Share a Coke with the IRS

Coca Cola has earned a lot of headlines for their "Share a Coke with . . . " marketing campaign, printing bottles and cans with 1,000 of the most popular names in the country, along with nicknames like "Mom," "Dad," Soulmate," and "BFF." You can even go online to customize your own bottle for just five bucks. (Just imagine the possibilities . . . "Share a Koke with a Kardashian" for reality-TV wannabes, or "Share a Diet Coke with Your Yoga Instructor" for fitness fanatics? The Center for Science in the Public Interest even created a "Share a Coke with Obesity" can.)

Last week, our friends at the IRS decided to open a little happiness of their own. And apparently, they want more than just a can or two of fizzy sugar water. On Friday, Coca Cola Enterprises filed a Form 8-K with the Securities and Exchange Commission revealing that, after a five-year audit, the IRS is dunning them for $3.3 billion in extra taxes. Plus interest! (Fun fact: the audit covered just three tax years from 2007-2009. That means the IRS spent more time auditing Coke's income than Coke spent earning it!)

The issue centers on "transfer pricing," which governs how businesses set prices between controlled or related entities. Let's say Coca Cola sells a bottle of their delicious Vanilla Coke in Bermuda. (That sounds especially delicious, right?) How much of their profit should be taxed in Bermuda, where the average effective tax rate for multinational corporations is just 12%? And how much of it should be taxed back here in the U.S., where the rate tops out at 35%? That may not sound like a huge difference on something you can buy for a pocket change at a highway rest stop. But Coca Cola sells a lot of beverages — $46 billion worth last year. And 57% of that revenue comes from international markets.

With all that money sloshing back and forth across international borders, you can see how shifting tax rates on a few cents of income per drink can really add up. Transfer pricing issues may sound boring (and they are), but they're a big deal. The very serious lawyers who specialize in these sorts of disputes work out of stuffy offices in high-rent big-city buildings, and they've never even heard of casual Fridays.

Naturally, the folks at Coke don't think it will be especially refreshing to send the IRS an extra $3.3 billion:

    "The Company has followed the same transfer pricing methodology for these licenses since the methodology was agreed with the IRS in a 1996 closing agreement that applied back to 1987. The closing agreement provides prospective penalty protection as long as the Company follows the prescribed methodology, and the Company has continued to abide by its terms for all subsequent years. The Company's compliance with the closing agreement was audited and confirmed by the IRS in five successive audit cycles covering the subsequent 11 years through 2006, with the last audit concluding as recently as 2009."

Coke says they plan to file a notice challenging the deficiency in Tax Court. They've reassured shareholders that they have "adequate tax reserves," which means they can pay up if they lose. And if all else fails, they've got that secret formula locked up in a vault in Atlanta. That's got to be good for something, right?

Here's the bottom line. Coke makes billions of dollars a year. But they understand it's what they keep that counts, and they're willing to fight to keep more. Shouldn't you be working for the same goal? So call us for a plan, and pay for your next Coke with the savings. It's the real thing!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

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Myths About Tax Preparation That Could Be Costing You Money

I've been involved in the tax return preparation process for over 20 years. During those years, I've come across many myths that people believe about tax preparation.

Myth #1: Tax Refunds Are Great News:

You've probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers' refunds.

Isn't this great news? I'm not so sure it is.

A refund can seem like great news, especially if it isn't expected, but it usually indicates a lack of tax planning. With proper planning, that refund can be received a whole lot earlier. While most people don't want to owe tax when they file their return, they also don't like to part with their money any earlier than they have to and that is exactly what a refund reflects.

Myth #2: Filing an Extension is Bad:

Many taxpayers are hesitant to file extensions for their business or personal tax returns for fear that there are hidden disadvantages to doing so. This is not true. In fact, extending your tax return can be a great tool in your tax strategy.

Extensions are helpful to avoid having to file amended returns. Sometimes the forms or information you receive from others to complete your tax return may be amended. If you receive an amended form and you've already filed your return, then you must amend your tax return.

Other times, the information you need from others to complete your tax return may be late. Filing an extension provides you with the time to gather this information and accurately report it on your tax return.

Remember: An extension does not mean you are off the hook when it comes to gathering your tax information timely. It is still important to gather all of your tax information timely so the extension can be prepared with the best information available.

Also, an extension does not extend the due date of any taxes due with the return. Any tax liability due with the return is due on the original due date.

Myth #3: Tax Return Preparation is Expensive:

Tax return preparation fees can vary dramatically. This makes it extremely important to look at the big picture rather than just the cost to prepare the tax return.

Let me give you an example. Suppose you have a choice of paying $500 for your tax return to be prepared or $2,000. All things being equal, anyone would choose to pay the lesser amount.

But, what if all things are not equal? What if the $500 gets you an adequate, accurate return but the $2,000 would get you a return where you legally pay $5,000 less in tax? Which is the better deal? In one, you are out $500. In the other, you are ahead a net of $3,000.

Before you have your next tax return prepared, review your own tax situation and the advice you are receiving from your tax preparer. Are you getting the return on investment you want? Are you getting the planning ideas you need? Are you paying the least amount of taxes?

When is the last time your current accountant, CPA or tax preparer can to you with ideas on how to save money on your taxes. If not you should Contact us.  More often than not, we can save our clients hundreds or even thousands of dollars on their taxes.

Myth #4: Accurate Returns Are All The Same:

When I review a tax return, the basic accuracy of the tax return is generally excellent. It's rare that I find a flagrant error on a tax return.

Does that mean that all firms produce the same quality of tax return? The clear answer in my experience is a resounding "NO!"

Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the best way it could have been prepared. In fact, I rarely see a tax return from a new client that was prepared the way it would have been prepared at KR Hoffman & co., LLC.

For example, certain deductions can be classified in different ways. While each way is technically accurate, the tax impact of each can vary dramatically.

It's not safe to assume your tax preparer (or tax software) knows the difference.

Never use a tax preparer who isn't also your tax advisor. Otherwise, great advice may never implemented and you will lose out on great tax savings.

I would be happy to review your last three (3) years tax returns for mistakes and missed-opportunities that may be costing you thousands of $'s at no cost to you. Contact us to find out how to securely send us your prior year tax returns.

Myth #5: The Software Does All The Work:

Whether you do your tax return yourself or hire someone to prepare it, most likely there is tax software involved. Many people make the assumption that the tax software does all the work.

While the tax software performs the calculations (usually quite accurately), it's easy to get into trouble if the data input is incorrect. We know what goes on what line and what form.

The true work and expertise - and resulting tax savings - is in the knowledge of the tax preparer.

Contact us TODAY so that you can start saving hundreds or thousands of dollars.