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					                                                                                                                   July 2011
                                                                                                 TAX ALERTS

                                        Internal Revenue Service (IRS) Increases
                                           Mileage Rate to 55.5 Cents per Mile

                                                                     On June 23, 2011, the IRS announced an increase in the optional
                                                                     standard mileage rates for the final six months of 2011. Taxpayers
                                                                     may use the optional standard rates to calculate the deductible costs
                                                                     of operating an automobile for business and other purposes.

                                                                     The rate will increase to 55.5 cents a mile for all business miles driven
                                                                     from July 1, 2011 through December 31, 2011. This is an increase of
                                                                     4.5 cents from the 51-cent rate in effect for the first six months of
                                                                     2011, as set forth in Revenue Procedure 2010-51. In recognition of
                                                                     recent gasoline price increases, the IRS made this special adjustment
                                                                     for the final months of 2011. The IRS normally updates the mileage
                                                                     rates once a year in the fall for the next calendar year.

                                     "This year's increased gas prices are having a major impact on individual Americans. The IRS is
                                     adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS
                                     Commissioner, Doug Schulman. "We are taking this step so the reimbursement rate will be fair to
                                     taxpayers." While gasoline is a significant factor in the mileage figure, other items enter into the
                                     calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

                                     The optional business standard mileage rate is used to compute the deductible costs of operating an
                                     automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by
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                                     the federal government and many businesses to reimburse their employees for mileage.

                                     The new six-month rate for computing deductible medical or moving expenses will also increase by
                                     4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for
                                     providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a

                                     Taxpayers always have the option of calculating the actual costs of using their vehicles rather than
                                     using the standard mileage rates.

                                               Purpose                 Rates 1/1 through 6/30/11           Rates 7/1 through 12/31/11
                                                Business                            51                                  55.5
                                             Medical/Moving                         19                                  23.5
                                               Charitable                           14                                   14

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                                   Beware of E-Mail Scams about
                                                  Electronic Federal Tax Payments

                                                                        Consumers should be aware of a scam e-mail about an electronic
                                                                        federal tax payment the e-mail claims they tried to make
                                                                        or which mentions the Electronic Federal Tax Payment System
                                                                        (EFTPS). The e-mail states that tax payments made by the e-mail
                                                                        recipient through EFTPS have been rejected. The e-mail then
                                                                        directs recipients to a bogus link for a transaction report that,
                                                                        when clicked, downloads malicious software (malware) that
                                                                        infects the intended victim’s computer. The malware is designed
                                                                        to send back personal and financial information to the scammer
                                                                        already contained on the taxpayer's computer or obtained
                                                                        through capturing keystrokes. The scammer uses this personal
                                                                        and financial information to commit identity theft.

                                     To avoid malware, the taxpayers should not click on any links, open any attachments, or reply to the
                                     sender for this or any other unsolicited e-mails that they may receive about their tax account that
                                     claims to come from the Internal Revenue Service (IRS) or EFTPS. If the taxpayer responded to this
                                     scam and believes he or she may have become the victim of identity theft, find out what steps can be
                                     taken. The IRS and the Financial Management Service (the Treasury bureau that owns EFTPS) do not
                                     communicate payment information through e-mail. A scam that tricks people into revealing their
                                     personal and financial data is identity theft. A scam that attempts to do this through e-mail is known
                                     as phishing. Find out more about IRS impersonation phishing scams and how to recognize and
                                     report them to the IRS.

                                     EFTPS is a tax payment system that allows individuals and businesses to pay federal taxes
                                     electronically via the Internet or phone. It is committed to taxpayer privacy and uses industry-
                                     leading security practices and technology to protect taxpayer data.
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                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                                The Internal Revenue Service (IRS)
                                                  QuickAudit is Getting Quicker
                                                              This article is reproduced with permission from Spidell Publishing, Inc.

                                                               In fall 2010, the IRS Press Office issued a release explaining how helpful it
                                                               was that the IRS would obtain information from the QuickBooks data file
                                                               directly, rather than forcing the taxpayers to spend time providing the
                                                               needed data, which they may not have possessed the skill set to do. Since
                                                               that time, the American Institute of Certified Public Accountants (AICPA)
                                                               has become more vocal in their objection to this process. The IRS has
                                                               responded to the AICPA and is becoming more aggressive at issuing
                                                               information document requests (IDRs) pertaining to QuickBooks.

                                                               Information Document Request (IDR)

                                                               The IRS is now including a paragraph about QuickBooks and states, "If your
                                                               client does not utilize QuickBooks, please have the following available at
                                                               the time of our scheduled appointment." Their list includes traditional
                                                               items like work papers and other books and records.

                                     The 2011 IDR referencing QuickBooks now includes a three-page document regarding Internal
                                     Revenue Code (IRC) §6001, which substantiates why the IRS is allowed to ask for QuickBooks data
                                     files. It includes Revenue Ruling 71-20 and references IRC of 1954. It is a trip down memory lane,
                                     discussing punch cards and magnetic tapes.

                                     The 2011 QuickBooks paragraph in the IDR asks for an original electronic backup file and it states,
                                     "The copy should not be an altered version of the QuickBooks data… ." In the next sentence, the
                                     IDR states that the "file should include any changes to the data entered after year-end… ." It is
                                     assumed that it meant the IRS wants to have any year-end adjusting journal entries posted into the
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                                     file but does not want the file to be modified in any other way.

                                     AICPA letter to the IRS

                                     Patricia A. Thompson, Chair of the AICPA's Tax Executive Committee, sent a letter dated March 29,
                                     2011, to Christopher Wagner, Commissioner of the Small Business/Self-Employed Division of the
                                     IRS. She makes several points in her letter, which will be covered below.

                                     In the Large Business and International Division of the IRS, Thompson notes that a full accounting
                                     system is never turned over to the IRS. The IRS asks for certain information and the taxpayer
                                     provides it. Her comment is that QuickBooks can work in exactly the same manner. She states that
                                     the software file contains information that is not relevant to the tax year issues or issues under audit,
                                     and the file may contain information considered confidential under the law. She believes this is
                                     central to the issue at hand: the IRS audit is usually a limited scope audit, so why should the IRS
                                     require access to all records of all types of the taxpayer for the applicable year? Her letter then
                                     states, "The AICPA believes the taxpayer should have the right to "redact" the software file and turn
                                     over only the data that is responsive and relevant to the examination - but no more." This would be
                                     a huge undertaking for small business, but indicates how varied the opinions are about small business

                                     IRS QuickAudit is Getting Quicker (continued)

                                     IRS response to the AICPA

                                     On April 20, 2011, Commissioner Wagner responded. The Wagner letter states that, "an exact
                                     copy…be provided to the examiner and not an altered version." This "allows the examiners to
                                     properly consider the integrity and veracity of the … files." In the same paragraph, the QuickBooks
                                     audit trail is discussed without naming it. The paragraph concludes using the phrase, "directly
                                     relevant to the evaluation of the taxpayer's internal controls." The Wagner letter provides
                                     suggestions to the small business under examination:

                                               The taxpayer backs up the "electronic data files" annually. This backup can then
                                                be used by the IRS.

                                               The taxpayer can condense the data other than the period under audit.

                                     The Wagner letter goes on to state that if the examination is expanded, another backup for a
                                     different year will be needed, a backup that does not have condensed data for the next year under
                                     audit. This will happen when the IRS goes to an older year for a second year of examination. This
                                     points out the difficulty in condensing. If the year of audit is 2008, then the taxpayer would condense
                                     through 2007. If the IRS went back to 2007, the taxpayer would not have to take a new backup and
                                     go through the condensing process through 2006.

                                     When the IDR is compared to the IRS letter, the inconsistencies can be seen. A backup at year-end
                                     would not have year-end adjusting journal entries. At least, in 2011, the Wagner letter is asking for a
                                     backup QuickBooks file with a file extension of "QBB," not a working copy with a file extension of

                                     The Wagner letter goes on to address the privacy issue of the IRS getting all of a taxpayer's
                                     accounting system. The letter references IRC §6103 and states the taxpayer's information "is a
                                     matter of the utmost importance to the IRS." While that is the official position of the IRS, it does
                                     not address the misuse of the additional information by the IRS. There are dozens of questions that
                                     can be contemplated pertaining to the IRS possessing the taxpayer's complete file.
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                                     Taxpayer's dilemma

                                     It is clear that the subject has not been resolved. The IRS will continue to request QuickBooks data
                                     files, so the small business will have to respond to these requests. Although there has been more
                                     discussion at higher levels, there is no absolute manner to deal with the QuickBooks request. Here
                                     are some alternatives:

                                            1. Provide schedules both in hard copy and in electronic spreadsheet format of all
                                               accounts selected for examination without providing the QuickBooks file. This
                                               is the cleanest and fairest way to provide the IRS with needed information.

                                            2. As soon as the fiscal year-end bank accounts are reconciled, save a copy of the
                                               QuickBooks file in QBW (working copy) format and rename it "Tax Return
                                               Copy - Tax Year 20XX." When the year-end adjustments are received, post
                                               them into this copy as well as the live QuickBooks file the taxpayer is
                                               continuing to use into the new year. If the tax return is selected for the audit,
                                               the data file can be compressed accordingly.

                                     IRS QuickAudit is Getting Quicker (continued)

                                             3. If the IRS audit is of a Schedule C taxpayer, the focus is typically on the income
                                                statement. The taxpayer may be able to have reasonably good results with a
                                                compression of the QuickBooks file using QuickBooks tools.

                                             4. If the IRS audit is for a business return and the IRS wants to examine various
                                                balance sheet accounts, such as officer loans or advances, and intercompany
                                                accounts, the taxpayer may want to seek professional assistance in truncating
                                                the QuickBooks file for just the period of the audit.

                                             5. Professional data managers, like in #4 above, can also remove the audit trail of
                                                a QuickBooks file.

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                               The Internal Revenue Service (IRS)
                                              Releases Draft Version of Form 8938
                                              for Foreign Financial Asset Holders

                                     The IRS is seeking comments on the new draft Form 8938, “Statement of Specified Foreign Financial
                                     Assets,” which is available on the IRS's website. Form 8938 will be used by individuals to report an
                                     interest in one or more specified foreign financial assets under the Internal Revenue Code (IRC)
                                     Section 6038D. The form is required to be filed by the taxpayers on or before April 16, 2012 for
                                     the initial year.
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                                     For tax years beginning after March 18, 2010, the Hiring Incentives to Restore Employment Act of
                                     2010 (HIRE Act) provides that individuals with an interest in a “specified foreign financial asset”
                                     during the tax year must attach a disclosure statement to their income tax returns for any year in
                                     which the aggregate value of all such assets is greater than $50,000. In addition, to the extent
                                     provided by the IRS in regulations or other guidance, the IRC Section 6038D applies to any domestic
                                     entity formed or availed of for purposes of holding, directly or indirectly, specified foreign financial
                                     assets, in the same manner as though the entity were an individual.

                                     “Specified foreign financial assets” are:
                                          (1) depository or custodial accounts at foreign financial institutions, and
                                          (2) to the extent not held in an account at a financial institution,
                                                   (a) stocks or securities issued by foreign persons,
                                                   (b) any other financial instrument or contract held for investment that is
                                                       issued by, or has, a counterparty that is not a U.S. person, and
                                                   (c) any interest in a foreign entity.

                                     IRS Releases Draft Version of Form 8938 (continued)

                                     Recent guidance

                                     In the Notice 2011-55, 2011-29 IRB, the IRS suspended the IRC Section 6038D reporting
                                     requirements until it releases Form 8938. After the new Form 8938 is released in its final form
                                     individuals for whom the filing of Form 8938 was suspended for a tax year will have to attach the
                                     form for the suspended tax year to their next income tax returns required to be filed with IRS.

                                     The Notice 2011-55 further stated that the IRC Section 6501(c)(8) limitations period for tax
                                     assessments for periods for which reporting is required under IRC Section 6038D will not expire
                                     before three years after the date on which the IRS receives Form 8938.

                                     Draft Form

                                     The draft Form 8938 was released on June 22 without instructions. However, the draft form
                                     references the instructions throughout, which indicates that they will likely be issued soon.

                                     Part I of the draft form requires information about foreign deposit and custodial accounts, including
                                     the maximum value of any such account during the tax year. Part II has similar entries for “other
                                     foreign assets,” but notes that specified foreign financial assets that have been otherwise reported on
                                     Forms 3520, 3520-A, 5471, 8621, or 8865, do not have to be included on Form 8938. Part III asks
                                     for a summary of tax items attributable to the accounts and assets reported in Parts I and II, including
                                     associated items such as interest, dividends, and royalties. Part IV requires disclosure of the number
                                     of the filed forms referenced in Part II on which any foreign financial assets that were excepted from
                                     Part II were reported.

                                     Comments on the form must be submitted on the IRS's website within 30 days of the form's June 22
                                     posting date to receive consideration.

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.
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                                                               Proposed Change to
                                                              Due Date of Tax Returns

                                                              There is a legislative proposal presented to the Internal Revenue Service (IRS)
                                                              to change the due dates of various returns (see table below). The proposal
                                                              was made because of the problem the tax practitioners have with the late
                                                              arriving Schedule K-1 from the partnerships and trusts. If the partnership or
                                                              trusts have other Schedules K-1 flowed into their tax returns, their tax
                                                              returns cannot be completed and finalized until all the K-1s are received. Due
                                                              to the flow of the information from one entity to another, it causes the
                                                              delay on the filing process. The IRS has temporarily fixed the problem by
                                                              shortening the extension for the partnership and trust returns by one month,
                                                              from October 15 to September 15. However, people are still looking for a
                                                              better way to fix the problem, which results in the following proposed change
                                                              to the various due dates. As of today, this is only a proposal and no one
                                                              knows when it will be effective and what will be the final form of the changes.
                                                              The information is here to let people be aware of the proposed change.

                                                                                        CURRENT                           PROPOSED
                                                                              Original due   Extended due       Original due   Extended due
                                                                                 date            date              date            date
                                           C Corporation (Form 1120)             3/15             9/15             4/15           10/15

                                           S Corporation (Form 1120S)            3/15             9/15             3/31              9/30

                                           Trust & Estates (Form 1041)           4/15             9/15             4/15              9/30

                                             Partnership (Form 1065)             4/15             9/15             3/15              9/15

                                              Individual (Form 1040)             4/15           10/15              4/15           10/15

                                       Foreign Bank Account Reports (FBAR)       6/30             N/A              6/30           10/15
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                                                (Form TD F 90-22.1)
                                        Employee Benefit Plan (Form 5500)        7/31           10/15              7/31           11/15

                                     There is also a bill introduced by a senator to change the due dates of the quarterly estimated tax
                                     payments for corporations in April 2011. There has not been any recent development on this bill
                                     since it is not clear whether this bill will be a revenue loser or gainer. Since the due dates of the
                                     quarterly estimated tax payments are dictated by the due dates of the tax return, if the above change
                                     is implemented, people can expect to see changes in the due dates of the quarterly estimated tax
                                     payments as well.

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                            Form 1099-K to Report Merchant Card
                                             and Third-Party Network Payments
                                                 and Revised Form 1065 for
                                                   Reporting Payment per
                                                        Form 1099-K

                                                           Earlier this year, in late February 2011, the Internal Revenue Service (IRS)
                                                           released a new Form 1099-K, Merchant Card and Third-Party Payments, and
                                                           its instructions, which implement new reporting requirements under the
                                                           Regulation Section 1.6050W-1, effective for returns for calendar years
                                                           beginning after December 31, 2010. Payment settlement entities may have to
                                                           report merchant card payments and third-party network payments on the new
                                                           Form 1099-K instead of on Form 1099-MISC.


                                     The “Housing Assistance Tax Act of 2008,” added Internal Revenue Code (IRC) Section 6050W.
                                     After year 2010, it generally requires banks to file an information return with the IRS reporting the
                                     gross amount of credit and debit card payments a merchant receives during the year, along with the
                                     merchant's name, address, and taxpayer identification number (TIN). Similar reporting is also re-
                                     quired for third-party network transactions (e.g., those facilitating online sales).

                                     Specifically, under IRC Section 6050W, any payment settlement entity (PSE) making payment to a
                                     participating payee in settlement of reportable payment transactions (any payment card transaction
                                     and any third-party network transaction) must file a return for each calendar year with the IRS and
                                     furnish a statement to the participating payee, setting out the gross amount of the reportable
                                     payment transactions as well as the name, address, and TIN of the participating payee. A PSE is a
                                     merchant acquiring entity in the case of a payment card transaction and a third-party settlement
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                                     organization in the case of a third-party network transaction.

                                     A payment card transaction is any transaction in which a payment card is accepted as payment. A
                                     payment card is defined as any card that is issued pursuant to an agreement or arrangement that
                                     provides for:

                                             (a) one or more issuers of the cards;
                                             (b) a network of persons unrelated to each other and to the issuer, who agree to
                                                 accept such cards as payment; and
                                             (c) standards and mechanisms for settling the transactions between the merchant
                                                 acquiring entities and the persons who agree to accept the cards as payment.

                                     A third-party network transaction is any transaction that is settled through a third-party payment
                                     network - i.e., generally, an agreement or arrangement that involves the establishment of accounts
                                     with a central organization by a substantial number of persons who are unrelated to the organiza-
                                     tion, provide goods or services, and have agreed to settle transactions for the provision of the goods
                                     or services under the agreement or arrangement. A third-party settlement organization is required
                                     to reort with resect to

                                     Form 1099-K to Report Merchant Card and Third-Party Network Payments (continued)

                                     to report with respect to third-party network transactions of any participating payee only if

                                             (1) the aggregate amount with respect to the third-party network transactions for the year
                                                 that would otherwise be reported exceeds $20,000, and
                                             (2) the aggregate number of the transactions exceeds 200.

                                     Reportable payment transactions subject to information reporting generally are subject to backup
                                     withholding requirements, and failure-to-file penalties apply for noncompliance. Backup withholding
                                     for amounts reportable under IRC Section 6050W applies to amounts paid after December 31, 2011.
                                     In August of 2010, the IRS issued final regulations that provide guidance on the information reporting
                                     requirements, information reporting penalties, and backup withholding requirements for payment
                                     card and third-party network transactions.

                                     New Form 1099-K

                                     The instructions to Form 1099-K provide that every PSE which, in any calendar year, makes one or
                                     more payments in settlement of reportable payment transactions, must file an information return on
                                     Form 1099-K with respect to each participating payee for that calendar year. The instructions
                                     explain that a PSE is a domestic or foreign entity that is a merchant acquiring entity (i.e., a bank or
                                     other organization) that has the contractual obligation to make payments to participating payees in
                                     settlement of payment card transactions, or a third-party settlement organization (i.e., the central
                                     organization that has the contractual obligation to make payments to participating payees of third-
                                     party network transactions). A PSE makes a payment in settlement of a reportable payment
                                     transaction, that is, any payment card or third-party network transaction, if the PSE submits the
                                     instruction to transfer funds to the account of the participating payee to settle the reportable
                                     payment transaction.

                                     If two or more persons qualify as PSEs for the same reportable transaction, the PSE who actually
                                     makes payment must file the return. However, the PSE obligated to file may designate another
                                     person to file the return, including the PSE not making payment, if the parties agree in writing. If the
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                                     designated person fails to timely file the return, the party who makes payment is liable for any
                                     applicable penalties under IRC Section 6721 and 6722. If a PSE contracts with an electronic payment
                                     facilitator (EPF) or other third-party payer (TPP) to make payments in settlement of reportable
                                     payment transactions on behalf of the PSE, the facilitator or other third party must file Form 1099-K
                                     in lieu of the PSE.

                                     A PSE enters the gross amount of the total reportable merchant card/third-party network payment
                                     transactions for the calendar year in Box 1 of Form 1099-K. Gross amount means the total dollar
                                     amount of total reportable payment transactions for each participating payee without regard to any
                                     adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other
                                     amounts. The dollar amount of each transaction is determined on the date of the transaction.
                                     Under IRC Section 6050W(e), a de minimis payment exception applies to a third-party settlement
                                     organization (see discussion above). A PSE enters in Boxes 5a through 5l (which provide a month-by
                                     -month break down) the gross amount of the total reportable payment transactions for each month
                                     of the calendar year. Boxes 2 through 4 are blank, and reserved for future use.

                                     Form 1099-K to Report Merchant Card and Third-Party Network Payments (continued)

                                     The instructions also describe what transactions are not subject to reporting and when a number
                                     of exceptions to the reporting rules apply, including certain payments made by U.S. payers or
                                     middlemen to foreign payees after 2010; payments by U.S. payers to foreign payees prior to 2011;
                                     and payments made by non-U.S. payers or middlemen to foreign payees.

                                     In addition, the IRS released the revised draft Form 1065 on June 16, 2011 for tax year 2011. On the
                                     revised Form 1065, the IRS added a line 1a to report the merchant card and third-party network
                                     payments separately, which should agree to the amounts reported on the Form 1099-K.
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                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                             California Franchise Tax Board (FTB)
                                                 Provides Payment Plans and
                                                     Offers in Compromise
                                                               This article is reproduced with permission from Spidell Publishing, Inc.

                                     If the taxpayers have financial difficulty and cannot pay the taxes owed to the FTB, installment
                                     agreements and offers in compromise are two things that the taxpayers can consider to help them
                                     settle their debts to the FTB.

                                     Installment agreements

                                     If the taxpayers are financially unable to pay the amount owed and cannot borrow from a private
                                     source, they can request to make monthly installment payments. The FTB would like them to pay
                                     the largest amounts they possibly can. Interest and some penalties will continue to accrue until the
                                     balance is paid in full.

                                     Individual installment agreement:

                                     A $20 processing fee will be added to the liability. The approval or denial of the request to make
                                     installment payments is based on the taxpayer's ability to pay and compliance history and is usually
                                     made within 30 to 60 days. The FTB may still file a lien and/or request a financial statement as a
                                     condition to approval. If the request is denied, the taxpayer may request a review within 30 days and
                                     collection action will resume. If the liability is greater than $10,000 and the installment agreement
                                     exceeds 36 months, then the taxpayer will need to certify that he/she has a financial hardship on the

                                     Individual taxpayers may request an installment agreement without providing detailed financial
                                     information if they:
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                                                    Owe a balance of $25,000 or less;
                                                    Agree to pay in 60 months or less; and
                                                    Have filed all required personal income tax returns.

                                     Individuals can request an installment agreement online at:

                                     This applies but only if certain conditions are met, such as not having a current wage garnishment or
                                     an existing installment agreement. They can apply online only once in a 12-month period and only
                                     newly assessed liabilities qualify for an online installment agreement. If individuals apply online,
                                     payments must be made by electronic funds withdrawal for at least $25 per month.

                                     If the taxpayers do not meet the requirements for online filing, they can complete and mail FTB 3567
                                     or they can make arrangements by calling the FTB at (800) 689-4776 Monday through Friday from
                                     8am to 5pm.

                                     California FTB Provides Payment Plans and Offers in Compromise (continued)

                                     Business installment agreement:

                                     Businesses may also enter into an installment agreement if they cannot pay the total balance in 90
                                     days due to a financial hardship. The processing fee is $35. The business must file any delinquent tax
                                     returns and complete a financial condition form, and may be required to submit financial documenta-

                                     The Business may request an arrangement by calling the FTB at (888) 635-0494. The FTB will evalu-
                                     ate whether the account qualifies for an installment arrangement and will specify the amount of pay-
                                     ments and period of time allowed. The FTB can revoke the business's installment arrangement if
                                     new liabilities accrue, payments are dishonored, or the business entity repeatedly fails to make the
                                     installment payments. The FTB may still file a lien and applicable penalties, and fees and interest ac-
                                     crue until the balance is paid.

                                     Offer in Compromise (OIC)

                                     The OIC program is for taxpayers who do not have, and will not have in the foreseeable future, the
                                     money, assets, or means to pay their tax liability. It allows a taxpayer to offer a lesser amount for
                                     payment of a non-disputed final tax liabilities.

                                     The FTB requires taxpayers to establish that the amount offered is the most that they can pay based
                                     on their present assets and income. In addition, the FTB determines whether taxpayers have reason-
                                     able prospects of acquiring additional income or assets that would allow them to satisfy a greater
                                     amount of the liability than the offered amount within a reasonable period (depending on other fac-
                                     tors, five years is usually considered a reasonable period). Furthermore, the FTB must determine
                                     that acceptance of the offer is in the best interest of the State.

                                     The FTB evaluates each case based upon its own unique set of facts and circumstances. Strong con-
                                     sideration is given to present equity in assets, future earning potential, and other considerations such
                                     as age, health, or hardships that could affect future earnings and expenses. This case-by-case ap-
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                                     proach gives the FTB the flexibility to appropriately consider all extenuating circumstances to reach a
                                     fair and appropriate decision for the state and the taxpayer.

                                     How to file an OIC

                                     Individuals may use the 4905 PIT or a Multi-Agency Form. Also, the FTB, Board of Equalization
                                     (BOE), and Employment Development Department (EDD) have a single OIC application, Form DE
                                     999CA, Multi-Agency Form for OIC, for individuals. Taxpayers, however, must negotiate each OIC
                                     separately with each agency.

                                     Corporations, partnerships, and limited liability companies must use FTB 4905 BE. No payment is
                                     made with the application. Mail the completed and signed application along with all required docu-
                                     mentation to:

                                                Offer in Compromise Group A453
                                                Franchise Tax Board
                                                P.O. Box 2966
                                                Sacramento, CA 95812-2966

                                     California FTB Provides Payment Plans and Offers in Compromise (continued)

                                     Offers are reviewed by the FTB within 10 business days of receipt. The taxpayer receives an
                                     acknowledgment letter indicating whether the offer is accepted for processing or rejected. Those
                                     offers accepted for further processing will be assigned to an OIC specialist within 90 days. The OIC
                                     specialist will generally make a determination within 120 days after assignment, although some cases
                                     may take longer if they are unusually complex. The FTB executive officer and chief counsel, jointly,
                                     or their delegates, may approve a compromise for any final tax liability in which the reduction of tax
                                     is $7,500 or less. Reductions above require review by the three-member FTB.

                                     Differences from IRS offers

                                     One of the biggest differences is that the FTB may require the taxpayer to enter into a collateral
                                     agreement (generally for five years), which requires the taxpayer to pay the FTB a percentage of
                                     future earnings that exceed an agreed-upon amount.

                                     This difference, however, may mean that the FTB will be more willing to compromise a liability today
                                     because it is preserving the possibility of collecting additional amounts in the future; whereas, the IRS
                                     would need to permanently write off the amount. A collateral agreement is generally not required if
                                     a taxpayer is on a fixed income or has limited likelihood of increased earnings.

                                     Unlike the IRS, the FTB does not require a nonrefundable payment when making an OIC. The FTB
                                     also does not allow a taxpayer to pay the offered amount in installment payments. The full amount
                                     of the offer must be paid when the offer is accepted.

                                         FTB OIC Status

                                            The FTB's current acceptance rate is 25.8%
                                            The average accepted offer amount represents approximately 24% of the total liability
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                                             and approximately 104% of the original tax amount, including previous credits.
                                            While there is no age limitation for who can submit an OIC, the average age of
                                             taxpayers receiving approval is 57.
                                            The FTB requests a collateral agreement in about 20% of the OICs it approves. Over
                                             the past five years, collateral agreements have collected an annual average of $422,000.

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                                         Sales Tax Compliance Visits
                                                                This article is reproduced with permission from Spidell Publishing, Inc.

                                     Businesses in 19 ZIP codes have received notification since January 1, 2011 of upcoming visits from
                                     Board of Equalization (BOE) specialists as part of the ongoing Statewide Compliance and Outreach
                                     Program (SCOP). If a business is not registered with the BOE, the business will not receive a letter
                                     but it may be subject to a visit.

                                     At their visit, BOE specialists will:

                                                    Ask to see the business' licenses;
                                                    Check that a seller's permit is displayed (if required); and
                                                    Determine whether there are any other licenses or permits needed

                                                                      Zip codes with upcoming SCOP visits
                                       The zip codes below have received notices since January 1 of upcoming visits.
                                       90028 Los Angeles                      91502 Burbank                                  94901 San Rafael
                                       90029 Los Angeles                      91746 La Puente                                95014 Cupertino
                                       90280 Southgate                        92009 Carlsbad                                 95051 Santa Clara
                                       90638 La Mirada                        92056 Oceanside                                95054 Santa Clara
                                       90660 Pico Rivera                      92260 Palm Desert                              95630 Folsom
                                       90701 Artesia                          92801 Anaheim                                  95661 Roseville
                                       90712 Lakewood                         92802 Anaheim                                  95677 Rocklin
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                                       90713 Lakewood                         93063 Simi Valley                              95678 Roseville
                                       91335 Reseda                           93065 Simi Valley                              95746 Granite Bay
                                       91351 Canyon Country                   93103 Santa Barbara                            95747 Roseville
                                       91352 Sun Valley                       93105 Santa Barbara                            95835 Sacramento
                                       91364 Woodland Hills                   94080 South San Francisco                      95838 Sacramento
                                       91403 Sherman Oaks                     94501 Alameda                                  95841 Sacramento

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                                       Withholding on Payments
                                                     from the Government Delayed
                                                             This article is reproduced with permission from Spidell Publishing, Inc.

                                     Federal, state, and local governments must withhold federal income tax at the rate of 3% from
                                     payments for goods or services made on or after January 1, 2013. Therefore, if a business is
                                     providing goods or services to California or a local agency, such as a city or county, federal
                                     withholding will be subtracted from certain payments. The withholding requirement was originally
                                     scheduled to take effect January 1, 2012, but the final regulations that were recently released
                                     postponed the start for one year.

                                     The withholding requirement

                                     Withholding will be required on all single payments equal to or greater than $10,000 to individuals,
                                     trusts, estates, partnerships, associations, and corporations. Payments may not be divided into
                                     separate payments of less than $10,000 in order to avoid the withholding requirement, and
                                     withholding is required at the time of payment.

                                     The following payments are not subject to the new withholding requirement:

                                     1. Payments otherwise subject to withholding, such as wages;
                                     2. Payments for retirement benefits or unemployment compensation;
                                     3. Payments subject to backup withholding, if the required backup withholding is actually
                                     4. Payments for real property;
                                     5. Payments of interest;
                                     6. Payments to other government entities, foreign governments, tax exempt organizations,
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                                         or Indian tribes;
                                     7. Public assistance payments made on the basis of need or income. However, assistance
                                         programs based solely on age, such as Medicare, are subject to the requirements;
                                     8. Payments to employees in connection with services, such as retirement plan contributions,
                                         fringe benefits, and expense reimbursements under an accountable plan;
                                     9. Payments received by nonresident aliens and foreign corporations; or
                                     10. Payments in emergency or disaster situations.

                                     The withholding requirement applies to all forms of payment. However, for payment card
                                     transactions, the Internal Revenue Service (IRS) has stated that the withholding requirement will not
                                     apply until further guidance is issued by the IRS, and will not be in effect until 18 months after the
                                     guidance is issued. Payment cards include credit cards, debit cards, stored value cards (gift cards),
                                     and other payment cards.

                                     For more information about this article, please contact us at or any of our
                                     tax professionals at (562) 435-1191, (949) 271-2600, (310) 316-8130, or (213) 239-9745.

                                     Windes & McClaughry is a recognized leader in the field of accounting, assurance, tax, and business consulting services.
                                     Our goal is to exceed your expectations by providing timely, high-quality, and personalized service that is directed at
                                     improving your bottom-line results. Quality and value-added solutions from your accounting firm are essential steps
                                     toward success in today’s marketplace. You can depend on Windes & McClaughry to deliver exceptional client service in
                                     each engagement. For over eighty-five years, we have gone beyond traditional services to provide proactive solutions and
                                     the highest level of capabilities and experience.

                                     Windes & McClaughry’s team approach allows you to benefit from a breadth of technical expertise and extensive
                                     resources. We service a broad range of clients, from high-net-worth individuals and exempt organizations to privately held
                                     businesses and publicly traded companies. We act as business advisors, working with you to set strategies, maximize
                                     efficiencies, minimize taxes, and take your business to the next level.
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                                                     Headquarters                                               Los Angeles Office
                                                     111 West Ocean Boulevard                                   601 South Figueroa Street
                                                     Twenty-Second Floor                                        Suite 4950
                                                     Long Beach, CA 90802                                       Los Angeles, CA 90017

                                                     Tel: (562) 435-1191                                        Tel: (213) 239-9745

                                                     Orange County Office                                       South Bay Office
                                                     18201 Von Karman Avenue                                    21515 Hawthorne Boulevard
                                                     Suite 1060                                                 Suite 840
                                                     Irvine, CA 92612                                           Torrance, CA 90503

                                                     Tel: (949) 271-2600                                        Tel: (310) 316-8130

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