Ken B. Winger wrote:

- quote -

Without knowing more about the situation, it's hard to say.
But, it is entirely possible that they are doing it "wrong."

One of the big dilemmas in this profession is that we are
all aware of situations where the law says one thing, but
IRS enforcement and general compliance is lax. Strictly
speaking, we are supposed to go with what the law says, not
with what we can likely "get away with." Trying to balance
these factors, and keep clients happy, is a constant
struggle.

I can't tell you what to do in your situation. My own
philosophy is to shoot for (at least) "substantial
compliance," by which I mean that we don't ignore obvious
rules, but might use estimates or other shortcuts to get the
job done. In my view, claiming that there is no taxable
personal use on a vehicle that the employee drives home is
likely "frivolous" (except, perhaps, in narrow circumstances
involving police officers or emergency workers). So, you
will always see some kind of an adjustment (of greater or
lessor precision) for this on the returns that I prepare.

MTW

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"Ken B. Winger" <kbwing[at]comcast.net> wrote:

- quote -

I don't believe that there are any criminal penalties for
failing to file an amended tax return. If there was a
mistake on the return, then it was a mistake. If the
mistake is discovered by the IRS and it is in their favor,
then they may impose penalties and interest which might be
higher than they would have been if an amended return were
filed.

That covers the criminal and financial aspects regarding
amending tax returns. However, I do not know the ethical
aspects. Certainly, the client should be advised that the
proper approach is to amend prior years. Beyond that, I am
not sure if there is a clear answer as to what an advisor
must do.

As far as correcting the prior years' go, I do not believe
that it is ever advisable to make a "catch-up" inclusion.
There is no legal basis for this. It is simply another
error.

- quote -

I don't think so.

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"Hamlet the Prince" <Hamlet_the_Prince[at]att.net> wrote:
- quote -

In order to do this, say the total fringe value is $1,400
for 2002 for 1 EE, I would need to do the following?

1. Gross up for taxes, so total compensation would be $2,078.69
assuming 25% Fed W/H as follows:

Gross Pay $2,078,69
Less: Fica 128.88
Med 30.14
Fed W/H 519.67
Less: Personal Use 1,400.00

Net 0

2. J/E to record underpayment of wages due to Personal
Use of Company Car

DR Wages 2,078.69
DR ER Taxes 159.02
CR Auto Expense 1,400.00
CR Accrued Payroll Taxes 837.71

3. In 2004, Company would pay 2002 taxes:

DR Accrued Payroll Taxes 837.71
CR Cash 837.71

4. Amend 4th Qtr 2002 941, SUTA, L&I and 2002 FUTA

5. Amend 2002 1120 Tax Return

6. File 2002 W-2c and W-3c and give copy of W-2c for EE
which they will return need to file 1040X for 2002.

Granted this is the IRS proper procedure, however, would a
"reality" or "materiality" factor play in this at all? For
Example, I find the total value to be $100, would you still
go through out these steps?

If I were an EA, and I advise the client what is required
to be done, and they refuse, am I liable if I still do their
return? What are my options? One naturally would be to
terminate my services with them.

Are there any other steps I am missing to correct this
error?

Assuming client agrees to correcting prior returns, is there
any way their top compensated 3 EE's can avoid including
personal use of company car in their W-2's other than EE
paying a monthly amount which would be deducted from the
annual fringe benefit or stop using the vehicle?

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

Yes, plan to report CUMULATIVE, even though technically you
are correct, should amend each year. Here is another CPA
opinion:

1. Over 98% of businesses use of autos do NOT keep actual
mileage log books. The taxpayer is allowed to take the auto
deduction, however, in an IRS audit, if NO log is kept, then
the IRS will disallow the deduction. However, the auto
deduction still needs to be taken on the business tax
return.

2. The auto expense does reduce the net income. So weather
the expense is recorded as an auto expense or employee
compensation, net income is STILL the same. My experience is
that most businesses and small/medium CPA firms records the
expense as auto expense and does NOT include it as employee
compensation.

Answer #1 & #2 is not what the IRS wants, but that is what I
have experienced in the real world. Even in some of the IRS
audits that I have conducted, the IRS agent was not really
concerned about the auto expense being recorded as employee
as long as the auto was not really expensive or "luxury".
But if the auto or truck was a "mid line" auto, then no
problem.

Basically, as I am understanding the above comments, since
the net affect is zero, no need to amend, however, as you
pointed out, the understated additional compensation creates
additional payroll taxes which creates additional penalties.
So that is why I am leaning to a middle ground of the
"Cumulative" approach, from doing nothing to do the amended
approach.

Q1. RE: these EE's, they are all immediate family related
with one being 100% shareholder and President. Isn't true
then, since they are related to control EE, (President) and
there is no written policy on personal use, that they only
can use Annual Lease Value Method, even if one of them,
non-officer, could be considered an outside salesman?

I asking this question, since another EE, not part of these
EE's has a husband who is an outside salesman who is
provided an company car where he is not required to track
mileage or any personal use is included in his compensation.
Why would this husband personal use be different the 3 EE's
mentioned above? My explanation would be probably because
they are considered all "Control" EE's" and he is not. 2.
His Company has a written policy on personal use and they do
not. Would there be any other reasons?

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"Ken B. Winger" <kbwing[at]comcast.net> wrote:

- quote -

You should not add the prior year amounts to be included in
the 2004 W-2. Each year stands on its own. If there should
have been inclusions in prior years, you should amend prior
years' returns. Including the earlier years amounts in 2004
does not correct for prior years mistakes.

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Ken B. Winger wrote:

- quote -

Do I understand that you plan to report the CUMULATIVE
amount of unreported personal use for the past 3 years in
2004? Hmmm... I suppose that is one way to deal with the
problem. However, I would make sure that the client(s)
understand that the IRS might NOT accept this approach.
Instead, they may wish to attribute the reporting back to
the years to which it actually applies and assess all kinds
of penalties, interest, etc. Strictly speaking, a full round
of amended returns <groan> is probably called for.

I'm not sure what I would do in this situation without
giving it additional thought. At the moment, I'm leaning in
favor of making a disclosure on the 2004 corporate return to
explain that the amount of auto use attributed to the
officer/employees includes adjustments for amounts not
properly reported in prior years. That way no none can claim
that you are trying to surreptitiously "slide one by."

MTW

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RE: 1..Your correct, can't use cents-per-mile and would use
the original purchase price and add 5.5 cents per personal
mile. So given the fact there were no mileage books in any
of these vehicles, just estimate by calculating comutting
mileage and adding estimate % for other personal miles if
any. So for Vehicle A placed in serivce 10/23/02 which
originally cost $28,131:

Date Used for Personal Use:
10/23/2002

Amount
Annual To be
Year 2002 Lease Included
Period Period Personal No. days Personal Value in Gross
Begin End Days Used in Year % Per IRS Income
10/23/2002 12/31/2002 70 365 19.18% 7,750.00 1,486.30

Amount
Annual To be
Year 2003 Lease Included
Period Period Personal No. days Personal Value in Gross
Begin End Days Used in Year % Per IRS Income
1/1/2003 12/31/2003 365 365 100.00% 7,750.00 7,750.00

Amount
Annual To be
Year 2004 Lease Included
Period Period Personal No. days Personal Value in Gross
Begin End Days Used in Year % Per IRS Income
1/1/2004 10/31/2004 305 365 83.56% 7,750.00 6,476.03


Total Personal Miles Rate
Add: Fuel Costs 7,800 0.055 429.00
Comutting Miles - 30/day X 5 days = 150 x 52 weeks = 7,800/yr


Totals to be Included in 2004 W-2 16,141.33



Note: RE: Personal miles, this is only factoring in for 1
year, naturally you would estimate 2002 and 2004.

Does this make more sense?

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Ken B. Winger wrote:

- quote -

I'm not sure I follow you on this. Why isn't the FMV when
first available simply the original purchase price? And,
since these prices are way over the so-called luxury auto
value, I think your only option is to use the lease value
tables (rather than cents-per-mile). Add 5.5 cents per
personal mile for the value of employer-provided fuel.

MTW

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Facts: Just discovered, after taking tax seminar, and
asking C-Corp Client, who's business is a selling
Retail/wholesale paint, the following questions RE:
Personal use of company vehicles:

1. Following vehicles:
Acquired: 10/23/2002 - 2002 Ford Explorer - Used by Officer - New 28k
05/05/2003 - 2003 Ford Windstar - Used by Officer - New 21k
12/11/2003 - 2003 Ford F250 - Used by EE - New 41k

2. Written agreement for personal use of company vehicles: None

3. Used only for commuting from and to work: Yes, and any
other personal use. Stored at each of their personal home's
at end of the business day.

4. Filed 1120 tax returns for Corp up thru 2003.

5. All vehicles meet the 50% business use.

6. Employer pays for all maintenance, FUEL, and insurance.

Q1: Since now aware of the liability issue of unreporting
income and payroll taxes, and there were no log books placed
in these vehicles at time individual's began using these
vehicles listed above, what is the best way to handle this?

Option A:
1. First thing, place logbooks in all vehicles immediately,
and start tracking personal miles to EOY, and then use
Cents-Per-Mile rule, since FMV was not
determined on first date it was available to each
individual.

2. Estimate personal usage through obtaining Nov and Dec as
average, to calculate total personal miles for Year 2004 x
..375 and include in each respective individual's W-2.

a. Confirm total miles for each vehicle was driven at
least 10k for 2004.

Option B?

Thank you

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