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CORPORATE TAX & ACCOUNTING
News for Corporate Professionals from Checkpoint Learning
 
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April 2015
 
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The Tax Research Dilemma
The Tax Research Dilemma Businesses want fast and accurate answers to their tax questions. However, laws change more frequently than ever, and tax laws are too complex for one person to know everything. With that said, businesses expect their tax staff to know the tax law without spending too much for research.

Tax research once involved searching through print publications. With the digital age, researchers have access to at least one digital tax research platform. With electronic access, resources can be updated frequently, editorial and primary source materials are linked, and keywords are used to locate specific information. New technology improves the access to information; however, it can also be overwhelming by the amount of information available. For inexperienced researchers, electronic platforms have made it too easy to go straight to keyword searching without first gaining context, a basic understanding of the issues, or the correct keywords. Searches result in a vast amount of information. However, the information probably fails to consider the full complexity of the issue. Researchers need skills to help them identify and define issues, find the most relevant sources quickly, and check results for accuracy.

For more accurate results, the following tips were noted in Unlocking the Limits of the Keyword: 5 Ways to be a Better Tax Researcher, a white paper which was developed in collaboration with Jennifer Kowal. Jennifer Kowal is the Tax Professor and Director of the Graduate Tax Program at Loyola Law School.

Get the lay of the land — New researchers should take the time to gain a quick overview of the tax topic.

Consult the experts — Expert editorial sources can help identify various tax issues presented by a transaction or event.

Stay persistent — Coming to a conclusion too early after only reading one or two sources may preclude a researcher from considering the full complexity of the situation.

Focus on the facts — Tax conclusions are heavily dependent on the facts; therefore, one must research until primary sources are found whose facts are as close as possible to those being researched.

See the big picture — Researchers must address all relevant issues presented by the facts, rather than only those issues initially presented.

In addition to the tips in the white paper, research skills can be strengthened through completion of the Checkpoint Learning Tax Research Certificate Program.
Income Tax Refunds: Stolen Identity

Income Tax Refunds: Stolen Identity Tax return filing fraud

Great job! You filed your 2014 taxes.” This message appearing on the computer screen through income tax filing software should give the taxpayer a sense of relief, but not when that taxpayer hasn’t actually filed his taxes at all! This might be the first indicator that personal information has been stolen and used to fraudulently file the tax return in order to steal a taxpayer’s income tax refund.

This happened last year as posted in a blog on the intuit website:

TurboTax online records clearly showed that a fraudulent 2013 was prepared and e-filed under my account on 03/19/2014. Due to the fraudulent wage information entered on the return, the service indicated I was due a Federal Tax Refund of over $4,000 and that the IRS accepted the e-filed federal return on March 19. The service also stated the 2013 e-filed return was due a State Tax refund of over $400 and that the tax return was accepted. The fraudulent returns were even saved in my account in PDF format for my review. It is obvious my account was hacked. By TurboTax having your previous tax returns online, a hacker can access those returns and submit a fraudulent return and include previous past years tax history.

In February 2015, Intuit’s TurboTax product briefly stopped electronic filing of all state tax returns in response to criminal attempts to obtain refunds through its systems by filing fraudulent returns using their product. The company insists that “the information used to file fraudulent returns was obtained from other sources outside the tax preparation process.”

Intuit published warnings to users of its product about the potential for phishing attacks where emails may be designed to look like coming from the software company with subject lines like “Your TurboTax Account: Action Needed.” If the recipient of this email falls victim to request and responds with their sensitive personal information, it is highly likely that they will suffer financially as a result.

This latest round of frightening intrusion upon the average citizen is more pervasive than the techy, basement-hiding identity thief. Intuit insists that it was not the result of a data breach of their company but of sophisticated scammers who may have obtained access to taxpayers’ 2013 tax returns. Either way, honest and law-abiding taxpayers are being subjected to the anxiety and concern that electronic filing was supposed to prevent. Last year it was estimated that about 21 million state tax returns were filed using Turbo Tax.

But, this is not the first time electronic filing software has been the open door to identity thieves. In 2011, Intuit warned Turbo Tax and Quicken customers to be on alert for identity theft scams after a breach at a marketing firm that put millions of email addresses at risk for hackers to use at will.

Identity theft and tax refund fraud

In February, the IRS issued its annual “Dirty Dozen” list of the top twelve most prevalent and concerning tax scams. The list includes a variety of tax scams which can happen at any time during the year but are especially prevalent around tax season. Identity theft occurs when someone uses the personal information of another person, such as name, Social Security number (SSN) or other identifying information, without that person's permission, to commit fraud or other crimes. This topped the list as number one.

In many cases, the identity thief used a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. These cases are so prevalent that the IRS has constructed a special division solely dedicated to these issues. According to Nina Olson with National Taxpayer Advocate, “Identity theft wreaks havoc on our tax system in many ways. The impact on victims is significant. More than 75 percent of taxpayers filing returns are due refunds, which average some $3,000 and are not paid until the IRS fully resolves a case. That now takes more than 6 months.”

Tax transcripts

The IRS makes available a record of your past tax returns, which it refers to as transcripts. Viewing the tax transcript regularly allows the taxpayer or tax preparer to identify an offense or breach early on and respond timely and appropriately. The tax transcripts are available through the IRS website at the following link:
http://www.irs.gov/Individuals/Get-Transcript

Before allowing access to the transcript, the IRS will ask for the taxpayer’s name, social security number, date of birth, filing status and the street address provided on the last tax return. Caution and care should be taken before disclosing this information on any website, even if it contains an IRS logo.

Before entering personal information, confirm that the website begins with irs.gov. The transcript may be ordered by mail. Allow 10 calendar days for the transcript to be delivered. If the taxpayer’s return is filed electronically, it will take about three weeks before the transaction shows up on the transcript. If the return is filed on paper, it will take about six weeks.

The bottom line

Identity theft may not be totally avoidable, but through the use of caution and being pro-active with personal information, the likelihood of falling victim to this crime can be reduced.

For more information on tax refund fraud, Checkpoint Learning offers the following CPE course: Tax Refund Fraud Perpetrated by Identity Theft
Low Gas Prices Provide Infrastructure Upgrade Opportunity

Low Gas Prices Provide Infrastructure Upgrade Opportunity Charles R. Goulding and Michael Wilshere discuss how the recent drop in fuel prices could give legislators leeway to raise fuel taxes in order to support much needed infrastructure projects.

The recent plunge in oil prices over the past few months has sparked much debate over whether or not state and federal governments should increase the gasoline tax in order to raise revenue for much needed highway construction projects.

The current 18.4 cents per gallon tax is used to fund the Highway Trust Fund that provides for highway and bridge replacement and repair costs.

The problem is that in recent years, vehicles have become more and more fuel efficient. While less consumed gallons means less revenue for the Highway Trust Fund, the wear and tear on the infrastructure continues.

Low Gas Prices Provide Infrastructure Upgrade Opportunity Gasoline prices have fallen over 40 percent in the past six months. The average retail price of gasoline in the United States for the week ending January 5, 2015 was $2.308 a gallon. That price is nearly $1.50 less than the $3.778 consumers paid at the end of June 2014.

Meanwhile, the Highway Trust Fund is expected to run out of cash in May 2015. At the same time, the country’s transportation infrastructure is in precarious condition. The American Society of Civil Engineers gave the nation’s road and transit system a grade of a D in 2013. Bridges nationwide did not fare much better, earning a C+. While the estimated, near $1 trillion dollars, needed to upgrade the interstate system may seem high, the current inadequacies of the system costs tax payers billions in delays, auto repair costs and extra fuel expenses, not to mention accidents and traffic fatalities.

As the funds pool runs dry, Congress is searching for money since it last ducked the issue this past July by obtaining $10.8 billion from pension tax changes, customs fees, and money reserved for leaking underground fuel storage repairs. Congress has been employing short-term approaches since 2008 through a series of patch-work and temporary fixes while hoping for a politically achievable long-term solution.

Enter the recent plunge in gas prices. While a 2013 poll by research firm Gallup showed that two-thirds of Americans oppose raising state gas taxes to fund infrastructure projects, gas prices have since plunged dramatically, suggesting that such a measure might now harbor a majority of consumer support.

Elected officials from both parties now see this as an opportunity to strike while the iron is hot. Still, they are treading cautiously, realizing that those who support the measure could receive backlash in the case of a surge in prices later on.

Nonetheless, consumers should be aware that Congress need only raise fuel taxes by only 10 to 15 cents a gallon to meet all of the obligations of the Highway Trust Fund. With this, drivers would still enjoy $2.45 per gallon if prices remained stable. Moreover, that rate would more closely approximate the 18.4 cents per gallon that consumers have been paying since 1993 when adjusted for inflation. Some lawmakers have been proposing similar inflation inclusive ideas.

In the Senate, Tennessee Republican, Bob Corker, and Connecticut Democrat, Chris Murphy, have co-sponsored a bill to raise the national gas tax by 12 cents over the next two years and allow it to index for inflation. The upside here is that Congress would not have to vote again to raise the tax down the road. On the other hand, the marginal tax rate increase would eat into consumers’ disposable income, something that many analysts credit for their recent, brighter, economic outlook.

In conclusion, the recent dip in gas prices may suggest a rare opportunity to raise the gas tax in order to raise revenue for much needed infrastructure repairs. Critical infrastructure funding deserves a long-term funding solution.
Accounting Applications: Mobile Tool for Efficiency and Effectiveness

Accounting Applications: Mobile Tool for Efficiency and Effectiveness There are many applications otherwise known as “apps” that can be used on mobile devices to help a small business function more efficiently and effectively. More small businesses are using mobile phones and other devices to work on billing and collections while they are traveling to and from clients’ offices. The different apps that are available can be used to perform many of the financial aspects that a small business would need. This includes apps that handle accounting for the business, apps for payments and collection, and banking applications where you can pay bills, deposit money, transfer funds and do just about anything that you can do in a bank. One type of unique application that can be used is Wave as discussed below.

wave logo
Wave is a suite of financial applications that are integrated and purchasable on a discrete basis for a small business. Each app may be implemented individually, and all of the apps can be integrated together. Some of the apps are free, and others have a small fee.

These apps include:
  1. Accounting (free)
  2. Invoice (free)
  3. Invoice mobile (free)
  4. Payments (processing fees)
  5. Payroll (monthly fees and processing fees)
  6. Receipts (free)
  7. Personal (free)
Accounting by Wave is accounting system for non-accountants per the Wave website. Accounting by Wave allows for automatic downloads of transactions from all sorts of data, including PayPal and Excel. Accounting by Wave generates basic accounting reports as well as sales tax and payable and receivable reports. There is automatic data back-up, and it uses 256-bit encryption so that stored data is safe and secure. The chart of accounts and reports are both customizable. Accounting by Wave allows for full double-entry accounting and manual entry if the users want to do that level of work.

Invoice and Invoice mobile by Wave is free with unlimited invoicing. The customer can create professional invoices, which makes it easier to bill clients and get paid. The application works with multiple currencies and different sales taxes. The user is able to see when invoices are viewed by the customers. The Invoice app allows customization of the invoices.

The Payments app by Wave allows online payments by credit card and integration with Accounting by Wave. Payments by Wave is certified PCI level 1 compliant. There is no fee for the Payments by Wave application, but there is pricing for credit card payments; it is a flat fee per transaction of 2.9% + $0.30.

Payroll by Wave will allows for direct deposit of the employees checks including generation of Forms W2 and W3. The Payroll application compiles wage and tax reports, including vacation tracking. Payments to employees may be made weekly, monthly, bi-weekly or even semimonthly for both salaried and hourly employees. There is a place for employee self-service, as well as employee income tax forms. Payroll by Wave will allow for multiple businesses at one time. The Wave Payroll application is free, but there is a base fee per month of $5.00 plus an additional per employee monthly fee of $4.00 per employee that decreases to $1 per employee when the number of employees reaches 11 or more.

Receipts by Wave allow for three different ways to submit receipts: web app, mobile, or email. If you receive receipts by email, you can just take the emailed receipts and forward then to a specific email address at Wave, and they will flow directly to the appropriate Wave account. The mobile application lets you take pictures of receipts and upload them to the accounting software. The user may also upload receipts from Google Drive, Dropbox and SkyDrive.

Personal by Wave allows for simple budgeting and easy tracking of budgets and net worth. Personal by Wave will upload transactions from bank accounts and credit cards automatically and be categorized. The Personal app allows users the ability to track investments in real time with real-time stock trading. Personal by Wave is intuitive and easy to use with a quick start and free online support. This application is free and without monthly fees.

Wave started in 2010 and is based in Toronto Canada. The website is www.waveapps.com. Mobile access is available for Apple devices for all applications and some applications are offered for Android devices.

The uniqueness of Wave is that not only does it have the many different applications, but that they may be used individually as well as integrated on a one by one basis. Also, with wave the personal application is helpful for those businesses that also need to maintain the individual accounts. This may help the small business owner in maintaining the separation between work finances and personal finances.

For more information on accounting applications for business, Checkpoint Learning offers the following CPE course:
Accounting Apps for Your Business
Adapting to European Digital Goods VAT Changes

Adapting to European Digital Goods VAT Changes Charles R. Goulding and Michael Wilshere discuss the European Value Added Tax on Electronic Goods.

As of January 1, 2015, there are significant changes to the European (VAT) Value-Added Tax rules. The new rules, which were approved in 2008, will apply the tax rate on digital services such as cloud storage and movie streaming services based on consumer location. This tax change will impact the large U.S. digital medium service providers including Netflix, Amazon, Google, Apple, and Microsoft.

Previously, the tax rate was based on where the company selling the product had its central headquarters. Under that system, large digital service providers benefited from conducting central operations in tax favorable countries such as Luxembourg. There, the tax rate was as low as 3 percent for certain purchases. Other countries, like Britain, charge up to 20 percent for similar purchases. Such differences in tax rates provided a tax advantage to consumers and larger enterprises that could benefit from location planning. All that will change however with the new regulations.

In order to comply with the rule, businesses selling digital goods will be required to:
  • Charge the VAT rate based on the consumer’s location
  • Validate the consumer’s location; and
  • Report VAT to each corresponding consumer EU country
Proponents for the new system argue that it will add up to $1 billion in annual tax revenue for the European Union. The rule change aims to spread revenue from digital goods more evenly throughout member countries. Nonetheless, not all countries will be affected equally.

Some smaller countries with lower populations consume disproportionate amounts of digital services. Take France, for example, although the country has a population of 64 million which accounts for only 12 % of the larger European Union, the country generates nearly 50% of all European Union Netflix sales. Of course, Luxembourg will be affected the most. In order to make up for the lost revenue they will increase the value added tax on non-digital goods from 15 to 17 percent.

Before the rule change, many large digital service providers, like Amazon and Netflix, utilized bundled pricing (including transaction taxes) in order to keep things simple for the customer. These companies have indicated that for now this practice will continue. The initial reaction of large service providers is to maintain bundled pricing and absorb the higher tax levels. This however is troublesome for large service providers because the net profit margin in high VAT countries is going to be substantially reduced. It remains to be seen how they will respond long-term. Once these digital service providers achieve desired market penetration, some possible options could be unbundled VAT changes or raising the overall bundled price.

The new European VAT charge comes at a time when all of the major U.S. digital content providers are expanding in Europe and the rest of the world. A billion in new revenue is attractive to government tax authorities and we expect other countries to closely follow the European experience.
Retirement Planning for Expatriates to Central America

Retirement Planning for Expatriates to Central America Millions of people have become expatriates, or expats for short. These include workers, retirees, and entire families. Expats have left the countries where they were born or were affiliated as dual nationals or alien residents to begin new lives in other countries.

No one knows the exact number of Americans living abroad, but the numbers counted by the census tallies in other countries are skyrocketing. In 2011, USA Today reported that more than 71,000 Americans resided on the Chinese mainland, and more than 60,000 Americans lived in Hong Kong (Calum MacLeod, “U.S. Expatriates Pursue American Dream in China,” usatoday.com). Several sources report numbers of between 5 and 6 million citizens who have officially or unofficially taken up residence outside of the United States.

The reasons for living abroad are varied. Many American employees, entrepreneurs, and their families choose every year to seize employment or business opportunities available outside of the United States. Their reasons for uprooting are varied, including:
  • Companies offering employees unparalleled relocation packages or promises of advancement;
  • Investors and entrepreneurs envision financial advantages of corporate startups and business associations in other environments;
  • Parents seek the cultural and educational advantages of multinational upbringing of their children.
These and other motivations for living outside of the United States afford Americans of working age chances to seize better income, familial, and quality-of-life situations offered in other highly developed nations or to ride waves of wealth and growth as less-developed nations take their place among the more prosperous countries.

For Americans who have retired or are contemplating retirement situations abroad, familiarity with expatriate circumstances is critical. Singles and couples who choose to relocate to enjoy and preserve the lifestyle they have earned through many years of work and saving are entitled to the benefits just as those who relocate to seek better employment or to launch new businesses.

Potential expatriate retirees need to prioritize their choices for their lifestyle in an adopted country in Central America. Issues to be considered include what's vital to have in a home abroad, how to maximize income and minimize taxes, what possessions to take and how to get them there, activities that help overcome culture shock, and even how to repatriate to the United States. Retirees who plan to join the millions of Americans who live the great life abroad, specifically in Belize, Panama, and Costa Rica can enjoy the benefits but should do their research in advance.

For more information on retirement planning for expatriates to Central America, Checkpoint Learning offers the following CPE course:
Retirement Planning for Expatriates to Central America
Thomson Reuters ONESOURCE

Whether it's corporate income tax, tax provision, indirect tax, trust tax, tax information reporting, transfer pricing, data management, your internal processes or more—Thomson Reuters ONESOURCE provides leading technology and services that can help tax departments achieve greatness. Find out more here.

Heard about the latest tax developments? Managing Director Joe Harpaz is a regular contributor on Forbes. Explore his timely discussion around policy proposals and changes, breaking down complex issues. Find the blog hosted on Forbes at forbes.com/sites/joeharpaz.
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