Alert Your Employer/Clients * Payroll service theft no excuse

While the facts of this case may sound far out, the point it makes is immediate and important.

K Inc., a C corp, used a payroll service. K sent the service funds to pay employment taxes via EFT and the service’s bank deposited them with the IRS. In 2009, K discovered its payroll tax deposits had been embezzled by either the service or its bank as early as 2007, so it filed a crime report in 2011. K paid the overdue taxes but challenged the IRS penalties for failure to pay them.

Held: For the IRS. The taxpayer claimed it did all it could to comply with its responsibilities: it made funds available and transferred them on time. The taxpayer had used the same service for decades without any problems and could not anticipate that money would be stolen. Penalties for late filing or payment of employment taxes can be waived for reasonable cause if there is not willful neglect. But a taxpayer must demonstrate that it could not meet the deadline despite exercising ordinary business care and prudence. There is an unambiguous duty to file returns and pay the taxes. This duty cannot be avoided by claiming reliance on an employee, agent or

Penalties for late filing or payment of employment taxes can be waived for reasonable cause if there is not willful neglect. But a taxpayer must demonstrate that it could not meet the deadline despite exercising ordinary business care and prudence. There is an unambiguous duty to file returns and pay the taxes. This duty cannot be avoided by claiming reliance on an employee, agent or another person, no matter how reasonable it was to assume that person would fulfill the responsibilities.

The court said that relying on a person to perform these duties is different from relying on a tax pro’s advice. Taxpayers cannot escape this responsibility to file returns and pay taxes by delegating it. This taxpayer retained oversight and supervision of the payroll service’s work and was responsible for seeing that the service fulfilled its duties. [Kimdun Inc. v.

[Kimdun Inc. v. United States, Nos. 2:16-cv-01500, 2:16-cv-01558, 2:16-cv-01766, 2:16-cv-02160; C.D. Calif.]

Poll 2016

SEC Whistleblower Program Surpasses $100 Million in Awards


Washington D.C., Aug. 30, 2016

The Securities and Exchange Commission’s awards to whistleblowers have surpassed the $100 million mark with the program’s second-largest award of more than $22 million announced earlier today.

The whistleblower program was established by Congress to incentivize whistleblowers with specific, timely and credible information about federal securities law violations to report to the SEC. To date, enforcement actions resulting from whistleblower tips have resulted in orders for more than $500 million in financial remedies, much of which has been returned to harmed investors.

“The SEC’s whistleblower program has proven to be a game changer for the agency in its short time of existence, providing a source of valuable information to the SEC to further its mission of protecting investors while providing whistleblowers with protections and financial rewards,” said Mary Jo White, Chair of the SEC.

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions ordered exceed $1 million. The SEC paid its first award in 2012, just over a year after its Office of the Whistleblower opened for business.

“The SEC whistleblower program has had a transformative impact on the agency, enabling us to bring high-quality enforcement cases quicker using fewer resources,” said Andrew Ceresney, Director of the SEC Division of Enforcement. “The ultimate goal of our whistleblower program is to deter securities violations and paying more than $100 million in whistleblower awards demonstrates the value that whistleblowers have added to our enforcement program.”

Since the program’s inception:

  • The Whistleblower Office has received more than 14,000 whistleblower tips from individuals in all 50 states and the District of Columbia and 95 foreign countries.
    • Tips from whistleblowers have increased from 3,001 in the fiscal year 2012 – the first full fiscal year that the Whistleblower Office was in operation – to nearly 4,000 last year, an approximately 30 percent increase.
  • More than $107 million has been awarded to 33 whistleblowers, with the largest being more than $30 million. (see Top Ten list)
  • Because of the information and assistance provided by these whistleblowers, the SEC was able to bring successful enforcement actions where more than $504 million was ordered in sanctions, including more than $346 million in disgorgement and interest to harmed investors.
  • The SEC also has brought actions to ensure that employees feel secure in reporting wrongdoing to the SEC, without fear of reprisal from their employers, including one enforcement action under the anti-retaliation provisions of the Dodd-Frank Act and four actions against companies for including language in confidentiality and severance agreements that impeded whistleblowers from reporting to the SEC.
    • In addition, the Commission announced its first award – a maximum payment of 30 percent of amounts collected – to a whistleblower who suffered retaliation as a result of reporting to the Commission.
  • The Whistleblower Office has returned over 13,000 phone calls from members of the public through the whistleblower hotline.

“This is a watershed moment for the SEC’s whistleblower program,” said Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower. “The SEC has issued more than $100 million in whistleblower awards in five years, demonstrating the invaluable information and assistance whistleblowers have provided to the agency and underscoring the program’s resounding success.”

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

For more information about the whistleblower program and how to report a

Credit Suisse Paying $90 Million Penalty for Misrepresenting Performance Metric

The Securities and Exchange Commission today announced that Credit Suisse AG has agreed to pay a $90 million penalty and admit wrongdoing to settle charges that it misrepresented how it determined a key performance metric of its wealth management business.

A former executive agreed to settle charges that he was a cause of Credit Suisse’s violations.

A SEC investigation found that Credit Suisse veered from its publicly disclosed methodology for determining net new assets (NNA), a metric valued by investors in financial institutions to measure success in attracting new business.  Disclosures stated that Credit Suisse was individually assessing assets based on each client’s intentions and objectives.  But Credit Suisse at times instead took an undisclosed results-driven approach to determining NNA in order to meet certain targets established by senior management.

According to the SEC’s orders, Rolf Bögli, who served as a chief operating officer of the firm’s private banking division, pressured employees to classify certain high net worth and ultra-high net worth client assets as NNA despite concerns raised by employees most knowledgeable about a particular client’s intent.

“Credit Suisse conveyed to the investing community that it followed a structured process for recognizing net new assets when, in fact, the process was reverse-engineered to meet targets,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Credit Suisse’s failure to disclose this results-driven approach deprived investors of the opportunity to fairly judge the firm’s success in attracting new money.”

The SEC’s orders find that Credit Suisse violated Section 17(a)(2) and (3) of the Securities Act of 1933 and Section 13(a) and (b)(2)(A) of the Securities Exchange Act of 1934 and Rules 13a-1, 13a-16, and 12b-20.  Bögli neither admitted nor denied the SEC’s findings that he was a cause of certain Credit Suisse violations.  Bögli agreed to pay an $80,000 penalty.

The SEC’s investigation was conducted by Matthew R. Estabrook and David S. Karp and supervised by Scott W. Friestad and Laura B. Josephs.  The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority.

Self-employed health deduction

The IRS allows self-employed to deduct health insurance premiums from gross income in calculating Adjusted Gross Income (AGI). This not only reduces taxable income, it also lowers the floor amount for certain itemized deductions, allowing more expense deductions.

There are limits on the premiums you can deduct. The simplest limit is the earned income (net profit) from your business calculated on Sched. C, line 31. For example, if net profit was $10,000, you can’t deduct $10,500 in health premiums. The second limit is for those who obtained health insurance in the “Marketplace.” These taxpayers must reduce the health premiums deduction by premiums not paid by the taxpayer but by the Marketplace or that were refunded on the tax return.

If the Marketplace made any Advanced Premium Tax Credit payments during periods of self-employment, you must complete Worksheet W (IRS Pub. 974). Limits on the reduction to the premiums are calculated using modified AGI, which requires completing Worksheet X, and a worksheet in IRS Pub. 974, and filing Form 8962, which yields the health premium tax credit. Confused? Many tax preparation programs do the calculations for you. Or, you can use a tax pro.

Source: C. Novak and L. Corbisier, “Self-Employed Taxpayers,” TaxPro Monthly, March 2016, Natl. Assn. of Tax Professionals, W6390 Quality Drive, Greenville, WI 54942-8015.


State 2016 W-2 Deadlines

States act to avoid tax fraud.

To cut down on tax fraud, some states have adopted the new federal deadline of Jan. 31 for W-2s some 1099-MISCs. As of September 2016 the following states, DC and Puerto Rico adopt the Jan. 31 deadline for W-2s and/or annual reconciliation returns: AL, IA, MD, OR, VT, CT, ID, MS, PA, WI, DC, IN, NC, SC, Puerto Rico, DE, KY, ND, UT, GA, LA, OH, VA.

NB’s new deadline is Feb 1, and for the tax year 2017 (filed in 2018), MO will have a Jan. 31 deadlines.

To further protect personal data, the IRS lets you truncate employee SSNs (e.g., XXX-XX-9999) on employee copies of the W-2. However, the IRS has not issued regs, so it is unclear whether truncation will be permitted for 2016 W-2s (furnished to employees in 2017).

But even if IRS regs are issued, some state or local tax authorities may require the full SSNs on employee copies of the W-2. It may take time for state and local jurisdictions to change their laws, regs, forms and instructions. Even then, some states may prefer that the full SSN be shown.

Final regs on marital status issued

IRS final regs defining marital status in the tax code are effective Sept. 2, 2016. They contain few changes from the proposed regs issued in Oct. 2015.

The proposed regs said a marriage of two individuals is recognized for federal tax purposes if it is recognized by any state, possession, or U.S. territory. The final regs establish a separate rule for domestic v. foreign marriages.

Domestic marriages are unchanged from the proposed regs and are unaffected by where a couple lives (i.e., they now live in a state that does not recognize same-sex marriages).

A couple married under another country’s laws are married for federal tax purposes if the marriage would be recognized as a marriage under the laws of at least one state, possession or U.S. territory.

Unchanged from the proposed regs is that domestic partnerships and similar arrangements that are not marriages under state law are not considered marriages under the tax code. The changes ensure that only couples in a “marriage” and not divorced are treated as married. The IRS intends to try to use the term “spouse” instead of “husband” and “wife.” [T.D. 9785]