Finance Tax Time

The IRS is heavily promoting electronic filing options. This promotion has run into problems with corporations because of complex regulations. The IRS is now moving to correct this problem.

IRS Simplifies Reporting Requirements for Corps and Shareholders

Corporate tax filings are legendary for their complexity, number of forms that must be filed and general burden they create. Large, publicly traded corporations make every effort to file the proper forms, but the burden is such that when all is said and done, one corporation reported it had to file the equivalent of three tax forms for every working hour of the year. For small corporations and shareholders, the burden is not much less.

Given this massive tax burden, the idea of a corporation filing electronic tax returns is laughable. The IRS has finally realized as much. In response, it is making an effort to simplify or do away with regulations. In fact, the service has changed over 20 different regulatory groups to massively simplify a variety of tax situations.

One area of simplification has to do with the transfer of interest in certain types of corporate share transfers. Known as a section 351 transfer, the regulations previously required both the corporation and shareholder to file up to 18 different information items. Yes, 18! To simplify this mess, the IRS is now requiring the filings only for individuals that own more than five percent of a publicly traded company or one percent of a private company. Those still required to file will now only have to provide very basic information. This is a vast improvement on the old system.

One of the big red tape problems for corporate and shareholder filings is a simple one. The IRS has historically required everything to be physically signed by certain shareholders. This was essentially a method for forcing shareholders to come forward regardless of the corporate planning being done. The IRS is now de-emphasizing the signature requirements and allowing the same forms to simply be filed electronically. It sounds like a small thing until you go through the experience of sending a form to 15 different shareholders around the country.

The effort of the IRS to simply corporate and shareholder filings should be applauded. It is a small step in dealing with a large problem.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes. Visit us to get more tax help.

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If you own a business and have employees, you have an inherent feel for the joy of filing employee related tax documents. Alas, the IRS is cutting back on the burden.

IRS Helps Employers By Reducing Filings Required For Employees

Employees are critical to any business other than the smallest ones. That being said, the tax requirements for dealing with employees can be a pain in the derriere. The problems are many, but one particular situation puts employers in a very bad spot.

Withholdings on employee paychecks is a subject that can cause tension in a business. Inevitably, some employees will want to reduce the withholdings from their check beyond the norm. The employer, in turn, is faced with the prospect of the IRS focusing unwanted attention on the business because of such actions. In a worst case scenario, the IRS will send a lock letter setting the amount of the withholdings. This puts the employer in the bad position of telling the employee more money must be withheld - a situation sure to cause tension. Making matters worse, the employer was supposed to be able to determine when the employee was abusing the withholding process.

The IRS has issued regulations that at least relieve the employer of the burden of determining if an employee is stepping over the line on the reduction of withholdings. Whereas the employer was previously required to send a W-4 Withhold Allowance Certificate to the IRS if an employee was claiming a total exemption from withholdings or more than 10 allowances, it no longer does. As of April 14, 2006, the IRS will simply make its own determination using salary filings for the business in general.

This regulation modification by the IRS should be applauded as a significant boost to employers. No longer does an employer have to act as a detective in determining whether an employee is not paying in enough tax on paychecks. Instead, the employer can now sit back and wait for the IRS to act. If the IRS feels an employee is out of line, the agency will send a lock-in letter to the employer. The employer than has no choice but to comply. Employees are much more likely to understand this and focus their anger on the IRS instead of the employer.

The new withholding regulations represent a positive step by the IRS. They might just keep employers out of the tax problems of employees.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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