We would like to take a moment to thank all of you who came out to see us in our hospitality room at last year’s CHS Meeting in Minneapolis. We had over 100 attendees, and gave away American Express® gift cards, golf balls and the grand prize: a Kindle Fire E-reader. We hope you will join us for 2012’s meeting in our hospitality room, and thank you again for helping us make this year’s meeting a great success!

Please welcome Cristina Bucksbaum to our Des Moines tax department staff. Cristina has 15 years of experience in the tax world, and joined Gardiner Thomsen on January 11th, 2012. Her experience covers a wide variety of tax issues and we are pleased that she joined our firm.

Forms 1096 and W-3: These are the transmittal forms that you send to the IRS or SSA accompanying your 1099 and W-2 forms each year. Typically, they are not due until the end of February, at the earliest, depending on the number of W-2s and 1099s you file, and the media with which you file them.

Please note: while many taxpayers issue W-2s and 1099s to recipients by the end of January, and then immediately send their 1096s and W-3s to the IRS or SSA, you should consider filing these documents closer to their respective due dates.

The reason the government has allowed time between when these sets of forms are due to the recipient and when they are due to the government is so the recipient has a chance to examine their reporting forms and point out any errors to you, presumably before you have filed these documents with the government.

If you haven’t yet filed forms 1096 or W-3 with the IRS or SSA, it will be easier to fix a mistake on them without the need to file amended returns. However, if you have already filed forms 1096 or W-3 with the government, and there are errors on those forms, then you will also have to file amended reports which can be complicated and time consuming. So, file those 1096s and W-3s closer to their due date to avoid potential amended return filings.

Forms W-9 and W-4: As the 2011 filing season concludes, now would be a good time to examine your member and vendor files for updated and legible W-9 forms. Remember that a W-9 form is the document you need in order to first determine if a 1099 should be issued, and then to obtain the necessary information to properly fill out form 1099. It would be beneficial at this time to update your employee’s W-4 forms as well.

We want to be certain that you are taking full advantage of the many tax credits available to cooperatives. We are also taking steps to improve our communication with you regarding these credits. Following are some of the credits that our clients may qualify for:

• Federal and State (particularly Iowa) Fuel tax credits

• Ag Chem Security Credits

• Employment Credits: HIRE, Work Opportunity

• Research and Development

• Small Producer Ethanol Credits

If you have questions about any tax issues, tax credits, or whether or not your organization may qualify for any tax credit that you have heard about, please call me at our Des Moines office at 515 270-1446.

What we’ve seen in 2011:

• Most clients were more profitable in 2011 compared to 2010, and many reported record earnings. Higher commodity prices along with increased or steady grain and agronomy volumes meant sales dollars were also considerably higher in 2011.
• A range of margins in 2011: averages slightly higher than 2010; some of the best grain margins ever; agronomy margins as good as or better than past years and closer to historical averages.
• Excellent fall fertilizer season increased volumes, gross margins, and local savings.
• With higher grain prices, producers sold and storage income decreased, while a shorter, drier harvest season led to substantially lower and more “normal” grain drying revenues.
• With higher commodity prices, borrowing was up, contributing to increased interest expense.
• “Speed and space” construction continued. Many clients built grain storage at multiple locations.
• The increased presence of OSHA, and the costs associated with compliance.
• Increased use of accelerated depreciation rules to reduce current income tax liabilities, as well as more clients allocating the gross domestic production deduction (Section 199) to patrons as part of their year-end patronage allocations.
• Bigger, stronger balance sheets.

What we expect to see in 2012:

• Continued investments in grain and fertilizer facilities, the shuttering of inefficient/ineffective facilities, and increased OSHA compliance costs
• Less aggressive book depreciation, continued aggressive use of bonus depreciation, and increased use of non-qualified patronage allocations
• A slow-down of member equity revolvements/retirements, and the re-balancing of member equity and permanent equity (retained earnings)
• Use of Section 199 as a means of enumerating the member (allocating the deduction to the member)
• Continued efforts to mitigate price risk in agronomy
• More joint ventures, strategic alliances, and ramping up of merger talks again
• More difficulty in finding and retaining experienced staff (management, grain, agronomy, feed, energy and accounting)
• More fraud, larger companies, more employees, less loyalty, more perceived opportunity and rationalization

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