In This Issue: IRS Announces Increased Audits on Small Businesses in 2013 Are Your Handbook and Management Facebook Friends with the Union?

Transcription

1 December 2012 In This Issue: IRS Announces Increased Audits on Small Businesses in 2013 Are Your Handbook and Management Facebook Friends with the Union? PS&Co. Community News Shaping the World Around Us Individuals Investing in Master Limited Partnerships Due Date Calendar IRS Announces Increased Audits on Small Businesses in 2013 By William Dimick, III, CPA, ASA, ABV A Balanced Perspective By John Wright The Season of the Seasons As I write this, I am seated quite uncomfortably in my living room, suffering from the joys of Thanksgiving overindulgence. While many think of Thanksgiving as the beginning of the Holiday Season, as evidenced by the barrage of Black Friday commercials, it is actually the middle of what I often refer to as the Season of the Seasons. Let me explain. The Season of the Seasons is my favorite part of the year and begins in late summer with the opening of training camps and football season. Soon after that is the beginning of what in my family is birthday season (August January), followed by dove season, deer season, turkey and quail season, and finally, back to where we started, the Holiday Season. For many years, I have touted this time of year with one very important, and what now seems obvious, omission. Nestled in this time of year is a very important planning season. While certainly not all companies share December 31 as their fiscal year end, it is no doubt a very important planning time for a number of business considerations, not the least of which is year-end tax planning. Now, I am not about to start on a technical tax planning discussion, being from a financial background that (Examiner) September 17, 2012 The IRS announced eight significant audit areas for small businesses on which it will focus in the coming year. The IRS is increasingly targeting small business underreporting, which it says is responsible for 84% of the $450 billion tax gap. 1. Fringe benefits. The IRS is completing its final year of research on employment tax compliance. Early findings from these audits indicate employers are not reporting employees personal use of company vehicles on Forms 1099 or W-2. Look for the IRS to investigate the use of all company cars, especially luxury autos, in its audits. 2. High income/high wealth taxpayers. The IRS defines high income/high wealth taxpayers as those who bring in a total income of more than $200,000 a year. Total income includes all gross receipts and sources of income before expenses and deductions. Through 2013, the IRS will focus on taxpayers with a total positive income of more than $1 million who file a Schedule C business return. Last year, the IRS audited 12.5% of all individuals with incomes of more than $1 million, a significant increase from 8.4% in Form 1099-K matching. The IRS announced it will start Form 1099-K matching in late The IRS provided a reprieve from merchant card reporting on business returns for 2011 Schedule C and Forms 1065, 1120S and 1120; however, the IRS plans to change its approach after 2012 returns are filed. The IRS has indicated it plans to pilot a businessmatching program that can address a large amount of small business noncompliance. 4. Credit for small business employee health insurance. This credit, first available on 2010 returns, is now coming under IRS scrutiny. The IRS will examine small business employers and compliance with eligibility requirements. 5. International transactions. The IRS will continue to focus on the international tax gap. The IRS s third voluntary initiative for foreign bank account reporting is under way, and the IRS will be looking to aggressively pursue taxpayers who hide assets overseas. The IRS will also focus on offshore transactions for large and small businesses. 6. Partnerships. This is a new area of emphasis for the IRS. Expect the IRS to target large loss partnerships and specific abuses that emerge from early findings in this project. 7. S Corporations. The IRS is interested in S Corporation audits in which losses are taken in excess of basis on shareholder returns. The IRS will review basis computations in these audits to determine whether tax preparers are properly completing due diligence requirements before deducting losses on Form The IRS is also interested in the use of S Corporation distributions to avoid payment of social continued on page 3 continued on page 2 1

2 Are Your Handbook and Management Facebook Friends with the Union? By Diana Weeks, CBP, CCP, SPHR, PI The National Labor Relations Board (NLRB) has been active this past year, closely reviewing and scrutinizing language used in employer handbooks, in particular social media, atwill statements, and confidentiality policies. The common misconception about the National Labor Relations Act (NLRA) is that it only applies to already unionized employers. To clarify, the NLRA provides employees the right and protection to discuss wages and other terms and conditions of employment, organize for the purpose of collective bargaining, and select or reject third-party representation. Companies have made headlines due to adverse action taken against employees related to Facebook posts. Should employees be fired for negative statements made about an employer or their boss on Facebook? The NLRB has a stance that overly-broad social media policies may be unlawful because of possible discouragement of protected concerted activity, and possible violation of Section 7 of the NLRA. An overly-broad at-will statement can also be detrimental. The NLRB s stance is based on the assumption that if employees unionize, they can alter the terms and conditions of employment, therefore conflicting with the statement. Confidentiality statements should be reviewed so as not to provide a blanket policy that may send a message that business needs outweigh employee NLRA rights. What should employers do? Human resources and management should assess the current state of morale within the workplace. Do employees understand how to communicate problems to management? Do employees feel comfortable utilizing the open door policy? Many employers are now utilizing employer surveys to gauge the workplace climate, providing a safe feedback forum for the employee, are working towards improving equal opportunity, and enhancing working conditions for recruitment and retention efforts. Employers should also consider creating policies that inform employees of appropriate behavior expected by the company and creating specific language that does not impede on employees NLRA rights. If policies are in place, employers may consider reviewing and revising policies that may be too broad and add a clause in regards to the specific intention of the policy. Does management have an understanding of all that is entailed in union organizing and signs of organization? Have managers been trained on understanding the impact of employee relations on union organizing, and how to respond to inquiries or union activities in the workplace? We recommend training be conducted for non-union employers who are not unionized, to reiterate the importance the requirements of the NLRA, employee rights, and definition of unfair labor practices. Employers should emphasize caution when implementing the above policies and should be proactive in understanding the NLRA and recent NLRB decisions. Instead of anticipating notice from a union organizer, employers should move forward in their plan to educate management and their workforce of the advantages of being a non-union employer, before a union has a presence in the workplace. Message our group for more information, and gain a thumbs-up for proactive measures. IRS Announces Increased Audits on Small Businesses in 2013 By William Dimick, III, CPA, ASA, ABV continued from page 1 security taxes. The IRS will focus on S Corporations with income, distributions, and little or no salary paid to officers. 8. Proper worker reclassification. Almost all business audits also include employment tax issues. In particular, the IRS is interested in worker status. The IRS understands businesses have an economic incentive to misclassify workers as independent contractors rather than employees. It costs about 30% less for a business to employ an independent contractor than an employee. The IRS thinks there is significant noncompliance in worker classification and will continue to focus its field examination resources in this area. If you are a small business and wish to discuss information contained in this alert, please contact Bill Dimick at bill.dimick@ padgett-cpa.com, Melissa Kelley at melissa.kelley@padgett-cpa. com, or another trusted tax advisor at FinanCIal perspectives Going Digital in 2013 Don't miss an issue by sending us your preferred address Marketing@Padgett-cpa.com 2

3 JANuaRY JANUARY 10 Form 4070 for employees who received $20 or more in tips during December is due to employers. JANUARY 15 Form 1040-ES fourth quarter 2012 Estimated Tax Payments are due. JANUARY 22 Annual, fourth quarter and monthly Texas sales and use tax reports are due. JANUARY 31 Forms 1099, 1098 and W-2G (appropriate version) for calendar year 2012 are due to recipient. Due Date CALENDAR FEBRuaRY FEBRUARY 11 Form 4070 for employees who received $20 or more in tips during January is due to employers. FEBRUARY 20 Monthly Texas sales and use tax reports are due. FEBRUARY 28 Forms 1099, 1098, and Copy A of Form W-2G (appropriate version) for calendar year 2012 are due to the IRS. MARCH MARCH 11 Form 4070 for employees who received $20 or more in tips during February is due to employers. MARCH 15 Corporate: Last day to file calendar-year 2012 corporations/s corporations return (Form 1120 or 1120S) or file Form 7004, together with payment, to obtain an automatic 6 month extension of time to file. Last day for calendar year corporations to elect S corporation status, Form 2553, beginning with 2013 tax year. MARCH 20 Monthly Texas sales and use tax reports are due. MARCH 31 Electronic filings of Forms 1099, 1098, and W-2G are due to the IRS. A Balanced Perspective By John Wright continued from page 1 might not turn out good for any of us, but I do want to share something from a meeting I recently had with a group of business leaders regarding tax planning questions. In this meeting, there were half a dozen different business owners with various questions regarding tax changes and I had a couple of my tax partners present to go over the changes and field their questions. For most of this discussion, I was simply an observer, and at times, even asked my own questions of our PS&Co. tax partners, as they are certainly the ones with the knowledge of the tax code and upcoming changes. As the discussion went on, a couple of things became clear. First, as is often the case with tax changes, we all want an easy or simple answer, and unfortunately, there aren t any. There is almost always a yes, but, or a no, except that trails each response. Also, a given answer that applies to one company doesn t necessarily apply to another and this doesn t simply come from entity type or industry differences. In our meeting, we had overlap of industry and entity type, yet different answers in almost every case. An easy example is entity selection: given the current environment, should you be an LLC, S-Corp, or C-Corp? Yes, no, maybe. It depends. And certainly, tax implications would only be part of the consideration of such a discussion. Another example; as an S-Corp, is it better to pay an owner a year-end bonus or year-end distribution? Yes, no, maybe. It depends. Again, facts and circumstances differ, not only from company to company, but year to year. Also, size of ownership group, operational initiatives, strategic initiatives, and other considerations may affect the right answer. The real answer to the questions in our meeting was that each set of facts and circumstances is different. As business owners, we need to be sure we take the time during planning season as we near the end of 2012, asking our own questions that relate to our own business facts and circumstances to put us, not just in the best tax position, but in the best position overall as we head into Wishing you all the very best this Holiday Season. 3

4 PS&Co. Community News Shaping the World Around Us Padgett Stratemann Ranked 107 Largest CPA Firm in US The Platt Group, publishers of INSIDE Public Accounting (IPA), recently released its Beyond the IPA Top 100 a ranking of the nation s Top 200 Accounting Firms. For more than 20 years, IPA has maintained a tradition of compiling its annual lists of Top 100 Accounting Firms, the Best of the Best, and All-Stars. Each list devoted to showcasing U.S. based CPA firms who have helped to shape industry standards and who have defined the true meaning of customer service. signature events, including the Ice Ball gala and Leadership Circle reception, to volunteering at Bowl for Kids, the Holiday Party, and Hobie Day, Padgett s year-round commitment to BBBS is unparalleled. The true giving spirit of Padgett s leadership and staff represents the best in corporate commitment to helping children in need. In addition to the company s ongoing support, their Director of Marketing Maria Barrett will serve as judge for the Texas Big of the Year submissions in January PS&Co. Execs Rank Second in NSIDE Magazine s Corporate Executive Fit Challenge Padgett Stratemann couldn t be prouder to be ranked alongside so many innovative CPA firms who, like us, know the value of building strong teams in order to offer Service. More Than Expected. Big Brothers Big Sisters of Central Texas Selects PS&Co. as Corporate Big of the Year for 2012 PS&Co Partners Bill Dimick and Joel Perez, HR Director Michelle Wiederstein, and Senior Manager Marc Sewell competed in the Executive Fit Company Challenge hosted by NSIDE Magazine and Fit Company. When asked why PS&Co. was selected to receive its highest recognition awarded to a corporation, Alida Tallman Vice President of Development for Big Brothers Big Sisters of Central Texas (BBBS) stated, Padgett Stratemann is truly a unique corporate philanthropic partner. From sponsoring several of BBBS Contenders from across the city of San Antonio were put to the test to determine their levels of endurance and fitness. Competing against the clock and their personal best, the PS&Co. team received two awards a second place overall team ranking and an individual ranking by Michelle Wiederstein who received the Most Inspirational contender award. Michelle was a last minute step-in and completed the course in just over 24 minutes bringing in the top ranking for the team, which helped to secure the teams 2nd place position over Digital Defense, Inc. continued on page 5 We Speak 65 Languages To better serve the needs of our international clients, the PS&Co. website can now be translated into 65 foreign languages. 4

5 PS&Co. Community News Shaping the World Around Us South San Antonio Chamber Awards Padgett Stratemann Silver In 2012 Healthy Workplace Awards With a deep commitment to helping team members stay healthy in order to be the very best they can be for both their families and the communities in which they serve, the firm was pleased to be recognized for its wellness efforts by the South San Antonio Chamber. PS&Co. will continue its efforts to educate team members on what it means to live healthy and strong, support their wellness efforts, and provide healthy alternatives in and outside the workplace. Denise Bendele Receives 2012 Women s Leadership Award Each year, the San Antonio Business Journal selects a group of leaders from the Alamo City to receive its coveted Women s Leadership Award. Although 100 nominations were submitted for the 2012 program, only the very best rose to the top including Denise Bendele, who heads up the firm s Audit practice. Denise was one of two female business leaders to receive the Corporate Executive award. I am proud that I have been with the same company since I graduated from college stated Denise. I have done just about every job here, she continued. Denise leads the firm s construction industry practice, serves on its Executive Committee, and is the partner-in-charge of Padgett Stratemann University, the firm s program for continued professional development. A Certified Public Accountant and Certified Financial Analyst, Denise leads by example in all she does. Will Kothmann Named One of SA s 40Under40 Each year, the San Antonio Business Journal selects 40 exceptional individuals under the age of 40 who are making great strides in their professional careers and are contributing positively to the San Antonio community. This year s winners were selected from a pool of more than 200 nominations and although the competition was tough, Senior Manager Will Kothmann rose to the top as a business professional who more than understands the importance of family, community, and professional commitment. The firm congratulates Will for having the characteristics needed to serve with the strongest of ethical convictions. Individuals Investing in Master Limited Partnerships By Dana Gasparek, CPA Limited partnerships combine the advantages of a corporation s limited liability with the single level taxation benefit of a partnership. Most limited partnerships have one major disadvantage they are relatively small and their ownership units are not generally traded. The master limited partnership (MLP) combines the tax benefit of a partnership and higher dividends with the tradability of common stocks. A majority of MLPs are organized around oil and gas holdings because of federal tax breaks that encourage investments in energy infrastructure, mainly for the pipelines used to transport oil and gas. Some of the more common MLPs are Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP), and Plains All American Pipeline (PAA). The shares of a MLP are called units and the payouts, or dividends, to investors are called distributions. Most of a MLP s distributions are treated as a tax-free return of capital. The cost basis of an MLP is what the investor initially pays for the units, and then is adjusted upward and downward on an annual basis. The cost basis is increased by the MLP s annual net income and is decreased by the MLP s net loss, depreciation, and distributions. An investor will pay tax annually on its proportion of net income passed out from the MLP, but will not pay tax on the distributions. However, there can be significant tax implications when annual distributions exceed cost basis or the investor sells the MLP units. For example, an investor buys MLP units for $10,000. In year one, the investor s share of the MLP s income is $2,000 and the investor receives $4,000 in distributions. The cost basis of the units at the end of year one is adjusted to $8,000 ($10,000 + $2,000 $4,000). The MLP distributions can reduce an investor s cost basis to much less than what the investor originally paid for the units, or even reduce it to zero if the units are held for a significant time. Once the cost basis is zero, any distributions are taxed at ordinary income rates (and beginning in 2013, possibly subject to the 3.8% Medicare investment income tax). Upon disposition of a MLP s units where the cost basis has been reduced because of the depreciation or distributions, the investor can be exposed to a large taxable gain. Furthermore, some of this gain may be taxed at ordinary tax rates instead of the more advantageous long-term capital tax rates. This is because the IRS takes back some of the benefit when a depreciated asset is sold at a profit the capital gain is recaptured and converted to ordinary income. MLPs provide a Schedule K-1 to unit holders for use in preparation of their tax return. If an investor sells MLP units, the Schedule K-1 will have a statement explaining how to handle the proceeds on the tax return it will be much more complex than selling shares of common stock. In addition, MLPs add further complexity to an investor s tax return because they are subject to the IRS s passive activity limitation rules. A detailed discussion of the passive loss rules is beyond the scope of this article and investors should discuss the limitations with their tax advisor. Finally, because the largest MLPs are in the pipeline sector and transport across state lines, an investor may have multi-state tax exposure. 5

6 Padgett, Stratemann & Co. 100 N.E. Loop 410, Suite 1100 San Antonio, TX PRSRT. STD. U.S. POSTAGE P A I D SAN ANTONIO, TX PERMIT NO. 575 Wishing You a Joyful Holiday Season! Padgett-CPA.com San Antonio Office 100 N.E. Loop 410, Suite 1100 San Antonio, TX PHONE FAX Austin Office 811 Barton Springs Road, Suite 550 Austin, TX PHONE FAX TOLL FREE info@padgett-cpa.com Address corrections can be ed to info@padgett-cpa.com This newsletter is published for our clients and other interested persons. The information contained herein is of a general nature, no decisions should be made without seeking professional advice for your specific circumstances. 6