1099s Penalty and Court Case
Well, it finally happened: I’ve seen my first penalty notice for 1099s received late by the IRS. There has been a “theoretical” penalty on the law books allowing the IRS to charge between $35–$50 each for lateness (depends on how past due they are received). There’s also a penalty of $100 if you “willfully” don’t prepare them on time (an example of willful would be if you were a tax preparer charging clients to prepare their 1099s on time but didn’t do your own on time). Up until now, I’d never actually seen a penalty from the IRS.
Those times are over. One of my clients who prepared their own 1099s just got a penalty notice for filing late of $750. 1099s are due out to the recipients by the end of January, and copies are due to the IRS by the end of February.
Starting in 2011, a “paid preparer” will need to sign and provide their PTIN (you may always prepare your OWN 1099s, even without a PTIN). The ineludible question is, “if I prepare the 1099s, but have my CLIENT sign, I don’t need to sign as preparer, right?” Well, no. The new rules make you responsible if you have primary responsibility for the overall substantive accuracy of the preparation of the return. Another way of saying this is “All or substantially all” of a tax return. If you are required to sign and include a PTIN but fail to do so, you’re subject to a penalty (section 6695c) (See TD 9501 for final regulations).
But wait, it gets worse. I was working on a field audit for tax year 2007 in my conference room with someone from the IRS, and she brought up Garrison v. IRS, a recent tax court case (No. 3745-07) that was decided in 2009. The Garrisons failed to issue 1099s to some of their independent contractors, and under audit, failed to produce cancelled checks or witnesses to substantiate the payments. Because of this, the court not only agreed with the IRS and TOOK AWAY THE DEDUCTION, but the court further agreed that failing to keep adequate books and records to substantiate items properly deserved a 20% accuracy related penalty. This resulted in $48,341 of additional tax and $9,668 of accuracy penalty. You learn the darndest things at an audit.
The message here is the IRS is much more serious about 1099s than they appear to have been in the past. Plan accordingly.
Organizing for 2010
The end of 2010 is just around the corner. The IRS has hired a slew of people and my anecdotal evidence suggests they’re doing more audits—I’m currently working on three. One difference between an EA (me) and an RTRP (the new group starting in 2011) is that an EA can represent clients when OTHER people have prepared the original return. So I’m something like a pinch-hitter if you need me.
Bring your reconciliation up to date, keep a box of business receipts for 2010 (and start a new box for 2011 soon). Consider advancing deductible expenses into 2010 if you can afford it—things like property tax, mortgage payments, etc. Fill out those expense reports and get them posted to your books. Gather missing info for 1099s.
I will be offering a discount on tax return preparation to “early-birds” again this year—a reduced price if you can
get me most of your tax materials early. This proved to be quite a popular program last year.
Tax Buddha Messenger Bags
Want to be the first person on your block to sport the fabulous Tax Buddha Messenger Bag? I’ve now got a “shop” on
Café Press at www.cafepress.com/TaxBuddha in case you’d like to order your
own Tax Buddha logo items. The messenger bag came out particularly well, not quite “saffron,” but easy to find in an airport:
The Eightfold Path to Pay Less Tax and Avoid an Audit
Eight basic things business owners want to know printed in booklet form in “Executive Summary” form. This is ten years of working with the IRS Tax Code distilled down so it doesn’t take YOU ten years.
Just another way we’re trying to simplify your life. And the purchase is tax deductible!
You can order from Amazon.com. Here’s the link to Amazon:
The booklet also contains a sections on how returns are selected for audit,
when to seek professional help, and how long to keep your tax records.
EBAEA—Speaker Development Group
I’m tired of going to see boring speakers for my continuing education
requirements, so at the East Bay Association of Enrolled Agents we’ve
started a group to help develop speaking skills. Our next meeting is tentatively
scheduled for October 22nd. Go to the “permalink” for the current
bulletin for more information http://www.ebaea.org/Bulletin/current.pdf
Classes Balance Sheets and Basis, Intermediate S Corporation, Basic Payroll, Schedule C, and Household Employees.
Here’s a link to the seminars page on my website: www.taxbuddha.com/seminars.html
Balance Sheets and Basis
Wednesday December 1, 2010
Doubletree Hotel SF Airport, 835 Airport Blvd.
Contact Tina at firstname.lastname@example.org or try www.cstcsfbay.org for more information or reservations.
We’ll discuss basis, both inside and outside, for corporations and partnerships, including the principles that should allow you to recognize and solve basis issues, and why you might care to do so. We will cover several examples step-by-step so you have a chance to ask questions and understand how I determine basis where none has been provided, and what you need to collect to calculate (or at least approximate!) basis on your own.
Intermediate S Corporation Class
We’ll be looking at how to quickly solve the most common problems encountered with preparing an 1120S, and what to do now to reduce the likelihood of future problems. A very practical class where you have the opportunity to ask questions, this class is for tax preparers.
Monday, December 13, 2010 in Lafayette, CA
from 10 am to 3 pm with a 1 hour lunch break on your own.
Lafayette Chamber of Commerce Conference Room, 100 Lafayette Circle, Suite 103, Lafayette, CA 94549
Fee to attend is $225, but $175 until November 13th. CPE credit of 4 hours available for Enrolled Agents who attend, no credit currently available for CTEC, but it’s a good class. Send me an e-mail if you want to attend for reservation of your spot and directions. Class size is limited. Flyer is on the website at www.TaxBuddha.com/1120_S_Flyer.pdf.
In conjunction with the IRS and EDD, Andy's going to be doing some Basic Payroll seminars coming up in the near future.
Basic Payroll: Seminar runs 9 am–3 pm with an hour for lunch
The next seminars will be:
Basic Payroll in San Francisco at the SBA office 455 Market Street, 6th floor
(I take BART to Embarcadero or Montgomery Street) 9 am – 3 pm,
November 17th and December 15th.
Basic Payroll in Oakland at Elihu M. Harris State Building,1515 Clay Street, Room 1, Second Floor, 9 am – 3 pm, November 4th
Basic Payroll in San Rafael, November 16th.has been cancelled by the EDD.
Register by going to http://www.edd.ca.gov/Payroll_Tax_Seminars/ and find your favorite location.
These seminars have proven to be very popular, plus they’re free.
How to Prepare your Own Schedule C
Prepare your business taxes for ’09 and get ready for ’10, with a view towards 2011. Review what the IRS wants to know from you and how to report it on the Schedule C for your business. This is a class for business owners who need a basic understanding of their 1040 Schedule C tax forms. We’ll also talk about what to do with the numbers once you have them. We can’t guarantee you won’t get audited, but this class will make it less likely.
This class will be presented again for free in San Jose on Wednesday, November 3rd, 10 am – 12:30 pm at the SBA Entrepreneur Center, downtown, 100 East Santa Clara Street, First Floor, San Jose.
Andy will be at the US Small Business Administration offices in San Francisco at 455 Market Street, 6th Floor Tuesday January 18th, 6-8:30 pm. This class will be free. To register, check out the SBA website www.SBAtraining.eventbrite.com, or just show up.
An update class for both employers and the tax practitioners who help them. This is currently scheduled for January 24th, 2011 at 100 Lafayette Circle, Lafayette CA in the Chamber of Commerce conference room. Cost to attend this class is $75. Here’s the link to the flyer www.taxbuddha.com/Nannygate_Flyer_Jan_11.pdf
If you’re in the market for QuickBooks training in a classroom setting, I recommend a two day QuickBooks seminar. The website is http://www.manibusinessservices.com/
For Relaxation and Clear Thinking: On The Spot
We recommend meditation and that you check out On The Spot Massage at
help you relax. A relaxed mind is a clear thinking mind. We have some discount
cards for $5 off at
the Alameda Natural Grocery location on Park Street, open daily 11 am–7
Phone and Fax Numbers
Our northern California physical office is shared commercial
space in Alameda.
Phone numbers are:
Phone (510) 522-2300
Fax (510) 522-2307
Our mailing address:
3527 Mt. Diablo Blvd #366, Lafayette CA 94549
“The hardest thing in the world to understand is the income tax.” — Albert Einstein, physicist