Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 


Expanded Foreign Reporting Requirements for 2011 Tax Filings 

Individual taxpayers who own foreign financial assets should be aware that there are new and updated filing requirements.Individuals who have financial interests in foreign bank accounts, securities or other foreign assets may now be subjected to filing requirements with both the IRS and the U.S. Treasury. Each of these organizations has separate reporting thresholds and forms in order to comply with the foreign reporting requirements.



The IRS defines a financial interest as receiving any gains, losses or distributions from holding or disposing of the account or asset that would be required to be recorded on an income tax return. For this form, specified foreign financial assets includes financial accounts held in foreign accounts, securities issued by non-U.S. persons, interests in foreign partnerships, and other foreign assets not held in financial institutions. Form 8938 is required to be filed with the individual’s timely filed income tax return including extensions. Failure to comply with the requirements of Form 8938 may result in penalties. Those who fail to disclose a foreign financial asset can be fined up to $10,000 at the time of the discovery by the IRS. If failure to disclose continues, additional fines may be imposed. Taxpayers who willfully fail to file Form 8938 also face potentially criminal penalties.

U.S. Treasury Form TD F 90.22-1
The U.S. Treasury also requires the filing of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. This form is required for those with financial interest or signature authority over a foreign bank account in which the value exceeds $10,000 at any time during the calendar year. A financial interest includes owners of the account and anyone who has the authority to control the disposition of the assets. If a taxpayer is required to file this form, the maximum value of the financial account during the year must. Form TD F 90-22.1 must be received by the U.S. Treasury on or before June 30th.

Failure to comply with the Treasury requirements could potentially result in civil and criminal fines. Individuals willfully not reporting a foreign financial account may be faced with a fine equal to the greater of $100,000 or 50% of the unreported account balance. In addition to monetary penalties, criminal penalties of up to $250,000 or imprisonment for up to five years, or both can be assessed to those who willfully avoid reporting. If the individual failed to report in a non-willful manner a fine of up to $10,000 can be assessed.

Individuals who have previously failed to file Form TD F 90.22-1 for years prior to 2011 can become compliant by filing late returns and reporting income associated with the foreign accounts.   The IRS currently has a voluntary disclosure initiative in effect to assist taxpayers with this process. (An individual should seek tax advice before approaching the IRS.)

Conclusions
Based on the requirements of the IRS and U.S. Treasury, it may be necessary for individuals to file both Form 8938 and Form TD F 90.22-1. It is imperative that taxpayers access their holdings in foreign assets and accounts to determine if they are affected by these updated regulations.

Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 

State & Local Tax Credits and Incentives

New York City Green Roof Tax Credit 
You may qualify for a real property tax abatement if you constructed a "green roof" covering at least 50% of a building’s rooftop space on a class one, two, or four building.

Connecticut Enterprise Zone Credit And Exemption
If you have a qualified business located in an Enterprise Zone, you may be entitled to a tax credit for 10 years or be exempt from sales and use tax.

New York Brownfield Redevelopment Credit 
A 10% to 20% credit may be available to you for the costs of certain site preparation, tangible property, and ground water remediation.

New Jersey Enterprise Zone Tax Credit And Exemption 
You may be entitled to a tax credit for hiring new employees or investing within an Enterprise Zone (EZ) and may be exempt from sales and use taxes for certain purchases of property and services used within the EZ.

Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 

How do I...Obtain back tax returns or account information from the IRS?

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

In such circumstances, you may obtain a copy of your tax return by filing Form 4506, Request for Copy or Transcript of Tax Form, along with the applicable fee, to the IRS Service Center where the return was filed. Also, tax account information based on the return may be obtained free of charge from IRS Taxpayer Service Offices. You may also request a transcript that will show most lines from the original return, including accompanying forms and schedules.

Fees 
There is no charge to request a tax return transcript of the Form 1040 series filed during the current calendar year and the three preceding calendar years. For other requests, a fee of $23.00 per tax period requested must be paid in order to obtain copies of a return. Taxpayers seeking tax account information (such as adjusted gross income, amount of tax, or amount of refund) should contact their local IRS Taxpayer Service Office, which will provide the account information free of charge.

Timing of Requests 
A request for a copy of a return must be received by the IRS within 60 days following the date when it was signed and dated by the taxpayer. It may take up to 60 calendar days to get a copy of a tax form or Form W-2 information. If a return has been recently filed, the taxpayer must allow six weeks before requesting a copy of the return or other information. The IRS cautions that returns filed more than six years ago may not be available for making copies; tax account information, however, is generally available for these periods.

You may be able to save some time by going directly to your tax return preparer for the information. Although a return preparer may retain a copy of the taxpayer’s return, however, there is no absolute requirement to do so. Preparers must retain for three years either a copy of each completed return and claim for refund or a list of the names and taxpayer identification numbers of taxpayers for whom returns or claims have been prepared.

Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 


What You Should Know About Sales and Use Tax Exemption Certificates
 
Business owners should be concerned about exemption certificates and understand when and why they should obtain them so they can minimize sales tax exposure should the business be audited.

Why are exemption certificates required?
Sales tax exemption certificates are required whenever a seller makes a sale of taxable goods or services, and does not collect sales tax in a jurisdiction, in which they are required to. The certificate is issued by a purchaser to make tax-free purchases that would normally be subject to sales tax. Most state sales tax exemption certificates do not expire and the seller is required to maintain exemption certificates for as long as sales continue to be made to the purchaser and sales tax is not collected. Exemption certificates are not required for items that are not taxable by statute.

Is there a global exemption certificate that can be used in multiple states?
No, unfortunately there are no global rules regarding exemption certificates. Each state has its own set of exemption certificates as well as rules and regulations covering their use.  However, some general rules do apply. For example, most states have broad categories of exemptions – resale, government, manufacturing, exempt organizations, telecommunications, agricultural, etc. Since not every state has every exemption in place, local rules and local compliance requirements must be considered.

Do states differ in their treatment of sales made to exempt organizations and governmental agencies?
Yes, states differ in their treatment of sales made to exempt organizations (501 (c) (3) status for income tax purposes) and governmental agencies. A general rule of thumb is that purchases by the Federal government are exempt in every state, but documentation requirements vary. Some states tax state and local government purchases including MN, SC, WA, CA, AZ and HI. States that do exempt state and local governmental agencies generally require the purchases must be for the exclusive use of the exempt entity and the exempt entity must be the payer of record.

Most clients think all sales made to not-for-profit 501 (c) (3) organizations are automatically exempt. This could be a costly presumption. In order for a not-for-profit to be exempt the organization must apply for, and be granted, exempt sales and use tax status in the state(s) in which they conduct business. Don’t be fooled by the organization’s exempt sounding name, ensure you obtain a properly completed exemption certificate if tax is not charged or you may be subject to penalties for not collecting sales tax.

As a seller, how do I know which exemption certificate applies to a transaction?
As noted above, there are no quick and easy rules regarding exemption certificates. Different certificates apply for different exemptions, and there may be unique certificates for specialized property or services. One must research the various tax department web sites or consult with their SALT advisor to determine which form applies.  For example, the New York State Department of Taxation and Finance’s website posts a very helpful Tax Bulletin, ST-240 Exemption Certificates for Sales Tax, which explains who may use exemption certificates, how to use them properly and which certificate should be used based upon general sales tax exemptions in the Tax Law. The bulletin can be found at: http://www.tax.ny.gov.

Why can’t a seller simply issue a Multi-Jurisdiction Certificate (MJC) as prescribed by the Multi-State Tax Commission or the Streamlined Sales Tax Agreement Exemption Certificate developed by the Streamlined Sales and Use Tax Governing Board ? 
As discussed above, sales and use tax rules vary by state.  To help sellers meet their 
multi-jurisdictional obligations, many states have joined the Multi-State Tax Commission or the Streamlined Sales Tax Project.

The Multistate Tax Commission is an intergovernmental state tax agency working on behalf of states and taxpayers to administer, equitably and efficiently, tax laws that apply to multistate and multinational enterprises. The Commission has developed a Uniform Sales and Use Tax Certificate that 38 States accept for use as a "blanket" resale certificate (the use of this certificate is not valid in New York State and several others). States however vary in their rules regarding requirements for reseller exemption. Some states require that the reseller (purchaser) be registered to collect sales tax in the state where the reseller makes its purchase. Other states will accept the certificate if an identification number is provided for another state (e.g., the home state of the purchaser). One must check with the appropriate state to determine whether you meet the requirements of that state to be considered a reseller and if one can use the MJC to claim an exemption from sales tax.

The Streamlined Sales and Use Tax Project (“SSTP”) is a cooperative effort of 44 states and the business community to simplify sales and use tax collection administration by retailers and states. As a means to make it easier for retailers and remote sellers who operate in multiple states to conduct their business in a fair and competitive environment, the Governing Board of the SSTP developed a multi-state exemption certificate, the Streamlined Sales Tax Agreement Exemption Certificate. The certificate provides a variety of exemptions and is not limited to resale type of transactions. Not all states allow all exemptions listed on this form and states such as New York do not accept the use of this certificate as a valid exemption certificate. Purchasers are responsible for determining if they qualify to claim exemption from tax in the state that would otherwise be due tax on the sale. So, depending upon the rules in a given jurisdiction and their level of participation in the MJC or SSTP different exemptions and filing requirements could apply.

What is meant by a “properly completed” certificate?
In most states a properly completed exemption certificate means the certificate is completed in its entirety by the purchaser, i.e. every line required to be completed is completed by the purchaser issuing the certificate. Most states require that the properly completed certificate be obtained within 90 days of the date of sale and that a seller accept the certificate in “good faith”. Accepting a certificate in good faith means that the seller has no reason to believe that what the purchaser has indicated on the certificate is not true.

What happens if a seller didn’t obtain a properly completed exemption certificate and can’t locate the customer to obtain a new one because they are no longer in business?
In most audit situations a non-taxable sale not supported by a properly completed exemption certificate will be disallowed and sales tax will be assessed against the seller, even though sales tax, in general, is a “consumer tax."  To make matters worse, since most non-taxable sales are reviewed using a “test period audit method” (a limited period is “tested” and an error rate is developed which is projected throughout the audit period) the sales tax due on each disallowed sale will be “projected” throughout the entire audit period. A missing or incomplete exemption certificate can create unnecessary exposure on an audit due to the mathematical compounding of the error rate:

Say the auditor tests a total of $525,000 worth of non-taxable sales for a one month period. Of that amount, the auditor disallows $12,000 worth of the non-taxable sales in the test period due to lack of properly completed exemption certificates. Assuming an 8% sales tax rate and 36 months in the audit period, the auditor will project additional sales tax due of $34,560 ($12,000 x 8% = $960 X 36 months) as the result of only $960 of additional tax found due in the test period.

In addition to the business being assessed sales tax as the result of missing or incomplete exemption certificates, most states hold “responsible persons” (those under a duty to act for the business) personally liable should the business not fully pay the tax, penalty and interest due as the result of an audit. Consequently, using the example above and assuming the business does not agree or does not fully pay the tax found due on audit, the business owner will have an assessment issued personally for the $34,560 of tax due, plus penalty and interest. Personal assessments can severely affect credit ratings and will certainly cause unnecessary financial hardship.

What can one do to avoid or minimize exposure on audits when obtaining exemption certificates?
The following best practices can help minimize or eliminate exposure on audit of your business’s non-taxable sales:

• Become familiar with exemption certificates in the states where you conduct business and design an exemption certificate policy that everyone in your company must adhere to, with no exceptions. 
• Obtain a properly completed exemption certificate at the time of first sale. Too often a seller is told by their customer, “I’m exempt, don’t charge me tax, I’ll send you an exemption certificate”, and of course the customer never sends it.  Charge sales taxes on all taxable sale transactions until you receive a properly completed exemption certificate.
• Ensure that exemption certificates are maintained for the required time period to support the non-taxable status of exempt sales. Your file may need to be retained for a long as you continue not to charge a certain customer sales tax or the period of the statute of limitations in the state(s) where you do business, whichever applies. And remember, it is not enough to simply get the certificate; you must also maintain it and make it available during an audit.
• Centralize the receipt and storage of all exemption certificates. A decentralized filing system can lead to gaps in proper internal control over exemption certificates. Decentralized certificate retention often leads to lost or incomplete certificates. Don’t spread the responsibility throughout your business. Costly errors often occur when exemption certificates are obtained by salespeople, store managers, store clerks, etc. who may not be properly trained to identify what is a properly completed certificate or the correct certificate to obtain.
• In businesses where there are many exemption certificates on file, a good idea is to maintain certificates electronically. Specialized software is available which can reduce audit exposure and increase productivity by centralizing exemption certificate management.

Whether you sell taxable products or services and don’t collect sales tax, or you purchase items without paying sales tax, you must know the sales and use tax consequences of your activities in each state you do business in. Be sure to obtain exemption in states where nexus has been established, then focus on the type of exemption being claimed to insure the correct exemption certificate is obtained. If you have any questions, visit our website at www.GRRCPAS.com.

Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 314
G. R. Reid Wealth Management Services, LLC  

Common Stock vs. Preferred Stock

Common stock and preferred stock are the two main types of stocks that are sold by companies and traded among investors on the open market. Each type gives stockholders a partial ownership in the company represented by the stock.
 
Despite some similarities, common stock and preferred stock have some significant differences, including the risk involved with ownership. It’s important to understand the strengths and weaknesses of both types of stocks before purchasing them.
 
Common Stock
Common stock is the most common type of stock that is issued by companies. It entitles shareholders to share in the company’s profits through dividends and/or capital appreciation. Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. Of course, the company’s board of directors can decide whether or not to pay dividends, as well as how much is paid.
 
Owners of common stock have “preemptive rights” to maintain the same proportion of ownership in the company over time. If the company circulates another offering of stock, shareholders can purchase as much stock as it takes to keep their ownership comparable.
 
Common stock has the potential for profits through capital gains. Shareholders are not assured of receiving dividend payments. Investors should consider their tolerance for investment risk before investing in common stock.
 
Preferred Stock
Preferred stock is generally considered less volatile than common stock but typically has less potential for profit. Preferred stockholders generally do not have voting rights, as common stockholders do, but they have a greater claim to the company’s assets. Preferred stock may also be “callable,” which means that the company can purchase shares back from the shareholders at any time for any reason, although usually at a favorable price.
 
Preferred stock shareholders receive their dividends before common stockholders receive theirs, and these payments tend to be higher. Shareholders of preferred stock receive fixed, regular dividend payments for a specified period of time, unlike the variable dividend payments sometimes offered to common stockholders. Of course, it’s important to remember that fixed dividends depend on the company’s ability to pay as promised. In the event that a company declares bankruptcy, preferred stockholders are paid before common stockholders. Unlike preferred stock, though, common stock has the potential to return higher yields over time through capital growth. Remember that investments seeking to achieve higher rates of return also involve a higher degree of risk.
 
Both common stock and preferred stock have their advantages. When considering which type may be suitable for you, it is important to assess your financial situation, time frame, and investment goals. The return and principal value of stocks, both common and preferred, fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved
George Elkin and Jason Saladino are Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc.
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.