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September, 2010

Message from Nelson & Company, P.S., CPAs

Senate Blocks Unemployment Bill -

The IRS issued final regulations (TD 9496) regarding the new information reporting requirement for credit cards.

Starting Jan. 1, 2011, banks and credit entities must file annual information returns for each participating merchant or other payee reporting aggregate gross receipts for the calendar year from credit and debit card sales or third-party network transactions.

Explanations of Common Types of Credit Cards

The final regulations included explanations and examples of several common types of payment cards and related instruments that were asked about by commenters but do not meet statutory requirements for reporting, the IRS said. For example, purchases made with a payment card issued by a retail merchant that may be used only with that merchant are not reportable, nor are ATM withdrawals or similar transactions. The IRS noted that reportable payment card transactions must involve use of a card that is accepted as payment by a network of unrelated persons.

How to Handle Charge-Backs

The final regulations also addressed another common question: How transactions that incorporate “charge-backs” or other adjustments should be handled. The IRS did not adopt suggestions to report net sales as being more likely to match amounts reported on tax returns, noting that the statute requires reporting of gross amounts (section 6050W(a)(2)). “The information reported on the return required under these regulations is not intended to be an exact match of the net, taxable, or even the gross income of a payee,” the IRS said in a preamble.

Definitions and Clarifications

The final regulations contained detailed definitions and examples illustrating various terms employed in section 6050W, including:

“Payment settlement entity” (Treas. Reg. § 1.6050W-1(a)(4));

“Gross amount” (Treas. Reg. § 1.6050W-1(a)(6));

“Payment card transaction” (Treas. Reg. § 1.6050W-1(b)(1));

“Merchant acquiring entity” (Treas. Reg. § 1.6050W-1(b)(2)); and

“Third party settlement organization” (Treas. Reg. § 1.6050W-1(c)(2)).

Other matters clarified in the final regulations included:

The regulations apply to returns for calendar years beginning, or amounts paid, after Dec. 31, 2010.

Certified Public Accountants

IRS Times & Inquirer

Inside This Issue...

Actor Wesley Snipes Faces Three Years in Prison
Paying the Hard Way...Surgeon and Brother Tried to Hide $1.6M
IRS Question Corner

Actor Wesley Snipes Faces Three Years in Prison

Well-known actor Wesley Snipes faces three years in prison after losing an appeal in a tax case that garnered headlines worldwide.

In 2008, a federal court in Ocala, FL, sentenced Snipes to three years in prison after he was convicted of three misdemeanor tax charges alleging he willfully failed to file tax returns for the years 1999 to 2004.

During that period of time, Snipes starred in the vampire trilogy Blade and earned $38 million from his on-screen work.

In his appeal, Snipes and his attorney argued that the actor should have been considered for probation in place of the three-year prison sentence he received. The appellate court ruled against Snipes.

Paying the Hard Way...Surgeon and Brother Tried to Hide $1.6M

A Carthage, MO, surgeon and his brother, who worked as his office manager, were sentenced in August in federal court for a tax fraud conspiracy in which they attempted to avoid paying federal income taxes on nearly $1.6 million earned by the medical practice.

Brian Ellefsen, 47, was sentenced to 22 months in federal prison without parole and ordered to pay approximately $1.2 million in restitution. Mark Ellefsen, 41, was sentenced to 14 months in federal prison without parole and ordered to pay $50,000 in restitution.

Brian and Mark Ellefsen were convicted at trial of all the charges contained in an April 12, 2007, federal indictment. Brian Ellefsen was an orthopedic surgeon who owned and operated a practice called Southwest Missouri Bone and Joint, Inc., located in Carthage. Mark Ellefsen was the office manager of the medical practice.

The brothers diverted approximately $1.6 million from Southwest Missouri Bone and Joint to Brian Ellefsen, without paying any taxes on the diverted funds, from July 10, 1997, to Aug. 10, 2003. They used offshore accounts and entities to engage in a series of sham paper transactions having no economic substance or business purpose, which resulted in the concealment of funds from the IRS.


IRS Question Corner

Question: I’m in debt to the IRS from previous years’ taxes. Assuming I do not qualify for the Offer in Compromise, how is it that an Installment Agreement can help me?

Answer:  First, if you are in debt to the IRS and you have not yet consulted with a qualified tax professional, this should be your first course of action. A qualified tax professional will examine your current situation and previous returns to assess your options.

At this point, I would advise you not to assume you do not qualify for the Offer in Compromise. For indebted taxpayers who qualify, the Offer in Compromise can result in a settlement agreement that amounts to a substantial discount. Talk to your qualified tax professional about the Offer in Compromise program just to be sure.

Now, assuming you do not qualify for the Offer in Compromise, the Installment Agreement can be an excellent option for taxpayers who owe money to the IRS. As with the Offer in Compromise, the Installment Agreement was designed to offer taxpayers who cannot pay their tax debt an alternate option. In the case of the Installment Agreement, the IRS may allow indebted taxpayers to come into compliance by paying off their tax debt in small monthly installments over time.

The key difference between the Offer in Compromise and the Installment Agreement is this: Those who qualify for the Offer in Compromise lack the means to pay off their debt, even over time. For those who can pay off their debt over time, the Installment Agreement is their best option.

If you are interested in entering into an Installment Agreement with the IRS, you and your qualified tax professional should analyze your previous returns closely, to come to an exact amount you owe. Then it’s time to negotiate with Uncle Sam.

I solve tax problems every day. That’s because I’m an IRS Problem Solver. For a free, no-risk consultation, please call my office at 253-752-9522 or send me an E-mail at Do it today!

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Nelson & Company, P.S., CPAs Since 1979

Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that (i) any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.