Worker Classification: The New ‘Get Out of Audit Jail Free’ Card!

SUMMARY:  In recent years, the battle over how workers are classified has heated up.  Federal and state government agencies have been going after businesses that intentionally or unintentionally classify their workers inaccurately as independent contractors when they should have been classified as employees.  The resulting audits have proven to be very costly for companies that aren’t in compliance.

In a surprising move, the IRS recently announced the Voluntary Classification Settlement Program (VCSP), which will enable employers to address their worker classification noncompliance issues and resolve them with certainty at a relatively low tax cost.  The VCSP does not add any clarity to existing laws, but rather provides a mechanism for employers to reclassify its workers prospectively without incurring substantial costs and without being subject to an audit.

For any additional questions or to find out how this might impact you, call the Aronson tax department at 301-231-6200

Possible Changes Coming to Nonprofit Reporting

Not-for-Profit Advisory Committee (NAC) was established in October 2009 to serve as a standing resource for the Financial Accounting Standards Board (FASB) in obtaining input from the not-for-profit sector on existing guidance, current and proposed technical agenda projects, and longer-term issues affecting those organizations.  Recently, NAC recommended several possible long-term projects for FASB.  The three possible agenda items include net asset classes, form of financial statements and MD&A.  For more details on the agenda items read the article from the Journal of Accountancy.

Unclaimed Property

In recent years, many states have greatly increased their unclaimed property enforcement activity, in part due to state budget constraints. Much of this enforcement activity is instigated by third party contract auditors, which have become very active in conducting lengthy audits of large, complex companies. One area that typically arises during state unclaimed property audits is employee benefits. Accordingly, it behooves plan sponsors and their advisors to identify affirmative defenses that are available in this unique area. To discuss the impact on your plan, call the tax department at 301-231-6200.

D.C. Tax Rate Adjustment Coming Up for Upper-Income Bracket

Adjustments to upper-income taxpayers’ rates are happening with the District of Columbia to be the latest to increase tax rates.  On Tuesday, the DC City Council created a new tax bracket for DC taxpayers with income over $350,000.  These taxpayers will see their tax rate over that amount go from 8.5% to 8.95%, effective October 1^st of this year.  Mayor Vincent Gray is expected to sign the legislation.

The increase to the tax rate is an attempt to raise revenue to make up for a decision to delay the effective date of the city’s income tax on earnings from out-of-state municipal bonds from January 1, 2011 to January 1, 2012. 

For more information about how these increases may affect your tax situation, please contact your Aronson Tax Services Group representative at 301.231.6200.

Discussing Changes to Lease Accounting

Today, September 21, 2011, the FASB and IASB plan to revisit the topic of lease accounting.  The boards are trying to complete a converged standard that has eluded them to this point.  The project aims to end the long-standing practice in US GAAP and IFRA that leaves most operating leases off organizations financial statements.  Currently, capital leases are recorded on organization’s financial statements.  As reported by the Corporate Finance Weekly Update, users of the statements have expressed that putting operating leases on the financial statements will give a clearer picture of the organization’s liabilities because the leasing of equipment, vehicles or buildings allow organizations to report lower financial leverage and higher profitability.

What value should donated medicines have?

The debate over the valuation of donated pharmaceuticals is spilling over to the general public.  Donors are seeing revenues at their favorite charities significantly decline.  The Chronicle of Philanthropy released a very detailed article titled Aid Charities’ Accounting Practices Draw Criticism.  It is well worth the read.

Jobs Bill Impact on Smaller Nonprofits Explained

The White House released a fact sheet to clarify some of the impact that the new jobs bill will have on nonprofits. Noting that nearly 1 in 12 workers in the U.S. is employed by a non-profit, the White House goes on to state the belief that non-profits should be given incentives just like other businesses.

According to the Chronicle of Philanthropy, and the Independent Sector,  there were concerns that non-profits were not getting the same level of benefits as other businesses. The clarification was released stating that while the credit for hiring is lower for the non-profit sector than the for-profit businesses, the credit is actually adjusted to reflect that non-profits don’t have to pay any taxes on profits and don’t generate any deductions for wages paid. The fact sheet continues “When these factors are considered, the value to a non-profit is similar to the value claimed by a for-profit firm.” Other incentives are similarly broken down and clarified.

“Stealing from kids”

The Chronicle of Philanthropy and the Press Democrat are reporting that a federal grand jury has charged a California man with 9 counts of  wire fraud relating to the alleged theft of over $2 million from the National Education Foundation in Alexandria, VA. The organization offers grants and online classes to disadvantaged students around the world.

The scheme was to invest $2.35 million promising profitable returns in the form of high monthly interest rate payments. The organization collected an initial $274K but the remainder of the money was allegedly used for personal expenses from a private account.

The president of the organization, Appu Kattan, was quoted as saying,”To me it’s like stealing from kids, it’s horrible.”

Small Business Healthcare Tax Credit: A Timely Reminder

Tax exempt organizations qualifying for the credit use Form 8941 to calculate the small business health care tax credit, and can claim the credit on Form 990T during the 2011 tax season, even if they owe no tax on unrelated business income.

Follow this link to the IRS website for details to see if your organization qualifies:

http://www.irs.gov/newsroom/article/0,,id=223666,00.html

Opportunities to Achieve Efficient Wealth Transfer in 2011 & 2012