The Fifth Amendment Does Not Always Apply

Miranda v. Arizona, 384 U.S. 436 (1966) helped create a generation of citizens that are very well aware of their Fifth Amendment rights against self-incrimination as it became repeated over and over in nearly every crime drama on television and movies. However, as Monday’s Supreme Court ruling continues to affirm, there are exceptions to the rule.

Following a line of reasoning that become a standard with Shapiro v. U.S., (S Ct 1948) 335 U.S. 1, which was further refined in Grosso v. U.S., (S Ct 1968) 21 AFTR 2d 55421 AFTR 2d 554, the Supreme Court has held that the government can compel production of self-incriminating documents so long as a three prong test is met: (1) the reporting or recordkeeping scheme must have an essentially regulatory purpose; (2) a person must customarily keep the records that the scheme requires him to keep; and (3) the records must have public aspects.

On Monday, the Supreme Court continued its support of this exception when it refused to hear an appeal brought by Eli and Renee Chabot, Chabot, (CA 3 7/17/2015) 116 AFTR 2d 2015-5270, cert denied 11/30/2015. The facts show that the IRS made a demand under the provisions of the Bank Secrecy Act for copies of bank statements of accounts the Chabot’s held in an HSBC branch in France. The Chabots refused to produce these statements claiming they had a Fifth Amendment right to not produce documents that could incriminate them as potential participants in illegal activities.

The Third Circuit ruled that the IRS was entitled to demand the documents by ruling that the records were essential to regulatory purposes, that they were required documents, and that they had public aspects. Similar cases in the Second, Fourth, Fifth, seventh, Ninth and Eleventh Circuits have had the same result. (in re Grand Jury Subpoena Dated Feb. 2, 2012, (CA 2 2013) 741 F.3d 339; Under Seal, (CA 4 2013) 112 AFTR 2d 2013-7316112 AFTR 2d 2013-7316; In re Grand Jury Subpoena, (CA 5 2012) 696 F.3d 428; In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, (CA 7 2012) 691 F.3d 903; In re Grand Jury Investigation M.H., (CA 9 2011) 108 AFTR 2d 2011-5880108 AFTR 2d 2011-5880; In re Grand Jury Proceedings, (CA 11 2013) 111 AFTR 2d 2013-794111 AFTR 2d 2013-794)

With the Supreme Court’s Monday ruling, this exception to the Fifth Amendment remains fully in place and enforceable. Basically, if there is a regulatory business purposes of a document, even if it would incriminate you, you will be required to turn it over to the IRS.

IRS Reminds Non-Credentialed Return Preparers of 2016 Limits On Practice

Following up on its June of 2014 announcement, the Internal Revenue Service (IRS) recently reminded non-credentialed tax returns preparers of changes that will take effect January 1, 2016. These rules affect all tax return preparers who are not Enrolled Agents, Certified Public Accountants or Attorneys (Credentialed Preparers). Credentialed Preparers are exempt since they already have annual mandatory Continuing Legal Education requirements from their licensing boards.

The program is designed to ensure that non-credentialed preparers have sufficient knowledge to adequately prepare tax return for others. It requires completion of Continuing Education courses. Those who have not completed the training by December 31, 2015 will lose the ability to assist their customers in the event something is challenged or goes wrong with a return they prepared. Even then, the ability of non-credentialed preparers to represent a customer with problems is limited.

To assist the public in determining whether the person who does their tax return will be able to assist in the future should something go wrong, the IRS will be publishing a listing, known as the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

While we applaud the IRS for protecting the public through this procedure, thus ensuring at least a minimal ability to prepare returns and then protect customers, with other than routine tax situations, we recommend that taxpayers search out qualified Enrolled Agents, Certified Public Accountants or Attorneys to assist them with their taxation needs.These Credentialed Preparers can assist you without restriction.

IRS Releases Its “Dirty Dozen” Tax Scams

Criminals are using your fear of the Internal Revenue Service (“IRS”) and your desire not to pay taxes to steal your money and leave you with possible criminal liability, as evidenced by the recently published IRS’s “Dirty Dozen” list of tax scams for 2015.

Aggressive, threatening phone calls from scam artists continue to be a large problem, being made daily across the nation. Con artists make these calls, claiming to be auditors from the IRS, and asking for personal information that can be used to steal identities. Another twist is offers to settle to “make the problem go away”, with information as to where to send a wire or direct bank transfer, which ends up in the criminal’s account.

Two ways to not get harmed are to (1) understand the IRS will always contact you by letter and (2) it is a good idea to look up the phone number, even on something mailed to you, when calling the IRS back.

The IRS has set up a special section on in order to help people protect themselves. It’s a good read even for highly aware individuals because it serves as a reminder of the evil that lurks out in the world today.

Here is the 2015 list:

  • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.
  • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information.
  • Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim.
  • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. Make sure your’s is reputable and registered.
  • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order.
  • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims.
  • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations.
  • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns.
  • Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.
  • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return.
  • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.
  • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.

One of the best ways to protect yourself is to work with a professional tax preparer. To help you know what to look for, the IRS provides its Choosing a Tax Professional page. Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even, if it is prepared by someone else. Make sure your only get help from someone who knows for sure what they are doing.

WOW… I Never Thought I’d Say “Take the Income Today!”

With great skill, confidence men divert attention to accomplish goals. Whether it was intended or not, the focus of the press on the events of Ferguson and on Obama’s new Immigration Executive Orders has diverted attention away from key tax planning strategies for December. And, I’m finding myself in a position I never thought I’d be, that being a spokesman for “Take the Income Today”.

Let me Explain

In normal years, it is usually most advantageous for people toward the end of a year to maximize deductions and minimize income in order to reduce the amount of tax paid the following April (March for corporations). It has kind of become a mantra. In fact, my last post was on cleaning up and making charitable donations. While that may still be a good idea for individuals, so long as they are able to itemize deductions, businesses this year may not want to do that.

Corporate Income Rates

2014 corporate income tax, at 15%, is a phenomenally better deal than 2015’s 25% and 34% rates. Even on a discounted cash flow basis, money that is taxed at up to more than twice the current rate would have to have a huge net present value increase in order to justify not taxing it now.

It Also Affects Future Estimated Tax Payments

Just in case the potential of more than doubling the tax rate didn’t grab your attention, corporations that make less than $1.0 million per year can avoid being penalized for underpaying estimated taxes if they pay installments based on 100% of the tax shown on the return for the preceding year, so long as they actually owed taxes the prior year. Otherwise, your only option of avoiding penalty is to pay, in advance, every quarter of 2015, the full amount of 2015 estimated tax at a much higher rate.

This could make a significant difference in your cash flow for next year. Think about it. Estimate taxes based on last year (15%), is a lot less cash paid every quarter than estimated taxes at 34%. Would you rather use that money yourself to make money during the year or would you rather give it to Uncle Sam for him to use?


If you are a normal corporation with taxable income of less than $1.0 million that currently anticipates a small net operating loss for 2014 and income in 2015, you may find it to your benefit to accelerate just enough income and/or defer enough deductions to ensure you create at least some taxable income for 2014.This will allow you to take advantage of the lower 2014 tax rates and a lower required estimated tax payment each quarter of 2015.

The Time to Get Ready is Now!

5 things to do now for less taxesHere is an idea. Instead of waiting until April 13th, why not get ready for filing your next year’s tax return now. Doing this today and maybe make some changes today could make a significant difference on your ultimate tax bill due next April 15th.

Here are five things to do now:

1. Check your withholdings

If you have a big refund during the 2013 tax season, now is the time to consider lowering your income tax withholdings if your income and deductions will remain similar in 2014. Alternately, if you came owed a substantial sum when you fi led for 2013 taxes, you may want to consider increasing your tax withholdings.

2. Examine your information

Now is a good time to meet with your tax preparer —waiting until February of 2015 could add increased stress when you’re getting ready to file your 1040. Your tax preparer likely has time to meet with you now. Getting an appointment in April is nearly impossible. Get together and look at your tax situation and start planning ahead.

3. Get Your books and financial statements in order

If you’re doing anything beyond working, it’s time to start getting everything in order so that you aren’t rushing at the beginning of 2015. And if you’re a small business or have rental properties be sure to get prepared to issue 1099s or prepare other forms that you’ll need to complete your taxes.

4. Set aside receipts

Don’t wait until the end of the year to start thinking about deductions – be smart and start pulling together the records immediately so that they are close at hand come tax time. It’s amazing how many pieces of paper you will lose and how many thing you will forget between now and next April.

5. Spring Cleaning in the Fall

The Time to Get Ready is Now for Tax SavingsNow’s a great time to clear the clutter as the days fall shorter. Do some fall cleaning by gathering your old clothing and household items and donating it to a charitable organization before the end of the year. Be sure to get a receipt for your donation and when you prepare your taxes you can apply a ‘fair market value’ to that donation. Your generosity may be worth $25 to $35 in tax savings for every $100 of what you donated.

Need Help Doing It Now?

Wallace Associates Group is prepared to walk you through this process. The time to get ready is now. What you do between now and December 31st can have a much more significant impact on the amount you pay April 15th than anything you do January 1st or after.

Are Your “Independent Contractors” Really Employees to the IRS?

Believe it or not, some businesses have gone to great lengths to conduct business without employees, assuming that if you call a worker an “independent contractor” and you have the worker sign an Independent Contractor Agreement, that it’s all OK. It isn’t. As the author of Little Orphant Annie and The Raggedy Man, James Whitcomb Riley, is credited as saying, “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”

Employee or Independent ContractorIf you tell a worker when and where to work, no matter what you call that worker, unless the situation fits specific exceptions, the Internal Revenue Service will call that worker an employee and it will want the required payroll taxes and withholding. If you happen to be one of those who has in the past called the duck something other than what it is, there is hope.

Voluntary Classification Settlement Program

The Voluntary Classification Settlement Program allows many businesses, tax-exempt organizations, and government entities that currently treat their workers, or a class or group of workers, as non-employees or independent contractors, to prospectively reclassify workers as employees under generous settlement terms. As the title clearly points out, participation in this program is voluntary, but by participating you will escape the fines and penalties that would otherwise be assessed if the Internal Revenue Service finds it on their own and forces you to do it.

Who Can Participate?

In order to participate, the taxpayer must meet the following requirements:

  1. They must have consistently treated the workers in the past as non-employees;
  2. They must have filed all required 1099 forms for the workers for the previous three years;
  3. They must not be currently under audit for employment taxes by IRS; and
  4. They must not be currently under audit by the federal Department of Labor or a state agency with respect to the classification of these workers.

What is Required?

Interested taxpayers apply for participation in the program by filing Form 8952, Application for Voluntary Classification Settlement Program. Taxpayers accepted into the program will pay an amount effectively equaling just over 1% of the wages paid to the reclassified workers for the past year.

Why Not Wait for the IRS to Find It?

Taxpayers who are accepted into the program are basically given what amounts to amnesty for their past deeds. Those accepted will not be audited for prior years on payroll taxes related to the workers they voluntarily reclassify.

Now is a Good Time to Take a Good Look at How You Classify your Workers

IRS examination employee classificationThe Affordable Care Act, common known as “Obama Care”, adds additional provisions on employers starting next year. The Internal Revenue Service will be looking for taxpayers trying to get out of these provisions, so classification of workers as independent contractors will be under the microscope like never before. If you’ve got anything to hide, now is the time to voluntarily give yourself up. It will cost you a lot less than it will if the IRS discovers it on their own.

We Can Help

Wallace Associates Group is here to help you ensure your worker classifications are correct and we can help you fix any past problems you might have.

Much Ado About Nothing

It Must Be Election Time Again

Money and FlagOn Tuesday, Democrats in the United States Congress introduced legislation that would deny government contracts to corporations that move their tax domiciles abroad. Last week, President Obama called into question the loyalty and patriotism of corporations that have or are considering what is known as an “inversion”. Reading the headlines and listening to the sound bites would lead one to believe there is an immediate danger that requires drastic action. As with most election rhetoric, it has much ado about nothing.

What is an Inversion?

Simply put, an inversion is where a new corporation is established somewhere and then an existing corporation merges into or becomes a subsidiary of the new corporation. The new corporation takes on all the business and assets of the existing corporation but with a new, legal domicile. There is nothing illegal about such a transaction and it is commonly done for a variety of legitimate business reasons.

So… What is the Problem?

The United States has one of the world’s most aggressive tax regimes. United States based companies pay income tax on earnings from all over the world, while other countries only tax earning from within their own country. If a company inverts to a foreign domicile it will only pay United States taxes on its United States derived income, not on its world-wide income.

How Big a Problem is it?

Over the past 32 years, 52 United States corporations have completed inversions.


If the Democrats really believe inversions are a problem, they should look at fixing the cause, not the symptom. Making legislation to punish companies for doing something that is completely legal is not the answer. The answer is to overhaul the United States Tax Code, especially when it comes to taxing foreign income of domestic corporations. If the Tax Code didn’t motivate corporations to move out of the United States, they wouldn’t go.

Confused About IRA Options and Rules?

Confused About Your IRA Options?Confused About Your IRA Options and Rules? Maybe This Will Help.

Individual Retirement Accounts (IRAs) and Roth Individual Retirement Accounts (Roth IRAs) provide flexible tax-sheltered retirement options. This flexibility comes with a complex systems of rules. Here is a quick review of some important rules affecting IRAs. Roth IRA rules will be reviewed in a subsequent post.

Deadlines for IRA Contributions

Contributions can be made up till the un-extended due date of your tax return for the year you desire to make the deduction. So, if your tax return is first due (no extensions allowed for calculating the deposit date) on April 15th of 2014 for tax year 2013, you have until April 15, 2014 to make the contribution to your IRA and you will still be able to take the deduction for tax year 2013 (Code Sec. 219(f)(3)).

Tax-Free Rollovers from One IRA to Another

By definition, a “rollover” is when you actually make a withdrawal from your IRA and then place the withdrawn funds into another IRA. You can withdraw all or part of your IRA any time you want, once a year, and even use the money for other purposes in-between, so long as the funds are re-deposited into another IRA no later than 60 days from the date of withdrawal. While not necessarily a sound financial idea, this means that IRA monies can, in essence, be “borrowed” for 60 days without any penalty whatsoever, except any cost charged by the IRA administrator to effect the withdrawal (Code Sec. 408(d)(3)(A)).

The IRS may waive the 60-day rule if an individual suffers a casualty, disaster, or other event beyond his reasonable control, and not waiving the 60-day rule would be against equity or good conscience (Code Sec. 408(d)(3)(I)), but don’t plan on this automatically being granted unless specific conditions are met.

Automatic Waiver of 60-Day Rule

The IRS will automatic wave the 60-Day rule if the failure to re-deposit the funds is caused by financial institution error. The requirements for automatic waiver are:

• The financial institution received the funds on behalf of the taxpayer before the 60-day rollover period expires;

• The taxpayer followed all of the financial institution’s procedures for depositing the funds into an eligible retirement plan within the 60-day period (including giving instructions to deposit the funds into an eligible retirement plan);

• Solely due to the financial institution’s error, the funds are not deposited into an eligible retirement plan within the 60-day rollover period;

• There would have been a valid rollover, if the financial institution had deposited the funds as instructed; and

• The funds are actually deposited into an eligible retirement plan within one year from the beginning of the 60-day rollover period (Rev Proc 2003-16, 2003-4 CB 359, Sec. 3.03).

Trustee-to-Trustee Transfers of IRA Funds

By definition, direct, trustee-to-trustee transfers aren’t rollovers because the transferred funds are not within the direct control and use of the taxpayer (Rev Rul 78-406, 1978-2 CB 157). As a result, direct, trustee-to-trustee transfers aren’t subject to income tax, aren’t reported on your return, and aren’t subject to the once-a-year limit that applies to IRA rollovers.

Transfers from Qualified Plans to an IRA

You can make a tax-free rollover of an eligible rollover distribution from a qualified plan your IRA (Remember a “rollover” means you withdraw and take control of the funds and then within 60-days you deposit the funds in an IRA) (Code Sec. 402(c)(1), Code Sec. 408(d)(3)).

One thing to be aware of when taking funds from a Qualified Plan to place in your IRA is that if you do a “rollover” (i.e. take possession of the funds) the plan administrators are required by law to withhold 20%, which you can get back when you file your tax return so long as you make the deposit within the required 60 days (Code Sec. 3405(c). Note a big difference here. Trustee-to-trustee transfers from your qualified plan to your IRA are not subject to mandatory 20% withholding (Code Sec. 408(d)(3)(A)(ii)). Therefore, unless you have a real good reason to be using the money during the 60 days, it would be in your best interest to transfer trustee-to-trustee from your Qualified Plan instead of rollover, since your transfer will be made without the 20% mandatory withholding.

Special Rules for Basis IRAs

Special rules apply if you deposit more than you can deduct during the tax year into your IRA account. For example, the standard limit for tax year 2013 is $5,500 per taxpayer. Let’s assume you want to put in extra money so you’ll be better prepared for retirement, so you put $10,000 into your IRA. You can deduct $5,500 on your tax form. The difference of $4,500 gets added to your basis for the year. So, if you only make the deduction amount every year, you will never have a basis. But, each year you add more than the deduction, you add, and it accumulates, basis to your IRS. This comes into play when you withdraw funds.

Why is this important? Non-basis IRA funds accumulate tax free. Basis IRA funds do not. The standard rule for tax purposes is if you withdraw for use funds from your IRA and your IRA has basis, each withdrawal is considered to have both a basis and a non-basis components. If you are retired, the non-basis component is tax free, but the basis component is subject to income tax at whatever rate you are paying when you are retired.

Since a rollover is by definition a withdrawal, a rollover from an IRA with a basis, even if re-deposited in another IRA within 60-days, would be subject to tax on the basis portion. However, under a special rule, if you leave in your IRA an amount equal to at least your basis, the rolled over amount can be made tax free (Code Sec. 402(c)(2), IRS Publication 590, 2013, pg. 23).

Still Confused About Your IRA Options?

Still confused about your Individual Retirement Account options? Wallace Associates Group can help. Give us a call.

Home Office Deduction Made Easier

Calculating Taxes is Hard Work Wallace Associates GroupThe Internal Revenue Service for tax year 2013 has made taking a deduction for your home office easier. You can still use the old way (which may yield a higher deduction depending on your actual expenses and square feet used for your business) or you can use the new way, which is quite a simple calculation. But first, you need to make sure you qualify.

Can I Take a Deduction for Business Use of my Home?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes, so long as the following is true:

1.    You regularly and exclusively use part of your home for conducting business.

2.    Your home is your principle place of business.

 As long as both 1 and 2 are met, it does not matter whether you own your own business or whether you are an employee of someone else’s business.

What is the Simplified Option?

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simpler option for computing the business use of your home. For those who don’t like to keep track of their actual expenses, or who just didn’t keep track, the simplified method is like using the standard mileage rate for use of your car. All you need is number of square feet used.

The formula is very simple. You take the number of square feet of your home used for business and you times it by $5. For example, if you have a 10 foot by 10 foot office, you take 100 square feet (10 times 10) time $5 and you get $500. No fuss. No records.

There is one nasty catch, however. The maximum you can claim using this method is $1,500. That is equal to a 300 square foot office, which if square would measure 17.5 feet by 17.5 feet.

There is one big benefit, however, in addition to not having to keep records. You get to deduct all your schedule A items such as interest, property tax, etc., without adjustment.

The Actual Expenses Option

This option uses the actual expenses you incur to make the calculation. Here you add up your rent or mortgage interest, renters’ or homeowners’ insurance, real estate taxes and utilities, and multiply that times the percentage of your house allocable to your home office. For example, if all your allowed expenses add up to $35,000 and your home has 1,500 square feet and you use 100 square feet for your business, the calculation would be $35,000 divided by 1,500 times 100, (dollar amount of expenses times the percentage portion of your office), or $2,333. Your schedule A itemized expenses would then be reduced by any portion included in the $2,333 (the IRS won’t let you deduct it twice).

As a General Rule

As a general rule you can see that the larger your proportional use and/or the larger your total expenses, the Actual Expenses Option would give you a higher deduction, while the lower your proportional use and/or the lower your total expenses, the Simplified Method would give you a higher deduction. The only way to know for sure, however, is to keep your records and do the calculations both ways. Or, you can just bag it, and like standard mileage rates, just take what you can easily get.

Wallace Associates Group Tax Preparation

If you want the most deductions possible, the most money back, the least amount of hassle, and you want it all legitimate and in compliance with all the tax laws, your very best bet may be to hire a professional. A professional who is worth their salt, will always be worth the money spent. Wallace Associates Group is always there to answer your questions and help you determine which route is best for you.

SEC Considers Regulationing High-Frequency Traders

High Frequency Traders - Wallace Associates Group - AttorneysAdvocates for the small investor may be getting their wish. New rules are being considered by the SEC that would require high frequency traders to register as broker-dealers, which would make them subject to additional supervision from Securities and Exchange Commission.

Who are these High-Frequency Traders?

High-Frequency traders use complex computer programs that takes massive amounts of information from press releases, web postings, news reports, etc., to produce computer issued buy and sell orders on every kind of imaginable position. Since the only real human element involved is the extensive computer programming required to produce such a system, buy and sell orders can be issued within seconds of the time information is released.

Why would High-Frequency Traders be a Problem?

Wallace Associates Group High Frequency TradersSome investors believe these systems increase market volatility since they react so quickly and have the potential of, if the computer deems it warranted, taking large and even controlling positions in a market within seconds. Other investors believe these same elements increase the risk a market may crash. Still others believe that should these programs become too effective the small investor will never be able to make money in the markets because by the time they get and analyze the same information the high-frequency traders have taken the profitable positions already.

Other investors feel these concerns are not valid. They point out that every high-frequency trading program is set with a different set algorithms. They point out that two high-frequency traders will often end up on different sides of a position. Others point out that since these are private individuals or entities and they only buy and sell with their own money that it is nobody else’s business what they do as long as it is legal.

What Happens if High-Frequency Traders are Required to Register?

If High-Frequency Traders are forced to register as Broker Dealers, they would become subject to the Security and Exchange Commission’s regulations designed for those who trade other people’s moneys. Full disclosure and reporting would be only one of the things they would be required to do. In addition, they would become subject to the Financial Industry Regulatory Authority’s examination program, which would force them to make their books and records available to both the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Obviously, High-Frequency Traders would object to this. They guard their algorithms like the government guards the gold in Fort Knox. They are always tweaking their formulas to become better than every other High-Frequency Trader and any disclosure of what they buy and sell could help others to discover their secrets.

Definition is a Huge Issue

One of the biggest issues will come as a result of the fact that there is no accepted definition for high-frequency trading. One way would be to focus on the total number of trades in a year. Another would be to focus on the total number of securities a trader owns. No matter what method is chosen, people that don’t even use the computerized trading systems may be forced to open up their records as well.

Just the Hint of Possible Regulations has Already had an Impact

Even without an industry accepted definition of who is a high-frequency trader, some companies, fearing possible complications from even being associated with someone who might be one, have taken steps to distance themselves. For example, Berkshire Hathaway’s Business Wire has said it will no longer make its direct feeds of press releases available to high-frequency traders.