Undoing a Roth conversion can save taxes if the investments converted have decreased in value. If you still desire to convert the IRA, you can reconvert it 30-days after you undo the original conversion.

Don’t forget in 2009 only taxpayers with Adjusted Gross Income of $100,000 or less could convert to a Roth IRA. However, this requirement was repealed beginning in 2010 so anyone can convert to a Roth.

The taxes owed as the result of a Roth conversion in 2010 can also be spread over a 2-year period. This includes Roth conversions that were undone for 2009 and reconverted in 2010.

Please contact an ARB income tax specialist if you would like us to evaluate your circumstances.

The Maine State Council of the Society for Human Resources Management (SHRM) has announced that 40 companies have been named in the fifth annual “Best Places to Work in Maine” program.

The 2010 Best Places to Work in Maine program recognizes companies that have established and consistently fostered outstanding workplace environments. Partners endorsing the program include: Best Companies Group, the Maine State Chamber of Commerce, Employment Times/MyJobWave.com, and Mainebiz.

The assessment process, administered by the Best Companies Group, evaluated each company’s employee policies and procedures as well as responses from the company’s employees. The program marks the most recent step in a long-term initiative to encourage growth and excellence throughout all Maine companies.

The program also helps companies that want to improve their score. The Best Companies Group “Employee Feedback Report” is presented to each participating company, even if they did not make the list, that summarizes employee engagement and satisfaction data, the “Maine Benchmark Report,” and the transcript of employee written comments. The report is used by many organizations to make significant improvements in their workplace culture.

Albin, Randall & Bennett strives to maintain a work environment that is supportive, enjoyable and focused on providing the resources necessary to allow our employees to succeed.  When our employees are thriving, so too shall our clients.  

LMSB-4-0810-021
Impacted IRM 4.51.3

August 9, 2010

Introduction
Field Directive #1 on the Planning and Examination of IRC §263A Issues in the Auto Dealership Industry was issued on September 15, 2009.  Directive #1 applied to automobile dealerships and suspended examinations of auto dealership §263A issues effective from September 15, 2009 through December 31, 2010.  Dealerships were defined as businesses that sell and service new and/or used passenger vehicles, light trucks, and medium and heavy duty trucks.

This Directive is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such. 

Background
IRC §263A and the accompanying regulations require that certain taxpayers include in inventory costs the direct and indirect costs properly allocable to property that is inventory.  Generally, auto dealerships are subject to the provisions of IRC §263A.

Although a Technical Advice Memorandum (TAM) is not authoritative guidance, the legal reasoning included in TAM 200736026 may be instructive for auto dealership examinations. The TAM is a comprehensive document addressing multiple issues and sub-issues and must be reviewed in its entirety to properly analyze all issues.  However, in part, the TAM concluded that when the taxpayer or a subcontractor installs parts to new and used vehicles owned by the dealership, the activities may constitute production activities under IRC §263A(g)(1) and Treas. Reg. §1.263A-2(a)(1)(i).  Costs attributable to repair/installation activities with respect to customer-owned vehicles may constitute handling costs under section Treas. Reg  §1.263A-3(c)(4).  Additionally, vehicles sold at wholesale, vehicles sold to another dealership at cost, leased vehicles, and some parts sales generally are not on-site sales to retail customers.

Pending Guidance
The IRS Office of Chief Counsel is currently considering additional published guidance related to dealership IRC §263A issues.  It is expected that the guidance will address many of the issues outlined in TAM 200736026 and will apply to various retail motor vehicle dealerships.   

Planning and Use of Examination Resources
In anticipation of the pending guidance, the IRS has determined that it will extend the existing audit suspension period until the date the pending guidance is published in the Internal Revenue Bulletin.     

Issue Tracking
The following UIL codes apply:
263A.01-01, 
263A.01-02, 
263A.02-11,
263A.02-12,
263A.04-00,
263A.04-04,
263A.04-05,
263A.04-06

If you have any questions, please contact Motor Vehicle Technical Advisor, Terri Harris at 616-365-4601.

cc: Commissioner, LMSB
       Deputy Commissioner, LMSB
       Division Counsel, LMSB
       Commissioner, SBSE
       Chief, Appeals
       Director, Performance, Quality and Audit Assistance

When was the last time you prepared a forecast for your dealership? If you have not done so in a while, your dealership may be running you – instead of you running your dealership – and most likely you are not thinking strtegically. You might already be very successful, but could you be more successful?

To prepare a good forecast, you have to start with good, clean, accurate financial information. If you do not have good records to start with, it will be very difficult to measure the past and forecast the future. One of the best ways to get good, clean records is to have descriptive and meaningful accounts. If you are a dealer group, it is also helpful to use standardized accounts across all franchises. While this is a significant undertaking, it will help ensure consistency in your information, especially if you don’t have a centralized office.

Once you know you have good informtion, you should start planning the future of your business. What are you doing well? What could you do better? How can you maximize the opportunities you have?

The planning phase is a great time to review front and back-end processes, your financial reporting and other aspects of your business.  Questions you might consider while developing your short-term strategy include the following: 

• Are you tracking all “ups”?
• How are you managing your used-vehicle inventory?
• Is your web site generating the volume it should?
• Have you setup telephone goals for your salespeople?
• Is you parts department managed effectively?
• Are your parts employees actively working special order parts?
• Is your accounting office reporting to you timely?
• How much is your finance and insurance gross per retail unit?

At the same time you should consider your mid- and long-term strategies. You might answer the following questions during this process:

• Is it time to acquire a competitor or new franchise?
• Is it time to start transferring ownership to your children or your management team?
• Should you consider moving to a better location or upgrading your facilities?
• How are you going to retain and attract the best people?
• What positions do you need to fill to meet you long-term goals?

Once you have put the strategy in place, it’s time to put numbers to it. For existing business lines, we generally recommend you start by budgeting expenses to the gross you have, not the gross you hope to achieve. In other words, assume you are not going to make any more gross income than you are today, and set your expense structure to that gross. However, if your strategy includes significant changes in your operation, or if you know of a significant event that will transform your business, it could also be necessary to forecast gross. If you’re developing new lines of business, do your homework and identify the opportunity and define the expense structure. You need a good roadmap to measure the investment success or failure.

Forecasts are a great way to begin thinking strategically about your business, measure your success, and hold employees accountable. Contact your AutoCPA Group member today for assistance.

As published in the Summer 2010 edition of Headlights, a publication of the AutoCPA Group.

Small businesses and small tax-exempt organizations have an opportunity to receive a tax credit up to 35% (25% for tax-exempt organizations) of the lesser of health insurance premiums paid or the average group premium for small companies in the employer’s state. The employer must pay at least 50% of the overall premium to qualify for the credit.  In 2010 only, for employees with family coverage, the employer only has to pay at least 50% of the single coverage premium to qualify. The credit for tax-exempt organizations is subject to additional limitations.

Two limitation calculations must be completed, which can reduce or eliminate the credit.

Limitation 1:  The employer must have fewer than 25 full-time equivalent employees (FTEEs) for the taxable year.  If total FTEEs is 10 or less, no credit reduction applies.  If total FTEEs is between 11 and 24, the credit is reduced by 6.667% for each FTEE above 10. If total FTEEs equal or exceed 25, no credit is allowed.

To determine FTEEs, you must calculate the total number of hours for which employees were paid.  Excluded from the calculation are hours related to the following:

• Greater than 2% owners of S corporations
• 5% owners of C corporations
• Sole proprietors and partners
• Family members of the above (to include nieces, nephews, aunts and uncles)
• Seasonal workers who worked less than 120 days
• Hours over 2,080 for a single employee

Once the total hours for qualified employees are determined, divide the hours by 2,080 and round the results down to the nearest whole number.  The result is the number of FTEEs for the year. 

Limitation 2:  Average annual wages must be less than $50,000 per FTEE. If average annual wages are $25,000 or less, no credit reduction applies.  If average annual wages are between $25,000 and $50,000, the credit is reduced by 4% for each $1,000 of wages above $25,000.  If average annual wages are over $50,000, no credit is allowed.

To determine average annual wages, you must calculate total wages paid during the year and subtract wages associated with the excluded workers noted above (except for the wages associated with hours above 2,080, which are included in this calculation).  Once the total adjusted wages is determined, divide by the number of full-time equivalent employees determined in the previous limitation and round the results down to the nearest $1,000.

Each of the computed limitations is subtracted from the tentative credit to determine the actual amount of credit the business is entitled to.  The credit is a general business credit and is non-refundable for small businesses, which means it can only be used to offset a tax liability.  Any unused credit amount can be carried back one year (for tax year 2011 and beyond) and carried forward 20 years (starting in 2010).  However, the credit is refundable for tax-exempt organizations.  We expect guidance with be forthcoming from the IRS as to how a tax-exempt organization is to claim this refund.

 For more information, please contact your ARB tax advisor or visit www.irs.gov.

Employers who hire previously unemployed or previously part time workers after February 3, 2010 and before January 1, 2011 qualify for the payroll tax exemption and will be exempt from paying the employer’s 6.2 percent share of Social Security tax on wages paid to “qualified” employees from March 19, 2010 through December 31, 2010. The payroll tax exemption does not exempt the employee’s share of Social Security tax, and the Medicare tax continues to apply to both the employer and employee.

To be a qualified employee, the employee has to have been unemployed or employed for less than 40 hours during the consecutive 60 days prior to their employment. In order for the employer to claim the payroll tax exemption, the employee must certify by a signed affidavit (Form W-11), under penalties of perjury, that they have not worked more than 40 hours in the consecutive 60 days prior to new employment. Employees related to the employer are not considered to be qualified employees for the purposes of the payroll tax exemption. Form W-11, Hiring Incentives to Restore Employment (HIRE) Affidavit, is available on the IRS website.

The payroll tax exemption is claimed on Form 941 “Employer’s Quarterly Federal Tax Return”, starting with the second quarter of 2010. If an employer paid wages to qualified employees during the first quarter of 2010, the exemption related to those wages will be claimed on the second quarter of 2010 Form 941.

The new hire retention credit is available to employers for each qualified employee retained for at least 52 consecutive weeks. The amount of the credit is the lesser of $1,000 or 6.2 percent of wages paid by the employer to the qualified employee during the 52 week period. The new hire retention credit is claimed on the employer’s 2011 tax return.