IRS issues warning on scammers and other security issues

The IRS issued a warning to taxpayers on July 10th regarding the activity of identity theives who use e-mail, faxes and other means to gather personal information from taxpayers while pretending to be from the IRS. I think it should be obvious but take note that the IRS will never send an unsolicited e-mail requesting information.

Which brings me to another security issue. I attended a class for CPAs yesterday and learned that many states now have laws making it illegal to send driver's license, social security and bank account numbers through the internet either in the body of an e-mail or in an attachment. Seems there are people in other countries writing progrms that monitor e-mail traffic just looking for bits of personal information. E-mails and their attachments are not secure.

The solutions (I'm not a techie but this is what was recommended) were either encryption, FTP transfers or portals. Portals are direct links, similiar to online banking, between a secure server and the two parties. For instance, instead of sending the tax return as a PDF attachment, we now place a document through a portal on to a secure server which can only be accessed by the client. They can go to the portal and pick it up whenever they want.

I also learned that the top two ways identity theives get information:

1. Voluntary disclosure
2. Theft of hardware that contains personal data

Make sure you encrypt and/or secure all data that resides on portable devices.

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Within 10 minutes of posting this blog entry I rec'd an official looking IRS e-mail claiming I was due $863.80, and that I'd receive it in 6-9 days if I just "clicked here" and gave them some personal information. I quickly forwarded that e-mail to phishing@irs.gov .

Yet another reason to go green and be proactive

Fines and penalties paid to the government for legal violations are not deductible for taxes. This applies to fines for environmental damage as well. The public policy doctrine and IRC Section 162(f) provide the basis to disallow tax benefits inconsistent with articulated public policy.

Over the years, many companies have had fines reduced by agreeing to perform a Supplemental Environmental Project (SEP) or similar project to settle a matter with the state or federal government. As a general rule, violators pay a smaller fine when they agree to a SEP or other remedial project.

In a recently released IRS Coordinated Issue Directive (http://preview.tinyurl.com/6m9z6l), the IRS says it will deny deductions for these projects because in their view, the cost is a nondeductible fine if the work is done to settle government charges of pollution. This includes wildlife habitat restoration and wetlands purchases.

Hopefully, this position won’t discourage the government and polluters from agreeing to mutually beneficial SEPs. Ideally, this provides yet another incentive to be proactive, go green and avoid the expensive and now non-deductible cost of remediation.

Greenwashing and environmental claims

I was recently drinking from a disposable cup that claimed to be “biodegradable”. While it may in fact be biodegradable, the question that arises is by when and under what conditions? I’m not a scientist but I suspect everything is biodegradable given enough time. Therefore, the biodegradable claim provides no useful information and may in fact be misleading if the cup is simply tossed in the garbage and ultimately buried in a landfill without sunlight and oxygen.

The point I’d like to discuss today is the importance of accurate environmental claims and to point readers towards a new guide published by our friendly neighbors to the north.

On June 25th, Canada’s The Competition Bureau, in collaboration with the Canadian Standards Association released guidelines for the business community to ensure that green marketing was not misleading, while providing consumers with greater assurance about the accuracy of environmental claims. The 72-page report addresses a number of commonly used green claims and provides examples of best practices on how such claims can be used by businesses to comply with the false or misleading provisions of Canadian laws.

Among other practices, the Guide states that:

• The use of vague claims implying general environmental improvement are insufficient and should be avoided.
• Environmental claims should be clear, specific, accurate and not misleading.
• Environmental claims should be verified and substantiated, prior to being made.

You can get a copy of the guide here: Environmental Claims: A Guide for Industry and Advertisers

One item I found particularly interesting was the entry on sustainability claims. Here is what the guide says:

The concepts involved in sustainability are highly complex and still under study. At this time there are no definitive methods for measuring sustainability or confirming its accomplishment. Therefore, no claim of achieving sustainability shall be made.
CAN/CSA-ISO 14021, Clause 5.5

In the spirit of honest advertising and useful information, I have to agree that a claim of achieving sustainability would be inappropriate within the systems thinking paradigm.

I haven’t had a chance to completely read the guide but based on a quick review, it looked like a responsible list of criteria we could all adopt as we go forward with our green business, working towards sustainability.

The value of a CPA

I may have saved a friend well over $50,000 in taxes this weekend.

I don’t want this to be a tax column and I haven’t researched this specific issue to speak with authority but I want to point out the value of professional advice, especially when you are going through life’s transitions (marriage, death, children, divorce, starting or closing a business, etc.) and dealing with non-routine transactions.

During a casual conversation, my friend mentioned that her elderly father wanted to leave his California home to her when he died. The house has over $500,000 of potential gain in it (Market price less tax basis). Dad had or was going to simply add her name to the title with right of survivorship.

While this would get the house to her upon death, my concern here is that dad has made an Inter vivos transfer as opposed to a testamentary transfer. This difference can have significant tax implications since the beneficiary of a testamentary transfer gets a step up in basis while the recipient of an Inter vivos transfer doesn’t.

My advice to her was to talk with an attorney and her CPA to make sure they were doing this transaction correctly from both a legal and tax perspective. While it will cost some money for the professional services, I think it is better to be safe then sorry when engaged in transactions with significant financial implications.

As a CPA, I really, really like it when my clients call me for advice BEFORE these situations arise since it provides us the best opportunity to accomplish their goals and to avoid nasty surprises.

Accounting's role in sustainability

My accounting professor at Bainbridge Graduate Institute (http://www.bgiedu.org/), Dr. Kate Lancaster, PhD, CPA has written a paper with two of her colleagues urging the development of sustainable curriculum for university finance and accounting students, and outlined some specific courses or curriculum modules that need to be created.

Kate asked me if I would write a few sentences about why it is important to include sustainability in finance and accounting curriculum. Here is what I wrote:

"The shift towards sustainability will be a significant business driver over the foreseeable future. An emerging and evolving set of metrics beyond traditional financial measurements will provide guidance, scoring, comparability and accountability for sustainable business practices.

Who better to measure, report, analyze and interpret the data than accountants? It is vital that students learn the thinking and tools they'll need for jobs in the 21st century."

Sustainability offers significant opportunities and challenges for both internal and external reporting. In a sustainable economy, everyone will be on board. It is a hopeful sign when even traditionally conservative professions like accounting begin to see the light.