For many companies, their web domains have become key parts of their business’ brand and identity. However, some companies have not taken the necessary steps to ensure that their emails cannot be impersonated by others. This may not be thought of as being a possible risk, but criminals around the world are doing this every single day.

For Example

To better understand how this can happen, and how easy it may be to do, here is a story example of a simple technology: A letter being sent through the U.S. Postal Service.

ACME Corp. sends out all invoices to their clients each month via mail. They have the ACME Return address in the corner of the envelope and the client’s invoice on the inside.

Now, a hacker named Coyote decides he wants to use ACME’s good name and scam the clients. He produces a fake invoice that looks like ACME’s—except the “remit to” address is a P.O. Box Coyote setup.

A client named Roadrunner receives the fake invoice and sees the return address it came from as ACME, just as it has always been. Roadrunner opens the envelope, sees the invoice and pays it without thinking. ACME has no idea that someone else is sending out these letters on their behalf, and ACME’s clients will lose trust in them if they cannot solve it.

ACME wants to prevent this from happening, so the company contacts its post office and asks to put a record on their company account that says the postal service shall not deliver any mail from ACME unless it originates from that one local post office. This is a simple solution that will greatly reduce the chances of ACME being impersonated.

Tools You Can Use

Sender Policy Framework (SPF) is a similar tool that you can add to your public domain records that specifies which email servers are approved to send out email on your company’s behalf. There is no cost to implement SPF; it is simply additional records that are entered onto the DNS Public records of your domain. This address record is then verified by most E-mail Gateways to ensure the sender is who they say they are.

There are a number of tools out there that can easily validate if a domain’s records are setup correctly. My favorite is MXToolbox ( https://mxtoolbox.com/spf.aspx) . This allows people to check their own domains for valid SPF Records.

If you check your own domain and the results show a failure, please share this article with your IT professionals to start a conversation about better securing your domain and protecting your company’s identity.

For more details, see this introduction to SPF .

While the income tax due date has been delayed to July 15, 2020, we encourage you to file your taxes now. Our tax preparers are on hand to assist you today and it's easy to set up a secure online portal to start the process. You may also mail or email us your return information.

Even if you file your 2019 taxes on or before April 15, 2020, you may still take until July 15, 2020, to pay any income tax due. On the other hand, if you're receiving a refund, that money may be useful in boosting your cash flow during this uncertain time.

Business owners want to compensate themselves and their top executives fairly and competitively for their work, results and commitment. So, how do you achieve that goal without attracting undue IRS scrutiny and claims of inappropriate compensation? By making informed, astute decisions.

Start with the Basics

Compensation is affected by the amount of cash in your company’s bank account. Just because your financial statements report a profit doesn’t necessarily mean you’ll have cash available to pay owners a salary or make annual distributions. Net income and cash on hand aren’t synonymous.

Other business objectives—for example, buying new equipment, repaying debt, and sprucing up your offices or facilities—will demand dollars as well. So, it’s a balancing act between owners’ compensation and dividends or distributions on the one hand, and capital expenditures, expansion plans and financing goals on the other.

C Corporation Challenges

If you operate as a C corporation, your business is generally taxed twice. First, its income is taxed at the corporate level, and then it’s taxed again at the personal level as the owners draw dividends. This is a long-running challenge to those who own C corporations.

In light of the situation, many owners have been tempted to classify all the money they take out as salaries or bonuses to avoid being double-taxed on dividends. But the IRS is wise to this strategy: It’s on the lookout for excessive compensation to owners and will reclassify above-market compensation as dividends, potentially resulting in additional income tax as well as interest and penalties.

The IRS also monitors a C corporation’s accumulated earnings. Much like retained earnings on your balance sheet, accumulated earnings measure the buildup of undistributed earnings. If these earnings get too high and can’t be justified as needed for things such as a planned expansion, the IRS will assess a tax on them.

Know Your Flow-through

Perhaps your business is structured as an S corporation, limited liability company or partnership. These are all examples of “flow-through” entities that aren’t taxed at the entity level. Instead, income flows through to the owners’ personal tax returns, where it’s taxed at the individual level.

Dividends (typically called “distributions” for flow-through entities) are tax-free to the extent that an owner has tax basis in the business. Simply put, basis is a function of capital contributions, net income and owners’ distributions.

So, the IRS has the opposite concern with flow-through entities: Agents are watchful of dealer-owners who underpay themselves to avoid payroll taxes on owners’ compensation. If the IRS finds you’re downplaying compensation in favor of payroll-tax-free distributions, it’ll reclassify some of your distributions as salaries. In turn, while your income taxes won’t change, you’ll owe more in payroll taxes than planned plus, potentially, interest and penalties.

Beware of Eyebrow-raisers

Above- or below-market compensation raises a red flag with the IRS, and that’s always undesirable. Not only will the agency evaluate your compensation expense—possibly imposing extra taxes, penalties and interest—but a zealous IRS agent might turn up other challenges in your records, such as nonsalary compensation or benefits.

What’s more, it might cause a domino effect, drawing attention in the states where you do business. Many state and local governments face budget shortages and are hot on the trail of the owners’ compensation issue; they’ll follow federal audits to assess additional taxes when possible.

Follow the Regulations

When setting executive compensation, you want to be aware of all current IRS regulations and other applicable requirements. We can explain in detail how federal and state laws will affect your compensation decisions. Contact us to discuss.

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