Starting A New Business

Caught Red Handed

I usually stop at Starbucks on the way in to the office every morning. I there when they open at 5:30 a.m.. Usually there are a couple of Roswell Police officers there too. This morning was no exception.One of them told me they had just come from the scene where a man had caught his hand in an ATM machine. The officer told me he hated to do it but just had to say they caught him red handed. You have to agree.

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Businesses and Tax-Exempts Can Use Formula for Telephone Tax Refund

From the IRS WEB Site

IR-2006-179, Nov. 16, 2006

WASHINGTON — The Internal Revenue Service today announced a formula that will allow businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds.

“The formula will provide a less burdensome option than gathering up to 41 months of old phone records,” said IRS Commissioner Mark W. Everson.

In May 2006, the IRS announced that individuals, businesses and tax-exempt organizations who paid the long-distance telephone excise tax can request the refund on their 2006 federal income tax returns.

“Businesses and tax-exempt organizations generally have more varied phone usage patterns than individuals,” Everson said. “The IRS has met with a number of businesses and tax-exempt organizations to understand their concerns. We believe we have developed a reasonable method for estimating telephone excise tax refund amounts while reducing burden.”

To request a refund, businesses (including sole proprietors, corporations and partnerships) and tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. To complete this form, businesses and tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T.

Businesses and tax-exempt organizations can figure their refund amounts by comparing two telephone bills from this year to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bill with a statement date in April 2006 and the bill with a statement date in September 2006. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds.

The refund is capped at 2 percent of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees — which covers more than 99 percent of all businesses. The refund is capped at 1 percent for those with more than 250 employees. Most organizations in this category typically are able to figure the actual amount they paid in long-distance excise tax. However, the formula provides a more limited, but simpler, approach for those large employers who wish to use it.

For example, if a business has an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8 percent. If the September 2006 bill is $1,100 including federal telephone excise tax of $16.50, the tax percentage is 1.5 percent. The business’ long-distance excise tax percentage is 1.3 percent (2.8 percent for April minus 1.5 percent for September). The business multiplies 1.3 percent by its total phone expenses over the 41-month period to arrive at the amount of its refund. If this business had more than 250 employees, its refund would be limited to 1 percent of its total phone expenses for the period. If the business had 250 or fewer employees, the 2-percent cap would apply and would not limit the amount of the refund.

The IRS developed the formula after receiving public input and discussing the issue with business organizations, the Small Business Administration and representatives from the tax-exempt community.

The IRS already has provided individual taxpayers with the option to use standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions.

Options for requesting this refund vary for sole proprietors, who file a Schedule C with the Form 1040, depending on the gross income reported on the Schedule C. Sole proprietors who report gross income of $25,000 or less on their Schedule C may use the standard amounts or request a refund based on their actual expenses. Sole proprietors reporting more than $25,000 of gross income have three options: they can use the standard amounts which cover both personal and business expenses, they can use the formula for their business expenses and actual for their personal ones, or they can choose to use actual amounts for both business and personal.

Similar rules depending on the amount of gross income reported on Schedule F or Schedule E apply to farmers and individual owners of rental property.

Trusts and fiduciaries may not use the standard amount available to individuals. They should use the formula to figure their refunds, or request the actual amount paid.

The Treasury Department announced in May that the government would stop collecting the federal excise tax on long-distance telephone service beginning Aug. 1, 2006, and provide refunds for taxes billed after Feb. 28, 2003.

S Corporation Shareholder Has Income Despite Marital Issues

This tidbit was published in the Kleinrock's Federal Tax Bulletin dated November 6, 2006.

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A taxpayer was required to include as income his proportionate share of undistributed income from an S corporation in which he was a shareholder with his former wife. Sweeney v. Commissioner, T.C. Summary 2006-169 (10/19/06).

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Thomas Sweeney was married to Cheryl Sweeney during 2002. In 2000, Thomas and Cheryl had incorpo­rated Lake Vista Billing Services, Inc. Thomas was the registered agent for the corporation: Cheryl was the presi­dent, and Thomas was vice president and a stockholder. The stated purpose for the corporation was “medical hilling for physicians’ practices.” Thomas and Cheryl each owned 50 percent of the corporation.

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The activity of the corporation was simply the collec­tion of fees charged by doctors to their patients for medical services. Cheryl performed all the activities of the corpora­tion by visiting doctors’ offices weekly picking up their billing invoices, collecting payment of these invoices from primary and secondary insurers, and collecting directly from each patient the portions not covered by insurance. Thomas was not involved in this activity but was employed as an insurance instructor for an unrelated employer.

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For 2002, a Form I I 20S, U.S. Income lax Return for an S Corporation, was filed showing I the corporation‘s tax­able income of. $18,627. The return reflected issuance to the shareholders of the corporation Schedules K-1 which reflected a Schedule K-1 for Thomas in the amount of $9,314, one-half of the corporation’s net income. Thomas did not include any income from the corporation on his 2002 return. Thomas and Cheryl each filed income tax returns as married filing separately. Cheryl reported on her return one-half of the taxable income of the S corporation. In a notice of deficiency. the IRS determined a deficiency against Thomas for the unreported $9,314 in flow-through income from Lake Vista Billing Services, Inc.

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Thomas claimed that he never received any of the proceeds of the corporation’s profitable activity for 2002. He testified that he and his wife had serious problems be­tween them during that year. During the second week of .January 2002, according to Thomas, Cheryl proceeded to throw him out of his home, which is where the business was located. She changed the locks. She stripped the corporate hank accounts, personal hank accounts, charged up all the cash she could on his credit cards, and she physically. lock, stock, and barrel, locked him out of the corporation

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The Tax Court held that all formalities of the Code had been followed with respect to the S

.corporation for the year 2002, and the distributive share of its income to Thomas is taxable income to him.

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Although it was obvious, said the court, that Thomas and his spouse had serious differences between them, the Tax Court is not the proper forum for the resolution of those differences. Since all the formalities with respect to the S corporation were followed, Thomas had to include in income his distributive share of the S corporation income.

Justice Department Sues To Stop Home Based Business Tax Scam

Do you ever wonder where these people come from? What about the folks who actaully buy these schemes?

Washington, D.C. The Department of Justice today filed suit in federal court in Denver to stop Fort Collins, Colo., couple and their organization from promoting abusive tax scheme. According to Justice Department papers filed in the case, Austin Gary Cooper and his wife, Martha Cooper, and their organization, Taking Back America (TBA) falsely advise customers that they can avoid federal income tax by renouncing their "United States" citizenship in favor of "American" citizenship. The Justice Department has asked the court to order the Coopers, TBA, and anyone working with them to stop promoting the scheme and to provide the government with a list of customers who have purchased it.

"The Department of Justice is working systematically to shut down scammers who promote bogus tax schemes," said Eileen J. O'Connor, Assistant Attorney General for the Justice Department's Tax Division. "Joining ranks with these con artists can lead to substantial penalties and criminal prosecution."

The Coopers and TBA have allegedly sold their scheme, for which they charge customers nearly $1,600, to as many as 2,000 people nationwide and have allegedly provided scheme purchasers with instructions on how to prevent employers from withholding taxes from the purchasers' wages. They have also allegedly furnished scheme purchasers with form letters to send to the Internal Revenue Service and Social Security Administration requesting a return of back taxes.

According to courts papers filed by the Justice Department, the Coopers and TBA used a network of distributors to market their scheme and promoted it on a website, at seminars and in periodic telephone conference calls. In its court papers, the government alleges that Austin Gary Cooper was criminally convicted in 1990 of willfully attempting to evade or defeat the payment of federal income tax by failing to file income tax returns, failing to pay income tax, and filing false tax-withholding certificates.

Senator John

You gotta feel bad for the people of Massachusetts

                              

No, on second thought, maybe not, both of their senators are elected.

Tax Tips

Now that the end of the year is approaching, this is a good time to do last minute tax planning.

Download winter_tt_2006_bus_color.pdf

Office In Home Deduction

Generally, to be deductible, you must not have another office available for your use and the office in-home must be used regularly and exclusively as a principal place of business or to perform administrative tasks.

Maintain a qualified office in-home and deduct:
- Mileage
- A portion of:
   - Mortgage interest
   - Real estate taxes
   - Home insurance
   - Security system
   - Home repairs/maintenance
   - Utilities
   - Other expenses such as water, sewer, garbage removal, etc

To deduct the expenses, use a Form 8829.

Download f8829.pdf   

Aviation Mishaps

Sometime with even the best training the gods of aviation just don't smile on you. Download airplane_misap0-2531_1.wmv

Download airdrops.wmv

And then sometimes, for reasons known only to them, they do. Download 2006_5_5_KingAirGearUp.wmv

New Annual Form 944

Beginning with returns for calendar year 2006, if you have annual liability of $1,000 or less for withheld income tax, social security and Medicare tax, you will probably be able to file the new annual Form 944 and not have to fool with the quarterly Form 941. For further information, see the Instructions for Form 944.

Public Service Announcement

We're seeing some indications that a very small percentage of our beef may be tainted with madcow. Maybe this will help. You wil need Powerpoint and speakers for it to be useful.

Download madcow1.PPT