In broad terms, AI is technology that helps computers gather information and find solutions in ways that imitate human thinking. AI uses data to learn—the more data it has, the “smarter” the AI. AI can automate basic business processes, boosting speed, ensuring accuracy, and reducing costs. When employees can use AI tools to help streamline their workflow and complete time-consuming tasks, they are more productive and efficient.

AI can “learn” different skills, like how to make predictions, create new content, and communicate conversationally. Artificial Intelligence is an umbrella term that covers a wide range of AI subsets and approaches, including machine learning, generative AI, large language models, and agentic AI. Following is a snapshot of how these different types of AI work. Chose the one(s) that work best with your practice and/or business model.

Key Applications of AI in Tax Practice

• AI-powered Optical Character Recognition (OCR) and machine learning can scan documents like W-2s, 1099s, and receipts to automatically extract and populate tax forms. This eliminates manual data entry, reducing errors and saving preparation time.
• Generative AI tools, like those integrated into professional tax software, can instantly scan massive amounts of tax laws, codes, and rulings to provide concise summaries. This significantly cuts down the time spent on complex tax research.
• AI continuously monitors evolving tax laws and regulations, automatically updating workflows to ensure compliance. It can also analyze large datasets to detect anomalies, inconsistencies, and potential audit risks.
• AI automates the workflow for tax return preparation, from receiving client data to managing revisions and filing returns. It can assign tasks based on priority and complexity, streamlining the entire process.
• By analyzing a client's financial data, AI can identify tax-saving opportunities and predict future tax liabilities. This provides data-driven insights that allow tax professionals to offer more personalized and strategic advice.
• AI can power chatbots to answer routine client questions or draft personalized communications explaining complex tax issues in clear, simple language. This strengthens client relationships while freeing up professionals.

Benefits for Tax Professionals and Firms

• Automation of time-consuming, manual tasks allows professionals to work more efficiently and accurately. This allows the staff to serve more clients, which helps counter the industry's talent shortage.
• AI minimizes human error in data entry and calculations, leading to more accurate tax filings and a reduced risk of penalties.
• By shifting routine tasks to AI, tax professionals can focus on more strategic, analytical, and client-facing responsibilities which can help improve profitability.
• AI enables firms to provide proactive, personalized service and advice, leading to higher client satisfaction and retention.
• Firms that embrace AI gain a significant competitive edge in efficiency, cost savings, and the ability to attract tech-savvy talent.
• By embracing forward thinking technology their firm is better situated to predict and respond to clients’ changing needs.

Risks and Challenges of Using AI

• Public-facing generative AI can "hallucinate" or provide inaccurate information. For this reason, professional-grade AI systems trained on proprietary, vetted data are essential.
  Sensitive client data must be protected from security breaches when transferred to AI platforms. Firms must implement strict data governance policies and robust security measures.
• Overreliance on AI can lead to a lack of human oversight and judgment, which is critical for interpreting complex tax scenarios and preventing errors. AI can enhance human interaction, but will not replace analysis of many situations.
• AI models can produce biased outputs if trained on biased or incomplete datasets. Firms need to monitor and audit AI systems to ensure fair and impartial results.
• Clear policies must be established to determine who is responsible when AI-generated advice leads to negative consequences for a client.
• Firms may encounter staff expertise gaps, resistance to change, and data integration issues when adopting AI.

The Future of AI in Tax—AI's role in tax practice will continue to evolve, moving toward more advanced capabilities.

• Predictive AI will enable real-time adjustments to tax planning based on changing regulations and client circumstances.
• AI-powered systems will offer more sophisticated scenario analysis and optimization strategies, including for complex areas like digital assets.
• Agentic AI, which mimics human decision-making, will enable hyper automation to replace entire sequences of manual tasks.
• Tax authorities like the IRS are also adopting AI to improve operations and identify audit risks, making it crucial for firms to keep pace.
• With AI handling more routine work, the tax professional's role will shift. Future success will depend on professionals' ability to leverage AI, analyze its output, and apply strategic judgment.

Two credits are available to help with education costs, the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). The AOC is available to students in their first four years of post-high school education for a maximum benefit of $2,500 per student. If the tax liability is less than the credit, a portion may also be refundable. The LLC is for educational costs not taken in a degree program, post-high school, for a maximum benefit of $2,000 per return. The same return can have both the AOC and LLC, as long as they are for different students. The dependent child would be eligible for the AOC and one of the parents may be back in school and eligible for the LLC.

The following chart provides a comparison of the two credits:

The eligibility for the education credits is based on Modified AGI which is adjusted annually for inflation. To calculate the Modified AGI, the following is added back into the AGI to calculate the eligibility for the credits:

1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of American Samoa, and
5. Exclusion of income by bona fide residents of Puerto Rico.

Married taxpayers filing separately are not eligible for the credits.

A substitute for Return is a tax return prepared by the IRS on behalf of a taxpayer who has failed to file their own return. In preparing the SFR, the IRS relies on information it has received from third parties, such as Forms W-2, 1099, and other income reporting documents posted to the taxpayers’ wage and income transcripts.

An SFR does not include deductions, credits, or exemptions that the taxpayer might be entitled to. For example, the standard deduction, itemized deductions, foreign earned income and housing exclusions, or foreign tax credits for U.S. taxpayers abroad are typically omitted. Consequently, the IRS’s calculation often results in a higher tax liability than if the taxpayer had filed their own return.

How The ASFR Program Works

1. The ASFR program automates the process of creating and assessing an SFR. Here is how it typically works:
2. Identification of Non-Filers: The IRS identifies taxpayers who have failed to file returns by cross-referencing income reporting forms against filed returns.
   Notice to Taxpayer: The IRS sends a series of notices informing the taxpayer of their filing requirement and potential liability. There are usually at least a half dozen attempts to contact the taxpayer.
3. SFR Preparation: If the taxpayer does not respond or file a return, the IRS prepares a SFR using the available third-party information.
4. Assessment: The SFR will lead to a tax bill, which if unpaid will trigger the IRS collection process, to recover the amount due. Once the IRS assesses the tax liability based on the SFR; further taxpayer inaction means IRS may initiate levies on wages or accounts or place a federal tax lien on property.

Special SFR Considerations for U.S. Taxpayers Abroad:

U.S. taxpayers living abroad often have complex tax situations that make them particularly vulnerable if a SFR is filed for them by the IRS. Key points to consider include:

1. Exclusions and Credits: U.S. taxpayers abroad may qualify for the foreign earned income and housing exclusions and foreign tax credits. These provisions can significantly reduce or eliminate their U.S. tax liability, but they are not automatically included in an SFR. Failure to claim these benefits could result in an artificially high tax liability.
2. Filing Extensions and Exceptions: Taxpayers abroad are generally granted an automatic two-month extension (to June 15) to file their returns, with the option to request additional time. However, this extension does not exempt them from penalties and interest if taxes are owed.
3. Information Reporting Requirements: U.S. taxpayers abroad often have additional reporting obligations, such as filing the FBAR (FinCEN Form 114) or Form 8938 (Statement of Specified Foreign Financial Assets). Failure to meet these requirements can result in severe penalties, compounding their issues with the ASFR program.
4. Address and Communication Challenges: Notices sent by the IRS may not reach taxpayers abroad in a timely manner, leading to missed deadlines and a greater likelihood of an SFR being prepared. Ensuring the IRS has an up-to-date address on file is critical. If possible, establish a U.S. mailing address that provides online scanning services.
5. Passport Revocation: A taxpayer’s U.S. passport can be denied, revoked, or not renewed if the taxpayer has “seriously delinquent tax debt." This is a threshold amount adjusted annually for inflation (currently $64,000 in 2025). In addition to the tax due, it includes penalties and interest and it becomes quite easy to meet the threshold. Overseas taxpayers are particularly vulnerable when it comes to loss of the U.S. passport. There is no “quick fix” when the passport has been flagged, and generally requires an in-person visit to the nearest passport office to resolve.

How do I know if the IRS filed an SFR for me?

There are a few ways to tell if the IRS filed a Substitute for Return on your behalf:

1. The most obvious sign is receiving notices from the IRS. First, the IRS sends a CP59 notice saying they have no record of your tax return. If you do not file a return or let the IRS know why you do not have a filing requirement because you did not have enough income, the IRS will eventually send a Notice of Deficiency (CP3219N).
2. You can request your tax transcripts from the IRS, either online through the IRS website or by mail. The transcript shows whether the IRS filed an SFR in your name.
3. Log into your IRS account online and check your account summary. An SFR should be reflected in your account, showing the balance the IRS has calculated based on their information.

What should I do if the IRS filed an SFR for me?

Once the IRS files a Substitute for Return (SFR), the best course of action is to file an actual tax return as soon as possible. Filing a return, yourself supersedes the SFR, allowing you to claim all the tax deductions and credits you are eligible for.

File Your Original Tax Return: This is the most direct and effective response.

• Your original return will override the SFR and may significantly reduce the tax owed.
• Include all income, deductions, credits, and dependents.
• You can still e-file (depending on the year) or mail it in.
• If the IRS has assessed a balance from the SFR, filing your return can adjust the amount due.

Respond to the IRS Notice: You likely received a CP3219N or Letter 2566.

• These notices give you a deadline to either file a return or explain why not
• You can submit a signed tax return or a written explanation, and possibly request a 90-day letter to petition Tax Court if you disagree with the assessment.

Pay the Tax (if SFR is accurate): Not ideal, but if the SFR is close to accurate and you just want to resolve it:

• You can pay the balance or set up a payment plan (installment agreement).

Request Penalty Abatement (after filing your return): Even after fixing the tax issue, you might be able to get penalties reduced or removed.

• First-time penalty abatement or reasonable cause arguments can help here.

Seek Help: This process can get complex, so if you’re dealing with multiple years, high balances, or IRS collections:

• Contact our office for help.

Conclusion

The ASFR program underscores the importance of timely and accurate tax filing for all U.S. taxpayers, including those living abroad. While the program’s automation allows the IRS to address non-filing efficiently, SFR rigid calculations often lead to inflated tax liabilities. By understanding the implications of a SFR and taking proactive steps to file and respond to IRS communications, taxpayers can avoid the program’s pitfalls and ensure their tax obligations are met accurately and fairly.

If the IRS has already assessed based on the substitute for return, the taxpayer may need to request an audit reconsideration or go through the appeals process to correct their record.

The Financial Crimes Enforcement Network, FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is an annual requirement for certain U.S. citizens, green card holders, and individuals who meet the substantial presence test, as well as:

• U.S. LLCs with a single member (which are disregarded as separate entities), are responsible for filing FBAR even when the member is a nonresident alien individual, and
• Children with foreign accounts must file, with a parent or guardian responsible for filing if the child cannot do so.

A nonresident alien individual who makes a special election to file a U.S. income tax return jointly with their U.S. spouse does not need to file FBAR.

The FBAR must be filed by those individuals who have “a financial interest in”, or “signature authority over”, foreign financial accounts exceeding $10,000 in aggregate maximum value during the calendar year. Calculating this aggregate maximum value requires various steps, including converting foreign currency to U.S. dollars using the U.S. Treasury foreign exchange rate as of the last day of the calendar year for which the FBAR is being filed.

The FBAR is not filed with the IRS but is submitted electronically to the Financial Crimes Enforcement Network, another division of the U.S. Treasury. However, most professional tax preparation software vendors now provide this service for their customers. 

FBAR Penalties

Civil FBAR penalties can be divided into two primary categories: willful and nonwillful FBAR violations. The distinction depends in part, on the account holder’s intent and awareness regarding the obligation to file the FBAR.

Nonwillful violations carry a maximum penalty of $10,000 per violation per year. The IRS may exercise discretion and, in some cases, reduce or waive nonwillful penalties, depending on the circumstances.

In Bittner v. United States, 21-1195 (February 28, 2023), the U.S. Supreme Court addressed how nonwillful FBAR penalties should be calculated. The Court ruled that nonwillful violations should be assessed per FBAR form, rather than per individual account as argued by the government. This decision significantly reduced the potential financial penalties faced by individuals who commit nonwillful violations but have multiple foreign accounts.

If the individual can demonstrate that the failure to file was due to circumstances beyond their control under the reasonable cause statue then they may be able to defend against the penalties. Reasonable cause for relieving or reducing FBAR penalties includes circumstances where the violation occurred due to factors beyond the taxpayer's control or because of a good-faith misunderstanding of the law. The IRS evaluates reasonable cause on a case-by-case basis, considering all relevant facts and circumstances.

Common Grounds for Reasonable Cause

1. Lack of Knowledge:
   1. The taxpayer genuinely did not know and could not reasonably be expected to know about the FBAR filing requirements.
   2. For example, expatriates or immigrants unfamiliar with U.S. tax laws may qualify.
2. Professional Advice:
   1. Reliance on incorrect advice from a tax professional.
   2. The taxpayer must prove that they provided all relevant information to the advisor and reasonably relied on their expertise.
3. Medical or Mental Health Issues:
   1. The taxpayer experienced a serious illness, disability, or mental health issue that prevented them from fulfilling their reporting obligations.
4. Natural Disasters or Emergencies:
   1. Events such as hurricanes, fires, or other emergencies that disrupted the taxpayer’s ability to gather information or file on time.
5. Complexity of the Rules:
   1. If the taxpayer had a reasonable misunderstanding of the filing requirements due to the complexity of the laws.
6. Unavailability of Records:
   1. The taxpayer could not access the necessary account records due to circumstances such as bank closures, wars, or political unrest in the country where the accounts are held.
7. Administrative Error:
   1. Mistakes made by banks, financial institutions, or third parties that resulted in incomplete or delayed information.

Willful violations carry far more severe penalties and are imposed when the failure to report is found to be intentional, or when there is evidence of “willful blindness” or “reckless disregard” of the FBAR filing obligation.

“Willful blindness” is a form of “deliberate ignorance” and involves the concept that an individual could readily obtain information, which if they did, would inform them that their actions or inactions could be in violation of a law. “Recklessness" occurs when someone’s actions or failure to act involve an obvious and unjustifiable risk of harm or danger. For example, this could include failing to read or understand clear instructions on tax forms that reference foreign account reporting requirements.

Penalties for willful violations can reach the greater of $100,000 or 50% of the account balance at the time of the violation, per year of non-compliance. This can result in substantial fines, particularly if multiple years are involved. The determination of willfulness relies on facts and circumstances, such as whether an individual took steps to conceal their accounts, ignored advice to comply, or deliberately failed to seek clarification about their obligations.

Examples of Willful Violations

1. Concealing Accounts:
   1. The taxpayer deliberately did not disclose foreign accounts on their tax return or FBAR despite knowing the requirement.
2. Misleading Advisors:
   1. Providing incomplete or false information to tax preparers to avoid reporting foreign accounts.
3. Structuring Transactions:
   1. Transferring funds to evade detection or creating multiple accounts below the reporting threshold.
4. Acknowledging Awareness:
   1. Checking “no” on Schedule B of Form 1040, which asks about foreign financial accounts, when foreign accounts exist.
5. Prior Warnings or Guidance:
   1. Ignoring notices from the IRS or financial institutions about FBAR obligations.

Enforcement of FBAR Penalties

FinCEN has delegated authority over FBAR matters to the IRS. While IRS has authority to collect FBAR penalties, its powers are far narrower than its extensive powers to collect taxes.  FBAR penalties are not imposed by the Internal Revenue Code, and consequently, they are not “tax” penalties. 

When a tax debt is involved, the IRS can impose a lien in favor of the government on the taxpayer's property and seize assets to satisfy those tax debts. A U.S. passport can be denied or revoked for seriously delinquent tax debt. However, these measures do not apply directly to FBAR penalties since they are categorized as non-tax debts.

The IRS has two main options to collect FBAR penalties

First, it can refer the debt to the Department of Justice for a collection lawsuit. This path, while viable, presents significant challenges. The DOJ may not always be able to pursue collection actions due to resource limitations or other priorities, and even when it does, obtaining a final judgment can take years. This delay often enables debtors to engage in asset protection strategies, making it more challenging for the government to actually recover penalty amounts that are owed.

Second, the IRS can use the option for collecting FBAR penalties through the process of "offset" using the Treasury Offset Program, managed by the Bureau of Fiscal Services. This program enables the collection of FBAR penalties by offsetting an individual's debts against any government payments owed to them, such as tax refunds or Social Security benefits.

Various international issues may come into play including the ability of the U.S. government to attach assets located abroad and the possible use of treaty provisions. Generally, attachment and garnishment mechanisms cannot extend beyond the U.S. to reach assets held in a foreign country, for example, attaching foreign bank accounts. The U.S. lacks jurisdiction over those foreign assets.

The IRS has six (6) years from the date the FBAR is due to assess penalties. However, there is no statute of limitations for criminal violations.

MORE STATE TAX CHANGES FROM NOVEMBER ELECTIONS

Last month, we presented several interesting state tax ballot initiatives voted on in the November election. This month we continue our run-down of new tax laws at the state level as well as some tax proposals that did not make it past the voters.

Michigan

The most significant Michigan proposal would have required a 2/3 supermajority vote of the State House and the State Senate, or a statewide vote of the people at a November election, in order for the State of Michigan to impose new or additional taxes on taxpayers or expand the base of taxation or increase the rate of taxation. Proposal 5, however, went down, with voters rejecting the measure by a 69 to 31 percent margin.

Missouri

A “sin” tax was the subject of a tax proposal before Missouri voters in December. Proposition B would have increased the state’s tobacco tax from 17 cents per pack of cigarettes to 90 cents per pack. The revenue was supposed to go to local schools. The increase was defeated 50.8 percent to 49.2 percent. Only 42,581 votes made the difference, of 2.6 million votes cast. Similar proposals were defeated in 2002 and 2006.

New Hampshire

New Hampshire voters had to decide whether to make permanent the state’s lack of an income tax. Question 1 on the ballot would have amended New Hampshire’s constitution to permanently ban a personal income tax. New Hampshire does not have a general sales tax or an income tax on an individual’s reported W-2 wages. Although the amendment did not get the required supermajority, the vote was 57.1 percent in favor to 42.9 percent opposed, a healthy majority. The proposal needed 67 percent of votes to become law. 

Oklahoma

Oklahoma voters had to decide on two different tax measures, which they approved. State Question 758 restricts property taxes even further than the cap that was previously in existence. It prevents home values from rising more than three percent per year regardless of the market value. This ballot question passed with about 68 percent of the vote. 
Voters also approved 65 percent to 35 percent State Question 766, which eliminates property taxes on businesses’ intangible property, which includes things like client lists, trademarks and goodwill.

Oregon

Voters in Oregon split on several tax measures. Measure 84 would have repealed Oregon’s estate and inheritance tax and would have allowed tax-free property transfers between family members. The measure failed 54 percent to 46 percent. Two other tax changes were successful. Measure 79 bans real estate transfer taxes and fees while Measure 85, a constitutional amendment, passed by a vote of 59 to 41 percent. It eliminates Oregon’s “corporate kicker” refund program which gave corporations that pay income taxes a rebate when total state corporate income tax revenue collections exceeded the forecast by two or more percent. The new law reallocates the proceeds of the corporate kicker program to the state general fund and to provide more funding for education.

South Dakota

South Dakota’s Initiative Measure #15, which was voted down, would have increased the state sales and use tax by 1 percentage point, from 4 to 5 percent. The measure failed by approximately 57 to 42 percent. The revenue from the increase was slated to be used for public education and payments to Medicaid providers.

Washington

Another supermajority law was successful in Washington. Initiative 1185 requires a supermajority of both houses of the state legislature to raise taxes. The vote in favor was almost 65 percent.

FRENCH ACTOR DEPARDIEU LEAVES FRANCE OVER TAX BILL

One of France’s most successful actors, Gerard Depardieu, has moved 800 yards over the border into Belgium in protest of France’s high tax rates. It was reported in Forbes that Depardieu paid $190 million in income taxes over 45 years. In 2012, Depardieu said he paid an 85 percent tax rate on his income. Depardieu made his money not just from acting, but also as a successful entrepreneur, investing in restaurants, wine bars and vineyards. French government representatives called the move “unpatriotic” and “pathetic.” Depardieu shot back with an impassioned letter distributed to the media in which he points to his years of work, including his participation in historical French films, which demonstrates his love of France and its people. Depardieu said he was leaving because success, creativity, and talent are “punished” there.

FREEDOM FROM RELIGION FOUNDITION SUES IRS FOR NOT ENFORCING BAN ON POLITICAL ACTIVITIES OF CHURCHES

In the November 2012 issue of the Federal Tax Alert, we reported on Pulpit Freedom Sunday, an annual event sponsored by numerous pastors around the country protesting restrictions on political activities or commentary by churches and religious organizations. (See page 12 in the Et Cetera section.) Now, the other side in this debate is taking action by filing a suit against the IRS for “failure to enforce electioneering restrictions against churches and religious organizations.” The group, the Freedom From Religion Foundation, argues that the IRS’s failure to curb election activities by churches is a violation of the Establishment Clause of the First Amendment and of the group’s equal protection rights. The suit was filed in federal district court in the Western District of Wisconsin. The group points to public statements by IRS officials that they are no longer auditing churches. The suit also alleges that as many as 1,500 clergy violated the electioneering restrictions on October 7, 2012, Pulpit Freedom Day. 

The lawsuit, FFRF v. IRS, (12-CV-818), was filed in November. A copy of the complaint is available at http://ffrf.org/images/uploads/legal/IRSlawsuit2012.pdf.

The IRS can impose a 20% accumulated earnings tax (AET) on C corporations that retain too much earnings to avoid issuing taxable dividends to shareholders. The penalty is not tax-deductible, and is in addition to the 21% corporate tax rate for a total tax bill of 41%.

Due to the double taxation character of the C corporation, the benefit of the lower corporate tax rate of 21% can be lost when corporate profits are distributed to individual shareholders as dividends. In the individual tax return the dividends can be taxed at 15 or 20 percent (depending on the “break points” for qualified dividends) and as high as 23.8% if the individual is also subject to the net investment income tax (NIIT).

One way that corporations aim to avoid this double taxation is that the money remains in the corporation so it is only taxed at the corporate rate. All C corporations are permitted to retain a minimum amount of earnings for reasonable needs without being subject to the AET.

The IRS defines “reasonable needs” as funds retained for future business growth, expansion, debt repayment, or other legitimate business needs. If the corporation retains earnings for valid business purposes, such as purchasing inventory, equipment, or expanding operations, these accumulations are generally not subject to the tax.

For C corporations other than personal service corporations, the amount is $250,000, minus accumulated earnings at the close of the preceding year. The credit amount is $150,000 for C corporations whose principal function is performing services in accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, or the performing arts.

If $250,000/$150,000 doesn’t seem like much money, that’s because the limits were established in 1981 and have never been adjusted for inflation. If they were inflation adjusted, as of 2024 they would have to be $853,481/$512,089.

There are various ways a C corporation can reduce its retained earnings to stay within the $250,000/$150,000 limits — for example:

• Pay out dividends (this also helps show lack of intent by the corporation to avoid income tax on its shareholders by accumulating earnings and profits instead of distributing them).
• Increase salaries and bonuses for corporate employees (but employee compensation must be reasonable or it could be recharacterized as a disguised dividend by the IRS).
• Provide more employee fringe benefits, such as a qualified pension plan.

The minimum AET credit benefits new corporations the most, since they have no accumulated earnings from the prior year.

You need to prepare a business plan for your company. Anxious to start, you immediately open your favorite word processing program. But now you’re staring at a blank screen and a blinking cursor that appears to be mocking you.

Not sure where to start or what to write first, you flip the computer off and decide that tomorrow is a much better day to work on your plan. After all, the weather is much too nice to be sitting inside on a day like today.

Many entrepreneurs and business owners have faced this situation before, but what to do when waiting until tomorrow to start your plan is unacceptable? Follow these 10 tried and true tips to help you complete outstanding business plan.

1. Decide why you’re writing your plan. 
   Are you raising money? Clarifying your future? Launching a new venture? Searching for strategic partners? Game-planning to destroy your competition? Whatever the reason - it’s important to get committed to the business plan writing process. Prepare for yourself a short paragraph that outlines “why you are writing a business plan and why it will be great.” Call it your business plan mission - it will keep you motivated and help you clarify the message you send your readers.
2. Get the big picture.
   Before accumulating mountains of research and information, take a look at your business plan through a wide-angle lens to get the big picture. Visit your local library or bookstore and bring home a few business plan books. Take a look at Internet resources, consider business plan software programs and review the SBA’s business planning outline. Your goal is to get a feel for what a business plan is, what it isn’t and what to expect from your business plan. With this new insight, prepare an outline that includes the major sections and subsections that you believe should appear in your business plan.
3. Grab everything that’s already handy.
   Dig through every computer file, box and file cabinet you have to unearth the information that’s already available to you. You’ll surprise yourself with what you find and with how nicely this step will move you forward. Consider marketing pieces you’ve prepared, press releases, related articles, industry journals, historical financials, important web sites and notes or ideas you’ve accumulated over time. Don’t rate the quality of this information - just gather it. At this point quantity is the name of the game, and the more you can find the better.
4. Just type!
   Start typing thoughts, ideas, words, questions and to-dos into each section of your business plan outline. Put rough thoughts on paper and empty your brain. Don’t worry about complete sentences or proper grammar - just type. Approach this step like a brainstorming session, the more powerful the storm, the more potent your business plan. Jot down any ideas that demand further consideration, areas that present a challenge and topics that require the input of others. Strive to place your thoughts in the most appropriate section of your business plan outline and rearrange the outline if it will be more logical for your readers.
5. Prepare your rough draft.
   Now it’s time to take your outline, the information you’ve got handy and your brainstormed ideas and shape them into a useable rough draft. Move through your entire outline, section by section and begin writing complete sentences and paragraphs. As you work, start a Biz Plan To-Do List to keep track of topics that require in-depth research, statistics or back-up information. When you’re done, print out a copy and read it a few times, revising lightly as you go. Your plan should be rather sparse, but when you’ve completed this step, you’ve truly made business planning progress.
6. It’s research time.
   Now is the time to think like a lawyer and build a case for your business plan. Your goal is to compile information and research to support the claims and assertions you make in your plan. Drop by the library and ask the librarian if they know of any sources of information that can help your cause. Schedule a meeting with a local SBA representative or a Small Business Development Center counselor. Call your local and national industry associations and track down annual reports for companies in your industry. Submit a request for product and service information from your competitors. In short, talk to anyone and everyone that might be able to help you collect information for your business plan.
7. Start thinking about the numbers. 
   It is advisable to begin developing your pro-forma financial statements at this point. If you start any sooner, one of two things is likely to occur: 1) Your numbers will be based on pure fantasy and you’ll have to change them anyway, or 2) You’ll attempt to write your plan, do the research, revise your plan and complete your financial statements all at once - and none of it will get done. If you prepare your financial statements at this stage, your numbers have a much better chance of matching and supporting the text in the body of your business plan. For example, if you mention a specific marketing medium in your marketing section, you’ll need to include the corresponding costs somewhere in your financials.
8. Write a final draft and finish the numbers.
   Sometimes finishing is the hardest part of completing large projects like a business plan. But if you follow the steps leading up to this one, success is just around the corner. Avoid the mistake many business planners make at this stage - it is important to check, double-check and triple-check your writing for grammatical and spelling errors. Think of it this way - bankers and investors will assume that you will manage your business and protect their money with the same level of care and attention that you demonstrate in your business plan. Go all out and create a document that sends a powerful message about the quality of your work.
9. Set a deadline.
   To ensure that you complete your plan, set a deadline for yourself that you can’t ignore. We suggest calling a few people you respect to ask if they would be willing to read your plan and offer suggestions. Make this arrangement with someone whom you are not particularly close with, possibly a professional acquaintance, so it’s more difficult and uncomfortable to call and delay. Ask for feedback and make it clear that honesty is what you are after. If you don’t explain this up-front, you may hear “looks good to me” - essentially a waste of time for both of you. If you feel tears coming on as they serve up their advice - things are gong well. Take detailed notes and refrain from crying until after the phone is back on the receiver.
10. Polish your plan to perfection. 
    The comments you receive from your readers will help you to beef-up the sections of your plan that need attention. Track down any additional information you may need, incorporate the ideas that your readers offered and clarify sections or points that were not clearly conveyed. Put together an appendix if necessary, create a clean cover page and table of contents and include a non-disclosure form. Lastly, prepare a one-page execu-tive summary that encapsulates the highlights of your entire business plan and place it up front. Walk into your local print shop like you own the place and professionally print and bind as many copies of your plan as you need. Congratulations - you’re the proud owner of an excellent business plan.

There are many resources available for developing a business plan. The suggestions in this article were provided for The Entrepreneurs’’ Help Page (tannedfeet. com) by BizPlanIt (bizplanit.com). Check out the IRS “Small Business Taxes: The Virtual Workshop” on their website at www.irsvideos.gov/smallbusinesstax-payer/virtualworkshop. The SBA.gov website has an entire section devoted to Starting and Managing a Business. The SBA site provides step by step assistance in putting your business plan together as well as the SBA Business Plan Tool which is a guide to help you get started.

While is it true that the Internal Revenue Service (IRS) requires you to retain certain records, you do not have to keep all of your tax and financial records forever. Here are some tips to help you figure out which records to keep and how long to keep them:

• As a rule, keep your tax records and supporting documentation until the statute of limitations runs for filing returns or filing for refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later.
• If you do not report all of the income that you should report (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended: you’ll want to keep those records for at least six years. You may also want to get a better tax professional.
• If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. That means that there is no time limit on IRS action. In that event, you’ll want to hold onto your records forever. And in that case, you absolutely want to get a better tax professional and possibly a defense attorney on speed dial.
• If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
• If you are a partner or S corporation shareholder, the statute of limitations is generally controlled by the date of your individual return.
• If you file an amended return, it does not extend the statute of limitations for your original return. The clock doesn’t restart: the original date determines the statute of limitations (some exceptions apply if you file within 60 days of the assessment window).
• You will want to keep supporting documentation for as long as the statute of limitations runs. Supporting documentations for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
• Do not forget about the Affordable Care Act requirements. Beginning with the 2014 tax year (the return you filed in 2015), you’ll need to keep records of minimum essential health insurance coverage or proof that you qualified for an exemption or premium tax credit (especially if you had to pay it back).
• If you make nondeductible contributions to a traditional IRA, hold onto those records until you make a complete withdrawal/distribution: you do not want to pay tax on those twice. But do not stop there. As a general rule, you should hold onto all IRA records – including Roth contributions – until you withdraw all of the money from the account.
• If you claim depreciation, amortization, or depletion deductions, you will want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.
• If you claim special deductions and credits, you may need to keep your records longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
• If you have employees, including household employees, keep the employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
• If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), the general guideline is to keep your records for as long as the tax benefit runs plus three years.
• If you own property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you will want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years. That means, for example, that you should keep records related to your home, including home improvements, for as long as you own the house. Remember that you are entitled to exclude up to $250,000 of gain on the sale of your home ($500,000 if married filing jointly) – so keep excellent records of the cost of the home as well as any improvements or other adjustments to basis.
• If you receive property as the result of a gift or inheritance, you will want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis.
  Do not toss those old records just because you are the new owner of the

The IRS has created a special new page on www.irs.gov to help taxpayers determine if a person visiting their home or place of business claiming to be from the IRS is legitimate or an imposter. With continuing phone scams and in-person scams taking place across the country, the IRS reminds taxpayers that IRS employees do make official, sometimes unannounced, visits to taxpayers as part of their routine casework. Taxpayers should keep in mind the reasons these visits occur and understand how to verify if it is the IRS knocking at their door.

Visits typically fall into three categories:

• IRS revenue officers will sometimes make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed or tax returns due. Revenue officers are IRS civil enforcement employees whose role involves education, investigation, and when necessary, appropriate enforcement.
• IRS revenue agents will sometimes visit a taxpayer who is being audited. That taxpayer would have first been notified by mail about the audit and set an agreed-upon appointment time with the revenue agent. Also, after mailing an initial appointment letter to a taxpayer, an auditor may call to confirm and discuss items pertaining to the scheduled audit appointment.
• IRS criminal investigators may visit a taxpayer’s home or place of business unannounced while conducting an investigation. However, these are federal law enforcement agents, and they will not demand any sort of payment. Criminal investigators also carry law enforcement credentials, including a badge.

How to know it’s really the IRS calling or knocking on the door

The IRS initiates most contacts through regular mail delivered by the United States Postal Service. However, as outlined above, there are special circumstances in which the IRS will call or come to a home or business. Even then, taxpayers will generally first receive several letters from the IRS in the mail.

Note that the IRS does not call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card, or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. Tax payments should be made payable to the “United States Treasury.” Specific guide-lines on how to make a tax payment are also listed at www.irs.gov/payments.

The IRS also does not demand that the individual pay taxes without the opportunity to question or appeal the amount the IRS says is owed. The IRS should also advise the taxpayer of his or her rights. The IRS will never threaten to bring in local police, immigration officers, or other law enforcement to have the individual arrested for not paying. The IRS also cannot revoke an individual’s driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

IRS Pub. 1, Your Rights as a Taxpayer, states taxpayers have the right to retain an authorized representative, such as an Enrolled Agent, CPA, or an Attorney to represent them in their dealings with the IRS. This right of representation includes unannounced visits by IRS employees. If a taxpayer is not sure whether someone claiming to be from the IRS is legitimate, the taxpayer should call an authorized representative for help. A quick way to find an authorized representative is to type the taxpayer’s zip code into the online lookup tool at https://irs.treasury. gov/rpo/rpo.jsf. If an IRS criminal investigator shows up at the taxpayer’s door, call an Attorney.

If an IRS representative does visit a taxpayer, he or she will always provide two forms of official credentials called a pocket commission and a HSPD-12 card. HSPD-12 is a government-wide standard for secure and reliable forms of identification for federal employees and contractors. A taxpayer has the right to see these credentials when an IRS employee visits a taxpayer in person.=

Private debt collection=

IRS collection employees may call or come to a home or business unannounced to collect a tax debt. They will not demand that the taxpayer make an immediate payment to a source other than the “United States Treasury.” The IRS can also assign certain cases to private debt collectors but only after giving the taxpayer and his or her representative written notice. Private collection agencies will not ask for payment on a prepaid debit card or gift card. Taxpayers can learn about the IRS payment options on www.irs.gov/payments. Payment by check should be payable to the “United States Treasury” and sent directly to the IRS, not the private collection agency.

To better determine how to properly classify a worker, consider these three categories: Behavioral Control, Financial Control and Relationship of the Parties.

BEHAVIORAL CONTROL: A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. Behavioral control categories are:

• Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services.
• Degree of instruction, more detailed instructions may indicate that the worker is an employee. Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor.
• Evaluation systems to measure the details of how the work is done points to an employee. Evaluation systems measuring just the end result point to either an in-dependent contractor or an employee.
• Training a worker on how to do the job—or periodic or on-going training about procedures and methods—is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.

FINANCIAL CONTROL: Does the business have a right to direct or control the financial and business aspects of the worker’s job? Consider:

• Significant investment in the equipment the worker uses in working for someone else.
• Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees.
• Opportunity for profit or loss is often an indicator of an independent contractor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.
• Services available to the market. Independent contractors are generally free to seek out business opportunities.
• Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee or agreed upon price for the contract.

RELATIONSHIP: The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:

• Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
• Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
• The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
• Services provided which are a key activity of the business. If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.