By RACHEL LOUISE ENSIGN

You’re running out of time to use up any money from 2011 in your flexible spending account. So get that new pair of glasses and stock up on Band-Aids.

With an FSA, you can use pretax dollars to cover out-of-pocket medical costs and buy qualifying medical supplies.

You forfeit any unused funds each year, but many employers that offer FSAs give employees a grace period. FSA users typically have until March 15 to make purchases using 2011 FSA dollars. They usually must file for reimbursement by a later date, typically between March 31 and May 31. Ask your human-resources department about your deadlines.

First, make sure you’ve been reimbursed for all your out-of-pocket medical costs, says Jody Dietel, chief compliance officer for WageWorks, a provider of FSAs. That means co-payments, deductibles, or other dental and medical expenses your insurance didn’t cover.

Still have a balance? Stock up on bandages, contact-lens solution and sunblock. (It must be a broad-spectrum sunblock with an SPF of 15 or higher. And the SPF will need to be listed on the receipt.) Thermometers and blood-pressure cuffs are eligible, too.

Eyeglasses and prescription sunglasses are a popular buy for those with a lot of FSA dollars left, says Ms. Dietel.

To get reimbursed for over-the-counter medications, such as pain relievers and cough syrup, you’ll need a prescription or letter from your doctor.

Ask your employer for a list of what your FSA covers and see Internal Revenue Service publications 502 and 969.

By ROSS KELLY And NEIL SANDS

SYDNEY—Lend Lease

Group, Australia’s largest property developer, swung to a full-year net profit on the absence of heavy writedowns that marred its previous result.

Lend Lease didn’t provide much guidance Monday, apart from saying that it expects construction volumes in Australia to decline as government stimulus wanes. Offshore construction markets remain difficult, it said.

The company posted full-year net profit of of 345.6 million Australian dollars (US$308.6 million), compared with a A$653.6 million net loss in the previous year, when a rapid economic slowdown, particularly in the U.S. and Europe, generated nearly A$1 billion worth of asset writedowns and negative property revaluations.

Operating profit for the year ended June 30 was A$323.6 million, beating the company’s guidance of a result in line with last year’s A$307.5 million, and a A$319 million average forecast of four analysts.

With offshore construction activity subdued, Lend Lease had to cut costs to boost its operating profit.

Revenue fell roughly 29% to A$10.57 billion from A$14.79 billion on lower construction activity and the impact of a stronger Australian dollar.

A slowdown in construction often lags behind a broader economic slowdown because many of Lend Lease’s jobs are booked a year or two in advance and can often take years to complete.

Lend Lease, which blends property management and development with investment management, said it will pay a final dividend of 12 cents, down from 16 cents last year.

The company last year added a number of big projects to its development pipeline, such as the A$6 billion first stage of Barangaroo redevelopment in Sydney and the GBP1.3 billion expansion of the Stratford City shopping center in London, which it said will underpin earnings growth over the longer term.

Macquarie noted the shift away from the U.S. in Lend Lease’s earnings to contribute just 7% of operating profit, down from 30% in the 2009 financial year. Asia Pacific, however, accounted for 65% of earnings, up from 55%.

The broker is forecasting the group’s net operating profit to grow 8% this financial year but earnings per share to fall 6% as the full impact of a recent A$806 million equity raising is felt.

Goldman Sachs

noted the lack of specific earnings guidance saying, “we expect investors will take this to indicate a weak FY11 and therefore delayed recovery back to EPS growth.”

Write to Ross Kelly at ross.kelly@dowjones.com

By EMILY MALTBY And ANGUS LOTEN

U.S. government bailouts of General Motors and Chrysler became a constitutional battleground when they were pushed through bankruptcy court in 2009.

Turns out the battle isn’t over just yet.

More than 220 former car dealers are pressing their case that the Obama administration violated the U.S. Constitution when the car makers terminated franchise agreements while in bankruptcy restructuring.

They are seeking compensatory damages ranging from $500,000 to more than $5 million apiece.

Two claims, initially filed in October 2010 and February 2011, cleared the government’s motions to dismiss in February and are now heading into the pre-trial discovery phase. The dealers’ lawyers are seeking government documents that they hope will show that auto makers had to eliminate some dealerships as a condition of receiving funds from the government’s Troubled Asset Relief Program.

The cases are believed to be the first to test the constitutionality of the federal government’s $80 billion bailout of the auto industry under the Bush and Obama administrations.

Supporters say the actions saved hundreds of thousands of jobs, while critics say they artificially propped up two failing companies, however large.

Herb Adcox of Chattanooga, Tenn., says he just wants a fair price for his car lot, which he valued at some $3 million in June 2009, including property and an inventory of 150 vehicles and parts worth $250,000 when GM terminated its relationship with him. Without new GM vehicles to sell, Mr. Adcox turned to selling used cars and repairs. His sales dropped to 25 vehicles a month from more than 100 a month earlier in the year.

“I lost money in 2009,” he said, declining to provide specific dollar losses.

Mr. Adcox is party to one of two lawsuits now winding their way through the U.S. Court of Federal Claims in Washington, D.C. His case is seeking class-action status, and the plaintiff lawyers behind that case say they hope to include the claims of all Chrysler or GM dealerships that were hurt by the rejections.

The plaintiffs say that the Obama administration violated what’s known as the “takings” clause of the Fifth Amendment.

Originally written to protect citizens from uncompensated government seizure, the takings clause has long been invoked to resist government seizure of private property for large infrastructure projects.

The dealers’ claims may be a long shot because government lawyers are expected to argue that the U.S. didn’t take anyone’s property, and it was GM and Chrysler that legally terminated business relationships with these dealers.

The judge warned in February that “the theory under which plaintiffs hope to recover does not fit neatly” into a normal takings-clause case. The government has until Friday to respond to the complaints.

Some of the dealers also were involved in earlier challenges to the car maker’s bankruptcy proceedings. Government lawyers might argue that the lawsuits are essentially a second bite at the apple for those dealers.

The plaintiffs are arguing that the U.S. government’s involvement, loaning taxpayer money and overseeing GM and Chrysler’s restructuring, perverted the natural course of bankruptcy. U.S. Treasury was not just a lender, but a government actor, they say. Leonard Bellavia, a partner at Bellavia Gentile & Associates LLP in Mineola, N.Y., who is representing 125 former Chrysler dealers, aims to show that terminating the dealership contracts was “a condition of receiving funds” from Treasury.

“When the government decides to intervene in the economy and targets industries for whatever reasons, under the Fifth Amendment it must pay compensation for what it takes or destroys,” says Richard Faulkner, partner at Blume, Faulkner, Skeen & Northam, PLLC, Richardson, Texas, who is representing a group of former dealers.

Franchises, such as the Chrysler and GM dealerships, generally don’t face termination by a franchiser because they are protected by state laws. But those state laws were trumped by federal laws when the auto manufacturers filed for bankruptcy. Federal bankruptcy law gives companies wide latitude to reject undesirable contracts. Some dealers attempted to fight their rejections during the bankruptcies but they didn’t prevail.

Carl Tobias, who teaches constitutional law at the University of Richmond, said he sees the case as a difficult one. He said he doesn’t expect the government to settle because “the stakes are too high.” Apart from the cost to even partially reimburse hundreds of closed dealerships, Mr. Tobias says the government “wouldn’t want to have a precedent that this type of action is unconstitutional.”

GM spokesman Greg Martin said of 6,375 GM dealers in the U.S. at the end of 2008, only 57% were profitable. The company has since reduced that number to 4,407, of which 90% are profitable, a level the company hasn’t seen in its dealers since the 1970s, he said. “We’re not looking back,” he added.

“Chrysler Group’s optimized dealer network is contributing to improved vehicle sales and customer service and will continue to be a vital part of the company’s success,” said Michael Palese, a Chrysler spokesman. “Plans to place all of our brands under one roof, in well-located facilities, also have resulted in enhanced dealer profitability, and greater investment by existing dealerships.”

Many who lost their franchises were able to sell for other new-car manufacturers, sell used cars, open muffler shops or rental car agencies. Some say they have been struggling since 2009, even if they were able to keep their doors open by selling used cars.

They claim they fell into debt when they lost profit from the vehicles and parts they had on their lots. Many depended on those profits to cover overhead expenses like their dealership mortgages and payroll.

Jim Koehler, owner of Scotia Motors in Scotia, N.Y., and a plaintiff in the Chrysler suit, said he lost about $2 million when his Dodge franchise, started by his father in 1946, was revoked. Mr. Koehler, 67, now runs a used-car sales and service shop with his wife and daughter, but he says the business is not profitable. “I hope we are all made whole,” he says. “This has been the three worst years of my life.”

Rob Engel, 59, and his brother, Richard owned a Chrysler-Jeep dealership in Tenafly, N.J., and a Chrysler dealership in Wyckoff, N.J. They lost their franchises in 2009. The Wyckoff location also had a wholesale parts warehouse.

He entered into arbitration with Chrysler in 2010. Neither dealership was reinstated even though both were profitable, Mr. Engel says, adding that he never found out why his locations were selected.

Mr. Engel estimates he had more than $1.5 million in parts between the warehouse and the two retail locations. “We cashed out our life insurance policies to sustain mortgage payments on both buildings,” he says.

Today, Mr. Engel has a Kia Motors dealership in Tenafly and is renting the Wyckoff property to an auto body shop.

Dave Smith, 58, president of Colonial Chevrolet Company Inc., in Woodsville, Miss., says that in May 2009, GM offered $7,950 to close operations within 18 months. He refused to sign the agreement and his dealership contract was terminated.

“We’re losing money now,” he says.

New car sales used to account for 65% of annual profits, with the rest coming from parts and repairs. The business today is focused on repairs and a few used car sales, he says.

Write to Emily Maltby at emily.maltby@wsj.com and Angus Loten at angus.loten@wsj.com

A version of this article appeared April 26, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Car Dealers Fight On.

By LAURA SAUNDERS

Uncertainty over the fate of the looming 3.8% tax on investment income is fueling new focus on a trusted tax maneuver: the “backdoor” Roth individual retirement account.

The move allows people to transfer money from taxable accounts to a Roth IRA, which earns tax-free income.

Some eligible taxpayers who act before April 17 can put up to $12,000 per individual, or $24,000 per couple, into such accounts—by making contributions for both the 2011 and 2012 tax years.

“We’re recommending them to all our clients, especially with this tax pending,” says Brian Kohute, a CPA and planner at HJ Wealth Management in Plymouth Meeting, Pa. “It’s almost a “no-brainer,” he says, because you don’t have to take a big one-time tax hit to get assets into a tax-free account.

The 3.8% tax, set to take effect in 2013, was enacted to help finance the 2010 health-care overhaul. It is an extra levy on most joint filers reporting more than $250,000 of adjusted gross income ($200,000 for singles) that applies to investment income from capital gains, dividends and rents, among other sources. But it doesn’t apply to municipal-bond income and qualified payouts from Roth IRA accounts.

The Supreme Court last month heard arguments on the constitutionality of the 2010 health-care overhaul. It is expected to rule in June.

The 3.8% tax, along with scheduled tax increases in 2013, make Roth IRAs the “gold standard” now, experts say. Unlike with regular IRAs, the payouts from Roths are usually free of federal tax. Withdrawals don’t trigger higher Medicare premiums or taxes on Social Security payments, and there aren’t mandatory withdrawals at age 70½.

Roth IRAs can be hard to get, however. There are income phase-outs for direct contributions to a Roth account: $169,000 for joint filers in 2011 ($173,000 in 2012) and $107,000 for single filers ($110,000 in 2012). Taxpayers also can convert regular IRAs to Roth IRAs, but the transfer is often fully taxable. Many are reluctant to write that check, fearing lawmakers will rescind the Roth benefits.

That is where backdoor Roth IRAs come in. Taxpayers stymied by income limits are still allowed put up to $5,000 a year ($6,000 for those 50 and older) in a “nondeductible” IRA, as long as they are younger than 70½ and have earned income at least equal to the contribution.

There isn’t a tax deduction for the contribution, but the law allows owners to convert such accounts to Roth IRAs. IRA expert Ed Slott says there isn’t an official waiting period; he suggests a couple of weeks.

Tax is due only on the earnings in the nondeductible IRA between setup and conversion. Donna Skeels Cygan, a planner at Sage Future Financial in Albuquerque, N.M., suggests keeping assets in a money-market fund in the interim.

There is a big caveat: Backdoor Roths don’t work well for people who also have large traditional IRAs, say from rolling over a 401(k) plan. That is because taxpayers can’t cherry-pick one account for conversion. Instead they must lump all IRAs together and prorate the amount converted.

The result can be a large tax bill. For example: You have $95,000 in a regular IRA and $5,000 in a nondeductible IRA. If you convert $5,000 to a Roth IRA, then 95% of the converted amount, or $4,750, is taxable because it is deemed to be from the regular IRA—no matter which account it is from.

To avoid the proration problem, Natalie Briaud Pine, a planner in College Station, Texas, suggests taxpayers roll regular IRAs their 401(k) plans, leaving only the nondeductible IRA to be converted. Such transfers aren’t taxable. This works if the plan allows rollovers—as many do—and investment choices and fees are reasonable. Remember: It is harder to get money out of a 401(k) in an emergency.

Ms. Cygan is reminding clients who don’t already have a backdoor Roth that they can make two contributions this year—one for 2011 (until April 17) and one for 2012: “Just write two checks, and note that one is for each year.”

What if a taxpayer needs money from a Roth account? Withdrawals from backdoor Roths within five years of conversion are usually subject to a 10% penalty unless the owner is 59½ or older. Each conversion carries a five-year limit.

The Internal Revenue Service hasn’t raised any red flags on backdoor Roths that are properly reported on form 8606. According to a spokesman: “The law is pretty clear on this issue.”

Write to Laura Saunders at laura.saunders@wsj.com

A version of this article appeared April 7, 2012, on page B7 in some U.S. editions of The Wall Street Journal, with the headline: Time for a ‘Backdoor’ IRA?.

By VAUHINI VARA

Nicole Franco for The Wall Street Journal

Praveen Madan, left, owner of The Booksmith in San Francisco, is helping Clark Kepler, right, restructure Kepler’s Books, a Menlo Park fixture.

MENLO PARK—The Web revolution has handsomely benefited this city’s venture-capital industry and companies such as Facebook Inc. But the Internet’s rise has battered one of the city’s longtime businesses, Kepler’s Books, which is undergoing major changes to stay afloat.

Kepler’s was founded in 1955 by antiwar activist Roy Kepler as a bookstore and gathering place for intellectuals. His son, Clark Kepler, took over in the early 1980s and eventually moved the business from its previous spot in Menlo Park to its current location on El Camino Avenue, where it thrived for years.

But the rise of online retailers and electronic books has pushed Kepler’s to the brink. Late last year, Mr. Kepler, facing mounting costs and declining revenue, decided to shut down the store and retire. “I just want to take a break and have a little bit of fun,” says the 53-year-old.

Mr. Kepler contacted Praveen Madan, proprietor of a San Francisco bookstore called The Booksmith, thinking Mr. Madan might buy some assets. Instead, Mr. Madan—who had gone on some of his earliest dates with his wife at Kepler’s—asked if he could help save the place. Now, Mr. Madan is helping the store’s board of directors restructure the company.

When he looked at Kepler’s finances, Mr. Madan says he saw the store was in the red not only because of the pressures on sales, but because it was spending on community events that raised the store’s profile but didn’t directly make money.

After Kepler’s debt of $800,000 is restructured, Mr. Madan wants to shut down the business in its current form and restart it with two parts—a nonprofit that runs Kepler’s money-losing activities like bringing authors to read at local fundraisers, along with a smaller for-profit bookstore owned by community members. The store would stay open all the while, except during possible renovations. The restructuring of the business is expected to take about six months.

“We don’t know where all the revenue is going to come from,” says Mr. Madan of the for-profit business. But he plans to bring together interested people—from customers to publishers to employees—to come up with new directions. Among his ideas: eventually selling electronic readers.

In the short run, Mr. Madan hopes to boost revenue by expanding the book selection and improving the experience of shopping in the store and on the Kepler’s website. Once the plan takes shape, Mr. Madan adds, he expects to operate Kepler’s.

The overhaul comes as independent bookstores nationwide struggle to stay open. In Silicon Valley, where people have been quick to turn to new ways of buying and reading books, the challenge is especially stark. Last year, Kepler’s revenue was $4 million, down from a peak of nearly $8 million in the 1995.

Kepler’s fate has implications for others in the book industry. At McSweeney’s, a San Francisco publisher that sells its books at Kepler’s, Associate Publisher Adam Krefman says independent bookstores are “our lifeblood.”

“They are actively reading and hand-selling the book to people,” Mr. Krefman says.

Kepler’s has faced tough times before. Mr. Kepler almost shut down the business seven years ago when online competition began eating into sales. Then some wealthy local residents invested $1 million in the store, and Mr. Kepler was so buoyed by the support that he decided to stay.

Over time, Mr. Kepler ran into Mr. Madan, a 46-year-old former management consultant, at industry conferences and meetings. Mr. Madan and his wife quit their corporate jobs in 2006 and the following year—inspired by Kepler’s—purchased The Booksmith, an ailing bookstore on San Francisco’s Haight Street. The couple transformed The Booksmith over the years into one of San Francisco’s best-known bookstores, and revenue, which had been declining, turned up.

“The business model used to be buying books wholesale from publishers and reselling them,” Mr. Madan says. “That model is going away, but just because the model is going away, that doesn’t mean the space has to go away.”

Customers say they are alternately frustrated and hopeful about Kepler’s. On a recent weekday afternoon, 48-year-old engineer Kathy Hopple browsed the store in search of several titles but quickly grew frustrated. “They don’t have any of them,” she says.

Mr. Madan says the store has about half the inventory it should have because the money troubles have slammed Mr. Kepler’s budget for buying books.

Still, Ms. Hopple says she is encouraged by the idea of an overhaul to keep Kepler’s around. “I don’t want them to go away,” she says. “I’m having a hard time letting go of books.”

Write to Vauhini Vara at vauhini.vara@wsj.com

By KELLY GREENE

Some of the most popular retirement-savings tools are coming under the congressional microscope.

As policy makers gear up for the tax-reform effort expected after the presidential election, they are asking: Can 401(k) plans, individual retirement accounts, and other tax-deferred vehicles be streamlined while getting more traction among people with lower incomes?

On Tuesday, the House Ways and Means Committee heard from several experts on the subject.

At the very least, the increasing focus on retirement savings is a reminder that tax treatment of the accounts, once considered permanent, is anything but. Here’s what you need to know about lawmakers’ eyeing your nest egg.

Q: Why are retirement accounts being scrutinized now?

A: Congress is looking for ways to raise revenue. This discussion comes on the heels of the Senate Finance Committee’s proposal earlier this year to take away a big tax advantage for inherited IRAs: Making heirs empty them out, and pay any income tax due, within five years of the death.

The measure, estimated to raise $4.6 billion in revenue over 10 years, was abandoned, though Sen. Max Baucus (D., Mont.) suggested it might be taken up as part of tax reform.

Q:
It’s tough to get people to save. Why would Congress tinker with the retirement plans they already have set up?

A: “The proliferation of tax-favored retirement accounts has occurred as specific needs have led Congress to create new types of plans with different rules,” said Rep. Dave Camp (R., Mich.), chairman of the House Ways and Means Committee, at the Tuesday hearing.

Mr. Camp acknowledged that 66% of full-time workers participate in workplace retirement plans, with almost three-quarters of them making less than $100,000 a year. But the large number of plans with different rules and eligibility criteria has led some policy makers to question whether the plans have left workers confused—and less likely to use them.

Q:
What proposals to increase tax revenue, or boost retirement savings, are on the table?

A: There are several.

• IRAs that would automatically enroll workers with no access to a workplace retirement plan, creating a means to save through regular payroll deposits.

• Capping retirement-plan contributions at $20,000 a year or 20% of compensation, whichever is less—including employer contributions. Currently, the limits are 100% of compensation or $50,000 a year.

• Replacing exclusions and deductions for retirement savings with an 18% tax credit, deposited directly into an individual’s retirement savings account.

• Accelerating “automatic enrollment” of workers in retirement-savings plans, along with their default savings rate, and automatically increasing workers’ savings rates each year.

• Simplifying the paperwork involved for small employers’ adopting existing types of plans, with the goal of increasing access for more workers.

Q:

If Congress alters tax deferrals, will people still put money away?

Not at the rate they do now, says Jack VanDerhei, research director at the Employee Benefit Research Institute. In the group’s 2011 Retirement Confidence Survey, one in four full-time workers saving for retirement said they would reduce, or totally eliminate, their retirement-savings plan contributions if they could no longer deduct them.

Doing away with tax-deferrals for workers could lead some employers to drop their plans as well. A study done for the Principal Financial Group last year found that if workers’ ability to deduct any amount of their 401(k) contributions from taxable income were eliminated, 65% of the plan sponsors surveyed would have less desire to continue offering their 401(k).

Q: How much do these plans cost the government in lost revenue?

A. It depends on which time period you consider. The government has estimated that it will lose $136 billion this year in revenue to tax-deferred retirement plans. But “every dollar that is excluded from income this year will be included in income in a future year,” says Judy Miller, retirement-policy director at the American Society of Pension Professionals and Actuaries.

That future tax revenue doesn’t show up in the typical five- to 10-year budget windows used by federal number-crunchers, said James Klein, the American Benefits Council’s president, in a post-hearing interview.

Write to Kelly Greene at kelly.greene@wsj.com

A version of this article appeared April 21, 2012, on page B8 in some U.S. editions of The Wall Street Journal, with the headline: Congress Eyes 401(k)s Again.