Trust Fraud Update: In our November 2000 Tax Alert, we noted that a Miami judge had authorized the I.R.S. to examine the banking records of tens of thousands of Americans with offshore accounts in the Caribbean, and that taxpayers would not only be responsible for taxes, interest and penalties on the earnings, but could also face criminal charges if the I.R.S. is able to prove such an account is used to avoid taxes. Since then, dozens of people have received stiff prison sentences and fines as a result of the IRS crackdown on tax evasion schemes involving income hidden through trusts that often use offshore bank accounts, including a Michigan dentist who received a 27 month prison sentence and a California accountant who received an 87 month sentence. The IRS Criminal Investigation Division is currently working on approximately 127 abusive trust cases, which they believe to be only the beginning of their investigations.
 

If you may need assistance in amending prior year returns please contact our office.
 

Annual Sales Tax Registration repealed: The Florida Legislature has repealed the annual registration requirements for taxpayers required to collect sales tax. Therefore, no registration form or fee is required.
 

Sales Tax Resale Certificates required: The 2000 Annual Resale Certificates, Form DR-13, expired on December 31. If you are currently registered with the Department of Revenue Sales Tax Department, you should receive your new annual resale certificate inside your sales tax coupon booklet or with your annual sales tax return if you pay sales tax on an annual basis. You should provide a signed copy of your annual resale certificate to your vendors if you are purchasing materials or goods for resale. If you are a selling dealer, you should obtain a signed copy of your customers' annual resale certificate if the customer is purchasing the materials or goods for resale. In both cases, a copy of the annual resale certificate should be made and then signed by the certificate holder. Prior years certificates should be retained and should not be discarded.
 

1099's due January 31st: Form 1099-MISC, Miscellaneous Income, must be filed with respect to nonemployee compensation of $600 or more for the year, as well as other monies paid to third parties other than corporations. The $600 threshold includes all payments to the third party, including expenses incurred by the third party which you may have reimbursed to them. A relatively new law requires that all amounts paid for services to attorneys, whether or not they are incorporated, must be included on Form 1099. All 1099's must be provided to the payee by January 31, 2001, with the original red forms filed with the I.R.S. by February 28, 2001.

There is a three tier system of penalties with respect to 1099's: a $100 penalty per payee for whom a required 1099 is not filed, a $50 penalty per incidence of incorrect information reported on each 1099, and a $50 penalty per missing tax identification number.

More important than these penalties, however, is that the payor is liable for backup withholding on all amounts reportable to each payee where the payee fails to furnish his/her taxpayer identification number, where the IRS has notified the payor that the tax identification number is incorrect, or where the IRS has notified the payor that the payee is subject to backup withholding. In such an event, if backup withholding has not been withheld from payments made to the payee, the payor is liable for the backup withholding at the rate of 31% of the amount paid to such a payee. Penalties and interest may be imposed on top of this.

Penalties for intentional disregard of the filing requirements may be even more severe.

For these reasons, this is also a reminder that it is a good time to check that you have a completed and signed Form W-9 on file from each of your subcontractors including their name, address and social security number (FEIN in the case of attorneys' corporation).
 

New Form W-4 for the year 2001: Form W-4, Employee's Withholding Allowance Certificate, should be completed by each employee for 2001 as their tax situation may have changed. Changes frequently occur to an employee's status that will need to be changed, such as address, marital status, number of dependents, and last name. Additionally there may be other changes that should be reflected in the employee's withholding.