Finances – April 2004

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Transportation Services Index, the new government-compiled economic indicator of U.S. transportation input, increased 1 percent in December over November to an all-time peak of 118.5. TSI uses 1996 as the base, so the index shows that the output in transportation was 18.5 higher in December than in 1996. “Today’s results give us a clear indication of how much the strength of the transportation sector mirrors the strength of our economy, ” said Transportation Secretary Norman Mineta. “If you look at the data, every time the TSI heats up, the economy follows.”

CompuNet Credit Services and TransCore have formed an alliance allowing users of TransCore’s DAT Partners or DAT Connect services to obtain CompuNet Credit reports at the click of a mouse.

U.S. Small Business Administration announced that Congress has extended the authorization for the 504 Loan Program temporarily through May 21. The 504 program provides long-term, fixed-rate financing to small businesses to acquire real estate, machinery or equipment for expansion or modernization. The loans are delivered through Certified Development Companies, which are private, nonprofit organizations dedicated to helping businesses grow and thrive in their local communities.

National Accounting and Finance Council is proposing to revive its State Tax Guide and is asking members of NAFC and the American Trucking Associations for input. For more information, visit this site.

Inside the auditor’s head
You can’t limit your risks if you don’t know what they are. In the case of a tax audit, a trucking company can readily review its potential exposure only if it knows what the Internal Revenue Service looks for in an audit.

An IRS auditor doesn’t treat each type of business the same. It wouldn’t be very savvy to assume, for example, that a florist and a trucking company would have the same tax compliance issues. An agent planning to audit a trucking company will hone up on the industry by reading trade magazines, industry guides and recent tax audit or tax court rulings.

Partner Insights
Information to advance your business from industry suppliers

But an auditor’s most important tool is the “Market Segment Specialization Guide,” published by the IRS for its own auditors. MSSGs, published for a variety of industries, are like roadmaps to the juiciest tax violations. Fortunately, MSSGs are not super-secret documents. In fact, you can view these audit guides online.

The 114-page audit guide is too detailed to summarize here, but three areas merit some attention: unreported income, disallowance of claimed deductions, and additional employment or excise taxes.

Unreported income
Most companies deposit all their receipts to a business bank account and classify the funds as income. But if you have credit balances in any of your accounts receivable from overpaid accounts or unapplied credits, expect an agent to assert that you should claim the additional income.

An auditor will carefully examine the timing of your yearend close. He may look a week or two into the New Year at your deposits or billings. If he sees substantially large items in January, he may argue that additional income should be recorded for that year.

Disallowance of claimed deductions
Clearly, auditors always look for personal expenses claimed as business deductions. If they suspect payment of personal vehicles, travel, entertainment, family payroll, or any seemingly odd disbursement that does not appear “ordinary and necessary” for the business, they will all look further. They may even extend the audit to the company officer’s personal returns. In suspicious cases, they may want to see what things are being paid from the personal bank account as proof that the company is not paying the tab.

Auditors also examine repairs carefully to see if companies are trying to treat capital items as expenses that can be fully deducted in one year. They likely will examine depreciation schedules to make sure depreciation isn’t claimed on assets that have been traded or sold.

“Related Party” transactions come in for particular scrutiny. Any transaction between the company and one of the owners will be reviewed for “arms length” or fair market value pricing. For example, the IRS doesn’t want payments classified as rent if they should be officer payroll.

Employment or excise taxes
Hidden income and inappropriate deductions may be big targets for an auditor, but mishandled employment or excise taxes are probably the juiciest plums of all.

A favorite tactic is to scrutinize workers that you pay as contractors instead of as employees. The question of whether an owner-operator really is an independent contract is a big worry and not as simple as you would think. But in some cases, that can be an issue with lumpers, loaders or other casual labor often thought of as non-employees. Companies generally want to avoid reporting this on a W-2 form. But you had better be sure. For every $1,000 in pay that is misclassified, there would be $150 in Social Security and Medicare taxes due. On top of this, you can add substantial penalties and interest.

Perhaps a bigger risk is classifying someone as a contractor but failing to issue 1099-MISC forms with all recipient information correctly included. Failure to do this properly can result in from $50 to $100 charges per item, which can rack up thousands in penalties very quickly.

One of your accountant’s annual tasks should be to assess your risks of not complying with various exposure areas. You may have to contract separately for this service.

It doesn’t take fraud to get you in big trouble with the IRS. At least once a year, determine whether you are making simple mistakes that could cost you thousands.

Truckload profits a third higher than in 2002
Publicly traded trucking companies generally reported continued financial improvement in 2003 over 2002, which itself was a much stronger year than 2001. As a group, truckload carriers tracked by CCJ reported 33.1 percent higher operating profits last year than in the year ended Dec. 31, 2002. As a group, revenue rose 9.3 percent, exceeding the 8 percent gain in expenses. Notable results include FFE, which reported a 2003 profit more than three times as large as its 2002 profit. And J.B. Hunt and Marten Transport reported profit gains of 84.2 percent and 71.5 percent, respectively. Less-than-truckload carriers also reported strong results, with profits growing 23.7 percent.

Comdata unveils BusinessLink
Comdata Corp. last month announced BusinessLink, a card offering both credit card and debit functionality. BusinessLink allows companies to use a single card to handle all key business support activities, including payroll distribution, travel and expenses, fuel, fleet management and identity authentication, the company says. For trucking companies, BusinessLink offers a card that could be used by every employee – driver, technician, clerical workers and management – who is paid by the company or who purchases goods and services on the company’s behalf.

The cornerstone of BusinessLink, Comdata says, is the ability for a company to establish purchasing authorizations and controls at the individual cardholder level. Those authorizations and controls can be changed in real time via the Web, if necessary. For example, a carrier could temporarily increase the purchasing limit on the credit portion of a card if a driver experiences a breakdown on the road. BusinessLink allows the company to control not only the purchase amount limit but to designate specific items that an employee can or cannot purchase with the credit portion of the card. Authorized purchase information is captured and recorded to the company’s appropriate general ledgercode. Transaction data is available on a secure customer Internet portal.

The PIN-based debit portion of the card, which draws on the employee’s payroll distribution and expense reimbursement funds, is available to the employee at his discretion just as if he were using a bank debit or ATM card.