Feral Jundi

Wednesday, December 21, 2011

Finance: Taxes For Contractors 2011, By Luke Fairfield CPA

Filed under: Finance,Industry Talk — Tags: , , , , , , , — Matt @ 10:11 PM

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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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.

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Wednesday, April 6, 2011

Industry Talk: Security Firms Threaten To Leave Afghanistan If Karzai Violates Tax Exemption

Filed under: Afghanistan,Industry Talk — Tags: , , , , , , , — Matt @ 10:21 AM

Now wouldn’t that be funny?  Every security company just packs up and leaves?….wow. But honestly, it is not funny because what Karzai is doing is having a severe impact on the quality and stability of security services in Afghanistan. If the coalition values those services, it would behoove them to apply the necessary pressure on greedy Karzai to end this ridiculous taxation plan.

The other concern here is that if Afghanistan plays this game of imposing taxes on companies providing services to diplomats and such, what about security companies operating elsewhere in the world providing such services?  Tax exemption for companies providing services to the US government has been a staple of foreign relations throughout the world. To standby and allow Afghanistan to tax these companies like this, sets a horrible precedence that will surely impact operations elsewhere in the world. If you lose this fight, the costs of doing business will skyrocket and contracts will have to be re-adjusted to deal with this new reality.

This is a fight worth fighting, and Karzai needs to be put in his place. Perhaps taxing his consulates overseas, or freezing some Karzai family assets in overseas accounts would be one way to send a message that this is uncool? If greed is what fuels him, then greed is his weakness. –Matt

Security Firms Threaten to Leave Afghanistan
APRIL 6, 2011
By MARIA ABI-HABIB
KABUL—Some private security companies guarding diplomatic and aid missions and critical infrastructure facilities in Afghanistan are threatening to withdraw from the country if President Hamid Karzai’s government follows through on its plans to impose on them hundreds of millions of dollars in back taxes.
Many of the more than 30 security companies targeted by the Afghan tax authorities say they are supposed to be tax-exempt because they support diplomatic missions, such as the large U.S. Embassy in Kabul.
Executives at these companies say Western diplomats are encouraging them to hold off on paying the taxes so as not to set a precedent for U.S. and European diplomatic missions around the world. (more…)

Tuesday, March 8, 2011

Legal News: Welch And Jones Introduce Bipartisan Bill To Stop Afghanistan From Taxing US Aid

Filed under: Afghanistan,Industry Talk,Legal News — Tags: , , , , , , , — Matt @ 2:22 PM

     I like it, and I am sure many aid organizations and companies getting harassed by the Afghan government will like this as well.

     If you support a bill like this, by all means communicate that to Reps. Welch or Rep. Jones. I have also provided the FAQ below from a website called Congress.org that spells out how you can best communicate electronically with Congress.(you can sign up with their service, or just do it on your own)

     Also, if you want to ‘like’ a congressman on Facebook, and voice your opinion on the bill on their wall, that is another quick way of communications and voicing support. –Matt

Welch and Jones introduce bipartisan bill to stop Afghanistan from taxing US aid

Monday, 07 March 2011

Reps. Peter Welch (D-Vt.) and Walter Jones (R-N.C.) on Monday introduced bipartisan legislation to prevent the Afghan government from taxing American companies delivering US aid to Afghanistan.

The Stop Taxing American Assistance to Afghanistan Act (H.R. 936) would bar future assistance to Afghanistan unless US contractors and subcontractors delivering aid are exempt from taxation by the government of Afghanistan. According to the Washington Post, the Afghan government recently sent overdue tax bills to US contractors working in the country.

“It is absurd for the Aghan government to suggest taxing America’s effort to rebuild their country,” Welch said. “While that may make sense in Hamid Karzai’s world, it makes no sense to the American taxpayer. This legislation will make sure America is not taxed on the assistance it provides to Afghanistan.”

“It is outrageous for the Karzai government to tax U.S infrastructure spending for the reconstruction of their country,” Jones said.

The calls to tax US contractors come despite bilateral agreements that exempt US-based companies from such taxation. In recent months, the Afghan government has warned contractors in the country that failure to pay what it deems overdue tax bills could result in arrest or confiscation of goods.

H.R. 936 was referred to the House Committee on Foreign Affairs.

Story here.

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Communicating with Congress

E-mailing Your Elected Officials

Veteran Washington reporter Craig Crawford offers some tips on how to write an effective letter to Congress. (Transcription available here. )

Members of Congress prefer to hear from their constituents by e-mail. It’s faster, easier to sort and doesn’t present any security risks. (Read more here.) In order to avoid having their in boxes flooded with spam and letters from people in other states, Senators and Representatives require people e-mailing them to supply an address and other information before sending an e-mail. Because of these requirements, however, you cannot e-mail more than one of your elected officials at the same time through their Web sites.

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Friday, February 4, 2011

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

Filed under: Finance,Industry Talk,Legal News — Tags: , , , , , , , , , , — Matt @ 4:58 PM

     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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