After 38 years of service with the firm, auditor Dave Grandgenett will be retiring at the end of 2011. We at Gardiner Thomsen are sad to see him go, but at the same time we like to remember the many years that Dave has faithfully served the firm.

Dave remembers that, after he was hired by Dan through a referral by a friend, one of his first duties was to babysit young Dennis and Mark Gardiner. He also learned some of the most basic post-college lessons from working at the firm, although his career wasn’t without challenges. One of the most memorable accounting challenges he remembers overcoming was in the late 1970’s, and he had to recreate what was bought and sold at a soybean plant prior to its unexpected explosion.

Even with all the challenges he overcame, Dave has found most rewarding aspect of working at Gardiner Thomsen to be working with and getting to know the firm’s clients in the small town setting. After retirement, Dave is looking forward to spending more time golfing, working outside, spending time with his grandchildren, and traveling with his wife, Lorrie. Gardiner Thomsen wishes all the best to Dave!

As you all are aware of by now, with OSHA’s increased oversight on grain bins, we have not been entering the bins as we have in the past. Even if we wanted to enter the bins, you have done a good job of recognizing the necessity of complying with the OSHA standards. Neither of us want an accident or a fine for violating the rules. They are not cheap.

Unfortunately, not entering a bin includes sticking our head into the hatch opening, as the rule is written. In some instances during this summer’s inventories, we were not allowed to walk on the grain in flat storage bins. Some clients would not allow us to use the rope-lifts on some of the older wood houses. In many cases we were given hard hats, safety goggles and bright colored vests to wear.

With these restrictions on our past measuring practices, our confidence in and precision of the measure is less than before. We will become more dependent on your location grain staff to assist us with the measuring. Therefore, your preparation in advance is more important than ever. It will make any measurement discrepancy issues easier to resolve if your staff have all bins measured in advance of our arrival. Additionally, flat storage facilities and quonsets could be drawn up, if you are comfortable doing this. We will place reliance on your staff to tell us how the grain is laying in the bin. That is to say, coned-up, coned-down, a particular slope, high side, low side, etc. This is nearly impossible to ascertain from 50-60 feet up when we can’t get on the ladder to look in or even stick our heads into the hatch opening.

Some suggestions we may make or work with you on in the coming year are:

• Putting more holes (measuring points) in the bins.
• Spray painting point of reference in flats. Or providing more of a schematic layout of the flat.
• Encouraging a better job of consolidating grain at year-end. Bin bottoms are the worst to measure!

With the restrictions, and considering the size of your organizations, now is a perfect time for you to develop good measuring skills and establish routine measurements, at least monthly. You will want to make sure that measures make sense from one month to the next and to our last measurement, or the examiner’s last measures. We would be available to assist in training your staff on measuring, developing these practices, or drafting grain measurement policies.

It seems to be a change in the times….but, perhaps it is time. These new bins are higher, wider and hold a lot more bushels than the bins of the past, creating an even more dangerous situation if someone were to become entrapped.

Have a safe and bountiful harvest!

The issue of whether a worker is an employee of your company or an independent contractor is very complicated, and it can be confusing to make the correct determination. Properly classifying a worker as an independent contractor can save a company payroll tax dollars, but an improper classification can subject the company to back payroll taxes, penalties and interest.

Recently the IRS launched a new program with the goal of allowing many employers to resolve worker classification issues. This program gives employers the opportunity to come into compliance by agreeing to classify workers as employees and making a reduced payment to cover past payroll tax liabilities.

This new program is referred to as the “Fresh Start” initiative and it coincides with a new Department of Labor program that will crack down on employers who incorrectly classify employees as independent contractors. The two organizations have signed a memorandum of understanding and have agreed to share information and coordinate enforcement efforts.

The intent here is fairly obvious: offer a reduced back payroll tax burden free from audit, penalties or interest as the incentive while providing for increased audit and enforcement actions as the consequence.

Under this program, eligible employers can reduce their past payroll tax obligations by prospectively treating workers as employees. To be eligible a company must:

• Consistently have treated workers in the past as non-employees.
• Have filed required forms 1099 for these workers for the previous 3 years.
• Not currently be under audit by the IRS, DOL or a state agency.

Once accepted, employers will pay only 10% of the amount of payroll taxes that would have been due from the most recent tax year. No interest or penalties will be due. Audit protection will be afforded in regards to payroll tax issues for prior years. But, for the first 3 years of the program, employers will be subjected to a 6-year statute of limitations instead of the usual 3-year rule.

Depending on your situation, this program may be worth checking into. Please call me at the Des Moines office should you have any questions regarding the “Fresh Start” initiative.

With the recent “relaxation” of the new tougher 1099 reporting requirements, there seems to be a misconception that 1099’s are no longer required. This misconception could prove costly to you and your organization. Make no mistake about it – 1099’s are still required in certain circumstances. Improperly reporting 1099’s to the IRS can cost your organization thousands of dollars in penalties and professional fees.

Several of our clients have recently received penalty notices from the IRS regarding incorrect taxpayer identification numbers. Issues range from names not matching the FEIN, erroneous FEIN’s, missing FEIN’s, etc. The IRS assess a $50 penalty per occurrence and the sum of the penalties in several cases approached $8,000.

This type of IRS action is increasing as the IRS looks for proper reporting and additional revenue.

Therefore, it remains important for your accounting department to have a current, signed and legible W-9 form on hand for all members as well as for any non-employee who receives a check from you. Of course, you should also have a current, signed and legible W-4 form for all employees. An illegible W-9 form can cause an error on form 1099 which can trigger a penalty. We recommend that you update your files on an annual basis to ensure you have the appropriate W-9 form on hand, without exception.

We realize that obtaining these forms can be problematic. I’ve heard every excuse in the book as to why a W-9 form is not required, such as: “We’re a non-profit,” “We’re a corporation,” “We’re a trust,” “We’re a governmental entity,” etc. But the bottom line is this: If you are issuing a check to a non-employee, you should have a current, signed and legible W-9 form on hand without exception. This is not to say that everyone who receives a check from you will also receive a 1099. But by having the W-9 on hand, you will have the information necessary to issue a 1099 should it be required.

This is an important issue that will continue to receive IRS attention. We are available to answer your questions regarding form W-9 and 1099 reporting. Please call me in the Des Moines office at 515-270-1446 should you have any questions or concerns.

We are happy to announce that with the growth of our Lincoln, Nebraska office, we’ve had to move into a larger location. Don’t worry, we didn’t move far, but if you’d like to get directions or drop by to see the new location, just give us a call! Please make a note that our new address is:

Gardiner Thomsen CPAs
5901 S. 58th St. Suite F
Lincoln, NE 68516
P: (402) 475-3482
F: (402) 475-3484

Over the past few years or so, issues have arisen in our world of accounting for cooperatives that have brought the way we historically looked at property, plant and equipment, and the depreciation of those assets, under question.  The first issue came about a few years ago when the loan commitments required to finance cooperative operations became so large that your lender saw it necessary to share some of the risk involved in certain loan packages. Thus, fixed asset appraisals became the norm in many cases.  A second issue has occurred with new accounting standards related to mergers and the requirement to recognize business combinations at fair value.

Textbook Depreciation:  Most accountants were taught in school to compute depreciation in the following manner: “Asset Cost” less “Salvage Value” divided by the “Useful Life of the Asset.”  For example, a steel grain bin built for a cost of $500,000 with a scrap value of $25,000 that will be used for 25 years would have an annual depreciation expense of $19,000 and would have at least some book value for 25 years.  However, in most cases today, salvage value is routinely ignored and the estimated useful life is based more on acceptable IRS tables than on the actual life the asset is used to produce income.

Actual Practice:  Most of our cooperative audit clients take a “conservative” approach to depreciating their fixed assets.  In the example above, the salvage value would be ignored and the $500,000 bin would depreciated over 10 years based on the IRS class life tables amounting to annual depreciation of $50,000.  The asset is fully depreciated after 10 years and for book purposes has no value for more than half of its actual useful life.

Why do we do this?  The accelerated depreciation expense lowers the bottom line thereby reducing income and income available for patronage dividend allocations, saving the cooperative cash.  However, this conservative approach may be distorting the real value of the balance sheet by recognizing no or less than actual value of assets the company owns.  Depending on the circumstances, appraisals may be necessary to give companies credit for the unrecognized value of those assets, or major adjustments will be required under the new fair value requirements in accounting for future mergers.

Maybe its time to re-think this process as we look at ways to further strengthen balance sheets and search for the right mix of allocated and unallocated members’ equity.  We can still use these conservative ideas for tax purposes, but we must also consider alternatives to bring book balance sheets more in line with actual values.  We are available if you would like to discuss this issue further and will be encouraging this debate as we begin our upcoming audit engagements.

Recent surveys indicate that individuals and businesses purchasing goods over the internet are not properly remitting sales or use tax, many times in violation of state law (the estimated non-compliance rate in California was greater than 98%).  With states becoming more desperate for revenue sources to offset record deficits, this area becomes an easy target for state auditors.  If you are unsure of your state’s laws regarding the payment of sales or use tax for internet purchases, please contact us so that we may research the matter and advise you accordingly.

State auditors are also on the lookout for businesses that might have a filing requirement in their state that is not being met.  If your business engages in transactions outside your home state and you are unsure if this activity generates additional filing requirements, please contact us so that we may help you make that determination.

As you may have heard, H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” repealed all new 1099 reporting requirements that were set to take effect January 1, 2012.  The Act was signed into law by President Obama on April 15th.  Basically, 1099 reporting requirements will continue to be the same as they’ve always been.  This change will significantly decrease the compliance burden small businesses were anticipating.  However, this recent change does not do away with the requirement that payers obtain and retain a form W-9, Request for Taxpayer Identification Number and Certification, for all payees.  This requirement applies even to governmental agencies and corporations, although these entities are typically exempt from the 1099 reporting requirement.  Absent obtaining a W-9 that either documents an exemption to the 1099 reporting requirement or provides the necessary information for that reporting, backup withholding at a rate of 28% is mandatory.

The case for Section 199 amended returns continues!  The first pre-settlement appeals conference with the IRS Appeals Office is scheduled for August 8th and 9th.  Please be aware that if you filed an amended return to claim an enhanced Section 199 deduction and have not heard from the IRS, please contact us so that we may follow up on and track the status of your amended return. 

To help offset the bite of rising gas prices, the IRS announced on June 23rd that the standard business mileage rate will increase for the second half of 2011 (beginning July 1st) to 55.5 cents per mile, up from 51 cents per mile for the first half of 2011.  The mileage rate used in computing deductible moving expenses and medical transportation costs also increased by 4.5 cents per mile to 23.5 cents per mile with the same effective date.  The rate used to compute mileage for charitable driving did not change and remains at 14 cents per mile for all of 2011.