Tag Archives | Government

IRS Warns Congress Tax Refund Season Might Be Delayed until March or Later without AMT Patch

By on December 21, 2012 in General, Tax
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IRS – Filing delay may impact 100 million Americans

IRS Acting Commissioner Steven T. Miller warned Congress on Wednesday that if lawmakers fail to extend the traditional alternative minimum tax patch, up to 100 million American taxpayers could be affected, and most taxpayers might not be able to file their tax returns until late March 2013 or later.  Failure to patch the AMT which has been done for several years as a matter of course will keep Americans from getting their refunds for up to several months.  Tax forms, instructions, and software has to be modified to administer the tax system.  It is not an instantaneous process.

The vast majority of returns filed in the early months have refunds, which not only has a stimulus feature, but could literally keep some unemployed Americans in their homes.  For example, in 2010 around 129.3 million returns were filed with 93.4 being electronic and around 150 million are expected for 2012 with approximately 108 million at least being electronic.  (The total number of returns is optimistic and the percentage of the total returns at 72 is pessimistic).

This is just one more potential disruption to the economy being caused by continuous kicking of the can down the road coupled with political brinksmanship instead of statesmanship. That is one of the factors already cited in the recent United States debt downgrade by S&P.

Other Potential Issues

Other potentially expiring items that could cause programing and printing delays include deductions for school teachers who pay for classroom materials out of pocket to help their students in struggling districts, and the deduction for sales taxes in states that have no state income tax.

Background

The Omnibus Budget Reconciliation Acts of 1990 and 1993 raised the AMT rate to 24% from the prior level of 21% and then to 26% for singles and 28% for married couples, respectively. Now, some taxpayers who do not have very high incomes or participate in numerous special tax benefits and/or activities will pay the AMT.  For years since then, Congress has passed one-year “patches” aimed at minimizing the impact of the tax. While not automatically indexed for inflation, the exemption has been increased by Congress many times. In addition, the tax rate was increased for individuals effective 1991 and 1993, and the tax was limited for capital gains and qualifying dividends in 2003. For the 2007 tax year, the patch was passed on December 20, 2007, but only after the IRS had already designed its forms for 2007. The IRS had to reprogram its forms to accommodate the law change.

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Keep Business Ethics Front and Center

By on November 28, 2012 in General, Governments
Sandersen Knox & Company LLP, CPA, Tax Accountants, Auditors

Keep Business Ethics Front and Center

With high-profile wrongdoing at Enron, WorldCom, Tyco International, and others still in recent memory — many wonder if ethics still has a role in the business world.

The question is even more relevant today, given the languishing economy. It doesn’t require much resolve to do the right things, such as paying suppliers on time and adhering to top-notch quality, when times are booming. But, if you’re short on cash, it can be easy to extend payables past their due date or skimp on quality. It’s in such times that emphasis on business ethics or “the principles of conduct governing an individual or group” is most important. With that in mind, Sandersen Knox & Company would like to share some thoughts on keeping business ethics front and center.

Setting the tone at the top

The phrase “tone at the top” is often used to describe both the attitude and actions of a business’s owners and executive management. If top managers emphasize the need to act with integrity, but don’t follow through with their actions, employees will notice. For instance, a company president who stresses honesty, yet asks an employee to backdate a check so it doesn’t clear right away, conveys the message that doing the right thing is less important than achieving a particular result.

Such actions can, in turn, prompt employees to act unethically. Consider this: The Ethics Resource Center’s asked participants in a recent study if they’d observed at least one form of a specific misconduct in the previous year. When it came to falsifying time or expense reports, 4% of respondents working in organizations with strong ethical cultures reported such an incident, compared with 19% in companies with weak ethical cultures.

Examining candidates’ values

To maintain a culture that values ethics, hire employees who also place a premium on an ethical work environment. A job candidate who values moving up at any cost may come across as an ambitious go-getter. However, if a worker starts cutting corners and fudging results — say, by recording sales before they’re actually completed — he or she will undermine your efforts to foster an ethical corporate culture.

Implementing formal policies

Owners and managers should regularly discuss workplace ethics with both employees and business partners. There should also be a written policy that outlines the approach to doing business. Putting the policy in black-and-white and making it easily available can help prevent misunderstandings, and emphasize the point that integrity comes first. An ethics policy might include provisions that state expectations for employees regarding the proper use of the business’s assets and their duty to avoid situations that would constitute a conflict of interest, such as hiring a family member.

Harnessing strong internal controls

Internal controls are processes designed to provide a reasonable assurance that your financial statements are credible and accurate, that your company complies with applicable laws, and that its operations are efficient.

A strong system of internal controls might seem most applicable in larger businesses, but it’s critical to smaller companies, which often are less able to withstand a fraudulent or criminal act. Internal controls help safeguard the company’s assets and ensure that decisions made by management, lenders and investors are based on accurate information.

A fundamental element of strong internal controls is to segregate duties within financial operations and reporting. While this won’t eliminate the possibility of fraud, having two people involved in an operation makes it more difficult to pull off. An employee who issues checks or payments, for example, shouldn’t also be responsible for recording those transactions. When checks arrive via mail, one employee should log them and another deposit them.

It’s also critical that management take a keen interest in the business’s financials. Employees should know that management regularly — and, ideally, randomly — looks in financial reports for transactions that raise a red flag, such as an unexplained spike in expenses.

Sustaining an ethical workplace

SKC suggests setting a tone at the top that stresses integrity, a written ethics policy, a commitment to hiring employees who take ethics seriously and a system of strong internal controls will help you develop and sustain an ethical workplace environment. Work with a business consultant and CPA to ensure that your ethics policies and internal controls are operating as intended.

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Beware – Public Projects and Prevailing Wages

By on August 13, 2012 in Construction, General, Governments

Sandersen Knox & Associates LLP, CPA, Tax Accountants, AuditorsUnderstand prevailing wage laws before you bid on public works projects

As the economy continues to struggle, many contractors are adding public works projects to their repertoires just to stay profitable. Public projects can be a lucrative source of new work, but they’re also subject to complex federal and state requirements fraught with traps for the uninitiated. Prevailing wage laws are among the most treacherous.

What’s required?

Most federal projects are subject to the Davis-Bacon Act, which requires federal contractors to pay a “prevailing wage.” That is, Davis-Bacon — along with its state counterparts — requires you to pay wages on a public project that are comparable to wages for similar work in the same geographic area.

What’s more, a majority of states impose similar requirements on state-funded projects. If a project is financed by both federal and state funds, the higher wage usually applies.

How are wages determined?

On federal projects, the U.S. Department of Labor (DOL) sets prevailing wage rates. On state projects, the equivalent state agency sets the rates. One of the biggest challenges for contractors bidding on public projects is worker classification. Prevailing wages may vary among different classifications, so it’s critical to get them right.

Complicating matters further, the DOL and state agencies may restrict the types of work that can be performed by workers in certain classifications. For example, a worker classified as a laborer may not be permitted to perform tasks traditionally associated with members of a particular trade or craft, such as plumbers or electricians.

Cash or fringe benefits?

Generally, prevailing wage rates consist of a base rate paid in cash and a fringe benefit amount. Contractors have the option of paying fringe benefits in cash or applying fringe benefit credits for contributions to “bona fide” benefit plans, such as health and life insurance, long-term disability plans, retirement plans, and vacation days or other paid time off.

Computing fringe benefit credits is complex, so you might be tempted to simply pay the fringe benefit amount in cash. But satisfying the fringe benefit obligation using bona fide benefit plans can be more cost-effective. Moreover, cash wages are subject to Social Security, Medicare and other payroll taxes, while contributions to benefit plans are generally exempt from these taxes.

Your advisors can help you determine which approach would be better for your bottom line in light of your existing compensation and benefit programs.

What record-keeping is needed?

Compliance with prevailing wage laws demands timely, accurate record-keeping. You’ll need to submit certified payroll reports periodically and keep accurate internal payroll records on file. It’s particularly important that you document the classification of workers and the tasks they perform.

In addition, general contractors and upper-tier subcontractors are responsible for prevailing wage violations by lower-tier subcontractors. So it’s important to gather records from these subcontractors to ensure they’re in compliance.

What are the penalties for noncompliance?

The penalties for prevailing wage violations can be severe. Under the Davis-Bacon Act, for example, they may include fines, contract termination or even “debarment” from future federal contracts for up to three years. And that’s not all — contract payments may be withheld to cover the violator’s liabilities for unpaid wages and certain other damages.

Contractors or subcontractors that falsify payroll records or demand kickbacks of wages are subject to civil and even criminal prosecution.

Plan before you bid

Compliance with prevailing wage laws is complex, so be sure you understand your obligations before you bid on a public works project. Because miscalculations can quickly wipe out any expected profits on a job, seek professional advice before you venture into this territory.

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FAR-reaching Rules for Government Contractors

By on April 9, 2012 in Construction, General, Governments

If your company performs work for the federal government, it’s critical for you to become familiar with the recently revised Federal Acquisition Regulation (FAR). All federal contractors are now required to disclose certain overpayments and legal violations. And contractors involved with larger projects must implement rigorous business ethics programs and internal control systems. Sandersen Knox & Company LLP suggests that government  contractors pay special attention to all changes included these highlighted ones as part of their business planning.

Mandatory disclosure

The new rules impose mandatory disclosure requirements in place of the previous voluntary disclosure system. Certain disclosure requirements are limited to contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. But one provision makes nondisclosure by any prime contractor grounds for suspension or debarment.

To comply, you must disclose to the government certain procurement-related criminal offenses — including fraud and bribery, violations of the civil False Claims Act and significant overpayments. Because disclosure is required for three years after final payment is received, you should look back at contracts completed in the last three years for any credible evidence of such violations.

Ethics and internal controls

With limited exceptions, the revised FAR imposes stricter ethics and internal control requirements for contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. In addition to having a written code of business conduct, you must “exercise due diligence to prevent and detect criminal conduct” and promote an ethical culture. You also should have an ethics awareness and compliance program that includes effective training and periodic communication.

In addition, the revised rules spell out several “minimum” internal control requirements, including assignment of responsibility, periodic reviews, a hotline or similar reporting mechanism for suspected fraud or embezzlement, disciplinary action for improper conduct, and exclusion of violators from management.

Meeting the standards

If you’re currently under contract with the federal government or you plan to bid on federal projects in the future, make sure you’re in compliance with FAR disclosure requirements and that you have in place an ethics program and internal controls that meet the new standards.

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Payroll Year End 2011 – Are you Ready?

By on December 5, 2011 in Construction, Governments, Tax

With payroll tax year 2011 rapidly coming to an end, employers need to start planning the year end payroll closing process early to avoid problems during the crunch. Sandersen Knox & Company has some helpful suggestions for year end payroll close tasks that you can start to do do now to help you ease the year end payroll close process.

 2011 Payroll Close Reminders: 

  • Remind any employees who have had life changes, such as marriage, divorce, or a change in the number of dependents, to make the appropriate changes to their withholding on Form W-4.
  • Remind employees who wish to continue claiming exemption from withholding to submit a new Form W-4 by Feb. 15, 2012. Beginning Feb. 16, 2012, you must withhold based on a marital status of “single” with zero withholding allowances for employees who claimed exemption from withholding in 2011, but who have not submitted a 2012 Form W-4.
  • Collect benefit and payroll adjustment information and post to employees’ payroll records. This information should include relocation, educational assistance, group-term life insurance, third-party sick pay, company cars, manual checks, and void checks.
  • Order enough W-2 forms for all the employees who have worked for you this year, as well as some extras to allow for any mistakes. Consider preparing, printing, and filing W-2s online at the Social Security Administration (SSA) website, if you don’t do this already.
  • Verify employees’ names and Social Security Numbers (SSNs) at the SSA site under Information and Instructions to Verify Social Security Numbers Online.
  • Be sure to verify calculations for the 2% employee portion of social security tax holiday for 2011 prior to the final payroll of the year in case there are any adjustments necessary.
  • Run a special payroll, if necessary, to record all manual and voided checks issued between the last regular payroll and December 31st.
  • Conduct a final review of the general ledger for hidden wages (generally, taxable noncash fringe benefits).
  • Verify that the bank reconciliation is complete through November and ask the bank to prepare an early cutoff statement for December.
  • Make sure your payroll system will be updated by January 1 to take into account any changes in federal tax-free limitations and state unemployment taxable wage bases. Employers should receive notices from the IRS and State unemployment tax agencies in advance.

The tax free exclusion for the combined value of mass transit passes, reimbursement for mass transit expenses, and payment of vanpooling expenses is currently scheduled to decrease from $230 a month to $125 a month, effective Jan. 1, 2012, unless legislation is enacted that makes this exclusion equal to the exclusion for qualified parking expenses ($240 a month in 2012). A provision included in H.R. 1, The American Recovery and Reinvestment Act of 2009, made the exclusion for the combined value of mass transit passes, reimbursement for mass transit expenses, and payment of vanpooling expenses equal to the exclusion for qualified parking expenses from March 2009 to December 2011, but that legislation is no longer in effect in 2012.
  

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President Signs 3% Contractor Tax Repeal – HR 674

By on November 22, 2011 in Construction, Governments, Tax

President Obama has signed the repeal of 3% Contractor Withholding into law on November 21, 2011.

The bill repeals Sec. 3402(t), which requires withholding of 3% of payments by the federal or state governments or their instrumentalities or subdivisions (including multistate agencies) to any person for services or property.

The bill contains a handful of other provisions.

  1. It creates tax credits—called returning heroes and wounded warriors work opportunity tax credits—for employers who hire military veterans. The credits will be available for eligible individuals who begin work for the employer after the date of enactment.
  2. The bill also amends the definition of modified adjusted gross income under Sec. 36B(d)(2), which determines eligibility for certain health care benefits and insurance coverage provisions under the Patient Protection and Affordable Care Act of 2010, P.L. 111-148. This change will be effective on the date of enactment.
  3. Finally, the bill allows the IRS to impose a 100% levy against payment due to a vendor of property sold or leased to the federal government if the vendor has an unpaid federal tax liability. Under current law only vendors of goods or services are subject to the 100% levy. It also directs the Treasury Department to conduct a study on tax compliance by vendors to the federal government.

Senate Passes H.R. 674 Repealing 3% Contractor Withholding – With Amendments

House Passes H.R. 674 Repealing 3% Withholding Rule

House Moves Toward Repeal of 3% Contractor Withholding Rule

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General Contractors Could Suffer Disaster Under 3% Withholding Rules

By on November 11, 2011 in Construction, Governments, Tax

General Contractors could be bankrupted or severely hindered by provisions of the proposed 3% withholding rule because the withholding occurs at the general contractor level and not at the subcontractor level.  Continue Reading →

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Senate Passes H.R. 674 Repealing 3% Contractor Withholding – With Amendments

By on November 11, 2011 in Construction, Governments, Tax

The Senate has passed an amended version of H.R.674, a bill to modify the Internal Revenue Code of 1986 to repeal the imposition of 3 percent withholding on certain payments made to vendors by government entities.  This will serve to provide withholding relief to contractors and other recipients of government payments.  The vote was 95 for to 0 against, 1 voting present.  Continue Reading →

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Jefferson County Alabama Bankrupt

By on November 10, 2011 in Governments

At its meeting Wednesday afternoon, November 9th, the Jefferson County Commission voted to file for Chapter 9 bankruptcy protection. County Commission President David Carrington described the Commission’s decision to petition the U.S. Bankruptcy Court as “a necessary one reached after much thoughtful consideration.”

The $4.1 billion dollar filing by Alabama’s most populous county is the largest municipal bankruptcy in US history, dwarfing the 1994 Orange County bankruptcy in size.

The County has been struggling with this debt since 2008 which involves sewer bonds issued to finance mandated improvements. The situation involved signifcant public corruption and mismanagement issues that have resulted in at least two involved parties being sentenced to Federal Prison terms in addition to the financial failure.

Reuters – From corrupt and incompetent local officials to Wall Street’s credit crisis and toxic bonds, there was plenty of blame to go around on Thursday, a day after Alabama’s Jefferson County declared the biggest municipal bankruptcy in U.S. history

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Sandersen Knox & Company LLP provides industry focused accounting and independent auditing services for governments. We would welcome your questions or comments about the topics discussed or others related to helping you achieve your objectives. Please call us at (281) 242-3232 and let us know how we can be of assistance or contact us by email.

 

 

 

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House Votes Overwhelmingly to Repeal 3% Tax Withholding Rule

By on October 28, 2011 in Construction, Governments, Tax

The House passed, H.R.674, a bill to amend the Internal Revenue Code of 1986 to repeal the imposition of 3 percent withholding on certain payments made to vendors by government entities.  This will serve to provide withholding relief to contractors and other recipients of government payments.  The vote was 405 for and 16 against, with 211 required to pass.  Senate action is now required in order for the measure to be forwarded to the President. Continue Reading →

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