There are two categories for claiming a dependent, a Qualifying Child, and a Qualifying Relative. In this article, we are looking at the requirements for a Qualifying Child. The IRS has a specific definition of what a child is. To claim someone as a dependent, they must pass 5 tests:

1. Relationship to the Tax Payer
2. Age of the individual
3. Residency
4. Support
5. Filing status

Relationship

In order to claim them as a dependent, the child must a descendant directly related to you (or your spouse). This means your child (including adopted and foster), your brothers & sisters (by blood or marriage), or any of their descendants (nieces, nephews, and grandchildren.)

Age

To be a qualifying child, they must be under 19, a full time student under 24, or permanently disabled as of December 31st. In addition, any brothers or sisters you are supporting must be younger than you or your spouse in order to claim them as a qualifying child.

Residency

The child in question must live with you for more than half of the year. The IRS does recognize specific exemptions from this rule for temporary absences (college, military service, illness, etc), births, deaths, kidnapping, and divorce. Be sure to discuss with your tax adviser the exact nature of your child’s absences in order to determine if they qualify.

Support

To claim someone as a qualifying child, they cannot provide more than 50% of their support for the year. Please note that unlike a qualifying relative where you must provide half of their support, for a qualifying child the test is that they did not provide half – meaning if you receive support form a third party it does not count against you.

Filing Status

With the current economic difficulties, many young married couples are finding themselves back at their parents’ home. If the couple is filing a joint return (unless it is just to receive a refund – no taxable income), then the parents they are living with cannot claim them as a qualifying child.

All of these tests have special considerations and exceptions that may effect your individual situation, so be sure to discuss them with a professional if there are any questions. And remember that just because they are not a Qualifying Child, they may still be a Qualifying Relative, allowing you to still claim them as a deduction (watch for an upcoming article on Qualifying Relatives)

Last month Gov. Brown signed into law Senate Bill 459, concerning the misclassification of workers. In addition to the large fines for willful misclasification (up to $25,000 per violation), employers must post a notice on their website and “displayed prominently” in an area that is “accessible to all employees and the general public at each location where a violation. . .occurred.”

The notice, which must be signed by a corporate officer, must state:

1. That the employer has been found to have “committed a serious violation of the law by engaging in the willful misclassification of employees,”
2. that the employer has “changed its business practices to avoid committing further violations,”
3. that any employee who believes he or she is being misclassified may contact the state Labor and Workforce Development Agency, whose mailing address, email address and telephone number must be listed in the notice,
4. that the notice is being posted “pursuant to a state order.”

The notice must remain posted for one year.

This new law increases the exposure for employers when it comes to independent contractor misclassification issues. Employers are already liable for employment and withholding taxes if found to purposefully misclassify individuals as independent contractors, but this law adds an additional layer of potential claims and penalties. Because of this, employers should work with experienced advisers to review their independent contractor relationships.

Remember to ‘Like’ us on facebook or sign up on our website for our monthly newsletter to keep up on this and other tax law issues. www.whiteheadcpa.com

reprinted from cch.com (http://cch.com/press/news/2011/20111115t.asp)

This holiday season, online shoppers will find more states are looking to make sure gift givers also give their state its fair share – in terms of sales tax for online purchases, according to CCH, a Wolters Kluwer business and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com). Last year, online shoppers spent more than $1 billion just on Cyber Monday, and online shopping this holiday season is expected to continue to grow at a double-digit rate.

“Whether people shop online or in stores, states expect them to pay sales tax on their purchases,” said Daniel Schibley, JD, CCH Senior State Tax Analyst. “However, few online shoppers comply, unless the tax is collected by the merchant.”

Under existing laws, retailers are required to collect sales taxes for purchases made in states in which they have a physical presence, or nexus. As more sales head online, it is projected that states are losing billions of dollars annually in sales tax revenue they once collected from local retailers, and they are increasingly looking for ways to shore up their tax base.

Two ways to do this, according to CCH, are to require more online retailers to collect sales tax through broader nexus rules and to require consumers to pay the required use tax portion of sales tax. Sales tax has two parts – the sales portion paid by the retailer and the use portion paid by the consumer. Under existing rules, individuals are required to pay use tax in states with a sales tax if the retailer does not collect the tax.

State Sales Tax Collection Approaches

Overall, 45 states currently have a sales tax. This includes every state with the exception of Alaska, Delaware, Montana, New Hampshire and Oregon. The District of Columbia also imposes a sales tax.

Several states also are more aggressively enacting rules to help ensure more retailers and consumers pay sales tax, as outlined below. For a chart of state sales tax activities, click here.

Eleven states have enacted broader nexus rules that require online retailers to collect sales and use tax even if the retailer does not have a physical presence in the state but does solicit sales through online links or pays commissions to an in-state business (known as click-through nexus); or if the retailer has an affiliation with a company doing business in the state (known as affiliate-nexus laws). These states include: Arkansas, California, Colorado, Connecticut, Illinois, New York, North Carolina, Rhode Island, South Dakota, Texas and Vermont. The California, Texas and Vermont provisions are not yet in force, however. Four other states have legislation for these rules pending: Massachusetts, Michigan, Pennsylvania and Tennessee.

“Each of these laws increase the likelihood that if you live in these states, some online retailers will be charging you sales taxes when you make online purchases,” said Schibley.

Additionally, Colorado law requires retailers selling into the state but not collecting sales tax to send the state an annual reporting notification statement of everyone in the state it shipped to and the value of those purchases so that it can pursue collection of use taxes. However, a federal court in Denver has put enforcement of this law on hold for now.

Several states also require online retailers to provide explicit notifications on their websites letting consumers know about their obligation to pay their state sales tax. States with these website notification rules include Colorado, Oklahoma, South Dakota and Vermont.

States collecting sales tax also have information on their websites about how to pay uncollected use tax. Many states provide a line item on their income tax return where consumers can report the amount of use tax they owe.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CorpSystem®, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us now on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

Bonus Depreciation

Taxpayers are allowed to recover the cost of certain property used in a trade or business or for the production of income through annual depreciation deductions. The amount of the allowable depreciation deduction for a tax year is generally determined under the modified accelerated cost recovery system (MACRS), which assigns applicable recovery periods and depreciation methods to different types of property.

An additional first-year depreciation deduction equal to 100 percent of the adjusted basis of the property is available for qualified property acquired after September 8, 2010 and before January 1, 2012, and placed in service before January 1, 2012 (or before January 1, 2013 for certain longer-lived and transportation property). This additional depreciation deduction, known as ”100 percent bonus depreciation” is temporary (unless extended by Congress). As a result, 2011 year-end tax planning should take into account 100 percent bonus depreciation as well as its scheduled drop to 50 percent for qualified property acquired after December 31, 2011 and before January 1, 2013 (or before January 1, 2014 for certain longer-lived and transportation property.

These dates are important in year-end planning. Let’s look at an example. ABC Co. acquires a qualified asset on November 1, 2011 and places it in service on December 1, 2011. The 100 percent rate of bonus depreciation applies. However, if ABC Co. acquires a qualified asset on November 1, 2011 and places it in service on January 1, 2012, the 50 percent rate of bonus depreciation applies. The rules for determining the acquisition date of an asset are different for the 100 percent and 50 percent rates. Special rules apply to self-constructed property.

Taxpayers may elect out of bonus depreciation. An election out of 100 percent bonus depreciation in 2011 will spread the depreciation deductions for the cost of an asset into future years measured by the asset’s depreciation period. Electing out of 100 percent bonus depreciation may be a valuable strategy for certain taxpayers. Our office can help you determine the best strategy for applying bonus depreciation.

Business vehicles

Special consideration should be paid to the interaction of 100 percent bonus depreciation and the so-called ”luxury vehicle” caps. InRev. Proc. 2011-26, the IRS set out a safe harbor method of accounting for businesses nominally entitled to 100 percent bonus depreciation but still limited by the maximum luxury vehicle depreciation caps ($11,060 for passenger autos for 2011 and $11,160 for light trucks in 2011). The effect of the safe harbor is generally to allow the taxpayer under the 100 percent bonus depreciation regime to claim exactly the same amount of depreciation during each year of the vehicle’s recovery period as would have been allowed if a 50 percent bonus depreciation rate had originally applied.

Code Sec. 179 expensing

Business taxpayers are allowed to expense up to a certain dollar amount in annual investment expenditures for qualified property. The maximum amount that can be expensed is reduced by the amount by which the taxpayer’s cost of qualified property exceeds a certain investment limit. For tax years beginning in 2010 and 2011, the Code Sec. 179 dollar limit is $500,000 and the investment limit is $2 million. The dollar limit is scheduled to fall to $125,000 (indexed for inflation at $139,000) and the investment limit is scheduled to fall to $500,000 ($560,000 indexed for inflation) after 2011. As a result, business taxpayers contemplating qualified purchases should weigh the benefits of accelerating those purchases into 2011. Keep in mind that Code Sec. 179 expensing is also allowed for off-the-shelf computer software placed in service in tax years beginning before 2012.

Some targeted special expensing provisions are scheduled to expire after December 31, 2011 (unless extended by Congress). Expiring for qualified property placed in service after December 31, 2011 are special expensing rules for film and television production costs; brownfields remediation costs; and qualified advanced mine safety equipment.

Real property expensing

Real property generally is excluded from Code Sec. 179 expensing. However, tax legislation in 2010 provided that qualified leasehold property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2012 are eligible for special expensing rules. However, the special expensing provision is temporary and is scheduled to expire after 2011 (unless extended by Congress).

A taxpayer that places qualified leasehold improvement property, qualified restaurant property or qualified retail improvement property in service in a tax year that begins in 2010 or 2011 may elect to treat the property as Code Sec. 179 property and expense up to $250,000 of the cost of the property. There are some important limitations. While qualified leasehold improvement property is eligible for bonus depreciation, qualified restaurant property and qualified retail improvement property are generally ineligible for bonus depreciation unless they meet the definition of qualified leasehold improvement property. Additionally, current law does not provide for a carryover of an unused real property expensing election for qualified property placed in service in 2011. If you are considering a real property improvement, please contact our office before the window of opportunity for this special expensing rule closes.

Work Opportunity Tax Credit (WOTC)

Employers that have taken advantage of the popular Work Opportunity Tax Credit (WOTC) in past years may be surprised to learn the credit is scheduled to expire after December 31, 2011 (unless extended by Congress). The WOTC is designed as an incentive to encourage employers to hire individuals from nine targeted groups, which have historically, experienced higher than average unemployment rates and other barriers to employment. The WOTC generally is 40 percent of the qualified worker’s first-year wages up to $6,000 (with higher and lower amounts for certain groups). Under current law, the WOTC applies to wages paid to qualified individuals who begin work for the employer before January 1, 2012.

Payroll taxes

Employers should remind employees that effective January 1, 2012, the employee-share of OASDI taxes is scheduled to revert to 6.2 percent (unless the 2011 payroll tax holiday is extended by Congress). Under the 2011 payroll tax holiday, employees paid OASDI taxes at a rate of 4.2 percent rather than 6.2 percent. A similar benefit was provided to self-employed individuals. The employer-share of OASDI taxes for 2011, however, remains at 6.2 percent.

An employer’s FUTA tax liability did change mid-year in 2011. The 0.2 percent FUTA surtax expired after June 30, 2011. As a result, the FUTA tax rate falls to 6.0 percent for the remaining six months of 2011 before any state unemployment tax credits are taken into account. The IRS has indicated it will provide guidance for employers. Our office will keep you posted of developments.

Small business health insurance tax credit

According to the IRS, many small businesses are overlooking the Code Sec. 45R small employer health insurance tax credit. Small employers that provide health care coverage to their employees and that meet certain requirements ( ”qualified employers”) generally are eligible for the Code Sec. 45R tax credit for health insurance premiums they pay for certain employees. The employer must have fewer than 25 full-time equivalent employees (FTEs) for the tax year; average annual wages of its employees for the year must be less than $50,000 per FTE; and the employer must pay the premiums under a qualifying arrangement. For tax years beginning in 2010 through 2013, the maximum credit is 35 percent of the employer’s premium expenses that count towards the credit (25 percent for tax-exempt employers). If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced until it phases-out.

Code Sec. 199 deduction

Another under-used tax incentive, according to the IRS, is the Code Sec. 199 domestic production activities deduction. The Code Sec. 199 deduction generally allows taxpayers to receive a deduction based on qualified production activities income (QPAI) resulting from domestic production. The deduction effectively reduces the income tax rate on domestic production activities. Qualifying domestic production includes the manufacture of tangible personal property; the production of computer software, sound recordings and certain films; the production of electricity, natural gas, or water; and construction, engineering, and architectural services. One deterrent to greater use of the deduction is its complexity. Our office can help you navigate the deduction’s rules and calculations.

Energy tax incentives

Energy tax incentives are a mixed bag for businesses. A number of tax credits for alcohol fuels and biodiesel/renewable diesel will expire after December 31, 2011 (unless extended by Congress). Tax credits for construction of new energy efficient homes and manufacture of energy efficient appliances will also expire after December 31, 2011 (unless extended by Congress). Other energy tax incentives, including the deduction for energy efficient commercial buildings, do not expire until after 2013 or subsequent years.

If you have any questions about the business tax incentives we have discussed and year-end planning for 2011, please contact our office.

Step 71 of the Business Owners Handbook encourages business owners to establish ethics and community outreach programs early in their planning cycle, but many small business owners still question how some of these programs will help their business.

So, why am I bringing this up? I just spent last weekend at the Alzheimer Association’s Walk to end Alzheimer in Huntington Beach, and the event was packed with business teams – some not even associated with Alzheimer support or research.  Why were these companies putting the funds forward, and donating their employee time, when there was little relation back to their fields?

Outside of the obvious – such as reduced costs by going green, or the marketing exposure of team volunteer work – community outreach programs can have marked effects in the workplace too. COMPUTERWORLD magazine has an article on Workers with Heart this month that touches on this. Major corporations are encouraging – and some times even paying – their employees to volunteer their time and finances. Volunteer work (when the employees really want to be involved) gives them a common goal and helps increase communication and collaboration when they return to the office.

For a growing number of companies, employee volunteerism means improved collaboration and productivity on the job.[sic]

Moreover, volunteerism can enhance a company’s image within the communities where its employees and customers live. And offering time off — either paid or unpaid — for charity work can also help organizations attract younger, more community-minded and tech-savvy employees, experts say.

~COMPUTERWORLD, November 2011

Even with the high unemployment in the marketplace currently, finding quality employees can be difficult. Business’s success relies on attracting key employees, and usually it is the energetic, younger staff that bring back the enthusiasm needed to embrace the ever-changing technical landscape and keep your company ahead. Where better to connect with these upcoming businessmen and women than at these events that they are so passionate about? Who knows, the idea that could push your company into the next decade may be waiting for you at the local Habitat for Humanity build site.

Mike Lawson, Comerica’s vice president of technology services, estimates that as a group, IT donates its time and skills to more than a dozen charitable organizations. “It can be a form of stress relief,” he says. “It’s also a way for people to work with people they don’t [typically] work with,” he says. ~COMPUTERWORLD, November 2011

Stress can be a killer – both in what it does to you physically, and in the cost of employee turnover if your office is a high-stress environment. Medical insurance companies and consultants are willing to help you reduce the stress in your workplace, but sometimes it is not an option, especially if your company is in an intense industry. Giving your staff an outlet just might be exactly what you all need. Something as simple as closing the office and allowing them to use their personal hours to collect a paycheck while helping out may be the deciding factor in retaining a key employee’s loyalty.

Planning a community outreach programs is one of the 125 steps covered in the Business Owners Handbook. Pick up a copy through SUMATICI, Inc., or make an appointment with our staff for some one-on-one time to review your business activities.

I guess the off-the-cuff response to the question is “As long as it is relevant.”, but that doesn’t exactly help. So let’s look at specifics:

The Three-Year Rule

For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you’re looking for an additional refund, the limitations period is generally the latter of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:

• If you don’t report all your income and the unreported amount is more than 25% of the gross income actually shown on your return, the limitation period is six years.
• If you’ve claimed a loss from a worthless security, the limitation period is extended to seven years.
• If you file a “fraudulent” return, or don’t file at all, the limitations period doesn’t apply. In fact, the IRS can get you at any time.
• If you’re deciding what records you need or want to keep, you have to ask what your chances are of an audit. A tax audit is an IRS verification of items of income and deductions on your return. So you should keep records to support those items until the statute of limitations runs out.

Assuming that you’ve filed on time and paid what you should, you only have to keep your tax records for three years, but some records have to be kept longer than that.

Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old.

Items to keep more than three years:

1. Capital gains and losses. Your gain is reduced by your basis – your cost (including all commissions) plus, with mutual funds, any reinvested dividends and capital gains. But you may have bought that stock five years ago and you’ve been reinvesting those dividends and capital gains over the last decade. And don’t forget those stock splits.You don’t ever want to throw these records away until after you sell the securities. And then if you’re audited, you’ll have to prove those numbers. Therefore, you’ll need to keep those records for at least three years after you file the return reporting their sales.
2. Expenses on your home. Cost records for your house and any improvements should be kept until the home is sold. It’s just good practice, even though most homeowners won’t face any tax problems. That’s because profit of less than $250,000 on your home ($500,000 on a joint return) isn’t subject to taxes under tax legislation enacted in 1997.If the profit is more than $250,000/$500,000, or if you don’t qualify for the full gain exclusion, then you’re going to need those records for another three years after that return is filed. Most homeowners probably won’t face that issue thanks to the 1997 tax law, but of course, it’s better to be safe than sorry.
3. Business records. Business records can become a nightmare. Non-residential real estate is now depreciated over 39 years. You could be audited on the depreciation up to three years after you file the return for the 39th year. That’s a long time to hold on to receipts, but you may need to validate those numbers.
4. Employment, bank, and brokerage statements. Keep all your W-2s, 1099s, brokerage, and bank statements to prove income until three years after you file. And don’t even think about dumping checks, receipts, mileage logs, tax diaries, and other documentation that substantiate your expenses.
5. Tax returns. Keep copies of your tax returns as well. You can’t rely on the IRS to actually have a copy of your old returns. As a general rule, you should keep tax records for 6 years.The bottom line is that you’ve got to keep those records until they can no longer affect your tax return, plus the three-year statute of limitations.
6. Social Security records. You will need to keep some records for Social Security purposes, so check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they’re wrong, you’ll need your W-2 or copies of your Schedule C (if self-employed) to prove the right amount. Don’t dispose of those records until after you’ve validated those contributions.You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form, or apply online.

Contact us by phone or email if you have any questions about what records you need to keep.

CIRCULAR 230 DISCLOSURE: Pursuant to Regulations Governing Practice Before the Internal Revenue Service, any tax advice contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

It’s at the bottom of every email that our office sends out, and at the bottom of all of our web pages. Chances are, it’s even been at the bottom of a letter or two we have sent you. It’s the Circular 230 disclosure, and you will find it in some variation in just about any piece of correspondence from Accountants, Lawyers, or Tax Preparers.

At first glance it looks like we are saying the advice you are paying for is useless, but what does it really mean, and why is it there?

If we were general contractors and someone asked what it would cost for a room addition, it would be acceptable to give them a ball-park figure of what it usually costs. And if we got there to build it and find the foundation needs repairs first, most people would understand that we didn’t have all of the information needed when we made our first estimates. For accountants, Lawyers, and anyone else registered to practice before the IRS it is actually the opposite – unless they tell you this is an incomplete estimate, the IRS holds them responsible for every piece of advice they give.

Circular 230 was first introduced in 1966 and has been amended by the IRS 15 times since then – but it wasn’t until the revisions introduced in the 2003, 2005 and 2008 revisions that it became a headache for tax preparers and payers alike. The actual target of the new regulations was to stop dishonest practitioners from recommending questionable tax shelters to their clients. Their idea was that they get their clients in these tax constructs, and if they are audited the client can ask for a dismissal of penalties because they were relying on the tax professional’s advice. When the IRS would then file penalties against the professional, they would claim it was not a tax opinion, but just some off-the-cuff remarks – thereby avoiding the practitioner penalties.

To help stop this abuse (or at lease hold someone accountable), the IRS revised the circular 230 regulations. Under these regulations, a person licensed to appear before the IRS on tax matters are held responsible for all of their client communications. Clients cannot rely on a tax opinion for protection from penalties unless the practitioner provides a formal, comprehensive opinion that outlines and discusses at length:

• All relevant facts and applicable law,
• The relationship between the facts and the law,
• A conclusion as to the legal consequences of each tax issue, and
• The likelihood that the taxpayer will prevail if the IRS challenges the transaction.

The standards governing when such a formal, comprehensive opinion is required are vague and uncertain, in large part because the IRS did not want to create any loopholes. Consequently, the new rules may sweep in many routine, non-abusive planning arrangements and may cover many writings that don’t really constitute “tax advice.” Unfortunately, the penalties to practitioners for providing written advice that does not meet the Circular 230 requirements can be severe, including disbarment from practice before the IRS.

Going back to the example of a general contractor, it would be much like going over the house with an inspector, ordering environmental studies, testing the affected portions of the home for code violations, and then finally submitting an estimate along with a bill for all of the testing done so far.

So, since June of 2005, all effected professionals have had a choice when responding to their clients – spend untold hours to analyze the clients situation before answering them, or include a disclaimer that says you can’t use our tax advice for your taxes. Accordingly, we now routinely include a Circular 230 Notice in written communications.

Please be assured that the use of a Circular 230 disclaimer will not in any way change the quality of the service or advice you receive from us.

If you have any questions about this important development, please don’t hesitate to contact us.

Unfortunately, funding is not that easy to come by anymore. The number of federally guaranteed loans to Orange County small businesses plunged 34% to 128 loans in the first quarter of 2011 after the higher guarantees for lenders and fee subsidies for borrowers ended Dec. 31

All is not bad news through, while the number of new SBA loans has dropped, the average value of these loans have increased 19% to $495 thousand. So while it is harder to get approved, those that are have been receiving greater resources to help get their business running.

And the news is even better for business owners willing to look to venture capital for their funding. Venture firms dropped nearly $5.9 billion on 736 deals during the first quarter of 2011, a 14 percent increase in dollars over last year. But just like the SBA loans, the number of deals has dropped.

So, where does that put today’s entrepreneur when it comes to getting things started? Money is out there, and more abundant than any time since the 90?s, but the people controlling those purse strings are more picky about who is getting their help.

The best way to maximize your chance of approval? Get professional business consultants like Orange County based SUMATICI, Inc. involved at the start of your project – evaluating your funding options and helping to prepare an investment proposal tailored to your target and helping you sail through those first rounds of the funding process.

Believe it or not, this happens more often than most people think, and getting it straitened out may be tougher than you would believe.

First off – we can never encourage people enough to read their return before signing it (or the efile authorization). When your preparer hands you your copy of the return take it – and then go home. Sit down and read the return. Make sure the names and social security numbers match your records. If you don’t recognize a number somewhere call your preparer up and ask them about it. When you sign the return the IRS will hold you responsible for the numbers inside – if the preparer had put in some estimate and forgot to take it out, or dropped in an IRA contribution to show you how much you could save and accidentally left it in there, you are the one who will be paying those penalties and interest.

And if you are using direct deposit for your refund, check those numbers.

So, what if you forgot to check? What if your preparer imported your account numbers from 2009 and you closed that account? Or what if a digit was mixed up, or left out, or added in?

If the account number has an error in it you may be in luck. When the bank receives the wire from the IRS or State and cannot match it to an existing account they will refuse the transfer. The IRS or State will print a check and mail it to you in 2-6 weeks. So your only problem will be the increased wait on your money.

If an active account exists with the information you provided it is a little more complicated. The IRS does send the bank your name with the account information, and the bank should check that against the names on the account and send it back just like checking for an authorized signer – but it doesn’t always work that way.  So where does that leave you?

First off – contact the bank. If you alert them ahead of time they may be able to catch the incoming funds are route them correctly. And if they can’t route them to you, they can at least put a hold on the funds to prevent someone else from spending them.

If it made it to the bank and they didn’t return it to the IRS, contact the IRS and have them put a trace on the funds. It may take up to 6 weeks for them to process it, but they will track down the account that received the funds and get them back your you.

Over the past few years, a number of our clients have received faxed and mailed notices instructing them to complete a corporate compliance form. Some of these notices are directed at directors or officers, while others are for the general corporation.

Generally, these notices will cite specific portions of the California corporate code that requires corporations to prepare corporate minutes. The form usually is pre-filled with company and officer names, along with state ID numbers. These notices appear to be issued by the California Secretary of State or some other governmental entity.

So, as a business owner you receive an official looking letter reminding you of your business requirements with a small filing fee (usually in the $100 – $200 range) – what do you do?

Most business owners write out a check and mail it in, one less government agency to argue with. But this was not a government agency, and it was not an invoice. If you took a few minutes to look everything over you would find (usually in small print or grayed out) something similar to:

CA Business & Professions Code Sec 17533.6: This service has not been approved or endorsed by any government agency, and this offer is not being made by an agency of the government. This is not a bill.

This is just one example. There is a company claiming to be based in the Netherlands (actually it is in the back office of a New York attorney) that sends out invoices that look like they are from the Real Yellow Pages for $1,000 per year to advertise you in their online directory. Another looks like a company domain renewal but actually sets you up for submitting your site to search engines.

These dubious schemes may be a minor loss to larger companies, but they also show a greater problem in many people’s accounting procedures. If these invoices can get through your system and get paid, then so can accidental duplicate invoices, or employee utility bills, or dozens of other items that may find your profit margins shrinking.

To keep your company (or yourself!) from spending money for purchases you don’t want, put these practices in place:

• Limit the number of people who can pay invoices to just one or two.
• Require a completed W-9 from your vendors before you pay them – this will also make things easier when you have to issue 1099?s.
• Read the entire notice carefully. If it looks like an invoice and you don’t remember ordering the product or service, be particularly cautious. Remember you are not obligated to pay for anything you haven’t ordered.
• If you are unsure whether an invoice is legitimate, call the company and ask for details of your purchase. If there is no way to get in touch with the company other than by sending a letter, be very skeptical.
• Read the small print. Even if the company is legitimate and you think you’d like to order the product or service, be sure that doing so won’t get your credit card dinged for repeated charges.
• If you use purchase orders, check all invoices against the purchase orders.
• When you do sign up for internet services, watch for an acknowledgement page. Print it out and save it, then compare bills to your printed purchase receipts.
• Train your employees to look for bogus invoices.
• Include invoice numbers on your payments, and have the invoices with the payment when filing them in your records

And most important – review your company financial statements monthly. This way even if they do get an invoice through your procedures once, it will be quickly spotted as a variance compared to prior months and you can keep an eye out for it in the future.