ncsa blog

The NC DOR says that effective May 11 the state law is amended and provides if a seller transfers an item of tangible personal property as part of a conditional contract, a sale has occurred. The sales price of the item is presumed to be the retail price at which the item would sell in the absence of the condi-tional contract. Sales tax is due at the time of the transfer on the following:

1. Any part of the presumed sales price the consumer pays at that time, if the service in the contract is taxable at the combined general rate.

2. The presumed sales price, if the service in the contract is not taxable at the combined general rate.

3. The percentage of the presumed sales price that is equal to the percentage of the service in the contract that is not taxable at the combined rate, if any of the service in the contract is not taxable at the combined general rate.

The definition of a conditional contract is a contract in which all of the following conditions are met:

1. A seller transfers an item of tangible personal property to a consumer on the condition that the consumer enter into an agreement to purchase services on an ongoing basis for a mini-mum period of at least 6 months.

2. The agreement requires the consumer to pay a cancellation fee to the seller if the consumer cancels the contract for services within the minimum period.

3. For the item transferred, the seller charges the consumer a price that, after any price reduc-tion the seller gives the consumer, is below the purchase price the seller paid for the item. The seller’s purchase price is presumed to be no greater than the price the seller paid, as shown on the seller’s purchase invoice, for the same item within 12 months before the seller entered into the conditional contract.

Hi everyone -

We are moving ahead to promote the Tax Practitioners' Bill of Rights before Congress and the IRS.    (See http://www.nsacct.org/tax/bill-of-rights )  We have consulted with NSA's publicist, who recommended that we make a much bigger effort to have more people sign the petition to show there is a need for change.  Currently, including those who have signed the petition at the IRS forums (but whose signatures are not shown online), we have over 1,000 signatures.   But we need many more signatures!  

If you have not signed the petition yet, please do so as soon as possible and add comments in support of the Tax Practitioners' Bill of Rights.  Also, if you can have your ASOs endorse the Tax Practitioners Bill of Rights, please have them send an endorsement letter supporting the Tax Practitioners' Bill of Rights (on letterhead) to the NSA office, with a copy of the letter to me. 

The petition is shown at  http://www.ipetitions.com/petition/nsa-bill  Please circulate the petition around and have as many tax practitioners, firm staff, and any taxpayers who agree with the petition - sign the petition. Every signature counts!  

Thank you for your help in supporting this effort!

Marilyn M. Niwao, J.D., CPA, ATA, CGMA

NSA President

http://www.ncsa1947.org/nsainsurance

The above link is provided to you by the NSA. Play It Safe! is a service of the NSA Insurance Trust, which was formed to provide affordable insurance plans and specialized insurance coverages to members of the National Society of Accountants.

The House and Senate passed a stop gap measure this morning in order to continue government funding and operations. This “continuing resolution” was an expected maneuver, and is customary in the event a formal budget has not been agreed to in time for the end of the current fiscal year, June 30.         

The resolution authorizes the director of the budget to continue to allocate funds for recurring expenditures for current operations by state departments, institutions, and agencies, as authorized in the previous year’s budget. The resolution keeps vacant positions open that are subject to proposed budget reductions, keeps state employee salaries from increasing or decreasing, prohibits any salary raises for state employees or teachers while the resolution is in effect, continues funding for public schools, and requires the Department of Health and Human Services to prepare amendments and waivers in anticipation of the formal budgetary reductions or expansion items to Medicaid. Perhaps most important of all, the resolution is set to expire August 14 of this year, and sends the message that both the House and the Senate hope to have a formal budget compromise by at least that date.

Conference appointments should be coming forward soon, and budget negotiations will be taking place soon thereafter. With both bodies taking the week after the fourth of July off, it is expected that the following week will be the start of the long process to compromise.

We will continue to keep you informed of all actions at the North Carolina Legislature, and as always, please contact us if you have any questions or concerns.

Sincerely,

Weldon Jones
Jordan Price Wall Gray Jones & Carlton

Click this link for the video of this event

The rules for handling tangible property for taxes now are so complex that the IRS has issued a number of Revenue Procedures to help us with applying to materials and supplies and for acquiring, maintaining, or improving property. The final regulations went into effect for tax years beginning on or after January 1, 2014, with "clarifications" that follow in Rev. Procs.:

1. January 24, 2014, Rev. Proc. 2014-16, rules for changing accounting methods.

2. September 18, 2014, Rev. Proc. 2014-54, rules for changing accounting methods to comply with law.

3. January 16, 2015, Rev. Procs. 2015-13 and 2015-14, rules for making accounting method changes.

4. February 13, 2015, Rev. Proc. 2015-20, exceptions to the general procedures.

This article deals with the exceptions in Rev. Proc. 2015-20 It modifies Rev. Proc. 2015-14 to permit a small business, defined as a business with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years, to make certain tangible property changes in methods of accounting with an adjustment under § 481(a) that takes into account only amounts paid or incurred and dispositions.

In addition, for their first taxable year that begins on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property changes without filing a Form 3115.

An expenditure is a capitalizable improvement if it is a betterment, restoration, or adaptation.

An expenditure is a betterment if it corrects a material defect or condition before the taxpayer's acquisition; is for a material expansion, enlargement, extension, or addition; or reasonably is expected to increase productivity.

An amount paid is a capitalizable restoration only if it is for the replacement of a component for which the taxpayer has properly deducted a loss (not a casualty loss); it is for the replacement of a component to which the taxpayer has properly taken onto account the adjusted basis in realizing gain or loss resulting from a sale or exchange of the component; it is for the restoration of damage for which the taxpayer is required to take a basis adjustment; it returns a property to its ordinary efficient operating condition if the property has deteriorated to a state of disrepair and no longer is functional; it results in the rebuilding of the property to a like-new condition after the end of the class life; or it is for the replacement of a part or combination of parts that comprises a major component or substantive structural part of a property.

A taxpayer must capitalize amounts paid to adapt a property to a new or different use not consistent with the taxpayer’s ordinary use of the property.

Under the routine maintenance safe harbor, the amount paid for routine maintenance is not a improvement. Routine maintenance includes the recurring activities that a taxpayer expects to perform to keep the property in the ordinarily efficient operating condition Routine maintenance may be performed any time during the useful life of property, but the activities are routine only if the taxpayer reasonably expects to perform the activities more than once during the class life of the property.

There is a de minimis safe harbor amount that can be expensed for tangible assets. The amount depends on whether or not the business has an accountable financial statement (AFS) [audit]. If there is an AFS, the amount is $5,000; otherwise, the amount is $500. This amount is per invoice.

A taxpayer using the de minimis deduction must calculate a § 481(a) adjustment that does not take into account dispositions in taxable years beginning on or after January 1, 2014. 

Notice 2015-30 provides penalty relief for taxpayers who received a Form 1095-A, Health Insurance Marketplace Statement, that was delayed or that the taxpayer believes to be incorrect and who timely filed their 2014 income tax return, including extensions. Specifically, it provides relief from the penalty for late payment of a balance due, the penalty for failure to pay an amount due upon notice and demand, the penalty for underpayment of estimated tax, and the accuracy related penalty. This relief applies only for the 2014 taxable year.

Restauranteur Fails to Pin $1.6 Million Omission on Accountant; Slammed with Fraud Penalty

The Tax Court determined a restaurant owner had vastly underreported his businesses income for multiple years, and found the taxpayer's attempt to shift blame to his accountant unconvincing. The court determined the omission was fraudulent, noting the taxpayer met multiple "badges of fraud," and imposed a 75 percent penalty. Musa v. Comm'r, T.C. Memo. 2015-58.

Alaa Musa formed Casablanca Restaurant, LLC (Casablanca) as a single-member limited liability company in 2005. The restaurant used an industry standard point-of-sale system to fulfill orders and record sales reports from cash and credit card purchases. Musa kept diligent records of credit card receipts, but he would frequently throw away the records of the cash receipts. Musa never deposited more than a minimal amount of Casablanca's cash receipts into the operating account and would generally take the cash home with him.

In early 2006, Musa hired J&M Accounting & Tax Services (J&M) to provide accounting and tax services for Casablanca. J&M prepared monthly sales tax returns for Casablanca based on sales numbers Musa provided over the phone. Musa did not provide J&M with copies of daily sales reports, and the sales numbers he provided were far below what was reflected on the reports.

The IRS audited Casablanca for 2006 to 2009 and issued a notice of deficiency. The audit found Musa had vastly underreported the restaurant's income in excess of $1.6 million, and the IRS assessed a civil fraud penalty under Code Sec. 6663(a).

Musa argued that his accountant at J&M was to blame for the inaccuracies in his tax returns, claiming that J&M had access to his financial records and chose to underreport his income. The tax court found this unconvincing and implausible, noting that J&M did not have access to the point-of-sale reports until after the audit began, that Musa failed to disclose all of his bank accounts, and that he gave no explanation as to why his accountant would be motivated to prepare grossly inaccurate returns. Further, the court noted that under Metra Chem Corp. v. Comm'r, 88 T.C. 654 (1987), as a general rule, taxpayers cannot avoid the duty of filing accurate returns by placing responsibility on a tax return preparer.

Hobby Loss Case: Metz v. Commissioner

Focusing on subjective intent, the Tax Court held that because the taxpayers were genuinely optimistic their failing horse farm would eventually be profitable and were able to attribute poor results to weak economic conditions, millions in losses sustained over a six year period were not hobby losses. Metz v. Comm'r, T.C. Memo. 2015-54.

For over two decades, Henry and Christie Metz owned an Arabian horse farm, Silver Maple Farm, Inc. (SMF), an S corporation specializing in "Straight Egyptian" Arabian horses, prized for their elite genetics.

Despite great effort by the Metz’s, the venture was decidedly unprofitable. SMF had only one profitable year, and that was a result of the sale of a piece of real estate used in the business. SMF averaged annual losses in excess of $1,000,000 between 1999 and 2009. Undeterred, the Metz’s attempted to outrun these losses, moving the farm several times in the hopes of finding a better market and eventually settling in California.

During its lifespan, SMF lost over $14.5 million, leading the IRS to determine the business couldn't possibly be motivated by a desire to turn a profit. The IRS issued notices of deficiency for 2004 through 2009 disallowing the passthrough losses from SMF, as well as related net-operating-loss carry forwards.

Reg. Sec. 1.183-2(b) provides a nonexclusive list of nine factors relevant in ascertaining whether a taxpayer conducts an activity with the intent to earn a profit. The factors listed are: (1) the way the taxpayer conducts the activity; (2) expertise of the taxpayer or his advisers; (3) time and effort the taxpayer spends in carrying on the activity; (4) expectation that assets used in the activity may appreciate in value; (5) taxpayer's success in carrying on other similar or dissimilar activities; (6) taxpayer's history of income or losses with respect to the activity; (7) amount of occasional profits earned, if any; (8) taxpayer's financial status; and (9) elements of personal pleasure or recreation.

After analyzing the factors the court held that the losses were allowable. Practitioners with clients who have businesses at risk of being deemed a hobby may want to study this case.

The Federal Trade Commission (FTC) talks about unwanted telephone calls. You signed up for the "Do Not Call Registry" ages ago, but you're still getting a bunch of unwanted calls. what can you do? Hang up. When you get illegal sales calls or robocalls, don't interact in any way. Don't press buttons to be taken off the call list or talk to a live person. That just leads to more calls. Instead, hang up and file a complaint at donotcall.gov.

Your number is on the Do Not Call Registry, so why are you still getting calls? Because of scammers. Most legitimate companies don't call if your number is on the Registry. If a company is ignoring the Registry, there's a good chance that it's a scam.

The FTC has sued hundreds of companies and individuals for placing unwanted calls. The FTC also is leading several initiatives to develop technology based on solutions. Those initiatives include a series of robocall contests that challenge tech gurus to design tools that block robocalls and help investigators track down and stop robocalls.

You filed a complaint-–or several complaints–and you wanted to know when you'll hear from the FTC. Due to the volume of complaints, the FTC can't respond directly to each one. But please keep to complaints coming because the FRC and other law enforcement agencies analyze complaints to spot trends and to take legal action against wrongdoers. To date, the FTC has brought more than a hundred lawsuits against companies and individuals for Do Not Call violations. 

But I gave you the phone number of the company that called me! Current technology makes it easy for scammers to fake or "spoof" called ID information, so the number you reported in your complaint probably isn't real. Without more information, it's difficult for the FTC to identify the actual caller. Nonetheless, the FTC analyses complaint data to identify illegal callers based on calling patterns. The agency also is pursuing a variety of technology based solutions to combat illegal calls and practices.