Friday, April 29, 2011

Health Benefit Services News

: : Julie Seiden, Managing Director,
Health Benefits Services | 
631.923.1595 ext. 310
G.R. Reid Consulting Services, LLC

What Factors Determine Small Group Health Renewal Rates?

Determining renewal rates for small groups (2-50 employees) is not an arbitrary process. There is definitely a method to the madness. But what exactly comes into play in calculating the rates?  Despite the fact that there are various criteria to consider, generally insurers use the following factors to formulate your renewal rates:

Trends in General Healthcare
This is a baseline factor applied to all group health insurance renewals. The word "trend" refers to two things:  the change in cost of healthcare products and services, and how consumers utilize these products and services. New technologies, procedures, and even facilities encourage more people to seek advanced treatments.  And all these extra goods and services are not available for free.  They are expensive and increasing rapidly! The "prescription drug trend" is another factor that influences healthcare trends.  More and more drugs are being introduced, and the pharmaceutical companies market them aggressively.  The costs of research, development and advertising of these drugs are significant.  These rising expenditures, in combination with increasing utilization, all affect the baseline factor. Another factor in this "trend" has much to do with your group's geographic location.  Similar to housing costs, healthcare costs differ significantly upon location.  Healthcare premiums in some areas reflect the higher cost of more people using state-of-the-art, expensive, treatments and services.

Group-Specific Medical/Health Factor
A carrier may adjust renewal rates based on the overall health of the individuals covered under your health plan, depending on state regulations. The premiums can be adjusted to cover the cost of expected future claims. Based on your state regulations, some rate caps may exist that limit the amount an insurer can raise premiums based on your group's health status alone. More often than not, carriers use a "prospective" system where they look at medical conditions and diagnoses, which may affect the group's amount of claims in the coming year.  Under this system, resolved claims from the past year are not taken into account. The renewal adjustment can also be positively impacted by the overall good health of the group being evaluated.

Group-Specific Characteristic/Demographic Profile
This component includes:

1. Changes in age brackets (For example, an employee or spouse turns 50, moving them from the 45-49 bracket to the 50-54 bracket.)

2. Gender and coverage composition changes (This reflects changes in the percentage of females versus males; or changes in the mix of single and family contracts.)

3. Changes in the group's geographical location (Rates may change if the company moves to a new locale.)

Group-Specific Administrative Expenses
This factor involves the fixed costs that are necessary to administer the plan. The smaller the group, the higher the expense load. To clarify, a three-person group would have a larger expense load, as a percentage of premiums, than a 30-person group.

Given all of these factors, is there anything you can you do to reduce the costs?  
Consider adjusting your plan design and/or premium contribution to support the most efficient utilization of health care options. Also, encourage employees to become smarter healthcare consumers. Communicate with your employees so they understand their benefits, and spend some time promoting prevention and wellness programs.

Financial Services News

G.R. Reid Consulting Services, LLC

New Rules Are in The Cards

In 2010, the federal government issued a dizzying array of rules and reforms affecting the plastic you carry in your wallet. In case you had trouble keeping track, here are some of the important developments.

Credit Cards
Under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, consumers must be given a 45-day notice before any significant changes affecting their account terms can take effect. Such changes include higher interest rates, fees, and finance charges. Consumers who exceed their credit limits cannot be charged an overlimit fee without their consent. Card issuers must send statements a minimum of 21 days before the due date, which must be the same date every month. 1

Debit Cards
Banks are required to have a debit-card user’s permission before they can charge overdraft fees on point-of-sale purchases and ATM withdrawals (overdrafts via paper checks and automatic payments
are exempt; banks can continue to cover them for a fee without the account holder’s permission). Card holders who agree to the fees will have their purchases authorized when their accounts don’t have
sufficient funds. Card holders who don’t accept the fees will likely see their over-limit purchases declined. 2

Gift Cards and Certificates
Issuers cannot charge inactivity fees on cards sold on or after August 22, 2010, unless the card or certificate has been inactive for at least one year. After one year, the issuer may levy inactivity fees,
but no more than once per month. The money stored in a gift card must be usable for at least five years from the date the card was issued. If a consumer adds money to the card, the amount added
must also retain its value for at least five years. 3


Inclined to Be Declined
A significant 74% of survey respondents said they weren’t planning to opt for overdraft protection (for a fee) on their debit-card transactions.
Source: National Foundation for Credit Counseling, 2010


The content above is derived from sources believed to be accurate. 
1. Bankrate.com, 2010
2. National Foundation for Credit Counseling, 2010
3. Federal Reserve, 2010

Thursday, April 28, 2011

Life, Disability & Long Term Care Insurance Services

: : Roland A. Vitanza, J.D.
Specialist in Life, Disability and Long Term Care Insurance
631.923.1595 ext. 342  
G.R. Reid Consulting Services, LLC 

Living with Whole Life Insurance
A few weeks ago we published a post with an overview of Whole Life Insurance, briefly demonstrating how it works, what makes it an asset, and why it can be a powerful asset for any individual or family to own. In this post, the G.R.Reid Consulting Services Insurance team would like to expand on Whole Life Insurance as income replacement and how it plays an essential role in helping to create a retirement strategy with less stress.


Whole Life insurance has a permanent guaranteed death benefit. This is the most
important aspect of the product. There are major two reasons for acquiring the proper
permanent death benefit: (I) income replacement and (II) estate replacement.

I. Income Replacement:
A bread winner should have the correct amount of insurance to protect against his/ her death so as to prevent their heirs from having to deal with a financial devastation.

The following is an example situation:
If a breadwinner makes a salary of 120,000 dollars yearly, their death benefit amount should be 3 million dollars or more. Now we can explain why. After the death of the insured the beneficiary receives a lump some payment and in this case, 3 million dollars. Investing the death benefit conservatively in a vehicle that provides a 4% rate of return, the beneficiary will be able to draw 120,000 dollars from that investment yearly as income, without touching the principle of the benefit. In this case, the breadwinner’s income has been fully replaced. At G.R.Reid Consulting Services, we believe that it is financially irresponsible to not have the proper protection in place for our clients’ family members. Furthermore, by adding permanent insurance to our client’s financial portfolio we help prepare them for maximum asset distribution when it is time to retire.

II. Estate Planning:
Whole Life Insurance can truly change the way that our clients view their retirement. By purchasing the correct amount of permanent Insurance our clients will be able to live comfortably, while still leaving their heirs with a sizable estate.

The following example demonstrates that fact:
Client A plans to retire at 65 years of age. By that time his estate will be worth 3 million dollars and they will have two children who are college graduated. He has always planned to leave his children with a large inheritance, but still would like to enjoy retirement. Client A’s investment accounts are generating a four percent rate of return leaving an annual taxable amount of 120,000 to live on in retirement, plus social security. Client A has grown accustom to living life with at least an income of 250,000 yearly. How will he and his wife be able live with about half of that amount and not invade principle? Statistically retirees use just as much income in retirement as they did while they were part of the working force. Not to mention, the biggest unforeseen asset depletion in retirement, extended elder care when in most cases Medicaid will not assist; families can be bankrupted by out of pocket costs of Long Term Care.

By owning Whole Life Insurance and by having a permanent death benefit of 3 million dollars to replace their estate they do not have to worry about living off of the interest of their assets. Client A can cut into his principle in order to generate much more than 120,000 a year from which to live. Furthermore, the cash value of the whole life insurance policy will be growing all the while, creating even more disposable income in retirement and if Long Term Care costs eventually did deplete the estate, the permanent benefit will always remain to replace it entirely.

The Insurance team of G.R. Reid Consulting Services has the goal of making sure that our clients have the best insurance coverage now and far into the future.

Commercial Insurance Services

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC

Don't Forget Insurance for Your Organization's Cyber Risks
 
The Federal Internet Crime Complaint Center received over 330,000 complaints in 2009, and more than a third of them ended up in the hands of law enforcement. The damages from those referred to the authorities totaled more than a half billion dollars. The Government Accountability Office estimated that cyber crime cost U.S. organizations $67.2 billion in 2005; that number has likely increased since then. With so much of business today done electronically, organizations of all types are highly vulnerable to theft and corruption of their data. It is important for them to identify their loss exposures, possible loss scenarios, and prepare for them. 


Some important questions to ask include:
What types of property are vulnerable? 

The organization should consider property it owns, leases, or property of others it has in its custody. 

Some examples:
•  Money – both the organization's own funds and those it holds as a fiduciary for someone else
 
•  Customer or member lists containing personally identifiable information, account numbers, cell phone numbers, and other non-public information 
•  Personnel records 
•  Medical insurance records 
•  Bank account information 
•  Confidential memos and spreadsheets 
•  E-mail 
•  Software stored on web servers

Different types of property will be susceptible to various threats, such as embezzlement, extortion, viruses, and theft.


What loss scenarios could occur? 

The organization needs to prepare for events such as:
• A fire destroys large portions of the computer network, including the servers. Operations cease until the servers can be replaced and reloaded with data.
• A computer virus infects a workstation. The user of that computer unknowingly spreads it to everyone in his workgroup, crippling the department during one of the year's peak periods.
• The accounting department discovers a pattern of irregular small funds transfers to an account no one has ever heard of. The transfers, which have been occurring for almost three months, were small enough to avoid attracting attention. They total more than $10,000.
• A vendor's employee strikes up a casual conversation at a worker's cubicle and stays long enough to memorize the worker's computer password, written on a post-it note stuck to her monitor. Two weeks later, technology staff discover that an offsite computer has accessed the human resources database and viewed Social Security numbers, driver's license numbers, and other personal information.


In addition to taking steps to prevent these things from happening, the organization should consider buying a cyber insurance policy. 


Several insurance companies now offer this coverage; while no standard policy exists yet, the policies share some common features. They usually cover property or data damage or destruction, data protection and recovery, loss of income when a business must suspend operations due to data loss, extra expenses necessary to maintain operations following a data event, data theft, and extortion. However, each company may define these coverages differently, so reviewing the terms and conditions of a particular policy is crucial. Choosing an appropriate amount of insurance is difficult because there is no easy way to measure the exposure in advance. Consultation with the organization's technology department, insurance agent and insurance company may be helpful. Finally, all policies will carry a deductible; the organization should select a deductible level that it can afford to pay and that will provide it with a meaningful discount on the premium. Once management has a thorough understanding of the coverages various policies provide in relation to the organization's exposures, it can fairly compare the costs of the policies and make an informed choice.
 

Computer networks are a necessary part of any organization's environment today. Loss prevention and reduction techniques, coupled with sound insurance protection at a reasonable cost, will enable an organization to get through a cyber loss event.

Tuesday, April 26, 2011

Human Resource Services

:: Deidre Siegel
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
Read about G.R. Reid Human Resource Management Tools

Are You Classifying Your Employees Correctly?

The IRS has launched a three year program that will randomly examine 6,000 companies to identify permanent workers that are being misclassified as freelancers (1099s). They are seeking violators of the Tax Code and most of this activity is being targeted to SMALL BUSINESS OWNERS. Why? The IRS believes that small businesses are more likely to evade taxes – but the truth is that it is much easier and faster for the IRS to audit smaller businesses. The U.S Department of Labor estimates indicate that almost 30% of companies allegedly misclassify at least some of their employees. As Human Resource professionals, we know that most of the time that is not being done intentionally! Let us come in and educate you, and verify that you are classifying your employees correctly!

Human Resource Services

: : Karen Randle, Director, Human Resource Services
631.923.1595 ext. 334
G.R. Reid Consulting Services, LLC

Upcoming Effective Dates That May Apply to Your Company:

May 5, 2011  / FLSA Tip Credit

 The final rule provides that to use the tip credit, an employer must inform a tipped employee about several aspects of using the tip credit, including the direct cash wage the employer is paying the tipped employee. The rule also clarifies, though does not amend, certain issues related to the meal credit, compensatory time provisions and the fluctuating workweek method of computing overtime.


May 16, 2011 / I-9 Final Rule: Acceptable Documents
U.S. Citizenship and Immigration Services announced a final rule that prohibits employers from accepting expired documents and revises the list of acceptable documents. While the final rule makes no changes to the interim rule that has been in effect since April 2009, employers are encouraged to ensure they have the most up-to-date resources on this issue.


May 24, 2011 / ADA Amendments Act Final Rule

The long-awaited final regulations updating the Americans with Disabilities Act (ADA) scale back the proposed rule in several respects, including the definition of "disability." Instead of listing impairments consistently considered disabilities under federal law, the regulations provide guidelines for employers to use in identifying disabilities.

Monday, April 18, 2011

Health Benefit Services News

: : Julie Seiden, Managing Director,
Health Benefits Services | 
631.923.1595 ext. 310
Health Care Reform Brings About First-Dollar Preventive Care
 
The Patient Protection and Affordable Care Act, signed into law in 2011, is beginning to bring about changes to the nation's health care system. Last July, a summit between the U.S. Departments of Labor, the Treasury, and Health and Human Services came together to issue new Preventive Regulations, in accordance with the President's health care reform bill.

The new regulations require non-grandfathered health care plans to provide complete coverage of many preventive services for newborns, children, and adults, regardless if deductible costs are met. These regulations apply for the first plan year on or after September 23, 2010.

The government has put these regulations in place in order to increase patients' access to numerous services, such as diabetes and cholesterol tests, prostate and other cancer screenings, child/adult vaccinations, pre-natal services, and routine checkups for children and infants. In the past, many patients were required to cover deductible costs or share the cost of these services, but now preventive care will be covered on a full first-dollar basis. The new regulations only apply to in-network providers.

The Department of Health and Humans Services, or HHS, hopes that the increased access to high-quality preventive care will lead to earlier detection of disease and improve Americans' overall health, essentially lowering health care costs. In the United States, 7 out of every 10 deaths are caused by chronic diseases, like cancer, diabetes, and heart disease. HHS estimates that 75% of the country's health care dollars are spent on fighting diseases and illnesses that can be prevented. Additionally, the HHS states that Americans receive preventive services about half as much as they need to.

Increased Coverage
Here are a few health care services that will be covered under the new regulations:
  • Preventive Care
The U.S. Preventive Services Task Force selected a variety of services to be covered, including screenings for colon and breast cancer, screenings for high blood pressure and cholesterol, checkups during pregnancy, help for smokers trying to quit, and other high-priority preventive care services.
  • Vaccinations
Routine vaccinations selected by the Advisory Committee on Immunization Practices for children and adults are fully covered by the new regulations. These vaccines include Hepatitis A and B, MMR, Meningococcal, Tetanus, flu shots, and others.
  • Care for Children
All new plans will now cover the preventive services recommended by the American Academy of Pediatrics in their "Bright Futures" guidelines. Services include access to pediatricians until the age of 21, regular wellness checkups, hearing and vision screenings, developmental assessments, vaccines, and care that addresses childhood obesity.
  • Women's Care
Health screenings for anemia and other risk factors in pregnant women are covered, along with screenings for breast cancer and osteoporosis in older women, as well as other preventive measures. An independent council of doctors and medical experts are currently working on new preventive care guidelines for women. Prescription contraceptives are not currently listed as a covered preventive service, but officials from the Planned Parenthood Federation of America hope that contraceptives will begin to receive first-dollar coverage within the next year or two.

Information on all of the covered services can be found on the government's www.healthcare.gov website.

Commercial Insurance Services

: : Louis A. Santelli, CPCU, CIC
Managing Director, Commercial Insurance Service
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC 




Don't Make the Mistake of Only Looking at Cost When Evaluating New Health Plan Carriers
  
Over recent years, at least from a percentage standpoint, health plan costs continue to rise substantially. These hikes and the continued premium increases are simply more than many businesses are able or willing to absorb. This conundrum leaves many employers trying to decide if they should pass on part or all of the increased cost to their employees, cutback on benefits, or seek a different carrier offering a more cost-effective plan.

If leaning toward the third option, remember that many factors go into evaluating and vetting potential carriers. Even when considering a health insurance carrier change due to being dissatisfied with customer service, record of claim payment, or services offered by your current carrier, employers should carefully evaluate potential new carriers before jumping aboard.

Here are ten key questions that you may want to ask 
when evaluating and vetting potential carriers:

1. Is the carrier financially stable and licensed? Insurance rating services and your state insurance commission can help you determine many of these important stability issues.

2. Does the carrier only issue coverage under the stipulation that a certain number or percentage of your employees enroll?

3. How does the carrier set their premium rates and allocation of premium cost among claims, commissions, and administrative expenses or fees?

4. Does the carrier have a sufficient range of providers and locations in their provider network and how many employees will have to make a provider change under the potential new carrier's provider network? Employees often cite having to change from their current provider or usual hospital and having to pay more to continue with their current provider as the most disruptive elements of a carrier change.

5. Does the carrier have a positive reputation when it comes to the accuracy and efficiency of claim payments? It's important to ensure that the carrier has a positive history since employee dissatisfaction in this area can really hurt you during the renewal period. As far as overall reputation, it might be helpful to ask the carrier to provide you with references from customers with a similar sized, located, and niche business.

6. Does the carrier offer a choice when it comes to plan options like co-payments and deductibles? Choice is important to employees and raises the likelihood of their satisfaction with the plan. It can also result in substantial cost savings, as some employees will opt for cheaper high co-payment and deductible options.

7. Does the carrier offer plans with preventive screening and wellness programs? Services like these can be a cost saver in many areas, even extending into increased employee productivity and decreased employee absences.

8. What technology does the carrier use to facilitate ease of access to plan information and, if that portal doesn't provide sufficient information, is there a real person accessible to address the issue? Having such can save you money and time by cutting down on the calls participants make to your human resource department to have their coverage or claim questions answered.

9. What steps does the carrier implement to control cost and waste and ensure appropriate care? You might use quality indicators, such as those under the Healthcare Effectiveness Data and Information Set (HEDIS), to determine the performance and effectiveness of a plan on issues like how the plan responds to complaints or access to medical specialists.

10. What is the carrier's definition of key contract provisions, such as dependents, usual and customary, coordination of benefits, and covered employees, and what are the caps, exclusions, and limitations on services? Of course, none of the above should seem extreme. It's also important that the provisions reflect the unique needs of your work force.

As you evaluate carriers and plans, you'll be glad that you didn't just look at cost. The above questions will help you get started weighing cost and coverage with the carrier's stability, reputation, and responsiveness to determine the best carrier and plan for your business.

Friday, April 15, 2011

Accounting & Tax News

G. R. Reid Associates, LLP 

As A Result of These Difficult Times...

Many clients have recently asked:  
What will happen and what should we do in the event that we cannot pay our taxes on time?

First and most importantly, don't let your inability to pay your tax liability in full keep you from filing your tax return properly and on time. It is also important to remember that an extension of time to file your tax return doesn't also extend the time to pay your tax bill. Even if you can't make full payment of your liabilities, timely filing your return and making the largest partial payment you can will save you substantial amounts in interest and penalties. Additionally, there are procedures for requesting payment extensions and installment payment arrangements which will keep the IRS from instituting its collection process (liens, property seizures, etc.) against you.

An Overview of The Most Common Penalties

The “failure to file” penalty accrues at the rate of 5% per month or part of a month (to a maximum of 25%, reached after five months) on the amount of tax your return should show you owe.

The “failure to pay” penalty is gentler, accruing at the rate of only 0.5% per month or part of a month (to a maximum of 25%, reached after fifty months) on the amount actually shown as due on the return.

If both apply, the failure to file penalty drops to 4.5% per month, so the total combined penalty remains at 5%—thus, the maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months, yielding an additional 22.5%. In total, these combined penalties can reach 47.5% of your unpaid liability in less than five years.

Both of these penalties are in addition to the interest that you will be charged for your late payment. If you also missed estimated tax payments, an additional penalty is tacked on for the period running from each payment's due date until the tax return due date, normally April 15th. This penalty is computed at 3% above the fluctuating federal short-term interest rate for the period.

Borrowing Money to Pay Taxes

Given the rate at which the above-mentioned penalties and interest accrues, it might be a good idea to borrow money to pay the taxes. In many situations, the rate of interest that you would pay to a family member, or even to a bank, is less overall than that which you would have to pay the IRS. Loans from relatives or friends are often the simplest method to pay the bill. One advantage of such loans is that the interest rate will probably be low, but you must also consider that loans over $10,000 at below-market interest rates may trigger tax consequences. When loans from individuals are not available, a loan from a bank or other commercial source could be sought, but such loans are not likely to be made on favorable terms to a hard-pressed taxpayer. Moreover, interest on a loan to pay taxes is nondeductible personal interest. In contrast, if you can take out a home equity loan and use the proceeds to pay off your tax debts, you will probably be paying at a lower rate than with other types of loans, and the interest payments will be deductible even if the loan proceeds aren't used in connection with the house.

Credit Cards
It is relatively quick and easy to use credit cards to pay the income tax bill, whether you file your income tax return by mailing a paper copy or by computer. In addition, three companies (Official Payments Corporation at 888-872-9829, Link2Gov Corporation at 888-729-1040, and RBS WorldPay, Inc. at 888-972-9829) are authorized service providers for purposes of accepting credit card charges from both electronic and paper filers. However, credit card loans are likely to be at relatively high interest rates and the interest is not deductible. Moreover, the service providers typically charge an additional fee based on the amount you are paying.

Installment agreement request
If you cannot or prefer not to take out a loan, you might be able to defer your tax payments by requesting that the IRS enter into an installment payment agreement with you. This request is made on Form 9465 or by applying for a payment agreement online. There are various options for making your monthly installment agreement payments, including the direct debit and payroll deduction methods, both of which are made automatically and thus reduce the risk of default. If you file and request a payment agreement online, there are three available payment options: (1) payment in full within 10 days (which saves on interest and penalties); (2) short-term extension of up to 120 days (for which no fee is charged, but additional penalties and interest accrue); or (3) monthly payment plan (which carries a user fee in addition to the continued accrual of penalties and interest). You can also request an installment agreement on Form 9465, which can be filed along with either an e-filed or paper return. If the liability is under $25,000, you will not be required to submit financial statements. Even if your request to pay in installments is granted, you will be charged interest on any tax not paid by its due date. However, the late payment penalty will be half the usual rate (0.25% instead of 0.5%) if you file your return by the due date (including extensions). The IRS charges a fee for installment agreements, which will be deducted from your first payment after your request is approved. The fee for entering into an installment agreement is regularly $105, but it is reduced to $52 when the taxpayer pays by way of a direct debit from the taxpayer's bank account. Notwithstanding the method of payment, the fee is $43 if the taxpayer is an eligible low-income taxpayer. There is a $45 fee to restructure or reinstate an established installment agreement that applies regardless of income levels or method of payment.

Note that an installment agreement request can be made after the expiration of a hardship extension period (described below). Additionally, the IRS has the authority to enter into an installment agreement calling for less than full payment of the tax liability over the term of the agreement if it determines that such an agreement will facilitate partial collection of the liability. The installment agreement may terminate, and all your taxes become due immediately, under certain circumstances (for example, if you stop making payments).

The IRS is required to enter into an installment agreement at your request (a “guaranteed installment agreement”) if the following apply:
• The tax liability is $10,000 or less (not counting interest and penalties);
• Within the prior 5 years you have not (i) failed to file returns or pay taxes, or (ii) entered into a   
  previous installment agreement;
• The IRS determines the tax liability cannot be paid in full;
• The installment agreement provides for full payment within 3 years; and
• You agree to comply with the tax laws during the agreement period.
As a matter of policy, the IRS often grants guaranteed installment agreements even if taxpayers are able to fully pay their accounts.

Undue Hardship Extensions
You may also qualify for an extension of time to pay if you can show that payment would cause “undue hardship.” An undue hardship extension is applied for with Form 1127, to which you must attach a statement of assets and liabilities as well as an itemized list of receipts and disbursements for the 3 months preceding the tax due date. If you qualify for an undue hardship extension, you will be given an extra six months to pay the tax shown as due on your tax return. You will avoid the failure to pay penalty, but you will still be charged interest. If the IRS determines a “deficiency” (i.e., that you owe taxes in excess of the amount shown on your return), the undue hardship extension can be as long as 18 months and, in exceptional cases, another 12 months can be tacked on. However, no extension will be granted if the deficiency was the result of negligence, intentional disregard of the tax rules, or fraud. To establish undue hardship, it is not enough to show that it would just be inconvenient to pay your tax when due. For example, if you would have to sell property at a “sacrifice” price, you may qualify for an undue hardship extension. However, if a market exists, having to sell property at the current market price is not viewed as resulting in an undue hardship. To qualify for an extension, you would have to: (i) show that you do not have enough cash and assets convertible into cash in excess of current working capital to meet your tax obligations; (ii) show you cannot borrow the amount needed except on terms that would inflict serious loss and hardship; and (iii) provide security for the tax debt. The determination of the kind of security—such as a bond, filing a notice of lien, mortgage, pledge, deed of trust, personal surety, or other form of security—will depend on the particular circumstances involved. However, no collateral is required if you have no assets.

Offer-in-Compromise
Another potential way to deal with unpaid taxes is by using an offer-in-compromise, which is a technique that may allow you to settle your tax debt for a fraction of its face value. This option is available only if you have already filed your return but are unable to pay your taxes—in other words, it can't be requested prospectively. Like any creditor, the IRS prefers a partial payment to no payment at all. Thus, the IRS might be willing to settle your liability for less than the full amount if: (a) you aren't able to pay the full amount, (b) there is doubt as to how much the tax liability is, (c) collection of the liability would create economic hardship for you (for instance, if you are out of work due to health problems, or if sale of your assets to pay the tax would leave you without enough money to meet basic living expenses), or (d) compelling public policy or equity considerations exist, and due to the exceptional circumstances (such as a medical condition that prevents proper management of financial affairs, or reliance on erroneous advice from the IRS), the IRS's collection of the full liability would undermine public confidence in the fair and equitable administration of tax laws. The process is started by actually making an offer-in-compromise. If the offer is based on any reason other than doubt as to how much the tax liability is, you must submit your financial information along with the offer. If it is grounded on doubt as to the liability, the IRS is not permitted to request a financial statement. Partial payments must be made to the IRS while a periodic payment offer is being considered. For lump-sum offers, or offers involving five or fewer installments, a 20% down payment (of the total offer amount) must be made with the application. In order to obtain an offer-in-compromise based on any of the above mentioned grounds except doubt as to liability, you must agree to comply with all tax law rules on filing returns and paying taxes for the longer of five years or until the offered amount is paid. If you don't comply with these rules, the compromise will terminate and the IRS can seek collection of the original liability amount.

Innocent Spouse Relief
If you are unable to pay liabilities that are attributable to your spouse, it might be worth exploring whether you are eligible for relief under the “innocent spouse” provisions. Under limited circumstances, a taxpayer can be relieved from liabilities shown on a joint return filed with a spouse. In general, relief is potentially available for: erroneous items attributable to the other spouse of which you had no knowledge or reason to know; the separate liabilities of a spouse to whom you are no longer married or with whom you no longer reside (including deceased spouses); and liabilities for which it would otherwise be inequitable to hold you liable. This is a very specialized type of relief that carries many procedural and substantive requirements that are beyond the scope of this letter, but it's important that you're aware of it because there are strict time restrictions associated with claiming innocent spouse relief.

Avoiding More Serious Consequences
Many taxpayers ignore their tax liabilities when they run into financial difficulties—for example, by failing to file their tax returns. However, tax liabilities do not go away if left unaddressed, and failing to deal with the problem often exacerbates it. It is very important that you timely file a properly prepared return, even if full payment cannot be made. Include as large a partial payment as you can with the return, and start working with the IRS on one (or more) of the options discussed above as soon as possible. Otherwise, you may face escalating penalties, the risk of having liens assessed against your assets and income, or even seizure and sale of your property. In many cases, these tax nightmares can be avoided by taking advantage of the arrangements offered by the IRS.

Of course, we are available to discuss all of these matters with you on a strictly confidential basis and to offer advice and assistance. Please don't hesitate to call.

Wednesday, April 13, 2011

Human Resource Services


:: Deidre Siegel
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
Read about G.R. Reid Human Resource Management Tools

The Best Defense Is a Good Offense

The best way to avoid costly litigation is to perform regular HR audits and reviews of employee job functions and payroll processing. Laws regulating employee pay vary by state and change as new legislation is passed and case law developed. In addition, job duties and compensation structures evolve over time. Either of these scenarios can mean that policies and practices that had been acceptable (such as classifying a group of employees as exempt from overtime under the federal Fair Labor Standards Act and state wage and hour laws) may need to be revised.

It is possible that a rule or policy has a different effect than intended. A common example is the rounding of time records. Federal regulations allow rounding as long as it is used “in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked,” according to the U.S. Code of Federal Regulation at 29 CFR 785.48(b).

A review of the pay process may verify that the rounding rules are properly applied, but it’s possible that the net effect of rounding is still negative. For example, if your company’s employees tend to arrive a few minutes early and stay a few minutes late, they may be regularly hurt by the rounding rule. If that is the case, it is advisable to revise the rounding policy to avoid claims of improper rounding.

By completing regular review of job functions and pay practices, business owners can ensure that any necessary changes are made in a timely fashion and thus help protect you from lawsuits.