Keep Up To Date On All Tax Law Changes Or Else...

Benjamin Franklin famously observed that nothing in life is certain but death and taxes.

It turns out he was half right.

As a recent tax court ruling regarding the 35-year-old Christy & Swan profit sharing plan illustrates, nothing is certain about the tax treatment of profit sharing retirement plans – at least those that fail to keep up with changes to the tax code.

David S. Swan, Jr. established such a plan for his real estate business in 1976 with himself as the sole participant and plan trustee. A decade later, the IRS granted Swan's plan tax-exempt status as a retirement plan under Code Sec. 401(a).

In 2000, Congress passed the Community Renewal Tax Relief Act, followed in 2001 by the Economic Growth and Tax Relief Reconciliation Act. Both made numerous changes to qualified retirement plans – and warned trustees to amend their plans or risk losing their tax-exempt status.

When Swan filed his Form 5500-EZ (Annual Return of One-Participant (Owners and their Spouses) Retirement Plan) for the plan's 2005 tax year, the IRS initiated an audit to determine whether the plan had been updated.

Swan provided the IRS with a declaration that he had "amended" the plan by general reference to incorporate all statutory and regulatory amendments to retain his tax-qualified status. He further argued that the plan had matured into a repository trust in 2001, and therefore was not required to amend for the legislative changes.

Two years later, following a lengthy series of exchanges, the IRS determined that he hadn't amended his plan as required and revoked its tax-exempt status.

On appeal, the tax court agreed with the IRS that Swan had not only failed to update the plan to code, but had failed to correctly terminate the plan as well.

Not only did the tax court uphold the revocation of tax-exempt status against Christy & Swan, it did so retroactively to 2001, despite the fact that the plan had accepted no new contributions or participants after 2000. The court's reasoning: while the termination of a plan will always end contributions, an end of contributions alone does not constitute termination of a plan.

The takeaway from this five-year legal ordeal? Mind the changes that could affect your retirement plan, however capricious or unnecessary they may seem.

Economist: A Little Inflation Might Actually be a Good Thing

Inflation is usually considered a dangerous trend for a healthy economy, as prices for consumer goods take off and cause hardship for a country's citizens. However, according to Casey Mulligan, writing for the New York Times, a little inflation could actually help the U.S. economy.

At low levels, inflation could help increase consumer prices and wages in roughly the same amounts, leading to no damage in purchasing power and have the net effect of causing trouble for those who are owed substantial debts and helping those who owe them, Mulligan says.

However, Mulligan notes that those who are day trading for a living or otherwise making their money from investments would could be penalized by inflationary trends, since capital gains taxes are not indexed to such growth like income taxes are.

"Consider, for example, a zero-inflation economy in which homes and business normally sell for what the seller paid when he originally purchased the property. According to our tax laws, those sellers would owe no capital gains tax," he writes.

While there would undoubtedly be issues caused by inflation, the enormous number of Americans whose personal finances are being weighed down by debt could mitigate those problems, Mulligan writes.

Long-term, the outlook for the U.S. economy remains mixed. The stock market appears to have rebounded strongly from the recession, but jobless figures - while improving slowly - are still well above pre-crisis levels.

Another Tech Bubble? Separating the Froth from the Facts

I just opened my latest email from Wharton School and ran across this article. As an active trader it should an interesting read. Feel free to share it with your trader friends.

Back in December, Google made a bid for the social e-commerce company Groupon that valued the company at $6 billion, according to press reports. By the end of the month, TechCrunch and others were putting a nearly $8 billion value on the company based on a new round of venture capital (VC) funding. Two weeks into the New Year, The New York Times reported that Groupon was talking to Wall Street bankers about an IPO that would value it at $15 billion. By March, Bloomberg had upped the IPO price tag to $25 billion. To read the rest of the article click here.

Eight Facts on IRS Penalties

None of us wants to think about receiving a penalty from the IRS, but "stuff" happens so it is a good idea to review the IRS stand on penalties. As I try to repeat in each of my webinars it always makes sense to file your tax return each year, even if you know that you may have to go back and file an amended return.
When it comes to filing a tax return – or not filing one - the IRS can assess a penalty if you fail to file, fail to pay or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

If you still need this years tax return completed and you feel as if you need help, give us a call. 800.938-9513
To read the entire article click here.

Eight Things to Know If You Receive an IRS Notice

Each year, the Internal Revenue Service sends millions of letters and notices to taxpayers for a variety of reasons. Here are eight things to know about IRS notices – just in case one shows up in your mailbox.
To read the entire story click here.

Tips for Managing Your Tax Records

After you file your taxes, you will have many records that may help document items on your tax return. You will need these documents should the IRS select your return for examination. Here are five tips from the IRS about keeping good records. To read the entire story click here.

Consumer Financial Protection Bureau and National Association of Attorneys General Presidential Initiative Working Group Release Joint Statement of Principles

WASHINGTON—The Consumer Financial Protection Bureau (CFPB) and the Presidential Initiative Working Group of the National Association of Attorneys General (NAAG) today announced agreement on a Joint Statement of Principles, the first step in forging a new partnership between federal and state officials to protect consumers of financial products and services.

Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB, highlighted the agreement in her remarks at the NAAG Presidential Initiative Summit today in Charlotte. To read the rest of the story please click here.

Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

To view the entire article click here.

Atlas Shrugged

When I was much younger I fell in love with the writing of Ayn Rand, especially her novel "Atlas Shrugged". Thinking about it it is as timely today as it was then, especially if you are a small business person. They are making a movie out of this book, and I guess in three parts. Part one is being released on my and Melva's 44th aniversary, April 15! When else would you think someone who owns an accounting firm would be married? Anyway, I highly recommend the book, and only hope the movie is as good. I would love to hear from you if you too were moved by this 1957 novel. Here are some websites you can learn about the movie and where it is playing.

http://www.atlasshruggedpart1.com
http://www.atlasshruggedpart1.com/theaters

SEC Announces Filing of Limit Up-Limit Down Proposal to Address Extraordinary Market Volatility

On April 5, 2011, the Securities and Exchange Commission announced that national securities exchanges and the Financial Industry Regulatory Authority (FINRA) today filed a proposal to establish a new “limit up-limit down” mechanism to address extraordinary market volatility in U.S. equity markets.

Under the proposal, trades in listed stocks would have to be executed within a range tied to recent prices for that security.

If approved by the Commission, the new limit up-limit down mechanism would replace the existing single stock circuit breakers, which were approved on a pilot basis shortly after the market events of May 6, 2010.

The SEC will seek comment on the proposed plan, which is subject to Commission approval following a 21-day public comment period.