Finds evidence of overcharges for transactions, postage

By Bruce Kelly September 7, 2011 3:42 pm ET

Living up to its warnings of this year, the Financial Industry Regulatory Authority Inc. said today that it has walloped several firms for overcharging for postage and handling.

In May, Finra chief executive Richard Ketchum warned an audience of brokerage executives at the self-regulator’s annual meeting in Washington that it was making inquiries into firms’ overcharging clients for such services. This morning, Finra said it fined five firms a total of $910,000 for overcharging clients on handling transactions.

Mr. Ketchum earlier said: “We are taking a close look at excess charges for routine services, which some firms appear to be treating as an additional de facto commission. You can expect to see some enforcement activity in this area with respect to particularly egregious examples.”

Finra today said in a statement that the five firms were “understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services.”

Firms allegedly were using the practice to gouge clients, Finra said. “With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction-based remuneration for the firm and thus were far in excess of the cost of the handling-related service the firms provided.”

The five firms and respective fines were: Pointe Capital Inc. of Boca Raton, Fla., fined $300,000; John Thomas Financial of New York, $275,000; First Midwest Securities Inc. of Bloomington Ill., $150,000; A&F Financial Securities Inc. of Syosset, N.Y., $125,000; and Salomon Whitney LLC of Babylon Village, N.Y., $60,000.

To continue reading, go to FINRA fines five firms almost $1M over fees

While Hurricane Irene turned out to be milder than expected, it still caused deaths, injuries and an estimated $5 billion to $7 billion in property damage. And Irene was not the only big problem this year. In the spring we had devastating tornadoes in Missouri and widespread flooding in the Midwest. The sad truth: natural disasters occur every year in the U.S. because this is a big country. If you’re unlucky enough to suffer a disaster-related casualty, here’s what you need to know about the federal income tax implications.

Theoretically, our beloved Internal Revenue Code allows you to claim an itemized deduction on your Form 1040 — for personal casualty losses that are not covered by insurance. Exactly what is a casualty loss? It’s when the fair market value of your property or asset is reduced or wiped out by a hurricane, flood, storm, fire, earthquake or volcanic eruption (not to mention sonic boom, theft, or vandalism).

In reality, however, many disaster victims won’t qualify for any personal casualty loss write-offs because of the following two rules.

To continue reading, go to Natural Disasters and Your Taxes.

Blame Congress. TIGTA gives the IRS credit for having to operate in an environment of everchanging tax laws. The American Recovery and Reinvestment Act of 2009, for example, included 56 tax provisions (20 related to individual taxpayers), and The Worker, Homeownership, and Business Assistance Act of 2009 revised the First-Time Homebuyer Credit, causing untold confusion. More tax laws mean more to enforce; more changes mean it’s more likely taxpayers will mess up.

By Mark Schoeff Jr.

July 27, 2011 3:29 pm ET

Broker-dealers have been engaging in sales practices for structured products that hurt retail investors, according to a Securities and Exchange Commission report released on Wednesday.

In sweep examinations of 11 broker-dealers, the SEC found that the firms may have steered clients into the complex products even though they were not suitable for their portfolios. The SEC also noted instances where broker-dealers charged prices that were too high, did not adequately disclose risks related to them and misrepresented them on customer account statements.

The agency recommended that broker-dealers improve disclosure about structured securities products, establish procedures and controls to prevent abuses in the secondary market and conduct specialized training for their representatives who sell the instruments.

Structured products are derivatives whose value is based on other securities, baskets of indexes, options, commodities, debt issuances and foreign securities. Sales to retail investors rose to $45 billion in 2010 from $34 billion in 2009, as customers have been seeking higher returns in a market characterized by low interest rates and uneven growth.

One of the riskiest structured products, according to the SEC report, is a reverse convertible note, which is a security with an embedded put option.

To continue reading, go to SEC blasts B-Ds over sales of reverse convertibles

The IRS is stepping up property scrutiny as a result of a 2008 Government Accountability Office finding: “At least 53% of individual taxpayers with rental real estate activity for Tax Year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.”

That spurred the Treasury Inspector General for Tax Administration, an independent overseer, to evaluate how the IRS covers individual tax returns with rental real estate activity and to propose changes. These changes amount to a call to war on real estate tax cheats. The IRS is also going to require substantial additional accounting records and costs for all real estate investors.

Gaining From Real Estate Losses

The Dec. 20 TIGTA report specifically recommended that the IRS boost the number of audits of tax returns showing real estate losses. Based on a study of fiscal 2008-09 data, it projected that increased tax examinations could add up to $27.3 million in tax assessments over five years.

“Taxpayers are likely to see rental-property-related audits rise starting almost immediately on all open tax years,” said Audubon, N.J., CPA Joel Petchon. “As of April 15, 2011, returns filed for 2007 in April 2008 will be insulated by the three-year statute of limitations. All others will be subject to potential audit.”

To continue reading go to Real Estate Losses Become An IRA Tax Audit Target

We’re all hearing about the tragedy in Japan, with horrific photos and video footage of the aftermath of the earthquake and 10-meter Tsunami.  The humanitarian disaster, with thousands dead and tens of thousand homeless, will continue to capture the world’s attention.  If you can bear to look, here’s some remarkable Japanese TV footage of the tsunami roaring into the Japanese coastline:

But what impact will the disaster have on the global economy and investment portfolios?  Japanese stocks fell 6.2% on Monday after a 1.72% drop on Friday.  While significant, this decline is actually less than the 7.5% decline that followed the 1995 Kobe earthquake.  London’s Guardian newspaper reported that the Bank of Japan injected 21.8 trillion yen ($266.9 billion) into the Japanese economy, as a measure to limit the financial devastation wreaked by the crisis.

The hardest-hit Japanese stock is likely to be Tokyo Electric Power Company, which has had to close power plants and is fighting core meltdowns in three nuclear facilities.  Toyota, which is now the world’s largest car maker, has announced that it will close 12 assembly plants across the country until at least Wednesday night, causing $72 million a day in losses.

The disaster also had a counterintuitive impact on global oil prices, crude prices actually fell 3% on Friday and slid further on Monday as analysts expected lower demand in the short-term from the world’s third-largest oil consumer.  Longer-term, prices could be pushed up.  Japan typically receives about a third of its energy from nuclear power, but its power capacity fell by more than one-fifth as 11 reactors went off-line.  Japan may be bidding against the world for oil supplies, since oil and gas are the most plausible energy replacements to its nuclear generators.  Of course the additional demand comes as Libyan oil fields have come off-line.

How the disaster will affect other countries is uncertain.  U.S. shares fell 1%, and European shares dropped 1.5% on Monday, but the U.S. News & World Report web site quoted several international economists who believe that the damage is unlikely to spread, and who expect the high-savings Japanese to rebuild quickly and efficiently.  The Japanese do hold about 10% of U.S. government debt, so if the Japanese decide to repatriate funds to pay for a massive cleanup and rebuilding effort, it could raise government bond rates.

The U.S. News & World Report analysis further speculated that the Japanese auto industry may have to temporarily curtail shipments of the Toyota Yaris, Scion xD and xB, Honda CR-V, Accord and Fit and Acura TSX and RL.  Dealer networks normally carry a 30-day supply of autos, so the shortage won’t become immediately apparent; a bigger issue is whether Japanese auto makers will be able to find replacements for the parts suppliers whose factories were destroyed, and whether U.S.-made models will suffer from a shortage of parts shipped from Japan.

By LAURA SAUNDERS of the Wall Street Journal

In a rare show of leniency, the Internal Revenue Service (IRS) on Thursday announced new rules designed to make it easier for people struggling with tax debts to climb out of the hole.

Among the changes, the IRS said it would place fewer claims on taxpayers’ property and would make such “liens” less damaging to taxpayers’ credit ratings. Other changes are intended to help small businesses and forgive debts of more people who are unable to pay.

Commissioner Doug Shulman called the changes an effort to “stand in taxpayers’ shoes” following “the worst recession in a generation.”

“This is a real effort to consider taxpayers’ needs,” said Benson Goldstein, a tax expert with the American Institute of CPAs.

Nina Olson, the National Taxpayer Advocate tapped by Congress to monitor the IRS, was more muted in her response. She called the changes “a significant step in the right direction,” but added that “they are not sufficient to address the problems we have seen.”

The changes affecting the largest number of taxpayers concern liens, or notices that give the IRS a legal claim to a taxpayer’s property in the amount of an unpaid tax debt. The new rules generally prohibit the IRS from filing a lien unless unpaid taxes exceed $10,000, doubling the previous limit, which had been in effect since the mid-1980s.

The IRS also will ease the damage to taxpayers’ credit scores after the full amount of the debt is paid. In an important technical move, the agency will grant more taxpayers “lien withdrawals”—a higher level of forgiveness than the current “lien release.”

According to Ms. Olson, full withdrawal is often better for taxpayers’ credit ratings because it expunges the lien from the record immediately, whereas a release leaves it on the record for at least seven years. A tax lien can knock 100 points off a person’s credit score. The highest credit score is 850 at FICO, a leading credit scorer. Borrowers often need a score in the 700s to qualify for the best rates on loans.

In addition, liens now may qualify for full withdrawal even if the debt isn’t fully paid, so long as the amount is less than $25,000 and the taxpayer enters into a “direct debit installment agreement.”

This typically allows the IRS to make an automatic monthly withdrawal of a scheduled payment from the delinquent taxpayer’s bank account. Taxpayers may apply for a direct debit agreement online at www.irs.gov.

Mr. Shulman said the agency has found that taxpayers with direct debit agreements are good risks and therefore full withdrawals of liens are appropriate.

To continue reading Lien on Me: IRS Eases Debt Rules at the Wall Street Journal

The Internal Revenue Service attributed the late start of the filing season to changes in tax law for 2010 that were finished last week. The agency needs extra time to put processing systems in place, the IRS said today.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” IRS Commissioner Douglas Shulman said in a statement. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the new year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The delay also applies to filers preparing to take advantage of a deduction for college tuition and fees of up to $4,000, and a separate $250 deduction for teachers’ out-of- pocket classroom expenses.

The late start to the filing season will affect an estimated one-third of U.S. taxpayers who itemize their deductions rather than claim the standard deduction, which for 2010 is $11,400 for a married couple filing jointly and $5,700 for individuals. According to IRS data for 2008, 33.8% of individual returns, or 48.2 million, included itemized deductions.

Later Filing Deadline For Tax Returns

For different reasons, the deadline for filing tax returns, normally April 15, will be pushed back to April 18 in 2011. That change occurs because Emancipation Day, a legal holiday in the District of Columbia, will be observed on April 15, 2011, and the two following days are a weekend.

Many taxpayers don’t file until close to the April deadline, in part because it can take time to gather necessary documents.

More than half of married couples filing jointly itemize their deductions, and taxpayers who itemize tend to have higher incomes. They received 69.4% of adjusted gross income in 2008, according to IRS data, more than double their share of the U.S. population.

Alan Straus, a New York-based certified public accountant, said the delay would affect taxpayers who file early and are anticipating refund checks from the IRS.

“For most of my clients, they’re upper-income and they won’t file until much later anyway because their info isn’t complete,” said Straus, former chairman of the New York State Society of CPAs’ committee on relations with the IRS. “This is only a big deal to those expecting refunds and counting on them quickly. For those people it will be unfortunate.”

Many File Later Tax Returns

The change is unlikely to affect taxpayers who wait until close to the filing deadline to complete their returns. In 2010, more than 40% of taxpayers filed their returns after March 26.

Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said the IRS move could delay between $10 billion and $20 billion in tax refunds that would have gone out in late January and early February.

That won’t be enough of a cushion to change when the Treasury Department would hit the $14.294 trillion federal debt ceiling, Crandall said. He said he anticipates that the debt ceiling limit will be reached in April or May, after which Treasury can’t sell additional bonds to finance the federal budget deficit.

“This should not affect the timing of the debt ceiling. My projections suggest that the Treasury will not get close until early April, and there is a chance that it might not have to employ accounting tools until May,” Crandall said. “The backlog from this should be worked off before it is relevant.”

This income tax story originally appeared in Financial Advisor Online Magazine

By Janet Hook and John McKinnon

WASHINGTON—Congress passed the most far-reaching tax bill in a decade late Thursday, averting across-the-board tax increases, enacting new breaks for individuals and businesses and laying a marker for how Washington might work in an era of divided government.

The bill goes to the White House for President Barack Obama’s signature after the House overcame persistent liberal opposition and passed it with an unexpectedly large bipartisan majority of 277-148. The measure passed the Senate earlier in the week also with an overwhelming majority.

The bill reaches deeply into the life and economy of the U.S., more so than might have been expected when Congress first started tackling the matter. Wage-earners will get a new payroll tax break; wealthy heirs get a lower estate-tax rate; and businesses gain an unexpected plum—a big tax write-off for new equipment purchases.

The $858 billion bill breaks a stubborn political impasse prompted by the Bush-era tax cuts, which were due to expire at the end of this year. The bill provides a two-year extension for all income brackets, kicking the issue into the next Congress and into the middle of the 2012 election. Lawmakers, especially Republicans, said the current economy was too weak to withstand a tax increase.

Obama’s success in moving a tax plan through Congress is the opening step on a new, more centrist course White House officials hope will yield results. Jonathan Weisman discusses. Also, Nick Timiraos says higher mortgage rates, soaring due to rising Treasury yields, are likely to hurt any housing recovery.

In the bill’s sweep, Congress signaled a return to tax cutting as a principal engine of driving economic growth, especially compared with Mr. Obama’s 2009 stimulus bill, which put more emphasis on government spending…

For the complete article, go to Congress Passes Tax Deal at the Wall Street Journal.

By Laura Saunders – Wall Street Journal

There are plenty of reasons for taxpayers to scream. Here it is, year-end tax-planning time, when investors must decide whether to take gains or harvest losses and make important retirement-account choices. Yet crucial questions remain—not only about next year’s tax law but also about this year’s.

If Congress doesn’t pass an extension of the Bush-era tax rates for upper-income earners, the top rate on long-term capital gains will rise by one-third next year—an increase that is double the rise in rates on ordinary income. The rate on dividends, meanwhile, could nearly triple. And many taxpayers are still waiting for answers on the 2010 alternative minimum tax, the estate tax and the gift tax.

Adding to taxpayers’ anxiety, two serious overhaul proposals were just announced in Washington—one from President Obama’s deficit commission and the other from the independent Bipartisan Policy Center. While it is unlikely they would be enacted in current form, they take aim at many prized benefits, from the mortgage-interest deduction to low capital-gains rates. It’s natural to fear that moves made now could prove useless later, or even backfire.

Given all the uncertainty, is your annual year-end tax-planning session worth the effort this year? Yes—in fact it is crucial, because it could be your last chance to take advantage of today’s low rates.

Congress will address taxes in December, and may (or may not) clear up 2010 and 2011 issues before year-end. Advisers like Mark Nash of PricewaterhouseCoopers LLP in Dallas are urging clients to get ready to pounce once the law becomes clear. “We are making plans [for clients] now that can be executed quickly before the end of the year, or looking at moves—like Roth IRA conversions or installment-sale elections—that can be revised next year,” he says.

Even if Congress merely extends current law, understanding “wash sale” rules, loss-harvesting and Roth IRA conversions now can pay off later.

That is because the window is closing on current investment tax rates, now at historic lows. Already, many investors face a substantial tax increase in 2013 passed by Congress as part of the health-care overhaul. Every financial and political analyst interviewed for this story expects taxes on investments to rise more than taxes on wages in coming years.

The good news? Investors have enviable flexibility when it comes to timing income and deducting losses—far more than wage earners. There’s so much to say about investment tax planning that we’re saving other year-end tips for next week.

Capital Gains and Losses

If Congress extends the Bush 2001-03 tax rates for couples earning more than $250,000 ($200,000 for singles), then the top rate on long-term capital gains (those held longer than a year) will remain 15% for a year or two. If lawmakers don’t extend the current law, then on Jan. 1 the top rate on gains will rise to 20%.

For the rest of this story about the income tax, go to the Wall Street Journal.