Bell & Company CPAs and Business Advisors Trucking Blog

New Tax Law for Net Operating Loss Carrybacks

noreply@blogger.com (Bell & Company, PA) — Thu, 26 Mar 2009 06:24:59 PDT

By: Richard Bell, CPA

The old rules for companies, defined as proprietorships, partnerships, or corporations, with losses for the year, would be to either carry the loss back to the prior two years, or elect to carry the loss forward for 20 years. For example, if you incurred a net operating loss in 2007, you could carry the loss back to a taxable income year 2005, or 2006, and if the full loss was not utilized you could carry the loss forward to 2008 and beyond for 20 years.

For 2008, if you have a loss , and qualify as a small business type, defined to be a company with prior three average revenues of 15 million or less, you may elect to carry the loss back for three additional years, and may opt to choose the specific year of loss. For example, if you have a net operating loss in 2008 , you may carryback the loss to 2007, 06, 05, 04, or 03. It is not necessary to go to 03 first, you can start with 04 or 05 if you so choose. For losses not absorbed, you may again carry the losses forward for 20 years. Further, you may retain the right to forego the carrybacks and elect to carry the losses forward to 2009 and beyond.

There are always exceptions and special rules to the general rules. For instance you may have filed an election to forego the loss and carry it forward, Generally, this election is irrevocable, but the new tax law allows you to amend this election, to take advantage of the new five year carryback period. Further, if you file a corporate C type return, that is a fiscal year, that began in 2007 and ends in 2008, you can make a special election to treat the return as a 2008 year return instead of a 2007 return, and file the losses in the carryback period.

If you have questions on how to best utilize your business losses, contact Pancho.espejo@bellandcompany.net or Andrew.griffith@bellandcompany.net in our office, they will be glad to assist you.

Wage Compensation for S Corporation Officers

noreply@blogger.com (Bell & Company, PA) — Thu, 26 Mar 2009 06:16:52 PDT

Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code. When corporate officers perform services for the corporation, and receive or are entitled to receive payments, their compensation is generally considered wages. Subchapter S corporations should treat payments for services to officers as wages and not as distributions of cash and property or loans to shareholders.

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.

The Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for federal employment tax purposes. S corporations should not attempt to avoid paying employment taxes by having their officers treat their compensation as cash distributions, payments of personal expenses, and/or loans rather than as wages.

This fact sheet clarifies information that small business taxpayers should understand regarding the tax law for corporate officers who perform services.

Who’s an employee of the corporation?

Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages. Courts have consistently held that S corporation officer/shareholders who provide more than minor services to their corporation and receive or are entitled to receive payment are employees whose compensation is subject to federal employment taxes.

The Treasury Regulations provide an exception for an officer of a corporation who does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration. Such an officer would not be considered an employee.

What's a Reasonable Salary?

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property or the right to receive cash and property did go the shareholder, a salary amount must be determined and the level of salary must be reasonable and appropriate.
There are no specific guidelines for reasonable compensation in the Code or the Regulations. The various courts that have ruled on this issue have based their determinations on the facts and circumstances of each case.

Some factors considered by the courts in determining reasonable compensation:

• Training and experience
• Duties and responsibilities
• Time and effort devoted to the business
• Dividend history
• Payments to non-shareholder employees
• Timing and manner of paying bonuses to key people
• What comparable businesses pay for similar services
• Compensation agreements
• The use of a formula to determine compensation

Medical Insurance Premiums treated as wages.

The health and accident insurance premiums paid on behalf of the greater than 2 percent S corporation shareholder-employee are deductible by the S corporation as fringe benefits and are reportable as wages for income tax withholding purposes on the shareholder-employee’s Form W-2. They are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. Therefore, this additional compensation is included in Box 1 (Wages) of the Form W-2, Wage and Tax Statement, issued to the shareholder, but would not be included in Boxes 3 or 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an AGI deduction for amounts paid during the year for medical care premiums if the medical care coverage is established by the S corporation. Previously, “established by the S corporation” meant that the medical care coverage had to be in the name of the S corporation.

In Notice 2008-1, the IRS stated that if the medical coverage plan is in the name of the 2percent shareholder and not in the name of the S corporation, a medical care plan can be considered to be established by the S corporation if: the S corporation either paid or reimbursed the 2percent shareholder for the premiums and reported the premium payment or reimbursement as wages on the 2percent shareholder’s Form W-2.

Payments of the health and accident insurance premiums on behalf of the shareholder may be further identified in Box 14 (Other) of the Form W-2.

Schedule K-1 (Form 1120S) and Form 1099 should not be used as an alternative to the Form W-2 to report this additional compensation.

Determining Reasonable Compensation - Menard Case

noreply@blogger.com (Bell & Company, PA) — Tue, 17 Mar 2009 11:25:11 PDT

By: Richard Bell

This is a good case to reference in determining reasonable compensation for a shareholder who owns all voting stock and works over the top type hours, in a non-publically traded company that is a C corporation for tax purposes.

Basic facts are that John Menard owns all voting shares of Menard, Inc, the third largest hardware and building supply company in the United States. Menard’s company earned $350 million in 1998 pre tax dollars, the year of the audit, Menard’s compensation consisted of three components, a base salary of $157,500 , a profit sharing bonus of $3,017,000, which was part of an overall compensation plan for all employees of the company, and a 5 % bonus of all pre tax profits, which amounted to about $17.5 million, which was questioned by the IRS. Total Compensation was $20 million for the year.

The US Tax Court decided that the bonus package should be driven by the companies’ rate of return and derived the formula by comparing the executive compensation paid other CEO ‘s in the industry, Lowe’s and Home Depot, and then develop a ratio of CEO compensation to the return on investment earned by each company. This ratio was then applied to the Menard’s earnings to derive the reasonable compensation of its CEO. The amount was $7.1 million, far short of the $20 million paid Menard. The IRS would have taxed the $13 million difference as a dividend. This would have increased the tax to the Menard Corporation by some estimated 40% federal and state or $5.2 million, and the dividend would have increased Menard individual tax bill by the same estimated 40% federal and state or another $5.2 million, thus, on the $13 million non allowed bonus, the tax could have been estimated as high as $10.4 million, not including penalty and interest. Menard would have received a personal refund credit for the excess bonus paid , of an estimated $5.2 million, so net out before penalty and interest would have been $5.2 million. Note, this cases was a 1998 case before the 15% dividend rates went into effect.

The US Court of Appeals reversed the Tax Court opinion, and upheld the incentive driven bonus paid Menard. The court looked at the following factors:

• Full Compensation packages paid the publically traded CEO’s were disregarded, such as stock options, severance packages, and retirement benefits.

• Differences in responsibilities and performance of the three CEO’s were different. Menard was described as micro managing the company, and was the Board of Directors, and held all voting shares of the company, compared to the publically traded companies, who had executive corporate structure.

• The Appeals Court pointed out that if an incentive plan was in place for a non shareholder employee, then a shareholder employee (Menard) should be allowed to participate as well. A shareholder employee is two distinct individuals, an independent investor, and an employee.

My own observation would be to question why Menard is a C corporation for tax purposes? It would appear that the company should consider “S” corp status, but that may be the case now, this was a 1998 matter, in question.

The latest court case can be found at http://caselaw.lp.findlaw.com/data2/circs/7th/082125p.pdf. .

Tax Changes Included in the Stimulus Act

noreply@blogger.com (Bell & Company, PA) — Thu, 12 Mar 2009 10:31:18 PDT

On February 17th, the American Recovery and Reinvestment Act of 2009 (the Stimulus Act) was signed into law by President Obama. As you know, the new legislation includes some federal income tax changes. However, you may not realize how many. This letter briefly summarizes what we think are the most important changes. That said, we encourage you to contact us for details because there are some new provisions that we simply don’t have space to even mention here. We will start with changes that affect individuals and personal returns.

Tax Changes for Individuals

Refundable Making Work Pay Credit. The Stimulus Act establishes the new Making Work Pay credit for 2009 and 2010. The credit amount equals the lesser of 6.2% of earned income or $400 ($800 for a married joint-filing couple). Since the credit is refundable, it can offset your entire federal income tax liability, including any Alternative Minimum Tax (AMT). Any leftover credit can be collected in cash or applied to your estimated tax payment obligation for the following year.

The credit is phased out (reduced or eliminated) by of 2% of your Modified Adjusted Gross Income (MAGI) in excess of the applicable threshold—$75,000 for an individual taxpayer or $150,000 for a married joint-filing couple. The $400 individual credit is fully phased out when MAGI reaches $95,000 and the $800 married joint-filing credit is fully phased out when joint MAGI reaches $190,000.

To get credit dollars into the economy quickly, the IRS has already released new federal employment tax withholding tables. The new tables will allow employees to collect credits in advance in the form of lower payroll tax withholdings for the rest of 2009. Self-employed individuals can collect credits in advance by reducing their quarterly estimated tax payments.

One-time $250 Economic Recovery Payment for Eligible Federal Program Recipients. The new law provides a one-time $250 Economic Recovery Payment to the following government program recipients.

• Adults eligible for Social Security benefits.

• Individuals of any age who are eligible for Supplemental Social Security
Income (SSI) benefits (other than those who receive them while in a Medicaid
institution).

• Adults eligible for Railroad Retirement benefits.

• Adults eligible for veteran’s compensation or pension benefits.

To receive the $250 payment, you must have been eligible for at least one of these programs for at least one month during the three-month period that includes November and December of 2008 and January of 2009. Congress has ordered these government agencies to get these payments underway as soon as possible, but they must begin no later than the middle of June.

One-time $250 Refundable Credit for Eligible Government Retirees. The Stimulus Act also provides a one-time $250 credit to certain government retirees who won’t qualify for the Economic Recovery Payment benefit. The money is delivered in the form of a refundable tax credit for 2009 of $250 for each eligible individual or $500 for a married joint-filing couple when both spouses are eligible individuals. To be eligible, you must pass all of the following three tests.

1. During the 2009 tax year, you receive any pension or annuity benefits for
service as any employee of the U.S. or any state (or instrumentality
thereof) that is based on wages that were not subject to FICA tax
withholding at the time they were paid.

2. You are ineligible for the aforementioned Economic Recovery Payment benefit.

3. You report a Social Security Number (SSN) on your 2009 Form 1040. (If
married, either you or your spouse must report an SSN on the return.)

Since the credit is refundable, it can offset your entire federal income tax liability, including any AMT. Any leftover credit can be collected in cash or applied to your 2010 estimated tax payment obligation.

Temporary Sales Tax Deduction for Buyers of New Vehicles and Motor Homes. The new law adds a new deduction for state and local sales and excise taxes paid on new (not used) (1) passenger autos and light trucks with gross vehicle weight ratings of 8,500 pounds or less, (2) motorcycles, and (3) motor homes purchased between 2/17/09 and 12/31/09. However, the deduction is limited to taxes allocable to the first $49,500 of the purchase price. The amount will be claimed as an additional itemized deduction if you itemize. If you don’t itemize, it will be added to your standard deduction.

The new standard deduction add-on or additional itemized deduction (whichever applies to you) is subject to phase-out provisions. The phase-out range is between MAGI of $125,000 and $135,000 for unmarried individuals and between MAGI of $250,000 and $260,000 for married individuals who file separately.

Liberalized Higher Education Credit. For 2009 and 2010, the Stimulus Act includes taxpayer-friendly modifications to the Hope Scholarship higher education tax credit. (The Hope credit is also temporarily renamed the American Opportunity credit, but we will stick to calling it the modified Hope credit for the sake of continuity.) Under the revamped rules, the modified Hope credit equals 100% of the first $2,000 of qualified post-secondary education expenses paid during the year plus 25% of the next $2,000. So the maximum annual credit is now $2,500. Under prior law, the maximum Hope credit for 2009 was only $1,800, and it probably would have been about the same for 2010.

The modified Hope credit covers the cost of tuition, fees, and course materials (but not room and board) for the first four years of post-secondary education in a degree or certificate program. It is unavailable for a year if the student has already logged in four years worth of academic hours as of the beginning of that year. Under prior law, the Hope credit was only allowed for the first two years of post-secondary study, and the cost of course materials did not count as a qualified expense.

The modified Hope credit is subject to phase-out rules, but they are considerably more lenient than the prior-law Hope credit rules. The modified Hope credit phase-out range is between MAGI of $80,000 and $90,000 for unmarried individuals and between MAGI of $160,000 and $180,000 for married joint-filers.
The modified Hope credit can offset your entire federal income tax liability, including any AMT. In addition, up to 40% of the modified Hope credit can be a refundable credit, which means you can get some cash back after reducing your federal income tax bill to zero.

Temporary Homebuyer Credit Extended and Liberalized. Legislation passed last year established a temporary refundable tax credit for first-time homebuyers. The Stimulus Act extends the credit for five more months, to cover qualified home purchases between 1/1/09 and 11/30/09. In addition, the maximum credit amounts are slightly increased for 2009 purchases. More importantly, the requirement to repay the credit over 15 years is deleted for 2009 purchases (but not for 2008 purchases).

For a qualified home purchase between 1/1/09 and 11/30/09, the maximum credit equals the lesser of: (1) 10% of the purchase price or (2) $8,000 ($4,000 if you use married filing separate status). Since the credit is refundable, it can offset your entire federal income tax liability, including any AMT. Any leftover credit can be collected in cash or applied to your estimated tax payment obligation for the following year.

Eligibility is restricted to individuals who have not owned a principal residence in the U.S. during the three-year period that ends on the home purchase date. If you are married, both you and your spouse must pass the three-year test.
If you make a qualified 2009 home purchase (between 1/1/09 and 11/30/09), you can choose to treat the purchase as having occurred in 2008. That allows you to claim the credit (which can be as high as $8,000) on your 2008 return and receive the benefit that much sooner.

Computer and Internet Costs—Qualified Expenses for 529 Plan Distributions. The Stimulus Act counts computer costs (including peripheral equipment and software) and charges for Internet access and related services as qualified higher education expenses for purposes of receiving tax-free distributions from 529 plan accounts. This change applies to eligible expenses paid in 2009 and 2010. To be eligible, however, the expenses must be for computer and/or Internet use by the 529 account beneficiary (the student) during any of the years of enrollment in an eligible educational institution. No harm is done if the student’s family also uses the computer and/or Internet access. The cost of software designed for sports, games, and hobbies won’t qualify unless it’s primarily educational in nature.

One-year AMT “Patch”. The Stimulus Act includes another one-year “patch” to prevent millions of individuals from being hit with the dreaded Alternative Minimum Tax (AMT) for the 2009 tax year. The new law increases the AMT exemption amounts for 2009 to $70,950 if you’re a married joint-filer or a surviving spouse (up from $69,950 for 2008), $46,700 if you’re unmarried (up from $46,200), and $35,475 if you use married filing separate status (up from $34,975). Unfortunately, these exemptions are phased-out (reduced or eliminated) for higher-income taxpayers, and the new law doesn’t make any changes in the phase-out rule. The Stimulus Act also includes changes that permit you to use all nonrefundable personal tax credits to reduce your 2009 AMT liability as well as your regular tax liability.

AMT Exemption for Interest on Certain Private Activity Bonds. Interest on public purpose municipal bonds (those issued by state and local governmental entities for public projects) is tax-exempt under both the regular tax and the AMT rules. However, interest on most qualified private activity municipal bonds (state and local government bonds issued for private sector projects like sports venues) has been taxable under the AMT rules (although tax-free under the regular tax rules). The Stimulus Act changes the landscape by making interest on all qualified private activity bonds issued in 2009 and 2010 exempt from the AMT. Therefore, interest on such bonds is exempt from both the regular tax and the AMT.

Tax-free Treatment for First $2,400 of 2009 Unemployment Benefits. In general, unemployment compensation benefits count as income for federal income tax purposes. However, the Stimulus Act grants a one-year exemption for the first $2,400 of unemployment compensation received in 2009. Unemployment benefits above the $2,400 limit will still count as taxable income.

Liberalized Employer-provided Transportation Fringe Benefit Rule. Starting with March of this year and through December of 2010, the Stimulus Act increases the amount you can receive as a tax-free fringe benefit for employer-provided transit passes and van pooling. The maximum tax-free amount is increased to $230. The $230 limit applies to the value of transit passes and van pooling separately or together. Before this change, the 2009 limit for these benefits (separately or together) was only $120.

Hybrid Vehicle Credits Can Offset AMT Liabilities. The new law includes another change that allows you to use your credit from buying a qualifying new hybrid or lean-burn diesel vehicle to offset your AMT liability as well as your regular tax liability. This favorable change is effective for 2009 and beyond.

Residential Energy Credits Liberalized. The Stimulus Act liberalizes the nonrefundable personal credit for up to 30% of expenditures to install: solar water heating equipment, wind energy equipment, geothermal heat pumps, solar electricity generation equipment, or fuel cell equipment in your home. The new law also extends (through 2010) and liberalizes the separate nonrefundable personal credit for expenditures to install energy-efficient insulation, windows, doors, roofs, and heating and cooling equipment in your residence. Most importantly, the previous lifetime limit of $500 was replaced with an aggregate $1,500 cap for 2009 and 2010.

Business and Other Tax Changes

Generous Section 179 Deduction Rules Extended. The Stimulus Act extends the $250,000 Section 179 first-year depreciation deduction allowance by one year, through tax years beginning in 2009. Without this change, the maximum Section 179 deduction would have been only $133,000. The new law also extends the $800,000 phase-out threshold for reduced Section 179 deductions. Without this change, the threshold would have been only $530,000.

First-year Bonus Depreciation Extended. The Stimulus Act extends the 50% first-year bonus depreciation break to cover qualifying new (not used) assets that are placed in service by no later than 12/31/09. However, the deadline is extended through 12/31/10 for certain longer-lived assets, transportation equipment, and aircraft.

For a new passenger auto or light truck that’s used for business and is subject to the luxury auto depreciation limitations, the extended bonus depreciation break increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service by 12/31/09. The estimated maximum first-year depreciation deduction for 2009 is now $10,960 for new cars and $11,060 for new light trucks.

Corporate Election to Claim Credits Instead of First-year Bonus Depreciation Extended. Prior law allowed corporations that are otherwise eligible to claim 50% first-year bonus depreciation to elect to forego bonus depreciation and instead “free up” otherwise unusable R&D and minimum tax credit carryovers. Credits freed up by this election are refundable. However, the election was only available with respect to bonus depreciation on qualified assets that were: (1) purchased after 3/31/08 and (2) placed in service by 12/31/08 or by 12/31/09 for certain longer-lived assets, transportation equipment, and aircraft. The Stimulus Act extends the two placed-in-service deadlines by one year to 12/31/09 and 12/31/10, respectively.

Note: Making the election doesn’t result in any lost depreciation deductions. It just postpones depreciation deductions for affected assets.

Longer Carryback Period for 2008 Losses (Small and Medium-sized Businesses Only). The new law allows eligible businesses to elect to carry back 2008 Net Operating Losses (NOLs) for three, four, or five years to obtain refunds of taxes paid for those years. This is a favorable (but temporary) exception to the general two-year NOL carryback rule. The election is only available for losses generated by businesses with average annual receipts of $15 million or less.

For calendar-year taxpayers, the election is available for NOLs generated in calendar-year 2008. For fiscal-year taxpayers, the election is available for NOLs generated in tax years that either begin in 2008 or end in 2008. (A fiscal-year taxpayer can make the election for one year or the other—but not both.)

No Corporate ACE Adjustment for Interest on Tax-exempt Bonds Issued in 2008 and 2009. C corporations affected by the corporate AMT rules generally must include tax-exempt interest as income in calculating the Adjusted Current Earnings (ACE) adjustment for AMT purposes. The Stimulus Act deletes the ACE adjustment for tax-exempt interest on bonds issued in 2009 and 2010.

Government Contractor Withholding Rule Delayed until 2012. The Stimulus Act delays by one year a controversial provision that will eventually require 3% federal income tax withholding from certain payments to government contractors. The withholding rule is now scheduled to apply to payments made in 2012 and beyond. Before this change, it was to apply to payments made in 2011 and beyond.

Debt Discharge Income from Reacquiring Debt in 2009 and 2010 Can Be Deferred. The new law allows a business that reacquires its own debt at a discount to elect to defer the resulting taxable debt discharge income and then spread it out over five years. This election is available with respect to debt discharge income that results from debt reacquisition transactions that occur in 2009 and 2010. The intent is to allow struggling businesses to restructure their debts in a tax-favored fashion.

Pursuant to the election, debt discharge income from a debt reacquisition that occurs in 2009 is deferred until the fifth tax year after the tax year in which the reacquisition occurs (2014 for a calendar-year taxpayer). The income is then spread evenly over five tax years beginning with that fifth year (2014–2018 for a calendar-year taxpayer). Debt discharge income from a reacquisition in 2010 is deferred until the fourth tax year after the tax year in which the reacquisition occurs (2014 for a calendar-year taxpayer), and the income is then spread evenly over five tax years beginning with that fourth year (2014–2018 for a calendar-year taxpayer).

Break for S Corporation Built-in Gains in 2009 and 2010. When a regular C corporation converts to tax-favored S corporation status, the corporate-level built-in gains tax generally applies when built-in gain assets (including receivables and inventories) are turned into cash or sold within the recognition period. The recognition period is the 10-year period that begins on the conversion date.

The Stimulus Act establishes an exception for built-in gains recognized in S corporation tax years beginning in 2009 and 2010 if the seventh year of the recognition period has gone by before the beginning of the tax year beginning in 2009 or 2010. Gains that fall under this exception won’t be hit with the built-in gains tax.

Liberalized Small Business Stock Sale Rules for New Issues. Sellers of qualified small business corporation (QSBC) shares can potentially exclude up 50% of the resulting gains from federal income taxation (subject to several limitations). To encourage new investments in QSBC stock, the Stimulus Act increases the gain exclusion percentage from 50% to 75% for qualifying sales of QSBC shares that are issued between 2/18/09 and 12/31/10.

Work Opportunity Credit Rules Liberalized. The Work Opportunity Tax Credit (WOTC) is intended to give employers a tax incentive to hire members of certain targeted groups. The new law adds unemployed veterans and disconnected youths as new targeted groups. This change applies to unemployed veterans and disconnected youths who begin work for electing employers in 2009 and 2010.

COBRA Premium Subsidy. Group health plans maintained by employers that have at least 20 employees are required to offer certain employees and their dependents the opportunity to continue to participate in the group health plan for up to 18 months. This is referred to as COBRA continuation coverage. The Stimulus Act provides for a 65% government-provided subsidy for COBRA continuation payments for up to nine months to Assistance Eligible Individuals (AEIs) for periods of coverage beginning on or after 2/17/09. Although this subsidy is provided by the government, AEIs will pay 35% of their COBRA premiums with the remaining 65% being paid by the former employer, who is effectively reimbursed for these payments by a reduction in payroll taxes.

An AEI is an employee (and COBRA eligible family members) whose employment has been involuntarily terminated between 9/1/08 and 12/31/09 and who elects COBRA coverage. AEIs who were involuntarily terminated after 8/31/08 and before 2/17/09 and did not enroll for COBRA benefits at the time of their termination, have a special extended 60-day period in which to elect COBRA benefits. They can make the COBRA election during the period beginning on 2/17/09 and ending 60 days after the date on which their former employer provides them the notice regarding the extended election period.

Conclusion

Even though this letter is too long, we have only scratched the surface. We ask you to contact us if you want additional information or if you have questions. We will be pleased to help. For more information you may call Deanna at 501.753.9700.

Cash or Accrual?

noreply@blogger.com (Bell & Company, PA) — Fri, 06 Mar 2009 08:13:45 PST

By: Brady Pipkin, CPA

Businesses with gross receipts under $1 million are eligible to elect to file tax returns on the cash basis of accounting. Most businesses with gross receipts between $1 and $10 million are eligible to file returns on a cash basis. Taxpayers who derive the largest part of their gross receipts from the following activities are not eligible to file cash basis tax returns.

• Mining activities

• Manufacturing

• Wholesale trades

• Retail trade

• Information industries such as newspapers, periodical books, database
publishers and sound recording industries

Why does this matter? By filing returns on the accrual basis of accounting (the other way to do it), taxpayers are taxed on receivables. Taxpayers are not able to deduct your prepaid expenses until they are actually expensed. The accrual method also allows taxpayers to deduct unpaid expenses (accounts payable and accrued liabilities) in the year the expenses are incurred. By switching to the cash basis of accounting for tax purposes, taxpayers can postpone the tax on receivables until collected and can deduct prepaid expenses when paid. The cash method also disallows deductions for unpaid expenses until those expenses are paid (i.e. you cannot deduct your expenses in accounts payable until you pay them).

Ultimately, the amount difference between the accrual and cash method comes down to the timing of when you will be taxed on income and allowed deductions for expenses. For many trucking companies, receivables are large, especially in today’s economy when customers are paying slower. By switching to the cash method for tax reporting, the tax on these receivables can be deferred until they are collected. In the year that taxpayers elect cash basis, it is typical to have a large adjustment that has a large decreasing effect on taxable income.

For a trucking company that has $350,000 in receivables and $100,000 in payables (and yes, we can still elect cash basis for 2008), the adjustment would result in a $250,000 decrease to taxable income in the first year. This adjustment usually results in substantial tax savings for the stockholders. If you assume a 25% tax rate (which is not unrealistic with both federal and state taxes) and that the company would still have income after the adjustment with no carryover losses from prior years, the tax savings would be $62,500.

As with any major tax election or change, you should consult with us or your tax advisor. If your tax advisor has not informed you that this election is available, you should consider switching (or at a minimum, get a second look at your tax returns). Failing to take advantage of the cash method can cost businesses a lot of money in taxes that are paid too early. In today’s economy, trucking companies need to defer the tax and use the savings to pay other bills.

If you would like to discuss the benefits of converting your company to the cash basis for income tax reporting, please contact Brady Pipkin, CPA at 501.753.9700.

Stimulus - Tax Provisions of Sepcific Interest to Motor Carriers

noreply@blogger.com (Bell & Company, PA) — Wed, 25 Feb 2009 08:43:23 PST

FEBRUARY 23, 2009
**See comments about write offs and bonus depreciation in this ATA article about
the Stimulus Bill.

TAX PROVISIONS IN STIMULUS BILL

The $787 billion economic stimulus bill signed today by President Obama contains several tax provisions of specific interest to motor carriers. First is an extension of net operating loss carry backs for businesses that averaged less than $15 million in revenue over the last three years. For 2008, qualifying businesses are permitted to carry back losses for five years, compared to two years under prior law. Carriers that qualify for this provision may be able to amend past tax returns for profitable years to claim refunds of taxes to use as current operating funds. A much more generous net operating loss carry back provision, which would have applied
to all businesses, was deleted from the bill in conference. The package also extends for another year two current provisions that allow businesses to write off current expenditures for equipment up to $250,000 and to benefit from bonus depreciation on capital purchases. Carriers that are government contractors will be interested to know that the requirement for all levels of government to withhold three percent of contract payments to cover potential federal taxes has been moved back a year to 2012. More generally, some segments of the industry may be expected to benefit from the outlays for housing, loans and infrastructure contained in the package.

Survive to Thrive CCJ Article

noreply@blogger.com (Bell & Company, PA) — Mon, 23 Feb 2009 11:08:15 PST

Following is a recent Article in CCJ magazine in which Richard Bell was quoted. We found the article very interesting and wanted to post for all to read.

January 2009

Survive to thrive

It appears that 2009 will be an ugly year for trucking companies – and pretty much everyone else for that matter. But the continuing and potentially deepening pain may lead to a severe capacity crunch once the recovery materializes. That’s great news – provided you are one of the lucky survivors. If times are tough or look like they will be, take steps now to improve your odds of being around to reap the rewards.

Maximize cash flow. Work to speed your accounts receivable, and employ every responsible and ethical tactic to push debt and vendor payments to the last possible moment. For specific steps you can take, consult the “How to Manage Cash Flow” manual at www.commercialcarrieruniversity.com.

Tap existing credit lines – immediately. In the current credit environment, some lenders are capping lines of credit at the current balance without cause, says Jay Taylor, managing director of Capital Resource Partners. Consider drawing the maximum availability on any existing credit lines as quickly as possible to create a cash reserve.

Try to work with lenders. Because lenders also are hurting, you may have limited or no success, but it’s worth a try. Taylor recommends asking for considerations such as interest-only for a time, skipping payments or moving payments to the end of the finance contract.

Pare your fleet. “The big issue is utilization – excess capacity, in the form of trucks on the fence,” says Richard Bell, chief executive officer of accounting and business advising firm Bell & Co. “Pay the note payment, or sell the truck at a lower price. In today’s market, a 50-unit fleet may need to be a 25- to 30-unit fleet based on freight.”

Increase freight network density. “Nothing will improve short-term performance more than reducing the scope of a small company’s freight network,” Taylor says. Focus on core customers and lanes that have repetitive shipments. Eliminate shipments to destinations that are infrequent and where there are no core customers.

Hedge fuel. Based on today’s pricing, fleets probably should cap prices on at least 15 percent of their fuel volume for all of 2009, says Brad Simons, president of Simons Petroleum’s Pathway Network. If the price of a barrel of oil drops to $40 or below, fleets should look to cap at least 30 to 40 percent.

Eliminate noncritical expenses. Focus on each dollar spent on items that do not keep the company running, Taylor advises. Eliminate exceptions – even if they affect owners.

Slash overhead. Most carriers could reduce overhead by 30 to 40 percent for a year or two without destroying core capabilities, Taylor says. He suggests offering furloughs without pay, cutting hours for hourly employees, having employees share shifts, leaving all vacancies in place and, ultimately, instituting a reduction in force if necessary. And Bell suggests looking at situations where technology can take over. “Instead of five trucks per one support person, shoot for eight trucks to one support person.”

Watch customers very closely. Don’t forget that the recession may be hurting your customers more than you. Stay on top of accounts receivable and any other indicators of financial health. If you aren’t careful, bankruptcy could not only wipe out receivables but also even require you to return recent freight payments to the trustee. For more on dealing with bankrupt customers, see “Become a critical vendor,” Law, November 2008.

Reduce management compensation. In a crisis, Taylor recommends imposing “voluntary” 25 percent pay cut on the management team to show leadership. At a minimum, shareholders should reduce their own compensation.

Look within the business for solutions. “If your company turns south, fix the problem, but do not throw all your personal funds into the company,” Bell says. “The ship is sinking for some reason, and 90 percent of the time, it is revenue-driven.”

These are tough tactics, but more profitable days lie ahead if you manage to stick around for them.

This article was written by:

AVERY VISE is editorial director of Commercial Carrier Journal · E-mail avise@ccjmagazine.com

Retirement Age Considerations - Social Security Update

noreply@blogger.com (Bell & Company, PA) — Tue, 20 Jan 2009 07:54:56 PST

Below please find a link which is an informative social security bulletin on the merits of delaying your social security benefits from age 66 to age 70. The benefit will increase 8% if you were born after 1943, each year. With the loss in 2008 of an average 30 to 40% of balances in our respective retirement accounts, the strategy may be to work till age 70 and take advantage of the social security increase by waiting, and use the additional four years to build your retirement back.

http://www.socialsecurity.gov/mystatement/insert2.htm

2008 Bell and Company - Race for The Cure

noreply@blogger.com (Bell & Company, PA) — Mon, 03 Nov 2008 08:11:44 PST

Here is a picture of Team Bell before the 2008 Susan G. Komen Race for the Cure. At Bell & Company we have all been touched by this disease, we have clients, friends and family that have suffered from this disease. We walk and the guys cheer each year to support that one day they will have the cure for this disease. This is an event that we look forward to each year and allways have a wonderful experience.

Fuel Hedge Strategy

noreply@blogger.com (Bell & Company, PA) — Thu, 19 Feb 2009 14:40:02 PST

Comments from Richard Bell, CPA/Attorney at Law

Is it time to pull a Southwest Airline hedge strategy? With a barrel of oil ranging between $115 to $120 a barrel, I would advise consideration of using options to protect the possible price upside on barrel of oil priced thru the winter, while leaving the ability to share in the gain, if oil falls below the $115 mark.

In the alternative, discuss with your fuel vendor, purchasing fuel on a forward contract basis, normally done in 42,000 gallon increments.

Whether you hedge or not, you should be on a fuel program with your vendors, at the lower of retail minus rebates, or cost plus.

If questions, or discussion points, let Jeff or I know. You can call 501.753.9700 or e-mail me at richard.bell@bellandcompany.net

Steve Williams - Congress Trip

noreply@blogger.com (Bell & Company, PA) — Tue, 01 Jul 2008 08:26:01 PDT

Steve Williams of Maverick USA, Inc. wrote the following about a recent trip to Congress. He was representing the trucking companies. He also is a local. We wanted to pass this important information.

Steve writes the following:

"Monday I had the opportunity to address Congress on the impact to fuel prices...related to the impact of speculation in the market. There have been several good stories on the subject and one AP story that was misleading for sure. My comments are well documented in the link that the Trucker issued yesterday...which also included a document that I authored titled U.S. Freight and Transportation Sustainability Initiative. My comments to the Sub Committee was that I didn't know what impact that speculation was having on the price of fuel...a previous panel of experts had already attested to that...but I wanted them to know the impact that it was having on my company, the industry and all of the citizens' lives that were being impacted by high fuel prices. I offered statistics about
anticipated failures....Tom Albrecht, etc. I am confident that there
will be additional oversights of the futures trading market....and that is a good thing. Let me know if you folks have any questions."

Below are some links to various news websites on the topic.

USA Today - http://www.usatoday.com/travel/flights/item.aspx?type=photo&photo_id=0bj3eDU0c3ccL&tid=000000000&pn=7

CBS News - http://www.cbsnews.com/stories/2008/06/23/national/main4203863.shtml

Yahoo News -http://news.yahoo.com/nphotos/slideshow/photo//080623/480/188c2320085e4cd7bffbf17f4681a8b5/

Freight Teamsters Blog - http://freightteamsters.blogspot.com/2008/06/trucking-company-ceo-tells-of-diesel.html

Fuel - Enough Said?

noreply@blogger.com (Bell & Company, PA) — Tue, 24 Jun 2008 14:53:33 PDT

A note from Jeff Lovelady, CPA

Fuel, enough said! You know I was talking to my wife the other day and it costs us $30 per day to drive two cars to North Little Rock. You trucking owners out there hear that and probably laugh considering you are paying thousands of dollars per day in fuel costs. I know this has put a damper on our personal budget which means we do not go and do as much as we did this time last year. This impacts the economy because we choose to stay at home and not spend the money or not buy and consume as much as we were before fuel spiked up. This also impacts the tonnage of freight that is hauled because I am sure more people are just not purchasing like they were over the last few months. I have heard smatterings of “things are picking up”, “trucks are tight”, let us not get overly excited because I think this little rise in demand is just in the normal course of business, I have not heard of any major breakthroughs on freight rates other than the normal increase due to the rising fuel surcharge and the time of year. Definitely not increases that would make a major impact.

I have a question for some of you carriers out there, why would you haul a load that did not have a fuel surcharge added as a separate line item on a freight bill? In other words, as owners of companies you make decisions and a good customer is one that works with you to develop a relationship that is a win-win. The win on their side is a rate that they can save money on, on your side a rate that is commensurate with your impeccable service and a rate that is properly broken down so you can manage your company and if a customer does not want to see a fuel surcharge listed on a freight bill then maybe you should rethink your customer base. With the competiveness in the industry and operating ratios running over 100%, “Because the customer wants it that way”, just does not cut it in my book. Find a customer that will work with you. They need to get over it because fuel is here to stay and is now number two on your list of largest expenses right behind driver wages and benefits. I understand some of this is easier said than done but you also need to understand that managing your company and making hard decision about whether or not to haul for a customer can make or break a company. Tough economy leads to tough decisions. Now here is the bad part, this rise in fuel cost is mostly the result of speculators playing the futures market to make a buck! Demands not driving it because demand is down. Get the speculators that can not take delivery of wet gallons out of the market. According to the Energy Market discussion and analysis on CSPAN yesterday, 71% of the transactions in the Energy sector are speculators as compared to 37% a year ago.

Asset Protection Tip

noreply@blogger.com (Bell & Company, PA) — Tue, 17 Jun 2008 14:18:33 PDT

Tip from Richard Bell.

As a form of asset protection, attorneys have advised our firm to reorganize S-Corporations and Q-subs to Limited Liability Companies for asset protection purposes, pursuant to some state laws, that favor LLC's over S-Corporations, in collection of judgments rendered against the entity due to insufficient insurance coverages. If you would like to discuss this topic further please contact Richard Bell 501.753.9700.

Texas Margin Tax

noreply@blogger.com (Bell & Company, PA) — Wed, 11 Jun 2008 12:13:04 PDT

Trucking companies continue to agonize over the June 15th date for filing and paying the Texas Franchise Tax. Most clients have seen their tax bills double, which in todays economy could be a kiss of death. The Texas Margin Tax, which is based on the concept of figuring your gross margins, and then multiplying a sales tax rate of 1% is onerous to the trucking company, since they are not a service provider, and cannot deduct as cost of goods, expenses for fuel, repairs, insurance etc. The tax does allow a deduction for salary wages and benefits, thus the margin is about 70% of the gross, taxed at 1%, then prorated for the mileage applicable to Texas vs. the entire mileage for all states. Pretty bad stuff.

Bell and Company Video

noreply@blogger.com (Bell & Company, PA) — Mon, 14 Jul 2008 12:29:13 PDT

http://www.youtube.com/watch?v=w_IdDIDJa4M

Legislative Watch

noreply@blogger.com (Bell & Company, PA) — Fri, 25 Jan 2008 13:14:39 PST

Bipartisan House stimulus package announced; while Senate version will differ, quick Congressional action expected

On Jan. 24, Congressional Democrats and Republicans and President Bush reached an agreement on a bipartisan stimulus package aimed at immediately jumpstarting the slowing economy. The House stimulus package will include:

Rebates. Rebate checks will be computed under two separate calculations, with an overall phase-out for those with adjusted gross incomes above $75,000 for single taxpayers and $150,000 for married couples. Rebate checks will include a base amount determined under the greater of two options:

*income tax paid in 2007, with a maximum of $600 for a single taxpayer
and $1,200 for married couples; or
*$300 for an individual and $600 for a married couple, if the individual or
couple earned income of at least $3,000 in 2007.
The rebate check calculation will also include a children's bonus. Anyone qualifying for the base amount will also receive an additional $300 per child, with no cap on the number of children. A total of 117 million families will receive rebate checks.

Bonus depreciation. The bill will provide for 50% bonus deduction on new equipment in the year it's placed in service, with certain exceptions for equipment with a “long life.” The temporary tax cut will affect depreciation on new property with a depreciation period of 20 years or less. It's estimated that the bonus depreciation, coupled with expensing measures enacted in May 2003, will result in a 4% increase in business spending in the first 6 months.

Section 179 expensing. This bill will allow employers, including small businesses, to fully expense $250,000 in both new and used tangible property in the year it's purchased with an overall investment limit of $750,000. (Under current law, taxpayers can expense up to $128,000 for 2008 with an overall investment limit of $510,000.)

Government Sponsored Enterprises (GSE)/Federal Housing Administration (FHA) Conforming Loan Limit. The conforming loan limits for both FHA and GSE (such as Fannie Mae and Freddie Mac) loans will be increased.

The stimulus bill will includes no spending on unemployment insurance, transportation infrastructure, food stamps, or Medicaid. It's expected that the House will approve the stimulus initiative quickly. Floor consideration of the package is likely on Jan. 29.

Meanwhile, Senate Finance Committee Chairman Max Baucus (D-MT) said that the Finance Committee will mark up its own stimulus bill next week—one different from the House's. Baucus indicated that the Senate bill might include extending unemployment insurance, increasing food stamps, and additional business incentives. Expressing his intention to work quickly, in a bipartisan manner, Baucus stated that he thought the Finance Committee would complete its work by the time the House sends a bill to the Senate.

Managing Fuel Costs

noreply@blogger.com (Bell & Company, PA) — Wed, 26 Dec 2007 07:42:04 PST

How well are you managing your fuel costs?

In today’s environment, fuel has risen to the top of the heap as far as costs to operate. How well do you think you are managing your fuel costs? Managing your fuel in the following areas can have a major impact in your overall costs. Consider re you getting an adequate fuel surcharge, are you effectively moving your equipment to reduce deadhead, are you getting a good mile per gallon?

Are you getting an adequate fuel surcharge?

If you rely too heavily on customers other than your own to move your equipment, most likely you are not getting a competitive fuel surcharge. When you have customers that bill you a flat rate, you need to internally breakout the portion that applies to the fuel surcharge and net it against your fuel cost in order to get a true picture on your cost. DOE fuel cost per gallon average last week was $3.34, the base rate is $1.20. If you average 6 miles to the gallon then your base fuel surcharge rate would be $.357 ($3.34 - $1.20 / 6). Considering that you would have run 62,500 miles for the week, you should have charged $22,291 to your customers for fuel surcharge. If your actual fuel surcharge was $.288 then you cost yourself approximately $4,313. The most difficult part of this equation is capturing the fuel surcharge that comes out of hauling for customers that bill you a flat rate. Break it out and run the numbers and make sure you are realizing your fuel surcharge. This is a major cost and you need to spend some time analyzing this area by looking at the numbers. You need to capture all the underlying issues that impact this area of managing your fuel costs. Something that you think may be insignificant could be having a major impact on your fuel surcharge.

Are you managing your deadhead?

Carrying on with the same facts as above, if you were running a total of 68,750 gallons of which 6,250 were deadhead miles, at 6 miles per gallon you would have burned approximately 1,042 gallons. This would cost you $3,479 in fuel costs associated with deadhead. This would be a 9% deadhead and let’s assume you reduce that to 7%. That would result in you burning 802 gallons less of fuel which would save you $800. How do you reduce the deadhead percentage? One way we have seen this improve is by moving the owner of the business from the other end of the building and putting him in the operations department so he can observe the decisions that are being made on a move by move basis. You will find that there are things being done to move those trucks that you may do differently. This is your business and nobody cares as much about your business as you do.

What is your miles per gallon on your equipment?

Purchase costs are going through the roof and one area that you need to really consider when purchasing new tractors the mile per gallon rating. Also, there are things your drivers can do to manage that rate. Identify those and put incentive plans in place to reward your drivers for fuel efficiency. Running 68,750 miles at 6 miles per gallon will burn 11, 458 gallons of fuel. At 5.5 miles per gallon on 68,750 miles will burn 12,500 gallons. With fuel at $3.34 per gallon, the savings from going from 5.5 to 6 would be $1,045. If you pay $.005 of that back to the driver on 68,750 miles, that is $344. You are still saving $701. This does not seem like much but as tight is rates are right now every penny counts.
Overall savings per week on the three areas discussed here assuming 25 trucks at 2,500 miles per week is $5,814. Annual savings would be $302,328. Now we are getting some where. Spend some time and take a hard look in these areas and start saving some money. It does not appear that the worm is going to turn anytime soon and you can make a major impact on your profitability by doing a little homework.

noreply@blogger.com (Bell & Company, PA) — Wed, 19 Dec 2007 06:37:10 PST

Per Diem Update - December 11, 2007

noreply@blogger.com (Bell & Company, PA) — Thu, 13 Dec 2007 06:37:49 PST

On November 27, 2007, the IRS issued Revenue Procedure 2007-70 updating the standard mileage rate to use in 2008 in computing the deductible costs of operating a personal vehicle for business purposes. This update further amplifies the importance of Revenue Ruling 2006-56. In Rev. Ruling 2006-56, the IRS applied the per diem and accountable plan rules outline in Rev. Proc. 2007-63, and deemed what constitutes a long-haul trucking company’s per diem reimbursement plan as abusive under the accountable plan rules. Rev. Proc 2007-70 specifically mentions Rev. Ruling 2006-56 as guidance for treatment of excess mileage reimbursements made under a deemed abusive accountable plan.

Rev. Proc. 2007-63 addresses excess per diem payments that are not tested along with what happens when they are tested by the IRS and it is determined that excess per diem was paid and was not reimbursed by the driver back to the company or added back to the drivers W-2 income on at least a monthly basis. Rev. Proc. 2007-63 addresses the circumstances where a pattern of abuse may exist, and the penalties that may apply if the abuse is so determined. The result would be a total disallowance of all per diem payments as a reimbursement cost, and require all per diem payments to be treated as W-2 income. An incorrect reporting of a driver’s W-2 would result in the drivers having to file amended returns which would highly impact driver turnover and cost the company a significant amount of money in payroll taxes, penalties, interest and increases in worker’s compensation premium due to the increased wages.

The IRS has stated that they will begin strictly enforcing the accountable plan rules for plan years beginning on or after January 1, 2007. For further discussion of Bell recommended processes, contact Richard Bell at richard.bell@bellandcompany.net or Jeff Lovelady at jeff.lovelady@bellandcompany.net or by phone at 501-653-9700. To obtain a copy of the Rev. Procedures 2007-63 or 2007-70 by email or fax, contact Deanna Lovelady at deanna.lovelady@bellandcompany.net.

Per Diem Trucking News Alert

noreply@blogger.com (Bell & Company, PA) — Thu, 15 Nov 2007 09:08:17 PST

The IRS recently issued Rev Proc 2007-62 for 2008 per diem rates, which will remain at $52 per day.

The IRS previously issued Rev Ruling 2006-56 that applies to IRS audits to be conducted for 2007 and thereafter, that addresses documentation and testing of per diem payments.

Bell recommends to clients that M&IE (meals and incidentals expenses) only per diem allowance be used by the transportation carrier, since lodging is usually provided in kind since most tractors have sleepers, and the expectation is that the driver will sleep in the tractor, and not at the motel. If the driver does sleep at a hotel, then, company policy should be to pay for lodging by direct payment or reimburse the driver for lodging upon receipt provided.

M&IE comes in two methods, Rate per mile x miles driven per day, or a flat rate per day of $52, per 24 hour period.

Rate per mile x miles driven per day is a higher audit risk due to variables of miles traveled and rate per mile paid. Bell recommends usage of the flat rate per day up to $52 per day.

Bell and Company has been analyzing the recent IRS directive regarding audit processes to track per diem, and will be working with our clients’ one on one, to assist in meeting documentation and testing requirements.

A brief overview of required compliance steps to be taken by management is as follows:

· Total disallowance of all per diem payments will be the penalty, if overpayments of per diem amounts are not handled according to the IRS rules and regulations.

· The IRS wants proof that you pay the current per diem daily, and you can provide proof of time, place, and business purpose, for paying the per diem. An exception to paying per diem daily is that transportation companies can test per diem payments on a periodic basis, but not less than monthly. You have to test the periodic vs. daily system to remain in compliance. If you pay excess per diem, you must add to W-2 wages and reduce per diem.

· To test periodic (monthly) compliance, Bell will provide to its clients a testing template for compliance for either the rate per mile method or the daily method, which should meet the periodic testing requirements.

· For document retention purposes Bell will assist client in determining which methods of tracking the drivers’ days works best for them; also where to store the information and in what format, for future retrieval.

For more info on the new per diem substantiation requirements give Richard Bell or Jeff Lovelady a call 501.753.9700.

IRS Update on APU Units

noreply@blogger.com (Bell & Company, PA) — Mon, 18 Jun 2007 09:08:24 PDT

The IRS states that the addition of an APU within six months of the purchase date of the tractor is subject to FET tax. For that matter, anything that is added to the tractor within the first six months from the purchase date is subject to FET if the aggregate amount of the addition is $1,000 or more.

Independent Contractor vs. Employee: Are You Sure Your Company is in Compliance?

noreply@blogger.com (Bell & Company, PA) — Fri, 01 Jun 2007 14:10:47 PDT

A recent case handed down by the Federal tax court concerns an Ohio corporation – Peno Trucking, a 15-unit fleet – leased on to a larger carrier, Ohio Transport Corp. The issue was whether Peno could successfully uphold a workers compensation court case holding that drivers of Peno trucking were independent contractors (rather than employees) per an IRS assessment for payroll taxes. The tax court ignored the compensation court case holding and classified the drivers as employees.
Highlights of the case include the following: Peno hired drivers as independent contractors by paying them a percentage of each hauled load. A contract between Peno and its drivers provided that Peno would not direct, in any manner, the means or method by which the owner/operator performed his occupation and that the independent contractor would work directly with Ohio Corp to transport goods.
However, the facts of what actually happened superseded Peno’s contract language. Peno’s lease with Ohio Transport required that Peno be responsible for hiring drivers; overseeing drivers’ work; confirming that work was performed according to the lease; and directing, supervising, paying, disciplining and discharging drivers. The main factor “for employee status” as determined by the court was that Peno controlled the loads drivers hauled, controlled the places to which freight was delivered, required the drivers to maintain driver logs, and required drivers to carry beepers. These factors thus indicated “control” over drivers’ activities.
Specifically, the six factors the court reviewed in its decision to consider drivers employees vs. independent contractors were:
1) Investment in facilities—though the driver provided his/her own tools and licenses, Peno invested in the tractors and trailers.
2) Profit or loss—while drivers received 23% - 27% of a hauled load, earnings were dependent on the number of loads hauled, thus no opportunity for profit Since Peno incurred all debt for equipment and maintained a contract with Ohio Corp, the profit motive was Peno’s to enjoy.
3) Right to discharge—Peno argued that Ohio Corp could only terminate a driver, but Peno admitted in a court proceeding that Peno retained the right to discharge a driver and that a driver could terminate his/her relationship with Peno.
4) Integral part of business—the court found that drivers were essential to Peno’s operations (i.e., necessary for hauling freight), thus supporting the employer-employee relationship.
5) Permanency of the relationship—the court found that drivers worked in the normal course of the business, thus their relationship with the company was not transitional in nature.
6) Relationship by contract—the written agreement between contracted drivers and Peno was outweighed by a variety of circumstances (e.g., degree of controls, company investment in trucks, the drivers’ lack of risk assumption, the company’s ability to discharge, the fact that drivers were an integral part of the business, and the permancey of the driver relationship), thus overriding the contract and the work comp ruling.

Full text of this case is available. For more information or to review the case documents, please contact Deanna Lovelady via e-mail at deanna.lovelady@bellandcompany.net or call 501.753.9700.

Refrigerated Trailer Fuel Tax Credit

noreply@blogger.com (Bell & Company, PA) — Fri, 19 Jan 2007 12:03:10 PST

The IRS allows a tax credit to trucking companies based on the number of undyed diesel fuel gallons purchased in a given year. This specifically helps individuals and companies who transport refrigerated goods. The credit is $.244 per gallon of off-highway use diesel for gallons purchased before October 1, 2005. The credit is $.243 per gallon for gallons purchased after September 30, 2005.

This is a refundable credit, which means that you can get the credit refunded to you even if you didn’t owe taxes. This can add up to HUGE tax savings for refrigerated truckers. For example, if you purchased 10,000 gallons of undyed diesel to use in your refrigerated trailer in 2006, you would receive a credit of $2,430. This is a dollar-for-dollar reduction of your tax liability! What if you don’t have a tax liability? The government will add your credit to your tax refund.

If you would like more information, please call Brady Pipkin at 501.753-9700 or e-mail Brady at brady.pipkin@bellancompany.net.

A Special One Time Tax Credit on Your 2006 Individual Tax Return

noreply@blogger.com (Bell & Company, PA) — Tue, 16 Jan 2007 12:52:11 PST

Phone companies have been given notice to stop assessing the federal excise tax as of August 30, 2006 on toll calls. This change in telephone billing statements demands restitution. Thus, the IRS has announced that a one time credit will be available when filing your 2006 tax return of which will be limited. For instance if you are a single person without any dependents, you can claim a $30 credit on line 71 on your 1040. If you are single and have a dependent(s), you can claim a $40 credit. If you are a married couple and file jointly, you can also claim a $40 credit. Finally, if you are married, file jointly, and have dependents you can claim $50 for one child and $60 for two children.

The maximum credit you can claim is $60. The only exception is if you have all your phone bills starting AFTER February 28, 2003 through July31, 2006. In this case you can add up the ACTUAL TAX AS IT APPEARS ON YOUR BILLS AND CLAIM THAT FOR A CREDIT. If you have your actual phone bills and come up with the ACTUAL TAX AMOUNT, you cannot use line 71 on your tax return. Rather you must complete Form 8913 and attach it to your tax return. This tax credit is a refundable credit and you will receive this amount regardless of how your tax return works out.

If you file a business return please contact Sylvia at Bell & Company 501.753.9700.

noreply@blogger.com (Bell & Company, PA) — Tue, 09 Jan 2007 06:20:53 PST

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