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This Week in the iNews:

▲ LUNCH & LEARN SERIES – MICHIGAN BUSINESS TAX

▲ TAX STRATEGY: TAX PLANNING IN A TROUBLED ECONOMY

▲ FOCUS ON FRAUD:  2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE, ACFE – PART 2

▲  First Lunch & Learn Series –  Thursday, August 21, 2008

            Michigan Business Tax – Presented by Tom Jeakle

Please join us for the first series of our lunch and learn program at noon on Thursday, August 21, 2008 in the Prangley Marks, LLP lunch/conference room.

Topics to be discussed:

·         The Michigan Business Tax (MBT) that applies to all business activity occurring after December 31, 2007.

·          MBT is a combination business income tax and modified gross receipts tax with a significant number of credits.

·         Several new credits reward Michigan employment and investments.

This "Lunch and Learn" will cover both parts of the tax as well as all the credits and the small business credit provisions.

Nexus, apportionment and unitary filing provisions designed to extend the reach of the tax beyond Michigan boarders will also be discussed.

Please contact Michelle Ripley at mripley@pmcpa.com for your reservation by Tuesday August 19^th.  

Don’t miss out!

▲ Tax Strategy: Tax Planning in a Troubled Economy

One of the advantages of the complexity brought on by social engineering in the Tax Code is that, when personal circumstances change and times get rough, there are usually some provisions in the code that come into play to provide a bit of tax relief. There are new or existing tax provisions that might be applicable to a particular taxpayer for the first time.

Real Estate

Congress was fairly quick to provide relief from taxation of forgiveness-of-debt income in connection with foreclosures on a principal residence. Taxpayers need to be carefully advised, however, as to how best to negotiate with the lender to take maximum advantage of the forgiveness-of-debt exception. The new law can apply both to mortgage foreclosures and mortgage workouts, but only within certain parameters. A reduction in interest rates, rather than a reduction in principal due, is not a forgiveness of debt and will not engage the new exclusion. Some lenders may be reluctant to immediately forgive debt in excess of the proceeds from a foreclosure sale unless required to do so by state law. Under some foreclosure sales or short sales (sales for less than the mortgage indebtedness with the permission of the lender), it may be difficult to determine the amount of basis reduction.

High Cost of Energy

Gas prices are causing many taxpayers to give up the SUV or even, for the first time, to take public transportation to work as a matter of course. Shifting to a hybrid vehicle, or even a natural gas vehicle, can engage some tax credits under the Tax Code. Taxpayers must be careful here as well, however. The tax credits for some successful hybrid vehicles, such as the Toyota models, have already expired, and others are in the process of phasing out. The amount of the credit also varies with the particular energy-saving characteristics of a particular hybrid model and year.

If the high cost of energy is hitting at home as well, tax credits are available for home solar and fuel cell installations, and the credit for installations of energy-saving exterior materials and interior systems may be renewed by Congress this year as well.

Getting Access to Cash

There are tax considerations that could also come into play in determining the best source of cash.  Home equity lines of credit are tax-favored for allowing interest deductions for up to $100,000 of principal, but banks are being pretty tight with their equity lending right now as housing prices decline.

A loan or hardship withdrawal from a 401(k) plan may also be a possibility, but the taxpayer may not qualify for a hardship withdrawal and the employer may not offer plan loans.  Also, the taxpayer should be advised that, if the employment relationship is terminated and any plan loans are not repaid, the unrepaid amount is considered a taxable distribution that may also involve early-withdrawal penalties.

IRAs can also be tapped for penalty-free funds if for a specific purpose, such as health insurance while unemployed, education expenses or first-

time home purchases.  These distributions, like 401(k) hardship withdrawals, can be penalty-free, but they are not tax-free. Distributions from Roth IRAs may present a better option since, if the conditions are satisfied, distributions can be tax-free up to the amount contributed to the Roth IRA.

Even if the taxpayer does not have a specific qualified reason for a withdrawal but still needs the cash, it may be possible to structure penalty-free withdrawals that are part of a program of regular periodic distributions from an IRA for five years or until the taxpayer reaches 59-1/2, whichever is later. All of these options, of course, should be considered as a last resort, since even tax-free or penalty-free withdrawals come with a significant cost -- loss of further tax-deferred or tax-free earnings on those funds and loss of a source of retirement income.

If there are any appreciated stocks remaining in the investment portfolio, another source of cash might be to sell some of those investments and realize a tax of only 15 percent for the top brackets and no tax if in the bottom two tax brackets (i.e., a 2008 taxable income of up to $32,550 for single filers and $65,100 for joint filers). Even if the taxpayer is not the one in need but has a family member, other than a dependent child, whom they would like to help out, it might be possible to gift appreciated property to the family member and have the family member sell the assets and qualify for the zero percent tax rate.

Many tax commentators are worried that these low capital gain rates might not be around for too much longer. They are already set to expire after 2010, and if the Democrats get control of the White House and increase their control in the Senate, it is possible that capital gain rates could go up even sooner, perhaps in 2009. Selling appreciated capital assets in 2008 might make sense, therefore, even aside from the need for the cash.

Summary

We can use the relationships with our clients to help you prepare for the best possible tax situation well before it's time to prepare your tax return. We can help you deal with troubled economic times by advising you of tax-favored strategies that might help you through the crisis. Consulting with you as early in the year as possible will help you take maximum advantage of many of these strategies

▲FOCUS ON FRAUD:  2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE, ACFE

This study is based on data compiled from 959 cases of occupational fraud that were investigated between January 2006 and February 2008.  All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases.

 Executive Summary – Part 2

The most common fraud schemes were corruption occurring in 27% of the reported cases and then fraudulent billing schemes in 24%.  These are two of the eleven distinct categories of occupational fraud and financial statement fraud a median loss of $2 million of the 99 reported financial misstatements in the Report. 

• Occupational frauds are much more likely to be detected by a tip rather than by audits, controls or any other means.  This being in the wake of Sarbanes-Oxely and mandated consideration of fraud in financial statement audits due to SAS 99.  Forty-six percent of the cases in this Report were detected by tips from employees, customers, vendors, and other sources.  Tips were also the most common means of detection in the previous 2002, 2004 and 2006 Reports.
• The implementation of anti-fraud controls does appear to have a measurable impact on an organization’s exposure to fraud.  With 15 specific anti-fraud controls the median losses were measured in the reported victim organizations whether or not the given controls were present at the time of the fraud.  In every comparison, there were significantly lower losses when the controls had been previously implemented.  Reported on controls include surprise audits, anonymous tip hotlines, offered employee support programs, provided fraud training for managers, and the presence of internal audit or  fraud examination departments,

 Next time:

Executive Summary – Part 3 Industries impacted; Small businesses most impacted; Internal controls