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IRS to Ease Tough Cell Phone Rules

 

Under current rules, the value of employer-provided cell phones is taxable income to the employees---even if the phones are used totally for business. However, if the employer keeps detailed records, the business usage can be excluded from income. These tough rules have been a thorn in the side of many companies---but that will soon change.

 

The Internal Revenue Service is seeking comments regarding proposals to simplify the procedures under which employers substantiate an employee's business use of employer-provided cell phones or similar gadgets [IRS Notice 2009-46].

 

The proposed new methods would be optional, and if an employer uses one, it would have to be included in a formal written policy regarding cell phone usage.

 

The IRS also said it is interested in understanding the methods employers currently use to arrive at the fair market value to an employee of an employer-provided cell phone. The agency is considering whether a simplified valuation method would be helpful and appropriate.

 

Comments on the substantiation procedures must be submitted on or before Sept. 4, the IRS said, and should be sent to Internal Revenue Service, 1111 Constitution Avenue, Washington, D.C. 20044, Attn: CC:PA:LPD:PR.

 

Surprise IRS Audits Start November

 

Business taxpayers should be aware that the Internal Revenue Service will do about 6,000 random employment tax audits over three years (up from 4,500 originally planned) and they will begin this November, according to the Kiplinger Tax letter.
IRS agents will zero in on worker classification, executive pay and fringe benefit issues, and will check to see if expense reimbursement plans qualify as "accountable plans," says Kiplinger.

 

To qualify as an accountable plan, the reimbursement arrangement must require three things: 1) there must be a bona fide business reason for the expense; 2) there must be adequate documentation of the expense; and 3) if employees receive cash advances, they must be required to return unspent amounts. If a plan is disqualified, all reimbursements to employees become taxable.

 

On the worker classification issue, the IRS is getting lots of leads on employers that may be misclassifying workers. That's because of new Form 8919 that is filed with the IRS by independent contractors who believe that they should be treated as employees.

 

1099 Reporting For Credit Card Transactions

 

Back in February, the Internal Revenue Service, in Notice 2009-19, asked for comments from the public on the new law (Section 6050W of the Internal Revenue Code) that requires credit card organizations to do Form 1099 reporting of the payments made to merchants through the cards. The way the rules were written, there was the possibility of double reporting of payments made via payment cards—once by the bank and again by cardholders.

 

Luckily, many groups wrote to the IRS, urging it to shape the rules to make sure this double reporting was eliminated—and take AP out of the picture.

 

Wake Forest University in North Carolina said the new law should take the place of the old law and the cardholder should be relieved of doing the Form 1099 reporting for credit card transactions. "Most of the time it is not possible for Accounts Payable to get a tax ID number for a credit card vendor because the transaction is complete before it comes to us," Anne Davenport, tax director for Wake Forest, wrote in a March 3 comment letter. "The bank is the one to provide the funds to the vendor and they have the proper name, address, and TIN before the vendor can be a payee of the credit card receipts, so the responsibility should be with the gatekeeper of the money—the bank," she said.

 

 IRS Starts Audits of Backup Withholding

 

If you're not doing the proper backup withholding on payments to independent contractors, now's the time to get your house in order. The Internal Revenue Service has started audits of a slew of companies over backup withholding on these payments.

 

The IRS has seen a declining number of filings of Form 945 (the form used to report backup withholding), while at the same time the numbers of Forms1099 without taxpayer identification numbers (TINs) or with mismatches has dramatically increased. "That's not the kind of trend we like to see in tax administration," said John Tuzynski, chief of employment tax operations for the IRS's small business and self-employed division, at a recent American Payroll Association conference. As a result, the IRS has started doing audits in this area, focused on 1099s with no TINs, Tuzynski said.

 

1099s Make IRS's Top Tax Scams List

 

The Internal Revenue Service issued its 2009 "dirty dozen" list of illegal tax scams, and two of the items deal with 1099s.
One scam, what the IRS calls "Zero Wages," involves filing a phony wage- or income-related information return to replace a legitimate information return. Typically, a "corrected" Form 1099 or a Form 4852 (Substitute Form W-2) is used as a way to improperly reduce taxable income to zero.

 

Another scheme, "Filing False or Misleading Forms," involves using bogus information returns, such as Form 1099 -Original Issue Discount (OID), claiming false withholding credits that are used to legitimize erroneous refund claims.
The other ten schemes are: phishing, hiding income offshore, abuse of charitable organizations and deductions, return preparer fraud, frivolous arguments, false claims for refund and requests for abatement, abusive retirement plans, disguised corporate ownership, misuse of trusts, and fuel tax credit scams.

 

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution. Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original

 

Court Says Repairman is 1099er

 

A worker who helped repair telephone networks after Hurricane Katrina was an independent contractor rather than an employee, the U.S. District Court for the Eastern District of Louisiana ruled.

 

The worker, a "splicer," was brought in to repair telephone lines for two companies after Katrina struck in August 2005. Although a telecommunications company and a drilling firm separately controlled the worker's schedule, his hourly pay rate, and the number of hours he worked, the court said the worker supplied his own equipment, was able to perform his job without supervision, and has considered himself an independent contractor for more than 20 years, paying self-employment taxes to the Internal Revenue Service and deducting personal business expenses.

 

The court applied five factors in making its worker status determination: degree of control exercised by the employer, extent of the relative investments of the worker and the employer, the degree to which the worker's opportunity for profit or loss is determined by the employer, skill and initiative required in performing the job, and the permanency of the relationship between the worker and the employer.

 

"No factor is determinative and each is applied to gauge the economic dependence" of the employee, the court said in ruling for the companies. Noting that the facts regarding the worker are "essentially undisputed," the court said consideration of all the factors leads to the inexorable conclusion that the plaintiff is an independent contractor [Lindsley v. BellSouth Telecom. Inc., E.D. La., No. 07-6569, 2/27/09].

 

Sources: IRS & IOMA

 

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