House Passes Extension of Bush Tax Cuts and Unemployment Benefits

WASHINGTON, D.C. (DECEMBER 17, 2010)


BY MICHAEL COHN

The House approved an $858 billion extension of the Bush-era tax rates and unemployment benefits late Thursday night, a day after the Senate approved the bill, sending the bill to President Obama’s desk.

After procedural hurdles held up the vote for much of the day on Thursday, the House reconvened in the evening to settle the terms of the debate. Amid widespread dissatisfaction among House Democrats over the terms of the deal struck by President Obama and Republican congressional leaders, especially on setting the estate tax at a rate of 35 percent for estates over $5 million, they agreed to first hold a vote on an amendment by Rep. Earl Pomeroy, D-N.D., which would set the estate tax rate at 45 percent for inheritances over $3.5 million. That amendment was defeated by a vote of 233 to 194.

The bill includes a two-year extension of the Bush-era income tax rates, including those for dividends and capital gains. It also extends emergency unemployment insurance for another 13 months. The bill would also lower Social Security payroll taxes by 2 percentage points from 6.2 percent to 4.2 percent for a year. Several lawmakers, however, criticized that provision, saying it would weaken the Social Security trust fund and not be open to government employees.

The bill would also extend the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit for college tuition. It would also allow businesses to deduct 100 percent of investments in plant and equipment in the first year, and extend for two years the state and local sales tax deduction. In addition the bill would “patch” the AMT, extending Alternative Minimum Tax relief for two years to prevent the AMT from ensnaring millions more taxpayers. The bill also includes extensions of the Research and Experimentation Credit for businesses.

It also would extend a variety of popular tax breaks, including the ability of schoolteachers to expense purchases of school supplies. The bill also includes energy tax breaks for biodiesel fuel, ethanol and renewable energy sources.

Your Paycheck May be Shrinking! from CNN

NEW YORK (CNNMoney.com) -- Are you ready to give up $30 a month?

     That's what may come out of your paycheck if -- as expected -- the Making Work Pay tax credit expires at the end of the year.
     The credit was enacted last year as part of the Recovery Act to put more cash in people's pockets. For the past two years, it has boosted paychecks by up to $400 for single filers and $800 for joint filers by reducing the tax withheld and giving a credit for that amount. That's $33 or $67 a month
     Taxpayers who make $75,000 or less are eligible for the full credit, while higher earners can receive partial credit. More than 90% of working Americans have been helped by the tax break.
     Now they will feel the pain when the credit goes away.
     A Senate Finance Committee aide said panel chairman Max Baucus, a Montana Democrat, is working on a proposal to extend a number of expiring tax breaks when Congress returns next week.
     Obama proposed an extension months ago, but it's unclear if the administration will fight for it now.
     Tax cut stew for Christmas
     And with only weeks remaining in the lame-duck Congress, the credit is likely on its way out, said Clint Stretch, managing principal of tax policy at Deloitte Tax.
     "I haven't seen any serious effort to extend Making Work Pay," Stretch said. "For this to get passed, somebody in Congress would have to be saying this is a priority, and we just haven't seen that happening."
     Instead, most of the buzz is about the Bush tax cuts, which are also slated to expire at the end of the year.
     Republicans are fighting to extend the Bush cuts for everyone -- including higher income Americans. But Obama, who has promised not to raise taxes on the middle class, is pushing to preserve the cuts only for family income up to $250,000.
     "The most curious aspect of the tax debate is the obsession with taxes at the high end," said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. "But when almost every middle and lower class American is going to face higher taxes, nobody's talking about it."
     The big issue with keeping Making Work Pay around is its cost -- about $60 billion to extend it one year.
     "Stimulus is a bad word now, so anything labeled stimulus will not get traction," said Roberton Williams, a senior fellow at the Tax Policy Center.
     But if the extension isn't passed, the 110 million families that received higher paychecks in 2009 and 2010 will owe more taxes than they did during those two years.
     "Most people may have no idea they received it and no idea that it's going away," said Marr. "But what you can be certain of is that they'll have less money and they'll spend less -- and this is a terrible time for the economy to lose $60 billion of spending."

What's between Black Friday and Cyber Monday? AmEx promotes 'Small Business Saturday'

KAREN MATTHEWS Associated Press


NEW YORK (AP) — Hoping to drum up support for independent merchants, American Express' CEO said Monday that his company will promote "Small Business Saturday" on the weekend after Thanksgiving.
"This is the start of a movement," said Kenneth Chenault, who joined New York City Mayor Michael Bloomberg at a City Hall news conference to announce the effort.
Chenault said that large retailers have Black Friday and online retailers have Cyber Monday, "and now, starting on Nov. 27 of this year, small business owners will have Small Business Saturday."
Chenault said the first 10,000 small business owners who sign up to participate will get $100 worth of Facebook advertising. American Express will give a $25 credit to 100,000 of its cardholders who pledge to use their cards at independent businesses on Nov. 27.
Bloomberg said small businesses "are the backbone of our economy and the glue that holds communities together."
American Express will spread the word about Small Business Saturday on Facebook and Twitter, Chenault said.
Black Friday, the day after Thanksgiving, is the unofficial start of the holiday shopping season. The following Monday has in recent years been promoted as Cyber Monday for Internet shopping.
Chenault said Cyber Monday did not catch on immediately and Small Business Friday may not succeed overnight.
"This is not a flash in the pan," he said. "We are committed to this effort for years to come."

Good News for W2 Preparers

The IRS announced Tuesday that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.


The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS said it continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

How to Raise a Business Owner

By BARBARA TAYLOR

On Labor Day weekend my husband and I – the only small-business owners at a gathering of family and friends – were asked repeatedly how our business was doing. We were honest and said that it’s a very difficult environment for small business right now and that we feel fortunate to be hanging in there.


One nameless relation stopped clearing the dishes and piped up with the following statement: “If it doesn’t work out, you two can just go out and get jobs like the rest of us.”

There’s one in every crowd, isn’t there?

Yet another relative at a different holiday gathering said more or less the opposite: “At least you guys are out there trying to do something, rather than expecting someone to hand you a paycheck every two weeks.”

As a small-business owner, I’ve become accustomed to encountering both points of view. But it made me wonder how I instill the latter mindset – that you can make your own way in the world and don’t necessarily need to rely on someone else to provide you with an income – in my own children.

People love to argue about whether entrepreneurs are born or made, with many feeling that success in small business is somehow genetic. My husband has five siblings. An entrepreneur raised all six kids, yet only one became a small-business owner. I had no exposure to business growing up, yet here I am on my second venture. Rather than calling it genetics, I think it has more to do with children of entrepreneurs being the beneficiaries of an early education in business.

My 6-year-old is starting to figure out how the world works, and where we all fit in. He knows that his mom and dad run a business together, but I can see that it doesn’t always add up in his mind. Other parents have jobs. They work for somebody, or sometimes one parent works and the other stays home. He doesn’t meet many kids with parents like his. I guess we’re not the norm, which is something children pick up on at a young age.

As my children get older and begin their elementary school education, I keep an eye out for where business literacy emerges as part of the curriculum. So far, I don’t see much, although the basics of personal finance – bills and coinage, and how to count them – begins in kindergarten.

In fact, I’m not sure that we have a real grooming system for raising entrepreneurs and business owners in this country. The ethos is built into our culture – you can do anything with hard work – but it seems business education doesn’t begin in earnest until you choose a major in college. The “land of opportunity” and the “American dream” are synonymous with the entrepreneurial spirit. Yet if you were to stop people on the street and ask them how to start a business, I’ll bet the common response would be something like a) get a friend or relative to loan you some money, and b) try it, see what happens and hope for the best. It’s no wonder that entrepreneurs are perceived as risk-takers and failure rates for start-ups are so dismal.

Certainly a business degree is no guarantee of success. Which brings me back to early education at home. Here are a few qualities that I try to instill in my kids – for success in both life and entrepreneurship:

1. Ability to solve problems creatively.

2. Desire to learn and expand knowledge.

3. Ability to analyze a situation and make good decisions.

4. Self-motivation and belief in your own abilities.

5. Persistence, tenacity and resilience.

I’m always listening for potential opportunities to illustrate general business principles and create awareness of the business behind everyday things. For example, we drove by a construction site the other day. My youngest pointed out the window at an excavator and said, “I want to drive one of those some day.”

“Maybe some day you’ll own a business that helps people build things,” I replied. There was silence in the back seat. I figured what I said either made no sense whatsoever, or perhaps got him thinking about the world in a different way – if only for a moment.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark.

Making Cities Entrepreneurial

Small Business Trends


September 20, 2010 By Scott Shane


There’s an industry of consultants offering advice to city, county and state policy makers on how to generate more entrepreneurs in their locales. Much of this advice is based on research that looks at what’s different about places that have more entrepreneurs from places that have fewer of them.

Many governments are following this advice without looking deeply enough at the research behind it. A brief glance shows four problems with using much of the analysis to develop public policy.

1. The evidence doesn’t always support the theory. Consider, for example, the argument made by economic development guru and consultant, Richard Florida, that increasing demographic diversity will increase entrepreneurial activity. Florida’s own research fails to show that places with more diversity have more entrepreneurs. His diversity index, which measures the share of the population that is gay, and his melting pot index, which captures the foreign born share of the population, have no statistical relationship to the rate of new business formation when other factors are also considered. The theory that increased demographic diversity will lead to more entrepreneurship isn’t supported by the evidence.

2. The causality is often backwards. Again consider Professor Florida’s research. It shows that places with more amenities tend to have more entrepreneurship. But the direction of causality of this relationship is unclear. Does having more amenities lead to more entrepreneurship or does more entrepreneurship result in the creation of more amenities? Because the former interpretation suggests a policy action – build amenities – while the latter does not, policy makers have assumed that more amenities leads to more entrepreneurship and have built amenities in the hope of attracting more entrepreneurs.

3. The studies often focus on only a few types of new businesses. Consider, for example, a new report by Edward Glaeser and William Kerr with the catchy title “What Makes a City Entrepreneurial?”

In their study, the authors defined “entrepreneurship” as the formation of new independent manufacturing establishments with employees. While that definition sounds reasonable, these businesses account for only one percent of all new companies.

Drawing conclusions from a one percent sample wouldn’t be a problem if the places that have a lot of new manufacturing employers also have lots of other types of new businesses. But they don’t. Glaeser and Kerr write, “Our entry metric has a 0.36 … correlation with the 2000 self-employment rates at the city … level.” That is, cities with the highest self-employment rates aren’t the ones that have lots of new independent manufacturing establishments with employees.

Recent research conducted by Larry Plummer for the Office of Advocacy of the U.S. Small Business Administration provides further evidence for why drawing conclusions about entrepreneurship on the basis of new business formation in manufacturing is problematic. Looking at the rate of new independent establishment formation from 1990 to 2006, Plummer found that the rate in manufacturing correlated only 0.33 with the overall rate. Moreover, it correlated only 0.16 with the rate in retail trade, 0.13 with the rate in high tech, and 0.06 with the rate in business services.

Moreover, the top places for new manufacturing business creation are not the same as the superstars for new firm formation in other economic sectors. Of the 20 counties with the highest rate of creation of manufacturing establishments from 1990 to 2006, only one, San Juan, Colorado, was in the top 20 counties for overall rate of new business formation.

4. The factors that stimulate one type of entrepreneurship often dampen others. Consider, for instance, the factors that enhance entrepreneurship in manufacturing and high tech. Plummer’s study showed that places with more college graduates had fewer manufacturing start-ups, but more new high tech businesses. Many would argue that we should increase the number of college graduates in a region, even if that comes at the expense of number of manufacturing businesses started, especially if the rise in the number of degree holders leads to a boost in high tech start-ups.

In short, academic research doesn’t provide strong evidence of specific policies that increase rates of entrepreneurship in a locale. Maybe government officials should take the money that they are using to implement the academics’ recommendations and give it to the entrepreneurs they are trying so hard to create.

Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

Pricing Strategies for Selling Services

Pricing Strategies for Selling Services


A common strategy for small businesses is to undercut the competition by charging lower prices. For instance, if every other graphic designer you know charges $100 an hour, you figure you'll steal business away from them by charging only $50 an hour. Charging low prices, or lowballing, as it is commonly known, is a terrible pricing strategy for service businesses-for several reasons.
First, your perception that a lower price makes you more attractive to clients is not universally true. Yes, some clients are price buyers, and your low price will draw them in like moths attracted to a flame. But there are many other clients who do not buy based on price. These clients value other attributes-such as quality, reliability, speed, customer service, expertise, track record, and reputation-and are willing to pay a premium price to get them. In fact, your low price signals to many of these buyers that you do not deliver those desirable attributes.and that you and your services are inferior. The low price actually turns these prospects off!
This is not theory, by the way. Direct marketers know that, in split tests of price, the low price for a product or service often loses and is less profitable than higher prices, which generate more orders and sales. Low prices create a perception in the client's mind of low value. As John Ruskin, the 19th-century English critic, pointed out, "There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey."
Second, your low price attracts a less desirable clientele than a premium price, which attracts clients who value good work and don't mind paying for it. Price buyers are the least profitable clients to work for, and ironically, often the most demanding and difficult to please.

Third, in a service business, time is money. The less you charge, the less money you make-and the less profitable your business. Given the choice, wouldn't you rather work for $100 an hour instead of $50 an hour, or earn $200,000 a year instead of $50,000 a year?

The Marketing Plan Handbook
Robert W. Bly
Build Out Your Product Line
Page 133
Entrepreneur Media Inc.
Copyright 2009

Let's Hope this Happens!

AICPA Asks Congress to Repeal New 1099 Requirements


WASHINGTON, D.C.

(JULY 27, 2010)

BY WEBCPA STAFF

The American Institute of CPAs has written a letter to members of the House and Senate asking them to repeal the section of the new health care law that requires businesses to report to the Internal Revenue Service any purchase from a vendor of goods or services worth $600 or more during the calendar year.

The AICPA said it would be burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC information return. Furthermore, the AICPA said the information collected on the 1099 forms will not be very helpful to the IRS in collecting any unpaid taxes that should have been paid by the vendor because it will be difficult to reconcile payments reported on the forms and income reported by the vendor.

The reporting requirement is included in the Patient Protection and Affordable Care Act and is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

“This expansion of information reporting may prove to be so burdensome to small businesses that we believe it will significantly contribute to the hurdles to growth and formation that businesses face,” wrote AICPA Tax Executive Committee chair Alan Einhorn.

“Repeal of section 9006 of the Act is the best alternative to imposition of an overwhelming compliance burden on the nation’s small business community,” he added.

New 1099 Requirements for B2B Transactions

A recent tax code addition will mean increased paperwork for small businesses.


By Bonnie Lee
July 14, 2010

I’ve got a bone to pick with our congressmen and congresswomen! You know how legislators sneak unrelated provisions into major bills? Yeah, well, they did it again. Section 9006 of the massive Patient Protection and Affordable Health Care Act will mean yet another huge paperwork burden for small business. It has to do with issuing 1099 forms; it has nothing to do with health care.


Beginning in 2012, all businesses will be required to prepare 1099s for all services and goods purchased from all vendors in excess of $600. Current law dictates that only services provided in excess of $600 must be reported via form 1099 and that corporations (with the exception of attorneys) are exempt from receiving 1099s.

Beginning in 2012, corporations will no longer be exempt, and purchases of goods must also be included. The passing of this legislation is an attempt by the government to close the $300 billion tax gap, which will help pay for health-care reform. So I guess it indirectly relates to the Patient Protection and Affordable Health Care Act in which it was included.

Depending on the industry, many businesses must collect, report and pay over a variety of excise taxes, as well. How much does all that cost your business in bookkeeping and payroll preparation fees? Now business owners must report all business-to-business transactions. So purchases your business makes from Staples, Office Depot and other vendors are included as reportable transactions. You must obtain every vendor's federal ID, track your purchases and prepare the form. This will involve many additional hours of bookkeeping time. It will be mandatory to get an accounting software upgrade because there will be a new form and new preferences to set within the software to track these numbers. It's great for all of the bean counters who can double, triple and maybe even quadruple their 1099 preparation fees. But at what cost to the small-business owner who is attempting to recover from this recession and keep her business going?

Speaking of 1099 reporting, the situation gets worse. Beginning in 2011, all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business on a new IRS form 1099-K.

I thought there would be overlap, but just as I fretted about this possibility, the IRS came up with a solution. So pay attention! If you pay for purchases with a credit or debit card, you are not required to issue a 1099. The credit card companies will do so. No overlap after all. You are only required to issue 1099s for payments made via check or cash. So I won't have to ask Office Depot for its federal ID after all. Because the format of form 1099 will change, we will all have to purchase the upgraded version of QuickBooks or whatever software is used for accounting and 1099 preparation.

It's still going to be a massive amount of paperwork.

________________________________________

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all 50 states at all levels within the IRS. She is also the author of Taxpertise: The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business the IRS Doesn't Want You to Know, from Entrepreneur Press.

Health care mandate unconstitutional - From NFIB

It's the time of year for fireworks, barbecues, pool parties and celebrating our nation's freedom. Because of what our forefathers fought for, the American dream of entrepreneurship, prosperity and limitless creative ambition has become a reality for so many people.


But this July 4 brings a harsher reality for Americans as one of our most core freedoms hangs in the balance: the freedom from the government to force citizens to buy a certain product or participate in any one part of commerce.

Three months ago, Congress passed and President Obama signed the health care bill into law. The nation needed health care reform, but this law was not the way to do it. In fact, this law is unconstitutional.

The health care law infringes on every American's right to purchase what they please, including health insurance plans. The law forces Americans to buy health insurance, whether they want to or not, or face a penalty in the form of a fine. Our nation was not founded upon a government that forces its own citizens to purchase something against their will or face a penalty.

Maybe being forced to purchase health insurance doesn't sound so bad to you. But what about if the government forces you to buy vitamins or join a gym, or says we can't eat our barbecue on July 4 because it's unhealthy? If the courts uphold the health care law, there is no limit to what the government will be able to mandate Americans purchase.

This law is not only detrimental to our freedoms but also to our businesses, particularly infringing on small business owners' abilities to manage the day-to-day operations of running their operations. The individual and employer mandates combined with the onslaught of new taxes, paperwork requirements and new rules will dramatically increase the cost of starting and running a small business. And while there are a few provisions that may benefit a limited number of small businesses, the overall effect of the law will do much more harm than good.

A law that harms small business harms the entire nation. Small businesses deserve better than a health care law that was rushed through the legislative process, ignored the Constitution and ultimately will destroy jobs and force some small businesses to close their doors. Along with 20 states, the National Federation of Independent Business is fighting to overturn this legislation and protect our nation's freedoms through a lawsuit against the health care law.

Mandates from a central government authority that forced the people to behave or act in certain ways were exactly what we won our independence from more than 200 years ago. Let's not go back.

Julia Ciarlo Hammond, state director, National Federation of Independent Business, Richmond

Marketing with Social Media

Social Networking

FacebookFacebook is an international social marketing technique originally adopted by teens to get to know one another. Using the Internet, Facebook provides a venue for sharing photos, information, news, and sales; it allows marketers to have an interactive Web presence with their existing clientele, as well as to encourage prospective customers to try their products. Consumers are encouraged to become "fans," post messages, and encourage their friends to become a friend of the fashion site. Nordstrom, Versace Couture, Chanel, and Saks Fifth Avenue use Facebook as a fashion marketing tool. It is an inexpensive, targeted, and highly effective method for reaching their primary target market.
Annabelle LaRoque"s private brand, LaRoque, has become extremely successful since its inception in 2005. In 2009, more than 1,000 custom-made designs were sold. What is so amazing about this figure is that the LaRoque brand is marketed solely by flyers, Facebook, and word of mouth. LaRoque says that Facebook has become the best marketing effort for her fashion house. Every design is featured on Facebook. The company receives at least five new orders through this medium every week. LaRoque and her customers e-mail each other, talk about fashions, and discuss new fabrics, styles, and designs - all through Facebook. Customers tell her when they are on their way to her store. Facebook "is amazing for my business," she says. "I change my profile picture every day. My picture is always one of my garments. I always tell people what I am doing at the store. Facebook provides a social relationship with my customers."

One of LaRoque's Facebook marketing efforts is the Rainy Day Sale. Any day it rains, the store has a 15-percent-off sale. Customers will log on to Facebook and e-mail Annabelle; they give her the weather forecast and a reminder that they will be in the store the next day. This marketing promotion instills loyal customer behavior and encourages the target market to continually look on Facebook for new ideas and additional contact with the owner, thereby instilling a sense of friendship.

Fashion marketers must always evaluate the success rate of any advertising strategy. As advertising dollars decrease, it is even more important to verify that every advertising strategy reaches its intended audience and that they retain the information. Retention is "a form of competitive advertising calculated to keep a product, services, industry, or view point in the public eye" (Ostrow & Smith, 1988 p. 207). Research on mobile advertising reveals that 40 percent of viewers recall mobile advertising. This recall level is very important in product advertising and encouraging purchase behavior (Ankeny, 2008).

Youtube

YouTube is a social marketing medium whereby videos, television commercials, and photos are posted on the Internet. Average YouTube viewers are 44 percent female and 56 percent male, between the ages of 12 to 17. The popularity of YouTube is widespread. Each month, more than 2.5 billion videos are watched (Woog, 2009). Its viewing frequency makes YouTube and excellent tool for the fashion marketing industry, and yet, despite the enormous number of consumers looking on YouTube on a daily basis, it would be a mistake to use this tool as your primary fashion marketing effort. And integrated fashion marketing effort remains vital to promote merchandise. Integrated efforts include a variety of marketing efforts that repeatedly demonstrate the fashion's benefits to consumers.
YouTube began as a social marketing tool among the younger target market. This marketing media is now used by a wide range of fashion companies. Companies are able to reach their stakeholder by posting television advertisements and fashion show. Designers use YouTube to continually build brand loyalty, market awareness, and product knowledge.

Fashion Marketing: Theory, Principles, and Practice

Mariaane C. Bickle

Pages 86-87

Fairchild Books

Copyright 2011

FRAUD IN THE HOMEBUYER CREDIT - SURPRISE!!

J. Russell George


The Treasury Inspector General for Tax Administration said in the report that errors and fraud are continuing to plague the First-Time Homebuyer Tax Credit program, despite efforts to curtail previously identified problems. In addition, TIGTA estimates that 14,132 individuals received erroneous credits totaling at least $26.7 million, including 2,555 taxpayers who received inappropriate homebuyer credits totaling $17.6 million for home purchases made prior to the dates allowed by the law. Over 80 of the improper credits were claimed by IRS employees.

The report found that $9.1 million went to 1,295 prisoners who were incarcerated at the time they reported that they purchased their home. These prisoners did not file joint returns, so their claims could not have been the result of purchases made with or by their spouses. Further, TIGTA found that 241 prisoners were serving life sentences at the time they claimed that they bought new primary residences.

“This is very troubling,” said TIGTA Inspector General J. Russell George. “Congress created and modified the Homebuyer Credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers.”

The IRS said it would take action to recapture the payments to prisoners. "In swiftly making the First Time Homebuyer Credit immediately available to more than 2.6 million homebuyers, a very small number of payments were made to prisoners incorrectly, which the IRS is now taking all steps to recapture and to prevent going forward," said the IRS in a statement.. "The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions."

The IRS noted that it does not have access to reliable, accurate data on all prisoners and wants Congress to enact legislation that would give it data on all federal, state and local prisoners.

TIGTA acknowledged that the IRS had curbed some abuses of the tax credit.

“The good news is that the IRS has made significant strides resolving problems associated with this program,” said George. “For example, no minors received the credit, according to our report. However, the bad news is that prisoners are allegedly improperly receiving the credit for buying homes while they are incarcerated. While the IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued, our audit found that additional controls are necessary to address erroneous claims for the credit.”

Congress passed a series of legislative provisions that enabled first-time homebuyers to claim a refundable credit on their 2008, 2009 or 2010 individual federal tax returns. The credit is equal to 10 percent of the purchase price of the home, limited in most cases to $8,000. Initially, the credit served as an interest-free loan of up to $7,500 to be paid back over a 15-year period. However, subsequent legislation excluded the pay-back requirement. According to the IRS, 1.8 million taxpayers received $12.6 billion in Homebuyer Credits through the end of February 2010.

TIGTA issued an earlier report in September 2009 that found fraudulent claims for the tax credit, including by minors (see Audit Finds $636M in Bogus Homebuyer Tax Credits). While the IRS has taken steps to improve its oversight of the program since the earlier report, TIGTA’s new report found a significant amount of fraudulent and erroneous payments in the First-Time Homebuyer Credit Program.

In its new report, TIGTA found that 10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, TIGTA found that 67 taxpayers were using the same home to claim the credit. TIGTA auditors have not fully quantified the total of these erroneous credits, but all indications are that the total will be in the tens of millions of dollars.

Some of the improper payments involve IRS employees, TIGTA found. At least 34 IRS employees claimed the credit despite indications that they owned a home within the past three years. This is in addition to the 53 IRS employees that TIGTA identified in August 2009. TIGTA’s Office of Investigations continues to investigate all of these cases.

At least one lawmaker reacted with outrage to the report. “Last year, we learned that children and persons who did not purchase homes were fraudulently claiming the First-Time Homebuyer Credit,” said Rep. John Lewis, D-Ga., chairman of the House Ways and Means Oversight Subcommittee. “In response, we provided additional authority to the IRS to administer the program. Although I am pleased that the fraud identified earlier does not continue, I am concerned about prisoners claiming the credit. I am also disturbed by 67 people claiming the credit for a single address and millions of dollars claimed by people who purchased homes before the program started. The report highlights the need to remain vigilant in this area. We are committed to working with the IRS and TIGTA to address and eliminate fraud with respect to all federal tax provisions."

TIGTA recommended that the IRS conduct an analysis to identify multiple taxpayers claiming the same home for the credit and perform post-refund examinations to ensure that refunds for the invalid claims are recovered, and identify claims for homes purchased prior to the effective date of the legislation. In addition, TIGTA recommended that the IRS increase its scrutiny of questionable claims for the Homebuyer Credit on amended tax returns and improve the collection of data on the national prisoner population. The IRS agreed with the recommendations.

Maybe We SHOULDN'T Boycott BP Gas Stations!

Protests and boycotts of the BP brand generated by the Gulf spill aren't likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company's name.


Nearly all the 10,000 service stations around the U.S. flying the BP flag are owned by independent dealers that are obligated under long-term contracts to sell BP-branded fuel. Some worry that mounting anger over the spill's environmental and economic toll could turn the once-highly coveted brand into a liability.

But the actual gasoline the stations sell is a mixture of fuel from multiple refiners or importers, so the direct impact of any slowdown at BP-branded stations is minimal for the oil giant, which can sell excess supplies as private-label fuels to other retailers. Maintaining a brand presence is important to BP, but the marketing segment only represents a sliver of profit for the company.

BP stations in Florida immediately saw consumers turning away after the leak began in late April. Total sales at BP stations there declined 8%-10% in May compared with last year, while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of the sales declines "means that we are going to have a lot of small business owners going out of business," he said.

Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage, and some have organized protests. Some BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive by. But station owners and independent distributors, who bring fuel to the stations, say it is more difficult to quantify the silent protesters who simply drive to other stations to fill up.

"People are kind of melting away," said Jay Ricker, chairman of Ricker Oil, noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen this year.

Independent fuel distributors, known in the industry as jobbers, are worried about the reduced demand for BP-branded fuel. Station owners are concerned that a drop in motorists filling up their tanks will clip purchases for items such as chips and sodas at attached convenience stores, which account for less than a third of sales but two-thirds of profits.

"The distributor and retailer communities have really become the lightning rod of the consumer backlash, easy targets," said John Phelps, president of Carroll Independent Fuel Co., which supplies 110 BP stores in the Baltimore area. Carroll acquired most of them in the past five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said.

Some BP-branded fuel retailers say there has been a noticeable change in consumers' attitudes since the start of June, when images of oil-blackened wildlife and tar balls on beaches heightened the public's anger about the spill.

"It really coincided with the oil coming ashore," said Jeff Miller, president of Miller Oil Co., a family-owned distributor based in Virginia Beach, Va., that supplies about 50 million gallons of BP gasoline annually and owns 16 stations. He has seen gasoline sales fall 2%-3% this month at four BP stations in tourist areas.

BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to concerned consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization representing independent distributors. The company's support includes full reimbursement for advertising costs normally split with jobbers. The money frequently goes to on-site promotions at service stations.

"BP looks at what they are doing now as a long-term investment for the brand and knowing that investment will play out over time if you are doing the right thing," Mr. Kleine said.

So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could require buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America, an industry group.

Write to Naureen S. Malik at naureen.malik@wsj.com

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Money runs out for small business loan breaks

NEW YORK (CNNMoney.com) -- In the middle of the federal government's National Small Business Week, two of the most successful Small Business Administration programs are about to run out of money -- again.


The SBA announced Wednesday that it is opening up its Recovery Loan Queue for the fourth time.



For more than a year, the SBA has used money first allocated in last year's Recovery Act to temporarily reduce fees for borrowers and increase the guarantees banks receive on loans made through the agency's lending programs. The SBA's loan volume has picked up sharply in that time, a turnaround agency officials attribute to the stimulus incentives.

But the funding for them ran out in November. Since then, the agency has relied on a series of temporary extensions to keep the loan sweeteners in place. Every time the money runs out, the SBA opens up its Recovery Loan Queue to track applicants hoping to collect the last few remaining dollars.

The latest authorization for some of the loan incentives expires at the end of this month, and the money for them is likely to be exhausted even sooner.

President Obama and many in Congress say they want the loan incentives extended for at least the rest of this fiscal year, which runs through September. But the two chambers of Congress haven't yet agreed on legislation to do that. Result: A series of emergency bills that so far have kept the funds flowing, but only after several brief expirations.

"The stopping-and-starting is problematic," said SBA spokesman Jonathan Swain. "It is a complicating factor for our lenders and our borrowers."

When the funding pool starts to go dry, lenders scramble. Seacoast Commerce Bank, a community bank in Chula Vista, Calif., had pushed five SBA-backed loans through by midday Wednesday.

"It certainly puts a lot of strain on the whole process," said David Bartram, an executive vice president in the bank's SBA division.

It also throws borrowers into limbo. Losing the SBA's fee waiver can make a loan thousands of dollars more expensive for the borrower -- and there are some loans banks are only willing to make if they can get the higher SBA guarantee. Without it, those loans become too risky.

"There are some customers that we are not going to be able to help," Bartram said.

Members of both the House of Representatives and the Senate are pushing for another extension, but it's unclear whether legislation can make it through before the Memorial Day break.

"Nothing gets through Congress easily these days, even bipartisan legislation," said Lynn Ozer, executive vice president of government lending at Susquehanna Bank.

SBA lending is one of the few bright spots in an otherwise barren credit landscape, but it's still a small part. A recent government report estimated that SBA programs account for just 4% of all small business lending.

President Obama this week renewed his push for a new, $30 billion loan fund to seed small banks with capital to boost their local business lending. In a report issued Tuesday, the Congressional Budget Office estimated that the measure would cost the government $3.3 billion over the next five years.

An emergency small business boost that fizzled

An emergency small business boost that fizzled

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13 tax changes you need to know before filing your 2009 returns

13 tax changes you need to know before filing your 2009 returns

4 smart fixes for your 401(k)

4 smart fixes for your 401(k)

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Homebuyer tax credit: No e-file and four-month delays

Homebuyer tax credit: No e-file and four-month delays

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Working From Home

By COLLEEN DEBAISE
Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press).
So maybe 2010 will be the year that you finally break out on your own. Voluntarily or not.
As we continue to dig ourselves out of the deepest recession since the Great Depression, many of us have lost corporate jobs. Others worry that layoffs are lurking. We're taking on free-lance assignments, contract work and short-term projects -- and getting them done in the extra bedroom, eat-in kitchen or spare corner in the utility room.
Flexibility -- and Distractions
The home is the new hotbed of entrepreneurial activity.
For those who have temporarily joined the ranks of the self-employed, a home office is the natural (and cheapest) place to get work done. For others who are using severance packages to take a shot at entrepreneurship, the home can be an ideal incubator to test out ideas. Many a successful venture began life in a garage (Hewlett-Packard, in 1938) or launched from a living room (LinkedIn, in 2003).
In many cases, it makes sense to grow the business at home before moving into a separate physical location. Other times, your new venture, career or sideline is simply well-suited to be run out of your home. And in a tough economy, a business owner who has rented office space might return to a home office to trim costs.
About 52% of all small businesses are home-based -- representing a broad swath of industries, from software development and mail-order sales to plumbing and general contracting -- according to statistics from the Small Business Administration's Office of Advocacy.
Is it Right for You?
If you're thinking about a new career as a home-based entrepreneur, consider these questions first:
1 Am I passionate about my product or service? The start-up phase is stressful. You'll need zeal to get through the rough patches, especially in the early days when hours are long and initial profits (if any) are lean.
2 What is my tolerance for risk? There's no guarantee of success -- or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3 Am I good at making decisions? No one else is going to make them for you. Consider how you might handle these early decisions: Do I incorporate? Do I advertise? Do I borrow money from friends or family?
4 Am I willing to take on numerous responsibilities? A start-up entrepreneur must juggle many roles -- from chief salesperson and bookkeeper to head marketer and bill collector.
5 Will I be able to avoid burnout? Many entrepreneurs find it hard to step away. You'll need to develop a work/life balance to avoid working seven days a week, losing touch with friends and upsetting loved ones.
What are the advantages of working from home? The easy commute, for starters, followed by the flexibility and the informal dress code. There also are tax write-offs: As long as you use a portion of your home exclusively and regularly for business, you can deduct a percentage of your rent or mortgage interest, utility bills, repairs and other costs.
Yet there are some distinct disadvantages, too. Most frequently cited is the lack of social interaction. For others, the home is one giant distraction. A pile of dirty dishes, a screaming child or even a sunny patio might compete for attention. Often, friends and family who don't understand you are truly working might call or stop by.
The home can be a difficult place to meet customers or clients, especially if you don't have an extra room or an appropriate place for a business discussion. When it comes to hiring employees, some home-based entrepreneurs say there isn't enough space or that it feels too invasive to have staff in the house. Most home-based businesses (about 93%) don't have employees, according to SBA statistics. Often, it's the need to hire employees that forces home-based entrepreneurs to rent space elsewhere. Lastly, the line between work and personal life can easily blur when working from home.
The Ground Rules
As such, it's important to come up with a set of practices to maintain some degree of separation between your work and personal life. Here are some ways to do so:
Have a separate office space. Ideally, your work space is in a separate room, with a door that closes, good ventilation and lighting. The bedroom is the worst place for a home office, as work becomes the first and last thing you see each day. If you don't have a spare room, screens or cabinets can help divide your work and living spaces.
Install office equipment. Make sure you have a phone line and a computer (with high-speed Internet access) dedicated to your business. Install any necessary business software on the PC, and consider other office-grade equipment as needed: copiers, scanners, work desks, filing cabinets and the like.
Set a timetable. Keeping regular business hours (such as 8 a.m. to 5 p.m., Monday through Friday, with weekends off) will assist you in dealing with clients, customers, suppliers and vendors -- and make it easier for you to have a social life.
Fashion work hours around logical periods of productivity, such as when a spouse leaves for work or kids go off to school. If you live by yourself, set a finite end of the day.
Take breaks. A big challenge for home-based business owners is setting aside time for small breathers or lunch. Short breaks can reduce stress, improve productivity and prevent burnout.
Limit household tasks. Be disciplined about not letting household errands and chores interfere with your work day. Consider getting housekeeping help to free up more time and energy for work.
Get child care. While many parents choose to be home-based to be closer to their kids, young ones can easily distract you from work. Consider getting full- or part-time child-care help, or sharing responsibilities with a spouse or family members.
Communicate to others that you are really working. Make sure those close to you respect your decision to work at home. Ask friends and family not to call or stop by during the day, or if they do, to keep it brief.
Chris Russell, founder of the job-posting site AllCountyJobs.com in Trumbull, Conn., says even his wife, who works outside the home, sometimes forgets that he's trying to work. "My wife will say to me, 'Can you go to the dry cleaners for me? Can you start dinner early?' " he says. "I give her a little friendly reminder: 'I'm working, dear.' "
—Adapted from "The Wall Street Journal Complete Small Business Guidebook" by Colleen DeBaise. Copyright 2009 by Dow Jones & Co. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York. Used with permission.
Write to Colleen DeBaise at colleen.debaise@wsj.com