Sung to the tune of "Mama's don't let your babies grow up to be Cowboys"

We are actively involved, both professionally and personally, with a number of local high school sports booster groups.  Accordingly, we pay attention to some of the actions taken by IRS with respect to those groups.

In a recent Tax Court ruling (Capital Gymnastics, TC Memo. 2013-193), a group lost their tax exempt status. This group permitted the individual fundraising activities of its booster members to lower their individual membership dues.

The gymnastics club encouraged the parents of its student-athletes to form a Booster Group to help pay for the Club’s entrance fees and coaches’ travel costs.  Parents of the gymnasts could also lower their dues by selling gift cards, cookie dough and gift wrap to raise funds for the Boosters, and about half of the Booster members did so (and about half did not raise funds and they paid the full membership cost).  The Club offset the fundraising parents’ dues, in whole or in part, for each parent’s fundraising effort.  

After an examination, the IRS determined that the fundraising credits each parent received were an impermissible private benefit.  The Tax Court agreed and the Booster Club’s tax exempt status was revoked.

So, Booster Groups, don’t let your Boosters offset dues by selling Hoagies.

Flash Flooding in McMurray, PA

Our thoughts go out to those affected by today's flash flooding.  Be careful, be safe and Let's all pray that the damage is minimal.

Summer Newsletter is out!

Hey Friends, out latest newsletter is available.  You can read it here:

http://www.franty.com/news/jun13.pdf

“Summer afternoon—summer afternoon; to me those have always been the two most beautiful words in the English language.” ~Henry James

Let us know what you think!!  Enjoy YOUR Summer.

Happy Valentine's Day, Friends!

It's difficult to celebrate today while we’re in the midst of a heavy tax season but here's a fun (and true) little story about love, romance, marriage & monogamy:

When President Calvin Coolidge and his wife Grace were being given simultaneous but separate tours of a prominent chicken farm, the First Lady asked her guide whether the rooster copulated more than once a day. “Dozens of times,” she was told. 

Armed with this juicy little tid-bit, Mrs. Coolidge said to her guide: “Tell that to Mr. Coolidge.” 

Feeling a bit uncomfortable, the tour guide approached the President to inform him of Mrs. Coolidge’s revelation.  When told, President Coolidge hesitated for a moment and then asked the guide:  “Same hen every time?” 

When the guide said, “No Sir. A different hen each time,” the President responded: “Tell that to Mrs. Coolidge.”

Sorry, I couldn't resist.  Hope you enjoyed that fun (and true) little story.

Voice Mail? Who needs voice mail!!

Hi All,

There was a severe storm that rolled through our area on Wednesday and, as a result, our office building has suffered some electrical damage.  Our power was out for a few hours and the internet connection was down for about 24 hours, but we’re back in business now.

It’s pretty reassuring to know that surge protectors work and, at the same time, it’s pretty alarming to learn that when surge protectors get fried they don’t protect the things that they are meant to protect!  Fortunately for us, we’ve only lost a network adapter and the voice mail component to our phone system (plus, of course, a few fried surge protectors).

The network adapter has been replaced and our voice mail system is in the process of being replaced.  If you happen to call our office, you won’t be able to leave any voice messages until the problem is fixed.  

What’s even more unfortunate for us is that it appears that our ten year old office phone number may have been someone else’s before it was assigned to us!!  If you call here and don’t get an answer, you will be confronted with the following message:

“The voice mail box for New Castle Recycling is full.  Please try your call again later.”

New Castle Recycling? Really!?! That’s not even close!  We’re trying to get the phone company to change that message but it’s been a 10 year battle and we don’t think it’ll be resolved anytime soon.

Accordingly, we wanted to let you know that your best bet to reach us after hours in the next week or so would be by email.  Here is a link to all of our email addresses:

http://www.franty.com/contact.html

Thanks very much for your patience.  Best regards,

Standard Mileage Rates for 2013

The Internal Revenue Service issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

http://www.irs.gov/uac/2013-Standard-Mileage-Rates-Up-1-Cent-per-Mile-for-Business,-Medical-and-Moving

More Subchapter S Corporation Audits Are Coming

Dear Friends,

I hope you are having a wonderful summer!  It’s hard to believe that we’re almost in August already.

A new report by the Treasury Inspector General for Tax Administration notes that IRS audits have led to a substantial number of recommended adjustments reported on S corporation returns; however, the number of no-change audits was 62% in fiscal year 2011 for returns selected by the “Discriminant Index Function system”.

The IRS plans to analyze data files to better identify productive S corporation returns for audit. The growth in the number of S corporation returns processed has continued since 1997 when they became the most common type of corporation return filed.

The IRS estimates there will be a 26% increase in S corporation returns from the 2011 processing year to the 2015 processing year. What’s the take-away from this information?  There will be a lot more S Corporation audits and IRS wants to focus on “Productive” S Corporation returns.

If you are a stockholder in a “Productive” Subchapter S Corporation, there are some things that, at a minimum, you should ensure are being handled properly.  First of all, make sure that stockholder/employees are being compensated adequately.  We can’t emphasize enough how big an issue this is and we have suspected that IRS would intensify its focus here.

Secondly, make sure that vehicle mileage logs are prepared and maintained for company owned or leased vehicles utilized by stockholder/employees (or family members or, frankly, any one else that drives a company vehicle).  Personal use of company vehicles is always covered in any business tax return audit.  If your S Corporation is not maintaining mileage logs, you will lose tax deductions.

Finally, verify that all transactions between stockholders and the S Corporation are supported by appropriate documentation.  If transactions aren’t properly documented, IRS would reclassify them as disguised compensation subject to payroll taxes (including the new ObamaCare medicare tax that takes affect in 2013).  Reclassification of these amounts as additional compensation would also result in IRS claiming that previously filed payroll tax returns were incorrect and subject to additional tax, penalties, fines and interest.

Transactions requiring appropriate documentation would include, for example:

·        Lease agreements for S corporation rental of stockholder owned property(ies),

·        Board minutes prepared for all board meetings (with at least an annual board meeting, at a minimum),

·        Stockholder distributions are made in direct proportion to stock ownership and as a part of a plan of distribution (rather than indiscriminately),

·        Stockholder/Employees should submit expense reports for reimbursement of out-of-pocket expenses, just like every other employee.

This is serious news and it will require a large number of Subchapter S corporations to take a good hard look at how they are doing things.  We have learned that, in many cases, IRS agents like “form” over “substance” so it’s imperative that you have all of your S Corporation documentation handled properly. 

Time is on our side.  Take some time to review your business practices and make sure that you’ve got your Subchapter S Corporation “I’s” dotted and “T’s” crossed.  We can help – please let us know if you need some guidance.

~Franty & Company