The US has recently decided to criminally prosecute an HSBC customer who made a “quiet” disclosure of his foreign bank accounts for the 2003 through 2008 tax years. A “quiet” disclosure is when a taxpayer files amended returns and pay tax for previously unreported offshore income without otherwise notifying the IRS or participating in a voluntary disclosure program. Read more
Archive for May, 2011
The IRS recently issued Rev. Proc. 2011-32 increasing the limits on contributions to HSA accounts for 2012. The new limits are $3,100 and $6,250 for self only and family coverage, respectively. The prior limits (2010 and 2011) were $3,050 and $6,150. Contributions can be made up until the due date of the return (not including extensions) to be counted for the tax year. The new contribution limits are effective January 1, 2012.
Many people often assume that a bank statement or credit card statement is sufficient proof of substantiation when your tax return is examined. Unfortunately, this is not the case. At a minimum, proof of payment is typically required as is an invoice or receipt. In a recent Tax Court case (Mark Stroff, TC Memo 2011-80) the taxpayer was allowed a portion of claimed expenses for casual labor when he presented a list of 13 individuals’ first names that corresponded to names on his weekly planner, though there was no record of actual payment. However, the taxpayer was denied deductions for meals and entertainment, vehicles, telephone, and legal fees due to lack of documentation. While he lucked out on the casual labor, he lost on many of the other expenses.
The importance of good books and records cannot be understated, especially when it comes to expenses related to travel, meals and entertainment. Meals and Entertainment expenses fall under Section 274 of the Internal Revenue Code which requires at a minimum:
- The amount of the expense
- The time and place of the meal, entertainment, etc.
- The business purpose of the expenditure
- The business relationship of the various parties in attendance – who attended and what is their relationship to the event?
In other words, Who, What, Where, When, and Why is required for all meals and entertainment expenses. The best recommended strategy is to write on the back of the receipt as soon as possible after the event is over the names of the people that were in attendance and a brief description of the purpose of the meeting and what was discussed. This, in combination with the information on the receipt and a good calendar or planner that you can refer back to goes a long ways towards providing adequate substantiation during an examination.
As always, if you have questions feel free to give us a call.
The requirement for 1099 reporting to corporations for payments of $600 or more has been repealed. On April 14, 2011 President Obama signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 repealing the expanded 1099 reporting requirement.
Before the repeal, 1099s were generally required to be issued for payments of $600 or more per year to a single recipient if those payments were made in connection with a trade or business. Payments made to corporations were exempt from this requirement in the past, but legislation passed in 2010 added corporations to the reporting requirement starting with payments made after December 31, 2011. The repeal passed on April 14, 2011 again exempts payments made to corporations from 1099 reporting.