Archive for category Finance

Finance: If You Worked In Afghanistan Last Year For Aegis, Foreign Taxes Paid Not Shown On W2′s

Feb 3

Posted by Matt in Afghanistan, Finance | No Comments

This is an important tax deal specifically for Aegis contractors/employees who worked in Afghanistan this last tax year. A big thanks to Luke Fairfield for putting the word out about this, and I will put this note up in the Taxes For Contractors section. Spread this around to any Aegis folks if you read this. Also, if you are an employee with another company and you worked in Afghanistan last year, be sure to check your W-2′s to see if foreign taxes paid are present. If not, definitely call your HR department about the matter. -Matt

 

TO ALL AEGIS EMPLOYEES WHO WORKED IN AFGHANISTAN IN 2012:
FOREIGN TAXES PAID NOT SHOWN ON W2’S

Fairfield Hughes, CPA’s, prepares and files the taxes for a large number of security contractors working in various combat zones.  We understand that Aegis has issued W2’s without including the amount of foreign taxes paid to Afghanistan on behalf of their employees working in the country on the W2 Form.  These foreign taxes paid represent a very large tax benefit called the “Foreign Tax Credit”.  If an individual sends their W2 to their CPA or tax preparer and that person is not aware of the foreign taxes paid, the employee could potentially miss out on the benefit.  We are asking our clients to send their final pay stub from Aegis (which reports the Afghanistan tax paid) along with their Aegis W2 to make sure they receive the tax savings.

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Cool Stuff: Taxes For Contractors 2012

Dec 20

Posted by Matt in Cool Stuff, Finance | No Comments

Here it is folks. Every year Luke Fairfield puts out these excellent letters that detail all the specific tax issues related to our profession for that tax year. So read through it and contact him or his partner Chris if you have any questions.

The stuff to watch out for this year are audits. Like Luke mentioned below, I have heard of more and more audits happening in our industry. The government is looking for any ‘loose change’ and taxes owed, so it pays to get prepared with this stuff. If you do get audited, contact Luke immediately and let him work the problem. I will keep this letter posted in my Taxes For Contractors page up top in the blue bar. -Matt

 

Greetings!

For all you ex-teams, ex-pats, ex special forces, security contractors and operators out there I hope this letter finds you well. In an attempt to keep you current with your tax filings I am sending out this letter as a year-end reminder that 2012 is almost over. There are some very important changes this year that could impact many of you as it relates to the IRS’s new audit interest in the foreign income exclusion. If you read nothing else, read the section below updating you on this topic. As always feel free to pass this email on to anyone in your situation who could use the help or anyone that I missed on this email. As always, I will do my best to minimize your tax bill and provide relevant advice for your situation.

Important Updates for 2012:
1) Audits on the foreign income exclusion have greatly increased. If you worked for Blackwater in 2009 chances are you were audited. Count yourself lucky if you were not as you are in the minority. If you have not heard of a teammate or fellow employee who has been through an audit I would be surprised. These audits have spread from ex-Blackwater employees to nearly anyone filing for the foreign income exclusion. As a result, I would recommend being more cautious in claiming the Foreign Income Exclusion in 2012. After a year of dealing with these audits, the below points stand out as noteworthy and important.
a.It is EXTREMELY important that you contact me in the event that you receive an audit notice. Do not make contact with the auditor for the same reason that you do not file your own tax return. Leave it to professionals with experience dealing with these situations; the results will almost certainly be better with less risk to you.
b.If you filed for the foreign income exclusion under the bona fide residency method and your location was Iraq or Afghanistan, under audit, the IRS will likely take the position that you were not a bona fide resident for tax purposes and will disallow the claim. A residency VISA from your host country is not enough to qualify. Yes, I am quite aware that everyone around you tells you they file as bona fide residents and have never had a problem. To that I can only ask if you have ever been fishing and if you have, did you catch all the fish?

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Finance: Taxes For Contractors 2011, By Luke Fairfield CPA

Dec 21

Posted by Matt in Finance, Industry Talk | 1 Comment

These newsletters come out about this time every year and they are a wealth of information. Probably the big one here is Luke’s suggestion of setting up a S Corp. Especially with the increased scrutiny by the IRS on those who have been claiming the foreign income exclusion.

Check it out below and definitely email him and his team if you have questions or are looking for a CPA. As you can see, he is a busy guy and Luke has partnered with another CPA to keep up. I also put his newsletter in the blue bar up top under Taxes For Contractors if you need to find it again. -Matt

 

Greetings!

For all you ex-teams, ex-pats, ex special forces, security contractors and operators out there I hope this letter finds you well.  In an attempt to keep you current with your tax filings I am sending out this letter as a year end reminder that 2011 is almost over.  There are some important new tax law changes this year such as the foreign tax being withheld in Afghanistan and increased IRS scrutiny of the foreign income exclusion and on Schedule C filers which I will address below.  Feel free to pass this email on to anyone in your situation who could use the help or anyone that I missed on this email. As always, I will do my best to minimize your tax bill and provide relevant advice for your situation.

Important Updates for 2011:
1) Audits on the foreign income exclusion have greatly increased. Those of you filing a Schedule C as an IC seem to be of particular interest.  This is due to the IRS opening a new office specifically dealing with this type of tax return.  In a typical audit, you are asked to provide some or all of the following:
a. A letter from your employer stating your work location and job duties for the year.
b. Letter of Authorization from the DOD stating your qualification to work overseas.
c. Copy of your passport to include any visa stamps.
d. A schedule of days outside the US for the period in question.
e. A copy of receipts for expenses claimed as deductions.
f. A copy of your work contract.
g. If claiming bona fide residency, they want to know where you lived, for how long and if it was your intention to remain overseas for a certain period.
2) Based on these audits, I strongly recommend starting an S Corporation for anyone who is an IC getting a 1099.  This appears to greatly reduce audit risk.  Additionally, if you do not think you could provide the above information or prove your qualification think twice about claiming it as you will most likely incur a 10 – 20% penalty on the additional tax due.

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Finance: Higher Business Taxes May Follow Treasuries Definition Of ‘Small’

Sep 9

Posted by Matt in Finance, Industry Talk | No Comments

Boy, this is one of those deals that could impact a bunch of folks out there who have set up S Corps or similar business structures as independent contractors. In this quote below I have included a point of contact to follow on this matter who originally brought this front and center. His name is Bob Perry and he specializes in this particular area of the industry. Here is a quote from his article and by all means follow the link if you want to read more and contact him.

TAX ALERT: For Owners of Private Security Companies
September 8th, 2011
By Bob Perry
Congressional lawmakers consider rewriting the U.S. tax code for closely held businesses, including those organized as partnerships, S corporations and limited liability companies.
This could have a dramatic negative effect on the owners of these corporations as they operate the company; and on the net proceeds from an eventual sale of the operating assets.

Hopefully some CPA types can come up and add their two cents on this deal. -Matt

 

 

Higher Business Taxes May Follow Treasury’s Definition of Small
By Andrew Zajac
Aug 18, 2011
A new definition of what constitutes a small business being considered by the Treasury Department is raising concerns among some closely held companies that it’s a step toward requiring them to pay corporate taxes.
The proposed definition, included in an Aug. 9 Treasury report, places the upper limit for a small business at $10 million in annual gross income or deductions. Currently, there is no size limit on what constitutes a small business for purposes of tax policy discussions.
The parameters could affect larger, closely held businesses, including those organized as partnerships, S corporations and limited liability companies. Such firms are called flow-through entities because profits flow directly to their owners, who pay personal income tax without first being subject to corporate tax. Large investment firms, including D.E. Shaw LP of New York and Renaissance Technologies Corp. of East Setauket, New York, and major law firms such as Los Angeles- based Latham & Watkins LLP are organized as flow-through companies.

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Military News: Military Retirement Is More Generous And Expensive Compared To Private Sector

Jul 29

Posted by Matt in Finance, Government Work, Industry Talk, Military News | No Comments

Hat tip to Thomas Ricks over at Foreign Policy for pointing this one out. Data like this seems to be missed when we discuss the costs of a standing government army, versus the private industry.  So stuff like this really points out the differences between public and private.

I have yet to work in a company that had any security contractor retirees. Hell, I would be lucky to have a retirement package offered, and most gigs these days seem to be all independent contractor stuff. That is the reality of today’s ‘disposable workforce’. So for me, I just assemble my own retirement plan and continue put into it from the various contracts I work.  Sometimes I was lucky enough to work a contract with a 401K plan, but those were few and far between.

The government seems to be the only industry left that actually has folks that work 20 years or 30 years, and has retirees under that system. It is actually a pretty good deal and many retirees collect pensions and go on to work other jobs.

In the security contracting industry, you see a lot of retired military folks who do exactly that.  They collect a nice pension after working 20 years in the military, and then go on to be a private contractor and make even more money.  So I could understand why the Pentagon and today’s cash strapped US government is taking a second look at this system. You could also guess the reaction of guys in the military that would construe this study as a threat to their good deal. The question to ask is will the government modify the current military retirement system to match that of the federal government, and get a few more years of service out of their soldiers? Or will they succumb to the politics of the matter, and realize that a ton of military retirees and current soldiers vote.

Who knows, but I do know that the US government is in the process of making some adjustments to the budget and spending. So they are looking at all and any options of cutting costs, and the military is no exception.

The other thing I wanted to mention is that I certainly hope these statistics are factored into future cost benefit analysis between government military forces and private military forces.  There are so many costs to consider when maintaining a standing army during times of peace and war.  Not to mention that all of these retirees in the military are also drawing healthcare benefits, and the legacy costs of that must be equally as high.  I mean if a guy retires at age 40 give or take, and the average life expectancy of a human these days is around 75, then that can add up to a lot of money that tax payers will be paying over the course of that individual’s life.

Here is the report that goes into more detail about military retirement and it’s costs. -Matt

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Legal News: Contractor That Worked In Iraq Cannot Exclude Compensation Under § 112

Feb 4

Posted by Matt in Finance, Industry Talk, Legal News | No Comments

     Ok gang, this is important and please feel free to pass this around.  This contractor lost in this case and the one thing that saved his bacon was this little memo that came from an IRS Acting Deputy Director in 2004.  If you filed your taxes with the impression that you fell under the same ‘combat zone compensation’ that the members of the Armed Forces received back then, then this memo could be your life saver. If anyone has a copy of this thing, I will make an edit and add it to this post so everyone knows where to find it. Robert L. Hunt was the IRS Acting Deputy Director at the time.

     The other point I wanted to bring up here is this. The powers that be are certainly trying all they can to put us under military/government control or under UCMJ, but god forbid if contractors actually enjoyed the same tax benefits as the Armed Services in combat zones? -Matt

Edit: 02/06/2011 – Thanks to Chris for sending me a copy of this memo.  I put it up in my Scribd account here if you want to check it out.

Court: Blackwater Contractor in Iraq Cannot Exclude Compensation Under § 112

By The Tax Prof

February 1, 2011

The Tax Court yesterday held that a Florida man who earned $98,400 in 2005 working for Blackwater (since renamed Xe) providing security services to the U.S. Army in Iraq could not exclude the compensation from income under § 112 as “combat zone compensation of members of the Armed Forces.” Holmes v. Commissioner, T.C. Memo. 2011-26 (Jan. 31, 2011). The Tax Court concluded that the taxpayer did not serve in the Armed Forces of the United States but instead was a private citizen hired by and paid by a private company (Blackwater). The Tax Court refused to impose a penalty because the taxpayer relied on an IRS memorandum wrongly stating that civilian personnel in direct support of combat zone military operations qualified for the § 112 exclusion.

Link to TaxProf blog post here.

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From the Tax Court memo Holmes v. Commissioner, Page 9

     Petitioner admitted on brief that he did not file a return for calender year 2005.  Petitioner’s only explanation for failing to file is that in 2005 while in Iraq, he was given a memorandum that caused him to believe that the income he was receiving from Blackwater was not taxable.  This memorandum was an internal memorandum written to give the Commissioner’s employees field guidance for examination and collection activity involving taxpayers in Iraq.  The memorandum, titled “Memorandum for Acting Deputy Director, Compliance Field Operations”, was issued by the Internal Revenue Service Small Business/Self-Employment Division on June 28, 2004.  The memorandum states that civilian or military personnel who are in direct support of a combat zone military initiative and physically located in the combat area are entitled to the exclusion.  It also states that time spent in a combat zone by an individual serving in support of the Armed Forces will be disregarded with respect to “certain acts required under the Internal Revenue Code.”  It goes on to state that “This change in procedure will be reflected in the next revision of the IRM, which is in the process of being written.”

     Petitioner satisfies all the criteria found in the memorandum.  He was serving in Iraq alongside the military, provided security to Government officials, and aided in giving air support, medical aid, and emergency response assistance. Petitioner had no background in tax law and was given this memorandum written by an IRS employee while serving in Iraq.  We believe that receiving this memorandum while serving in Iraq could give someone reasonable cause to believe that his payments from Blackwater were excluded from gross income.  Therefore, petitioner is not liable for the addition to tax under section 6651(a)(1).

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From the Judicial Review

     While in Iraq, petitioner was given a memorandum issued by Robert L. Hunt, the Acting Deputy Director, Compliance Field Operations, Internal Revenue Service (IRS). This memorandum discussed the appropriate steps for civilian personnel to take when engaged in an IRS examination and collection activity involving a taxpayer deployed to a Qualified Combat Zone. Petitioner did not remember who gave the memorandum to him.

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