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iNEWS.....What You Need to Know, Right Now!

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This Week in the iNews:

▲ LUNCH & LEARN SERIES – MICHIGAN BUSINESS TAX

▲ FAILED TAX SHELTER STRATEGY 

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

▲  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  or at (616) 774-9004 for your reservation by Tuesday August 19^th.  

Seating is limited. Don’t miss out!

▲ Failed Tax Shelter Strategy - 101 605  113 605  115 605 Transactions to Inflate Basis of Corporate Stock Using Foreign Currency Options Lacked Economic Substance (Stobie Creek Investments, LLC, FedCl)

This recent court case is a reminder that not all tax savings strategies actually work.  Even though promoted by a law firm, and technically correct, it failed because it lacked economic substance.

A series of transactions entered into to increase the basis of family-owned corporate stock and reduce the capital gain upon the stock’s sale, while in compliance with the literal terms of the tax code, lacked economic substance. The transactions (a “Son of BOSS”-type tax shelter), were undertaken pursuant to a tax strategy that was promoted by a law firm and referred to as Basis Enhancing Derivatives Structures (“BEDS”).

In the transactions, the family members established separate single-member LLCs, each of which entered into Foreign Exchange Digital Options Transactions (FXDOTs), whereby they simultaneously purchased foreign currency digital long options and sold foreign currency digital short options involving the dollar/euro and the Swiss franc/dollar. Long option premiums paid were netted against the short option premiums to be paid by a bank, resulting in a net premium to be paid by each LLC.

The court examined the FXDOT transactions and t LK:NON: USTCLINK 2006-2USTCP50389 he court found that, from an objective viewpoint, the FXDOT transactions lacked economic reality and were not motivated by a business purpose.

Substantial penalties were imposed as a consequence of the transactions being disregarded for tax purposes.

Please talk to us first, before you get involved in any similar transaction that appears to be too good to be true.

▲FOCUS ON FRAUD:  2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE, ACFE, Part 3

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 3

• The Report includes frauds that impacted organizations in many different industries, with the most common victimized being banking and financial services at 15% of the reported cases, government at 12% and healthcare at 8%.  Among industries with at least 50 reported cases, the largest median losses were in manufacturing with $441,000, banking at $250,000 and insurance at $216,000.

• Small businesses are especially vulnerable to occupational fraud.  The median loss suffered by organizations with less then 100 employees was $200,000.  This was higher than the median for any other category, including the largest organizations.  Small businesses were also the loss leader in the 2006 Report to the Nation study.  The most common fraud schemes were check tampering and fraudulent billing.
• Lack of internal controls was most commonly cited as the factor that allowed the fraud to occur.  Thirty five of the respondents cited inadequate internal controls as a primary contributing factor in the frauds being investigated.  Lack of management review and override of existing controls were each cited by 17% of the respondents.
• Seventy-eight percent of victim organizations modified their anti-fraud controls after discovering that they had been defrauded.  The most common change was to conduct management review of internal controls which occurred in 56% of the cases reported.  Next most common was implement surprise audits, followed by fraud training for managers and employees.

 Next time:

Executive Summary – Part 4 The Perpetrators