Tax Lawyers Minneapolis

Form 941 Filing Requirements

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With the Federal government searching for much-needed revenues, it is very likely that the IRS will be watching much more closely for unpaid payroll taxes, as it has been in recent years.  This article will explain the purpose of Form 941 and when it needs to be filed.  In a future article, we will cover the penalties related to this form, which can be severe.

Purpose of Form 941

Employers are required under Federal law to withhold necessary amounts of federal income tax as well as Social Security and Medicare taxes from their employees’ paychecks, and to pay any portion of the employer’s liability for Social Security and Medicare taxes (this portion is not withheld from employees).  Whenever an employer pays wages, the required amounts must be withheld. In addition to the items mentioned above, in general, Form 941 needs to be filed to report tips received by employees, current quarter’s adjustments to Social Security and Medicare taxes (for fractions of cents, sick pay, tips, and group-term life insurance), and credit for COBRA premium assistance payments.

Certain exceptions may apply to the filing requirements.  For instance, seasonal employers may not need to file Form 941 for certain quarters if they have not paid wages during that time.  (Line 19 of the form should be checked, however, for every quarter that such employers do file, in order to properly notify the IRS of this exception).  Employers of household and farm employees also usually do not need to file the form (instead, Form 943 “Employer’s Annual Federal Tax Return for Agricultural Employees” may need to be filed for farm employees).

When Form 941 Must be Filed

In general, Form 941 should first be filed in the quarter for which an employer has initially paid wages subject to Social Security, Medicare and/or Federal income tax withholding.  Form 941 is required to be filed by the last day of the month following the end of the quarter.

Specifically, Form 941 is due April 30th for quarters ending March 31 (i.e. quarters that consist of January, February, and March), July 31st for quarters ending June 30th (i.e. quarters including April, May, and June), October 31st  for quarters ending September 30th (quarters including July, August, and September), and January 31st for quarters ending December 31st (quarters including  October, November, and December).  In other words, employers must generally report wages paid during a quarter by the required due dates.  (If a due date falls on a Saturday, Sunday, or legal holiday, employers may file on the next business day).  If timely deposits have been made in full payment of required taxes owed for a quarter, an employer has 10 more days after the due dates listed above to file Form 941.

For forms received after the due date, the IRS will treat Form 941 as being filed when the form is actually received, unless certain conditions are met (such as a Form 941 postmarked by the US Postal Service on or before the due date in a properly addressed envelope with sufficient postage, or one sent by an IRS-designated private delivery service on or before the due date).

Once the initial Form 941 is filed by an employer, the form must be then filed for every following quarter (subject to certain exceptions, including those explained above).

Contact Sherayzen Law Office for Legal Help With Form 941

If your business has not filed the required Forms 941 or you have not paid the payroll taxes to the IRS, contact Sherayzen Law Office for help.  Our experienced tax firm will work hard to protect your business against the IRS and will strive to achieve the most beneficial resolution of your case possible.   Attorney Sherayzen will also help you if you facing criminal charges due to your non-payment of taxes.

Tax Effect of a Complete Liquidation of a Corporation on Its Shareholders

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The tax effects to shareholders of liquidating a corporation are largely governed by IRC Sections 331, 332 (liquidations of subsidiaries) and 338 (dealing with certain stock purchases treated as asset acquisitions). This article will examine only the general tax rule found in Section 331 (keep in mind that there are numerous exceptions and variations depending on your particular tax situation).

In the case of distributions in a complete liquidation of a corporation, IRC Section 331(a) provides that amounts (or assets) received by shareholders shall be treated as “full payment in exchange for the stock”. In other words, these amounts (or assets) are deemed as a sale or exchange of assets distributed in return for stock. Therefore, the shareholders will need to recognize gain or loss on the difference between the fair market value of the asset distributed to them and the adjusted basis of the stock that they surrendered.

IRC Section 1101 is the general rule for the amount of gain or loss to be recognized. Pursuant to that section, if the stock is a capital asset to the shareholder, then a capital gain or loss will result. Similar to the general tax rules in a sale or exchange, the basis of the property distributed to shareholders in a complete liquidation will be the fair market value of the property on the date of distribution.

It is very important that the transaction is properly documented. The shareholders are responsible for providing evidence of the adjusted basis of the stock. However, if such evidence is not provided, then the IRS may treat the stock as having a zero basis, and the entire fair market value amount of the liquidation proceeds will thus constitute the gain to be recognized by the shareholder.

Contact Sherayzen Law Office For Legal Help With Corporate Tax Transactions

This article covers only some general information with respect to the tax effect of a complete liquidation of a corporation on its shareholders; the article does not offer any legal advice and it should not be relied upon to determine the tax obligations in your particular situation.

If you have any questions or concerns regarding U.S. corporate taxation laws and regulations, contact Sherayzen Law Office for legal help. Our experienced corporate tax firm will guide you through even the most complex corporate transactions and help you properly document such transactions as required by the Internal Revenue Code as well as relevant business laws and regulations.

Payroll Tax Cut Temporarily Extended into 2012

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The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

The IRS warned employers that they should implement the new payroll tax rate as soon as possible in 2012 but not later than January 31, 2012.  If however any extra Social Security tax is withheld in January of 2012, the employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Workers do not need to do anything else; employers and payroll companies should handle the withholding changes.

Recapture Provision

The Act also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. This may change, however, since there is a possibility of a full-year extension of the payroll tax cut being discussed for 2012.

IRS May Issue Additional Guidance

The IRS will closely monitor the situation in case future legislation changes the recapture provision.  The IRS also promises to issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.

For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due on April 30, 2012.

Form 1120S Penalties and Interest

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Form 1120S (US Income Tax Return for an S Corporation) is used to report the income, gains, losses, deductions, credits, and related items, for any tax year covered, of a domestic corporation or other entity that elects to be treated as an S corporation by filing Form 2553. If the IRS accepts the election, Form 1120S must be filed as long as the election remains in effect.

This article will examine the penalties and interest that may be applied for failure to comply with the rules and regulations concerning the filing of Form 1120S when required. The penalties can be severe in some instances, so taxpayers subject to the requirements of the form should take notice of them.

There are numerous penalty and interest provisions that apply to the requirements of Form 1120S.

Late Filing of a Return

A penalty may be imposed if a return is filed after the applicable due date (including extensions), or if the return does not report all of the required information required, unless the failure to comply is due to reasonable cause.

For returns on which no tax liability is owed, the late filing penalty as of the time of this writing is $195 for each month (or part of a month), up to 12 months that the return is late or does not include the necessary information, multiplied by the total number of persons who were shareholders in the corporation for the tax year (during any part of the corporation’s tax year) in which the return is due. If a tax is due, this same penalty mechanism will be applied, plus a 5% penalty on the unpaid tax for each month (or part of a month) that the return is late. The maximum penalty will be capped at 25% of the unpaid tax. The minimum penalty for a return that is due, and more than 60 days late, is the lesser of the tax owed or $135.

Taxpayers who claim that the failure to timely file was due to reasonable cause must include an attached explanation with the return.

Late Payment of Tax

In general, a corporation that has a tax liability, but does not pay the tax when due, may be penalized ½ of 1% of the unpaid tax for each month (or part of a month) that the tax is unpaid. The late payment penalty is capped at a maximum of 25% of the unpaid tax. As with the failure to file penalty, taxpayers may be able to prevent or limit the imposition of the late payment penalty, provided that reasonable cause can be demonstrated.

Failure to Timely Furnish Information

A $100 penalty may be imposed for each failure to furnish a Schedule K-1 to a shareholder when due and/or for each failure to include on Schedule K-1 all required and accurate information. The penalty is applied to each Schedule K-1 for which a failure occurs. If a taxpayer intentionally disregards the requirement to report correct information, the penalty for each failure is increased to the greater of $250 or 10% of the aggregate amount of items required to be reported.

A reasonable cause exception is also available for this penalty.

Trust Fund Recovery Penalty

A trust fund recovery penalty may be imposed on all persons, including S-corporations, who are responsible for collecting, accounting for, and paying over various trust fund taxes (including certain excise, income, social security, and Medicare taxes) and who acted willfully in failing to collect, withhold, and/or pay such taxes (the IRS may determine who is responsible for such requirements). Such taxes are typically reported on various forms, including Form 720 (Quarterly Federal Excise Tax Return), Form 941 (Employer’s Quarterly Federal Tax Return), Form 944 (Employer’s Annual Federal Tax Return), and Form 945 (Annual Return of Withheld Federal Income Tax), among others.

The trust fund recovery penalty imposed is equal to the full amount of the unpaid trust fund tax.

Other Potential Penalties

Penalties can also be imposed for Form 1120S purposes under IRC sections 6662 (Imposition of accuracy-related penalty on underpayments), 6662A (Imposition of accuracy-related penalty on understatements with respect to reportable transactions), and 6663 (Imposition of fraud penalty).

Interest

In addition to the penalties described above, interest can be charged for failure to comply with various Form 1120S requirements.

Interest will be charged on taxes that are paid late even if a taxpayer is granted an extension of time to file. Interest can also charged on penalties imposed as a result of failure to file, fraud, negligence, substantial valuation misstatements, substantial tax understatements, and reportable transaction understatements from the due date (including extensions) to the date of actual payment. See IRC section 6621 and regulations for the applicable interest rates charged relating to such penalties.

Contact Sherayzen Law Office For Legal Help With 1120S Penalties

Whether you are facing substantial 1120S penalties, looking for proper tax planning to avoid such penalties, or just need assistance to comply with 1120S tax requirements, please contact Sherayzen Law Office.  Our experienced tax firm will guide you through the complex maze of the corporate tax law, provide rigorous IRS representation in disputing the penalties, and help you create and implement a creative ethical tax plan.

Alternative Minimum Tax Foreign Tax Credit

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US persons are taxed on their worldwide income, but are allowed a foreign tax credit (FTC) for foreign taxes paid. In most cases, the FTC gives taxpayers a dollar-for-dollar credit against their US tax liability.

However, the FTC may be limited for Alternative Minimum Tax (AMT) purposes in order to ensure that a taxpayer’s US liability is only reduced on foreign-source income. This article will briefly examine some of the basic elements of the Alternative Minimum Tax Foreign Tax Credit (AMTFTC).

Alternative Minimum Tax Foreign Tax Credit Calculation

The AMT for individuals in calculated on Form 6251. Taxpayers who need to determine whether they will have an AMTFTC, will first need to calculate their foreign tax credit for their regular tax. Once this is done, line 34 of the form should be filled in, and if the amount on this line is greater than or equal to the amount on line 31 (see IRS instructions for specifics), then a zero would be entered on line 35 (the AMT line), and the instructions should be reviewed to determine whether the form will need to be attached to the tax return. If the AMT is not owed, line 32 of the form will still need to be filled in, in order to determine whether a taxpayer has an AMTFTC carryback or carryforward.

If the AMT is owed, the FTC may be limited by IRS rules. In general, for purposes of calculating the AMTFTC limitation, foreign-source AMT income (AMTI) is divided by total AMTI. This amount is then multiplied by the tentative minimum tax (and not the regular tax). This calculation must be determined for each separate basket type of income (i.e. general and passive income). FTCs that are not used because of the AMTFTC may be carried forward.

Taxpayers may elect to use regular foreign-source income in the numerator of this equation, provided that it does not exceed total AMTI.

Contact Sherayzen Law Office For Tax Help With Determining AMT, FTC and AMTFTC

Determing your Foreign Tax Credit and Alternative Minumum Tax can involve complex issues and this article only attempts to provide a very general background information that should not be relied upon in making the determination of your specific situation. Rather, you should contact Sherayzen Law Office for legal help with this issue. Our tax firm will help you determine your AMT, FTC and AMTFTC for the relevant tax years as well as provide sound tax planning for the future.