The Minnesota Society of Certified Public Accountants has released their annual survey of bad deductions. The  organization asked each member Minnesota CPA what were some of the most interesting deductions that their clients wanted to claim. I can understand the frustration of the client but it is a good thing that a CPA intervened and prevented a frustration from becoming an audit.

Not everything that improves your health is a medical expense. This includes exercise equipment, pools, or even better a house in Arizona. The same goes for breast implants and tummy tucks.

Even if you invite a business associate it is not always a business expense. Consider the may who tried to deduct the entire cost of a wedding or three country club memberships.

Not all charity is deductible.  If you give blood there is not tax benefit, but you will save a life. And giving money to your deadbeat brother in law isn't any better. But the one I would like to know more about is how burning down a barn is charity. Perhaps it warmed up some squirrels.

And the best of all is the man who wanted to claim a politician as a dependent. His logic was that he "pays his salary." Hard to argue but even if true by the time you calculated just your share it wouldn't we worth the effort to write it down.

The IRS is still having problems with delayed returns. Originally they said that taxpayers filing before January 26th might see their returns come a week beyond the projected date. Now the tool that gives the projected date is only giving an error message. Any tax filler can check the status of their return at the site "Where's my Refund."

The IRS claims it is a function of the new tools put in place to reduce Identity Theft. The more likely reason is that they are having problems ramping up the new electronic filing system. The irony is the tool was set up to reduce calls about the status of refunds. Now the delays and error messages are driving the call volume up.

They still anticipate issuing refunds within the historical range of 10-21 days. They wanted to disuade calls but it is unlikely to have an impact until the system is working correctly.

This week we already talked about how electronic document management has the opportunity to change every accounting firm. On the same thread the IRS has issued guidance that allow companies to send out electronic K-1s. K-1s are given partners of the business annually by April 15th (April 17th this year).

To send the K-1 electronically, the recipient must consent to electronic format. The consent must demonstrated that the recipient is able to access the electronic document in the form sent. Examples the IRS gives are sending consent via email if that is how the K-1 will be sent or downloading the consent form off of a website if that is where the K-1 will be accessed. 

If you plan to send K-1s electronically there  are very specific standards that must be followed. For example the subject line of an email with the document or the notification must read "IMPORTANT TAX RETURN DOCUMENT AVAILABLE."

For advice on generating your K-1s or how to send them electronically visit your local public accountant. 

The move to from paper to digital records has changed the way that businesses operate. And it is not just with how work is done inside a company but also how companies integrate with vendors and clients. Florence de Borja has written an article that was published on Cloud Tweaks about the digital office and how it is changing the way accountants operate.

Accounting software makes it more simple for company bookkeeper to handle more tasks internally. Larger accounting firms are starting to move down the market to make up for lost revenue from their large clients. These two sides are pinching small and medium sized CPA firms.

By applying better ways of interacting with their client businesses, CPA firms can create additional services. Clients can implement document scanning for all of their invoices and financial documents the accountant and their client now have the same real time access to the accounting data. The CPA can offer more timely advice than a once a month review. The accountant can also spot small problems before they become big ones.

Integrating their records management on the cloud means better service for the client and more revenue for the accounting firm.

The Public Company Accounting Oversight Board (PCAOB) has issue the final rulings and sanctions on Earnst & Young for the problems at Medicis Pharmaceutical Corporation.

PCAOB ruled that the accounting firm failed to properly evaluate the sales returns reserve of Medicis's financial statements. The company reported the reserve as only the replacement cost when it should have been the gross sales price per GAAP. This is because the product returned was not defective product but expired product and the company allowed customers to receive a credit memo for the full cost of the product.

As a result of the order Earnst & Young has been fined $2,000,000 and the three responsible CPAs were fined $50,000 and $25,000. Robert Thibault has lost his CPA and Ronald Butler and Thomas Christie were censured.

If you are more interested in the timeline of the problems you can read the entire ruling here.

The Housing and Economic Recovery Act of 2008 mandated the distribution of 1099-Ks from third party payment entities. The primary one being credit card processors. So if you have gotten calls from clients about a new tax form they are unfamiliar with that may be the source.

That is as far as the Act went. The IRS has taken it further and is requiring businesses to reconcile the reports with internal records. The difficulty is the 1099-K does not include refunds or credits that would make the reconciliation much less difficult.

But before it goes into effect there is a legislative push to remove this burden on businesses. Representatives Aaron Schock and Bobby Schilling of Illinois have introduced the 1099-K Overreach Prevention Act to congress to that end. The bill is still young and it is unclear what support it has but Senator John Thune of South Dakota plans to introduce a similar bill to the senate.

The reporting requirements on business are only growing every year. This is sometimes the IRS but can also be state or local laws that increase regulation. It is impossible for the average small business owner to navigate all the paperwork alone. A small business accountant is a great source for information and help to reduce any future legal threats.

As part of health care reform law, medical devices now have an excise tax. The tax is 2.3 percent of the sale price of the device. The law goes into effect on January 1, 2012. The IRS has issued some clarification on what is a taxable device.

The IRS has defined a device as taxable if "under the Federal Food, Drug & Cosmetic Act of 206 as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, that is recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them; intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease; or intended to affect the structure or any function of the body, and that does not achieve its primary intended purposes through chemical action within or on the body and that is not dependent upon being metabolized for the achievement of its primary intended purposes."

The FDA has listed around 1,700 devices that fit the generic definition. There is an exception for eyeglasses, contact lenses, hearing aids. This also applies to devices that are purchased by the general public at retail establishments.