Feral Jundi

Wednesday, December 21, 2011

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.

(more…)

Friday, September 9, 2011

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

Filed under: Finance,Industry Talk — Tags: , , , , , , — Matt @ 11:50 AM

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.

(more…)

Friday, February 4, 2011

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.

——————————————————————

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).

——————————————————————

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.

Sunday, October 24, 2010

Industry Talk: Foreclosure Freeze Could Put Security Clearances At Risk

     This popped up on my radar and I thought this was very interesting. I have not received any emails from contractors who are dealing with this problem, but I am sure it impacts a few out there. If anyone has experienced any issues related to this, feel free to comment below. –Matt

——————————————————————

Foreclosure freeze could put security clearances at risk

By Dina ElBoghdady and Dana Hedgpeth

October 20, 2010

The sudden moratorium on many foreclosures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty clouding their finances, according to lawyers who handle these cases.

Employees with security clearances are monitored by the government for financial problems that would make them vulnerable to bribery or blackmail. And with many financial companies adopting some form of foreclosure freeze in recent weeks, it’s taking longer for some delinquent borrowers to resolve their mortgage cases and put their troubles behind them, the lawyers said.

(more…)

Monday, September 6, 2010

Afghanistan: Taliban Paid Bounties For Kills, Thanks To Iran And Others

The money is said to come from protection rackets, taxes imposed on opium farmers, donors in the Gulf states who channel money through Dubai and from the senior Taliban leadership in Pakistan. 

*****

The Iranian companies win contracts to supply materials and logistics to Afghans involved in reconstruction. The money often comes in the form of aid from foreign donors.

The profits are transferred through poorly regulated Afghan banks – including the Kabul Bank, which is partly owned by President Hamid Karzai’s brother, Mahmood – to Tehran and Dubai.

From these countries, the money returns to Afghanistan through the informal Islamic banking system known as hawala to be dispersed to the Taliban fighters.

“This means the companies involved in funding the insurgency can cover their tracks easily. It makes it harder for us to trace the cashflow,” a senior Afghan intelligence officer said.

He said the Iranian companies had been formed with the intention of winning contracts funded by foreign aid so the donors’ cash could be channelled into the insurgency. 

*****

    In the past I have talked about this market of force concept in which the enemy is able to attract combatants that are contracted for the killing of our troops.  The Taliban pay better and they offer incentives that give the possibility of even more pay. The incentive here is bounties, and the money comes from foreign donor sources or from drug sales and extortion rackets.  In other words, the enemy is creating an industry that profits off the death of our troops. A system of bounties also attracts those that are the most proficient or creative in their abilities to kill, both local and foreign.

    Below I posted three stories that all highlight exactly how this Taliban market of force works.  From assigning values to equipment being destroyed, to individuals being killed. I am also speculating that these foreign mercenary sniper teams were not only contracted, but also allowed to receive bounties for each kill.  It would make sense, just because they too would be rewarded for their deadly skills and inclined to stay in the fight to rack up kills.

    Also, other Taliban fighters will be drawn to the most target rich areas of the country with the greatest chance of getting away with their kills. They will also go for the easiest kills possible, which would be either IED’s or sniping. In those cases, they need witnesses or video via cellphone camera, etc. to confirm the kill and get payment.

     If they attacked in force in some kind of coordinated effort, I am sure the entire unit would be rewarded and they would split the prize. In that case, those fighters interested in more profit would probably be interested in joining the best teams with the highest kill ratios. Much like how the best privateer companies attracted investors during the American Revolutionary War, or how the best pirate companies in Somalia attract wannabe pirates seeking a chance to get wealthy.

    The other thing that is attractive about a system of bounties is that a Taliban commander can use their averages as a means of recruitment.  He can tell potential recruits that he pays $245 a month, but his guys also have the highest bounty collections rate in the area. Everyone loves to join a winning team in this high dollar hunting game.

     I wonder though how suicide bombers are viewed in this game? I am sure if they were part of the attack, then I would assume the Taliban commander and his team would collect some payment for the deaths that these human bombs created? With that said, I am sure there is some form of a prize court that these guys go through in order to work these issues out. –Matt

Taliban paid bounties for kills

Four mercenary snipers hired by the Taliban are zapped from the air by British soldiers in Afghanistan

Taliban win £1,600 bounty for each Nato soldier killed

——————————————————————

Taliban paid bounties for kills

Miles Amoore

September 06, 2010

IRANIAN companies in Kabul are using their offices to covertly finance Taliban fighters in Afghanistan.

They are paying bounties of $US1000 ($1090) for killing a US soldier and $US6000 for destroying a military vehicle, a treasurer for the insurgents says.

Afghan intelligence and Taliban sources said at least five front companies, set up in the past six months, provide cash for a network of district Taliban treasurers to pay battlefield expenses and bonuses for killing foreign troops and destroying their vehicles.

The Iranian companies win contracts to supply materials and logistics to Afghans involved in reconstruction. The money often comes in the form of aid from foreign donors.

The profits are transferred through poorly regulated Afghan banks – including the Kabul Bank, which is partly owned by President Hamid Karzai’s brother, Mahmood – to Tehran and Dubai.

From these countries, the money returns to Afghanistan through the informal Islamic banking system known as hawala to be dispersed to the Taliban fighters.

“This means the companies involved in funding the insurgency can cover their tracks easily. It makes it harder for us to trace the cashflow,” a senior Afghan intelligence officer said.

He said the Iranian companies had been formed with the intention of winning contracts funded by foreign aid so the donors’ cash could be channelled into the insurgency.

Western officials believe the network may have been set up by the al-Quds force, an elite branch of Iran’s elite Revolutionary Guard.

(more…)

Older Posts »

Powered by WordPress