In This Issue:
Bartering Income: The Value of Property or Services You Receive
Victims of Identity Theft Continue to Experience Delays and Errors in Receiving Refunds
Processes are Needed to Link Third-Party Payers and Employers to Reduce Risks Related to Employment Taxes
[dropcap]B[/dropcap]artering is the trading of one product or service for another. Often, there is no exchange of cash. Some businesses barter to get products or services they need. For example, a gardener might trade landscape work with a plumber for plumbing work.
Bartering Income: The Value of Property or Services You Receive
If you barter, you should know that the value of products or services you receive from bartering is taxable income, even if you are not in business. Here are a few facts about bartering:
• Bartering Income. Both parties must report the fair market value of the product or service they get as income on their tax return.
• Barter Exchanges. A barter exchange is an organized marketplace where members barter products or services. Some operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Exchanges must give a copy of the form to its members who barter each year. A copy must also be filed with the IRS.
• Trade Dollars. In most cases, exchanges trade barter or trade dollars as their unit of exchange. Barter and trade dollars are the same as U.S. currency for tax purposes. If you earn trade and barter dollars, you must report the amount you earn on your tax return.
• Tax Implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
Reporting Rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.
The professionals in our firm can assist you in understanding the complexities of bartering income.
[dropcap]T[/dropcap]he preparedness program is built on a foundation of management leadership, commitment and financial support. Without management commitment and financial support, it will be difficult to build the program, maintain resources and keep the program up to date.
It is important to invest in a preparedness program for the following reasons:
• According to the Insurance Information Institute, up to 40% of businesses affected by a natural or human-caused disaster never reopen.
• Customers expect delivery of products or services on time. If there is a significant delay, customers may go to a competitor.
• Larger businesses are asking their suppliers about preparedness. They want to be sure that their supply chain is not interrupted. Failure to implement a preparedness program risks losing business to competitors who can demonstrate they have a plan.
• Insurance is only a partial solution. It does not cover all losses, and it will not replace customers.
• Many disasters — natural or human-caused — may overwhelm the resources of even the largest public agencies. Or they may not be able to reach every facility in time.
• News travels fast and perceptions often differ from reality. Businesses need to reach out to customers and other stakeholders quickly.
• An Ad Council survey reported that nearly two-thirds (62%) of respondents said they do not have an emergency plan in place for their business.
According to the Small Business Administration, small businesses:
• Represent 99.7% of all employer firms
• Employ about half of all private sector employees
• Have generated 65% of net new jobs over the past 17 years
• Made up 97.5% of all identified exporters.
How much should be invested in a preparedness program depends upon many factors. Regulations establish minimum requirements; and beyond those minimums, each business needs to determine how much risk it can tolerate. Many risks cannot be insured, so a preparedness program may be the only means of managing those risks. Some risks can be reduced by investing in loss prevention programs, protection systems and equipment. An understanding of the likelihood and severity of risk and the costs to reduce risk is needed to make decisions.
A preparedness policy that is consistent with the mission and vision of the business should be written and disseminated by management. The policy should define roles and responsibilities. It should authorize selected employees to develop the program and keep it current. The policy should also define the goals and objectives of the program. Typical goals of the preparedness program include:
• Protect the safety of employees, visitors, contractors and others at risk from hazards at the facility. Plan for persons with disabilities and functional needs.
• Maintain customer service by minimizing interruptions or disruptions of business operations
• Protect facilities, physical assets and electronic information
• Prevent environmental contamination
• Protect the organization’s brand, image and reputation
Program Committee and Program Coordinator
Key employees should be organized as a program committee that will assist in the development, implementation and maintenance of the preparedness program. A program coordinator should be appointed to lead the committee and guide the development of the program and communicate essential aspects of the plan to all employees so they can participate in the preparedness effort.
The preparedness program should be reviewed periodically to ensure it meets the current needs of the business. Keep records on file for easy access. Lastly, where applicable, make note of any laws, regulations and other requirements that may have changed.
The professionals in our office can help you prepare a program that will help you plan for and protect your business.
Victims of Identity Theft Continue to Experience Delays and Errors in Receiving Refunds[dropcap]V[/dropcap]ictims of identity theft continue to experience delays and errors in receiving refunds, according to a report publicly released by the Treasury Inspector General for Tax Administration (TIGTA).
This audit is a follow up on a report released in 2013 by TIGTA which concluded that the Internal Revenue Service (IRS) was not providing quality customer service to identity theft victims. The objective of the report was to determine whether the IRS is improving its assistance to these victims.
The 2013 report found, on average, the IRS took 278 days to resolve the tax accounts of identity theft victims who were due a refund. That is an improvement over the average 312 days it took the IRS to resolve tax accounts of identity theft victims due a refund in Fiscal Year (FY) 2012. This data comes from a sample of 100 identity theft tax accounts resolved in the Accounts Management function in FY 2013.
Refund fraud is an obstacle for innocent taxpayers. Although the IRS is making progress, those who have been affected by refund fraud deserve better. TIGTA’s recent review has found that the IRS continues to make errors and release misleading data.
1. The IRS continues to make errors when resolving tax accounts of identity theft victims. Ten percent of the 267,692 taxpayers whose accounts were resolved were done so incorrectly. These errors can result in the delay of refunds or incorrect refund amounts.
2. The misleading information from the IRS reports related to the time period for case processing and resolution. For example, the IRS informs taxpayers who inquire about the status of their identity theft case that cases are resolved within 180 days when, in fact, on average, it took the IRS 278 days to close the cases that it resolved in FY 2013.
TIGTA made the following recommendations as to how the IRS can improve their processes and procedures regarding identity theft victims.
• Develop processes and procedures to ensure that case closing actions and account adjustments are correct;
• Accurately calculate the average time it takes to fully resolve taxpayer accounts affected by identity theft;
• Accurately report the number of identity theft cases resolved to include only those taxpayers for whom the IRS fully resolves their account and issues any refunds due.
The professionals in our office are monitoring this issue closely and will keep you appraised.
Processes are Needed to Link Third-Party Payers and Employers to Reduce Risks Related to Employment Taxes[dropcap]E[/dropcap]mployers that arrange to have a third-party payer handle their federal employment tax withholding and tax payment responsibilities are potentially at risk of being defrauded, according to a report publicly released by the TIGTA.
Approximately 40 percent of small firms use a third-party payer for tasks ranging from paying employees to paying Federal employment taxes. There are four common types of third-party payer arrangements:
1. Payroll Service Provider (PSP),
2. Reporting Agent,
3. Section 3504 Agent,
4. Professional Employer Organization (PEO).
TIGTA evaluated whether controls are adequate to protect the taxpayer’s and government’s interests when third-party payroll providers are not compliant with payment and filing requirements.
Typically, third-party payer arrangements work as intended. But there are instances in which third-party payers receive funds from employers for payment of payroll taxes but have not remitted those taxes to the IRS. This can be problematic—the funds are used but the taxes are still due.
TIGTA found that processes have not been established to link employers with all third-party payers. Of the four most common types of third-party payer arrangements, only Reporting Agents and Section 3504 Agents are required to submit an authorization form that discloses the relationship between an employer and a third-party payer. The IRS does not require a similar authorization for employers that use a PSP or a PEO.
The IRS does not always accurately process authorization forms. TIGTA’s review of 85 agent authorization forms processed in 2013 identified 11 forms with errors. Because of these errors, authorizations provided by employers to their Reporting Agents were incorrectly reflected in IRS systems.
Finally, the IRS has not established an effective process to ensure that indicators are accurately assigned to Section 3504 Agent and employer tax accounts. TIGTA’s review of the tax accounts associated with Section 3504 Agents filing 78 Form 2678s, Employer/Payer Appointment of Agent, identified 13 that contained erroneous indicators. The errors incorrectly identified Section 3504 Agents as employers and vice versa.
The professionals in our office are monitoring this issue closely; we will keep our readers appraised.