October 22, 2017 630-250-5700rcolombik@colombik.com

Small Business Benefits From Retirement Plan Changes

RICHARD M. COLOMBIK

JD, CPA

RICHARD M. COLOMBIK & ASSOCIATES, P.C.

The Small Business Jobs Protection Act of 1996, TL 104-188, 8/20/96, should have a beneficial effect for small businesses, employers, employees and even family members.

One of the problems in small business retirement plans was that if more than one family member was employed, generally the earnings of both family members would be aggregated to reduce retirement benefits.  For years beginning after December 31st, 1996, the Act eliminates the family aggregation rules.  This would generally allow  larger contributions for highly compensated owner-employees of small businesses.

An additional perk is the elimination of the aggregation rules also now excludes aggregating unincorported businesses with incorporated businesses.  This will allow a owner of one corporation to set up an unincorporated business and provide more beneficial coverage under one plan or the other and cover fewer employees.  This also affects years beginning after December 31st, 1996.  Prior to this change, both  unincorporated and the incorporated business would be aggregated together so that similar benefits would have to be offered to both entities.  This could allow an owner-employee to only have himself and family members in one entity, and provide generous benefits, while the other entity could have nominal or no benefits.

Changes have also occurred relative to 401(k) Plans.  401(k) Plans contain non-discrimination tests that limit the amount that highly-compensated employees can contribute in relationship to how much the non-highly-compensated employees contribute.  For years beginning after 1998, safe harbors which would allow a company to make a contribution of 3% of the compensation for each eligible participant, or matching employees? contributions 100% up to 3% of their compensation and 50% from 3% to 5% would allow the highly-compensated employees to contribute the maximum to the plan.  Currently, the maximum contributions for highly-compensated are limited based upon the other employees contributing to the plan.

The new acronym ?SIMPLE? Savings Incentive Match Plan for Employees will be available for years beginning after December 31st, 1996, for employers with one hundred or fewer employees earning at least $5,000.00 in compensation.  The purpose of the ?SIMPLE? Plan is to allow highly-compensated employees to contribute maximum amounts with specified rules both covering non-highly-compensated employees and highly-compensated employees.

For complete analysis of the new tax legislation, please feel free to contact our office for our brochure analyzing the new tax law.

COLOMBIK?S LATE BREAKING TAX TIPS

HOT CLUB COOLS OFF IRS

In Marlar, Inc. v. United States, 70 Aftr. 2d. 96-6046, an adult entertainment club owner

was granted a refund of Employment Taxes pursuant to the Safe Harbor Provision, Section 530 regarding independent contractors versus employees.  The club owner alleged that the dancers hired by the club were, in fact, lessees who paid rent to the club owner for reduced shifts and did not receive wages.  They did receive money paid for the drinks, as well as tips that they earned.  Evidence was introduced to show that a substantial segment of the adult entertainment industry treated dancers as lessees.  Therefore, summary judgment was granted that the club fell within the Safe Harbor and the dancers were not employees.

DOCTOR CAN?T CLAIM HE FORGOT

In Korshin vs. Commissioner, 78 Aftr. 2d. 96-6056, an anesthesiologist had not filed tax returns or paid his income tax for six consecutive years.  The doctor came under criminal investigation for his failure to file and he then filed his income tax.  The government asserted negligence penalties for the failure to file and pay.  The doctor asserted that he believed his deductible expenses would exceed his income and, therefore, the IRS would bill him for his debt.  The court determined that this belief was not reasonable and did not rebut the determination of negligence.

1099?S TO INCLUDE PHONE NUMBER

The Taxpayer Bill of Rights requires payee?s statements, 1099, 1098, W2-G, etc., to include a phone number to provide access to a person who can answer questions about the statement.  The new requirement applies to payee statements due by January 31st, 1997.  Because the requirement was enacted after the 1996 information returns were printed, the IRS is waiving penalties that would otherwise apply for failure to include a phone number.  The waiver only applies if the return filer includes the phone number on the next statement required to be filed, generally, 1997, due in 1998.

TAXPAYER LOSES FOR RELYING ON IRS

In Elgart & Glassman vs. Commissioner, TCM 379,  a Tax Court petition was dismissed because it was not timely filed.  That, in and of itself, does not make one take notice.  What occurred, however, is the taxpayers requested the IRS to inform them what was the last date they could file their Tax Court petition and still have it be ?timely filed?.  The IRS on two occasions informed the taxpayers that the final date for filing was March 14th, 1996.  The taxpayers filed their petition by U. S. Mail on March 14th, 1996.  The IRS moved to dismiss the case because the actual deadline for filing was March 13th, 1996.

The court noted that the IRS cannot waive jurisdictional requirements and jurisdiction cannot be established by estoppel.  Therefore, even though the taxpayer relied on IRS employees, the Tax Court was without jurisdiction to hear the case.

The moral of the story, contact your tax lawyer and have your tax lawyer determine when your petition is due.  If your attorney errs, you may have recourse.  If the IRS errs  in many cases, you don?t.

ABOUT THE AUTHOR

      Richard M. Colombik is a tax partner in the Des Plaines headquartered firm of Richard M. Colombik & Associates, P.C.  Mr. Colombik concentrates his practice on IRS Tax Defense, Estate Planning and Asset Protection Plans for individuals as well as corporate clients.  He received his B.S. Degree in Business from the University of Colorado and his J.D., Cum Laude, from the John Marshall Law School.  He is also a Certified Public Accountant.  Mr. Colombik has spoken at numerous engagements and is a well publicized author regarding Income Tax, Estate Tax and Asset Protection Planning.  He is currently a member of the Illinois State Bar Association?s Trust and Estate Section Council, an officer in the Northwest Suburban Bar Association and the American Association of Attorney CPAs, as well as a member in the Offshore Institute and the State Bar?s liaison to the Internal Revenue Service and the past Chair of the ISBA Federal Taxation Section Council.

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