With the New Year 2012 upon us, TaxOps people are moving into new roles. We are pleased to announce the following promotions:

• Chris Becze to Director of TaxOptimization
• Alex Leugers to Federal Tax Manager
• Meredith Theiss to SALT Manager
• Jamie Overberg to Senior Manager
• Chris Stroh to Manager

“These promotions reflect an evolution within TaxOps to take greater advantage of specialized skillsets within our team to meet the increasingly complex needs of our clients,” Brian Amann, managing director of TaxOps, says.

We also welcome two new members to our team, Jennifer Bergam and Tiffany Tan. Jennifer has over eight years experience in the accounting industry, most recently with Ernst and Young LLP in Colorado. While with Ernst and Young, she worked on income tax provisions and corporate, partnership, and state tax returns. Jennifer started with TaxOps Minimization, LLC in November 2011 working with clients to identify and quantify potential research and development tax credits and other tax credits. Jennifer is a 2008 graduate of Brigham Young University with both a Bachelor of Science in Accounting and Master of Accountancy. She is a licensed CPA in Colorado, and a member of the American Institute of CPAs and the Colorado Society of CPAs.

Tiffany Tan joins TaxOps from Teletech Holdings, Inc., where she worked as a tax analyst since 2008. In this role, Tiffany gained broad experience analyzing income tax provisions, complying with tax disclosures and reporting requirements, and preparing tax returns for corporate, partnership and insurance companies. In addition, Tiffany supported various special projects, including research and tax treatment planning for new acquisitions. Tiffany received a Bachelor of Science in Accounting from the University of Denver in 2008.

Please see our Contact page at www.taxops.com to connect with these individuals directly.

The Internal Revenue Service has issued temporary and proposed regulations for individuals required to disclose on their tax return information on foreign financial assets in which they have an interest. While effective for tax years ending after Dec. 19, 2011, taxpayers can apply them to earlier years. The IRS will soon release the final version of Form 8938 (Statement of Specified Foreign Financial Assets), which taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Under the temporary regulations, Form 8938 must be filed by persons with an interest in one or more specified foreign financial assets with an aggregate fair market value exceeding either $50,000 on the last day of the tax year or $75,000 at any time during the tax year ($100,000 and $150,000, respectively, for married specified individuals filing a joint annual return). The temporary and proposed regulations provide additional guidelines for joint interests, filers, and penalties.

Read more at www.irs.gov/irs/article/0,,id=251216,00.html.

The IRS has issued a December 2011 version of Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)? The EIC is a refundable tax credit for certain low-income workers. The credit is intended to offset living expenses and Social Security taxes paid. Eligible employees claim the credit on their personal income tax returns.

Employers must notify each employee who has worked for the company at any time during the year and from whom the company did not withhold income tax. However, employers do not have to notify any employee who claimed an exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.

Generally, the IRS are encouraged to notify each employee whose wages for 2011 are less than $49,078 that he or she may be eligible for the EIC. Specifically, there are seven states that require IRS EIC notification, including:

California, Illinois, Louisiana, Maryland (eff. 1/1/2012), New Jersey, Texas, and Virginia.

IRS Notice 1015 is an available online IRS publications that answers the following questions:

• Which employees must be notified about the EIC?
• How to notify employees about the EIC?
• When further action is required or not required
• Hand-delivery or delivery of Notice 797 to employees by first-class mail

 Find out more about EIC notification by downloading the Notice 1015

(Rev. December 2011) at www.irs.gov/pub/irs-pdf/n1015.pdf or by calling 1-800-829-3676.

The Treasury Department and IRS recently released proposed regulations (REG-149625-10) under section 382 concerning application of the segregation rules for certain transactions affecting ownership of a loss corporation. The proposed rules address stopping increases in direct ownership by small shareholders from giving rise to shifts in ownership.

Determining what triggers an ownership change can be an extremely rule-driven and complex exercise. In general, an ownership change can be triggered when, on a specific testing date, the percentage stock ownership of one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage stock ownership held by those shareholders at any time during the “testing period.” A 5-percent shareholder is defined as an individual, or certain public groups, that owns a direct or indirect ownership of 5-percent or more of a corporation.

The proposed regulation generally renders the segregation rules inoperative to transfers of loss corporation stock to small shareholders by 5-percent entities or individuals who are 5-percent shareholders. In these situations, the stock transferred will be treated as being acquired proportionately by the public groups existing at the time of the transfer. This rule also applies to transfers of ownership interests in 5-Percent Entities to public owners and to 5-percent owners who are not 5-percent shareholders Additional proposed changes for redemptions and special situations can be read in an electronic version of the proposed regulations at REG-149625-10.  

For questions regarding Sec. 382, please contact Dan DeLau at 720.227.0065 or delau@taxops.com.

T.D. 9566, 12/09/2011; Reg. § 31.6011(a)-1, Reg. § 31.6011(a)-4, Reg. § 31.6302-1

IRS has issued final regulations giving qualifying employers the option of filing an annual (instead of a quarterly) return reporting their employment tax liability (Social Security, Medicare, and withheld federal income tax). The final regulations permit certain employers to annually file a Form 944, Employer’s Annual Federal Tax Return, rather than quarterly filing Form 941, Employer’s Quarterly Federal Tax Return. The final regulations also provide guidance on the lookback period for determining the employer’s status as a monthly or semi-weekly depositor, and the minimum deposit requirements for employers required to report employment tax liabilities.

The final regulations are to be published in the Federal Register on Dec. 14, 2011, and are available at http://www.federalregister.gov under Employer’s Annual Federal Tax Return and Modifications to Deposit Rules.

The IRS recently issued standard mileage rates for 2012. These optional rates are

for taxpayers to use when calculating deductible automobile costs for business use, for medical or moving purposes, and for service to charitable organizations.

The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will remain at 55.5¢ per mile for business travel after 2011. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will decrease by .5¢ to 23¢ per mile.

To read more, see the IRS notice at www.irs.gov/pub/irs-drop/n-12-01.pdf.

The IRS has released a fact sheet that summarizes information about federal income tax return and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements, how to file a federal income tax return or FBAR, and potential penalties for failing file or pay tax. The filing requirement for foreign financial assets is also clarified. The IRS previously released an updated FBAR Frequently Asked Questions (FAQs) and a reminder to owners of foreign accounts of their annual FBAR reporting. The most recent fact sheet, Information for US Citizens or Dual Citizens Residing Outside the US, is found in FS-2011-13 at www.irs.gov/newsroom/article/0,,id=250788,00.html.

The IRS has released the 2012 version of Form W-4, Employee’s Withholding Allowance Certificate. No exemptions may be claimed by the employee if: (1) the employee’s income exceeds $950 (unchanged from 2009-2011) and includes more than $300 of unearned income (for example, interest and dividends), and (2) another person can claim the employee as a dependent on his or her tax return. Employers must withhold from the pay of any employee who had claimed exemption from withholding in 2011, but who does not provide a new Form W-4 to continue the exemption by Feb. 15, 2012.

The 2012 Form W-4 can be viewed on the IRS website at www.irs.gov/pub/irs-pdf/fw4.pdf.

The IRS has posted 2011 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and the following two supporting schedules on its website: (1) Schedule A (Form 940), Multi-State Employer and Credit Reduction Information. (2) Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers.

Form 940 for 2011 can be viewed on the IRS website at www.irs.gov/pub/irs-pdf/f940.pdf. The Form 940 Instructions for 2011 can be found at www.irs.gov/pub/irs-pdf/i940.pdf.

The amount of total income tax expense or benefit shown on the income statement is computed by combining both the current tax expense or benefit and deferred tax expense or benefit.  The current portion is the amount of tax liability that the company expects to owe in each of its jurisdictions where it files a tax return plus such items as return to provision adjustments on permanent items and changes to the tax liability related to uncertain tax positions.  The deferred portion is calculated by analyzing changes to the deferred tax asset or liability and quantifying those changes that affect the income statement.

In a basic example, assume the company has pretax book income in the current period of $200,000, non-deductible meals and entertainment expense totaling $10,000, tax depreciation greater that book depreciation of $50,000, non-deductible increase to the bad debt reserve of $20,000, and net operating loss carryforward (NOL) of $60,000.  The company computes its current tax liability in the US & state jurisdictions as follows:

Pretax book income                                            $ 200,000

Non-deductible meals & entertainment               10,000 – Permanent Difference  

Tax over book depreciation                                    (50,000) -Temporary Difference

Non-deductible bad debt expense                           20,000 -Temporary Difference

Taxable income before NOL                               $ 180,000

Net operation loss carryforward                             (60,000)

Taxable income after NOL                                  $   120,000

Tax rate                 (Federal + State)                                40%

Tax                                                                          $     48,000

Also assume the non-current tax liability balance related to uncertain tax positions has increased by $20,000.  Total current tax expense would be $68,000 ($48,000+$20,000).

US and state deferred tax expense would be computed by analyzing the change in deferred tax asset/liability as follows:

The current and non-current portions on the net deferred tax liability above would be summarized as follows:

This analysis demonstrates the net deferred tax liability has increased resulting in a deferred tax expense related to the change of $36,000.

The total tax expense for the company is $104,000 ($68,000 current income tax expense plus $36,000 deferred income tax expense)

The journal entries to record the current and deferred portions of total income tax expense in this example are as follows:

Dr.           Income Tax Expense                         $68,000

Cr.           Current Tax Liability                                                          $48,000

Cr.           Non-Current Tax Liability                                                   20,000

Dr.           Income Tax Expense                         $36,000

Cr.           Current Deferred Tax Asset                                               $16,000

Cr.           Non-current Deferred Tax Liability                                 20,000                                

For question regarding ASC-740 provision matters, please contact Daniel DeLau at 720-227-0065 or delau@taxops.com or John Monahan at 720-227-0064 or jmonahan@taxops.com.