25 Braintree Hill Office Park • Suite 102 • Braintree, MA 02184 • Tel. 617.471.1120 • Fax 617.472.7560 • www.ocd.com

T h e N e w s l e t t e r f o r A u t o D e a l e r s b y O ’ C o n n o r & D r e w P. C . November 2011 — Volume 10

DealerDetails

In This IssueBasic Estate Planning

Individual Tax Planning Tips for 2011Are You Year End Compliant?

IRS Program to Settle Taxes Due with Respect to Worker Misclassification: Exercise Caution Prior to Participating

O’Connor & Drew, P.C.

has been servicing the

dealership industry

for over 50 years.

Our passion for

dealerships is the

hallmark of our

commitment to the

industry. We have built

our firm on the trust

we have earned from

dealerships of all sizes

throughout the country.

25 Braintree Hill Office Park Suite 102Braintree, MA 02184

FIRST CLASS U.S. POSTAGE

PAID Permit No. 54394

Braintree, MA

IRS Program to Settle Taxes Due with Respect to Worker Misclassification: Exercise Caution Prior to Participating An ongoing issue businesses have with the Internal Revenue Service (“IRS”) is whether or not its workers are being properly classified as employees vs. independent contractors. Why does this make a difference? From an IRS point of view, if a worker is misclassified as an independent contractor, the business is failing to pay certain employment taxes.

In an effort to encourage businesses to come into compliance in the area of worker classification, the IRS has recently announced the creation of the Voluntary Classification Settlement Program (“VCSP”). If an employer chooses to participate in this program, it can make a “minimal payment” covering past payroll tax obligations rather than wait for an IRS audit. Participation in the VCSP will generally result in the business paying 10% of the employment tax liability that may have been due on compensation to workers for the most recent year. There will be no assessment of interest or penalties and the business will not be subject to an IRS employment tax audit for prior years. The business, in turn, agrees to treat the misclassified workers as employees going forward and to extend the statute of limitations three (3) years for assessment of employment taxes for the three (3) years beginning with the date the business reaches agreement with the IRS.

Sounds like a good idea, doesn’t it? Businesses should take caution before taking the IRS up on its offer and look at the big picture. Coming to an agreement with the IRS and classifying workers as employees that were previously

considered independent contractors may have some other, unintended consequences including:

• Employment related rights may now be conferred on the worker as an employee that he/she did not have as an independent contractor. For example, these workers may be entitled to overtime, pension or medical benefits and may be in a position to sue for past due benefits.

• Settling this issue with the IRS does not mean it has been settled with any other authority. This does not bar other agencies, federal or state, from pursuing the business based upon the employer’s “admission” from participating in the VCSP.

• Reclassifying workers from independent contractors to employees may change the employer’s status from being considered a “small employer” exempt from certain requirements. For example, only employers of 50 or more employees are required to provide certain affordable health care benefits or face substantial penalties.

The VCSP program may very well be of use to your business. Before participating in this program, however, you should be sure to have your tax and legal advisors:

Conduct an overview of current classification practices to determine if a valid argument exists for treating the workers as they are currently treated.

Review all the collateral consequences, both tax and non-tax, that could result from participating in the IRS program.

25 Braintree Hill Office Park • Suite 102 • Braintree, MA 02184 • Tel. 617.471.1120 • Fax 617.472.7560 • www.ocd.com

T h e N e w s l e t t e r f o r A u t o D e a l e r s b y O ’ C o n n o r & D r e w P. C . November 2011 — Volume 10

DealerDetails

In This IssueBasic Estate Planning

Individual Tax Planning Tips for 2011Are You Year End Compliant?

IRS Program to Settle Taxes Due with Respect to Worker Misclassification: Exercise Caution Prior to Participating

O’Connor & Drew, P.C.

has been servicing the

dealership industry

for over 50 years.

Our passion for

dealerships is the

hallmark of our

commitment to the

industry. We have built

our firm on the trust

we have earned from

dealerships of all sizes

throughout the country.

25 Braintree Hill Office Park Suite 102Braintree, MA 02184

FIRST CLASS U.S. POSTAGE

PAID Permit No. 54394

Braintree, MA

IRS Program to Settle Taxes Due with Respect to Worker Misclassification: Exercise Caution Prior to Participating An ongoing issue businesses have with the Internal Revenue Service (“IRS”) is whether or not its workers are being properly classified as employees vs. independent contractors. Why does this make a difference? From an IRS point of view, if a worker is misclassified as an independent contractor, the business is failing to pay certain employment taxes.

In an effort to encourage businesses to come into compliance in the area of worker classification, the IRS has recently announced the creation of the Voluntary Classification Settlement Program (“VCSP”). If an employer chooses to participate in this program, it can make a “minimal payment” covering past payroll tax obligations rather than wait for an IRS audit. Participation in the VCSP will generally result in the business paying 10% of the employment tax liability that may have been due on compensation to workers for the most recent year. There will be no assessment of interest or penalties and the business will not be subject to an IRS employment tax audit for prior years. The business, in turn, agrees to treat the misclassified workers as employees going forward and to extend the statute of limitations three (3) years for assessment of employment taxes for the three (3) years beginning with the date the business reaches agreement with the IRS.

Sounds like a good idea, doesn’t it? Businesses should take caution before taking the IRS up on its offer and look at the big picture. Coming to an agreement with the IRS and classifying workers as employees that were previously

considered independent contractors may have some other, unintended consequences including:

• Employment related rights may now be conferred on the worker as an employee that he/she did not have as an independent contractor. For example, these workers may be entitled to overtime, pension or medical benefits and may be in a position to sue for past due benefits.

• Settling this issue with the IRS does not mean it has been settled with any other authority. This does not bar other agencies, federal or state, from pursuing the business based upon the employer’s “admission” from participating in the VCSP.

• Reclassifying workers from independent contractors to employees may change the employer’s status from being considered a “small employer” exempt from certain requirements. For example, only employers of 50 or more employees are required to provide certain affordable health care benefits or face substantial penalties.

The VCSP program may very well be of use to your business. Before participating in this program, however, you should be sure to have your tax and legal advisors:

Conduct an overview of current classification practices to determine if a valid argument exists for treating the workers as they are currently treated.

Review all the collateral consequences, both tax and non-tax, that could result from participating in the IRS program.

DealerDetails DealerDetailsBasic Estate Planning

Individual Tax Planning Tips for 2011It’s that time of year again when taxpayers may want to focus on lowering their tax bill before it’s too late. By making some smart moves before year-end, you can help reduce your 2011 tax bill that will be due by April 15, 2012.

Taxpayers may want to consider taking advantage of these items while they still qualify for the 2011 tax year.

Taxpayers who want to reduce their 2011 adjusted gross income should consider the following actions before year-end:

• Shiftfundsinataxablemoneymarketaccounttoatax- exempt fund

• Usefundsfromincome-generatinginvestmentstopayoff interest paying debts

• Increasecontributionstoretirementplans

• Askyouremployertodeferabonusuntilafter2011

• Sellinvestmentswithcapitallossestooffsetrealized capital gains and up to $3,000 of ordinary income

Other tax saving ideas/actions to consider before year-end include the following:

• Useyourcreditcardtoprepayexpensesthatcan generate deductions for this year such as charitable contributions

• Bunchmiscellaneousdeductionsinto2011bypaying professional or union dues, pay tuition for job related courses, extend professional subscriptions, pay any unreimbursed employee business expenses including travel, meals, entertainment and vehicle costs

• PayyourmortgagepaymentdueinJanuarybyyear-end and get the interest expense deduction in 2011.

• Considerprepayinghighereducationexpensesforan academic period beginning in 2011 or in the first 3 months of 2012

• Ifyouareselfemployedandhaven’tdonesoyet,setup a self-employed retirement plan

Are You Year End Compliant?Have you included the following items in each employee’s final payroll, which will be included on the Form W-2?

• Year-endBonuses

• UseofDemonstrators

• CostofGroup-TermLifeInsuranceCoverageinExcess of $50,000

• CostofShareholder’sHealthInsurancePremiumsand Other Fringe Benefits

Issueallappropriate1099’storecipientsbyJanuary31,2012, and file by February 28, 2012 (March 31, 2012, if filing electronically).

• Reporton1099MISC-Paymentsof$600ormorefor:

Services - Unincorporated Service Providers

Rents - Unincorporated Lessors

NOTE: Reporting is not required for services under $600

• ReportonForm1099-MISC-AllPaymentstoAttorneys, whether or not incorporated

• ReportonForm1099-INT-Interestpaid,including Imputed Interest on Shareholder Loans

• Use1099-BforSettlementPayments(allpayments)

All customers for whom you filed a Form 8300 (“Report of Cash Payments Over $10,000”) during 2011 must receive notificationonyourletterheadbyJanuary31,2012.

A reasonable estimate of the change in the LIFO reserve must be booked and appear on the 12th month factory financial statement. For calendar year taxpayers this would betheDecemberstatement.FailuretorecordaLIFOadjustment on the 12th month statement could result in termination of the LIFO election and recapture of the LIFO reserve into income.

Haveyouconsideredestateplanning?Doyouwanttobe

sure that your wishes are known, your assets are protected

and your heirs are free to grieve in peace knowing that

you have made all necessary arrangements and decision

making for them? Most people don’t consider estate

planning until it’s absolutely necessary or it’s too late.

Do I Need Estate Planning Now?

Some questions that you need to ask yourself are:

1.Doyouhaveawill?

2. In case of a medical emergency, do you have a living will

or a health care proxy?

3. Should you be detained out of the country on a business

trip, do you have someone able to make important legal

and financial decisions for you?

4. Have you named a guardian for your children in the event

that you and your spouse pass away unexpectedly?

5. Have you ensured that your children’s inheritance is

protected?

6.Doyouhavesufficientlifeinsurancesothatyourfamily

will not have to worry?

7. In the event that you died tomorrow - will your spouse be

aware of all the assets held in your name?

If you answered NO to any of the above questions, then

Estate Planning is a must and you shouldn’t wait any longer.

Call us to set up a meeting to discuss how we can set up

yourestateplanat617.471.1120.

Business Succession Planning

Business succession planning is a critical step to ensure

that your family business continues for generations. Have

you considered transferring business interests or other

appreciable assets to your heirs while retaining control?

With the current gifting laws in place there is a great

opportunity to accomplish this at minimal cost as compared

to the estate tax savings. The current lifetime gift exclusion

has been raised from $1,000,000 to $5,000,000 per person

for 2011 and $5,120,000 for 2012. As current tax law

stands, it is expected to be reduced back to $1,000,000 in

2013.

Potential steps:

• Recapitalizesharesintovotingandnon-voting

• Performabusinessvaluationinordertotakeadvantage

of discounts applicable to non-voting interest

• Retaincontrolbykeepingvotingsharesandgifting

non-voting shares

• Removeappreciableassetsfromyourestate

The following items are set to expire by year-end and won’t be available in tax year 2012 unless Congress extends them:

1. The deduction for state and local sales taxes on big ticket purchases (usually deducted by taxpayers whose residence is in a state with no state income tax such as Florida);

2. Energy saving home improvement tax credit for items such as putting in extra insulation, installing energy saving windows, or an energy efficient heater or air conditioner;

3. Tax-free distributions by those 70 1/2 or older from IRA’s for charitable purposes

DealerDetails DealerDetailsBasic Estate Planning

Individual Tax Planning Tips for 2011It’s that time of year again when taxpayers may want to focus on lowering their tax bill before it’s too late. By making some smart moves before year-end, you can help reduce your 2011 tax bill that will be due by April 15, 2012.

Taxpayers may want to consider taking advantage of these items while they still qualify for the 2011 tax year.

Taxpayers who want to reduce their 2011 adjusted gross income should consider the following actions before year-end:

• Shiftfundsinataxablemoneymarketaccounttoatax- exempt fund

• Usefundsfromincome-generatinginvestmentstopayoff interest paying debts

• Increasecontributionstoretirementplans

• Askyouremployertodeferabonusuntilafter2011

• Sellinvestmentswithcapitallossestooffsetrealized capital gains and up to $3,000 of ordinary income

Other tax saving ideas/actions to consider before year-end include the following:

• Useyourcreditcardtoprepayexpensesthatcan generate deductions for this year such as charitable contributions

• Bunchmiscellaneousdeductionsinto2011bypaying professional or union dues, pay tuition for job related courses, extend professional subscriptions, pay any unreimbursed employee business expenses including travel, meals, entertainment and vehicle costs

• PayyourmortgagepaymentdueinJanuarybyyear-end and get the interest expense deduction in 2011.

• Considerprepayinghighereducationexpensesforan academic period beginning in 2011 or in the first 3 months of 2012

• Ifyouareselfemployedandhaven’tdonesoyet,setup a self-employed retirement plan

Are You Year End Compliant?Have you included the following items in each employee’s final payroll, which will be included on the Form W-2?

• Year-endBonuses

• UseofDemonstrators

• CostofGroup-TermLifeInsuranceCoverageinExcess of $50,000

• CostofShareholder’sHealthInsurancePremiumsand Other Fringe Benefits

Issueallappropriate1099’storecipientsbyJanuary31,2012, and file by February 28, 2012 (March 31, 2012, if filing electronically).

• Reporton1099MISC-Paymentsof$600ormorefor:

Services - Unincorporated Service Providers

Rents - Unincorporated Lessors

NOTE: Reporting is not required for services under $600

• ReportonForm1099-MISC-AllPaymentstoAttorneys, whether or not incorporated

• ReportonForm1099-INT-Interestpaid,including Imputed Interest on Shareholder Loans

• Use1099-BforSettlementPayments(allpayments)

All customers for whom you filed a Form 8300 (“Report of Cash Payments Over $10,000”) during 2011 must receive notificationonyourletterheadbyJanuary31,2012.

A reasonable estimate of the change in the LIFO reserve must be booked and appear on the 12th month factory financial statement. For calendar year taxpayers this would betheDecemberstatement.FailuretorecordaLIFOadjustment on the 12th month statement could result in termination of the LIFO election and recapture of the LIFO reserve into income.

Haveyouconsideredestateplanning?Doyouwanttobe

sure that your wishes are known, your assets are protected

and your heirs are free to grieve in peace knowing that

you have made all necessary arrangements and decision

making for them? Most people don’t consider estate

planning until it’s absolutely necessary or it’s too late.

Do I Need Estate Planning Now?

Some questions that you need to ask yourself are:

1.Doyouhaveawill?

2. In case of a medical emergency, do you have a living will

or a health care proxy?

3. Should you be detained out of the country on a business

trip, do you have someone able to make important legal

and financial decisions for you?

4. Have you named a guardian for your children in the event

that you and your spouse pass away unexpectedly?

5. Have you ensured that your children’s inheritance is

protected?

6.Doyouhavesufficientlifeinsurancesothatyourfamily

will not have to worry?

7. In the event that you died tomorrow - will your spouse be

aware of all the assets held in your name?

If you answered NO to any of the above questions, then

Estate Planning is a must and you shouldn’t wait any longer.

Call us to set up a meeting to discuss how we can set up

yourestateplanat617.471.1120.

Business Succession Planning

Business succession planning is a critical step to ensure

that your family business continues for generations. Have

you considered transferring business interests or other

appreciable assets to your heirs while retaining control?

With the current gifting laws in place there is a great

opportunity to accomplish this at minimal cost as compared

to the estate tax savings. The current lifetime gift exclusion

has been raised from $1,000,000 to $5,000,000 per person

for 2011 and $5,120,000 for 2012. As current tax law

stands, it is expected to be reduced back to $1,000,000 in

2013.

Potential steps:

• Recapitalizesharesintovotingandnon-voting

• Performabusinessvaluationinordertotakeadvantage

of discounts applicable to non-voting interest

• Retaincontrolbykeepingvotingsharesandgifting

non-voting shares

• Removeappreciableassetsfromyourestate

The following items are set to expire by year-end and won’t be available in tax year 2012 unless Congress extends them:

1. The deduction for state and local sales taxes on big ticket purchases (usually deducted by taxpayers whose residence is in a state with no state income tax such as Florida);

2. Energy saving home improvement tax credit for items such as putting in extra insulation, installing energy saving windows, or an energy efficient heater or air conditioner;

3. Tax-free distributions by those 70 1/2 or older from IRA’s for charitable purposes