September, 2012

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


The Internal Revenue Service has announced effective October 1, 2012, primary items its auditors are to focus upon. The announcement stated that approximately 85% of the $450 billion dollar shortfall of the tax gap is attributed to underreported income.

Areas of focus include:

Proper classification of employees will receive additional attention in the coming years. This is the area where the status of “independent contractor” versus “employee” comes into play. Make sure you review IRS Form SS-9 if you do employ independent contractors. Maintain proper documentation to prove an independent contractor is truly independent so the IRS can’t come back and reclassify them as an employee.

Finally, the IRS plans to look closely at Subchapter S corporations. This is primarily to make sure salaries paid to corporate officers are reasonable, i.e. based on the Department of Labor statistics published salaries. Also the IRS will closely look at basis, i.e. your NET investment in the company. It must be a positive number, for losses to be deductible.

Businesses should make sure gross income is reconciled to bank deposits. In addition, any loans should be clearly documented when they are deposited in your bank, so they are not counted as income. The figures reported to the Department of Revenue for B&O and sales tax should equal the amounts reported for gross income/sales to the IRS.

David S. Nelson, CPA, CTRS
Certified Public Accountants

IRS Times & Inquirer

Inside This Issue...

OJ Owes IRS Nearly $200k
Former Dollar Tree Employee Hid $1.4m
Bookkeeper Guilty of Filing False Tax Return

OJ Owes IRS Nearly $200k

Former football player O.J. Simpson, best known for being charged with and acquitted at trial for the murders of Nicole Brown Simpson and Ronald Goldman, owes the IRS $179,453.07 in back taxes.

The news, first reported by celebrity news website TMZ, comes less than a year after the bank foreclosed on Simpson’s Florida home. Simpson’s tax bill includes unpaid taxes from 2007 through 2010.

But Simpson’s ability to pay back Uncle Sam is highly questionable. In addition to the millions he owes to the families of Nicole Brown Simpson and Goldman following a civil judgment, Simpson is in a Nevada prison for kidnapping and armed robbery following an incident in which he stole sports memorabilia at gunpoint from inside a room at the Palace Station hotel in Las Vegas.

Former Dollar Tree Employee Hid $1.4m

A Virginia man pleaded guilty to two counts of filing a false tax return.

According to court documents, Thomas W. Sawyer, 43, of Chesapeake, Va., was formerly employed by Dollar Tree and traveled to China procure goods to be sold in Dollar Tree’s stores. During his trips to Asia, Sawyer received gratuities from the Chinese manufacturers in exchange for choosing their products. Sawyer brought this additional income into the United States and never declared it on his income tax returns, though he was legally required to report it.

Over a four-year period, Sawyer failed to report more than $1.4 million in income and owes the United States just over $400,000 in unpaid income taxes.


Bookkeeper Guilty of Filing False Tax Return

A Connecticut woman faces three years in prison and a fine of up to $250,000 after pleading guilty to filing a false federal income tax return.

According to court documents, Renee Lamar Joseph, 38, of Norwalk, Conn., was the bookkeeper for Joseph Landscaping and Masonry, a sole proprietorship landscaping and masonry business owned and operated by her husband. Joseph’s responsibilities included handling JLM’s billing, receiving payments and recording payments in the business accounting software, and providing tax-related information to tax return preparers.

On April 15, 2004, Joseph signed and filed a false joint 2003 tax return, Form 1040, that falsely represented JLM’s Schedule C business receipts as $221,621 when, in fact, the business receipts for calendar year 2003 were approximately $315,949. Instead of providing her tax preparers with bank statements or information from the business’ accounting software, Joseph provided summaries, which she created and adjusted, that substantially understated the business’s income.

In pleading guilty, Joseph also acknowledged that she told an accountant assisting her in an IRS audit in 2006 that she had “bad bookkeeping ethics.”


--Our Policies--

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.


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