http://www.kahnlitwin.com/index.php en jlandry@kahnlitwin.com Copyright 2012 2012-04-05T15:29:30+00:00 http://www.kahnlitwin.com/blogs/tax-blog/tax-controversy-practice-audit-defense-for-high-net-worth-individuals http://www.kahnlitwin.com/blogs/tax-blog/tax-controversy-practice-audit-defense-for-high-net-worth-individuals#When:15:29:30Z As we have reported in our e-newsletter previously, the IRS created a special unit in 2009 to focus on examinations of tax returns of high net worth individuals. Coupled with the increasingly granular reporting now required in areas such as foreign financial interests, IRS’ goal was to obtain a more complete picture of all of the financial interests held by wealthy families and better assess compliance on a more timely basis. These efforts have been driven in large part by the “tax gap” that has been getting some attention in recent years. The tax gap is simply defined as the total difference between the aggregate taxes owed by various types of taxpayers versus what has actually been collected. In 2006, the tax gap was determined to be $450 billion, most of which was due to the underreporting of various types of federal taxes. The largest shortfall came in the area of individual income taxes at $235 billion. So what are we experiencing since the creation of this special unit? As recently reported in Bloomberg News, the IRS in 2011 audited 29.93% of taxpayers who reported more than $10 million of income. That compares to 18.38% in 2010 and 10.6% in 2009. For taxpayers with adjusted gross incomes between $5 million and $10 million, the audit rate rose to 20.75% from 11.55%. The report did not mention what these audits have yielded in terms of increased collections, but there is no denying that these measures are having an effect. For those of us who have been advising clients in this area for a long time now, seeing the IRS put a plan in place and execute with such speed is still a relatively new phenomenon. Yet, I fully expect the trend to continue. The only thing that continues to hamper IRS is lack of resources due to budget constraints. We see it in our own practice. The audit activity has reached unprecedented levels in recent years and we believe the trend will continue. As a result, KLR has established our Tax Controversy Practice to focus on audit defense. The take away? Playing audit roulette was never advisable, and now the odds are diminishing. If you are in need of assistance on tax matters either for the current or previous years, don’t hesitate to call us. KLR’s tax professionals are CPA’s and attorneys who have specialized training and experience in all matters of Federal, State and Local Tax Issues.  Their expertise in tax strategies for individuals and families includes everything from estate gift & trust services, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits. 2012-04-05T15:29:30+00:00 http://www.kahnlitwin.com/blogs/tax-blog/legislature-proposes-to-extend-sales-tax-on-services http://www.kahnlitwin.com/blogs/tax-blog/legislature-proposes-to-extend-sales-tax-on-services#When:20:24:17Z The Rhode Island State Budget Bill recently submitted to the General Assembly for consideration for the fiscal year beginning July 1, 2012 includes amendments to the sales and use tax law. The bill proposes to extend the sales tax to a wide array of services. Outlined below is a list of affected services. Taxicab and Limousine. Primarily engaged in providing passenger transportation by automobile, van or luxury sedans, not operated over regular routes and on regular schedules. (NAICS #485310 and 485320) Charter Bus. Charter bus services that meet customers’ road transportation needs and generally do not operate over regular routes and on regular schedules. (NAICS #485510) All Other Transit and Ground Passenger Transportation. Primarily engaged in operating shuttle services and vanpools, generally providing travel on regular routes and on regular schedules between hotels, airports or other destination points. (NAICS #485999) General Freight Trucking, Local. Usually provide trucking within a metropolitan area which may cross state lines, generally the trips are same-day return. (NAICS #484110) Used Household and Office Goods Moving. Primarily engaged in providing local or long-distance trucking of used household, used institutional, or used commercial furniture and equipment; incidental packing and storage activities are often provided. (NAICS #484210) General Warehousing and Storage. Generally handle goods in containers, such as boxes, barrels, and/or drums, using equipment, such as forklifts, pallets and racks or products. (NAICS #493110) Refrigerated Warehousing and Storage. The services provided include blast freezing, tempering and modified atmosphere storage: storage of furs for the trade is included. (NAICS #493120) Farm Products Warehousing and Storage. Primarily engaged in operating bulk farm warehousing and storage facilities, including grain elevators. (NAICS #493130) Other Warehousing and Storage. Primarily engaged in operating warehousing and storage facilities. (NAICS #493190) Lessors of Miniwarehouses and Self-Storage Units-Storage Units. Primarily engaged in renting or leasing space for self-storage by providing secure space (i.e., rooms, compartments, lockers, containers, or outdoor space) where clients can store and retrieve their goods. (NAICS #531130) Pet Care. Primarily engaged in providing pet care services (except veterinary), such as boarding, grooming, sitting and training pets. (NAICA #812910) Car Washes. Primarily engaged in cleaning and/or waxing automotive vehicles, such as passenger cars, vans, trucks, and trailers (NAICS #811192) The proposed sales tax changes would require service providers to register, collect and remit 7% sales taxes in the same manner as retailers selling taxable goods under the law. In the coming weeks, the state General Assembly will be discussing and debating the sales tax proposals in conjunction with the overall review of the state budget bill. Affected trade and industry groups are already gearing up to fight these proposals. If you would like more information, please contact a member of KLR’s State and Local Tax Team. KLR’s tax professionals are CPA’s and attorneys who have specialized training and experience in all matters of Federal, State and Local Tax Issues.  Their expertise in tax strategies for individuals and families includes everything from estate gift & trust services, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits. 2012-04-03T20:24:17+00:00 http://www.kahnlitwin.com/blogs/tax-blog/1099-filling-question-can-my-company-issue-a-1099-using-only-partial-social http://www.kahnlitwin.com/blogs/tax-blog/1099-filling-question-can-my-company-issue-a-1099-using-only-partial-social#When:16:10:11Z Yes, this is possible, at least for 1099s issued for 2011 and 2012. A “pilot program” was just extended and modified by the IRS allowing certain information filers to use truncated versions of taxpayer ID numbers. (IRS Notice 2011-38).  Two years ago, an initial program (explained in IRS Notice 2009-93) was designed to reduce the risk of misuse of identifying numbers. Background information: The IRS often requires the preparation of information returns like 1099’s reporting certain amounts to payees.  One copy is sent to the IRS and another, with the same information, is given to the payee.  Filers are required to furnish these payee statements to the appropriate recipients by January 31 every year.  The information returns always include the tax identifying numbers of the payees.  This can often be their Social Security number or sometimes, as a tax ID number issued by the IRS.  The IRS will issue either an individual identification number (ITIN) or an Employer Identification number (EIN).  These numbers are in the form of 000-00-0000 and 00-0000000.  Of course, a person’s Social Security number is sensitive personal information and accordingly, there’s a risk that the number might be misappropriated and misused by illegitimate parties who gain access to it. The IRS recognizes that filing information returns has created problems and issues for taxpayers who have fallen victim to identity theft. As a result, the IRS allowed filers of 1099’s to truncate an individual’s nine-digit Social Security number and an Individual ID number (ITIN) for 2009 & 2010.  Now, IRS Notice 2011-38 extends the program to 1099’s furnished for 2011 and 2012. This extension will provide more time for the benefits of the pilot program to be evaluated and the IRS has invited public comment on the issue. To qualify for the truncation program, the following requirements must be met: Only payer Social Security numbers (SSN) and individual taxpayer identification numbers (ITIN) are eligible.  Employer ID numbers (EIN) cannot be truncated and must be fully presented. The identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs. For example, a Social Security number 123-45-6789 could appear on a paper payee statement as ***-**-6789 or XXX-XX-6789. The truncated number can appear only on a paper payee statement.  The copy mailed or efiled to the IRS must still contain the full nine digits. There is talk that this program may be expanded to include a payor’s tax identification number as well as the possibility of including EIN numbers.  This would be a great help to sole proprietors and landlords. Stay tuned for more. KLR’s tax professionals are CPA’s and attorneys who have specialized training and experience in all matters of Federal, State and Local Tax Issues.  Their expertise in tax strategies for individuals and families includes everything from estate gift & trust services, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits. 2012-03-19T16:10:11+00:00 http://www.kahnlitwin.com/blogs/tax-blog/2012-federal-estate-tax-exemption http://www.kahnlitwin.com/blogs/tax-blog/2012-federal-estate-tax-exemption#When:16:41:09Z Yes. The federal estate tax exemption has increased for 2012 to $5.12 million, up from $5 million in 2011. The recent law passed at the end of 2010 set the federal estate tax exemption at $5 million for 2011 and 2012. An inflation adjustment increased this exemption to $5.12 million, rather than an act of Congress. The 2013 tax exemption is scheduled to change again in 2013. KLR’s tax professionals are CPA’s and attorneys who have specialized training and experience in the Boston market place in all matters of Federal, State and Local Tax Issues.  They have expertise in tax strategies for individuals and families, estate gift & trust services, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits. 2012-03-06T16:41:09+00:00 http://www.kahnlitwin.com/blogs/tax-blog/proposed-tax-breaks-for-manufacturing-industry-research-development-tax-cre http://www.kahnlitwin.com/blogs/tax-blog/proposed-tax-breaks-for-manufacturing-industry-research-development-tax-cre#When:14:25:30Z President Obama in his recent State of the Union speech laid out a number of tax proposals that would hopefully encourage manufacturing to stay or return to the United States.  The President proposed expanding the current Domestic Production Deduction he also proposes doubling it for advanced manufacturing technologies (from 9% to 18%).  Particularly relevant was the President’s call for making the Research and Development (R&D) tax credit permanent and continuing the 100% expensing for qualified purchases of business property for another year. During the past two years, we have begun to see positive signs in American manufacturing- with the manufacturing sector adding more than 300,000 jobs since December 2009.  This is also an emerging trend of “in sourcing” by bringing jobs back to and making additional investments in the United States.  Manufacturing jobs are growing for the first time since the late 1990s. As mentioned above, the President has proposed to make the R&D Tax Credit permanent, while enhancing and simplifying the credit.  About 70% of the R&D Tax Credit benefit directly supports jobs in the United States.  Every qualifying dollar spent encourages U.S. based investment, as only research and experimentation performed in the United States is eligible. Thousands of small and medium size manufacturers continue to overlook the R&D tax credit as a key benefit for them (it is the biggest business tax credit in the code – approaching $9 billion a year).  Manufacturers still think the R&D tax credit is only for highly technological companies. This misconception is costing eligible businesses millions! Need help claiming your R&D tax credit? Email me Rdandrea@kahnlitwin.com. KLR’s tax professionals are CPA’s and attorneys who have specialized training and experience in the Boston market place in all matter of Federal, State and Local Tax Issues.  They have expertise in compliance reviews, nexus studies, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits. 2012-02-24T14:25:30+00:00 http://www.kahnlitwin.com/blogs/tax-blog/nj-emerging-technology-and-biotechnology-financial-assistance-program http://www.kahnlitwin.com/blogs/tax-blog/nj-emerging-technology-and-biotechnology-financial-assistance-program#When:15:04:33Z Under the New Jersey Emerging Technology and Biotechnology Financial Assistance Program, emerging technology and biotechnology companies may be allowed to transfer unused net operating losses and research and development credits to another corporate entity through a certificate program in exchange for private financial assistance from the entity acquiring the surrendered tax benefits. For those companies that qualify, the program could provide the opportunity to unlock some immediate value from their net operating loss and R&D credit carry forwards in New Jersey by “selling” them to another corporate entity for cash, which would then need to be reinvested in their business operations in New Jersey. A new or expanding emerging technology or biotechnology company seeking to transfer tax benefits to a corporation business taxpayer in exchange for private financial assistance must utilize the proceeds to fund expenses incurred in connection with its operations in New Jersey. This reinvestment of proceeds could include expenses relating to: • The purchase of fixed assets • Tenant fit-out • Working capital • Salaries • Research and development, etc. There are also requirements that the company receiving proceeds under this program continue or maintain its headquarters operation or base of operations in New Jersey for a period of time after receipt of the proceeds. Participation in the program is subject to an application process which is administered by the New Jersey Economic Development Authority. Applications are due by June 30 each year. If you have qualifying technology or biotechnology companies in your portfolio that have ongoing operations in New Jersey, this program offers the potential of generating an immediate cash infusion without any further equity dilution or interest cost. KLR can help in determining whether your portfolio company qualifies for the program, determine how much combined tax benefits the company has available for surrender in exchange for private financial assistance, prepare the documentation necessary to support the amount of R&D credits generated in New Jersey, as well as assist with the application process and identification of a buyer. 2012-02-20T15:04:33+00:00 http://www.kahnlitwin.com/blogs/tax-blog/two-new-medicare-taxes-for-high-income-earners http://www.kahnlitwin.com/blogs/tax-blog/two-new-medicare-taxes-for-high-income-earners#When:14:07:10Z Widely unknown and a little stealthy, Congress passed two tax increases in 2010 as a sliver of the Health Care Reform Act.  These two increases become effective January 1, 2013 and will increase the amount of Medicare tax paid by certain high income earners. The first new tax is a 3.8% medicare surcharge on investment income.  For purposes of this tax investment income is defined to include taxable interest and dividends, long and short term capital gains, annuity income, passive rental income and royalties. Distributions from pensions and other retirement accounts are not considered investment income. The 3.8% tax is assessed on the smaller of taxpayer’s net investment income or the amount of Modified adjustment gross income in excess of a threshold amount.  The threshold modified AGI amount is $200,000 for single filers and $250,000 for married joint filers. The second new tax, also effective January 1, 2013, is a .9% medicare surtax on wages and self-employment income in excess of the above noted threshold amounts. You don’t want to be caught off guard with your tax planning or forget to pay these on time.  If you’re unsure of whether or not you’ll be penalized for the High Income Earner Medicare Tax and don’t want to end up owing thousands—feel free to contact me for help decoding your potential tax increases.   2012-02-08T14:07:10+00:00 http://www.kahnlitwin.com/blogs/tax-blog/updates-to-the-research-development-tax-credit-legislations-potential-chang http://www.kahnlitwin.com/blogs/tax-blog/updates-to-the-research-development-tax-credit-legislations-potential-chang#When:15:26:45Z On September 19, Senate Finance Committee Chairman Max Baucus [D-MT] and Senator Orrin Hatch [R-UT] filed new legislation that would simplify and make permanent the R&D Tax Credit. Under the current law, the R&D tax credit can be calculated by either of two methods, the “regular credit” method and the “alternative simplified credit” method, both of which provide a tax credit relating to incurred qualifying research expenses such as labor, materials and contracted costs.  The more-complicated regular credit method; however, has drawn criticism from taxpayers for being outdated. The Legislation would simplify and update the research credit significantly. It would increase the value of the alternative simplified credit from 14 percent to 20 percent of average qualifying research expenses. It would also allow the regular credit to expire at the end of 2011.  The Baucus-Hatch bill would make the simplified R&D credit permanent. R&D expenditures generally include all expenditures incident to the development or improvement of a product.  R&D expenditures include the expenditures of obtaining a patent, such as attorney’s fees expended in making and perfecting a patent application. The term “product” includes any the following: Formula Invention Patent Pilot Model Process Technique Similar Property Expenditures Not Included R&D expenditures do not include expenditures for any of the following: Quality control testing Advertising or promotions Consumer surveys Efficiency surveys Management studies Research in connection with literary, historical, or similar projects The acquisition of another’s patent, model, production, or process Please contact me any time with questions regarding R&D tax credits or check out our website for more information. 2012-01-30T15:26:45+00:00 http://www.kahnlitwin.com/blogs/tax-blog/foreign-account-tax-compliance-act-fatca-payment-of-u.s.-income http://www.kahnlitwin.com/blogs/tax-blog/foreign-account-tax-compliance-act-fatca-payment-of-u.s.-income#When:15:17:45Z As we enter 2012, the countdown to the January 1, 2013 implementation of the Foreign Account Tax Compliance Act (FATCA) is now officially under one year.  FATCA is a set of laws that impose mandatory U.S. federal withholding on payments of U.S. source income to the following two types of non-complying entities: 1. Foreign financial institutions 2. Nonfinancial foreign entities The definition of a foreign financial institution includes banks and brokerage firms.  These types of organizations are commonly thought of as financial institutions.  However, the definition also includes private investment funds which would include hedge, private equity and venture funds.  To read more on the Foreign Account Tax Compliance Act (FATCA) see our News & Events page. 2012-01-24T15:17:45+00:00 http://www.kahnlitwin.com/blogs/tax-blog/identity-theft-and-tax-refunds-irs-issues-notices http://www.kahnlitwin.com/blogs/tax-blog/identity-theft-and-tax-refunds-irs-issues-notices#When:18:31:47Z A day doesn’t go by where you are not told to protect your confidential information from prying eyes.  Whether it is on television, radio or the internet, we are constantly told to keep an eye on our credit reports and bank accounts for fraudulent activity.  One area, however, that doesn’t receive as much attention is your tax filings with the IRS. Recently, the IRS issued notices FS-2012-7 and FS-2012-8, alerting taxpayers to the threat of identity theft and fraudulent tax filings.  Identity thieves are now producing fraudulent tax returns in order to claim tax refunds that you may be otherwise entitled to. Imagine filing your tax return expecting a refund and instead receiving a notice from the IRS stating that more than one tax return was filed under your social security number.  You need to be vigilant in protecting yourself from identity theft, including: Do not carry your social security card with you Closely guard your personal financial information Check your credit report at least annually Do not provide your social security number or any other personal identifiable information to anyone whom you do not trust (including responding to unsolicited emails). Remember, anyone with a legitimate need for such information WILL NOT contact you via email (including the IRS, who explicitly state that they will NOT initiate contact with taxpayers via email).  If you feel you have been a victim of identity theft, you need to contact the IRS and your creditors, including the major credit bureaus, immediately. For your reference, below is the contact information for the IRS and the credit bureaus: IRS               www.irs.gov                                           1-800-908-4490 Equifax       www.equifax.com                               1-800-525-6285 Experian       www.experian.com                         1-888-397-3742 TransUnion       www.transunion.com               1-800-680-7289 The IRS has also set up a couple of websites to provide you with more information, including the Taxpayer Guide to Identity Theft and the IRS Identity Theft Protection page. If you have any questions about further measures that can be taken to protect your personal financial information, please do not hesitate to contact me.   2012-01-19T18:31:47+00:00