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Part Three – Sex Drugs and Taxes – Nonexistent Commissions and Other Revelations

By Stacie Clifford Kitts, CPA

This is a multipart series about a girl enticed into the indentured life of a door-to-door seller of magazine subscriptions. Her recount of industry practices and the resulting tax consequence is truly shocking.

This story also illustrates the importance of understanding your worker status for employment tax purposes, understanding contracts your employer asks you to sign, the need to research industry practices particularly in door to door sales, accounting  and tax issues associated with cash transactions, tax consequences of self employment and Form 1099, the importance of having a Plan B and consulting with the right advisors before making life decisions, oh and gee a bunch of other scandalous stuff.

This story also makes me question why our lawmakers continue to allow this industry to persist in its abuses against America’s youth!

Need to catch-up?  Start here:

Part One –  How The Nightmare Started

Part Two – Life on the Road With Nick

Part Three – Nonexistent Commissions and other Revelations

Abigail was surprised to find that she was a natural seller. On many days, she was able to bring in more subscription sales than all of the other crewmembers combined. She was elated when Nick pulled up her account on his computer screen and pointed out the commissions she had earned.

Each day Nick would give her a $20 allowance to cover her food and other essentials. But she didn’t care that he wasn’t paying her everything. The small allowance just meant that her commission account was growing.

After weeks of being on the road, Abigail began to notice that all the door-to-door walking was contributing to a significant weight loss. Her old cloths were baggy and looked out of place on her smaller frame. Abigail was ready to draw on her account to buy something new. “Nick, I need some money. These old clothes are falling off. ”

But his answer was not what she expected. “Someone stole the money out of my room,” he explained. “I can’t give you anything.”

“Stole it? What does that mean? When will I get paid?”

“Ask me later,” he told Abigail.

Over the next few days, Abigail continued to inquire about her commissions. But each time, Nick had an excuse for not being able to pay her.

“How can I pay you? He told her one day. “You need to collect cash not checks from your customers. If you don’t collect cash,  I wont have any to give you.”

And so the days and then weeks dragged on, and so did Nick’s excuses.  She slowly began to accept that he was never going to give her the commissions she had worked so hard to earn.

Other Revelations

Not long after her disillusionment over the nonexistent commissions, Abigail began to develop a loathing for many of her fellow crewmembers. She watched in dismay as they became dependent on the drugs and alcohol that Nick fed them. And she grew to dread the drug fueled party nights and the indiscriminate hookups between the crewmembers.

Even more disturbing to Abigail was the instances of pregnancy. With the close living conditions, access to drugs and alcohol, and little opportunity to seek out birth control, pregnancy turned out to be a direct hazard of the job, a hazard that finally ended the journey for many crewmembers.

Getting out

For months, Abigail tried to think of ways to get out. She was afraid to call her parents. She had abandoned school and skipped out on the apartment her parents had gotten for her. What could she say to them now? How could she explain her behavior?

Worse yet, the company, by design it appeared, hadn’t given her enough money to leave. Nick continued to deny her the commissions she had earned. While on the road, she was transported far from her home state of California to Oregon, Washington, Idaho, and Montana. She wondered how she would get home. She was worried that leaving the crew meant homelessness with nights spent sleeping on the street. She felt trapped by the Company. She was under their control, completely indentured to the crew. She felt like their slave.

Desperate to get out, Abigail finally confronted Nick, demanding that he pay over her commissions. He responded by driving her to a bus stop and stranding her there.   Alone and without enough money to get home,  Abigail finally relented and tearfully called her parents to beg them to let her come home.

If you would like to learn more about the abuses of this industry – Stay tuned for Part Four – Tax Consequence.

Note: This story is based on true events and is told with the permission of the taxpayer. Names and some events are changed at the taxpayer’s request.

IRS Presents: Tanning Tax Is Here

Stacie says: July 1st kicked off the new tanning tax provision of the Affordable Care Act that we debated last year.

You can catch up with the debate by reading these posts:

An Interesting Rewrite for the Vanity Tax H.R. 3590 Looks As if Congress Found a Vanity Product with Enough Sin to Justify a Tax

Vanity Tax = Tax the Other Guy Legislation HR 3590

Babbling Incisively on About Fuller Lips, Larger Breasts, Slimmer Thighs and H.R.3590

Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590

Let’s Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.)

The IRS Presents the following information:

Starting July 1, 2010, many businesses offering tanning services must collect a 10 percent excise tax on the tanning services they provide. This excise tax requirement is part of the Affordable Care Act that was enacted in March 2010.

Here are nine tips on the tanning excise tax that providers must collect.

  1. Businesses providing ultraviolet tanning services must collect the 10 percent excise tax at the time the customer pays for the tanning services.
  2. If the customer fails to pay the excise tax, the tanning service provider is liable for the tax.
  3. The tax does not apply to phototherapy services performed by a licensed medical professional on his or her premises.
  4. The tax does not apply to spray-on tanning services.
  5. If a payment covers charges for tanning services along with other goods and services, the other goods and services may be excluded from the tax if they are separately stated and the charges do not exceed the fair market value for those other goods and services.
  6. If the customer purchases bundled services and the charges are not separately stated, the tax applies to the portion of the payment that can be reasonably attributed to the indoor tanning services.
  7. The tax does not have to be paid on membership fees for certain qualified physical fitness facilities that offer indoor tanning services as an incidental service to members without a separately identifiable fee.
  8. Tanning service providers must report and pay the excise tax on a quarterly basis.
  9. To pay the tax, businesses must file IRS Form 720, Quarterly Federal Excise Tax Return using an Employer Identification Number assigned by the IRS. Businesses that don’t already have one can apply for an EIN online at IRS.gov.

Find more information about the excise tax on tanning services, IRS Form 720 and other tax provisions of the Affordable Care Act at IRS.gov.

Links:

YouTube Video:

Tanning Services Excise Tax: English | ASL

IRS Patrol: IRS Requests Public Input on Expanded Information Reporting Requirement

Stacie says: You have until September 29, 2010 to tell the IRS your thoughts  on expanded reporting requirements for Form 1099 recipients.  Check out the ways to submit your comments below:

WASHINGTON — The Internal Revenue Service invited public comment on how to most effectively carry out a law change that, starting in 2012, will require businesses to report a wider range of payments to contractors, vendors and others, usually on Form 1099. These comments will help the IRS issue guidance that implements this provision in a manner that minimizes burden and avoids duplicate reporting.

Under a proposed regulation, many business purchases made with credit or debit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors. The IRS seeks comments on additional circumstances in which duplicate reporting might otherwise occur and on rules that would prevent such duplicate reporting.

The change, enacted in March but not effective until 2012, expanded existing reporting requirements to include a business’s payments related to goods and other property, and payments to most corporations. With some exceptions, payments to corporations are currently exempt from this requirement.

There are three ways to submit comments.E-mail to:

  • Notice.Comments@irscounsel.treas.gov. Include “Notice 2010-51” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR ( Notice 2010-51), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR ( Notice 2010-51), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline is Sept. 29, 2010. Further details are in Notice 2010-51, posted today on IRS.gov.

Notice 2010-51 invites public comments regarding guidance to be provided to payors and other affected persons concerning new requirements with respect to the reporting of payments made in the course of the payor’s trade or business.  Section 6041 of the Internal Revenue Code generally requires information returns to be made by every person who makes payments, as defined in section 6041(a), aggregating $600 or more in any taxable year to a single payee in the course of the payor’s trade or business; new amendments to section 6041 expand reporting to payments of gross proceeds and payments to corporations.

Notice 2010-51 will appear in IRB 2010-29, dated July 19, 2010.

IRS Patrol: Home Buyer Credit – Closing Deadline Extended

Well, I’m a bit late in my reporting of this extension.  Sorry about that.  We’ve just returned from a really great vacation visiting the grand-baby.

So here it is:

The deadline for the completion of qualifying First-Time Homebuyer Credit purchases has been extended. Taxpayers who entered into a binding contract before the end of April now have until September 30, 2010 to close on the home.

The Homebuyer Assistance and Improvement Act of 2010, enacted on July 2, 2010, extended the closing deadline from June 30 to Sept. 30 for eligible homebuyers who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.

Here are five facts from the IRS about the First-Time Homebuyer Credit and how to claim it.

  1. If you entered into a binding contract on or before April 30, 2010  to buy a principal residence located in the United States you must close on the home on or before September 30, 2010.
  2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
  3. To be considered a long-time resident homebuyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
  4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
  5. To claim the credit you must file a paper return and attach Form 5405, First Time Homebuyer Credit, along with all required documentation, including a copy of the binding contract. New homebuyers must attach a copy of the properly executed settlement statement used to complete the purchase. Long-time residents are encouraged to attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statements, property tax records or homeowner’s insurance records.

For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, visit IRS.gov/recovery.

Sex, Drugs, and Taxes – Abigail’s Magazine Road Crew Nightmare Part Two

By Stacie Clifford Kitts, CPA

This is a multipart series  about a girl enticed into the indentured life of a door-to-door seller of magazine subscriptions. Her recount of industry practices and the resulting tax consequence is truly shocking.

This story also illustrates the importance of understanding your worker status for employment tax purposes, understanding contracts your employer asks you to sign, the need to research industry practices particularly in door to door sales, accounting  and tax issues associated with cash transactions, tax consequences of self employment and Form 1099, the importance of having a Plan B and consulting with the right advisors before making life decisions, oh and gee a bunch of other scandalous stuff.

This story also makes me question why our lawmakers continue to allow this industry to persist in its abuses against America’s youth!

Need to catch-up?  Start with  Part One –  How The Nightmare Started

Part Two – Life on the Road with Nick

A slick salesman and successful motivator, Nick was the guy in charge of the crew. Abigail described him as an unattractive slightly older guy – but still in his twenties – who drove a creepy white company van. “You know,” Abigail explained, “it was the kind of van that makes you want to bring your kids back into the house when you see it coming down your street.”

Creepy van guy had an agenda Abigale explained.  His first task was to make sure she signed an Independent Contractor Agreement.

Now Abigail had never seen a contract like the one she was given. Fact was, Abigail had never seen any type of contract before. She didn’t really understand what many of the terms meant – like what the heck was a supplemental addendum – a nondisclosure agreement – there was something about taxes (This meant nothing. She had never filed a tax return before) – a saving provision – and huh – injunctive relief???  Is this written in English, she thought.  Oh hang on – there were some things that seemed to make sense, like the compensation section. At least Abigail thought she could understand that part.

Here was how it was suppose to work: If she sold magazines, the money she collected went to Sales Company and she would receive a portion as a commission. This to Abigail was the most important part – who really cared about the rest. According to the contract, Sales Company would track her commissions account and she would receive draws against her earnings. Other parts of the contract indicated that she could sell magazines in the neighborhoods she wanted, she could choose any accommodations that suited her (as long as she paid for them of course), and she could provide her own transportation. To Abigail, these terms sounded fair. (More on THAT later)

But wait, there was a catch. It appeared that the contract was just a formality, something Sales Company needed in order to comply with its Federal tax requirements (more on this later.) Although Abigail did not realize it at the time, Sales Company had no intentions of honoring all the terms of the contract.

In fact, Nick began violating the agreement almost immediately. “You can’t take your car.” He commanded. “Leave it here. It causes an insurance problem for Sales Company.” Really, she thought – but it says…..oh well, she didn’t want to make trouble on the first day of her great new job.

The next day, the crew was on the road and Abigail began to have a very uneasy feeling. What if life wasn’t as great as she had been told? With little money and no transportation, she found that she was at the mercy of Sales Company. She was isolated from her friends and family, removed from her familiar surroundings, and instantly financially dependent.

An average day on the road

Getting up and out as early as possible was necessary for survival when you lived in a hotel room shared by several crewmembers. Late risers found themselves clashing with each other over bathroom privileges and ultimately missed out on meals.

Hurry – push – fight became the early morning routine

The first item on the day’s agenda was a motivational sales meeting. Here Abigail learned many tricks of the trade. This was also the time when crewmembers who had little or no money tried to coax others into buying them a meal. Abigail was thankful that Nick gave her a daily food allowance. Poor performing crewmembers were not as lucky.

After the sales meeting, crew members piled into the creepy white van so they could be driven to a “target” area. This was the area that Nick chose for the crew to walk around soliciting door to door. Now was also the time for Abigail to pray – pray that the area was safe and pray that she wouldn’t be left there alone. During her time with the crew, Abigail was convinced that Nick never thought of her safety. He freely abandoned her in one neighborhood after another. Abigail tearfully described how she often felt stranded, scared, and alone while canvassing the neighborhoods that Nick chose.

At the end of an average twelve-hour workday, Nick would pick her up and transport her back to a low-end motel where even more unbelievable stuff took place. This was when Nick made the preparations to comply with Sales Company’s bonus program. First Nick would evaluate crewmember performance. Then he would dole out the bonuses. But the thing was – the crew didn’t get bonuses in cash. No. Sales Company gave bonuses in illegal drugs and alcohol. These bonuses Nick fed freely to his underage crew. Hit your target Nick told the crew, and you will get a bonus. For many crewmembers, this either was or became a highly motivating technique.

If you would like to learn more about the abuses of this industry – Stay tuned for Part Three – Nonexistent Commissions and other Revelations – I promise, the tax consequence is coming.

Note: This story is based on true events and is told with the permission of the taxpayer. Names and some events are changed at the taxpayer’s request.

Sex, Drugs, and Taxes – Abigail’s Magazine Road Crew Nightmare

By Stacie Clifford Kitts, CPA

This is a multipart series  about a girl who was enticed into the indentured life of a door-to-door seller of magazine subscriptions. Her recount of industry practices and the resulting tax consequence is truly shocking.

This story also illustrates the importance of understanding your worker status for employment tax purposes, understanding contracts your employer asks you to sign, the need to research industry practices particularly in door to door sales, accounting  and tax issues associated with cash transactions, tax consequences of self employment and Form 1099, the importance of having a Plan B and consulting with the right advisors before making life decisions, oh and gee a bunch of other scandalous stuff.

This story also makes us question why our lawmakers continue to allow this industry to persist in its abuses against America’s youth!

Part One –  How The Nightmare Started

It was a warm fall day not so long ago when a young man knocked on Abigail’s door. He was selling magazines. “Can you help me out by purchasing a subscription?” he asked.

Now as it turns out, Abigail had recently graduated from high school and had just moved into her own apartment. She was also attending classes at the local college and working a part time job. But she wasn’t happy in her new life. College wasn’t what she had expected and money was tight. Abigail was aching for something to change.  And change it would.

“Oh he really was a confident little charmer,” Abigail explained as she recounted her story.

He stood on her porch and flirted, saying all the right things.  And before she knew it,  she was handing over her phone number along with the remains of her monthly allowance.  And as expected, once he had her money in hand, the conversation quickly ended.   Abigail was sure she would never hear from the charming young man again.

But she was wrong.

Not long after, Abigail began to receive phone calls.  For several days Abigail and the young man had long engrossing conversations.  It was during these conversations that Abigail learned how  concerned he was about her and how he wanted to help.   He told her how he could provide her with a better life, filled with excitement and adventure. “We could have so much fun,” he told Abigail. “Why don’t you join my magazine road crew? You can make lots of money and travel all over.” It was a chance of a lifetime, you see,  because not just anyone was invited. She was special. He could tell she would do well.

But there was this one small tiny little problem.  She had to leave straight away before his crew left the area. There was no time to talk to her parents, no time to drop her classes, no time to deal with her apartment lease. If she was going to come, she had to do it now.

Irrational as it might sound, the choice for Abigail was clear. She would join the charming man on the road, have fun, and make tons of money. She packed a bag, locked the door to her apartment, and said goodbye to her old life……

If you are interested in hearing more about Abigail’s nightmare, stay tuned for the upcoming post: Life on The Road With Nick.

Note: This story is based on true events and is told with the permission of the taxpayer. Names and some events have been changed at the taxpayer’s request.

IRS Issues Regulations on 10-Percent Tax on Tanning Services Effective July 1

WASHINGTON — The Internal Revenue Service today issued regulations outlining the administration of a 10-percent excise tax on indoor tanning services that goes into effect on July 1.

The regulations were published today in the Federal Register.

In general, providers of indoor tanning services will collect the tax at the time the purchaser pays for the tanning services.  The provider then pays over these amounts to the government, quarterly, along with IRS Form 720, Quarterly Federal Excise Tax Return.

The tax does not apply to phototherapy services performed by a licensed medical professional on his or her premises.  The regulations also provide an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

The IRS and Treasury Department invite comments.

Send submissions to: CC:PA:LPD:PR (REG-112841-10), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.

Submissions may be hand-delivered to: CC:PA:LPD:PR Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-112841-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW;  Washington, DC,

Submissions may be sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (REG-112841-10).

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