Businesses that use independent contractors have always been in the crosshairs of federal and state taxing agencies.  Taxing agencies are unusually aggressive, because they feel it is easier to collect taxes from the companies who use independent contractors rather than the independent contractors themselves.

Independent contractor audits are again becoming a hot priority for the IRS. The legal rules really haven’t changed, it’s just that the IRS is becoming increasingly aggressive in targeting companies that use independent contractors to raise revenue. The state of California is even worse, because the state rules for independent contractor treatment are even less favorable than the federal rules.

The federal rules incorporate a “safe harbor” that most taxpayers don’t know about. The “safe harbor” is contained in the provisions of the Revenue Act of 1978. There are definite strategies involved in positioning businesses to take advantage of the safe harbor. The safe harbor allows a taxpayer to successfully...

A client recently shared a very handy health insurance tip for access to group health plans. The Orange County Association of Realtors has an interesting Affiliate Program. Once an individual is registered as an affiliate of OCAR, the individual has access to the OCAR group health plans. This affiliate program is not limited to realtors or businesses. A fee to register as an affiliate is required. There are networking opportunities, classes and meetings and advertising opportunities for OCAR affiliates along with insurance benefits for an additional cost.

The details of the affiliate program are at: http://www.ocar.org/page.php?tut=become-an-affiliate&tid=202&pid=2

The last time I spoke with the representative for the OCAR Group Plans, they offered: Pacificare (HMO)  -  3 group medical plans United Healthcare (PPO)  -  2 group medical plans Kaiser Permanente (HMO)  -  13 group medical plan options

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The IRS recently won a court argument allowing it to summons property transfer records from the California State Board of Equalization. The IRS is searching for unreported taxable gifts. This move, like so many others by the IRS and the Franchise Tax Board, are parts of ongoing attempts to grab the lowest hanging fruit on the tree to bring in more tax revenue.

Especially in Southern California, many parents end up providing assistance to their children with home purchases. They sometimes take joint title to homes to help their children qualify for loans, or take sole title to the home then transfer title to the children at some future point.

Right now, the IRS appears to be looking at people who transferred real property for no consideration to children and grandchildren from January 1, 2005 through December 31, 2010. However, in estate tax audits, we’ve seen auditors go back through all of someone’s recorded property transfers (sometimes for more than 20 years) attempting to find transfers of real...

California employers should be aware that a new law (California’s Wage Theft Prevention Act of 2011 codified as Labor Code Section 2810.5) went into effect on January 1, 2012 that requires California employers to provide all new nonexempt hires with written notice of specific wage information at the time of hire, including:

•    The employee's rate or rates of pay (including overtime rates), and whether the employee is paid hourly, by the shift, by the day, by the week, by salary, by piece, by commission, or otherwise. •    Any allowances claimed as part of the minimum wage (i.e., allowances for meals or lodging). •    The regular payday. •    The name of the employer, including any D/B/A names the employer uses. •    The physical address of the employer's main office or principal place of business, and a mailing address if it is different. •    The employer's telephone number. •    The name, address, and telephone number of the employer's workers' compensation insurance carrier. •    Any other...

Happy New Year.  All Employer’s should be on notice that the use of 1099 labor is under scrutiny by the state of California in 2012.  The hunting season started January 1, 2012, based on a bill signed by Gov. Brown in October (SB 459).  The new legislation targets the use of any 1099 labor from individuals.  If an employer has individuals providing contract or 1099 labor, the relationship needs to be addressed right away.  The contractor, if truly a contractor, needs to incorporate or form another legal business entity other than a sole proprietorship.  If the contractor can or should be classified as an employee, the change needs to be implemented without delay and payroll taxes must be paid.

Organized labor and Democratic legislators promoted this new law that includes up to a $25,000 penalty per incident for Employers with a pattern of improper use of contract labor or willfully misclassifying such labor. The max penalty is $25K and the minimum is $5K per violation.  The fines can extend to CPA’s and...

The $5,000,000 per person gift tax exemption is supposed to last until December 31, 2012.  Why use it now if you still have next year?  Here are two good reasons.

The first is that given our country’s economic and fiscal situation, the Joint Select Committee on Deficit Reduction, also known as the “Supercommittee”, may reduce the gift tax exemption sooner than 2012.  At least half the members of the committee are insisting on tax increases as part of the deficit reduction “solution”.  (As one wag put it, where do all the “solutions” go after politicians get elected?)

The Obama administration has not only proposed tax increases in its jobs bill, but is also calling for a return of the estate and gift tax rates and exemptions to their 2009 levels.  That means an estate tax exemption of $3,500,000 per person, but a gift tax exemption of only $1,000,000 per person.  So it is possible a significant reduction in the current $5,000,000 gift tax exemption could occur sooner than the end of 2012.

This...

Many politicians have repeatedly talked about the need for “the rich” to pay more income taxes.  Even Warren Buffet has joined the debate.  Regardless of whether Congress acts, the IRS has already taken matters into its own hands and has started scrutinizing wealthy taxpayers to an unprecedented degree.

The audit rate for taxpayers with an annual income of more than $1,000,000 is already eight times higher than the general population, which had a 1.1% audit rate.  For those with $10,000,000 or more in annual income, the audit rate climbs to almost one in five returns—almost 20 times higher than the general population.  However, the IRS is planning on increasing audit rates on wealthy taxpayers even more.

The IRS effort involves a new “wealth unit”.  Audits will be conducted by a team of IRS agents who will focus not only on a taxpayer’s individual return, but the returns of all related entities.  The scope of these audits will be much wider than a typical income tax audit.

For example, the IRS...

We tax lawyers like to talk about all the creative ways our clients can transfer wealth and save millions in taxes.  For transfers of operating businesses (including a real estate portfolio), there are a number of often overlooked business issues. 

For example, does the next generation have the management capability to run the business?  How will new lines of authority be established?  (You can’t have three CEO’s).  Does the next generation have the desire to manage the business?  What about all the interpersonal dynamics—sibling rivalry, spouses, etc.—that can affect business operations after the founder is gone? 

There are also external business issues.  How will key customers react if the founder of the business is no longer around?  What will the reaction of key employees be?  Has the next generation had a chance to establish independent relationships with key employees, or are those personal to the founder?  What will the impact of successor management’s relationships with banks and key vendors...

Responsible Wealth and United for a Fair Economy yesterday launched the Tax Wealth Like Work campaign.

The gap between the richest and poorest Americans is at historic highs, with estimates suggesting that the top 1 percent of Americans hold nearly 50 percent of the wealth, topping even the distance before the Great Depression in the 1920s. A recent survey concluded that Americans desire a more equal distribution of wealth, and dramatically underestimate the current gap. Perhaps surprisingly, this was true for Americans at all wealth levels and among those who voted for George W. Bush over John Kerry. More