What’s more important: experience or potential? In an accounting firm, experience can sometimes be the focus of a hiring decision. However, potential really is a smart hire. High performing potentials…that’s a win.
In Claudio Fernandez-Araoz’s article 21st Century Talent Spotting in the June 2014 Harvard Business Review, he points out that employers must focus on potential versus experience.
Managers must learn to assess current and prospective employees on five key indicators:
Who wouldn’t want to hire someone with these key attributes? They have the ability to form their own career path and design their future.
Our jobs as employers is to make sure they have opportunities that push them out of their comfort zone…stretch development. We should always be growing and learning at all levels of our organizations.
The CEO of Zoetis prepared for the top job. He put together a development plan. The first step was identifying a mentor, an experienced CEO from outside of his organization. The next step was to find a communication expert to work with. The audience for an IPO road show is quite different and it requires the skill to communicate your company’s strategy to the outside world. Another step he took was to develop the skills to manage a board.
It all starts with potential.
A Florida district court jury has found that a U.S. citizen willfully failed to file required Reports of Foreign Bank and Financial Accounts for tax years 2004 through 2006 with respect to a Swiss bank account that he controlled, the U.S. Department of Justice has announced.
The judge in the case will determine later the amount of the penalty – which could be as high as 150 percent of the bank account balance.
U.S. citizens who have an interest in, or signature authority over, a foreign financial account are required to disclose the existence of the account on Schedule B, Part III, of their individual income tax return. Additionally, U.S. citizens must file a Foreign Bank and Financial Accounts Report (FBAR) with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 – at any point during the year – in which they have a financial interest or over which they have signatory or other authority.
Those who willfully fail to file their FBARs on a timely basis – that is, on or before June 30 of the following year – can be assessed a penalty of up to the greater of $100,000 or 50 percent of the balance in the unreported bank account for each year they fail to file a required FBAR.
In this case, Carl Zwerner opened a bank account in Switzerland in the 1960s. Zwerner maintained the account in the name of two different foundations he had created. He was able to use the proceeds of the account whenever he wanted and used it for personal expenses, including European vacations.
For the years at issue, 2004-2007, even though Zwerner filled out a tax organizer provided by his accountant, he answered “no” to questions asking whether “you have an interest in or signature authority over a financial account in a foreign country, such as a bank account, securities account or other financial account” and whether “you have any foreign income or pay any foreign taxes.” He failed to file the FBARs for those years.
The balance of the bank account during each of the years at issue exceeded $1.4 million.
The district court jury found Zwerner should be liable for penalties for 2004 through 2006. Zwerner faces a maximum penalty in excess of $700 thousand for each of the three years. The jury found that Zwerner’s failure to report the account was not willful for 2007. The district court judge will determine the final amount of the judgment after further proceedings.
The Eighth Amendment to the U.S. Constitution prohibits the imposition of “excessive fines.” Attorneys for Zwerner have been reported to be planning to argue that imposing the maximum penalty of $2.2 million (3 years x 50 percent of the account balance per year) – which is what the IRS proposed – would violate the Eighth Amendment.
©2014 CPAmerica International
The IRS has released a “Taxpayer Bill of Rights” intended to better communicate to taxpayers their existing statutory and administrative protections.
The IRS incorporated the rights into a new version of Publication 1, Your Rights as a Taxpayer, which accompanies IRS correspondence with taxpayers.
➤ The rights are:
➤ The right to be informed
➤ The right to receive quality service
➤ The right to pay no more than the correct amount of tax
➤ The right to challenge the IRS’s position and to be heard
➤ The right to appeal an IRS decision in an independent forum
➤ The right to finality – for example, to know the time allowed for challenging an IRS position, to know the maximum amount of time the IRS has to audit a specific tax year or collect a tax debt, or to know when an audit is finished
➤ The right to privacy – for example, IRS compliance with laws and respect for due process in inquiries, examinations and enforcements
➤ The right to confidentiality of information provided to the IRS
➤ The right to retain representation
➤ The right to a fair and just tax system
A survey by the Taxpayer Advocate Service in 2012 found that only 46 percent of U.S. taxpayers believed they had rights before the IRS, and only 11 percent knew what those rights were.
Some natural disasters are more common during the summer. But because major events like hurricanes, tornadoes and fires can strike at any time, it’s a good idea to plan for what to do in case of a disaster.
You can help make your recovery easier by keeping your tax and financial records safe. Here is some basic guidance provided by the IRS:
➤ Back up records electronically. Documents received by email, like bank statements, are easily secured. You can also scan tax records and insurance policies onto an electronic format. To store important records, use an external hard drive, CD or DVD. Be sure you back up your files and keep them in a safe place. If a disaster strikes your home, it may also affect a wide area. If that happens, you may not be able to retrieve your records easily.
➤ Document valuables. Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should store them with a friend or relative who lives out of the area.
➤ Update emergency plans. Review your emergency plans every year, and update them when your situation changes. Make sure you have a way to get severe weather information. If threatening weather approaches, have a plan for what to do.
➤ Keep copies of tax returns or transcripts. To replace lost or destroyed tax returns, visit www.IRS.gov to get Form 4506, Request for Copy of Tax Return. If you just need information from your return, you can order a free transcript online or by calling (800) 908-9946. You can also file Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.
The IRS offers more information about disaster assistance on its website. Click here or click on the Disaster Relief link in the lower left of the IRS homepage.
©2014 CPAmerica International
The Foreign Account Tax Compliance Act (FATCA) became law in the United States in 2010. The provisions of the law focus on reporting for both U.S. taxpayers and foreign financial institutions to prevent tax evasion by U.S. citizens and residents through the use of offshore accounts. U.S. individuals must report information about certain foreign financial accounts and offshore assets on their income tax return if the total value exceeds certain reporting thresholds. The law also requires foreign banks and other financial institutions (like investment and insurance companies) to give information to the IRS about Americans’ accounts worth more than $50,000. If the foreign bank or financial institution fails to enter into an agreement with the IRS, all relevant U.S. sourced payments will be subject to a 30% withholding tax.
From a recent article published in the Financial Advisor, it appears that this law is having an unintended consequence: foreign banks are turning American clients away, even if they are U.S. expatriates living in and being paid in that foreign country by their U.S. employers. In the article, one such expatriate received a notice from Deutsche Bank that her account was being closed. Many of the account-closing complaints are coming from Americans living in Switzerland, which is most likely due to Swiss banks failing to meet the reporting requirements. UBS paid a $780 million fine to the IRS for failure to disclose information on American accounts and just this May Credit Suisse was fined $1.2 billion for similar charges. With American expats numbering between 5 and 6 million, this could become a potential nightmare for those individuals with limited options to open or maintain a foreign bank account.
At the beginning of the year, the IRS released its annual list of “Dirty Dozen” tax scams. The list covers a variety of scams, ranging from schemes perpetrated by taxpayers themselves (such as hiding income offshore or implementing abusive tax structures) to scams that are committed against taxpayers without their knowledge (such as phishing or stealing individuals’ identities to claim their tax refunds). While the IRS noted that there is an increase of these scams during tax season, taxpayers must be vigilant throughout the year, especially when it comes to fake charity schemes.
Impersonating charitable organizations has been around for quite some time and often occurs after major natural disasters. Scam artists will pose as legitimate charities to get money or private information from taxpayers by using various methods. One approach is to contact individuals via phone or email asking for donations or personal financial information. Another way is to create websites for fake charities where individuals can “donate.” Not only do these people lose their money, but they are also making themselves vulnerable to further theft by giving up their personal financial information. Other scam artists will contact victims of natural disasters directly and claim to help them file casualty loss claims and get tax refunds.
There are several things people can do to protect themselves against these types of scams.
Saving money and getting your finances on track is not always an easy thing to accomplish. One of the most helpful things to do to accomplish these goals is to create a budget. There are many different reasons why someone would want to create a budget including retiring early, paying off debt, stop living paycheck to paycheck, etc. Once you have decided to create a budget, a good place to start is by going over your spending during the past few months. By doing this it will help you assess how you are spending your money, and identify what areas of spending could be cut or reduced.
Separate your expenses into categories representing essential living expenses and discretionary expenses. The essential expenses include such items as rent, utilities, car payments, gas, insurance, and all other items that are necessary living expenses. The discretionary expenses include all other expenses that are not necessarily needed. To determine a limit for your discretionary expenses, take your monthly income, subtract all of your essential expenses, and the amount remaining is what would be available for the discretionary expenses.
To make your budget more effective allocate a portion of your income to savings. As a guideline, a good amount to save is between 10-20 percent of your monthly income. This will help for any future expenses, whether foreseen or unforeseen. It is important to set aside funds in case of an emergency. For example, you should have three to six months of living expenses set aside in an emergency fund.
Some things to consider that you may find helpful when you are trying to save money include cooking at home instead of eating out at restaurants, making coffee at home instead of the daily $5 latte, not waiting until your gas tank is running on empty so you have a choice at what gas station to stop at instead of the closest one to you, reducing the time you keep the air conditioner/heat on in your house, etc. There are many ways to cut your spending, even a small amount of savings here and there can add up.
It is important to create a budget that is both doable and realistic. If you are someone that has a discretionary expense that you are not willing to give up then make sure to factor it into your budget. If you don’t factor these expenses in your budget it will be impossible to stick to it, and will lead to overspending.
Seizing the occasion of “National Small Business Week” in mid-May, the U.S. Department of the Treasury encouraged small business owners to learn more about making starter savings accounts, called myRAs, available to their employees.
The Treasury has provided more details on its website about the working of the myRA program that it will roll out later in 2014.
President Obama promised in his 2014 State of the Union address that he would take executive action to create myRAs that would be available through employers and backed by the U.S. government. MyRAs were described as being simple, safe and affordable starter savings accounts to help low- and moderate-income wage earners save for retirement.
On its website, the Treasury stated that in late 2014 it will begin offering the myRA program. Treasury highlighted these key features of myRAs:
➤ Employees may open an account with as little as $25.
➤ Account holders may add to savings through regular payroll direct deposit – $5 or more every payday.
➤ Account holders will pay no fees.
➤ MyRAs will earn interest at the same variable rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees.
➤ MyRAs will not be limited to one employer – the account will be portable.
➤ MyRA contributions can be withdrawn tax-free.
➤ Earnings can be withdrawn tax-free after five years if the saver is at least age 59½.
➤ Account holders can build savings for 30 years or until their myRA reaches $15,000 – whichever comes first. After that, myRA balances will transfer to private-sector Roth IRAs.
As further explained in Treasury’s “myRA: Top Questions & Answers,” the myRA account will hold a new add-on Treasury security. As a result, savers will add to the value of a single security with each contribution they make, rather than buying additional securities. The security in the myRA account – like other U.S. savings bonds and Treasury securities – will be backed by the U.S. Treasury.
The retirement savings account will be a Roth IRA account and have the same tax treatment and follow the rules of Roth IRAs. The same tax advantages that apply to Roth IRAs will also apply to myRAs.
An individual who changes jobs can continue to add savings to an existing myRA account by setting up deposits through any employer that offers payroll direct deposit. An individual with multiple jobs will be able to use direct deposit from each paycheck to contribute to a single myRA. The deposits will be automatic every payday.
Employers will not be required to make myRA available to their employees.
Treasury said it will finalize procedures for rollovers to private-sector accounts (after the account is 30 years old or has reached its $15,000 maximum) when it launches myRAs later in 2014.
©2014 CPAmerica International
The Tax Court has concluded that a taxpayer who sold his primary residence and excluded gain, then reacquired it after the buyers defaulted, had to recognize long-term capital gain on the reacquisition, including amounts previously excluded.
In 2006, Marvin Debough sold his personal residence, which he had owned for 40 years. Under the terms of the sales contract, the buyers were to make installment payments until July 2009, at which time the remaining balance would become due and payable.
In 2006, 2007 and 2008, Debough received payments from the buyers. After excluding $500,000 of the gain from the sale of a principal residence and making an installment sale calculation, Debough reported $56,920 of taxable gain during 2006-2008. During those years, he received $505,000 of principal payments from the buyers.
Subsequently, the buyers failed to comply with the terms of the contract, and Debough ultimately reacquired the property in 2009. After some debate, both Debough and the IRS agreed on the basis of the property sold that he had gain to recognize as a result of reacquiring the property. They disagreed as to the amount.
Debough thought that most of the gain should be excluded as gain from the sale of a principal residence. The IRS determined that his gain was $448,080 – the $505,000 cash Debough had received during 2006-2008, less the $56,920 gain he reported during those years.
Internal Revenue Code Section 1038 governs reacquisitions of real property and provides the rules regarding a reacquisition of a principal residence for which gain had been excluded. If the reacquired property is resold within one year of the reacquisition, the resale is treated as part of the original sale. The IRS said that the exclusion was not available to Debough because he did not sell the property within one year after he had reacquired it.
The Tax Court agreed with the IRS. In addition to agreeing with the IRS’s technical reasoning, the court found that there was “nothing unfair” in taxing the income since Debough was actually in a better position than he was before the sale, having both ownership of the property and $505,000 in cash (Marvin E, Debough v. Commissioner, 142 TC No. 17, May 19, 2014).
©2014 CPAmerica International
The IRS in Notice 2014-37 is allowing certain 401(k) and 403(m) retirement plans, including 403(b) plans, to make midyear amendments to reflect the U.S. Supreme Court’s Windsor decision.
The Supreme Court struck down Section 3 of the Defense of Marriage Act in U.S. v. Windsor, et al. (Sup Ct 2013) as an unconstitutional deprivation of equal protection. Section 3 had defined marriage for purposes of administering federal law as the “legal union between one man and one woman as husband and wife.” As a result, same-sex spouses were not recognized for purposes of qualified retirement plans.
Following the court’s decision, the IRS issued Revenue Ruling 2013-17 stating that same-sex couples who were legally married in jurisdictions that recognize their marriage will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage.
In Notice 2014-19, the IRS provided guidance on the effect of the Windsor decision on qualified retirement plans and plan amendments. To be considered a qualified plan, a cash or deferred arrangement (CODA), such as a 401(k) plan, must meet certain nondiscrimination tests. A CODA that meets safe-harbor provisions described in regulations generally must have those provisions in place before the beginning of the plan year and be maintained throughout a full 12-month plan year.
The IRS has now said that a plan will not fail to satisfy the requirements to be a Code Section 401(k) or 401(m) safe-harbor plan merely because the plan sponsor adopts a midyear amendment pursuant to Notice 2014-19, Q&A 8. ■
©2014 CPAmerica International