IRS Penalty Relief for Small Employer Insurance Reimbursement

2015 will have to go down as the year of major IRS announcements made during busy season. Last week, the IRS granted relief from having to file 3115 for many of our clients (Revenue Procedure 2015-20). This week in Notice 2015-17 the IRS made an equally impressive announcement regarding health insurance reimbursement for small employers.
 

Background:

Employer payment plans have been a very popular way for small business employers to provide insurance for their employees. This is because the premiums for group health plans are either too expensive and/or the employees like to have their own plans. The employer either pays the premiums directly or reimburses the employee for the premiums paid. The employer gets a deduction and the premiums are a tax-free benefit for the employee.

In IRS Notice 2013-54, the service virtually obsoleted the use of employer payment plans where there was more than one employee involved in such a plan. The Section 4980D penalty for noncompliance is $100 per employee per day – $36,500 effective January 1, 2014.

Both the IRS and DOL have posted information on their respective websites about IRS Notice 2013-54 . Yet there is still a lot of confusion, concern about potential penalties that could drive a company out of business and many unanswered questions regarding 2% S shareholders, reimbursement for Medicare, etc.

IRS Notice 2015-17:

Here are the major points of this new announcement:

1. Penalty relief for small employers in 2014 and through June 30, 2015:

·         The IRS will not penalize small employers (less than 50 full–time equivalent employees) who have an employer payment plan or reimburse for Medicare.

·         After June 30, 2015, employers may be subject to the penalty. But at least for now we can take the deductions, exclude the premiums from employees’ income and not worry about the potential fine.

2. 2% S shareholders relief:

·         No penalties will be assessed for 2014 and 2015 on S corporations who reimburse insurance for 2% shareholders.

3. 2% S shareholders above-the-line deduction:

·         2% S shareholders can continue taking an above-the–line deduction for insurance premiums paid including reimbursed premiums. Remember, to the extent a 2% shareholder receives the Premium Assistance Credit for buying insurance on a government exchange, the deduction must be adjusted pursuant to Revenue Procedure 2014-41.

4. The one-employee exception:

·         The restrictions on having an employer payment plan as addressed in IRS Notice 2013-54 do not apply where the plan has only one participant who is an employee on the first day of the year.

In this notice, the IRS clarified that where an employee is covered under a reimbursement with other than self-only coverage (such as a family plan) and another employee is covered under that plan as a spouse or dependent of the first employee, then that plan is deemed to cover only one employee. Therefore this plan would not be in violation and there would be no penalty.

If an S corporation maintains more than one reimbursement arrangement for different employees, all the arrangements are treated as a single arrangement covering more than one employee, so the one-employee exception would not apply. This situation would result in penalties once the relief periods expire.

Conclusion:

The good news is that we have general penalty relief through June 30, 2015, and for 2% shareholders through all of 2015. We need to be planning for what happens after June 30, 2015. Does your client offer a group plan? Does the client just pay more salary? The employees won’t like the extra income tax and FICA tax they have to pay. What about other options as marketed by certain benefit companies?

We will be discussing all of this in upcoming seminars and webinars.

For now, enjoy this good news.

For further details on the notice and what the potential tax implications are, click here to view or download the IRS article (PDF)

Tips for Using Social Media as an Accounting Professional

Everyone in your firm has left for the evening. You log in to Facebook, go to your best client’s page and read the day’s posts. Are you spying on your client?

The answer is no. This isn’t spying because the information you’re reading was made available to the public by your client. However, following your clients and reading the information they make available on their social media accounts (also known as social media monitoring) can be very valuable. The same goes for monitoring your competitors.

Following your clients’ Facebook and LinkedIn posts along with their tweets and blogs can tell you what they’re thinking, doing or concerned about. Monitoring your clients’ posts may offer opportunities to provide additional services or maybe just help them out by answering their technical questions.

What Is Social Media Monitoring?

Wikipedia defines Social Media Monitoring as “an active monitoring of social media channels for information about a company or organization, usually tracking of various social media content such as blogs, wikis, news sites, micro-blogs such as Twitter, social networking sites, video/photo sharing websites, forums, message boards, and user-generated content in general as a way to determine the volume and sentiment of online conversation about a brand or topic.”

Which Social Media Sites Should You Use?

There are a multitude of social medial sites and that number grows daily, so don’t try to include them all. Select a limited number to follow at first,-perhaps three or four. Once you have had some experience monitoring your clients you can consider increasing the number of sites.

Some Recommended Sites

Here are some sites you should consider including as part of your social media monitoring:

• Facebook is reported to have over 1.28 billion active monthly users. It should definitely be included in any social media monitoring program.

• LinkedIn says that they have 300 million active users. This is an excellent site for business and professional monitoring.

• Twitter says they have approximately 645 million active users who send over 500 million tweets of no more than 140 character text-based messages each day.

• YouTube is a video sharing website that purports to have more than 1 billion visitors each month worldwide.

However, it is not enough just to join Facebook and Linked-In and create Twitter and YouTube accounts. Because of the massive amounts of data created by internet conversations you need to determine what your goals are as they relate to your social media monitoring. Then you should review the results of your monitoring to see if your goals are being met.

Collecting and Using the Data

Trying to manually accumulate and digest the volume of information generated from only four social media accounts would be like trying to drink from a fire hose. However, collecting the data is the easy part; the real challenge is analyzing the data and knowing how to use the results.

Obviously attempting to collect data one tweet or Facebook post at a time is a daunting task. Instead, you can enlist the services of a professional monitoring or listening tool to find content ideas, communities, and advocates for your brands. Technology companies may also get social data from data resellers, like DataSift. Some of the more popular platforms include:

• NUVI
• Sprout Social
• TweetDeck
• Spredfast
• Netbase
• Brand Watch

Because of privacy issues, even the professional listening tools may not be able to find and access all social media conversations and include them in their analysis.

Once you select a professional monitoring tool, identify the words and phrases that apply to your clients. Next you should identify your client’s key influencers. These are individuals who may be authorities in fields in which your firm provides services.

Getting the Right Tone

When posting on social media, be careful to address your clients’ needs as you would if they were your next door neighbor rather than trying to sell them something. Be sure that you:

• Don’t post the same content from one site to another. Remember your clients may be on both sites.
• Control the urge to “market” to your clients.
• Monitor your clients’ posts and try to meet their needs.
• Create content that benefits your customers and that they will want to share with others.
• Focus on the needs of your customer and not on those of your firm.

The benefits of social media monitoring can’t be overlooked. Engaging in social media monitoring is a required activity if you’re going to keep up with your competition.

What do you think? 

Pros and Cons of myRA

On January 28, 2014, president Obama announced myRA (My Retirement Account), during his State of the Union address. It is a new type of savings account for Americans who don’t have access to an employer-sponsored retirement savings plan. These “starter” savings accounts would be available initially through the taxpayers’ employer and backed by the U.S. government. The myRA is similar to a Roth IRA and can be set up without the federal government having to enact any specific legislation. Following are some of the pros and cons of this new program:

Pros

1. Annual income limits to participate are $129,000 or less for individuals and $191,000 or less for couples.
2. The initial investment requirement is a minimum of $25.
3. Ongoing contributions have a minimum deposit amount of $5.
4. Not tied to any particular employer; goes with participant when changing jobs.
5. Employees with multiple jobs can use direct deposit from each paycheck to contribute to a single myRA
6. The government guarantees the account balance will never go down.
7. Earnings are tax free, similar to a Roth IRA.
8. Employers won’t administer the program or incur any costs to offer myRAs.
9. A myRA can roll over into a Roth IRA at any time.
10. Earnings can be withdrawn tax free after five years if the participant has reached age 59 ½.

Cons

1. They don’t give savers multiple choices about how to invest their savings.
2. The guaranteed account balance comes at the expense of growth.
3. The interest rate of 3% will take about 24 years to double your money.
4. The maximum amount saved is limited to $15,000 or 30 years whichever comes first.
5. Contributions are not tax deductible.
6. Low income savers who live from paycheck to paycheck will have very little incentive or ability to participate.
7. Those who do participate may be inclined to borrow from the myRA the first time the car breaks down or an unplanned expense arises.
8. $15,000 is not enough for retirement.
9. Participants must have direct deposit of paychecks.
10. Contribution can be withdrawn at any time without a penalty, but if made before age 59 ½, tax must be paid on the interest accrued in the account.

Purported to be a new retirement savings plan, the myRA reminds me more of “Banking Days” when I was in the third grade. Every Thursday morning the teacher would poll the class to see if anyone wanted to make a deposit in their savings account. As I recall, I never had more than ten or fifteen dollars in the account at any one time. I always managed to find something that I just couldn’t live without, so I would make a withdrawal from the account to fund the purchase. I expect that this will also be the fate of many myRA participants.

John E. Girourd, author of Take Back Your Money, thinks there may be an even more compelling reason for the government’s participation in the program than helping poor taxpayers save for retirement.  

The government has been buying up huge amounts of low interest rate U.S. Treasury bonds to keep interest rates low. According to Mr. Girourd, “the federal government is stuck with a lot of unpopular bonds and one sure-fire way to get rid of them is to sell them to the American public as a retirement savings vehicle.”

As pointed out by Daniel R. Amerman in his article Who Most Benefits From myRAs: Savers or the U.S. Treasury, “myRA contributors don’t receive any financial benefits until they retire, whereas the government receives all of the benefits up until that time.”

The government touts myRA as a program providing individuals with a simple, safe, and affordable way to start saving for retirement. However, without a significant deterrent to discourage savers from withdrawing money from their myRA, the financial demands on low- and middle-income savers will override their desire to save for retirement.

What do you think?

Private Tax Collection: Will Congress Ever Learn?

The use of private collection agencies to collect delinquent taxes has been tried by the federal government several times. Up to this point, all of the attempts have been failures. So why does Senator Charles E. Schumer (D-NY) want to use them again? Could he be politically motivated?

Senator Schumer has had a provision inserted into the tax extenders bill that will require the IRS to contract with four private collection agencies to collect delinquent income taxes. Did I mention that two of those agencies are located in Senator Schumer’s congressional district?

As I mentioned, we’ve been down this path before. The first attempt to collect delinquent taxes by someone other than the IRS was in 1872 when Congress authorized contracts between private citizens and the U.S. Treasury Department to collect delinquent taxes. The collectors were entitled to retain 50% of the amount they collected. The process lost money and generated so many complaints that it resulted in the resignation of William Adams Richardson, Secretary of the Treasury.

Two other uses of private collection agencies were made in 1996 —1997 and 2006 — 2009. Both lost money and resulted in numerous consumer complaints. In one instance, private tax collection agencies collected approximately $98 million in delinquent taxes but it cost the Treasury over $110 million to administer the program. The Treasury Department also estimated that one of the programs would raise more than $1 billion in revenue, however the program ended up losing money.

Based on past experiences with private tax collectors you’d think that Congress would have learned its lesson. Private tax collection services don’t work. In addition to being money-losing operations there are other reasons not to hire private debt collectors.

Private debt collectors—

• have little incentive to keep taxpayer data confidential,
• are often heavy handed in dealing with taxpayers,
• are not inclined to offer payment options,
• usually cost more than the taxes they collect, and
• have no incentive to help the taxpayer correct simple errors.

My Solution

I have a better solution that doesn’t require the services of a private debt collector. Why not just collect the $3.3 billion in back taxes owed by current and retired employees of the federal government? (http://money.cnn.com/2014/05/23/pf/taxes/federal-workers-delinquent-taxes/) After all, the IRS knows where they work, so why not set up an affordable payment plan and deduct it from their paychecks each pay period?

What do you think?

AICPA Expresses Strong Concern over IRS Program

The Internal Revenue Service (IRS) just couldn’t wait for Congress to pass legislation giving them the authority to regulate unregistered paid tax return preparers.  So, on June 26, 2014 the IRS announced a “voluntary” Annual Filing Season Program (AFSP) outlining the new program that focuses on continuing education and filing season readiness for unregistered paid tax return preparers.

The AFSP program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing professional education, including courses in basic tax filing issues and updates, ethics, as well as other federal tax law matters.

According to IRS Commissioner John Koskinen, “This voluntary program will be a step to help protect taxpayers during the 2015 filing season.” However, not everyone agrees with the commissioner.  In fact, the AICPA calls the program unlawful and improper.

The following are excerpts from the AICPA’s letter to IRS Commissioner Koskinen explaining the basis for their concern:

I.                 The IRS must identify a statutory basis for any regulatory approach it creates.

·       No statutory authority, including 26 U.S.C. § 7803, authorizes the proposed program.

·       If the IRS cannot identify a clear, specific statutory basis for its action, then under the Administrative Procedures Act (APA) it may not act.

II.              A purportedly “voluntary” program would be an end-run around Loving vs. IRS.

·       The proposed program would also undermine the legal rationale given by the court in striking down the tax return preparer regulations.

·       The “voluntary” program would undermine the important concerns underlying Loving.

III.            The IRS must comply with procedural requirements.

·       The IRS must comply with the APA’s Notice and Comment procedures.

·       The IRS must comply with the Paperwork Reduction Act and with Executive Order 12,866 (Regulatory Planning and Review).

IV.             The proposal is arbitrary and capricious.

·       A voluntary program would not address the problem of unethical or fraudulent tax return preparers.

·       A voluntary program could give rise to confusion among consumers.

·       The IRS has not sufficiently considered alternative methods of ensuring that tax return preparers are qualified and competent.

For a complete copy of the AICPA’s 14 page letter go to the following website: http://www.aicpa.org/Advocacy/Tax/DownloadableDocuments/AICPA-Letter-to-Comm-Koskinen-June-24-2014.pdf .

I think the IRS is trying to do the right thing, but I believe that they are going about it in the wrong way. I agree with the AICPA that any approach the IRS takes must be supported by a strong legal basis and sound policy. To acquire that legal basis will require congressional intervention; however, Congress probably won’t act until after the next elections.

What do you think?

Corrupted Communication

Did you know that our communication skills are being corrupted? No, it’s not some foreign government; it’s our teenage children and our education system.

Verbal Communications

We are slowly losing our ability to communicate without the assistance of an electronic device. I was out to dinner recently and noticed two young couples sitting at a table near me with their heads bowed. At first I thought they were saying grace until I noticed that each one of them was using cell phones. There was only limited verbal conversation during the meal.

Or maybe you have seen the commercial where the grandmother gives her grandson a graduation gift? He is standing no more than a couple of feet directly in front of her and he texts her “Thank You” rather than simply saying thank you verbally.

Verbal communication is not the only communication being impacted by the technology revolution.

Written Communications

Written communications are also being attacked. Our society is quickly losing its ability to communicate via cursive writing. For the most part an elementary student today probably can’t write in cursive, much less read it. However, sit one in front of a computer and he is a whiz. More than 40 states no longer require public schools to teach cursive reading and writing but they do emphasize computer skills since this is how tests are administered.

This was brought to light in the murder trial of George Zimmerman. When witness Rachel Jeantel was asked to read a letter in court, she responded, “I don’t read cursive.” She was unable to read the letter because she had never been taught cursive reading and writing.

Texting is replacing the spoken word, and abbreviations are replacing the written word. When my granddaughter sends me a text, I usually have to ask her to decipher the abbreviations sprinkled among the English words. I know a few abbreviations like OMG and LOL, but there are literally hundreds of others.

Before you answer my question at the end of the blog, here are some things you might want to consider:

•         A recent study showed that many people with cell phones prefer texting over a phone call. This creates a communication divide between the talkers and the texters.
•         Americans ages 18 to 29 receive an average of 88 text messages per day, compared to only 17 phone calls.
•         The number of text messages sent each month has sky rocketed from 14 billion in 2000 to 188 billion in 2010, according to a Pew Institute survey.
•         The Financial Industry Regulatory Authority (FINRA), for the most part, requires a cursive signature on financial documents and will not accept printed signatures.
•         Cursive writing is usually faster and more efficient than printed writing.
•         The need to teach both print and cursive writing has been questioned by the teaching community.
•         Very few adults use cursive as their day-to-day writing.
•         Most of our communication is done by keyboard or printing.
•         Experts say that cursive handwriting training for young children may help develop hand-eye coordination, refine motor skills, and other brain memory functions.

Is cursive reading and writing needed in today’s world where smart phones, iPads, and laptops rule the communications world?  Are your communication skills being corrupted? What do you think?

Bitcoin: The New Electronic Money?

Direct TV and Dish TV have just recently announced that they will begin accepting Bitcoins as payment for their TV subscriptions. So just exactly what is a Bitcoin?

Bitcoin is a relatively new electronic payments system described as a decentralized peer-to-peer system. Unlike other electronic payment systems, such as PayPal, it also has its own currency — a virtual denomination also known as Bitcoins. Bitcoins are known by various names including virtual currency, electronic money, or crypto-currency.

The Bitcoin system is driven by a concept called block chain, a public record of all transactions carried out within the Bitcoin network. The transactions are recorded in a public record that is collectively maintained by everyone who uses the currency.

Bitcoins are stored in a digital wallet when they are received. The wallet can be cloud-based or on a local system to maximize security.

For a more detailed discussion of Bitcoin go to: https://bitcoin.org/en/faq

Who created Bitcoin?  A person calling himself Satoshi Nakamoto, published the rules to the Bitcoin portal in 2008. The network was launched in 2009; however, no one really knows the true identity of Nakamoto.

How to create (earn) Bitcoins. According to Wikipedia, “Bitcoins are created as a reward for payment processing work in which users who offer their computing power, verify and record payments into a public ledger. Called mining, individuals engage in the activity in exchange for transaction fees and newly minted Bitcoins.

Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. The ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady.”

Bitcoins can also be obtained in exchange for products, services, or other currencies.

Pros and Cons.

Pros

•         No charge when making payments in Bitcoins, either locally or internationally.
•         Eliminates credit card fees for processing transactions.
•         Difficult for anyone to make fraudulent payments using bitcoins.
•         Has its own currency and is not controlled by any central authority.

Cons

•         Has a volatile valuation. The price of a single Bitcoin has ranged from$13 to $1,000.
•         Exchanges are a tempting target for hackers.
•         Can be lost, or destroyed.
•         Lacks consumer protection.

Audit considerations. From an audit perspective, Bitcoins are basically the same as any other foreign currency. However, teams auditing clients with Bitcoins should include an IT specialist to verify the Bitcoin balances. Verification should include traditional confirmation letters to third-party wallet holders and verifying balances from the block chain.

Once the amount of Bitcoins at the balance sheet date has been determined, the auditor needs to verify that the amount is properly translated into the company’s reporting currency in accordance with FASB ASC-830-20-25. The currency translation from Bitcoins to dollars is accounted for through an adjusting entry that includes the gains and losses reflecting changes in the exchange rate between Bitcoins and dollars. The same translation calculation must be made for receivables and payables that the company expects to settle in bitcoins.

The future.  No one knows exactly what will come of the Bitcoin system but it is probably not going to disappear any time soon. However, there is no doubt that it will have a far-reaching impact on how money is dealt with online.

What do you think?