IRS Offers Tax Filing Delay to Washington Mudslide Victims

MICHAEL COHN

The Internal Revenue Service said Friday that victims of last month’s mudslides and flooding in Washington state will have until Oct. 15 to file their returns and pay any taxes due.

After this week’s disaster declaration for individual assistance from the Federal Emergency Management Agency, the IRS said that affected taxpayers in Snohomish County, including the Sauk-Suiattle, Stillaguamish and Tulalip tribes, will receive this and other special tax relief.

The tax relief postpones various tax filing and payment deadlines that occurred starting on March 22, 2014. As a result, affected individuals and businesses will have until Oct. 15, 2014 to file these returns and pay any taxes due.

Also included are the April 15, June 16 and Sept. 15 deadlines for making quarterly estimated tax payments. A variety of business tax deadlines are also affected including the April 30 and July 31 deadlines for quarterly payroll and excise tax returns.

The IRS also said it would abate any interest, late-payment or late-filing penalty that would otherwise apply. The agency automatically provides this relief to any taxpayer with an IRS address of record located in the disaster area. Taxpayers do not need to contact the IRS to get this relief.

Beyond the relief provided to taxpayers in the FEMA-designated localities, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at (866) 562-5227.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either last year’s or this year’s return. Claiming these casualty loss deductions on either an original or amended 2013 return will get the taxpayer an earlier refund but waiting to claim them on a 2014 return could result in greater tax savings depending upon other income factors.

In addition, the IRS said it is waiving late deposit penalties for federal payroll and excise tax deposits normally due on or after March 22 and before April 7 if the deposits are made by April 7, 2014. Details on available relief can be found on the disaster relief page on IRS.gov.

The tax relief is part of a coordinated federal response to the damage caused by mudslides and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

The IRS said it is actively monitoring the situation and will provide additional relief if needed.

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IRS Warns of Email Scam Impersonating Taxpayer Advocate Service

BY MICHAEL COHN

The Internal Revenue Service is warning consumers to beware of a new email phishing scam in which fraudulent emails purport to come from the IRS Taxpayer Advocate Service, complete with a bogus case number.

The fake emails may include the following message: “Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

Recipients are directed to click on links that claim to provide information about the “advocate” assigned to the taxpayer’s case or that let them “review reported income.” The links then lead to Web pages that solicit personal information from the recipient.

Taxpayers who get these messages should not respond to the email or click on the links, the IRS warned. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. For more information, visit the IRS’s Report Phishing web page.

The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including the TAS, does not initiate contact with taxpayers by email, texting or any social media, the IRS cautioned.
Last week, the Treasury Inspector General for Tax Administration warned of another scam involving phone calls claiming to originate from the IRS (see Taxpayers Warned of ‘Largest Ever’ Phone Fraud Scam from IRS Impostors).

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Supreme Court Rules Severance Pay Can Be Taxed

BY GREG STOHR
BLOOMBERG

(Bloomberg) The U.S. Supreme Court decided in favor of the Obama administration in a dispute over taxes on severance compensation, overturning a lower court decision that could have forced the IRS to refund more than $1 billion.

The court said payments to laid-off workers are subject to Social Security and Medicare taxes under the Federal Insurance Contributions Act, or FICA. It was a victory for the Internal Revenue Service, which has been fighting more than 2,400 refund claims from companies and their ex-employees.

The justices’ unanimous ruling yesterday came in the case of Quality Stores Inc., once the country’s largest agricultural specialty retailer. The defunct company fired 3,100 workers when it closed its stores in 2001 and 2002, paid the taxes on their severance and then asked a bankruptcy judge to order the IRS to refund $1 million.

Writing for the court, Justice Anthony Kennedy said the payments were subject to tax. He rejected the company’s contention that what it called supplemental unemployment compensation was exempt from the FICA.

“The severance payments here were made to employees terminated against their will, were varied based on job seniority and time served and were not linked to the receipt of state unemployment benefits,” he wrote. “Under FICA’s broad definition, these severance payments constitute taxable wages.”

Unresolved Lawsuits
Lower courts were divided on the issue. The high court ruling came in the government’s appeal of a September 2012 decision by a Cincinnati-based U.S. appeals court that said Quality Stores was entitled to a refund. The money would have gone to 1,850 ex-employees who paid their share of the taxes and authorized Muskegon, Michigan-based Quality Stores to try to recoup the payments on their behalf.

“The decision is a huge blow for employers and employees alike,” said Bob Hertzberg, the lawyer who represented Quality Stores at the Supreme Court. “In addition to the impact on Quality Stores and its former employees, this ruling has far-reaching implications for the thousands of other organizations and workers fighting for refunds.”

Kathryn Keneally, head of the Justice Department’s tax division, said the government is “pleased that the Supreme Court recognized that there should be no difference in how severance pay is taxed for social security and income tax purposes.”

Program Financing
FICA uses payroll taxes to finance Social Security and part of the Medicare health-care program for the elderly and disabled. Employers and employees each pay 6.2 percent in Social Security taxes on wages up to a cap, which is $113,700 this year, and they each pay 1.45 percent of all wages toward Medicare. High-income taxpayers are subject to additional payroll levies.

According to a brief filed by the Obama administration, the claims for refunds have been made in 11 unresolved lawsuits and 2,400 administrative cases “with a total amount at stake of more than $1 billion.”

“That figure is expected to grow,” the brief said.

The case is United States v. Quality Stores, 12-1408.

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IRS Employee Took Home Data on 20,000 Workers at Tax Agency

BY RICHARD RUBIN
BLOOMBERG

(Bloomberg) An Internal Revenue Service employee took home a computer thumb drive containing unencrypted data on 20,000 fellow workers, the agency said in a statement.

The tax agency’s systems that hold personal data on hundreds of millions of Americans weren’t breached, the statement said Tuesday.

“This incident is a powerful reminder to all of us that we must do everything we can to protect sensitive data—whether it involves our fellow employees or taxpayers,” IRS Commissioner John Koskinen said in a message to employees. “This was not a problem with our network or systems, but rather an isolated incident.

The IRS is contacting the current and former employees involved, almost all of whom worked in Pennsylvania, Delaware and New Jersey. The information dates to 2007, before the IRS started using automatic encryption.

IRS officials were told of the breach “a few days ago,” Koskinen’s message said.

The Social Security numbers, names and addresses of employees and contract workers were potentially accessible online because the thumb drive was plugged into the employee’s “unsecure home network,” Koskinen’s message said.

The IRS said it had no knowledge of the information being used to commit identity theft.

Inspector General
The IRS said it’s working with its inspector general to investigate the incident. The IRS statement didn’t say why the incident was discovered now, didn’t include the name of the employee who used the thumb drive and didn’t say whether the employee still works at the IRS.

David Barnes, a spokesman for the inspector general’s office, declined to comment.
House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, said in a statement that the IRS in the past has released taxpayer information to the public and “has not been able to effectively prevent and detect identity theft.” He said the committee will look into the incident.

The IRS’s data breach is much narrower in scope than the security incident at Target Corp., where hackers stole credit- card information used by millions of shoppers.

It comes during a trying year for the tax agency, which has been under congressional investigation for its spending at conferences and its scrutiny of small-government groups.

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CFO Confidence in U.S. Economy at 2-Year High

BY MICHAEL COHN

U.S. CFOs’ confidence in the U.S. economy increased more than 10 percent in the first quarter of the year, reaching a two-year high, according to a new survey by Financial Executives International and Baruch College’s Zicklin School of Business.

The quarterly FEI/Baruch CFO Outlook survey found that U.S. CFOs remain concerned about health care costs, the global economy and the future of the Eurozone. Revenue growth, competition and regulatory issues rank among their top business challenges.

CFOs are considerably more confident now than they were toward the end of 2013. U.S. CFOs’ optimism about the U.S. economy saw the biggest improvement, reflected by 10 percent growth in the quarterly optimism index, rising nearly 6 percentage points to 62.0 from 56.2 in the previous quarter.

The index for U.S. CFOs toward their own businesses increased 2 points to 67.7 from 65.1 in the previous quarter. Respondents anticipate a 17 percent increase in net earnings over the next 12 months, offset by the 11 percent increase they expect in health care costs.

CFOs also expect a 10 percent increase in both technology spending and revenue. Businesses are making plans for more capital investment, anticipating an 8 percent increase in capital spending compared to their projections for a 2 percent increase in the previous quarter. However, revenue growth topped CFOs’ list of business challenges for 2014 (38 percent selected this as their first choice), followed by competition (19 percent) and regulatory issues (15 percent).

Among their broader economic worries, nearly one-third of CFOs (32 percent) rated government regulation as their first choice concern and close to a quarter (23 percent) saw health care costs as a top concern.

In the past six months, companies experienced, on average, a 7 percent increase in related costs as a result of the Patient Protection and Affordable Care Act. A 60 percent majority of CFOs anticipate that the new health care regulations will affect their company’s insurance coverage, mainly through an increase in employee co-pays.

By and large, CFOs did not indicate they have been heavily affected by President Obama’s executive order on the U.S. minimum wage. When asked about their potential actions should Congress raise the minimum wage to $10.10 per hour, a two-thirds majority of respondents (67 percent) said it would not affect their hiring decisions appreciably. Nineteen percent said they would hire fewer employees, while 16 percent said they would look for new ways to outsource low-skill jobs.

When asked which of the President’s State of the Union proposals Congress should pass in 2014, the majority of CFOs (72 percent) favored a tax reform that lowers rates for U.S. corporations, but closes loopholes, especially for those using off-shore tax havens. Action by Congress to pass legislation that protects companies and inventors against patent trolls was also recommended by 60 percent of respondents.

Looking beyond domestic conditions, U.S. CFOs’ confidence in the global economy remains steady, raising the index less than half a point to 54.6 (from 54.3 in the previous quarter).

However, with increasing turmoil in several European countries in the past month, especially Ukraine, CFOs sustained their concern over the future of the Eurozone. When asked to rate their concern on a scale of one (not concerned) to five (very concerned), this quarter more than half of all U.S. CFOs (70 percent) selected a “three or higher.” In addition, over a quarter (27 percent) of respondents do not anticipate a recovery of the European economy will begin before 2015.

Twenty-eight percent of CFOs believe northern Europe is in the midst of a recovery, but southern Europe is not, compared with only 15 percent who believe the entire Eurozone is already in the midst of a recovery.

“Optimism regarding the U.S. economy is the highest our survey has seen in two years, and despite some challenges, CFOs have a positive outlook for their growth opportunities for 2014,” said Linda Allen, professor of economics and finance at Baruch’s Zicklin School of Business. “In contrast to the dramatic increase in optimism regarding the U.S. economy, however, CFOs’ outlook for the global economy is relatively stagnant, reflecting economic uncertainty and political unrest in many regions abroad.  CFO sentiment towards the economic recovery of the Eurozone in particular has been slow to pick up, but has been gradually gaining traction over the past two years.”

The survey also polled CFOs on their hiring plans, the President’s State of the Union proposals, inflation, interest rates and the threat of cyber-attacks.

CFOs remain optimistic about the outlook for the workforce. On average, respondents expect the U.S. unemployment rate will remain steady, continuing to average around 6.6 percent one year from now. More than half (55 percent) believe that wage levels are on the rise and a comparable percentage (59 percent) are planning to hire additional employees at their company during the first half of 2014.

As in previous quarters, respondents are most commonly seeking experienced consultants, entry-level college graduates and skilled technical workers for their workforce.

The majority of U.S. CFOs (78 percent) are currently taking steps to retain their talent, mainly through training and development (61 percent), compensation (59 percent) and team building (55 percent).

“U.S. CFOs’ outlook and concerns about employment has always been a central part of our polling, and the trends in this quarter’s results are indicative of the progress in broader U.S. economic growth,” said FEI president and CEO Marie N. Hollein. “While the unemployment rate has eased, and CFOs continue to report on plans to hire and retain talent, more U.S. CFOs see healthcare costs as one of their top business concerns. Given CFOs’ expectations of continued increases in health care costs, we continue to believe this will be one of the closely watched areas for American businesses.”

Among the other findings from the survey, one year from now, the majority of CFOs anticipate the inflation rate will increase to 2.57. Respondents remain only moderately concerned about inflation, with 46 percent of respondents rating their concern at a level “three or higher” on a scale of one to five. Over a third (38 percent) think that tapering will increase inflation, while 55 percent believe inflation will not change as a result of tapering. Only 8 percent of respondents believed the result would be lower inflation.

Nearly all of the U.S. CFOs surveyed expect interest rates to be higher over the next year. On average, respondents to the survey expect interest rates to increase by less than one percent (0.76 percent) over the next six months, and increase by 1.36 percent one year from now.

The percentage of CFOs concerned about interest rates increased slightly from last quarter, with 31 percent rating their concern at four through five on a scale of one to five, compared with 28 percent of CFOs rating their concern at these levels in the previous quarter.

U.S. CFOs stated they are most commonly accessing capital from banks (54 percent). On average, respondents’ companies currently hold 12 percent of assets in cash. With regards to the capitalization or capital structure, on average, 54 percent of company balance sheets are comprised of equity and 29 percent of long-term debt obligations.

Forty-two percent of CFOs reported they are spending cautiously compared to 31 percent who are making ambitious investments in capital expenditures. More than two thirds of those making capital expenditures are focusing on technology (71 percent).

Three-quarters of the CFOs polled revealed they are currently taking steps to protect against cyber-attacks, most notably upgrading security software and/or encryption protections (71 percent) and establishing off-site backup systems/plans (67 percent).

Given the increased number of major companies and organizations that have faced cyber-attacks, 67 percent of CFOs are considering increasing their budgets toward improving cyber security. Nearly one-fifth of respondents (19 percent) reported experiencing a cyber-attack in the last year.

Approximately half of those attacks (48 percent) came from foreign sources. However, the majority of the incidents (61 percent) were categorized as “not at all severe” or “moderately severe” and only 4 percent involved a data breach. Furthermore, none of the attacks reported by respondents lasted for more than several hours or several days.

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