The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.

The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. This interim final rule is consistent with the Treasury Department's recent announcement that it was suspending enforcement of the CTA against U.S. citizens, domestic reporting companies, and their beneficial owners, and that it would be narrowing the scope of the BOI reporting rule so that it applies only to foreign reporting companies.

The interim final rule amends the BOI regulations by:

• changing the definition of "reporting company" to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by filing of a document with a secretary of state or similar office (these entities had formerly been called "foreign reporting companies"), and
• exempting entities previously known as "domestic reporting companies" from BOI reporting requirements.

Under the revised rules, all entities created in the United States (including those previously called "domestic reporting companies") and their beneficial owners are exempt from the BOI reporting requirement, including the requirement to update or correct BOI previously reported to FinCEN. Foreign entities that meet the new definition of "reporting company" and do not qualify for a reporting exemption must report their BOI to FinCEN, but are not required to report any U.S. persons as beneficial owners. U.S. persons are not required to report BOI with respect to any such foreign entity for which they are a beneficial owner.

Reducing Regulatory Burden

On January 31, 2025, President Trump issued Executive Order 14192, which announced an administration policy "to significantly reduce the private expenditures required to comply with Federal regulations to secure America’s economic prosperity and national security and the highest possible quality of life for each citizen" and "to alleviate unnecessary regulatory burdens" on the American people.

Consistent with the executive order and with exemptive authority provided in the CTA, the Treasury Secretary (in concurrence with the Attorney General and the Homeland Security Secretary) determined that BOI reporting by domestic reporting companies and their beneficial owners "would not serve the public interest" and "would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes."The preamble to the interim final rule notes that the Treasury Secretary has considered existing alternative information sources to mitigate risks. For example, under the U.S. anti-money laundering/countering the financing of terrorism regime, covered financial institutions still have a continuing requirement to collect a legal entity customer's BOI at the time of account opening (see 31 CFR 1010.230). This will serve to mitigate certain illicit finance risks associated with exempting domestic reporting companies from BOI reporting.

BOI reporting by foreign reporting companies is still required, because such companies present heightened national security and illicit finance risks and different concerns about regulatory burdens. Further, the preamble points out that the policy direction to minimize regulatory burdens on the American people can still be achieved by exempting foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of such companies.

Deadlines Extended for Foreign Companies

When the interim final rule is published in the Federal Register, the following reporting deadlines apply:

• Foreign entities that are registered to do business in the United States before the publication date of the interim final rule must file BOI reports no later than 30 days from that date.
• Foreign entities that are registered to do business in the United States on or after the publication date of the interim final rule have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

Effective Date; Comments Requested

The interim final rule is effective on the date of its publication in the Federal Register.

FinCEN has requested comments on the interim final rule. In light of those comments, FinCEN intends to issue a final rule later in 2025.

Written comments must be received on or before the date that is 60 days after publication of the interim final rule in the Federal Register.

Interested parties can submit comments electronically via the Federal eRulemaking Portal at http://www.regulations.gov. Alternatively, comments may be mailed to Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. For both methods, refer to Docket Number FINCEN-2025-0001, OMB control number 1506-0076 and RIN 1506-AB49.

FinCEN Interim Final Rule RIN 1506-AB49

FinCEN News Release

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers.

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers. O’Donnell, who had been acting Commissioner since January, will retire on Friday, expressing confidence in Krause’s ability to guide the agency through tax season. Krause, who joined the IRS in 2021 as Chief Data & Analytics Officer, has since played a key role in modernizing operations and overseeing core agency functions. With experience in federal oversight and operational strategy, Krause previously worked at the Government Accountability Office and the Department of Veterans Affairs Office of Inspector General. She became Chief Operating Officer in 2024, managing finance, security, and procurement. Holding advanced degrees from the University of Wisconsin-Madison, Krause will lead the IRS until a permanent Commissioner is appointed.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

Exclusions from Gross Income

Under the expansive definition of gross income, the grant proceeds were income unless specifically excluded. Payments are only excluded under Code Sec. 118(a) when a transferor intends to make a contribution to the permanent working capital of a corporation. The grant amount was not connected to capital improvements nor restricted for use in the acquisition of capital assets. The transferor intended to reimburse the corporation for rent expenses and not to make a capital contribution. As a result, the grant was intended to supplement income and defray current operating costs, and not to build up the corporation's working capital.

The grant proceeds were also not a gift under Code Sec. 102(a). The motive for providing the grant was not detached and disinterested generosity, but rather a long-term commitment from the company to create and maintain jobs. In addition, a review of the funding legislation and associated legislative history did not show that Congress possessed the requisite donative intent to consider the grant a gift. The program was intended to support the redevelopment of the area after the terrorist attacks. Finally, the grant was not excluded as a qualified disaster relief payment under Code Sec. 139(a) because that provision is only applicable to individuals.

Accuracy-Related Penalty

Because the corporation relied on Supreme Court decisions, statutory language, and regulations, there was substantial authority for its position that the grant proceeds were excluded from income. As a result, the accuracy-related penalty was not imposed.

CF Headquarters Corporation, 164 TC No. 5, Dec. 62,627

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

Background

The parent corporation owned three CFCs, which were upper-tier CFC partners in a domestic partnership. The domestic partnership was the sole U.S. shareholder of several lower-tier CFCs.

The parent corporation claimed that it was entitled to deemed paid foreign tax credits on taxes paid by the lower-tier CFCs on earnings and profits, which generated Code Sec. 951 inclusions for subpart F income and Code Sec. 956 amounts. The amounts increased the earnings and profits of the upper-tier CFC partners.

Deemed Paid Foreign Tax Credits Did Not Apply

Before 2018, Code Sec. 902 allowed deemed paid foreign tax credit for domestic corporations that owned 10 percent or more of the voting stock of a foreign corporation from which it received dividends, and for taxes paid by another group member, provided certain requirements were met.

The IRS argued that no dividends were paid and so the foreign income taxes paid by the lower-tier CFCs could not be deemed paid by the entities in the higher tiers.

The taxpayer agreed that Code Sec. 902 alone would not provide a credit, but argued that through Code Sec. 960, Code Sec. 951 inclusions carried deemed dividends up through a chain of ownership. Under Code Sec. 960(a), if a domestic corporation has a Code Sec. 951(a) inclusion with respect to the earnings and profits of a member of its qualified group, Code Sec. 902 applied as if the amount were included as a dividend paid by the foreign corporation.

In this case, the domestic corporation had no Code Sec. 951 inclusions with respect to the amounts generated by the lower-tier CFCs. Rather, the domestic partnerships had the inclusions. The upper- tier CFC partners, which were foreign corporations, included their share of the inclusions in gross income. Therefore, the hopscotch provision in which a domestic corporation with a Code Sec. 951 inclusion attributable to earnings and profits of an indirectly held CFC may claim deemed paid foreign tax credits based on a hypothetical dividend from the indirectly held CFC to the domestic corporation did not apply.

Eaton Corporation and Subsidiaries, 164 TC No. 4, Dec. 62,622

Other Reference:

• Code Sec. 960

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

The taxpayer’s payments were not deductible alimony because the governing divorce instruments contained multiple clear, explicit and express directions to that effect. The former couple’s settlement agreement stated an equitable division of marital property that was non-taxable to either party. The agreement had a separate clause obligating the taxpayer to pay a taxable sum as periodic alimony each month. The term “divorce or separation instrument” included both divorce and the written instruments incident to such decree.

Unpublished opinion affirming, per curiam, the Tax Court, Dec. 62,420(M), T.C. Memo. 2024-18.

J.A. Martino, CA-11

You have just been notified that your tax return is going to be audited ... what now? While the best defense is always a good offense (translation: take steps to avoid an audit in the first place), in the event the IRS does come knocking on your door, here are some basic guidelines you can follow to increase the chances that you will come out of your audit unscathed.

You have just been notified that your tax return is going to be audited ... what now? While the best defense is always a good offense (translation: take steps to avoid an audit in the first place), in the event the IRS does come knocking on your door, here are some basic guidelines you can follow to increase the chances that you will come out of your audit unscathed.

Relax. It is a normal reaction upon receiving notice of an audit to panic and feel particularly singled out, however, as in most situations, panic can be counterproductive. A better course of action is to contact an experienced professional to get additional guidance as to how best to proceed to prepare for the audit as well as to get reassurance that everything will be fine.

Be professional. In the event that you have any type of communication with the IRS prior to your audit -- written or verbal, it's important that you act in a professional, business-like manner. Verbally abusing the auditor or becoming defensive is not a good way to start off your relationship with him or her.

Organization is very important. Before the audit, take the time to gather all of your documents together and consider how they will be presented. While throwing them all into a box in a haphazard fashion is certainly one way to present your documents to your auditor, this method will also be sure to raise at least one eyebrow ... and encourage him or her to dig deeper.

As you gather your data, you may need to re-create records if no longer available. This may involve calls to charities, medical offices, the DMV, etc., to obtain the written documentation required for verification of deductions claimed. Once you are confident that you have all of the necessary documentation, organize it in a binder, separated by category as shown on your return. This will allow quick and easy access to these records during the actual audit, something that the auditor will appreciate and will give him/her the impression that you are organized and thorough.

Leave the face to face to a professional. Make sure that you retain the services of a tax professional, most likely the person who prepared your return. Having a tax professional appear on your behalf for your audit is beneficial in a number of ways.

• A tax professional is emotionally detached from the return and less likely to become angry or defensive if questioned.
• A tax professional can serve as a "buffer" between you and the IRS -- indicating that he/she will need to get back to the auditor on certain issues, can buy you extra time to prepare for an issue raised you didn't consider.
• A tax professional can keep an auditor on track, making sure all inquiries are relevant to the return areas being audited.

If you disagree, appeal. If you disagree with the outcome of the audit, you still have the right to send your case to the IRS Appeals division for review. Appeals officers are usually more experienced than auditors and are more likely to negotiate with you, if necessary.

As for the "best defense is a good offense" comment? In this case, this old adage applies to how you approach the tax return preparation process throughout the year, year-in and year-out.

• Good recordkeeping is key. Maintaining complete and accurate records throughout the year reduces the chance that you will forget to provide important information to your tax preparer, which can increase your chances of audit. Good recordkeeping will also result in a more relaxed reaction to notification of an audit as most of your upfront audit work will be complete -- this is especially true if you audit pertains to a tax year several years in the past! Tax records should be retained for at least 3 years after the filing date.
• Provide ALL relevant information to your tax preparer. When your tax preparer is fully informed of all tax-related events that occurring during the year, the chances for errors or omissions on your return dramatically decrease.
• Keep a low profile. Error-free, complete tax returns that are filed in a timely manner don't have the tendency to raise any of those infamous "red flags" with the IRS. During the year, if the IRS does send you correspondence, it should be responded to immediately and fully. Don't hesitate to retain professional assistance to help you "fly under the radar".

While the odds of your tax return being audited remain very low, it does happen to even the most diligent taxpayers. If you are contacted about an examination by the IRS, take a deep breath, relax and contact the office as soon as possible for additional assistance and guidance.

Employers are required by the Internal Revenue Code to calculate, withhold, and deposit with the IRS all federal employment taxes related to wages paid to employees. Failure to comply with these requirements can find certain "responsible persons" held personally liable. Who is a responsible person for purposes of employment tax obligations? The broad interpretation defined by the courts and the IRS may surprise you.

Employers are required by the Internal Revenue Code to calculate, withhold, and deposit with the IRS all federal employment taxes related to wages paid to employees. Failure to comply with these requirements can find certain "responsible persons" held personally liable. Who is a responsible person for purposes of employment tax obligations? The broad interpretation defined by the courts and the IRS may surprise you.

Employer's responsibility regarding employment taxes

Employment taxes such as federal income tax, social security (FICA) tax, unemployment (FUTA) tax and various state taxes (note that state issues are not addressed in this article) are all required to be withheld from an employee's wages. Wages are defined in the Code and the accompanying IRS regulations as all remuneration for services performed by an employee for an employer, including the value of remuneration, such as benefits, paid in any form other than cash. The employer is responsible for depositing withheld taxes (along with related employer taxes) with the IRS in a timely manner.

100% penalty for non-compliance

Although the employer entity is required by law to withhold and pay over employment taxes, the penalty provisions of the Code are enforceable against any responsible person who willfully fails to withhold, account for, or pay over withholding tax to the government. The trust fund recovery penalty -- equal to 100% of the tax not withheld and/or paid over -- is a collection device that is normally assessed only if the tax can't be collected from the employer entity itself. Once assessed, however, this steep penalty becomes a personal liability of the responsible person(s) that can wreak havoc on their personal financial situation -- even personal bankruptcy is not an "out" as this penalty is not dischargeable in bankruptcy.

A corporation, partnership, limited liability or other form of doing business won't insulate a "responsible person" from this obligation. But who is a responsible person for purposes of withholding and paying over employment taxes, and ultimately the possible resulting penalty for noncompliance? Also, what constitutes "willful failure to pay and/or withhold"? To give you a better understanding of your potential liability as an employer or employee, these questions are addressed below.

Who are "responsible persons"?

Typically, the types of individuals who are deemed "responsible persons" for purposes of the employment tax withholding and payment are corporate officers or employees whose job description includes managing and paying employment taxes on behalf of the employer entity.

However, the type of responsibility targeted by the Code and regulations includes familiarity with and/or control over functions that are involved in the collection and deposit of employment taxes. Unfortunately for potential targets, Internal Revenue Code Section 6672 doesn't define the term, and the courts and the IRS have not formulated a specific rule that can be applied to determine who is or is not a "responsible person." Recent cases have found the courts ruling both ways, with the IRS generally applying a broad, comprehensive standard.

A Texas district court, for example, looked at the duties performed by an executive -- and rejected her argument that responsibility should only be assigned to the person with the greatest control over the taxes. Responsibility was not limited to the person with the most authority -- it could be assigned to any number of people so long as they all had sufficient knowledge and capability.

The Fifth Circuit Court of Appeals has delineated six nonexclusive factors to determine responsibility for purposes of the penalty: whether the person: (1) is an officer or member of the board of directors; (2) owns a substantial amount of stock in the company; (3) manages the day-to-day operations of the business; (4) has the authority to hire or fire employees; (5) makes decisions as to the disbursement of funds and payment of creditors; and (6) possesses the authority to sign company checks. No one factor is dispositive, according to the court, but it is clear that the court looks to the individual's authority; what he or she could do, not what he or she actually did -- or knew.

The Ninth Circuit recently cited similar factors, holding that whether an individual had knowledge that the taxes were unpaid was irrelevant; instead, said the court, responsibility is a matter of status, duty, and authority, not knowledge. Agreeing with the Texas district court, above, the court held that the penalty provision of Code section 6672 doesn't confine liability for unpaid taxes to the single officer with the greatest control or authority over corporate affairs.

Suffice it to say that, under the various courts' interpretations -- or that of the IRS -- many corporate managers and officers who are neither assigned nor assume any actual responsibility for the regular withholding, collection or deposit of federal employment taxes would be surprised to find that they could be responsible for taxes that should have been paid over by the employer entity but weren't.

What constitutes "willful failure" to comply?

Once it has been established that an individual qualifies as a responsible person, he must also be found to have acted willfully in failing to withhold and pay the taxes. Although it may be easier to establish the ingredients for "responsibility," some courts have focused on the requirement that the individual's failure be willful, relying on various means to divine his or her intent.

An Arizona district court, for example, found that a retired company owner who had turned over the operation of his business to his children while maintaining only consultant status was indeed a responsible person -- but concluded that his past actions indicated that he did not willfully cause the nonpayment of the company's employment taxes. Since he had loaned money to the company in the past when necessary, his inaction with respect to the taxes suggested that he believed the company was meeting its obligations and the taxes were being paid.

A Texas district court found willfulness where an officer of a bankrupt company knew that the taxes were due but paid other creditors instead.

The Fifth Circuit has determined that the willfulness inquiry is the critical factor in most penalty cases, and that it requires only a voluntary, conscious, and intentional act, not a bad motive or evil intent. "A responsible person acts willfully if [s]he knows the taxes are due but uses corporate funds to pay other creditors, or if [s]he recklessly disregards the risk that the taxes may not be remitted to the government, or if, learning of the underpayment of taxes fails to use later-acquired available funds to pay the obligation.

Planning ahead

Is there any way for those with access to the inner workings of an employer's finances or tax responsibilities -- but without actual responsibility or knowledge of employment tax matters -- to protect themselves from the "responsible person" penalty? It may depend on which jurisdiction you're in -- although a survey of the courts suggests most are more willing than not to find liability. Otherwise, the wisest course may be to enter into an employment contract that carefully delineates and separates the duties and responsibilities -- and the expected scope of knowledge -- of an individual who might find himself with the dubious distinction of being responsible for a distinctly unexpected and undesirable drain on his finances.

The laws and requirements related to employment taxes can be complex and confusing with steep penalties for non-compliance. For additional assistance with your employment related tax issues, please contact the office for additional guidance.

Q. I have a professional services firm and am considering hiring my wife to help out with some of the administrative tasks in the office. I don't think we'll have a problem working together but I would like to have more information about the tax aspects of such an arrangement before I make the leap. What are some of the tax advantages of hiring my spouse?

Q. I have a professional services firm and am considering hiring my wife to help out with some of the administrative tasks in the office. I don't think we'll have a problem working together but I would like to have more information about the tax aspects of such an arrangement before I make the leap. What are some of the tax advantages of hiring my spouse?

A. Small business owners have long adhered to the practice of hiring family members to help them run their businesses -- results have ranged from very rewarding to absolutely disastrous. From a purely financial aspect, however, it is very important for you as a business owner to consider the tax advantages and potential pitfalls of hiring -- or continuing to employ -- family members in your small business.

Keeping it all in the family

Pay your family -- not Uncle Sam. Hiring family members can be a way of keeping more of your business income available for you and your family. The business gets a deduction for the wages paid -- as long as the family members are performing actual services in exchange for the compensation that they are receiving. This is true even though the family member will have to include the compensation received in income.

Some of the major tax advantages that often can be achieved through hiring a family member -- in this case, your spouse -- include:

Health insurance deduction. If you are self-employed and hire your spouse as a bona fide employee, your spouse -- as one of your employees -- can be given full health insurance coverage for all family members, including you as the business owner. This will convert the family health insurance premiums into a 100% deductible expense.

Company retirement plan participation. You may be able to deduct contributions made on behalf of your spouse to a company sponsored retirement plan if they are employees. The tax rules involved to put family members into your businesses retirement plan are quite complex, however, and generally require you to give equal treatment to all employees, whether or not related.

Travel expenses. If your spouse is an employee, you may be able to deduct the costs attributable to her or him accompanying you on business travel if both of you perform a legitimate business function while travelling.

IRA contributions. Paying your spouse a salary may enable them to make deductible IRA contributions based on the earned income that they receive, or Roth contributions that will accumulate tax-free for eventual tax-free distribution.

"Reasonable compensation"

In order for a business owner to realize any of the advantages connected with the hiring family members as discussed above, it is imperative for the family member to have engaged in bona fide work that merits the compensation being paid. Because this area has such a high potential for abuse, it's definitely a hot issue with the IRS. If compensation paid to a family member is deemed excessive, payments may be reclassified as gifts or as a means of equalizing payments to shareholders.

As you decide on how much to pay your spouse working in your business, keep in mind the reasonable compensation issue. Consider the going market rate for the work that is being done and pay accordingly. This conservative approach could save you money and headaches in the event of an audit by the IRS.

Hiring your spouse can be a rewarding and cost effective solution for your small business. However, in order to get the maximum benefit from such an arrangement, proper planning should be done. For additional guidance, please feel free to contact the office.

Q. Each year when it comes time to prepare my return, I realize how little I think about my tax situation during the rest of the year. I seem to lack any sort of common sense when it comes to dealing with my taxes. Do you have any general advice for people like me trying to "do the right thing" in any tax situation that may arise during the year?

Q. Each year when it comes time to prepare my return, I realize how little I think about my tax situation during the rest of the year. I seem to lack any sort of common sense when it comes to dealing with my taxes. Do you have any general advice for people like me trying to "do the right thing" in any tax situation that may arise during the year?

A. Unfortunately, you're not alone in your "seasonal" approach to considering your tax situation. Many people have a once-a-year relationship with their tax professional, which can result in the improper handling of important tax documents and sometimes-costly financial decisions. When it comes to handling your tax situation during the year, you will find that a little common sense will go a long way.

Here are some general common sense tips to handling all things tax-related pre- tax season and during the "off-season":

Don't assume all your tax paperwork is correct. Check Forms W-2s and 1099s for accuracy. Many W-2s and 1099s are prepared by data processing companies that merely process your tax information as raw data. Mistakes have been known to occur. Although your employer or financial institution should be checking these forms for accuracy, it's a good idea to double-check these forms against payroll stubs and monthly statements from the payer. If you find a discrepancy, notify your employer as soon as possible to the error corrected and reported to the appropriate taxing authorities.

Gather possible ALL relevant tax documents for your tax preparation. Don't avoid taking legitimate deductions out of fear of "raising red flags" that may cause your return to be audited. Filing a complete and accurate return is required and is your best defense against an audit.

Don't make decisions solely on potential "tax breaks". All good investment or business decisions should be able to stand on their own before tax breaks are considered. A change in the tax law can be disastrous (and costly) when you are stuck in an affected investment (can you say "abusive tax shelter"?).

Seek planning advice from a tax professional. Probably the best investment decision you can make is to seek out the services of your tax professional. In most cases, the amount you are charged for good tax advice is a fraction of the resulting tax savings.

Consult with a tax professional before responding to IRS notices. If you receive a notice from the IRS (or any taxing authority) do not automatically assume that it is accurate and mail them a check. Many notices are inaccurate or merely require additional explanation. Tax professionals have the knowledge and experience to recognize areas where additional explanation or documentation may reduce or eliminate the assessment stated on the notice.

If audited, consider your appeal rights. Although the IRS auditor may not bring it to your attention, the end of an audit is be no means the end of the road for your tax case. Appealing an audit decision can many times put your case in front of a more experienced agent who may better understand the issues and your position on them.

Taking a little time during the year to consider your tax situation and invoke a little common sense can pay off with substantial tax savings and the avoidance of unnecessary expenditures. If you need any additional assistance throughout the year, please do not hesitate to contact the office for guidance.

All of us will, at one time or another, incur financial losses - whether insubstantial or quite significant -- in our business and personal lives. When business fortunes head South -- either temporarily or in a more prolonged slide, it is important to be aware of how the tax law can limit the actual amount of your losses and your ability to deduct them. Here are some of the types of losses your business may experience and the related tax considerations to keep in mind in the event of a business downturn.

All of us will, at one time or another, incur financial losses - whether insubstantial or quite significant -- in our business and personal lives. When business fortunes head South -- either temporarily or in a more prolonged slide, it is important to be aware of how the tax law can limit the actual amount of your losses and your ability to deduct them. Here are some of the types of losses your business may experience and the related tax considerations to keep in mind in the event of a business downturn.

Bad debts

One loss that occurs frequently when business slows down is bad debt. A bad debt is simply a technical term used to describe a debt that has become totally or partially worthless. Different strategies apply depending upon whether you are the borrower or the lender.

As borrower. If you are the borrower, the "forgiveness" of all or part of the debt by the lender will generally trigger taxable income on that amount, unless the business is insolvent (debts exceed liabilities).

Note. The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) allows some business to elect to recognize cancellation of indebtedness income over five years, beginning in 2014. The temporary benefit applies to specific types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. Under this provision, an applicable debt instrument includes a bond, note, certificate, debenture, or other instrument that constitutes indebtedness issued by a C corporation or any other "person" in connection with the conduct of trade or business by that person. This election is irrevocable. Moreover, the liquidation or sale of substantially all the taxpayer's assets can result in acceleration of deferred items.

Although recognizing income may not be an immediate problem for a business that has plenty of losses to net against current income, additional income may wash out a net operating loss carryover that can either provide an immediate refund for a past tax year or shelter from income in the future. As a result, some businesses re-define debt "forgiveness" into a non-taxable event, such as a refinancing or a business-generated settlement.

As lender. If you are the lender, your major tax concern will be proving that a real debt exists, and then determining how fast you can deduct the bad debt and whether the deduction can offset ordinary income, as opposed to just capital gains.

Loans between corporations and their shareholders are scrutinized to make sure that they are really debts rather than disguised dividends or contributions to the corporation's capital. You can protect yourself by taking the steps that an arm's-length lender would take, such as putting it in writing and charging a reasonable rate of interest.

The IRS sometimes requires taxpayers to play a guessing game about which tax year a debt becomes sufficiently worthless to support the deduction. Because of potential statute of limitations problems, tax experts generally recommend that you claim the loss in the earliest possible year that it can reasonably be argued to be worthless.

Finally, you must determine whether a business or nonbusiness bad debt exists. A business bad debt must be created or acquired, or become worthless, in the course of your trade or business. If you conduct a business in the form of a corporation, generally any debt held by the corporation is a business debt. Any debt not falling into the business category is a nonbusiness debt.

As guarantor. If you take out a loan on behalf of your corporation or you personally guarantee the loan and then must make good on it, you are usually considered to have either made a contribution to capital or created a nonbusiness bad debt to protect your position as an investor. A nonbusiness debt must be completely worthless before a loss can be taken. Furthermore, nonbusiness bad debts are subject to limits on capital losses. Business bad debts, on the other hand, are deductible as ordinary losses in full against your other income.

Net operating losses

If you show a net operating loss for the year, it normally may be carried back two years or carried forward up to 20 years until it can be netted against current taxable income. A net operating loss (NOL) for this purpose has some complexity built in to strip it of most personal tax characteristics. An individual's NOL, for example, does not include any offset for personal or dependency exemptions, for net nonbusiness capital losses, or for nonbusiness itemized deductions that exceed nonbusiness income. Another choice in dealing with an NOL is to elect to immediately carryforward the loss. This can be advantageous when high rate-bracket income is anticipated in the following year.

Note. The 2009 Recovery Act provides a five-year carryback of 2008 NOLs for qualified small businesses only. These are small businesses with average gross receipts of $15 million or less. Businesses can choose to carryback NOLs three, four or five years. This treatment applies only to NOLs for any tax year beginning or ending in 2008. The normal NOL carryback period returns in for NOLs incurred in 2009.

Pass-through losses

One of the advantages of investing in a business as a partner or a subchapter S shareholder is that losses on the business level get passed-through to your individual tax return. Regular corporations, on the other hand, file separate returns and the shareholder cannot "realize" a tax loss until he or she actually sells stock.

For both partners and S shareholders, however, the ability to deduct pass-through losses is determined by the amount of tax basis the partner has in his partnership interest or the S shareholder has in his shares. This, in turn, depends upon a variety of factors, including the original price paid, the amount of losses already passed through, cash or property distributed, and any later contributions.

If you have such a stake in a business, a tax strategy for both adding to basis and preventing its diminution is critical to your ability to be able to deduct business losses as a partner or S shareholder.

Section 1244 Stock

If you sell stock at a loss and that stock had been designated on its issuance to be "Section 1244 stock," you are more fortunate than most investors who bail out during a business downturn. Reason: you are entitled to an ordinary loss deduction rather than a capital loss. This special loss treatment is limited to $50,000 for any one year ($100,000 for joint returns). Other requirements are that the stock was issued for no more than $1 million, less than 50% of corporate receipts were from passive sources for the first five years of operation, and the shareholder claiming the treatment must be an individual.

Dealing with and making the most of losses related to a business downturn can get complicated. Because the preceding discussion is meant to be general, is limited in nature and does not cover all the tax rules involved, you are encourage to contact the office for additional guidance with this issue.

Fringe benefits to employees often provide the "sizzle" to keep them aboard during times of high employment. One increasingly popular benefit -- from the perspective of both employees and employers alike -- comes in the form of "qualified transportation fringe benefits." Set up properly, this fringe benefit arrangement can fund a substantial portion of an employee's commuting expenses with either pre-tax dollars or tax-free employer-provided benefits.

The recently enacted American Recovery and Reinvestment Tax Act of 2009 (2009 Recovery Act) increases certain qualified transportation fringe benefits. Fringe benefits to employees often provide the "sizzle" to keep them aboard during times of high employment. One increasingly popular benefit -- from the perspective of both employees and employers alike -- comes in the form of "qualified transportation fringe benefits." Set up properly, this fringe benefit arrangement can fund a substantial portion of an employee's commuting expenses with either pre-tax dollars or tax-free employer-provided benefits.

How can personal commuting expenses result in a tax benefit?

Commuting expenses to and from a place of business and home are generally considered nondeductible, personal expenses. The magic of "transportation fringe benefits," however, is that they can turn some commuting expenses into tax-favored benefits. They do so by defraying some of an employee's commuting expenses with either pre-tax dollars that reduce otherwise taxable compensation, or with direct, employer-subsidized amounts that are considered tax free.

What are "qualified transportation fringe benefits"?

Qualified transportation fringe benefits include transit passes, van pooling and qualified parking. These benefits are not included in an employee's gross income up to an inflation-adjusted monthly cap. The 2009 Recovery Act increases for March 2009 through 2010 the current $120 per month income exclusion amount for transit passes and van pooling to $230 per month. For qualified parking expenses, the limit is $230 per month. Additionally, employees can exclude $20 per month for qualified bicycle commuting. Benefits that exceed the limitation are included in an employee's income.

Transit passes. A transit pass --which is now tax-free up to $230 per month-- includes a pass, token, fare card, voucher or similar item entitling a person to ride at a reduced price on mass transit facilities or in a highway vehicle with a seating capacity of at least six adult passengers. Transit passes also include cash reimbursements only if a voucher is not readily available for direct distribution by the employer to employees.

Van pooling. Transportation in a vanpool may be valued at its fair market value, or under the automobile lease valuation rule, the vehicle cents-per-mile rule, or the commuting valuation rule. Cash reimbursement for this transportation is allowed. Car pooling arrangements can obtain pre-tax benefits only if organized and administered by the employer. Private arrangements among employees won't work.

The van that is used must carry a seating capacity of at least six adults, not including the driver. At least 80 percent of its mileage use must be reasonably expected to be for purposes of transporting employees.

Parking. Some employers assume -- incorrectly -- that transportation fringe benefits are available only in circumstances that are "environmentally correct." Parking subsidies, which may persuade some employees not to use mass transportation, nevertheless can amount to a tax-free fringe benefit.

The exclusion is available only for the value of parking provided to an employee at the business premises of the employer or at a staging area from which the employee commutes to work by car pool, commuter highway vehicle, or mass transit facilities. Parking provided by an employer includes parking for which the employer pays, either directly to a parking lot operator or by reimbursement to the employee, or provides on premises it owns or leases.

How is this fringe benefit administered?

In compensation-reduction arrangements (where the employee foots the bill "pre-tax"), the employee's election must be in writing or in another form, such as electronic, that includes, in a permanent and verifiable form, the required information. The election must contain the date of the election, the amount of the compensation to be reduced, and the period for which the benefit will be provided. The employer may provide as a default that employees will be provided with the fringe unless they elect to receive cash, provided that employees receive adequate notice that a reduction will be made and are given adequate opportunity to make a contrary election.

The portion of a qualified transportation fringe benefit that is included in income is subject to withholding and reporting rules. Such amount is treated as wages for federal income and employment tax withholding purposes, and must be reported on an employee's Form W-2, Wage and Tax Statement. Qualified transportation fringes not exceeding the applicable monthly limit are not wages for purposes of withholding and employment taxes.

Is this fringe benefit available to self-employed individuals?

If you are self-employed, qualified transportation fringe benefits are not available to you. For this purpose, self-employed persons include independent contractors, partners and 2-percent shareholders of S corporations. However, a de minimis fringe rule for transit passes continues to apply: tokens or farecards worth $21 a month or less, provided by a partnership to a partner that enable the partner to commute on a public transit system, are excludable from the partner's gross income. In addition, if a partner performing services for a partnership or a director of a corporation would be able to deduct the cost of parking as a trade or business expense, the value of free or reduced-cost parking is entirely excludable as a working condition fringe.

Providing some assistance to your employees to offset their commuting costs in the form of transportation fringe benefits can prove to be an effective employee recruitment and retention tool. If you are interested in finding out more about this type of fringe and how it could benefit your business, please contact the office for a consultation.