar of bequest. Two states, Maryland and New Jersey, impose both.

New Jersey, for example, imposes an estate tax between 4.2% and 16% on estates above $675,000, and an inheritance tax of between 11% and 16% on assets left to a sibling, nephew, niece or friend, but no inheritance tax on money left to parents, children or grandchildren. (Any estate tax owed is reduced by the inheritance tax paid.)

Death tax foes have been making progress on killing the taxes off or at least weakening them. In the last four years, Indiana, Kansas, North Carolina, Ohio and Oklahoma have all repealed their state death taxes, and Tennessee’s is on its way out by Jan. 1, 2016. The estate tax exemption in Tennessee is $2 million for 2014, up from $1.25 million this year, and set at $4 million for 2015. Illinois doubled the amount exempt from its tax from $2 million to $4 million effective this year. Next year, Washington State’s $2 million exemption amount will be indexed for infl ation like Rhode Island’s $910,725.

The anti-tax players are already making plans to push for repeal in several states in 2014, and speed up repeal in Tennessee, says Palmer Schoening, executive director of the Family Business Coalition in Washington, D.C. (Tennessee could follow Indiana’s lead; Indiana’s inheritance tax was scheduled to gradually phase out, leading to repeal on Jan. 1, 2022, but the state legislature pushed up repeal to be effective Jan. 1, 2013.)

The action is expected to take place in Republican strongholds where governors are intent on tax reform: in Maine–where the estate tax exemption amount was raised from $1 million to $2 million this year; in Nebraska—where it’s seen as an issue for farmers; in Pennsylvania where state legislators carved out an exception to the inheritance tax for family farms last year, and an exception for family businesses this year. “The next step is, ‘Let’s get rid of it,’” Schoening says. That’s the rallying cry, but in Pennsylvania, for example, there’s $800 million in annual revenue at stake.

It used to be that spouses paid Pennsylvania inheritance tax at a 6% rate; that was cut to 3% in 1994, then to zero in 1995. Still 4.5% of an estate there going to children, grandchildren, parents or grandparents goes to the state; it gets more expensive, 12%, if your benefi ciary is your brother or sister; and for all other benefi ciaries—like a nephew or niece–it’s 15%. “It really becomes signifi cant, especially when you consider that there is no exemption, so the fi rst dollar of the estate is subject to tax,” says Bender.

The new family business exception creates opportunities for signifi cant tax planning. “While it was intended for small mom and pop businesses, there’s a gaping hole in the law that you could drive a really big business through,” he says. This is because the law uses net book value to determine whether a business falls under the $5 million threshold for the exemption to apply, rather than fair market value, which is

used to calculate the tax. So a child could inherit a business worth millions of dollars without paying any inheritance tax, while a niece whose aunt leaves her a $100,000 row house in Philadelphia is stuck with a $15,000 inheritance tax bill.

So what about Florida? For income tax purposes most states use a 183 day rule—if you’re in the state for 183 days, you’re taxed as a resident. But for estate taxes, the rule for residence is one of subjective intent—what state did you consider to be your home at the time of your death, says Bender. So if you’re domiciled in Florida but come back to New Jersey for medical treatment and die in the hospital, that doesn’t mean you’re subject to the New Jersey’s death levies.

In one case, Bender had a client in a nursing home in Florida who suffered from Alzheimer’s and her children moved her to a nursing home in New Jersey where they lived. Because domicile is based on subjective intent and she didn’t have the mental capacity to decide to change her domicile, her executor was able to claim that she was still a Florida resident when she died several years later.

The death certifi cate will be issued by the state where the death occurs. In the example above, it was necessary to make sure the death certifi cate refl ected the woman’s state of residence was Florida, even though she died in New Jersey.

Preserving Cash Accounting

Humorist Art Buchwald once described tax reform as taking the taxes off things that have been taxed in the past and putting taxes on things that haven’t been taxed before. Buchwald’s amusing analysis notwithstanding, tax reform is an arduous task. There are a lot of moving parts being studied on Capitol Hill at the moment. And one part in particular is of great concern to the nation’s CPAs.

As Congress considers the most signifi cant attempt at tax reform in almost 30 years, the House Ways and Means Committee has produced a small business tax reform discussion draft that focuses on simplifying the tax codes for small businesses, including individuals and passthrough

13

entities. While supportive of the Committee’s efforts to simplify the tax code and responsiveness to taxpayer concerns that the code is too complex, the AICPA strongly opposes a proposed limitation on the use of the cash basis method (for the non-CPAs among us, the cash method recognizes revenue and expenses when cash is received or disbursed rather than when earned or incurred. It is simpler in application, has lower compliance costs, and does not require taxpayers to pay tax before receiving the income being taxed).

To help offset revenue reduction in tax reform, the proposal would accelerate revenue collection from CPA fi rms and thousands of other businesses through the use of the accrual method. But that is a timing shift, not a simplifi cation of the tax code.

Restricting the use of the cash method would create a hardship for the partners of CPA fi rms and owners of other entities in the professional services sector, such as actuaries, architects, consultants, engineers, doctors and lawyers. In fact, it would force business owners operating in any form of organization other than sole proprietorships to pay tax in advance of collecting cash payment from their clients and customers if average gross receipts of the business exceed $10 million. The AICPA believes that this is unfair because it essentially treats these individuals differently than individual taxpayers.

In enacting the Tax Reform Act of 1986, Congress recognized that small businesses should be allowed to continue to use the cash method of accounting in order to avoid the higher costs of compliance which would result if they are forced to use the accrual method. Raising the cap on gross receipts to $10 million may also result in a barrier to growth because fi rms will want to avoid triggering the accrual method mandate.

The message that Congress should not restrict the use of the cash basis method is being delivered to members of the Ways and Means Committee, and other members of Congress, by CPAs across the nation. Working with state CPA societies, member CPA fi rms and CPAs who are AICPA Key Persons, the Institute is informing lawmakers about the negative consequences the provision would have on CPAs and other businesses. To date, 50 state CPA societies sent letters to more than 400 members of Congress. Additionally, more than 150 members of Congress received letters from CPA fi rms that would be directly impacted by the proposal.

The profession’s congressional allies, including members of the Congressional Caucus on CPAs and Accountants, are also calling attention to the issue in letters to their colleagues and Ways and Means’ leadership.

The Ways and Means Committee’s desire to reform the tax code is laudable. Throughout the process, Chairman Dave Camp (R-Mich.) has expressed the belief that tax reform should be about making the code simpler and fairer (two of the AICPA’s principles of good tax policy). But requiring the use of accrual accounting will do neither. Given that the cash method remains a far simpler method of accounting, simplicity justifi es its continued use by passthrough entities, professional service

corporations and farmers – regardless of their gross receipts.

How Being a Tax Dummy Cost the New York Times $60M

The New York Times Co.’s purchase of the Boston Globe for more than $1 billion 20 years ago has turned out to be among the worst single newspaper acquisitions in history. But guess what? It’s even worse than it looks.

How is that possible? Because the Times not only made a disastrous, overpriced purchase, but also used a tax structure that assumed that it would own the Globe forever. As a result, the Times Co., which unloaded the Globe for a pittance last month, is missing out on a tax break that would have been worth almost as much as the “approximately $70 million” that Boston Red Sox owner John Henry paid for the Globe and its other fi nancially disastrous Massachusetts purchase, the Worcester Telegram & Gazette.

It’s really kind of funny. Unless you’re a Times Co. shareholder, in which case it’s no laughing matter.

If you’re not a tax techie, you probably don’t know anything about the money the Times Co. left on the table. That’s because the situation is complicated, and understanding it requires you to look at transactions that took place in three different decades.

Let me show you what’s going on. Back in 1993, when newspapers were still desirable properties, the Times Co. bought the Globe’s parent company, Affi liated Publications, for $1.028 billion, paying $160 million of cash and $868 million of Times stock.

Had Times done the deal by using a corporate structure that goes by the marvelous name of “horizontal double dummy,” it would have been able to add the $160 million cash portion of the price its “tax basis” in the Globe: the value it placed on the Globe for tax purposes. However, for reasons that aren’t clear -- the company declined comment -- it used a different technique. As a result, its tax basis in the Globe was the same as Affi liated Publications’ basis rather than being $160 million greater.

In 2000, Times Co. bought the Worcester paper for $296 million of cash, and combined it with the Globe to form the New England Media Group.

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Enter the newspaper business’ existential crisis. Starting in 2006, Times wrote down the value of the Globe-Worcester operation fi ve separate times by a total of about $1.04 billion, or about 80% of what it paid for the papers.

These write-downs -- totaling about $900 million after taxes -- have run through the company’s profi t and loss statement, reducing its reported income and its stated net worth. However, the company confi rmed to me that none of these write-downs have been run through its income tax returns.

When it fi les its 2013 corporate tax return, the Times Co. will presumably recognize a loss on the sale of New England Media Group. However, the loss will be $160 million less than it would have been had it used the double dummy in 1993. A bigger loss for tax purposes wouldn’t make any difference to the Times Co.’s reported profi ts, but it would make a whopping difference in its dealings with the IRS.

At a 35% federal corporate tax rate, the Times will pay the IRS $56 million more in taxes than if it had used the double dummy. Throw in state and possibly local income taxes, and the cost is north of $60 million. Not all that far from the $70 million or so that John Henry paid for the Globe and Worcester.

“Buyers don’t think much about the tax basis they’ll have in the acquired asset, because they don’t expect to ever sell it, and therefore think the basis will not be relevant,” tax expert Bob Willens of Robert Willens LLC told me. Because sellers generally don’t care how cash-and-stock acquisitions are done, “It should be standard operating procedure for a cash-and-stock transaction to be structured as a double dummy,” he said.

The bottom line: When acquirers buy a shiny new toy, they usually fail to structure the deal with a possible future sale in mind. Which, I suppose, makes them ... double dummies.

“Use-or-Lose” Rule for FSAs

Notice 2013-71 contains modifi cations to the rules for §125 cafeteria plans. This modifi cation permits §125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualifi ed medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. This carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make under §125(i) of the Code ($2,500 adjusted for infl ation after 2012).

Enrolled Agent Renewals

All enrolled agents with SSNs ending in 4, 5 or 6 must renew their status by January 31, 2014, to remain in good standing. Renew your license using Form 8554, Application for Renewal of Enrollment to Practice Before the IRS, at pay.gov. There is a $30 renewal fee and it may take up to 90 days to process.Additionally, the Detroit Offi ce of Enrollment recently

implemented a new toll-free number. The number is 855-472-5540 and is open from 7:30 to 5:00 Eastern Standard Time.

Tax Shelters: Risky Business

Engaging in tax shelters has become risky business. The government is now quite adept at shutting down formerly popular transactions like LILOs, SILOs, son-of-BOSS, and a host of others. Taxpayers frequently fi nd themselves paying back taxes and interest, along with steep penalties. But the government isn’t content to target just the taxpayers who seek to lower their taxable income in inappropriate ways: It also wants to criminalize the conduct of practitioners who promote and structure shelter deals.

The government’s record in criminal tax cases against promoters is spotty. The largest criminal prosecution was against 19 KPMG employees, but it fi zzled out when 13 of the defendants were removed because of government pressure on the issue of attorney fees. In December 2008 three defendants were convicted of tax evasion, including R.J. Ruble. They were acquitted of conspiracy charges.

A major criminal case, which had to be retried because of juror misconduct, ended on Halloween, when a jury acquitted BDO Seidman CEO Denis Field of charges that he led and participated in fraudulent tax shelters. The same jury convicted Paul Daugerdas (formerly of the notorious fi rm Jenkens & Gilchrist) of seven of the 16 charges he faced, including conspiracy, tax evasion, and mail fraud. Another codefendant, Donna Guerin of Jenkens & Gilchrist, pleaded guilty and was sentenced to serve eight years in prison and to pay $190 million in restitution.

It Isn’t Time to Bury The Income Tax Just Yet

The KPMG and Daugerdas prosecutions are only the highest-profi le among numerous attempts to criminalize the promotion and structuring of tax shelters, but they illustrate the problems with these types of actions. The tax community generally has not been supportive of the government’s efforts. Many practitioners questioned why the KPMG matter was ever undertaken. The prosecution was ambitious, but poorly

15

structured. In the end, it probably cost the government more credibility than it gained in deterrence.

The Daugerdas case was slightly more successful, but it still serves to show why these types of criminal tax actions are more trouble than they’re worth. The Justice Department isn’t just looking to criminalize outright fraud (and lies). It seems to be targeting faulty or inadequate legal advice as well. “I’m afraid that what happens in these convictions is rather than focusing on the lie, the government wants to quibble with the legal analysis,” Jasper L. Cummings, Jr., of Alston & Bird said. Cummings doesn’t believe that providing legal analysis that violates the economic substance doctrine rises to the level of criminal conduct. And he’s probably right.

Although the government has had trouble securing convictions in these types of cases, that doesn’t mean defendants don’t suffer. It can be extremely expensive and time-consuming to fi ght back. Field probably spent millions in legal fees and had to endure two different trials. Taking a case all the way to a jury might give a defendant a good chance of winning a case, but the costs can be enormous.

So what can be learned from Daugerdas and Ruble? The government is very angry about tax shelter promotion and will use every weapon at its disposal to stop it. Taxpayers and their advisers have only themselves to blame for that. The types of transactions promoted by KPMG and Jenkens & Gilchrist are almost comically outlandish in the tax benefi ts promised and (temporarily) delivered. Taxpayers and practitioners should be very careful about promoting, structuring, and engaging in transactions with little to no business purpose and massive tax benefi ts.

But the government should also be judicious in how it chooses to attack tax shelters. While it might have secured a few convictions, and even jail time, in the KPMG and Daugerdas cases, it also lost face, along with time and resources, for its relatively modest success. Instead of spending many years to secure partial convictions on a few practitioners, perhaps the government’s time would be better spent attacking tax shelter transactions on the front end, at the exam and regulatory drafting levels.

Federal Budget Record $680 Billion

The federal government recorded a budget defi cit of $680 billion in fi scal year (FY) 2013, the Congressional Budget Offi ce (CBO) reported on Nov. 7. This was $409 billion below the FY 2012 defi cit and amounted to 4.1% of the gross domestic product. Receipts were $2.77 trillion in FY 2013 compared to receipts of $2.45 trillion in FY 2012.

Two “unusual factors” had a modest effect on the defi cits incurred over the past two fi scal years, the report said. “In 2013, the government’s revenues increased (in nominal terms) for the fourth consecutive year, reaching $2.8 trillion, which was $325 billion, or 13%, more than revenues in 2012 and 8% above their previous peak in 2007,”

CBO said. Individual income tax receipts climbed by $184 billion (or 16%). Social insurance tax receipts jumped by $103 billion (or 12%), an increase that was largely attributed to the two-percentage-point reduction in the employees’ share of the Social Security tax that expired.

Corporate income tax receipts were up by $31 billion (or 13%). “More than three-quarters of that increase occurred in the fi rst seven months of the fi scal year, probably refl ecting increases in taxable profi ts in calendar year 2012 and in the fi rst part of calendar year 2013,” CBO said.

Employers in 13 States Will Face Higher 2013 FUTA Rates

The U.S. Department of Labor (DOL) has issued the fi nal list of states for which employers will not be eligible to claim the maximum amount of state unemployment tax credits on their 2013 federal unemployment (FUTA) tax return because the state has had an outstanding federal unemployment insurance (UI) loan for at least two years.

Employers pay FUTA tax at a rate of 6.0% on the fi rst $7,000 of covered wages paid to each employee during a calendar year, regardless of when those wages were earned. This tax may be offset by credits of up to 5.4% (known as the “normal credit” and “additional credit”) against their FUTA tax liability for amounts paid to a state UI fund by January 31 of the subsequent year. The net FUTA tax rate for most employers is 0.6% (i.e., 6.0% − 5.4%).

Under Title XII of the Social Security Act, states with fi nancial diffi culties can borrow funds from the federal government to pay unemployment benefi ts. However, if a state defaults on its repayment of the loan, the normal credit available is reduced. This effectively increases the employer’s FUTA tax rate by 0.3% beginning with the second consecutive January 1 in which the loan isn’t repaid, then an additional 0.3% annually thereafter. (Code Sec. 3302(c)) Thus, the net FUTA tax rate paid by an employer in a state that has had an unpaid loan with the federal government for two consecutive years will be 0.3% higher than the net 0.6% rate used by employers in states without past due loans. The net FUTA tax rate continues

16

to rise 0.3% for each additional year that the loans remain unpaid.

The following states and the Virgin Islands are included on the DOL list as credit reduction states in 2013, based on their failure to repay their outstanding federal UI loans by Nov. 10, 2013: Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, and Wisconsin.

The credit reduction for employers in Delaware will be 0.6% (a maximum of $42 more per employee, as compared to employers not in credit reduction states) because of Delaware’s failure to repay its outstanding federal loans for three consecutive years.

The credit reduction for employers in Arkansas, California, Connecticut, Georgia, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, and Wisconsin will be 0.9% (a maximum of $63 more per employee, as compared to employers not in credit reduction states) because of their state’s failure to repay its outstanding federal loans for four consecutive years.

The credit reduction for employers in Indiana will be 1.2% (a maximum of $84 more per employee, as compared to employers not in credit reduction states) because of Indiana’s failure to repay its outstanding federal loans for fi ve consecutive years.

The credit reduction for employers in the Virgin Islands will also be 1.2% (a maximum of $84 more per employee, as compared to employers not in credit reduction states) because of the Virgin Island’s failure to repay its outstanding federal UI loans for four consecutive years (a 0.9% increase), and an additional 0.3% increase due to a 0.3% Benefi t Cost Ratio (BCR) add-on. The BCR add-on may apply (as it does for the Virgin Islands) beginning with the third or fourth consecutive year in which the federal loan has not been repaid and state unemployment insurance rates do not meet minimum federal levels. In addition, states may be subject to the BCR add-on beginning with the fi fth year in which a federal loan balance still exists. The Virgin Islands was also subject to the BCR add-on in 2012.

Arizona, Florida, Nevada, New Jersey, and Vermont recently repaid their outstanding federal UI loans. As a result, the net FUTA tax rate for employers in these states will be 0.6% (i.e., the rate for employers that are not in credit reduction states).South Carolina. South Carolina has received approval from the DOL to avoid being a FUTA credit reduction state for the 2013 tax year.

IRS Announces 2014 Limits on Contributions to Retirement Plans, Caps on Other Benefi ts

The IRS has announced cost-of-living adjustments affecting dollar limits on tax-deferred contributions to retirement plans and eligibility for retirement-related benefi ts for the 2014 tax year.

Among the changed limits are the following:

• the annual benefi t limit for a defi ned benefi t plan underSection 415(b)(1)(A), from $205,000 to $210,000;• the annual contribution limit for a defi ned contributionplan under Section 415(c)(1)(A), from $51,000 to $52,000;• the adjusted gross income phase-out limit for marriedcouples fi ling jointly and making contributions to a Rothindividual retirement account, from a phase-out range of$178,000 to $188,000 in 2013 to a range of $181,000 and$191,000 for the 2014 tax year;• the annual compensation limit under sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii), from$255,000 to $260,000;• the dollar limit under tax code Section 430(c)(7)(D)(i)(II) for determining excess employee compensation withrespect to single-employer defi ned benefi t pension plansfor which a special election under Section 430(c)(2)(D) ismade, from $1,066,000 to $1,084,000;• the phase-out limits on modifi ed adjusted gross incomeaffecting deductions for contributions to traditional IRAstaken by individual taxpayers and heads of household whoare covered by a workplace retirement plan, from $59,000to $69,000 in 2013 to $60,000 to $70,000 for 2014;• the phase-out limits on modifi ed AGI affectingdeductions for contributions to traditional IRAs taken bymarried couples fi ling jointly in which the spouse who makesthe IRA contribution is covered by a workplace retirementplan, from $95,000 to $115,000 in 2013 to $96,000 to$116,000 for 2014;• the annual compensation limit for defi ning “keyemployee” in a top-heavy plan under Section 416(i)(1)(A)(i), from $165,000 to $170,000; and• the phase-out limits on a married couple’s modifi edAGI affecting deductions for contributions to traditionalIRAs taken by IRA contributors who aren’t covered by aworkplace retirement plan but are married to someonewho is covered, from $178,000 to $188,000 for 2013 to$181,000 and $191,000 for 2014.

The list for the 2014 tax year also includes some unadjusted limits “because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment,” the news release said.

Among the limits that are the same as 2013 are:

• the elective deferral or contribution limit for employeeswho participate in Section 401(k), 403(b), most 457 plansand the federal government’s Thrift Savings Plan, at$17,500;• a catch-up contribution limit of $5,500 for those 50 andolder;• an annual compensation limit of $115,000 for defi ning“highly compensated employee” under tax code Section414(q)(1)(B); and• the compensation threshold of $550 for participation ina simplifi ed employee pension under Section 408(k)(2)(C).IRS Revenue Procedure 2013–35, also released on

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October 31, included 2014 limits for tax code Section 125(i) cafeteria plans and qualifi ed transportation fringe benefi ts.

For tax years beginning in 2014:

• the dollar limitation on voluntary employee salaryreductions for contributions to health fl exible spendingarrangements is $2,500.• the monthly limit on the qualifi ed transportation benefi tsexclusion for qualifi ed parking provided by an employer toits employees is $250.• the monthly limit on the qualifi ed transportation benefi tsexclusion for transportation in a commuter highway vehicleand transit pass provided by an employer to its employeesis $130 for 2014.

People in the Tax News

IRS’ Lois Lerner Gave Confi dential Tea Party Tax Info to FEC, Violating Law

The Internal Revenue Service shared highly confi dential tax information of several Tea Party groups in the IRS scandal with the Federal Election Commission, a clear violation of federal law, according to newly obtained emails.

The public watchdog group Judicial Watch told Secrets Thursday that it was former scandal boss Lois Lerner who shared the information on groups including the American Future Fund and the American Issues Project.

The emails obtained by Judicial Watch show that the IRS, which was considering the tax status of the groups, gave the FEC the tax returns of the groups, including income, expenditures and staff pay. The emails also revealed the exact working of the prying political questions the IRS wanted the groups to reveal, such as their goals and the requests for brochures and ads.

The information, sent via email, to the FEC came in response to the organization’s questions about whether the IRS had granted tax-exempt status to the Tea Party groups. It is unclear how the information the IRS sent was going to help the FEC, since the IRS hadn’t determined the tax status of the groups yet.

The emails were produced to Judicial Watch last week by the FEC in response to an Aug. 9, 2013, Freedom of Information Act (FOIA) request.

The email chain began Feb. 3, 2009, when the FEC made its request to Lerner.

She emailed back 10 minutes later, and said: “I have sent your email out to some of my staff. Will get back to you as soon as I have heard from them.”

According to Judicial Watch, the materials “from the IRS’ fi les sent from Lerner to the FEC containing detailed, confi dential information about the organizations. These include annual tax returns (Forms 990) and request for exempt recognition forms (Form 1024), Articles of Organization and other corporate documents, and correspondence between the nonprofi t organizations and the IRS. Under Section 6103 of the Internal Revenue Code, it is a felony for an IRS offi cial to disclose either ‘return information or ‘taxpayer return information,’ even to another government agency.”

Lerner, who was head of the unit deciding tax exempt status, quit in the scandal.

“These extensive emails and other materials provide a disturbing window into the activities of two out-of-control federal agencies: the IRS and FEC,” said Judicial Watch President Tom Fitton. “And there is the very real question as to whether these documents evidence a crime.”

Rizzo, Spaccia Discussed Falsifying Tax Returns, Prosecutor Says

Assistant Dist. Atty. Sean Hassett says the two former Bell offi cials exchanged emails in which they discussed ‘falsifying their returns.’

Angela Spaccia, former Bell assistant city manager, is accused of misappropriating public funds.

Former Bell administrators Robert Rizzo and Angela Spaccia had companies that they used to lower the taxes they owed on the extraordinary salaries they earned in the small, working-class city, a prosecutor said.

L.A. County Assistant Dist. Atty. Sean Hassett said the twoformer offi cials exchanged emails in which they discussed“falsifying their returns.”

Rizzo’s attorney has said he expected federal prosecutors to charge his client and Spaccia with conspiracy to fi le fraudulent tax fi lings. Court documents show that an accountant in an alleged tax fraud with Rizzo and Spaccia pleaded guilty this year.

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When they left the Southeast Los Angeles County city in 2010, Rizzo was earning $1.18 million a year, and Spaccia was making $564,000 annually.

The alleged tax fraud was mentioned only briefl y in court as Spaccia continues to defend herself on 13 corruption-related charges.

But documents fi led in Los Angeles federal court show prosecutors have been working on the tax case since at least October 2012, when accountant Robert J. Melcher was charged with aiding and abetting the fi ling of a false tax return. He pleaded guilty in February and is awaiting sentencing.

The charging document says Melcher prepared a false tax return for “A.S” for 2006, failing to report income she received from the sale of rental property.

The U.S. attorney’s offi ce declined to comment, and the accountant couldn’t be reached.

Rizzo’s attorney, James Spertus, a former federal prosecutor, said Friday that if a federal grand jury indicts Spaccia, more details will probably be revealed.

Spertus has called Spaccia the mastermind of the far-fl ung corruption in Bell. “The issue of who was really driving things really comes out in the tax case,” he said.

Harland Braun, Spaccia’s attorney, said he knew little about the tax case against his client and nothing about the emails. He did say that he has told federal authorities that his client would talk to them.

Spaccia contends that she didn’t know about the corruption and that it was driven by Rizzo.

On the witness stand Friday, Spaccia discussed her fi nal days in Bell and neighboring Maywood, where she served as the acting city manager.

She said she considered committing suicide, and was admitted to a psychiatric hospital after she was forced out in Bell and dismissed in Maywood.

Spaccia said that after taking the job in Maywood, she started sleeping with a gun because she felt threatened by the gangs and city police offi cers whom she perceived to be corrupt.

“I didn’t know what was going to happen,” she said.

To put her at ease, she said Rizzo offered to give her a raise and promised to send someone else to govern the troubled town. She said a replacement never arrived

Spaccia also testifi ed that she was certain that police Chief Randy Adams’ $457,000 salary would become public. “Inevitably, somebody would want to see his contract, and he was going to have some explaining to do,” she testifi ed.

She said Adams was worried that the phrase “pay period” in his contract was not defi ned.

In a 2009 email, Spaccia wrote Adams: “We have crafted our Agreements carefully so we do not draw attention to our pay. The word Pay Period is used and not defi ned in order to protect you from someone taking the time to add up your salary.”

Spaccia said they had been negotiating for about a month, and Adams kept coming up with more changes.

“I was very annoyed,” she said.

Prosecutors say the phrasing of Adams’ contract shows Rizzo and Spaccia were trying to conceal the police chief’s high salary.

Philip Kossoy of Freehold Township Pays $1.1M After Admitting to Tax Fraud with His Cleaning Business

Philip R. Kossoy of Freehold Township pleaded guilty to charges that he defrauded the state out of hundreds of thousands of dollars in tax payments by hiding income from his cleaning business, offi cials said.

Under a plea deal, Kossoy, 49, paid the state $1.1 million and be recommended to 364 days in the Monmouth County Jail, said Peter Aseltine, a spokesman for the New Jersey Attorney General’s Offi ce

Kossoy looked to hide and disguise revenue from his Freehold Township business, Absolutely Spotless Home Cleaning Professionals Inc., by taking cash payments from customers and depositing them into multiple personal bank accounts, instead of in his business account, Aseltine said. He looked to disguise the source of this money by having customers make checks to him personally and not to his business, Aseltine said.The state’s investigation revealed 192 instances of Kossoy altering customer checks by blacking out the memo section of the checks, which referenced the true business purpose of the check, Aseltine said. To further hide his income, Kossoy deposited more than $1 million in cash and checks

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into personal accounts created using another person’s Social Security number.

“Tax fraud is costly to the state and an affront to the honest residents and business operators who pay their fair share,” acting Attorney General John J. Hoffman said in a news release. “We will aggressively prosecute tax cheats, make them pay, and secure convictions that will deter others from these crimes.”

In pleading guilty, Kossoy admitted that from January 2008 through July 2011, he cheated the state out of hundreds of thousands of dollars by underpaying New Jersey Gross Income Tax, State Sales Tax and New Jersey Corporate Business Tax, Aseltine said.

Kossoy pleaded guilty before state Superior Court Judge Anthony J. Mellaci Jr. in Freehold to third-degree charges of theft by failure to make required disposition of property received and failure to pay taxes, Aseltine said. Under the plea agreement, Kossoy has to pay the state $1.1 million, including $900,000 in unpaid taxes, penalties and interest, plus $200,000 anti-money laundering penalty.

Kossoy will be forfeiting $424,000 from bank accounts seized by the state, and he paid the remaining $676,000 at the plea hearing. The state will recommend he be sentenced to 364 days in the Monmouth County Jail, Aseltine said.

Sentencing is scheduled for Jan 3, 2014.

The case was investigated for the Division of Taxation Offi ce of Criminal Investigation by Criminal Forensic Auditors Kerry Czymek and Kevin Curry and Supervising Forensic Auditor Debra Lewaine.Detective Anne Hayes, Deputy Attorney General Peter Gallagher and Deputy Attorney General John Nicodemo handled the investigation for the Division of Criminal Justice Financial & Computer Crimes Bureau. Deputy Attorney General Derek Miller handled the state’s criminal forfeiture action. The Division of Consumer Affairs also assisted.

IRS News

IRS Guidance on Assessment Period for Penalty for Failing to File W-2s and 1099s

Program Manager Technical Advice 2013-004

IRS has provided guidance as to the running of the assessment period for penalties for failing to fi le Forms W-2 and/or 1099 with IRS and for failing to provide a copy of those forms to the payee.

Code Sec. 6721 provides penalties for a failure to fi le correct information returns. Code Sec. 6722 provides penalties for a failure to furnish correct payee statements. Generally, these penalties apply if the specifi ed documents are furnished or

fi led incomplete, with inaccuracies, late, or not at all.

Code Sec. 6671 provides that penalties and liabilities in “Subchapter B -- Assessable Penalties,” which includes Code Sec. 6721 and Code Sec. 6722, are to be assessed and collected in the same manner as taxes. And, Code Sec. 6721 and Code Sec. 6722 do not provide a specifi c assessment period.

Code Sec. 6501 provides that, unless otherwise provided, taxes must be assessed within three years of the fi ling of the return, whether or not that return was fi led on or after the date prescribed. For the purposes of Code Sec. 6501, “return” means the return required to be fi led by the taxpayer. In the case of a failure to fi le a return, the tax may be assessed at any time. (Code Sec. 6501(c)(3))

IRS fi rst analyzed the assessment period under Code Sec. 6721. It said that, because Code Sec. 6721 doesn’t provide a specifi c assessment period, the relevant period is the general assessment period applicable to taxes as set out in Code Sec. 6501.

It then noted that Code Sec. 6721 provides that its penalty applies for each information return “with respect to which such failures occur.” For this purpose, the term “information return” is defi ned in Reg. § 301.6721(g). The “return” required to be fi led by the taxpayer would therefore be each individual information return.

Thus, for purposes of applying Code Sec. 6501 to Code Sec. 6721, one must look at the defi nition of “return” as used in Code Sec. 6721 and the underlying Code sections referenced in Code Sec. 6721, i.e., the Code sections that contain the information return requirements. The underlying statutes defi ne “a return” for purposes of the provision fairly consistently (though not identically). For example, Code Sec. 6050(h) defi nes “return” for purposes of satisfying that provision as being “in such form as the Secretary may prescribe,” and containing the “name and address of the individual,” as well as the amount of the interest and points received during the year, and other information the Secretary prescribes.

IRS concluded that the term “return” must mean each properly fi led individual information return. An example of this would be a Form 1099 transmitted in its proper format, including the accompanying Form 1096. Any document which does not satisfy the requirements of a return in the underlying statutes and regs could not constitute a return for purposes of Code Sec. 6501 and would not begin the period for assessment. Therefore, documents such as Form 1096 which do not include items specifi cally required by the statute to be on the return, such as the name and address of the payee, could not constitute the “return required to be fi led by the taxpayer,” and would not start the period of limitations. I.e., a “naked” summary or transmittal form, such as a Form 1096 or W-3, would simply not contain the requisite elements specifi cally required for a return.

IRS then concluded that penalties under Code Sec. 6721

20

should be assessed within three years of fi ling of the particular information return which forms the basis of the penalty (such as Forms 1099 or W-2). If the particular information return (such as a Form 1099 or W-2) has not been fi led, then Code Sec. 6501(c)(3) would dictate that there is no limitations period on assessment of the penalty. A transmittal or summary form such as the Form 1096 or W-3 is not, by itself, a return for purposes of starting the assessment statute of limitations.

Unlike with respect to Code Sec. 6721, IRS did not draw a conclusion with respect to the assessment period that applies to Code Sec. 6722 penalties. Rather, it said that this matter has not been decided and that it is diffi cult to predict at this point how a court would rule on this matter of fi rst impression. It did however offer a signifi cant amount of analysis of the issue.

Code Sec. 6722 is based on the issuance of payee statements and is not directly based on the fi ling of a return. Generally, an action fi led by the United States is not subject to a time limitation unless Congress clearly imposes one by enactment, and such limitations are to be strictly construed in favor of the government.

IRS fi rst looked at two other kinds of assessable penalties for which IRS has historically argued there is no statute of limitation: promoter penalties and trust fund recovery penalties. IRS was successful in arguing that no statute of limitations applies to the promoter penalties under Code Sec. 6700 and Code Sec. 6701. (Sage, (CA-5 1990) 66 AFTR 2d 90-5422) (Code Sec. 6700 penalty). In determining that no period of limitation applies to these penalties, the courts relied on the anti-fraud nature of the penalties, and in some instances on the fact that the penalties were not based on a return. By contrast, IRS has unsuccessfully argued that no statute of limitations applies to the trust fund recovery penalty under Code Sec. 6672, and eventually abandoned the position.

IRS went on to compare Code Sec. 6722 with Code Sec. 6721. It said that, for Code Sec. 6721, there is no meaningful basis for arguing for any statutory period other than the three-year period in Code Sec. 6501. The penalty, by its terms, is based on a return fi led with IRS and the three-year period begins to run for each individual information return when it is fi led. Code Sec. 6722 penalties, on the other hand, are based on the issuance of payee statements, not returns fi led with IRS. While the obligation to issue these payee statements arises from the same nexus as the requirement to fi le information returns, the requirement to send payee statements is an independent, concurrent obligation. While these two sets of obligations are nearly perfectly correlated, they are not interdependent, and compliance or non-compliance with one of the obligations does not impact the other.

As a result, Code Sec. 6722 penalties seem to fall between established precedents. They are not designed specifi cally for fraud prevention, but they are also not penalties based on a return.

Penalties under Code Sec. 6672 differ from the case of a

trust fund recovery penalty under Code Sec. 6722. Following the fi ling of Forms 941 (“Employer’s Quarterly Federal Tax Return”), IRS is on notice of both the obligation to pay, and the failure to pay, which forms the basis of a trust fund recovery investigation. Since the obligation to pay is a transaction involving IRS, IRS has all the information necessary to begin an investigation. The fi ling of information returns such as Forms 1099 and W-2 provide IRS with only derivative notice of the obligation. The information return makes IRS aware of the reportable payment which in turn reveals the obligation to furnish payee statements, but it does not indicate whether the obligation has been fulfi lled.

The sending of payee statements is a third-party transaction not involving IRS. Arguably, this is more analogous to the behavior involved in promoter penalties than in trust fund recovery penalties. Promoter penalties are based on an action between the taxpayer (the promoter) and a third party. There is no means for IRS to observe the interactions between the taxpayer and a third party. One long-standing justifi cation for extended or unlimited periods of limitations is the need for IRS to have notice and opportunity to investigate.

Finally, IRS noted that penalties regulating behavior between the taxpayer and a third party are not readily observable by IRS and should not be shoehorned into the tax-return dependent world of Code Sec. 6501(a) unless the behavior is reported on a return. However, both the obligations to fi le information returns and the obligations to furnish payee statements arise out of the same nexus, usually a payment, and include substantially identical requirements. This nexus or correlation of events suggests that the return for purposes of applying Code Sec. 6501 to Code Sec. 6722 could plausibly be the underlying information return.

EFIN Verifi cation

Some software providers are asking customers to verify their EFINs. The reason is because, back in 2011, the IRS began investigating why some fi rms were using EFINs that were not associated with their company. Some of these occurrences were due to inadvertent errors, but some were actually connected to the fi ling of fraudulent returns. Due to this activity, the E-fi le Program Provider Management team, (EPPM) took steps to mitigate the incorrect use of EFINs. The IRS initiated an outreach program involving large software developers and transmitters to educate them on the importance of verifying the identity of EFIN owners who were transmitting returns to them. This requirement is also cited in Publication 3112, IRS e-fi le Application and Participation.

The IRS issued Quick Alerts that offered information on the correct usage of EFINs and how the public can verify the identity of the owner by using: 1) the EFIN acceptance letter; 2) a copy of the e-fi le application summary page showing thecompany name and EFIN status; 3) the ability to use the EROLocator to fi nd providers (however providers have the optionof not being listed on the locator); and lastly 4) the option ofcalling e-help to verify that the EFIN was valid.

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In 2012 the IRS placed FAQs on IRS.gov regarding the correct usage of EFINs and included information on how to verify ownership. Individuals can direct additional questions to the e-help desk at 866.255.0654. The IRS encourages every e-fi le provider to become familiar with Pub 3112.

Employer W-2 Filing

According to the Social Security Administration (SSA) alert for employers, due to the recent government shutdown, the dates for tax year 2013 wage reporting and processing will be delayed as follows:

• SSA’s Electronic Wage Reporting applications willclose on December 20 and reopen on December 23.• SSA will accept tax year 2013 and prior year fi lesbeginning on December 23.• SSA will begin to process fi les received after December20 on February 11.

IRS’s ‘Volunteer Tax Preparers’ Exhibit Incompetence

Program underscores the need for the IRS to stay out of tax preparation

The Inspector General of the IRS released a report that examined the state of the agency’s Volunteer Tax Preparers (VTP) program. The program exists to provide free tax preparation services to low income citizens. However, the fi ndings of the audit show that this program might be doing more harm than good.

Of the VTP-prepared returns that were analyzed, nearly half of them were fi led incorrectly. This latest instance of incompetence at the IRS represents another example of why the agency should not be trusted with preparing tax returns. This may seem insignifi cant, but for the fact that many prominent fi gures, such as former Obama administration advisor Austan Goolsbee, have been calling for the creation of a “Return Free Filing” program, which would allow the IRS to prepare taxes.

ATR’s Grover Norquist & Patrick Gleason, why giving the IRS the authority to prepare taxes is a bad idea:

Having the IRS serve in the dual roles of tax collector and tax

preparer presents an inherent confl ict of interest. The main

function of the IRS is to collect taxes, as much as possible.

[…] To put the government entity responsible for maximizing

tax collections in charge of preparing returns would result

in a clear confl ict of interest — one that would work to the

disadvantage of ordinary taxpayers.

Do we really want the IRS, which has been busy making Star Trek videos for that last several years, to have the responsibility and authority to prepare tax returns?

IRS Urged to Improve Security at its Offi ces

The Internal Revenue Service needs to take additional steps to improve security at some of its facilities, according to a new report that found an increase in threats to IRS employees in recent years.

Due to the nature of the IRS’s mission, the organization remains a target for those who are angry at the tax system or the government, the report noted. Threats of violence directed at the IRS’s 100,000 employees at more than 600 facilities throughout the country have increased during a time of continued fi nancial hardship. In the one-year period between October 2010 and September 2011, there were more than 1,400 reported threat incidents directed towards IRS employees and infrastructure.

The report, publicly released by the Treasury Inspector General for Tax Administration, identifi ed defi ciencies in the IRS’s Physical Security Risk Assessment Program and found that most but not all IRS facilities received risk assessments as required. As a result, the IRS may have security vulnerabilities that are not identifi ed and addressed in a timely manner, thereby placing IRS employees and taxpayers at risk.

IRS employees may be exposed to many diffi cult, threatening, and even extremely dangerous situations because of daily and ongoing interactions with the public, an earlier report released in January noted. In 2010, an irate taxpayer, Andrew Joseph Stack III, set fi re to his own house and then piloted a single-engine Piper Cherokee airplane into an IRS offi ce building in Austin, Texas, killing one longtime IRS employee, Vernon Hunter, and injuring 13.

The IRS is required to conduct comprehensive and timely risk assessments to identify and address vulnerabilities in physical security. The overall objective of TIGTA’s latest review was to determine whether physical security risk assessments were conducted as required at all IRS facilities.

In the new report, TIGTA found that while the IRS completed risk assessments at nearly all of its facilities, it did not review 14 facilities. Five of those facilities remained open as of calendar year 2013 and the other nine facilities were closed prior to calendar year 2013.

In addition, the IRS did not conduct risk assessments at 49 other facilities that were not specifi cally occupied by IRS employees but were located in or adjacent to IRS facilities. These 49 facilities, which included childcare centers, parking lots and garages, storage units, and a credit union, are not specifi cally occupied by IRS employees. The IRS said that security at those buildings were the responsibility of the Federal Protective Service but did not provide evidence that that the facilities received a risk assessment.

Completed risk assessments prepared by the IRS identifi ed numerous needs for additional security countermeasures, such as posting signs advising of video surveillance or relocating walls to allow security guards to see visitors entering the

22

facility. However, TIGTA found that some countermeasures were not acted upon. The IRS cited resource constraints as a reason that countermeasures were not implemented.

TIGTA made seven recommendations to the IRS’s director of physical security and emergency preparedness. IRS management agreed with the recommendations and plans to implement corrective actions to address them. For example, the IRS plans to ensure that inventory records include all relevant information and develop a process to ensure that required countermeasures are in place and functioning at all Taxpayer Assistance Centers.

“Ensuring the security of IRS employees, facilities and taxpayers is of the utmost importance to us,” IRS chief of agency-wide services David A. Grant wrote in response to the report.

IRS Sent Erroneous Penalty Notices

The Internal Revenue Service has admitted to mistakenly assessing penalties on businesses that had requested extensions on fi ling the Form 5500 for their employee retirement plans.

The IRS is telling its help center representatives to apologize remove the penalties when they are contacted about the error, acknowledging a timing problem in posting the extension requests, according to a directive obtained by the site Benefi tsPro.

“Form 5500 fi lers that fi le their return before their extension Form 5558 has had a chance to post are receiving CP 283s assessing them a late fi ling penalty,” said the IRS. “Proposed changes to the penalty program would allow time for extensions to post before penalty notices are generated. However, until these changes can be implemented, tax examiners and telephone assistors should abate these penalties as Service Errors.

The IRS telephone assistance representatives and tax examiners are also supposed to prepare a Letter 168C explaining that the penalty has been removed due to a “Service Error.”

“If the caller is an administrator or sponsor with multiple plans/clients, you may abate up to fi ve penalties for the caller,” said the IRS. Benefi t plan administrators who get more than fi ve penalty notices from the IRS need to put their requests for abatement in writing and send them to the IRS.

IRS and Identity Theft

IRS’s expanded identity theft detection efforts are helping identify fraudulent tax returns but several billions of dollars in potentially fraudulent refunds continue to be paid, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on Nov. 7.

Auditors looked at tax year 2011 tax returns and were able to

identify 1.1 million undetected tax returns fi led “using a Social Security number that have the same characteristics of IRS-confi rmed identity theft returns,” TIGTA said.

The amount of potentially fraudulent tax refunds issued totaled $3.6 billion, compared to the $5.2 billion TIGTA reported for tax year 2010. Potentially fraudulent tax refunds totaling $385 million were issued for 141,000 such accounts

IRS Needs Help to Improve Small-Business Audits, Offi cial Says

Admitting that it needs help in auditing small businesses, an Internal Revenue Service commissioner says it’s sharpening its focus on partnerships.

Contrary to what many small-business owners and CFOs may think, the Internal Revenue Service’s audit programs are not designed to give “nightmares” but to create less of them, Faris Fink, an IRS commissioner, said at an American Institute of Certifi ed Public Accountants tax conference. Fink acknowledged that the service could use help in its small-business audits.

Fink, who represents the Small Business/Self-Employed Division of the IRS, said the IRS has designed its research and other compliance programs to help weed out unwarranted audits of small businesses. For example, data collected from the service’s National Research Program (NRP) is helping to educate IRS staff and improve their “selection criteria” when it comes to auditing company returns. In that way, the NRP can help IRS small-business auditors do a better job of selecting which returns have the potential to have some problems, he said.

The NRP has been helping Fink’s division delve into areas the IRS hasn’t looked into for decades, such as fuel-tax-reporting compliance. For that project, which began in July 2012, the IRS is looking at over 1,000 tax returns, said Fink, with 600 of those returns in the fi eld right now for examination.

“The examination is far more invasive than what we have done in the past,” he added. The IRS’s small-business NRP

23

representatives check company returns going back one year, while the NRP reps for large fi rms look back fi ve years.

But fuel tax isn’t the only program aimed at helping IRS staff to fi gure out the workings of small businesses. Fink’s group underwent a series of virtual training sessions last year on how partnerships work. The IRS began its new partnership curriculum after realizing that the infl ux of staff hires in recent years did not have suffi cient training around partnerships, and auditing partnerships, in particular. (Fink did not say who provided the virtual training.)

“We have not en masse done that type of training virtually ever as an agency. We just haven’t,” he said, noting that some questions still remain over its effectiveness.

But understanding how to audit partnerships “will be a point of emphasis for the next twelve months and, I guarantee you, beyond that,” added Fink. “We’ve got to develop a short-term and long term training plan to put the right tools in our examiners’ hands so they are more capable and better at looking at fl ow-throughs and particularly partnerships.”

The partnership training, according to Fink, is important for the growth of IRS agents themselves. “We’ve got to increase or enhance those skill sets to be effective. We’ve got to be better at identifying technical issues and auditing technical issues,” he said. The private sector, Fink acknowledged, has skills in the virtual training area that IRS agents do not have.

“It’s going to be challenging,” he said, “as we grow this initiative.” The IRS’ large business and international division is also involved in the training along with the small business unit, with both groups sharing information.

IRS Wastes Billions In Bogus Claims For Earned Income Tax Credit

The Internal Revenue Service paid up to $13.6 billion in bogus claims for the Earned Income Tax Credit last year and as much as $132.6 billion over the past decade, according to an internal audit that already has some members of Congress questioning how the agency will be able to administer Obamacare.

IRS problems with the tax credit aren’t new. In fact, the Treasury inspector general for tax administration said it warned offi cials about the problems in 2011 — but two years later, the agency still hasn’t solved the situation and remains in violation of one of President Obama’s executive orders.

Indeed, the IRS has not established annual targets for reducing the payments, which is required by law, nor is the agency complying with requirements that it report to auditors each quarter on any EITC payments totaling more than $5,000.

“The IRS should be commended for implementing numerous processes to educate Americans and identify and prevent improper EITC payments,” said J. Russell George, Treasury inspector general for tax administration. “Unfortunately, it is still

distributing more than $11 billion in improper EITC payments each year, and that is disturbing.”

Mr. George and his investigators said 21 percent to 25 percent of all EITC payments in 2012 were erroneous, meaning $11.6 billion to $13.6 billion was paid to people who shouldn’t have received the credit, or received the wrong amount.

The EITC is a refundable tax credit designed to transfer money to the working poor through the tax system. It allows the working poor to pay less in taxes or, if they have no tax liability, to get money.

Both the IRS and the auditors agreed it is a complex program and checking eligibility is diffi cult.

The program is popular with many lawmakers on both sides of the aisle who say it’s an effective anti-poverty tool, rewarding those who work.

But the large error rate left some lawmakers questioning whether the agency will be able to administer the tens of billions of dollars in health care tax credits that are part of the Affordable Care Act.

“That the IRS can’t fi gure out how to rein in the improper Earned Income Tax Credit payments doesn’t bode well for the $1.1 trillion in ObamaCare subsidies,” said Sen. Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee.

He said if the error rate in Obamacare subsidies is as big as it is in the EITC, that could mean $250 billion would be wasted in health care payments.

The size of the erroneous payments was staggering to lawmakers. At more than $13 billion a year, the bogus tax claims are more than the entire budget of the Environmental Protection Agency or the Interior or Labor departments.

“The waste outlined in this report — more than $13 billion a year — equals or exceeds the annual budgets of some federal agencies,” said Sen. Tom Coburn, Oklahoma Republican and Congress‘ chief waste-watcher. “Before we ask taxpayers to send even more of their own money to Washington, we must do more to prevent these egregious examples of waste.”

The IRS said it does try to crack down on bad EITC payments. Americans who claim the tax credit are already audited at twice the rate of other taxpayers.

“The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims,” the agency said in a statement.

The agency said it’s working with the White House budget offi ce to try to come up with other ways to weed out bad payments, and promised to soon comply with reporting requirements.And it’s already shown some progress in cutting the problem. In 2010, as much as 29 percent of EITC payments were

24

• If you know you owe taxes or you think you might owetaxes, call the IRS at 800-829-1040. The IRS employees atthat line can help you with a payment issue – if there reallyis such an issue.• If you know you don’t owe taxes or have no reason tothink that you owe any taxes (for example, you’ve neverreceived a bill or the caller made some bogus threats asdescribed above), then call and report the incident to theTreasury Inspector General for Tax Administration at 800-366-4484.• If you’ve been targeted by this scam, you should alsocontact the Federal Trade Commission and use their“FTC Complaint Assistant” at FTC.gov. Please add “IRSTelephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

Preparers Suspected of Filing Inaccurate EITC Claims Receive Warning Letters

During November and December 2013, the IRS will send letters to preparers suspected of fi ling inaccurate EITC claims. The letters detail the critical issues identifi ed on the returns, explain the consequences of fi ling inaccurate claims for EITC and advise preparers that IRS will continue monitoring the types of EITC claims they fi le. Filing inaccurate EITC claims may result in penalty assessment, revocation of IRS e-fi le privileges and other consequences including barring preparers from tax return preparation.

IRS also plans to conduct visits to some tax preparers in efforts of providing education and outreach on meeting EITC Due Diligence requirements.

IRS Faulted for Problems Conducting Parallel Civil and Criminal Investigations of Tax Preparers

The Internal Revenue Service’s Criminal Investigation unit does not always coordinate with the IRS’s civil compliance functions when it becomes aware of an abusive tax preparer or promoter, according to a new report that suggested improved communication would allow the IRS to further explore all potential civil and criminal remedies in such cases.

The report, from the Treasury Inspector General for Tax Administration, noted that in 2005, the IRS established a policy that encourages civil enforcement actions in collaboration with criminal investigations when abusive tax promotions are ongoing and the possibility of harm to the federal government is signifi cant. TIGTA noted that if communication and coordination are not thorough and consistent, the full range of criminal and civil remedies available may not always be explored, resulting in missed opportunities to seek injunctions to prevent further harm to the government and assess civil penalties for abusive tax preparer and promoter behavior.

In the report, TIGTA found that the processes for

erroneous, accounting for up to $18.4 billion.

Analysts said the large error rate stems from the complexity of the program, which leaves taxpayers confused about who is able to claim it.

Then there are the competing goals Congress and Mr. Obama have set.

For example, in a 2009 executive order the president told agencies to do more to make sure Americans know they are eligible for tax credits. But he also told agencies to crack down on bogus payments, laying out the reporting goals that the inspector general said the IRS is violating.

IRS Warns of Pervasive Telephone Scam

The Internal Revenue Service has warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can help protect themselves. Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the fi rst IRS contact with taxpayers on a tax issue is likely to occur via mail

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers.They generally use common names and surnames toidentify themselves.• Scammers may be able to recite the last four digits of avictim’s Social Security Number.• Scammers spoof the IRS toll-free number on caller IDto make it appear that it’s the IRS calling.• Scammers sometimes send bogus IRS emails to somevictims to support their bogus calls.• Victims hear background noise of other calls beingconducted to mimic a call site.• After threatening victims with jail time or driver’s licenserevocation, scammers hang up and others soon call backpretending to be from the local police or DMV, and the callerID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

25

communication and coordination of parallel investigations between the applicable IRS civil compliance functions and the IRS’s Criminal Investigation unit could be improved. The civil compliance functions are generally following the procedures that require them to communicate with the Criminal Investigation unit their intent to conduct a civil investigation of an abusive tax preparer/promoter. However, the CI unit doesn’t always coordinate with the civil compliance functions when it learns about a shady tax preparer or promoter. Better communication between the civil and criminal functions would allow the IRS to further explore all potential civil and criminal remedies in these types of cases.

IRS procedures require that quarterly coordination meetings be held for ongoing parallel investigations. However, there is no consistent requirement to document these meetings, TIGTA noted. There is thus no assurance that the meetings took place and that all required attendees were present. When the required meetings are not held, the civil compliance functions may be unaware that IRS criminal investigators have concluded an investigation, possibly preventing the appropriate civil actions from being taken.

In addition, reconciliation of investigation case inventories among the various civil compliance functions and CI could be improved to provide IRS management with the ability to better monitor the progress of parallel investigations and ensure that the program is effective, TIGTA pointed out.

TIGTA recommended that the IRS revise the memorandum used for the civil compliance function notifi cation process to clearly identify that the criminal investigation being initiated has abusive tax preparer/promoter characteristics. The report also suggested that the IRS revise its procedures to ensure that all quarterly coordination meetings are conducted and documented and ensure that all procedures are consistent. The IRS should also improve its employees’ awareness of the purpose of parallel investigations through the periodic dissemination of information and training; and it should conduct periodic reconciliations of the various investigation inventory systems used to track parallel investigations, according to the report.

In response to the report, IRS offi cials agreed with all four recommendations and plan to take corrective actions. The IRS said it plans to revise the memorandum used to notify the civil compliance functions, develop a standardized check sheet to document quarterly coordination meetings, and update procedures relevant to parallel investigations to ensure consistency across functions. IRS offi cials also plan to improve awareness by creating a training course on parallel investigations for use by civil examiners and special agents. Finally, the IRS plans to conduct a monthly reconciliation of the various inventory systems to help ensure that parallel investigations are properly tracked and monitored.

However, the IRS also pointed out some shortcomings in TIGTA’s fi ndings. “Parallel investigations achieve maximum compliance by effectively balancing criminal and civil enforcement actions to stop the promotion of abusive tax

avoidance schemes,” wrote Faris Fink, the commissioner in charge of the IRS’s Small Business/Self-Employed Division, in response to the report. “As your report states, due to the inherent risks involved and the rules and regulations governing both criminal and civil processes, additional procedures and increased oversight are necessary when considering the use of parallel proceedings. Our planned corrective actions based on your recommendations will help to strengthen our current procedures. We would note, however, that the fi ndings in your report regarding parallel investigations and abusive tax return preparers and promoter cases cannot be projected to the respective case populations because the results were derived from judgment samples and are therefore not representative of the entire population.”

IRS Warns Consumers of Possible Scams Relating to Relief of Typhoon Victims

The Internal Revenue Service has issued a consumer alert about possible scams taking place in the wake of Typhoon Haiyan. On Nov. 8, 2013, Typhoon Haiyan – known as Yolanda in the Philippines – made landfall in the central Philippines, bringing strong winds and heavy rains that have resulted in fl ooding, landslides, and widespread damage.

Following major disasters, it is 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 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 tofamiliar or nationally known organizations. Some phonycharities use names or websites that sound or look like thoseof respected, legitimate organizations. The IRS websiteat IRS.gov has a search feature, Exempt OrganizationsSelect Check, through which people may fi nd legitimate,qualifi ed charities; donations to these charities may be tax-deductible. Legitimate charities may also be found on theFederal Emergency Management Agency (FEMA) websiteat fema.gov.• Don’t give out personal fi nancial information — such asSocial Security numbers or credit card and bank accountnumbers and passwords — to anyone who solicits acontribution from you. Scam artists may use this informationto steal your identity and money.• Don’t give or send cash. For security and tax recordpurposes, contribute by check or credit card or another waythat provides documentation of the gift.• If you plan to make a contribution for which you wouldlike to claim a deduction, see IRS Publication 526, CharitableContributions, to read about the kinds of organizations thatcan receive deductible contributions.

Bogus websites may solicit funds for disaster victims. Such

26

limit.

According to Notice 2013-71, IRS received numerous comments in response to this request, with the “overwhelming majority” favoring modifi cation of the rule. Among the reasons cited were diffi culty in predicting future needs for medical expenses, the desirability of minimizing incentives for unnecessary spending at the end of a year or grace period, the possibility that lower- and moderate-paid employees are more reluctant than others to participate because of aversion to even modest forfeitures of their salary reduction contributions, and the opportunity to ease and potentially to simplify the administration of health FSAs.

In Notice 2013-71, IRS provided that an employer, at its option, can amend its Code Sec. 125 cafeteria plan document to provide for the carryover to the immediately following plan year of up to $500 of any amount remaining unused as of the end of the plan year in a health FSA. The carryover of up to $500 may be used to pay or reimburse medical expenses under the health FSA incurred during the entire plan year to which it is carried over. IRS further clarifi ed that the up-to-$500 carryover doesn’t count against or otherwise affect the next year’s indexed $2,500 salary reduction limit, and that any unused amount in excess of $500 would be forfeited. IRS emphasized that the plan sponsor can specify a lower amount as the permissible maximum carryover amount, or can decide to not allow any carryover at all.

A plan adopting this carryover provision is not, for any plan year, permitted to allow an individual to put aside via salary reductions for qualifi ed health FSA benefi ts more than the indexed $2,500 salary reduction limit, or reimburse claims incurred during the plan year that exceed the applicable indexed $2,500 salary reduction limit (plus the up-to-$500 carryover amount). If an employer amends its plan to adopt a carryover provision, the same carryover limit must apply to all plan participants. A Code Sec. 125 cafeteria plan is not permitted to allow unused amounts relating to a health FSA to be cashed out or converted to any other taxable or nontaxable benefi t.

To utilize this new carryover option, a Code Sec. 125 cafeteria plan offering a health FSA must be amended to adopt a carryover provision on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the fi rst day of that plan year, provided that various requirements are met, including that participants are informed of the provision. The notice provided, however, that a plan may be amended to adopt the carryover provision for a plan year that begins in 2013 at any time on or before the last day of the plan year that begins in 2014.

A Code Sec. 125 cafeteria plan that incorporates a carryover provision may not also provide for a grace period in the plan year to which unused amounts may be carried over (i.e., the next year). Accordingly, if, pursuant to the carryover provision, a plan permits amounts that were unused in a plan year to be carried over to the following plan year, the plan is not permitted to provide for a grace period that occurs in that following plan

fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affi liated with legitimate charities in order to persuade members of the public to send money or provide personal fi nancial information that can be used to steal identities or fi nancial resources. Additionally, scammers often send e-mail that steers the recipient to bogus websites that appear to be affi liated with legitimate charitable causes.

IRS Relaxes “use-it-or-lose-it” Rule for Health Flexible Spending Arrangements

Notice 2013-71, 2013-47 IRB

In a notice and accompanying fact sheet, IRS modifi ed the “use-or-lose” rule for health fl exible spending arrangements (health FSAs) in order to allow, at the plan sponsor’s option, participating employees to carry over up to $500 of unused amounts remaining at year-end. Previously, any amounts that weren’t used by year-end would be forfeited. Certain plan sponsors may be eligible to take advantage of this option as early as plan year 2013. IRS also provided some clarifi cations on the scope of earlier-provided transition relief for individuals in Code Sec. 125 cafeteria plans for non-calendar cafeteria plan years beginning in 2013.

Health FSAs are benefi t plans established by employers to reimburse employees for health care expenses, such as deductibles and co-payments. They are usually funded by employees through salary reduction agreements, although employers may contribute as well. Qualifying contributions to and withdrawals from FSAs are tax-exempt.

Unused FSA contributions left over at the end of a plan year have historically been forfeited to the employer under the so-called “use-it-or-lose-it rule.” However, a plan can (but is not required to) provide an optional grace period immediately following the end of each plan year, extending the period for incurring expenses for qualifi ed benefi ts to the 15th day of the third month after the end of the plan year (i.e., March 15th for a calendar-year plan). Benefi ts or contributions not used as of the end of the grace period are forfeited. (Notice 2005-42, 2005-1 CB 1204)

Under Code Sec. 125(j), which was added to the Code by the Affordable Care Act of 2010 (P.L. 111-148) and is effective for tax years beginning after Dec. 31, 2012, in order for a health FSA to be a qualifi ed benefi t under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee’s dependents, and any other eligible benefi ciaries with respect to the employee, under the health FSA for a plan year (or other 12-month coverage period) cannot exceed $2,500. The $2,500 limit will be indexed for cost-of-living adjustments for plan years beginning after Dec. 31, 2013.

In Notice 2012-40, 2012-25 IRB 1046, IRS provided guidance on the effective date of the $2,500 limit on salary reduction contributions to health FSAs under Code Sec. 125(i) , and on when and how plans should be amended to comply with the

27

employer with a Code Sec. 125 cafeteria plan non-calendar plan year beginning in 2013, regardless of whether the employer is an applicable large employer or applicable large employer member under Code Sec. 4980H. IRS also clarifi ed that changes to an employer’s Code Sec. 125 cafeteria plan to allow changes in salary reduction elections can be more restrictive than the amendments described in the preamble, but cannot be less restrictive.

These clarifi cations may be applied beginning on or after Dec. 28, 2012 (i.e., the date on which the proposed regs were issued).

Worldwide Identity Thieves Steal Millions in Tax Refunds

In this May 8, 2008, fi le photo, blank U.S. Treasury checks are seen on an idle press at the Philadelphia Regional Financial Center, which disburses payments on behalf of federal agencies.

The Internal Revenue Service sent 655 tax refunds to a single address in Kaunas, Lithuania -- failing to recognize that the refunds were likely part of an identity theft scheme. Another 343 tax refunds went to a single address in Shanghai, China.

Thousands more potentially fraudulent refunds -- totaling millions of dollars -- went to places in Bulgaria, Ireland and Canada in 2011.

In all, a report from the Treasury Inspector General for Tax Administration found 1.5 million potentially fraudulent tax returns that went undetected by the IRS, costing taxpayers $3.6 billion.

Those numbers are from an audit of 2011 data, and the IRS said it’s put dozens of measures in place since then to crack down on the problem.

Acting Commissioner Danny Werfel acknowledges that “refund fraud caused by identity theft is one of the biggest challenges facing the IRS today.” Testifying to a congressional committee in August, he said the agency now has 3,000

year. If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. IRS cautioned that the ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints.

In Notice 2013-71, IRS also clarifi ed the scope of the transition relief provided in the preamble to proposed regs under Code Sec. 4980H that allows greater fl exibility for individuals to make changes in salary reduction elections for accident and health plans provided through Code Sec. 125 cafeteria plans for non-calendar cafeteria plan years beginning in 2013.

In general, Code Sec. 125 cafeteria plan elections must be made before the start of the plan year, and are irrevocable during the plan year, with limited exceptions including for change in status. Without transition relief, the availability of health plan coverage through an Affordable Insurance Exchange beginning with calendar year 2014 does not constitute such a change in status, which would mean that employees would not be able to change their salary reduction elections for health coverage during a plan year in order to cease their salary reductions and Code Sec. 125 cafeteria plan coverage and purchase coverage through an Exchange. However, IRS has granted transition relief with respect to non-calendar Code Sec. 125 cafeteria plan years beginning in 2013 under which an employer, at its election, may amend one or more of its written Code Sec. 125 cafeteria plans to allow employees to make either or both of the following changes in salary reduction elections, regardless of whether the employee experienced a change in status under Reg. § 1.125-4:

(i) an employee who elected to salary reduce throughthe employer’s Code Sec. 125 cafeteria plan for accidentand health plan coverage with a non-calendar plan yearbeginning in 2013 is allowed to prospectively revoke orchange his or her election with respect to the accident andhealth plan once during that plan year; and

(ii) an employee who failed to make a salary reductionelection through the employer’s Code Sec. 125 cafeteriaplan for accident and health plan coverage with a non-calendar plan year beginning in 2013 before the deadlinein Prop Reg § 1.125-2 for making elections for the CodeSec. 125 cafeteria plan year beginning in 2013 is allowedto make a prospective salary reduction election for accidentand health coverage on or after the fi rst day of the 2013plan year of the Code Sec. 125 cafeteria plan.

IRS also noted that, although the description of the Code Sec. 125 cafeteria plan transition rule in the preamble to the proposed Code Sec. 4980H regs refers to applicable large employer members (generally meaning a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer), the relief is available, subject to the rules set forth in the preamble, to an

28

from Business (Sole Proprietorship) in order to maximize unauthorized tax refunds generated largely through the use of Earned Income Tax Credits.

Colter prepared and fi led 27 income tax returns during the 2008-2011 income tax years, approximately $376,042 in false business income was claimed, resulting in approximately $115,477 in false federal income tax refunds.

“The tax return preparer industry is at the dawn of a new era of accountability,” said Kathy A. Enstrom, Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Offi ce. “With new rules regulating the industry, tax preparers who prepare fraudulent tax returns will stand out even more. This sentence is a reminder that all tax professionals have to respect the law and protect the interests of their clients and the taxpaying public.”

Assistant United States Attorney Dwight Keller is representing the United States in this case that was investigated by special agents of IRS-Criminal Investigation.

Feds Move to Bar Mississippi Tax Preparers

The federal government has asked a Mississippi judge to ban a Holly Springs area tax preparation business from operating.

According to the Mississippi Business Journal, Hardaway Taxx and its two preparers, Eric Hardaway — who is also listed as Eric Brittenum — and Yvonne Hardaway, are accused of claiming a false fuel credit on 156 returns or amended returns

employees working on identity theft issues -- double what it had last year.

Here’s how stolen identity tax fraud typically works: Thieves, using a valid social security number, fi le a tax return using fi ctitious withholding forms showing that they’re due a refund, and have those refunds sent to another address. When the real taxpayer tries to fi le a return, the IRS rejects it.

But Treasury auditors have spotted a new wrinkle to this scam, in which the thieves don’t need social security numbers.

Instead, they apply for what’s known as an Individual Taxpayer Identifi cation Number, or ITIN. An ITIN looks like a Social Security number, but it’s used by people -- usually legal and illegal immigrants -- who aren’t eligible for a Social Security number. An ITIN looks like an SSN, but begins with a 9 and has a 7, 8 or 9 as its fourth digit.

So, for example, the auditors found that the IRS issued 1,947 ITINs to individuals at a single address in Mountlake Terrace, Wash. In 2011, the IRS sent 194 tax refunds totaling $ 554,866 to that same address -- for returns that should have raised red fl ags. ITIN fraud totaled $385 million in 2011, auditors said.

The IRS now automatically cancels ITINs after fi ve years.

One reason this fraud happens is that the scammers fi le the returns even before the IRS receives withholding statements directly from employers and other sources of income. Fixing that problem would take an act of Congress giving the IRS quicker access to outside data, said Michael E. McKenney, the inspector general’s top auditor, in the report.

In the meantime, the IRS said it has new identity theft screening fi lters and developed more sophisticated data models to detect emerging fraud patterns. Since 2011, the IRS has stopped 12.6 million suspicious returns involving $40 billion in fraudulent refunds, said spokeswoman Julianne Fisher Breitbeil.

Tax Pros in Trouble

Dayton Tax Return Preparer Sentenced for Tax Return Fraud

Cleo A. Colter, 50, of Dayton was sentenced to 10 months in prison and ordered to pay $115,477 in restitution to the Internal Revenue Service (IRS) for willfully aiding and assisting in the preparation and fi ling of fraudulent federal income tax returns with the IRS. Colter pleaded guilty to this charge July 11.

According to court documents, Colter was involved in a tax preparation service where she prepared false federal income tax returns for hundreds of clients. She intentionally infl ated some clients’ income on Form Schedule C, Profi t or Loss

29

addition to claiming that the Internal Revenue Service would issue refunds even if the name listed on the forms was “Spongebob Squarepants” or “Spiderman,” Poynter joked that going to prison was a possibility for him.

He also conducted and participated in several other seminars and conference calls promoting his OID process, prosecutors said, and maintained a website called “luckytown” to promote his illegal endeavor.

Of the nearly $96 million claimed in the fraudulent returns, the IRS paid out $3.5 million.

“This scheme was based on a nonsensical formula that any honest person would instantly recognize was patently absurd and fraudulent,” U.S. Attorney Tammy Dickinson said in a statement. “Fortunately, the vast majority of these refund claims were detected by the IRS and denied.”

According to the indictment, participants had clients provide fi nancial documents, such as mortgage and loan statements, car payments, bank statements, credit card statements and other records of debt and spending. They then listed those debts on tax returns as investment earnings on which they had paid taxes.

The tax preparers in Poynter’s and the related cases are accused of infl ating the amount of taxes on individual returns they claimed the government withheld, then fi ling for refunds — some in excess of $1 million — when none of the clients had earned, or paid taxes on, any bond income.

To mask his involvement, Poynter asked co-conspirators to refer to his fees as “love donations” and frequently directed them to write checks to “Jerry Love Ministries,” prosecutors said. He submitted at least $25 million in fraudulent claims on 81 returns fi led for his clients, causing a tax loss to the U.S. of $951,930.

In addition to his sentence, Poynter must also reimburse that amount to the government.

Gloversville Woman Sentenced to State Prison for Tax Fraud

Crystal Sweet will serve three to six years; also ordered to pay the State nearly $24,000 in restitution.

New York State Commissioner of Taxation and Finance Thomas H. Mattox announced that a Gloversville, NY woman has been sentenced to three to six years in state prison for tax fraud.

Crystal Sweet, 38, of 462 Nine Mile Tree Road, appeared before the Hon. Richard Giardino in Fulton County Court. In addition to her prison term, Judge Giardino ordered Sweet to pay $23,918 in restitution to the State.

In August, Sweet pled guilty to two counts of Grand Larceny in the Third Degree, class D felonies, avoiding indictment

in 2012, which resulted in more than $321,000 of erroneous refunds.

The government listed one example in which Hardaway Taxx claimed a customer purchased $10,500 worth of gasoline, but had an income of only $13,327.

The fuel tax credit is supposed to only be available to those who operate farm equipment or other off-highway vehicles for business purposes.

“This shows the blatantly fraudulent nature of Defendants’ preparation of federal income tax returns abusing the fuel tax credit,” the document fi led in Mississippi court said.

11th Circ. Backs Preparers’ $15M Tax Fraud Conviction

The Eleventh Circuit affi rmed the convictions of the owner of a Montgomery, Alabama-based tax preparation business and his assistant, who were accused of preparing fraudulent tax returns and defrauding the government out of $15 million.

The appeals court said there was enough evidence presented at trial for a jury to convict James Moss, owner of the now defunct tax preparation business Flash Tax, and his assistant Avada Jenkins. Moss, Jenkins and other Flash Tax employees prepared thousands of false tax returns, cheating the government.

Gerald A. Poynter, aka Brother Jerry Love Indicted

A Kansas City man who prosecutors say masterminded a tax fraud scheme in an attempt to receive nearly $96 million in refunds pleaded guilty Thursday to conspiracy and fi ling false tax refunds and will spend 13 years in federal prison under a plea bargain.

Gerald A. Poynter, 48, also known as Brother Jerry Love, had faced 66 charges in a 72-count indictment that also named 13 co-defendants. Eight from the indictment, along with two people in separate but related cases, also have pleaded guilty to the conspiracy.

Poynter and two others in the indictment who have pleaded guilty — Kristi Jones, 40, of Riverside; Shirley Oyer, 72, of Overland Park, Kan. — are from the Kansas City area. The rest are from Georgia, Alabama, California, Louisiana, Illinois and Oregon.

Poynter’s scheme involved the use of 1099-Original Issue Discount forms, which typically are used by tax fi lers who must pay taxes on income they receive from bond investments. Prosecutors said Poynter, his branch managers and offi ce staff prepared and fi led at least 284 tax returns, then got a portion of whatever money was refunded.

Poynter outlined his “OID process,” at a December 2008 training seminar at a hotel in Atlanta, prosecutors said. In

30

Five from Mo’ Money Tax Prep Offi ce in St. Louis Arrested in Scheme

The owner of a Mo’ Money tax preparation franchise in St. Louis was sentenced to 20 months in federal prison after pleading guilty in July to conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns.

Jimi Clark, 57, of Memphis, Tenn., and four employees were arrested and indicted in October 2012 on one felony count each of conspiracy to commit tax fraud. All were accused of falsely claiming educational tax credits on at least 47 tax returns for 2009.

Clark abused the American Opportunity Tax Credit to attract and keep clients, prosecutors said. The credit was designed to help those with low and moderate income attend college.

Clark supervised the preparation of tax returns at the franchise and generally supervised the preparers working at the franchise, including his co-defendants.

Co-defendant Mary Taylor, 50, Memphis, TN, was also sentenced Tuesday to 6 months prison for her part in the scheme.

Co-defendants Justin Buford, 26, of Memphis, Tennessee; Leslie Chaney, 43, of St. Louis; Mary Taylor, 43, of Memphis, Tennessee; and Ray Reed, 38, of St. Louis previously pled guilty to related charges and have been sentenced.

The tax loss to the United States on just the 47 returns listed in the indictment was more $50,000, prosecutors said. The fi lers had not incurred any educational expenses, and claimed the same amount of such expenses — $3,765 — on the “vast majority” of them, the indictment said.

About half of all the 2009 returns fi led by Clark’s franchise wrongly claimed the credit. The tax loss that resulted is more than $300,000, prosecutors said.

The Justice Department in April fi led a civil injunction seeking to shut down the Mo’ Money chain — which at one time had 300 offi ces in 18 states.

Instant Tax Service Shut by U.S. Judge for Fraudulent Practices

Instant Tax Service, described by a U.S. judge as the fourth-biggest tax preparation business in the nation, was ordered closed after a court found it engaged in abusive and fraudulent

by a grand jury on a total of 20 felony charges she faced. Sweet fi led numerous false and fraudulent personal income tax returns using the names and social security numbers of several Gloversville residents without their knowledge or consent. She stole the $23,918 in personal income tax refunds for the 2009-2012 tax years.

Sweet’s fraud scheme was uncovered by the Tax Department’s Criminal Investigations Division and prosecuted by the offi ce of Fulton County District Attorney, Louise Sira.

“This sentencing presents another opportunity to remind all taxpayers to be vigilant when it comes to guarding private information, including social security numbers, which clearly can be used for illegal purposes if they fall into the wrong hands,” Commissioner Mattox said. “I commend District Attorney Sira and her team for prosecuting this case.”

Waterloo Woman Who Filed False Tax Returns Will Serve a Year in Federal Prison

A Waterloo woman, who previously operated a tax preparation business, was sentenced to more than a year in federal prison for preparing and fi ling fraudulent tax returns for a client.

Victoria Jones, 49, pleaded guilty August 16, to one count of aiding and assisting the preparation and fi ling of a false and fraudulent tax return. She also was fi ned $15,000 and was ordered to pay restitution of $4,833 to the Internal Revenue Service.

According to a plea agreement, Jones, who operated her business between 2007 and 2010, admitted she prepared and fi led a false 2007 tax return on behalf of a client, fraudulently reporting the more than $36,000 in business expenses that could be used as deductions. JOnes didn’t determine the correct amount the client could claim but it would have been lower than $36,000. She also infl ated the client’s itemized deductions by $1,533 and claimed a false residential energy tax credit of $500. The client’s claimed refund was $4,833 more than the client should have received.

Jones also admitted she had prepared and fi led at least 20 false and fraudulent tax returns between 2007 and 2010, according to the plea agreement. The false and fraudulent tax returns she prepared and fi led resulted in at least $30,000 in unwarranted refunds for her clients.

“Tax return preparers have a duty to their clients to prepare tax returns that comply with the law and are accurate,” Sybil Smith, IRS Criminal Investigation special agent in charge, said in a statement. “Taxpayers should not pay good money for bad advice.”

Jones was released on conditions previously set and will surrender to start serving her time Dec. 16.

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scandal, a key milestone in American history has passed with little notice. This year, the income tax turns 100, and that brings up issues of major importance.

The federal government previously relied heavily on excise taxes, specifi c sales taxes on such things as alcohol, and tariffs on imports. The government imposed income taxes to assist in fi nancing the Civil War, but these taxes were temporary.

The 16th Amendment to the Constitution, passed in 1913, made the personal income tax a permanent fi xture of the U.S. tax system. It bore little resemblance, though, to what we have now.

The 1913 income tax was quite simple. It had three pages of forms and a single page of instructions. American workers could handle that with little diffi culty, all by themselves.

The 1913 income tax was also low. An individual or married couple earning taxable income under $20,000 ($458,000 in 2011 dollars) paid only 1 percent of their income in taxes. Just about everybody then could truly say they were part of the “1 percent.”

The tax rates were graduated, with higher tax rates applied to different ranges or brackets of additional income. The highest marginal rate, 7 percent, applied only to any income in excess of $500,000, or more than $11 million in current dollars.

In 2013, by contrast, taxes are now infi nitely more complex. There are now more than 500 separate tax forms and more than 7,000 pages of tax-preparation instructions. In 2009, the IRS estimated that between 900,000 and 1.2 million Americans paid tax preparers to help them get through the quagmire.

Current income taxes are also high and, therefore, costly. Just two years ago, the lowest income bracket for a married couple fi ling jointly was subject to a 10 percent tax rate. The highest bracket was reserved for taxable income of more than $379,150, and the applicable tax rate was 35 percent, or more than one-third.

In 2012, the highest marginal rate was raised, and beginning in 2013, the marginal tax rate on income in excess of $450,000 for a married couple fi ling jointly is 39.6 percent.

These high marginal rates do not include state income taxes and federal payroll taxes for Social Security and government health care. These additional levies push the tax rates signifi cantly higher, especially for income from wages and salaries.

From its inception, the federal income tax only applied to taxable income. Owing to various deductions and loopholes in the complex tax code, many dollars in income are excluded when calculating taxable income. This shrinks the tax base and requires that rates be higher than they otherwise need to be.

None of this, by the way, is a partisan issue. Republicans

practices.

U.S. District Judge Timothy S. Black in Dayton, Ohio, said the ‘evidence of fraud and deception’’ perpetrated by ITS Financial LLC, the company’s formal name, and Chief Executive Offi cer Fesum Ogbazion, was so overwhelming that an order barring it from the tax-return preparation business “is necessary to protect the public and the Treasury.”

Evidence presented during a nine-day trial in July showed the CEO and his businesses encouraged franchisees to fi le false tax returns and lured low-income customers into its offi ces by marketing fraudulent loan products, Black said. Other wrongdoing included forging customer signatures on loan checks and using the proceeds to operate its businesses, he found.

The U.S. Justice Department sued the fi rm and Ogbazion last year. Black decision was dated yesterday.

The company, in a post-trial fi ling, argued the evidence told a “different story.” The government’s proof was drawn from isolated incidents over several years, Instant Tax Service argued, contending it had taken “corrective action” that remedied most of the past problems identifi ed at trial.

The “death penalty” injunction was unwarranted, it said in the July 31 fi ling.

Black was unconvinced.

“Defendants’ repeated attempts at trial and in argument to downplay the gravity of their lawlessness was stunning,” the judge said in his decision. “The court concludes that even today defendants have not fully recognized their culpability.”

The case is U.S. v. ITS Financial, 12-cv-95, U.S. District Court, Southern District of Ohio (Dayton).

Ragin Cagin

Income Tax Turns 100

In all the excitement over the Internal Revenue Service

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and Democrats alike have contributed to an income tax more complex, less transparent and much more costly to American workers than it was 100 years ago. There’s still more to consider.

Complex and higher taxes have certainly grown the federal government, much larger than it was in 1913. On the other hand, complex and high taxes have not solved many problems such as poverty, which still agitate politicians today. With national debt in the countless trillions, we can say with equal certainty that the income tax has not solved the nation’s fi nancial problems.

Reform of the tax code seems elusive. Politicians remain reluctant to simplify the tax code and lower the burden on American workers and on the tax professionals that serve them.

Jerry

Taxpayer Advocacy

Tax Excuses to Avoid Penalties....Or Even Jail

The dog that ate my homework.

If you cheat on your taxes, fi le late or commit some other offense, an explanation might help. You don’t want to say your dog ate your tax return or even your receipts. There are many tax excuses, but some work better than others.

Of course, there’s no complete excuse to get you out of paying tax entirely. Still, some excuses can obviate penalties. Some will even avoid criminal liability. Relying on a professional tax adviser is one of the classic excuses.

It may be the most common way taxpayers use to establish “reasonable cause” for some kind of error. It works well, although you must meet certain minimum requirements. And sometimes there are IRS Penalties Despite Reliance on Adviser.

How about my software made me do it? I used to think the TurboTax defense was silly, but no more. Former Treasury Secretary Tim Geithner used it and made it famous. His example prompted regular Joe taxpayers to try the TurboTax defense too.

After a string of cases in which it failed, the Tax Court embraced it in Olsen v. Commissioner. Mr. Olsen was a patent attorney who blamed his tax mistakes on his tax preparation software. He claimed that should excuse penalties and the Tax Court agreed.

Some excuses can be basic, perhaps too much so. Remember the “I forgot” defense popularized by Steve Martin on Saturday Night Live? It’s unlikely to be effective.

Mental or substance abuse problems? There’s case law treating mental problems or substance abuse as a defense to criminal tax charges. Happily, few people are accused of tax crimes. Yet many face tax penalties of one sort or another.

Apart from tax crimes, it can be frightening enough to have tax problems with signifi cant civil penalties. Many can be whoppers, including the 75% civil fraud penalty and the 100% trust fund recovery assessment. To help get you out of a tax jam, the claimed medical or psychiatric disability must be real and you need some paperwork to prove it.

But in appropriate cases, the IRS or courts will rely upon it. For example, an IT consultant and convicted fraudster was pretty effective in arguing against punishment for his tax crimes. He avoided going to jail by claiming that he committed tax fraud because of his bipolar disorder. See IT worker spared jail after he blames £130000 tax fraud on bipolar disorder.

Andrew Mottershead fi led false tax returns claiming extra business expenses, including for lavish items. Tax offi cials let him off with a warning, as long as he agreed to pay the money back. But then Mr. Mottershead did it again, fi ling more false returns and running up outrageous expenses.

You guess it. Mottershead was prosecuted for a second time. He claimed he committed his crimes during manic episodes of bipolar disorder. The court believed him and spared him a prison sentence. The court sentenced him instead to a two-year suspended sentence.

It clearly helped that the defendant was being treated for his mention condition. The judge said: “Where the balance lies between bipolar disorder and greed is very diffi cult to assess, and I’m not equipped to do it. But I can’t ignore the medical condition.”

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Growing Use of Civil Forfeiture Creates Nightmares for Small Business Owners

Imagine that you run a grocery store with your daughter, a store you have owned for thirty years. Imagine that just last year the IRS found no violations in an audit of your store. Now imagine that, despite continuing your sound business practices, you awake one day to fi nd the IRS has seized your entire bank account. The IRS has used a technique called civil forfeiture against you and you fi nd your Constitutional guarantee of innocence until proven guilty has been completely reversed. That is the nightmare that Terry Dehko and his daughter Sandy Thomas found themselves in on January 22, 2013.

Since he bought it in 1978, Terry Dehko has owned Schott’s Supermarket in Fraser, Michigan. His daughter, Sandy, began working at the store when she was 12 and now helps her father run it. The IRS has not argued before a court of law that Terry and Sandy have committed a crime, but that has not stopped it from seizing their entire bank account, worth over $35,000.

The IRS claims that Terry and Sandy violated federal anti-money laundering laws by making regular deposits of cash in amounts less than $10,000. Since banks are required to report deposits larger than $10,000 to the IRS, a fi rm that consistently makes deposits less than this minimum may draw the attention of the IRS.

Dehko and Thomas state that they have nothing to hide and have offered a simple explanation. Their insurance policy, aimed at small businesses like their grocery store, protects them from theft, but only up to $10,000. Since any dollar over 10,000 left in the store is liable to uninsurable theft, Terry and Sandy make sure their revenues are deposited in their bank account before accumulating above $10,000.

The IRS seized Terry’s and Sandy’s assets using a process called civil forfeiture, which is a power government bodies may use to seize property that is suspected to have been used in a crime. While the IRS has not proved in a court of law that Terry and Sandy committed fraud, it has been able to seize their assets because it suspects that they may have done so.

Worsening the situation is a lack of due process for victims of civil forfeiture. While Terry and Sandy have explained their sounds business practices since their property was seized in January, they have not been able to argue their case before

a court of law. Property owners who have their assets seized do not have a clear path to a speedy trial before a judge. Instead, they are required to fi le a lawsuit intervening in the forfeiture case. Civil forfeiture has made the idea of “innocent until proven guilty” a complete joke.

The Institute for Justice, a national civil liberties law fi rm, have come to the defense of Terry Dehko and Sandy Thomas. The Institute will assist them in two lawsuits related to the case. In the fi rst, Dehko and Thomas will fi ght the forfeiture of their assets by demonstrating that their case deposits were for the purpose of sound business practices, rather than the evasion of money laundering laws. In the second, they are fi ghting the government’s ability to use civil forfeiture. A victory could mean protections for property rights of small-business owners all across the country.

Civil forfeiture is on the rise throughout the United States. According to the Institute for Justice, the Department of Justice’s Asset Forfeiture Fund held $93.7 million of seized assets in 1986. In 2008, that fund was greater than $1 billion. In a recent profi le of the case inthe Economist, Thomas stated that prosecutors offered her and Dehko 20% of their seized assets in a plea bargain, with the government to keep the remaining 80%. Thomas and Dehko declined, because “if [they] settle, it looks like [they’re] guilty of something, which [they’re] not.”

Michigan’s civil forfeiture laws are particularly heinous. In their 2010 report “Policing for Profi t: The Abuse of Civil Asset Forfeiture,” the Institute for Justice gave Michigan a “D-” grade for their forfeiture laws. The Institute found the standard of evidence used in Michigan for forfeiture cases “is signifi cantly lower than the beyond a reasonable doubt standard required to actually convict someone of criminal activity.” Furthermore, assets seized through civil forfeiture go towards “law enforcement efforts, creating an incentive to pursue forfeiture more vigorously than combating other criminal activity.” Between 2001 and 2008, more than $149 million were seized through this process in Michigan.

In their 2010 report, the Institute for Justice identifi es a few avenues for reform. Property owners subject to civil forfeiture should have access to a prompt trial before a judge. They should also be presumed innocent until proven guilty. To prevent confl icts of interest, seized assets should be separated from the budgets of law enforcement.

These arbitrary seizures of private property must be stopped. Civil forfeiture as it exists today has no place in the American legal system, where citizens are innocent until proven guilty and granted due process to prove their innocence. People subject to civil forfeiture are powerless against law enforcement agencies who gain from these takings. Until civil forfeiture is abolished or radically reformed, more innocent Americans will face nightmares similar to that of Terry Dehko and Sandy Thomas.

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How Do You Report Suspected Tax Fraud Activity?

Fast Track Settlement Program Now Available Nationwide; Time-Saving Option Helps Small Businesses Under Audit

The Internal Revenue Service announced the nationwide rollout of a streamlined program designed to enable small businesses under audit to more quickly settle their differences with the IRS.

The Fast Track Settlement (FTS) program is designed to help small businesses and self-employed individuals who are under examination by the Small Business/Self Employed (SB/SE) Division of the IRS. Modeled on a similar program long available to large and mid-size businesses (those with more than $10 million in assets), FTS uses alternative dispute resolution techniques to help taxpayers save time and avoid a formal administrative appeal or lengthy litigation. As a result, audit issues can usually be resolved within 60 days, rather

than months or years. Plus, taxpayers choosing this option lose none of their rights because they still have the right to appeal even if the FTS process is unsuccessful.

Jointly administered by SB/SE and the IRS Appeals offi ce, FTS is designed to expedite case resolution. Under FTS, taxpayers under examination with issues in dispute work directly with IRS representatives from SB/SE’s Examination Division and Appeals to resolve those issues, with the Appeals representative typically serving as mediator.

The taxpayer or the IRS examination representative may initiate Fast Track for eligible cases, usually before a 30-day letter is issued. The goal is to complete cases within 60 days of acceptance of the application in Appeals.

SB/SE originally launched FTS as a pilot program in September 2006. For more information on taking advantage of the Fast Track Settlement program, please view the short FTS video. Additional background is available on IRS.gov on the Alternative Dispute Resolution webpage and in IRS Announcement 2011-05.

Public Reaction A Valid Reason To Decline Offer In Compromise? Say What?

According to a new memorandum issued by the IRS Small Business/Self-Employed Division, the IRS may reject a taxpayer’s settlement offer on the basis of possible negative public reaction, even if the offer is more than what could be collected by other means. The memorandum, SBSE-05-1013-0076 issued on October 25, outlined multiple bases for rejecting an offer in compromise as either not in the best interest of the government or for public policy reasons.

The guidance under Internal Revenue Manual Section 5.8.7, requires offer specialists and offer examiners to take into account a taxpayer’s prior history of noncompliance; ability to fund an offer, remain current with future tax obligations and maintain normal business operations; and whether public reaction to an acceptance would “be so negative as to diminish future voluntary compliance.”

“Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative,” the IRS said. Taxpayers must be fully informed of the reason for rejection and provided the opportunity to withdraw the offer prior to submission of the offer rejection recommendation, the memorandum said.

We are not fans of the “negative public reaction” approach. What group constitutes the “public” for this purpose? How will potential public reaction be determined? Will there be a public opinion poll? If 25% of the public has a negative reaction will that be suffi cient squelch the offer or does that number need to be at least 40% or 50%?

Perhaps the IRS should conduct a poll among tax practitioners to determine whether there is negative reaction to the “negative public reaction” approach.

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IRS Urged to Improve Reviews of Correspondence Audits

The Internal Revenue Service needs to improve the system it uses to assess the quality of the correspondence audits it conducts with taxpayers as the IRS’s own quality review system failed to detect errors in more than half of the IRS’s penalty determinations, according to a new report.

For the report, from the Treasury Inspector General for Tax Administration, TIGTA evaluated a statistical sample of 127 of 2,913 correspondence audits that had been reviewed by the IRS’s National Quality Review System during an 18 month period and found errors with penalty determinations in 65 of the audits (in other words, 51 percent) that had not been detected and reported by NQRS quality reviewers.

The NQRS is designed to provide IRS managers at all levels with estimates of audit quality from a sample of audits to use in identifying areas in which corrective actions are needed. However, TIGTA identifi ed areas that could be strengthened to increase the accuracy of NQRS review results, enhance the ability of managers to identify and address quality problems with correspondence audits, and ensure that the NQRS sample is selected at random.

Correspondence audits are audits that the IRS conducts through letters to taxpayers in which IRS examiners generally request additional information. They are generally seen as more cost effective and easier to carry out than in-person audits at IRS offi ces or the taxpayer’s location.

In the report, which TIGTA released, TIGTA found that auditing standards and NQRS quality measures need to be better aligned. The auditing standards, including the consideration given to signifi cant issues, contain key requirements not evaluated under the NQRS. But this can create inconsistencies in how examiners conduct audits and in how the NQRS evaluates the quality of those audits to identify errors.

TIGTA recommended that IRS executives and stakeholders should be provided with a more comprehensive snapshot of audit quality so that the necessary corrective actions can be recognized and taken in a timely manner. Only one overall measure of audit quality is currently reported on a quarterly basis by the NQRS to IRS executives and other key stakeholders even though as many as 71 items are reviewed. Finally, TIGTA pointed out that the random selection of audits for NQRS review could not be verifi ed, and TIGTA was not able to confi rm the statistical validity of the NQRS results.

TIGTA suggested that the IRS ensure that the IRS’s auditing standards align with the NQRS quality measures, and that a more complete picture of correspondence audit quality is provided to NQRS customers on a regular basis. Audits also should be selected randomly for NQRS review, TIGTA recommended.

In response to the report, IRS management agreed with the fi rst two recommendations and said they plan to take

corrective action. However, IRS management disagreed with the third recommendation, indicating that they do not have a cost-effective way to allow the randomness of the NQRS case selection process to be verifi ed. Because the IRS’s conclusion was reached after the draft report was issued, TIGTA said the underlying details supporting the conclusion were not evaluated. But TIGTA pointed out that if the sample selection process cannot be verifi ed, the IRS cannot be assured of the statistical validity of NQRS results.

“The audit is one of the IRS’ primary enforcement tools to address noncompliance with the tax law,” wrote Faris Fink, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “Over the last fi ve years, our statistics show we conducted almost 5.7 million correspondence audits. The quality of our work is important, and we thank you for acknowledging that we have established a comprehensive system to measure the quality of correspondence audits.”

The IRS’s auditing standards outline the criteria that have been determined to produce a quality examination and are guidelines to assist examiners in the completion of their cases, Fink noted. The auditing standards are used in conjunction with applicable program procedures for evaluating case quality, but in the campus environment, due in part to the type of examination conducted and in part to the nature of the IRS’s processes, some auditing standards will be less applicable, he added. The campus examinations are generally narrowly focused and are limited to a particular schedule or issue, or they focus on stopping erroneous refunds. He said the IRS would determine if there are discrepancies between the auditing standards and the quality attribute coding and adjust the process or guidance as needed.

Fink pointed out that the IRS regularly shares more specifi c information about program performance with executives and all levels of IRS management who use it to monitor, evaluate and take action to improve the programs. He said the IRS would determine if providing additional quality data with more frequency would be helpful.

He explained his disagreement with TIGTA’s third recommendation about selecting audits randomly for NQRS review. “Audit cases selected for NQRS are determined based upon a statistically valid methodology designed by Statistics of Income (SOI) as described in the sample plan,” he wrote. “We ensure the randomness of a sample by selecting the ‘Nth’ case using a skip interval based on the number of required reviews and the population of work. Upon closure of paper cases they are placed in a designated area ready for potential review. The clerk pulls the cases by applying the skip interval as determined in the sample plan. Once the sample has been selected, the unused cases are removed and the area is stocked with the next day’s cases. While the process is valid, it is not reproducible because the cases are removed daily. We have reviewed our current system to determine alternatives for creating a reproducible process. Given the volume of open cases is over 300,000, the resources necessary to implement a reproducible manual process would not be cost effective.

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its conclusion would be different with respect to application of restitution payments made when the amount of restitution was assessed by IRS.

International Tax

Americans Dump US Citizenship at Record Rates

Americans are giving up their citizenship at a record rate and experts are pointing to the tougher enforcement of tax laws as the likely reason.

Data trackers expect citizens leaving the country in 2013 to increase by 33 percent over 2011, which was last highest year of expatriations, The Wall Street Journal reported.

“Nothing has changed in immigration law that would make people want to renounce,” said Freddi Weintraub, an immigration specialist and partner at the New York-based law fi rm Fragomen Worldwide. “Current or anticipated changes in tax law and enforcement are driving this increase.”

The news comes just a day after it was revealed that soul legend Tina Turner is one of those who has given up her U.S. citizenship. She now lives in Switzerland.

According to Andrew Mitchell, a Connecticut tax lawyer who tracks expatriation data, 2,369 individuals have either renounced their citizenship or were long-term foreign residents who turned in their green cards.

The Treasury Department published 560 names of those who left in the third quarter of 2013. In 2011, the total number was 1,781; in 2008, just 235 individuals renounced citizenship or gave up green cards.

However, the Journal notes, there may be a gap in the numbers since the Treasury Department names don’t include the dates when people left. There also is no distinction made between those who turn in their passports versus those who give up their green cards.

Expatriates are not required to state a reason for the change in their citizenship, but experts are pointing to changes in tax law as the possible reason.

People who left in 2012 had to pay an exit tax, but that may have been a lot less than the increase on income taxes, estates taxes and long-term capital-gains that went up in 2013.

“Renunciation can be expensive, but it may be easier than staying in compliance with U.S. tax laws that can be onerous for citizens of other countries,” said Fran Obeid, a New York attorney who specializes in offshore-account issues.

In addition, the Foreign Account Tax Compliance Act will go into effect in 2014, requiring fi nancial institutions outside of

In the alternative, a systemic report could be created, but this would take funding and years to implement. Based upon labor and cost restrictions, we are unable to implement a systemic method as per your recommendation.”

IRS Has Discretion as to How to Apply Criminal Restitution Payments

Chief Counsel Advice 201341034

In Chief Counsel Advice, IRS has said that restitution payments made by a criminal taxpayer to IRS are involuntary payments and thus may be applied by IRS, in its discretion, to any of the taxpayer’s tax liabilities.

Restitution is compensation for loss that is ordered as part of a criminal sentence or as a condition of probation. When there is a tax-related crime, the government, and particularly IRS, is usually the victim.

Where an order of restitution is issued after Aug. 16, 2010, for failure to pay any Code-imposed tax, IRS is authorized to assess the amount of the restitution in the same manner as if it were the tax itself. (Code Sec. 6201(a)(4))

Where a payment to IRS is involuntary, IRS may allocate the payment as it sees fi t, i.e., to particular tax years that it chooses and to tax, interest and/or penalty as it chooses. (Muntwyler, (CA7 1983) 51 AFTR 2d 83-997; Amos (1966) 47 TC 65)

Where a taxpayer voluntarily tenders partial payment that is accepted by IRS and the taxpayer provides specifi c written directions as to application of the payment, IRS will apply the payment as directed. If the taxpayer does not provide written instructions as to how a partial voluntary payment should be applied, IRS will apply the payment in the order of priority that it determines will serve IRS’s best interest. (Rev Proc 2002-26, 2002-1 CB 746)

As a result of a criminal prosecution involving several tax years, Taxpayer was ordered by a court to pay restitution to IRS. The order took place before Aug. 17, 2010. The court did not specify how the payments should be allocated. Taxpayer argued that the restitution payments should have been applied to the years in the criminal prosecution.

After concluding that involuntary payments are any payment received by agents of the U.S. as a result of distraint or levy or from a legal proceeding in which the U.S. is seeking to collect delinquent taxes or fi le a claim therefore, IRS concluded that restitution payments are involuntary payments because they are either payments agreed to as a result of a plea agreement or a court order.

Therefore, IRS could apply Taxpayer’s restitution payments in the order that best served the interests of the government.IRS also noted that, because the restitution-based assessment provisions of Code Sec. 6201(a)(4) were not applicable to the facts in this case, it reserved for another time whether

37

the United States to report information about U.S. account holders to the Internal Revenue Service. This law applies to both U.S. citizens and green-card holders whether they live in the country or reside elsewhere.

Americans began choosing to give up their citizenship following the UBS scandal that led the government to begin cracking down on those who used offshore accounts to evade taxes.

U.S. citizens living abroad and permanent green-card holders can be required to pay taxes in the United States.

There are harsh penalties for failing to report assets that could reach 50 percent on a person’s account balance in one year.

U.S. And France Agree To Combat Offshore Tax Evasion

The U.S. Department of the Treasury announced that the United States has signed an intergovernmental agreement (IGA) with France to implement the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010, FATCA aims to curtail offshore tax evasion by facilitating the exchange of tax information.

Draft 2014 Form 1042-S Refl ects FATCA Rules

IRS issued a draft of Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, this past April and has now issued draft instructions for that form. The form and instructions contain numerous changes and additions, most of which refl ect the fact that, effective for payments made after June 30, 2014, the Foreign Account Tax Compliance Act (FATCA) rules require withholding from foreign persons that wasn’t required in earlier years.

Chapter 3 of the Code (Code Sec. 1441 through Code Sec. 1465) provides rules under which tax must be withheld from various types of payments made to nonresident aliens and foreign corporations

For 2013 and earlier tax years, Form 1042-S was used to report income subject to the Chapter 3 rules, and amounts withheld pursuant to those rules, to IRS and to the income recipients, much in the same way that forms in the Form 1099 series are used.

The Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147) added Chapter 4 (Code Sec. 1471 through Code Sec. 1474; FATCA) to the Code. Chapter 4 requires withholding agents to withhold 30% of certain payments to a foreign fi nancial institution (FFI) unless the FFI has entered into an agreement with IRS to, among other things, report certain information with respect to U.S. accounts. Chapter 4 also imposes withholding, documentation, and reporting requirements on withholding agents with respect to certain payments made to certain non-fi nancial foreign entities. These rules apply to withholdable payments made after June 30, 2014.

Any foreign person that receives a “specifi ed federal procurement payment” is subject to a tax equal to 2% of the amount of that payment. A “specifi ed federal procurement payment” is any payment made under a contract with the U.S. for: (1) the provision of goods, if the goods are manufactured or produced in any country which is not a party to an international procurement agreement with the U.S.; or (2) the provision of services, if the services are provided in any country which is not a party to an international procurement agreement with the U.S. (Code Sec. 5000C)

In April, 2013, IRS issued a draft of 2014 Form 1042-S but did not issue draft instructions for that form at that time.

IRS has now issued draft instructions for 2014 Form 1042-S, which explain changes to the form, including:

... Additional boxes have been added to the form to accommodate reporting of payments and amounts withheld under FATCA and the reporting of an applicable exemption to the extent withholding under FATCA doesn’t apply;... Beginning Jan. 1, 2014, U.S. and FFIs (but not other payors) that are required to report payments made under FATCA must electronically fi le Forms 1042-S, regardless of the number of 1042-S forms they are required to fi le;... Specifi ed federal procurement payments paid to foreign persons that are subject to withholding under Code Sec. 5000C must be reported on Form 1042-S.... For payments of U.S. source income paid before July, 1, 2014, the withholding agent is not required to include on Form 1042-S the information required to report the payment for FATCA purposes. For example, if a withholding agent makes a U.S. source dividend payment before July 1, 2014, to a qualifi ed intermediary (i.e., a FFI or similar entity that has entered into a withholding agreement with IRS), the withholding agent is not required to determine the FATCA status of such intermediary and is not required to complete the new FATCA boxes on Form 1042-S. If, however, the withholding agent makes another U.S. dividend payment after June 30, 2014, the withholding agent is required to complete a separate Form 1042-S for all such payments made after that date that includes the information required for reporting the payment for FATCA purposes.

Feds Expand Hunt for Offshore Tax Evaders

U.S. authorities have widened their hunt for Americans suspected of evading taxes by hiding assets and income in offshore bank accounts.

Federal judges approved special summonses aimed at getting account data and identifying information of American banking clients of Switzerland’s Zurcher Kantonalbank and Bermuda-based N.T. Butterfi eld & Son, prosecutors said Tuesday.

The two banks, which could not immediately be reached for comment, don’t have U.S. operations. So investigators got authorization to serve the summonses on four U.S. banks and one London-based bank where Zurcher Kantonalbank and N.T. Butterfi eld maintained correspondent accounts to service

38

U.S. clients.

The fi ve include Bank of New York Mellon, Citibank, JPMorgan Chase Bank, HSBC Bank and Bank of America.

The court approvals authorize so-called John Doe summonses that the IRS has used to obtain information about possible tax fraud by individuals whose identities are unknown. The tax agency and Department of Justice has relied on the legal tactic during their continuing crackdown on offshore tax evasion.

“These John Doe summonses will provide information about individuals using fi nancial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations,” said Assistant U.S. Attorney General Kathryn Keneally.

Authorities previously used similar summonses in 2011 to seek information about American clients of London-based HSBC’s India division.

They also won court approval in 2009 to serve John Doe summonses on Swiss banking giant UBS. That ultimately led to UBS turning over information on an estimated 4,450 American clients. The bank, Switzerland’s largest, also paid a $780 million fi ne under a deferred prosecution agreement after acknowledging it had held clients duck U.S. taxes.

Wayne’s World

Tax Strategies for High Income Investors

Deduction rules and tax rates have changed for 2013.

It’s time to start making a pre-emptive strike against taxpayers 2013 tax burden, especially if you have an adjustable gross income of more than $200,000.

New tax laws effective for 2013 have produced major changes for high income individuals at the $200,000 level and married couples with adjustable gross incomes over $250,000. For individuals over $400,000 and married couples over $450,000, the tax burden is even greater. But there are moves individuals and couples can make to lighten the tax burden.

For individuals with an adjusted gross income of $200,000 or married couples at $250,000, there is a new 3.8 percent surtax on investment income and a 0.9 percent added levy on wages to help pay for the 2010 health care law. There is also a phase-out of personal exemptions and itemized deductions for individuals at $250,000 and married couples at $300,000.For individuals with an adjustable gross income of $400,000 or married couples at $450,000, there is a new higher tax rate of 39.6 percent. They also get the two additional taxes for the tax law mentioned above, which could create a tax liability of 44.3 percent. Also, there is an increase of capital gains and dividend taxes for high-income earners that could reach 20 percent, up from the previous level of 15 percent.

National Center for Professional Education Fellowship

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Best regards,Bill Nemeth

Tax Jokes and Quotes

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TASC (Total Administrative Services Corporation) is pleased to announce that we have increased the average savings of AgriPlanNOW and BizPlanNOW participants. The average participant of AgriPlanNOW and BizPlanNOW saves over $5,000 each year!

AgriPlanNOW and BizPlanNOW Health Reimbursement Arrangements that enable qualifi ed small business owners to legally deduct 100% of federal, state, and self-employment taxes for family medical expenses. This includes insurance

Timing Mutual Fund Activity – Mutual fund companies are scheduled to release distribution estimates sometime in November, and investors who plan to sell their mutual fund should do so before distributions, while those looking to buy should wait until after distributions.

Sell off losers – If you have an asset that has lost money, you can sell it, and the loss can offset other capital gains.

Tax payments – Investors who are not subject to the alternative minimum tax should pre-pay state income or real estate taxes before Dec. 31 to lower their taxable income.

Age opportunities – Investors over the age of 70 ½ can give as much as $100,000 to a qualifi ed charity and make the payment directly from their Individual Retirement Account. The donation can meet all of the annual required minimum distribution for IRA owners and is not then recognized as income.

Defer income – Investors can defer income to private-placement life insurance or private annuities.

Deductions – Although there have been changes in deduction amounts, you can still make sure you reach your maximum by donating household items to charity.

Defi ned Contribution – Make sure you have made your maximum contribution to your retirement plans beyond whatever is taken out automatically from your paycheck at work.

Medical bills – The amount of medical expenses one must incur to qualify for a deduction has risen from 7.5 percent to 10 percent of adjusted gross income, unless you or your spouse are 65 years of age or older.

Miscellaneous – Miscellaneous deductions still exist, and they come from a variety of sources, including unreimbursed work expenses, tax preparation charges, dues and lawyer fees can all apply.

There is still much that can be done to assist taxpayers. Failure to plan is a plan to fail.

Wayne

Letters to the Editor

Hello Beanna,

Merry & I are speakers at a luncheon meeting Thursday to a group of real estate professionals (Membership requires more than 10 properties).

One of the topics of interest is the Repair versus Improvement rules that the IRS has introduced.

40

premiums, and out-of-pocket medical dental, and vision costs.Non-Integrated/Stand-Alone HRA effective January 1.

Recent guidance issued by the IRS (Notice 2013-54) and Dept. of Labor (Technical Release 2013-03) regarding annual limit provisions will impact some business owners across the nation. Already the mandated PPACA changes are causing a state of confusion and uncertainty. So, in what ways will this legislation impact AgriPlanNOW / BizPlanNOW Section 105 Plans?

As always, TASC is working hard to research what’s best for you. Meanwhile, the recent government shutdown, ongoing debt limit negotiations, and PPACA implementation issues - not to mention the myriad of (confl icting) interpretations - elicit our present course of action: make no hasty decisions. Even in the calmest of times, it makes the most business sense to gather all the facts before setting or changing a direction that affects the administration of AgriPlanNOW / BizPlanNOW Plans. This philosophy of analysis has never been more apt than in today’s windy climate.

At present we do know that Health Reimbursement Arrangement (HRA) plans covering fewer than two employees (i.e. one) will not experience any change….regardless of whether it’s paired with group or individual insurance, is for medical or dental & vision expenses, a maximum limit cap does or does not exist, etc. Simply put, nearly all AgriPlanNOW / BizPlanNOW Plans are unaffected by this guidance.

We are investigating the potential impact on our customers with multiple-employee plans and accessing what changes need to be made. As we work out the details, we will analyze these Clients to better understand their health insurance coverage, medical expenses, and account history. Once we gather this information and have more clarity on regulations, requirements, and timing, we will work with these Clients to identify the appropriate plan design to best ensure their maximum tax benefi ts continue.

For assistance or more information about TASC, contact Todd Kuehn, TASC Regional Sales Director, via email at Todd.Kuehn@tasconline.com or phone at 800.422.4661 Ext. 8875.

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