IRS releases 5-year plan

The IRS has released its Strategic Plan for the next 5 years, the two overarching goals of which are to: 1. Improve service to make voluntary compliance easier. 2. Enforce the law to ensure everyone meets their obligations to pay taxes. What does this mean? The government needs money. With tax revenues decreasing due to the current state of the economy, we can expect the IRS to increase efforts to collect from delinquent taxpayers. A summary of the key points of the plan, and some suggestions for taxpayers, is available here.

What not to do

As we posted recently, if a "tax philosophy" sounds too good to be true, it probably is. Given the complexity of the tax law, people make mistakes. Lots of them. Including Presidential administration nominees. (Lots of them). But there's a difference between honest mistakes and flagrant disregard for the law. Tax practitioner Russ Fox recently discussed 3 sure-fire ways to get into trouble with the IRS, and to possibly go to jail. His post also includes the details of specific taxpayers who are in deep trouble because they did at least one of the following:

1. Pay employees in cash, and don't report it. Also, don't remit payroll tax to the government.
2. Skim some of the revenue off the top from a business, and don't report it on your tax returns.
3. Argue that there is no such thing as an income tax, or that it doesn't apply to you, or that it has never been ratified, or that it's unconstitutional.

The moral of the story: Although you can and should try to minimize your tax liability, you should not break the law, unless you don't mind the serious risk of losing all your assets and maybe even going to jail.

Tax lawyer owes $441,000

Included in California's recently published list of the top 250 tax debtors is tax attorney James P. Kleier. According to his firm website, Mr Kleier specializes in "tax litigation and administrative resolution of tax controversies, with particular emphasis on California state tax cases." We'll see how well he manages his own personal "tax controversy." More information on the tax evading tax lawyer can be found on Legal Pad and the Tax Professor's Blog.

Managing stricter loan covenants

As many businesses seek new sources of credit, they may face tighter loan covenants. The Journal of Accountancy recommends borrowers consider the following before talking to a lender:

1. Negotiate and monitor ratios.
2. Prepare for a financial statement audit.
3. Watch out for a positive cash flow covenant.
4. Get ready for new rate structures.
5. Be prepared for more stringent “personal guarantees.”
6. Know what’s typical.

Some businesses may be eligible for help from the Small Business Administration, which is implementing new programs with funding from the economic stimulus package. You can read more about the SBA programs in our previous posts here, here, here, and here.

California to start 5,000+ infrastructure projects

Governor Schwarzenegger announced Wednesday that the state would restart more than 5,000 infrastructure projects, which had been on hold since December 2008. The state has begun the process of selling $6.85 billion in bonds, of which $5.2 billion are backed by the federal government as part of the economic recovery act passed in February. California is the first state to issue these federally-backed Build America Bonds.

According to the governor's website, the funding will be allocated as follows:

• $1.7 billion for the state’s taxable general obligation bonds to fund stem cell research and stem cell related projects, various housing programs, and additional needs for High Speed Rail.
• $5.2 billion on projects for California State University, the University of California, California Community Colleges, Caltrans and the Department of Water Resources, school construction projects, environmental and park projects, grant programs to support clean air (engine retrofits and clean port projects), wastewater treatments projects, improvements to drinking water infrastructure, children’s hospitals, public safety grants and local library grant projects.

(If you're a math wiz, you probably noticed this adds up to $.05 billion more than the total bond proceeds of $6.85 billion. Did they think we wouldn't notice an extra $50 million in spending?)

The press relates announced that a complete list of the more than 5,000 projects will be available shortly at http://www.dof.ca.gov/.

Unfortunately, we cannot provide you an exact definition for what the state considers "available shortly."

New construction increases 5% in March

New construction increased 5% in the month of March, primarily due to increase in public works construction, according to McGraw-Hill Construction. The changes by category:

• Nonbuilding construction increased 27%
• Nonresidential building decreased 3%
• Residential building decreased 8%