In the News

Um... Chrisley knows best?

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Posted by Amy Frushour Kelly

“…obviously the federal government likes my tax returns because I pay 750,000 to 1 million dollars just about every year so the federal government doesn’t have a problem with my taxes.” Todd Chrisley, star of the reality television program Chrisley Knows Best, made this claim on a national radio program in February 2017, but the Internal Revenue Service and the Department of Justice disagree. On August 13, a federal grand jury indicted Todd and his wife Julie on multiple counts of conspiracy, bank fraud, wire fraud, and tax evasion. The Chrisleys’ accountant, Peter Tarantino, has also been indicted on tax-related offenses.

Keeping in mind that defendants are presumed innocent and it is the government’s burden to prove the defendants’ guilt beyond a reasonable doubt, the allegations are numerous and serious. Let’s break them down:

  • Conspiracy to defraud numerous banks by providing false information, including falsified personal financial statements and fabricated bank statements when applying for and receiving millions of dollars in loans.

  • Using fabricated bank statements and a fabricated credit report that had been physically cut and taped or glued together when applying for and obtaining a lease for a home in California.

  • Conspiring with their accountant, Peter Tarantino, to defraud the Internal Revenue Service.

  • Failing to timely file income tax returns for the 2013, 2014, 2015, and 2016 tax years or timely pay federal income taxes for any of those years.

  • Obstructing IRS collection efforts, which included hiding income, lying to third parties about their tax returns, and (in Tarantino’s case) lying to FBI and IRS Criminal Investigation Special Agents.

Civil fraud penalties are severe: “If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.” Add to this the likelihood that the Chrisleys and Tarantino will face criminal charges. Federal tax evasion is a felony, punishable by fines and/or imprisonment up to five years. This is the tip of the iceberg. We don’t know what else may be revealed, and the indictment is a list of charges only.

The FBI takes allegations of bank fraud and wire fraud very seriously. Likewise, the IRS and Department of Justice have a zero-tolerance policy for conspiracy and tax evasion. Celebrities are not immune.

What can we learn from this? Obviously, honesty and punctuality are the best income tax strategies. Talk to your trusted advisor and plan ahead so you know in advance whether you’re going to face a problem. Remedies (that are legal!) are available, including payment plans. Finally, work with an accountant who won’t suggest or go along with lying to federal authorities. (Like Raich Ende Malter.)

Overtime loss in Boston Bruins vs. IRS

iStock

iStock

Posted by Evan Piccirillo, CPA

In 2017, a high-profile case (Jacobs v. Commissioner) pitted the owner of the Boston Bruins, an NHL hockey team, against the IRS, and the Bruins won—but… thanks to the Tax Cuts and Jobs Act (TCJA) we all lost.

The IRS had denied tax deductions relating to meals that the team provided to players and other staff for road games; these costs were not included in those employees’ wages and therefore, according to the IRS, only 50% deductible. The Bruins argued that the cost of meals counted as fully-deductible de minimis fringe benefits rather than only 50% deductible meals and entertainment expenses. The disagreement went to court and the ruling was in favor of the Bruins, but stretched the definition of certain aspects of the code that would allow for a full deduction.

Prior to the TCJA going into effect in 2018, taxpayers were allowed to deduct 100% of the costs of meals provided to employees if those costs were included in the wages of the employee. There was an exception to the requirement to include the costs in the employee’s wages if the facility providing the meals is on or near the business premises of the employer and the meals were considered provided for the convenience of the employer, along with some other technicalities which I won’t get into here.

A major part of the case hinged on the definition of “business premises.” Because these meals were on the road, the IRS argued that they could not be on the business premises of the employer. The Bruins claimed that travel was in the very nature of their business and the hotel space became their “business premises” since they had team meetings and attendance was mandatory. Like I said, it seems like a stretch of the definition, and in a recent “Action on Decision” memo released by the IRS they make it clear that those aspects of the ruling do not create a precedent for other taxpayers to follow. The IRS also stated it would narrowly apply this decision only to sports teams with very similar facts—not much help for the rest of us.

Ultimately, the big win by the Bruins in this case is not much to celebrate, because thanks to the TCJA effective 1/1/18, such de minimis fringe benefits are only 50% deductible. The worse news is that these expenses are nondeductible beginning on 1/1/26. Sorry, sports teams (and fans)!

The changes to deductibility of meals and entertainment under the TCJA don’t stop at de minimis fringe benefits and impact a much broader base of taxpayers than sports teams. If you have questions about how you are treating meals and entertainment expenses for your business, please reach out to your tax advisor. Or REM. We know a thing or two about this sort of thing.

Perspective on a tariff-ying trade war

REM Cycle

REM Cycle

Posted by Amy Frushour Kelly. Associate Editor

The U.S.-China trade war is having a significant effect on commerce, seeing Chinese imports and exports at a record 28-month low and causing major tech manufacturers like GoPro to pull their factory work from China (“production will continue in China for non-U.S.-bound cameras,” according to NBC News). All this despite the 90-day truce called by President Trump and Chinese President Xi Jinping at the G-20 Summit in Argentina earlier this month.

No, not this Grover.   Source

No, not this Grover. Source

In an exclusive interview on CNBC’s “Squawk Box” Friday, American political advocate Grover Norquist asserted that “Tariffs are taxes. … It's a weapon, tariffs, that raise[s] the costs of goods and services on Americans. Tariffs on Chinese goods are paid by American consumers.” Full disclosure: Mr. Norquist is founder and president of Americans for Tax Reform, a powerful conservative anti-tax organization, so he has an iron or two in this fire.

A tax, as we’re all well aware here at the REM Cycle, is any charge imposed by a government upon a taxpayer. Sales tax, use tax, estate tax, property tax, income tax, gift tax, yadda, yadda, yadda.

A tariff, however, is a special class of tax imposed only on imported (and, rarely, exported) goods and services between sovereign states. Tariffs are used to restrict trade of these imported goods and services by increasing their price, making them more expensive to consumers and theoretically encouraging domestic trade. Tariffs are therefore useful to governments as a means of shaping trade policy.

But there’s a big difference between the U.S. government and the average U.S. consumer. Let’s rephrase the previous paragraph: a tariff is a sales tax on goods and services from a certain foreign country. The tax is imposed at the port of entry and paid by the importer, then presumably passed on to the consumer: for instance, the person buying a GoPro or an iPhone.

So is our pal Grover right? Will tariffs on Chinese-made products effectively raise taxes on Americans?

Probably—at least in the short term. Savvy Chinese manufacturers will do all they can to avoid incurring the tariff. Some are already doing this by finishing assembly in nearby nations or shipping via Vietnam. And there is still the possibility that Mr. Trump and Mr. Jinping will make good on their 90-day deadline to end the trade war. However, all these solutions take time to implement, and the trade war already has been raging for several months. Here’s hoping for a holiday ceasefire.

In the spirit of giving, New Jersey "regifts"

iStock and Raich Ende Malter

iStock and Raich Ende Malter

Posted by Sam Federman, CPA

The state of New Jersey has now provided taxpayers with a limited time amnesty offer. The state refers to this as a gift. The last time this opportunity was offered was 2014. Specifics to the amnesty program can be found on the state’s web site – taxamnesty.nj.gov – but a few pertinent details are listed below.

  • Deadline to apply: January 15, 2019

  • Applications must be completed online

  • Relief of penalties and half of total interest due on tax liability

Caveats

All taxes must be paid and all returns must be filed by the deadline. There is no option for a “partial” amnesty.

Once payment is made, none of the taxes can be appealed. The payments made are not eligible for refund or credit.

Taxpayers who do not take advantage of amnesty may be subject to an additional 5% penalty for taxes that were not satisfied during the amnesty period.

Eligibilty

The program applies to outstanding tax filings or payments that are reportable on a tax return due after January 31, 2009 and before September 1, 2017.

Amnesty participation is available for virtually all taxes (income, sales tax, etc.) administered by the state. Taxes that are not eligible include local property taxes and certain portions of payroll taxes.

Special note

The state has acknowledged that, due to the mass mailing nature of the tax amnesty program, many erroneous notices have been sent. If you believe you received a notice in error, don’t panic. You are not alone.

This opportunity will not last much longer and may help you sleep better at night. Contact your REM tax adviser to determine whether this program is right for you.

Beware: dangerous tax account transcript scam runs rampant

iStock and REM Cycle

iStock and REM Cycle

Posted by Evan Piccirillo, CPA

Here is something important to know: the IRS does not send unsolicited emails to taxpayers. Please remember that; it just might save your assets.

Due to a spike in reported cases, the IRS has recently warned taxpayers of a scam involving the malware known as “Emotet.” Emotet is a computer virus distributed as a trojan, meaning that it is sent under the guise of something legitimate. In this case, you may receive an email about a tax account transcript from the IRS. If you open an attachment or click on a link, you are at risk of the virus finding its way onto your machine. The malevolent parties will send the fraudulent email to thousands of email addresses, hoping that a few will take the bait. This process is commonly referred to as phishing (no relation to the band Phish). Once the malware has infected a computer or network, information can be stolen and used maliciously by outside parties. The warning from the IRS is primarily directed towards businesses, but it is a good reminder for all taxpayers that the IRS has a very specific methodology when reaching out to taxpayers.

In nearly all cases, the IRS will first reach out through the mail in letter form, referred to as a notice. The notice will contain information about why the IRS has attempted to contact you and actions to take, if any. The common reasons to receive a notice are: an adjustment to a tax return, a request for a tax return, a tax bill, or being selected for an audit. Here is something else important: immediately turn that notice over to your tax preparer. A timely response is important when resolving IRS notices. If the IRS has not received a response to an initial notice or several follow-up notices, a representative may indeed show up in person.

Here are some red flags that may clue you in on an attempted scam: You are asked for a specific type of payment like a gift card, you are asked to provide credit card numbers over the phone, you are not advised of your rights as a taxpayer. Also, be very suspicious if you are threatened with law enforcement if you don’t pay. I urge you to be cautiously skeptical and always reach out to your tax preparer or advisor before responding.

Lucky for us, the IRS has provided useful information, details, and links on their website to help taxpayers identify what is legitimate and what is bogus.

I recently received a voicemail from “the IRS” using a computerized voice informing me that an arrest warrant had been issued for me. Oh, dear! And both me and my assets were being monitored—very scary! They demanded immediate payment and left a direct line for me to call them back. I called, but sadly no one answered. Fortunately for me, I am fairly well-informed and realized right away that this is a poor attempt at a scam. Whew! I hope that after reading this, you’ll be well-informed, too.

New sexual harassment guidelines for NYS employers

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Posted by Lucille Southard

The #MeToo movement and innumerable allegations of unwanted and inappropriate sexual advances in the workplace prompted New York legislators to include several provisions in the newly-passed state budget designed to prevent sexual harassment. While not all provisions take effect immediately, we encourage employers to begin preparing now. This post is a primer on what New York State employers will be expected to do to ensure a safe workplace for all workers.

Annual sexual harassment training

By October 9, all New York employers must implement sexual-harassment training programs. A model program created by state agencies is available if employers are unable to design their own sexual-harassment training programs that meet or exceed New York State standards.

Programs must include a definition of sexual harassment and specific examples of what constitutes inappropriate conduct, as well as detailed information on federal and state statutory remedies available to victims of harassment. Employers must also explain employees’ rights of redress and how to bring complaints.

As of now, the new laws are unclear about specific guidelines for the number of hours of training will be required and how the training can be administered (e.g., in person, webinar, etc.).

Employers must keep records of employee training for a minimum of three years, including signed acknowledgement forms from the employees who attended.

Nondisclosure agreements

Employers may no longer include confidentiality provisions in settlement agreements, except when the complainant requests confidentiality.

A related federal provision of the Tax Cuts and Jobs Act (TCJA) eliminates potential deductions for employers’ legal fees and settlement payments incurred by defendants’ sexual harassment cases that are subject to nondisclosure agreements.

Prevention policy

New York State employers must provide a written sexual-harassment policy and distribute it to employees. This policy must include:

  • A statement prohibiting sexual harassment and providing examples of what constitutes sexual harassment
  • Information about federal and state sexual-harassment laws and the remedies that are available to victims—and a statement that there may be additional local laws on the matter
  • A standard complaint form
  • Procedures for a timely and confidential investigation of complaints that ensures due process for all parties
  • An explanation of employees' external rights of redress and the available administrative and judicial forums for bringing complaints
  • A statement that sexual harassment is a form of employee misconduct and that sanctions will be enforced against those who engage in sexual harassment and against supervisors who knowingly allow such behavior to continue
  • A statement that it is unlawful to retaliate against employees who report sexual harassment or who testify or assist in related proceedings

Non-employees

Until now, contractors, vendors, and consultants have not been covered by New York State sexual harassment laws. As of April 11, 2018, Section 296-d of the New York State Human Rights Law prohibits an employer to permit sexual harassment of non-employees in the employer’s workplace. If harassment takes place and the employer knows or should reasonably know, but fails to take immediate corrective action, the employer can be held liable.

In conclusion

Employers should review and adjust existing policies and training to ensure a harassment-free workplace. For practical purposes, compliance will limit employer liability. Of course, the most important purpose of adhering to the new laws is to protect and support all workers with a safe working environment.

If you have any questions, please don’t hesitate to contact me directly.

The taxes, they are a-changin'

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Posted by Courtney Kopec, CPA

A recent Supreme Court decision upheld a South Dakota sales tax law requiring sales tax to be collected by large internet retailers, such as Wayfair and Overstock, who are not physically present in South Dakota, but “maintain an extensive virtual presence.” The law applied only to out-of-state sellers who deliver more than $100,000 of goods or services into the state or engage in 200 or more separate transactions. For South Dakota, a state with no income tax, the effect of the losses from online sales tax revenue to state and local services was critical. While the Supreme Court decision seems reasonable, it effectively gutted the bright-line physical presence standard established by the Quill decision. Prior to the Supreme Court decision, businesses relied on the Quill decision to avoid nexus (a connection to a state upon which the obligation to pay or collect sales tax is based).

The physical presence standard limited the burden of businesses required to collect sales tax to those with a physical presence, such as an office, employee, or inventory. In this new decision, the Court reasoned: “Each year, the physical presence rule becomes further removed from economic reality and results in significant losses to the States. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.”

The Court opinion further explained that the physical presence test espoused in Quill was “flawed on its own terms” and could no longer uphold, because a business need not have a physical presence in a State to satisfy the demands of due process. This resulted in market distortions caused by the desire of business to avoid tax collection and a “judicially created tax shelter for businesses that limit their physical presence. … [the] rule produces an incentive to avoid physical presence in multiple states. And this Court should not prevent States from collecting lawful tax through a physical presence rule.”

What’s next for nexus?

Other states, including New York, that passed similar sales tax legislation based on “click-through nexus” as far back as 2008 may now rely on the South Dakota law as a constitutionally upheld example. The Supreme Court noted the effects of the South Dakota law as minimizing the burden on interstate commerce by including a safe harbor provision on certain transactions “so small and scattered that no taxes should be collected,” forgoing retroactive application, and through the Streamlined Sales and Use Tax Agreement providing state-funded sales tax administration software intended to reduce compliance costs. While the South Dakota law has been constitutionally upheld, the Court did not address economic nexus laws in other states, nor the possibility of imposing sales tax retroactively.

Because no international treaty provisions apply to sales tax, foreign sellers are subject to the same rules as domestic sellers.

Will states seek back taxes?

In its case, South Dakota noted that advances in computer technology have made it easier to determine appropriate sales tax based on the purchaser's location and that requiring such "poses a minimal obstacle."

In the summer of 2017, the Multi-State Tax Commission Online Marketplace Seller Voluntary Disclosure Initiative offered sales tax amnesty. Twenty-five states offered to waive all past tax, interest, and penalties for companies that agree to register for and collect sales tax for online sales going forward.

Therefore, it stands to reason that states will engage in litigation to verify how much sales tax revenue they can attempt to collect and the constitutionality of the sales tax statutes already in place. However, the guidelines written in the decision stressed: “The Court has consistently explained that the Commerce Clause was designed to prevent States from engaging in economic discrimination so they would not divide into isolated separable units.”

Federal legislation from Congress has proposed a destination-based collection system based on the location of the buyer and the local sales tax rate where the buyer receives the product.

What about my company’s exposure?

The evolving concept of nexus also applies to income and franchise tax, so a good understanding of the regulations is critical. The analysis and interpretation of these laws is challenging, in part because the Court’s most recent decision upended prevailing state statutes. Now, a modern “economic nexus” standard is required, but not yet written nor agreed upon by the fifty United States. We can expect revised statutes based on a new form of nexus to potentially broaden the states’ claim on income and franchise tax.

While the Court favors prospective legislation, companies that have received notice from state taxing authorities regarding past sales transactions should not consider the Court’s recent decision as constitutional protection.

Our recommendation

When a sales transaction is complete, it is difficult to impossible to retroactively collect sales tax for which the taxpayer may be responsible upon audit. What should have been a tax collection process becomes an expense to the seller.

In states that already have sales tax requirements for online sales and have enacted legislation similar to South Dakota, such as Georgia, we recommend registering to do business in that state and complying with sales tax collection. The odds are they will offer some type of amnesty.

If a state has not yet enacted legislation, we recommend a “wait-and-see” approach that may offer prospective amnesty. This decision gives some certainty that companies with sales in other states will have to register and collect sales taxes according to each state’s laws.

If your business has transactions out-of-state and you would like to review whether your business has nexus in another state, contact your CPA to review the latest guidelines.

Is the IRS really emailing me?

Posted by REM Cycle Staff

Tax-filing season has started, which unfortunately means tax-scam season has started, as well. The IRS is already warning taxpayers to be on guard about a new refund scam, and just two days ago, a Manhattan grandma made the news by foiling an IRS phone scammer. All of which raises the question of how to identify an IRS scam in the first place. We've put together this infographic to help you separate tax fact from fiction.

Copyright 2018 Raich Ende Malter & Co. LLP.

Copyright 2018 Raich Ende Malter & Co. LLP.

What's your experience with tax scammers? Drop us an email to let us know.

What you need to know about the IRS’s new withholding tables

 
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The Tax Cuts and Jobs Act passed in Congress sparked a major change in the withholding requirements for employers. As if our friends at the IRS didn’t have enough going on, they were tasked with the unenviable project of creating new withholding tables to incorporate the new laws. Even seasoned tax vets are left asking numerous questions regarding the new withholding amounts:

  • How will the new withholding amounts be calculated if there are no longer exemptions?
  • When do these new withholding rates need to be put into effect?
  • Will new W-4s need to be filed for employees?
  • Where can I get additional information on the new tables?
  • Is it time for me to change professions?

Luckily for you, The REM Cycle is on top of it and here to help. Let’s take these issues one by one.

How will the new withholding amounts be calculated if there are no longer exemptions?

The new withholding tables are designed to incorporate all of the changes to the new tax law, not just the suspended exemptions. There are also reduced tax rates, adjusted tax brackets, and an increased standard deduction to account for. To summarize how it works, the new tables use a percentage method based off of your net wages. Your net wages are reduced by your total withholding allowances and then a percentage is withheld accordingly.

When do these new withholding rates need to be put into effect?

This answer depends on when your employer puts these changes into effect. However, the IRS stated that the new rates need to be put into use no later than February 15, 2018.

Will new W-4s need to be filed for employees?

In the past, as a best practice, new W-4 forms should have been filed on a yearly basis for employees. At the very least, employees should have been reviewing their withholding on a yearly basis to make sure no changes were needed. In that regard, not much has changed. The new withholding tables are supposed to incorporate the W-4s that the employees already have on file. As a helpful tool, the IRS will be releasing an improved withholding calculator that can be used to verify any withholding is accurate. Also, the IRS will be revising the W-4 form to fully reflect the new laws and rates. Having your clients check their withholding after these new tools and forms come out is strongly suggested.

Where can I get more information on the new tables?

The IRS released Notice 1036: Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, which details how the new withholding tables work. The Service also provided an FAQ page on irs.gov to help answer commonly asked questions.

Is it time for me to change professions?

I can’t answer that one for you but can tell you this: as long as the tax laws are written and controlled by politicians, we’ll all have jobs. No “postcard” filings – it’s called job security, people!

At the end of the day, the Tax Cuts and Jobs Act created a slew of new tax planning hurdles and opportunities. If you haven’t already, reach out to your trusted advisor to see how the new laws affect you.

‘Twas the night before tax reform

Posted by Evan Piccirillo, CPA

As you may have read in the news, or heard from your coworker or surly uncle, the wheels of legislation are grinding forward on real and transformative tax reform in our country; it is difficult to avoid talking about it and having an opinion (informed or not). The House put together a bill. The Senate put together a similar bill (which is a sign that they agree on many of the issues at hand). The House revised their bill and now plans to put it to a vote on the floor… this Thursday!

 
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All this talk of “winners and losers” and “is this is a middle-class tax cut or not” is dizzying. Eleven months ago, tax reform was destined to be a slam-dunk, with the Republicans controlling the Presidency and majorities in the House and Senate. Fast-forward to November 2017 and things aren’t nearly as certain. The failure to repeal the Affordable Care Act (Obamacare) and a series of gaffes and in-fighting among visible members of the GOP have blown tax reform off course.

On the other hand, passing the budget with the allowance for a decrease of $1.5 trillion in revenue over the next ten years was a critical step to the potential realization of tax reform. This was accomplished just recently by a narrow margin.

Passing the bill faces many hurdles. One such point of contention is the issue of the State and Local Tax (SaLT) deduction limitations and eliminations that are proposed therein. The SaLT deduction allows taxpayers to reduce federal taxable income by taxes paid to state and local governments. For obvious reasons, this deduction is very popular in high-tax states (such as NY, CA, NJ, etc.). The proposed bills eliminate income tax deductions and either eliminate or limit the real estate tax deduction. This is a sticking point for taxpayers in those states, and therefore their elected officials. Assuming either the limitation on the deduction is increased or some other compromise is reached to satisfy Republican representatives from those states enough to vote in favor and the bill will still operate in the confines of a $1.5 trillion decrease in revenue, this hurdle can be cleared.

However, the longevity of tax reform is still at stake.

The Senate will most likely try to pass the bill through reconciliation, which is a back-door way to enact legislation. Reconciliation allows a bill to be passed without minority support (the Democrats), provided that the legislation not add to the debt after a period of ten years. This means that some parts of the bill will necessarily have a limited lifespan or tax hikes in the future.

The President hopes to have the bill on his desk and ready for his signature in late December, just in time for Christmas. It is a near certainty that any kind of legislation that reaches his desk will be passed for the mere fact that the administration is thirsty for a “win.” Whether tax reform for you is a shiny gift or a lump of coal is still difficult to determine. We will have to see the bill in its final version to be certain.