“Home based business”. These magic words make business people search on the Internet for new business ideas. True enough, nobody likes to commute every day and to work in the office. What business people need to know about home based business is all about online business, technology changes and if they are doing any business offline how to bring it online. The video I posted today is a brief introduction to the project.

It should be noted if online business is your passion and it generates even some income, IRS will treat you as a regular business. In other words, you still need to pay taxes. 

However, according to “Silicon Molds Blog” there are several tax advantages of doing business online. Personal expenses, such as the use of your car, home or computer may become partially deductible, retirement savings plans can shelter part of your eBay income from taxes, and you may be able to hire your family to help shift income to members in a lower tax bracket. So even if you only earn a little money online, not only are you required to report your earnings, it may even help you reduce your income taxes by taking advantage of tax opportunities available only to small business owners.

Generally, any income you receive from all sources is subject to U.S. income tax unless it is specifically exempt by law (hint: online profits are not exempt by law). That means that a lot of activities that you might not think of as taxable, such as garage sale income, gambling winnings, and online businesses are taxable.

In a nutshell, an approach to the online vs. offline businesses should be comprehensive and tax issues need to be considered very well. Enjoy your weekend!

E-commerce industry observers and business people were speculating last week on whether a US Internal Revenue Service “John Doe” summons on e-processing company PayPal might be connected with US citizens hiding their income in offshore accounts. This week on April 29 PayPal provided the information requested by the IRS. The company has said that whilst it values the privacy of its clients, it feels obliged by US law to obey the subpoena.

The news broke last week that PayPal, which still services e-commerce accounts outside North America, has been subpoenaed by the US Internal Revenue Service in the District Court for Northern California to produce financial records concerning the use of offshore credit cards. Different lobbying groups tried to check out the issue discovering that “this is to be part of a larger IRS investigation that commenced several years ago concerning tax issues involving Americans holding credit cards issued by banks located in places the Treasury Department considers to be potential “tax havens”. 

However, IRS action raises two questions. First, why IRS didn’t issue a third party summons for a named individual or group of individuals but acted under the ‘John Doe’ summons? And a second, what is the right of privacy of taxpayer in this case?

Obviously, in the first case under IRS 7609(a), it needs to notify the person within three days so that the individual could contest the summons by seeking to have it quashed. But with “John Doe” summons, the targets’ opportunities to fight the summons are very limited. In this case however, a greater burden is placed on the IRS to show in a court that it is not engaged in a “fishing expedition.”
 
Next, what is a right of privacy of e-commerce or our “digital civil rights”, so to say? Law experts say that the U. S. Constitution contains no express right to privacy. Distinct from the right of publicity protected by state common or statutory law, a broader right of privacy has been inferred in the Constitution. This right has developed into a liberty of personal autonomy protected by the 14th amendment. The 1st, 4th, and 5th Amendments also provide some protection of privacy, although in all cases the right is narrowly defined. The Constitutional right of privacy has developed alongside a statutory right of privacy which limits access to personal information. The Federal Trade Commission overwhelmingly enforces this statutory right of privacy, and the rise of privacy policies and privacy statements are evidence of its work. In all of its forms, however, the right of privacy must be balanced against the state’s compelling interests. Such compelling interests may include the IRS need to obtain such personal information of American tax evaders.

Well, here is the funny thing. Some of my Russian friends trading on e-bay and using PayPal informed me that PayPal is going to produce IRS their various account records, including data related to their PayPal account. Russians protested. They don’t get how they are related to the American tax obligations and why their personal information should be provided to IRS. Nevertheless, “PayPal understands the summons relates to the IRS’ offshore compliance program in which the IRS has sought information about offshore credit card accounts from a number of companies”. This understanding doesn’t help, I think. It so amazing how easy for IRS to get so sensitive information using “John Doe” summons. Since what time the IRS form W8-BEN Certificate of Foreign Status doesn’t satisfy the requirements for the foreign accounts owners?

I am sorry, but I see only sad future. If there is an American address but a foreign credit card on PayPal account, this is a red light for the US IRS. Even if there is no particular taxpayer details of the account owner IRS has easy access to the information to determine the taxpayer status. I think many Americans use their foreign credit cards to save some money in e-commerce. Most likely it is still expensive for IRS to dig too much to get a detailed information of every taxpayer. But once technology gets advanced and cheaper all of the people who used this kind of tax heaven will owe something to IRS.
 

As I said in my previous article, there is a need for intellectual property plan to protect a digital content of the websites, e-mails and other electronic communication. How to prevent an infringement of your rights and a damage of hundreds of thousands of dollars? Every owner of digital content who currently possesses or develops it should consider making particular steps of implementing this plan. It can be, for example, an identification of current or potential users, clients, competitors, employees and level of their access to disclosure and development of digital content.

Who are the final users of digital content? Are they private or corporate users? What kind of agreement protects rights of the owner? What are responsibilities of third parties? What are rights and responsibilities of the employees? These considerations are extremely important and define the company’s success of such protection, which after all, defines the company’s future.

Copyright infringement

Copyright infringement, is the unauthorized copying and distribution, or unauthorized derivative works, which occurs when someone uses your rights without permission.

However, the Copyright Act gives copyright owners a right to sue the infringer in a court rather than prevents infringement itself. Registering work with the Copyright Office is simple technical formality that maximizes copyright protection. Although registration is not required to establish copyright, it is a prerequisite to copyright protection in a court, when a copyright owner files a lawsuit to protect his rights.

Examples of copyright infringement are activities as the direct copying of copyrighted works, creating derivative works without permission, going beyond the restrictions contained in license agreement, impermissible linking, including framing, removing copyright management information, cracking copyright protection measures.

Trade Secret

If some information as formula, pattern, or compilation of information is used in a business and gives to this business certain advantage over competitors who don’t know about it at specific time, this information constitutes a trade secret and should be secured.

It is necessary to avoid disclosure of confidential information in promotional literature, or properly using proprietary secret arrangement of elements in the public domain. Promotional literature gives away a lot, but it shouldn’t give away how the business works. Indeed, it can be a very problematic issue because of the nature of new technology to be exposed for potential consumers but the rivals always aware of new processes and development and take advantage of use of this information.

The biggest enemy of copyright and of trade secret may be a reverse engineering. An aspect of legal copying, within the bounds of fair use reverse engineering, may obtain information that can be put to developing a competitive product. Although reverse engineering may be legal under copyright law, it might be barred by proper licensing which sets up strict rules and provides users with certain limitations. The further discussion highlights the best example of corporate software licensing system of Microsoft.

Implementing an intellectual property plan

Employment agreement is an essential tool of copyright and trade secrecy protection, which should be signed by every employee. Accordingly, copyright and trade secret protection sections, factors determining employee status should be a central part of the document that, after all assigns to the employer the ownership of all works the employee creates within his scope of employment. The rule of work for hire doctrine is quite clear: when an employee creates a work within the scope of employment, the employer owns the copyright. The scope of employment is very crucial to determining copyright ownership. What is the scope of employment of an independent contractor and his rights?

Normally independent contractors are used when there is specialized area which is not a usual business area of an employer. The status of such an employee as independent and the ownership of his creation is defined by the type of employment agreement, his ability to control his work, using his own place and tools, payments, benefits, and tax treatment. That means a hiring company should always require independent contractors to sign an agreement before a project begins in order to assign his copyright ownership to the company. For example, creating a website should be considered as work made for hire and a hiring party will possess the ownership when independent contractor signed an agreement before starting a project.

Moreover, in order to possess ownership on all works made by an employee as work made for hire, the agreement needs to give an employer a right to exercise control over the employee’s duties. However, in the case of an independent contractor, a court may rise question of scope of such control and determine if an employer has an actual right of this control. Therefore, the ownership of created works heavily relies on the answer for this question and any negligent treatment of such agreement may be very costly for employer.

Final point is, look who are the persons developing your digital content. A matter of peculiar interest is a type of the worker (developer). According this determine a type of employment agreement to protect your intellectual property rights. When things are clear there is no place for infringement.