In these pages last week, we brought up the expanded 1099 reporting requirements that could possibly bury some small businesses in additional documentation. The question remains, how big is this pile? Will it require a shovel to dig out of the pile of paper or a bulldozer?
Based on the AICPA’s letter to the U.S. Senate that made the rounds yesterday, it will require a team of angry Ohioans – all with their own dozer – to unbury small business owners.
Alan Einhorn, the Chair of the AICPA’s Tax Executive Committee wrote the letter and in extremely tactful terms, expresses his discontent, “[W]e believe section 9006 of the Act should be repealed because the provision imposes extremely burdensome information reporting requirements on business taxpayers that cannot be justified in terms of the limited utility such information reports will provide to government.”
Adrienne boils that down in a less tactful manner, “You don’t have to be a CPA to see why this is a completely moronic idea. What happened to paperwork reduction? I love the use of ‘extremely burdensome’ – as most of you probably know, it’s got to be REALLY annoying to get the accountants to bust out the ‘extremely’ in a complaint.”
She makes a good point. Not to get all English-y on you but the adverb “extremely” doesn’t exactly make it a more effective sentence. Alan was clearly going for exaggeration in order to get his point across that this portion of the Patient Protection and Affordable Care Act is the most useless section of the entire act. And for some of you, that’s really saying something.
If there’s one thing the economy offers to businesses nowadays, it’s opportunities to lose money. As unpleasant as that is, it at least will reduce your taxes, right?
Maybe.
Even tax loss parties have their poopers, and the “At-risk rules” of Code Sec. 465 are as poopy as can be. Drafted to fight the first generation of retail tax shelters in the 1970s, these rules have faded into obscurity, but remain available for annoyingly competent IRS agents to wield against your loss deductions. The rules are supposed to defer losses when it’s really the lender on the hook for them, rather than the nominal owner of the money-losing activity. The losses carry forward to offset future income on the activity, or gain on a sale someday.
These rules pooped all over the tax loss of CTI Leasing, an LLC owned by Kieth Roberts, an Indiana man, to lease trucks to his trucking company. He loanded the LLC $425,000 to buy a “Vantare H3-45 Super S2” RV. The Tax Court says “Vantare RVs are custom-built, fully furnished, luxury coach RVs known for their ‘yacht quality fit and finish.'”
The leasing business cranked out tax losses. The IRS disallowed $425,000 of them on the grounds that the $425,000 loan didn’t give the LLC owner “at-risk” basis in his leasing activity. The Tax Court said the taxpayer failed to show that the land yacht was used in the truck leasing business or was owned by it, so the $425,000 wasn’t “at-risk” in the leasing activity.
Not every business can afford a nice land yacht, but they all can lose money. Some pointers to help keep you from trippng over the at-risk rules:
• If your loan is “non-recourse” — if you don’t pay, all the lender can do is repossess the property — that’s an at-risk rule red flag.
• Limited partners and LLC members are likely to face at-risk issues; the whole point of a “limited liability company” is to limit owner liability, after all.
• Be careful of loans from related parties. If you borrow from the wrong person, the tax law will treat the loan as not “at-risk,” even if you borrow from a business partner who might leave you under an end-zone somewhere if you don’t pay up.
• If you are in the real-estate business, “qualified” non-recourse debt – generally third-party commercial loans – are O.K. under the at-risk rules.
If you trip over the at-risk rules, your losses may not be gone forever. Form 6198 tracks your deferred losses, and you can lose them if your activity generates income someday.
Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.
We all know about getting a credit rating. Whether it’s for a personal credit card, a supply chain vendor authorization, or the much maligned oligarchy who rate public companies and entire nations. Based on al ion, a score is developed that (attempts) to capture the inherent risk of a credit failure.
How much could firms benefit from getting a Technology Productivity Rating?
What is the risk of a technology failure?
If an objective ratings agency existed that scored a company’s use of technology, how well would other people score your company? Who is the ‘Greece’ of technology?
To rate technology productivity, the rating has to encompass the entire organization and the way in which technology extends to external stakeholders (customers, suppliers, staff, etc). Optimal productivity from technology doesn’t simply mean newest technology. It’s not just about what technology a company uses that matters. It’s about how the technology is used. I met with a colleague in the technology industry recently who went so far as to say there’s still times when a FAX is the optimal technology for a task. It depends on the potential outcomes and workflows.
To date, I think the focus of technology productivity has been too inwardly focused in companies. Companies say, ‘How can this technology benefit us?’ instead of looking at the workflow effects for external stakeholders too. Granted, most organizations are completely overwhelmed simply by this one-sided approach. But if you look closely at some productivity software, part of the “technology” benefit is actually a workflow transfer to external parties. If I had to rate the technology, the score would decline in the event of workflow transfer being masqueraded as technology.
Supply Chain Management
As a means to increase productivity, big companies implement supply chain management systems that effectively transfer the burden for account administration to the vendor companies (sometimes they even charge a fee!). For the implementing company, it is great. All the vendor information is keypunched and filed away into the database for free.
The system integrates with the ERP for invoice approvals all the way to point of payment. The internal technology productivity score is high. For the vendor, every new customer could conceivably mean a similar routine resulting is a productivity loss and therefore would rate the technology lower. A vendor with a lot of customers practically needs a Mechanical Turk just for the data entry!
Seeing these scores could be really beneficial when vendors are choosing what customers to prioritize.
Recruitment
Recruitment technology can be burdensome to external stakeholders while being helpful to internal stakeholders in a similar way. The key to recruitment technology is capturing candidate data to enable filtering and search. Some technology in this field is simply transferring the data entry task to the candidate. Each candidate types out their life story field by field, row by row. From the company standpoint, they see the output of the technology. It is good. From the candidate standpoint, they see a time sink.
Taken in isolation, this candidate time commitment is not a big deal. One candidate typing their qualifications one time in response to one job posting is fine. But what happens when the candidate is applying at a dozen jobs? Two dozen? At what point does the opportunity cost of doing a whole bunch of data entry deter the brightest candidates from these particular employers?
The brightest candidates will apply to the companies that DON’T require a massive typing drill first, selecting away from this less productive technology until it’s unavoidable. The overall technology productivity score would take this into account.
For a company purchasing new technology, understanding the opportunity costs both from your perspective and that of external stakeholders and developing a Technology Productivity Rating may not become a formal process. There is no Technology Productivity Bureau, or least, there isn’t anymore. There was… for a short time… an idea before its time… may it rest in peace.
Perhaps it’s enough to look at it from a more macro-level. Ask yourself, is my business technology liberating for stakeholders or, or are they being repressed? Then, act accordingly.
Geoff Devereux as been active in Vancouver’s technology start-up community for the past 5 years. Prior to getting lured into tech start-ups, Geoff worked in various fields including a 5 year stint in a tax accounting firm. You can see more of his posts for GC here.
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If there’s one thing the economy offers to businesses nowadays, it’s opportunities to lose money. As unpleasant as that is, it at least will reduce your taxes, right? 