Posts Tagged IRS

Finance: 2013 Taxes For Contractors, By CPA Luke Fairfield

This is the annual letter that Luke sends out, that is filled with excellent tips for this year’s tax season. What is new this year is that Luke has a website you can go to for your own research. When he gets a Facebook or any other social network stuff up, I will post that as well.

For tax news, Luke is up on the whole tax thing going on in Iraq and how that is playing out for contractors. Also he has some valuable tips for how to deal with audits–meaning use a professional to deal with the IRS! Check it out and please contact Fairfield Hughes at their website if you want services. I am not working at this office and I am not the guy to ask if you have tax questions.

Also, I have posted the 2013 newsletter under the Taxes For Contractors tab up top so you can find it easily. A quick search and you will find my past postings on taxes as well. -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 2013 is almost over.  There are some very important changes this year that could impact many of you as it relates to the IRS’s continued, heavy 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 2013:
1) Please check our website at www.fairfieldhughes.com.  It has some valuable info and answers to many frequent questions.
2) It is critically important that you retain copies of your Diplomatic passport and regular passport, overseas orders, LOAs, overseas expense receipts, VISAs and anything else that can prove you were overseas in a combat zone.  Keep these for at least 5 years.  Do not turn in your passports without making a scanned, color copy of them.
3) Should they choose to do so under audit, the IRS now has the ability to obtain an entry report from CBP and Homeland Security to verify your time in the US.
4) Zac Silides has joined our firm and is a licensed attorney.  He is able to assist with many business tax issues such as starting business entities as well as preparing family and living trusts.
5) Iraqi tax withholding.  Employees of Triple Canopy as well as Global have had Iraqi tax withheld on their salary in 2013.  Your company facilitated this by reducing the amount of federal withholding.
a. You are allowed to claim a credit for the Iraqi tax paid which directly offsets federal income tax.
b. Be aware that if you claim the foreign income exclusion, you are not allowed as large of a foreign tax credit.
6) Audits on the foreign income exclusion have greatly increased.  If you worked for Blackwater in 2009 chances are you were audited.  With Triple Canopy taking over the Blackwater contract, IRS audits followed this change and 90% of all audits on our clients were current or ex TC employees. If you have not heard of a teammate or fellow employee who has been through an audit I would be surprised.  These audits continue to spread from ex-Blackwater and TC employees to nearly anyone filing for the foreign income exclusion.  As a result, I would recommend being even more cautious in claiming the foreign income exclusion in 2013.  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.

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Cool Stuff: Taxes For Contractors 2012

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

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

     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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Finance: Foreign Earned Income Exclusion Eligibility Online Tool

     This is an awesome little tool to use to see if you qualify for the foreign earned income exclusion. This is always an issue every year for contractors, and especially when you have worked multiple contracts and you are not quite sure if you qualify.

     Personally, I think the FEIE should be based on a pro-rated system*. Meaning for how many days you worked in country, is how many days you earned.  Guys who worked 330 days, earn the full exclusion–as they should.  Guys who could only get in half that many days overseas, should be able to get half the exclusion amount. The way it is set up now, you could spend 229 days overseas, and because you couldn’t get that one day, you do not qualify.

     That is a crappy set up in my view, and for many folks to get that 330 days overseas can be pretty difficult.  Especially if you have family obligations, you change contract or the company only gives a limited amount of days overseas, or some unexpected issue came up that would hinder your plans for staying overseas. Then your penalized for it, as if all those days worked didn’t mean anything.

     Either way, check it out and let me know what you think? -Matt

*it is only pro-rated if you start in one tax year, and promise to continue working overseas into the next tax year.

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Foreign Earned income exclusion eligibility online tool

While our online tool is designed based on years of experience and IRS source documentation, please remember that the most valuable advice we can give you for your foreign tax planning needs would be the result of proper analysis and live conversations. This online assessment can indeed give you a very good idea of your eligibility for the foreign earned income exclusion. Please click on the button below to begin the assessment (You are 5 minutes away from finding out if you qualify!):

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Industry Talk: Independent Contractor Or Employee? Something Companies Better Get Squared Away

   I wanted to get this out there, because in this industry, independent contractors are what companies use to fill out their work force overseas.  But doom on the company that has improperly classified their workforce as independent contractors.  If you are a small business owner, or even one of the larger companies, it looks to me like the government is now on the war path to square this stuff away and get some revenue.  What will be interesting is to see how the IRS is able to re-interpret gray areas, to get that revenue.  Hopefully companies have done their homework and are squared away, but just a heads up, they are on the hunt.

    Of course actions like this will impact business and their ability to hire more folks.  And in a climate where jobs are a premium, I wonder if this is kind of a form of robbing peter to pay paul again?  But all in all, I like the fact that the government is trying to clamp down on these practices, because at least this will force companies to pay into government systems that were designed to support folks when they retire. (medicare, social security, etc.)  That’s if these companies are using folks more like employees, and less like IC’s.  We will see if this turns into a which hunt, or they actually do catch folks who are cheats.

   On the flip side, you now have another tool in your kit to get back at companies that are screwing you over.  Especially if you are a 1099 guy.  If your company is not playing by the rules, and has been playing some unethical games with you, then I am sure the IRS would love to hear what you know. Of course do it anonymously to protect yourself, and mention any intentional misclassification actions that your unscrupulous company is performing.  lol

   And hey, for those CEO’s and managers that are reading this, or even those contractors that think I am anti-PMC or something stupid like that, think about this.  I want companies to do things right and treat their people with respect.  I also want companies to be successful and profitable.  But I do not want companies to break the law or get unethical in the way they do business, all because they think they have to do that in order to succeed. Not to mention that when you get caught, then the industry gets another black eye because of your actions.-Matt

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Obama Cracks Down on Use of Contractors

The IRS plans to audit 6,000 companies over the next three years in a bid to crack down on companies that erroneously classify employees as independent contractors.

By Courtney Rubin | Feb 18, 2010

President Barack Obama’s proposed 2011 budget suggests tough times ahead for employers who rely heavily on independent contractors in order to keep down labor costs.If the budget is approved, the Internal Revenue Service will add 100 new enforcement personnel as part of a $25 million plan to crack down the misclassification of workers as independent contractors. Though it’s a mere drop in the $3.8 trillion spending plan, it’s expected to more than pay for itself: Obama claims stronger misclassification enforcement will add $7 billion to the federal bank account over 10 years. Read the rest of this entry »

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