NEWS & PUBLICATIONS | Focus on Forensic

MEET CARL FEDDE

Today we’d like to introduce you to Carl Fedde.

Hi Carl, it’s an honor to have you on the platform. Thanks for taking the time to share your story with us – to start maybe you can share some of your backstories with our readers.
I started my career as a CPA, as an auditor, auditing banks, education institutions, and city governments. One day, a Judge, longtime friend, asked for my assistance in determining the loss profits in a contract dispute. I presented my opinion and the Judge asked that I testify to my findings in court. That was the start of my career as a forensic CPA providing litigation support to attorneys seeking financial answers to legal claims by their clients. I took advanced training in business valuations, fraud, and embezzlement, and forensic examinations earning certifications as a Certified Business Valuator (CVA), Certified Fraud Examiner (CFE), and Certified in Financial Forensic (CFF). I provide forensic services to Family Law Court (divorce), Probate Court (trust and probate estates), criminal courts (white collar crimes), and Commerical Courts (financial matters over contract disputes, business divorces, fraud, and embezzlement). As a CPA I must be independent (not know the parties in the legal matter), unbiased, and be able to render an opinion that is supported by industry standards and principles. My opinion must be based on the facts and not upon whom I have been retained by. Being retained does not mean you will testify in court. Over 99% of divorce cases settle. In a criminal case there may be a plea agreement. In commercial court, the parties may agree to a settlement and not go to court.

Would you say it’s been a smooth road, and if not, what are some of the biggest challenges you’ve faced along the way?
The struggles as a forensic CPA is keeping up with all of the new developments and industry trends. Another struggle is going through reaps and reaps of data trying to determine what really happen. Data discovery has exploded with the use of computers and the internet. A case could have a million pages of documents that need to be reviewed.

Each legal matter is different and requires different approaches and examinations parameters. There are no handbooks available to tell you how to find theft, fraud, dishonesty, and other wrongs. Each case requires condensing down the data into an easy-to-understand conclusion for a Judge and jury. Trying to find what went wrong when and where is not always readily available.

Thanks – so what else should our readers know about your work and what you’re currently focused on?
As a forensic CPA, I start out with a blank canvass. From my examination of the data, I must create a picture of what happen. How did this scheme get started. Where did the money go, who took the money. how many people were involved and lastly how big was the loss. Like an artist, I start out with small pieces of data looking for a pattern that will provide a road map of the chain of events that occurred. That road map will enable me to complete my canvas painting.

I am most proud when my work provides justice to the aggrieved party. I am most proud when I find how the scheme happen and being able to support the loss.

We’d love to hear about what you think about risk-taking.
I am not a risk taker. As a CPA the numbers must support my conclusion. My world is pretty much black and white. The numbers are the numbers. There may be a risk that I do not find where a loss started but I have been pretty successful following the money when I dig deep enough.

Contact Info:

Website: www.focusonforensic.com
Youtube: @CarlFedde2019

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YOUR W4 WITHHOLDING STATEMENT HAS BEEN UPDATED

With the passage of the CARES Act, the IRS has redesigned and updated your annual W4 tax withholding statement on file with your employer. This is the first change to the W4 format in 33 years.

Do you need to update your W4 for your employer?

The biggest change is Allowances are no longer a part of the W4 form. Allowances were increased/decreased depending on how much tax you wanted withheld from your paycheck. The W4 is now 4 pages long with multiple worksheets. If you do not prepare your own taxes each year, you will not want to complete the new W4 form.

The new W4 is a short recap of your personal tax return filing looking at all sources of income and tax deductions expected in 2020. You then calculate the tax owed from these multiple worksheets. You can pay your 2020 tax liability as a payroll deduction, make estimate payments or direct other payors to withhold 20% tax on any income be distributed to you.

If your professional tax preparer is advising you, have them estimate your 2020 tax liability and provide how to pay that tax liability. From your tax preparer advice instruct your employer how much you want withheld in each pay check. Do not attempt to complete the new Form W4 from the IRS. There are better uses of your time.

Be safe and well.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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HOME OFFICE DEDUCTION DURING CORONAVIRUS-19

With everyone working from home during the Coronavirus, do we get to deduct our home office expenses on our annual tax filing?

The non-reimbursed home office deduction for employees was eliminated in 2018. Employees required to work from home can no longer deduct that home office expense on their personal tax filings.

All is not lost, however, for home office expenses.

Expense of a home office and other reimbursable expenses paid by the company to the employee is not taxable to the employee and is deductible by the company if an accountable plan exists. The accountable plan must be in writing.

For a business to offer an accountable plan, the employer must comply with three standards:

1. The expense must have a business purpose.

2. The expense must be supported with written documentation within a reasonable period of time.

3. The employee must return any unspent advance to the employer within a reasonable period of time.

If any of these three conditions are not met, the money from the employer to the employee is taxable and reported as wages to the employee. Before a reimbursement can be made, the employer must authorize the business purpose.

An authorized business expense could be a cellphone, the Internet, dues, travel, gas, tools, etc. Any of these reimbursed expenses must be fully documented with billing statements, a diary of business activity with mileage, customer name, purpose of call, action taken, etc.

Reasonable period of time to report is defined as at least quarterly reconciliation statements to the employer by the employee. If the company makes an advance, the expense must occur within 30 days of that advance.

In conclusion, home office deduction by individual taxpayers is gone but the employee can be reimbursed for business expenses by his employer, and it is non-taxable to the employee. Hope everyone can return to work after the coronavirus goes away.

Be safe and well.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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YOU SUSPECT FRAUD, NOW WHAT?

Fraud will happen no matter the internal controls in place. It is estimated that companies lose 5% of their revenue each year. If you suspect fraud what do you do?

If you suspect fraud, preserve all potential evidence for outside analysis by an experienced fraud examiner. If you suspect fraud but are not sure, make a backup of your financial systems keeping that backup in a secured location. Hire an outside experience fraud examiner to perform a review of your organization. Using company personnel to perform this task introduces a bias with preconceived notions that will distort the review.

If you suspect an employee/employees, do not fire anyone. Take after hour photos of the suspected employee/employees work space. Prepare an inventory (pictures) of everything in that employee work space. Take a picture of the serial number of all electronic devices. Backup all electronic devices used by that employee.

Once a fraud has been detected and documented, notify your insurance carrier by filing a claim. Preparing the proof of claim is time consuming requiring a detailed explanation what occurred. This claim will present the total dollar loss, how it was committed and the employee/employees involved. If multiple employees are involved, you will need to document each employee involvement and the amount associated to that employee.

The best way to mitigate fraud is with internal controls and the proper moral character of the company. Fraud is going to happen so have the internal controls in place to catch it early.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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POST OFFICE AND THE IRS

More and more items are now being filed electronically but yet some old habits die hard. While the IRS received 153 million individual tax return in 2018, over 90% were filed electronically and 10% were paper filings. Beyond annual tax filings, however, the IRS still relies on the United States Postal Service for everything else. Any correspondence and filings normally require post office filings. The IRS does allow using a fax machine, but owns one of those anymore?

The Post Office handles 146 billion pieces of mail each year with a good record of reliability for delivery. A taxpayer was in IRS tax court and had 90 days to reply to the tax court notice. Most important court filings are normally handled by registered mail but this lawyer just dropped the client’s filing in the dropbox at the post office. The post office did not date the envelope and it arrived at the tax court 30 days late.

The IRS code says any post marked envelope will satisfy the timely filing requirements but this envelope had none. The tax court said filing was not timely but the tax payer appealed that default notice. The Judge allowed a sworn affidavit from the client’s attorney that a timely filing was made, allowing the tax court case to proceed. When mailing time sensitive items, make sure your post office date stamps your envelope but you may have a reasonable judge if it does not happen but do not take the chance.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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FRAUD HAPPENING RIGHT UNDER YOUR NOSE

Fraud, asset misappropriation, happens everywhere. An employee taking a box of paper clips or the employee who fraudulently takes millions of dollars, it is estimated that fraud equals about 5% of total revenue of a company. With fraud everywhere, what does one need to do to stop fraud?

Establishment of internal controls, rotation of staff, management oversite, financial review by external/internal sources and a code of conduct are some of the best measures to control fraud. Most fraud schemes, however, are uncovered due to tips. Controls and oversight do not stop fraud just reduce the loss.

What businesses are most likely to have fraud in the workplace? Generally small private businesses are the victims most often followed by public companies and government agencies. Fraud schemes were found in billing, payroll, check tampering and expense reimbursement.

Who is stealing from the company? Fraud occurs in all levels of the company. Employees with more authority normally take more money. Owner/executives with ultimate control were 20% of fraud cases but 6-10 times the amount of monetary loss over employees with less authority. Men still account for the majority of fraudsters.

Who are these fraudsters. They are in the age group of 31-45 (53%) but fraudsters over age 60 (3%) steal 5 times the amount of the younger group. Most have a college degree or higher (64%) with no prior criminal history.

What are the signs/behavior of fraudsters? The major red flag is that the fraudster is living beyond their means. Other red flags are financial problems, unusual close relationship with customer/vendor, and control issues and unwilling to share duties. Job performance will suffer for the fraudster as they try to juggle many balls during this time of carrying out the scheme.

The source of the facts stated in this report is the annual Report to the Nations as prepared by the Association of Certified Fraud Examiners 2020.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

Photo by Luther Bottrill on Unsplash

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THE PPP LOAN PROGRAM AND THE IRS

The CARES ACT that established the PPP loan program said that loan forgiveness would not be taxable income to the recipient. Now the IRS has ruled that any PPP funds used for normal business expenses are not deductible for federal tax purposes. However, Congress is saying the IRS has it wrong with their latest ruling. Let’s wait and see who wins this disagreement.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

Photo by Razvan Chisu on Unsplash

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IS YOUR DIVORCE PAYMENTS ALIMONY OR CHILD SUPPORT?

In a recent tax court case (Timothy Clinton Biddle vs. Commissioner, TC Memo 2020-39, April 6, 2020) the court took issue with the parties divorced decree which specifically provided amounts for both child support and alimony. Although Congress eliminated the deduction for alimony payments in December 2017, problems still exist. It is further acknowledge that dependent deductions no longer exist for federal reporting purposes.

In the Biddle court case a monthly rate for child support and alimony was stated in the divorce decree. There were 4 minor children with child support set at $1,600/month. Alimony was set at $1,800/month for a minimum of five years and until the youngest child 18th birthday, the death of either spouse, the ex-wife remarriage or the ex-wife becoming self-supporting.

The tax court disallowed the alimony payments by Mr. Biddle and reclassified them as child support payments even though the state divorce papers specifically stated the difference. The tax court said state labels do not control the status of payments but federal law does. Because alimony was conditioned upon the youngest child turning 18, those payments were in fact child support payments and not alimony.

With alimony and dependency deductions gone why care? There is still the child tax credit available but be careful of those federal rules when drafting a state divorce decree. Take into consideration federal law when drafting divorce decrees.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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DO I NEED AN EMPLOYER IDENTIFICATION NUMBER

It depends! The IRS guidelines and rules say you do not need an EIN for your LLC if you are a single member and the LLC does not have employees.

If there are multiple members of the LLC you are required to obtain an EIN. Multiple members of an LLC are automatically a partnership unless they elect to be an S or C corporation. Obtaining an EIN number will establish that all important corporate veil for LLC owners.

How do I obtain an EIN number?

You must complete an IRS form SS-4. You can apply online, by fax or by mail. If you apply online you get your EIN number immediately. Fax or mail applications take a little longer. When you file for an EIN you must provide your social security number and become the tax payer responsible person for the new LLC. As a responsible person you are the first person contact by the IRS.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

Photo by Andrea Piacquadio from Pexels

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YOU MUST PAY THE IRS

All businesses with employees are required to collect social security, medicare and federal/state income taxes from each employee issued a payroll check. Those tax withholdings must be remitted to the IRS. A lot of businesses do not pay those payroll taxes to the IRS.

Penalty and interest can be assessed by the IRS for unfiled tax forms, unpaid tax liabilities, and willful noncompliance. Under the rules, the IRS can now go after the “responsible person” of a corporation to collect taxes, penalties and interest owed. Responsible person is normally an owner or person that has control over the funds or assets of that entity.

Therefore, the IRS can go after the “Responsible Person” assets for unpaid taxes, interest and penalties owed by a corporation or business. The IRS has 3 years to assess the unpaid taxes, interest and penalties from the filing date of the reporting period. The IRS will come after you for unpaid taxes if you are the responsible person so pay business taxes owed.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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GAMBLING AND THE IRS

It was estimated that 26 million people waged $6.8 billion on the Super Bowl between Kansas City and San Francisco 49ers on February 2, 2020. The IRS is watching you using the form W-2G, Certain Gambling. Form W-2G only applies to winnings more than $5,000 with some exceptions. Horse racing and other wagering transactions require form W-2G when winning exceeds $600 or 300 times the wager.

If you are a casual gambler you will report your winnings on line 8 of Schedule 1 of your personal 1040 tax filing each year. You can only deduct wagering losses against any winnings if you are a casual gambler on schedule A of itemized deductions.

If you are a professional gamble you can only deduct gambling related expenses against your earnings. A professional gambler will report winnings on Schedule C with related gambling expense, like entrance fee for poker tournaments. Travel is no longer deductible for professional gamblers.

So if you are a lucky winner from your Super Bowl bet remember the IRS before you spend those winnings.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.

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IRS AND CRYPTOCURRENCY

What is cryptocurrency you say?

Cryptocurrency is an internet-based currency medium for financial transactions.
With its growth and expansion into everyday life the IRS wants a part of the action.

Last year the IRS sent out 10,000 letters to cryptocurrency taxpayers. The 2019 personal tax return
(form 1040) has a question asking the taxpayer whether they participate in cryptocurrency in 2019?

If you do not answer and the IRS discovers transactions in cryptocurrency, the taxpayer will not be able to claim innocents. The IRS has been successful against taxpayers who fail to properly answer tax questions on tax filings. If the IRS finds you a willful taxpayer could result in higher penalties and maybe criminal action.

IRS tax notice 2014-21 states that cryptocurrency is property for tax purposes and a taxpayer must recognize gains on those transactions.

Therefore, a taxpayer must keep track of the purchase date, transaction type, and basis when sold. The IRS is also working with foreign governments to better track cryptocurrency transactions.

If you have any questions, don’t hesitate to contact Carl Fedde at your earliest convenience.