Archive for July, 2011

Avoiding Any Possible Exposure to Allegations of Fraud and Criminal Misconduct

Friday, July 29th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

An excellent article on this subject was published this month in the August 2011 issue of the Journal of Accountancy, which is an official publication for the American Institute of Certified Public Accountants.   This is a link to that article:   The “Executive Summary” for the article states that “Taxpayers may be subject to criminal prosecution for felonies, including tax evasion, under IRC (Internal Revenue Code) section 7201 and filing false returns under (IRC) section 7206″  “In addition to criminal investigations, the IRS may also pursue civil penalties, including the (IRC) section 6663 fraud penalty.”  

Clearly it is always in the best interests of both taxpayers and business owners to proactively ensure that they never become the subject of these types of investigations by any agency or taxing authority.  Proverbally, Benjamin Franklin reminded us that “An ounce of prevention is worth a pound of cure!”   In a nutshell, either acquire all of the knowledge and expertise that you need to meet ALL of the regulatory requirements for your business operations or engage someone who does have these skills. 

In his play Hamlet, William Shakespeare wrote the line “To thy own self be true..”  In the context of this article it means that you should always be mindful of your own knowledge and skills, and that you should always remain within those boundaries.  If the demands (requirements) of your business or personal financial situation are becoming so complex as to exceed those limitations, contact a professional whose education, knowledge, and experience are appropriate for your situation. 

Finally, if you have been notified that you are the subject of a fraud or criminal miscounduct investigation you should immediately contact an attorney with the experience and skills to assist you in the satisfactory resoulution of these issues.    


Operating Your Business As A Business

Friday, July 29th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

If you are a business owner or if you are in a key position within a business you will always be expected to continuously and consistently achieve some very specific performance standards.  You also have a special duty of trust (fiduciary) responsibility to your employees, your shareholders and creditors, the Secretary of State, and all of the taxing authorities.  You  can not raise the defense or put forth the argument that you did not realize that a task , or tax return report filing was expected or required.  Summarily, “Ignorance of the laws is not a defense!”  If you do not have the knowledge or skills that are required, contact someone who does, hire a person, or engage a professional such as a CPA, attorney, etc. 

Additionally, even though you may be a very small business with only one or two people, the standards and performance expectations to which you will be held are on par with that of businesses which are many times larger than your own.  Over the past three decades I have worked with many small business owners.  During this time one of my biggest challenges has been to continuously remind the owners to refrain from using the business assets for their own personal use, i.e, Cash, Automobiles, Inventory, Equipment, etc.  This disregard of the business entity could subject you to legal action, court judgments, charges of fraud, and revocation of your business charter or licenses.

A related article on this subject was posted on September 16, 2009  Both new and existing business owners have asked me what guidelines are available for them which set forth the standards for business owners.  There is some excellent information on this subject which is available from the IRS website:,,id=98575,00.html 

Another frequent question which I have received is “Why should I incur these expenses which I can not afford, and perhaps do not even need?”  Although the responses below are not “all inclusive”, they do address the major considerations:

  1. To continuously provide information to the business owners regarding the past financial performance, the direction that the business operations are going, and the required changes or corrective action that should be taken;
  2. To record all of the financial transactions and provide accurate financial information for the business records;
  3. To support all of the business transactions and provide an audit trail from the transaction to the financial statements, or from the financial statements back to the original transaction;
  4. To respond to inquiries from employees, customers, creditors, stockholders, investors, or taxing authorities
  5. To fulfill the requirement that your business records are always subject to an audit or review by any taxing authority
  6. To support the information and amounts reported on all tax returns and external reports 

The most cost effective method to accomplish the above goals is through the utilization of a personal computer and the appropriate software applications.  Among the options that are available to a business owner are:

  • Maintenance of the records by the business owner using either a manual (pencil and paper) system or Microsoft Excel.  This method is not recommended.
  • Utilization of a local (on site) personal computer system, using an accounting or bookkeeping software application, i.e. Quick Books, Peachtree Accounting, etc -This is a better solution, but only if regularly and continuously maintained by either a bookkeeper, accountant, CPA,  etc who knows the proper accounting procedures.
  • Utilization of an on-line application (‘Cloud”) version of the above software applications – the accounting system will be maintained and updated by a knowledgeable person (a bookkeeper, accountant, etc who knows the correct accounting procedures)  locally or anywhere throughout the world.  Both the business owners and the accountant will have access to the financial data and reports via the Internet.
  • Engaging a bookkeeper, accountant, or CPA to provide all of these services for you.  However, your agreement should include a requirement to have the responsible person meet with you no less frequently than monthly to discuss your financial performance and issues that require your immediate attention/resolution.

The overall goals for all of the above recommendations is to permit you to achieve regulatory compliance, to provide a cost-effective solution for your business operations,  and to provide regular financial reporting to assist you in managing your business (and not vice versa).

Two-Year Limit No Longer Applies to Many Innocent Spouse Requests

Friday, July 29th, 2011

IR-2011-80, July 25, 2011

WASHINGTON — The Internal Revenue Service today announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

“In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future.”

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

  • The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
  • A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
  • The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

Deducting the Expenses of Your Job Search

Friday, July 29th, 2011

Looking at the unemployment rate table below which is from the U.S. Department of Labor’s Bureau of Labor Statistics you can logically conclude that our unemployment rate has been in the “unacceptable” range for over a decade now and, as of today,  the outlook for the future is not very encouraging.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7  
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0  
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7  
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4  
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9  
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4  
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0  
2008 5.0 4.8 5.1 4.9 5.4 5.6 5.8 6.1 6.2 6.6 6.8 7.3  
2009 7.8 8.2 8.6 8.9 9.4 9.5 9.5 9.7 9.8 10.1 9.9 9.9  
2010 9.7 9.7 9.7 9.8 9.6 9.5 9.5 9.6 9.6 9.7 9.8 9.4  
2011 9.0 8.9 8.8 9.0 9.1 9.2              


In almost all of the cases,the person who is now looking for a new job bears no responsibility whatsoever for being in this situation.  However, there are provisions under the existing income tax laws that will allow you to deduct some or all of your job search expenses.

From the IRS website:  You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. You cannot deduct these expenses if:

  • You are looking for a job in a new occupation,
  • There was a substantial break between the ending of your last job and your looking for a new one, or
  • You are looking for a job for the first time.

Keep accurate, detailed records (including receipts and documents) for all of your expenses including the dates, purpose for the expenses, and the person or persons with whom you met.  Your job search expenses are reported in the “Miscellaneous Deductions” section of Schedule A (“Itemized Deductions”).  Additionally, to receive a tax benefit for these expenses the total deductions in this section must be greater than 2% of your total adjusted gross income. 

Additional information and details are provided in IRS Publication 529, “Miscellaneous Deductions” which can also be obtained using this URL: .  If you can not obtain the information that you require, or if you need to have specific questions answered, call the Internal Revenue Service at 1-800-829-1040.  (more…)

Do You Have A New Summer Job?

Thursday, July 14th, 2011

Tax Tips from the IRS for Students Starting a Summer Job

School’s out and many students will be starting summer jobs. The Internal Revenue Service reminds students that not all the money you earn may make it to your pocket. That’s because your employer must withhold taxes.

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on

2 . Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income.   All tips you receive are taxable income and are therefore subject to federal income tax.

3.   Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4.   If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5.   Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6.   Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
a. You are in the business of delivering newspapers.
b.  All your pay for these services directly relates to sales rather than to the number of hours worked.
c.  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

IRS Withholding Calculator
Form W-4, Employee’s Withholding Allowance Certificate