Masonry Magazine August 1989 Page. 25
TAX MATTERS
Irving L. Blackman is the most published CPA in the country and spreads his tax knowledge as a dynamic speaker. Mr. Blackman specializes closely held business and will consult with readers of this column. He is a partner in Blackman Kallick Bartelstein, a Chicago-based accounting and business consulting firm. Direct your questions to 300 S. Riverside Plaza, Chicago, IL 60606, or call (312) 207-1040.
What's the Story on Section 89
Almost every business publication you pick up has got an article on Section 89. This section applies nondiscrimination rules to employee accident and health plans, insurance plans and other employee benefit plans. Every business is covered, even if you have only one employee.
Will Section 89 ever be put into effect? Maybe yes, maybe no. Treasury Secretary Brady has just announced a delay until October 1 to begin testing plans for compliance with the complex Section 89 regulations. Good news. Even better news is that a number of bills are pending in Congress to simplify or even dump this onerous law. Brady said, "The Section 89 regulations impose unreasonable compliance burdens on business. The cost of compliance ... as it presently stands, is excessive."
It is almost a sure bet that Section 89 will be amended into a much simpler law. There is a slim possibility it could be repealed. My advice is to adopt a wait-and-see attitude. Don't spend any time or money trying to comply with the present law or regulations. Wait for new legislation. Once passed, you can forget about the present law and concentrate on the new law.
Just comply with the present law if the new law does not come into existence before October 1. Keep watching your business and trade journals. This is a developing story.
Chances of an IRS Audit Decrease
The game never ends. You file. The IRS audits. During 1988, a total of 1,061,000 individual income tax returns were selected and subjected to the displeasure of an IRS audit. Overall, this means that 103 returns out of 10,000 filed were examined in 1988; down a bit from the 109 per 10,000 in 1987.
But don't get overconfident that these low percentages apply to you. The higher your income, the greater the chances the IRS will pay you a visit.
Here is a breakdown of the chances that your personal return will be audited, based on 1988 figures:
| Total Positive Income | Chances in 10,000 of Being Audited |
|---|---|
| $10,000 to $25,000 (w/itemized deductions) | 125 |
| $10,000 to $25,000 (w/out itemized deductions) | 61 |
| $25,000 to $50,000 | 121 |
| $50,000 and over | 232 |
To give you an idea of the massive task the IRS has each year in tracking down tax cheats, the Service received 103.2 million individual returns in 1988, plus millions more of corporation, partnership, and trust returns.
The chances of having your business or company audited decreased in 1988, compared with 1987, especially for corporations. However, your chances of hosting an examining agent in 1988 increased if you operated a small unincorporated business.
Here's the breakdown for noncorporate businesses and for corporations:
| Noncorporate Business Income Schedule C | Chances in 10,000 of Being Audited 1987 | 1988 |
|---|---|---|
| Under $25,000 | 141 | 145 |
| $25,000 to $100,000 | 201 | 212 |
| $100,000 and over | 386 | 420 |
| Corporations (in assets) | Chances in 10,000 of Being Audited 1987 | 1988 |
|---|---|---|
| Under $250,000 | 73 | 72 |
| $250,000 to $500,000 | 93 | 81 |
| $500,000 to $1 million | 139 | 111 |
| $1 million to $10 million | 410 | 320 |
| $10 million to $100 million | 2,292 | 1,876 |
| $100 million and over | 6,908 | 5,354 |
Less than 2 percent of gift tax returns filed in 1988 were audited. Estate tax returns, on the other hand, were looked over closely as follows:
| Based on Gross Estate | Chances in 10,000 of Being Audited 1987 | 1988 |
|---|---|---|
| Under $1 million | 1,693 | 1,709 |
| $1 million to $5 million | 3,801 | 3,056 |
| $5 million and over | 6,285 | 6,700 |
And to each reader who ends up facing the dangers of an IRS tax audit, GOOD LUCK!!!!!
How to Win the Entertainment Tax Game
Entertainment is a part of business life. Almost every business owner spends some entertainment dollars in the hopes of getting and keeping customers. If you do every thing 100 percent right, the tax law allows you to deduct only 80% of the entertainment cost. What happens if you don't do everything right as far as the IRS is concerned? The examining agent can, and usually does, reduce your deductions to zero.
Whether it is a quick business lunch or entertaining customers at a ball game or fancy vacation resort, one rule must always be met the entertainment must always be directly related to, or associated with, the conduct of your business. Let's take a look at two recent real-life cases.
IRS Wins: A company took some customers to enjoy the Super Bowl. There were no arrangements for business activities, and no formal business discussions took place. The IRS disallowed any deduction, and the court agreed (Danville Plywood Corp., Ci. Ct. 554-86T.) The whole deduction could have been saved. All the taxpayer had to please turn page
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