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We all know the rules and regulations in the tax, accounting and financial world is constantly changing.
This is why we've included this helpful section of our website. We want to provide our current and potential clients the most up-to-date news and information, to alert you to relevant content within the our industry.
As the new administration and Congress get to work, tax reform is high on the agenda. Although legislative language has not been yet released, statements from tax writers in Congress shed some light on various proposals.
House Ways and Means Chair Kevin Brady, R-Texas, has predicted that tax reform will lower the tax rates for all businesses. "We are proposing a corporate rate of 20 percent and for small businesses, a top rate of no more than 25 percent," Brady said in February. As for the timeline of tax reform, Brady said that tax reform legislation will be unveiled in the "coming months," but "repeal and replacement of the Affordable Care Act (ACA) comes first.”
Senate Finance Committee Chair Orrin Hatch, R-Utah, has said that the Senate will work through its own tax reform process. "No one should expect the Senate to simply take up and pass a House tax reform bill," Hatch said in February. Hatch added that Senate tax writers are in the early stages of drafting a tax reform proposal. Hatch did not provide details of the proposal but said that House and Senate Republicans generally agree on basic principles, such as lower tax rates for individuals and businesses.
Democrats, although in agreement the tax code is in need of reform, have been critical of Republicans’ proposed solutions as appearing to focus on tax cuts for the wealthy. "They (Republicans) are for trickle-down economics…giving tax breaks to the wealthy, it trickles down and if somebody gets a job, that’s great, if they don’t, so be it,” House Minority Leader Nancy Pelosi, D-Calif., said in February. "You don’t receive economic security by tossing the rich even more tax breaks," she added.
The Affordable Care Act (ACA) included a host of tax-related provisions. The ACA created the net investment income (NII) tax, the additional Medicare Tax, an excise tax on certain medical devices, and more. The ACA also imposes shared responsibility requirements on individuals and employers (known as the individual and employer mandates). Although President Trump and Republicans in Congress have called for repeal and replacement of the ACA, it is not clear at this time if repeal includes the ACA’s tax provisions. In February, Hatch said that all of the ACA’s taxes “need to go.”
The timeline for Congressional action on the ACA is expected to be known in March. GOP leaders in Congress have said that they will unveil an ACA repeal and replacement measure in March.
Pelosi said in February that Democrats have still not seen a repeal and replacement plan for the ACA. "They're supposed to have their plan to repeal the Affordable Care Act. We have not seen hide nor hair," Pelosi said. According to Pelosi, the GOP’s chosen route of reforming the healthcare law is a difficult endeavor "You have to know how to legislate," she said.
If you have any questions about tax reform, please contact our office.
The filing season is the most active time of the year for tax scams. These scams take every shape and form, ranging from telephone calls to individuals to sophisticated schemes targeting employers and businesses. The goal of all these scams is identity theft. Using legitimate identities of unsuspecting individuals allows criminals to file fraudulent returns and claim bogus refunds.
Phone and email scams are among the most common scams. Every day, individuals receive calls and emails from criminals pretending to be IRS employees. Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. Criminals use IRS employee titles and fake badge numbers to appear legitimate. They may also use the victim’s name, address and other personal information to make the call sound official. The phone calls often threaten legal action or arrest if the taxpayers do not immediately make a payment, usually with a debit or gift card. Taxpayers receiving threatening telephone calls should hang up immediately. The IRS will never demand immediate payment using a specific payment method, such as a prepaid debit card, gift card or wire transfer. The IRS also will never threaten arrest.
Email scams often ask recipients to provide personal and financial information in order “to verify” a tax obligation or claim a “refund.” The emails appear to be genuine communications from the IRS. Criminals create websites that appear legitimate in the hope that individuals will take the bait and provide money, passwords, Social Security numbers and other personal information. Scam emails also can infect a taxpayer’s computer with malware. The malware can give criminals access to the computer, laptop tablet, or other device, enabling them to access all sensitive files or track keyboard strokes, exposing login information. The IRS has repeatedly emphasized that it never initiates contact with taxpayers via email about a bill or refund. Taxpayers should delete these emails immediately.
Criminals are increasing disguising emails to make it appear as if the email is from a company or organization executive. Typically, this email is sent to an employee in the payroll or human resources departments, requesting a list of all employees and their Forms W-2, Wage and Tax Statement. This scam is sometimes referred to as business email compromise (BEC) or business email spoofing (BES). This scam targets all types of businesses: school districts, tribal casinos, chain restaurants, temporary staffing agencies, healthcare, and shipping and freight. Businesses that received the scam email last year also are reportedly receiving it again this year. The IRS has asked employers and businesses to forward these bogus emails to the agency at phishing@irs.gov.
The IRS is making progress in identifying and curbing tax-related identity theft, according to the Treasury Inspector General for Tax Administration (TIGTA). The IRS and tax professionals and the tax software community have joined together to better protect taxpayer information. The agency has upgraded its return processing identity theft filters and taken other behind the scenes measures to uncover fraudulent returns. All of these measures, TIGTA reported in February, have helped to deter tax-related identity theft but criminals continue to look for ways to trick taxpayers and the IRS.Please contact our office if you have any questions about filing season tax scams.
The Treasury Inspector General for Tax Administration (TIGTA), in its recently released final report for the 2016 filing season, highlighted the IRS’s response to what was good and what was bad about its performance. It signals what the IRS is doing during the 2017 filing season currently underway to improve things (TIGTA, Ref. No. 2017-40-014). Nevertheless, although the IRS had improved in a number of areas with respect to the 2016 filing season, TIGTA reports that the agency continues to be plagued by numerous challenges.
The overarching objective of TIGTA’s review of the previous filing season is to assess whether the IRS timely and accurately processed individual paper and e-filed tax returns during the 2016 filing season. Although the IRS agreed with TIGTA’s recommendations for addressing its shortcomings, budget cuts and a shrinking workforce will arguably limit the IRS’s success with respect to the immediate 2017 filing season.
TIGTA reported that of the nearly 140 million individual tax returns that the IRS received, over 123 million returns were filed electronically. This showed a continuation of the trend in increased eFiling from year to year. There was a 2.62 percent increase in electronically filed returns and a 4.92 percent decrease as for paper returns filed.
In addition, the IRS is reported to have issued over 101 million refunds in an amount of $276.5 billion. The average return was said to be $2,731. Over 83.6 million refunds were issued via direct deposit, which marked a 2 percent increase over the previous year.
The TIGTA report suggests that the IRS is seeing continued success in detecting and preventing tax refund fraud. There has been a continued decreasing trend in the number of fraudulent tax refund that the IRS detects and stops, which is attributable to the IRS’s expansion of its processes to prevent fraudulent tax returns from entering the tax processing system.
The IRS continues to implement ways to combat taxpayer fraud. In fall 2016, the IRS entered a partnership with industry professionals and state revenue agencies—the Security Summit—to focus on fighting fraud. In addition, a change in the law to require all wage statements to be submitted to the IRS by January 31, were implemented with the intent to combat fraudulent filings in the 2017 filing season.
TIGTA has consistently reported, from year to year, that a challenge that the IRS faced each year in processing tax returns was the implementation of new tax law changes and the extension of expired tax provisions. The 2016 tax season proved no differ, as the Service failed to establish or update key processes, and made numerous processing errors.
With fewer of these changes for the 2016 tax year to be faced during the current 2017 filing season, the IRS is guardedly optimistic for a smoother overall track record.
HCTC. TIGTA found that the IRS did not establish adequate processes to ensure that documentation required to support a claim for the health coverage tax credit (HCTC) was associated and reviewed before processing claims and allowing the credit. As the HCTC claims from processed manually, employee errors led to delays in refund issuance. This is significant, as the IRS received 20,437 e-filed returns claiming HCTCs that totaled approximately $40.8 million. However, as of the time that
TIGTA conducted its review, the IRS had completed processing of only 5,481 of the returns claiming HCTCs, which amounts to only 27 percent of all such returns. TIGTA reported that it notified IRS management throughout the filing season of its concerns regarding the inaccurate processing of HCTC claims, resulting in IRS management making a number of changes during the filing season to alleviate some of the issues. TIGTA plans to issue additional reports on the IRS’s progress in implementing the HCTC during CY 2017.
PATH Act. TIGTA found that the IRS has not taken actions to implement key provisions of the Protecting Americans From Tax Hikes Act of 2015, as the agency had not developed processes to systemically identify and disallow EITC, CTC/ACTC, and AOTC claims without the data needed to determine the issuance date of SSNs and ITINs.
With the start of the new year, the IRS has begun expiring ITINs not used for three consecutive tax years and those issued between CY 1996 and 2000. The IRS will continue these actions on ITINs issued prior to CY 2013. TIGTA will report on the IRS’s expiration of ITINs during fiscal year (FY) 2017.
Credits. TIGTA found that the IRS had not implemented computer programming changes to correct residential energy efficient property credit processing errors identified during the 2015 filing season.
Further exacerbating issues, TIGTA also found that IRS employees continued to incorrectly work residential energy efficient property credit claims. As a result, the IRS incorrectly limited the credit on 731 tax returns, amounting to $1.2 million less in credits for taxpayers than they were entitled to receive. IRS management has stated that the agency has requested revisions to computer programming for the 2017 filing season. However, at the time of the report, the IRS could not provide an implementation date, citing limited resources and competing priorities as challenges affecting completion of the work.
Taxpayer assistance. TIGTA reported that the IRS had answered 14.1 million calls and provided a 69 percent level of service during the 2016 filing season. Although this call-service data represents a significant uptick from the prior year, the IRS continued to decrease the number of taxpayers it assisted at its Taxpayer Assistance Centers (TACs), only assisting 4.5 million taxpayers in FY 2016. The IRS attributed this 20 percent decrease from FY 2015 to budget cuts and its strategy of appointment service at certain TACs, in conjunction with the agency’s push of alternative service options.
On taking office, President Trump ordered a federal government hiring freeze. Traditionally, the IRS hires temporary workers during the filing season to assist with increased call volumes. Although the hiring of temporary workers is excluded from the President’s hiring freeze mandate, it remains to be seen how budget restrictions will affect the level of in-person and phone service available to taxpayers.
The first step is to determine if you qualify for the federal fuel tax credit. The IRS has uncovered significant fraud associated with the fuel tax credit and is watching for fraudulent claims. The credit is not available to most taxpayers but only to qualified taxpayers, such as taxpayers engaged in farming. However, some ineligible taxpayers claim the credit in order to inflate their refunds. Fuel tax credit fraud can result in a penalty of $5,000.
The credit is available to qualified taxpayers for the amount of excise taxes included in the price of gasoline used on a farm for farming purposes, for other off-highway business use, by local transit systems, and by the operators of intercity, local or school buses A special rule applies to diesel and aviation fuel.
Generally, eligible taxpayers may claim fuel taxes as a credit against income tax for the year in which the qualifying use occurred. A claim for credit is made on the taxpayer's income tax return and should be accompanied by Form 4136,"Credit for Federal Tax Paid on Fuels," which is used to compute the credit.
The credit may be claimed within three years after the due date for filing the return on which the credit may be claimed or within two years from the time the tax was paid, whichever is later. If the amount of the credit would be $1,000 or more for gasoline or for diesel and special motor fuels used during any of the first three quarters of the tax year ($200 for alcohol mixture), a taxpayer may elect to file a quarterly claim for refund.
A special rule applies to partnerships. Partnerships (other than electing large partnerships) cannot use Form 4136. Instead, they must include a statement on Schedule K-1 (Form 1065) showing the allocation to each partner specifying the number of gallons of each fuel used during the tax year, the applicable credit per gallon, the nontaxable use or sale, and any additional information required to be submitted.
Please contact our office if you have any questions about the federal fuel tax credit.
Tax-related identity theft spikes during the filing season. Many taxpayers discover for the first time that they are victims of identity theft when they receive a letter from the IRS.
A taxpayer may receive a letter when the IRS stops suspicious tax returns that have indications of being identity theft but contains a real taxpayer’s name and/or Social Security number. Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them
One communication that the IRS uses is Letter 5071C. This letter is mailed through the U.S. Postal Service to the address on the return. It asks the taxpayer to verify his or her identity in order for the IRS to complete processing of the return if the taxpayer did file it or reject the return if the taxpayer did not file it. The IRS will explain how taxpayers can contact the agency. The IRS has recommended that taxpayers should have available a copy of the letter they received, their prior year’s return (if one was filed) and the current year’s return (if one was filed), including supporting documents for each return. This would encompass Forms W-2’s, 1099’s, Schedule C, Schedule F, and other supporting documents.
The IRS never asks a taxpayer to verify his or identity by email. If a taxpayer receives such an email, it is a scam, sent by criminals trying to trick the taxpayer into revealing personal and financial information.
Another communication that the IRS uses is Letter 4883C. This letter also is mailed through the U.S. Postal Service and asks taxpayers to verify their identities. The IRS will explain what steps to take.
If you have received a letter from the IRS related to possible identity theft, please contact our office. We can help you navigate the IRS and respond to the agency’s questions.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of March 2017.
Employers. Semi-weekly depositors must deposit employment taxes for Feb 22–Feb 24.
Farmers and fishermen. File 2016 income tax return (Form 1040) and pay any tax due. However, the deadline is extended to April if paid the 2016 estimated tax by January 17, 2017.
Health coverage reporting. Must provide Form 1095-C to full-time employees and provide Form 1095-B to responsible individuals.
Employers. Semi-weekly depositors must deposit employment taxes for Feb 25–Feb 28.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 1–Mar 3.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 4–Mar 7.
Employees who work for tips. Employees who received $20 or more in tips during February must report them to their employer using Form 4070.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 8–Mar 10.
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and non-payroll withholding for payments in February 2017.
Partnerships. File Form 1065 and provide each partner with a copy of their Form 1065 (Schedule K-1).
Electing large partnerships. File Form 1065-B and provide each partner with a copy of their Form 1065-B (Schedule K-1). May request an automatic 6-month extension of time to file the return by filing Form 7004.
S corporations. File Form 1120S, pay any tax due, and provide each shareholder with a copy of their Form 1120S (Schedule K-1). May request an automatic 6-month extension of time to file the return by filing Form 7004.
S corporation election. File Form 2553 to elect to be treated as an S corporation beginning with calendar year 2017.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 11–Mar 14.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 15–Mar 17.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 18–Mar 21.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 22–Mar 24.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 25–Mar 28.
Payers of gambling winnings. If filing electronically, file copies of all Forms W-2G issued for 2016.
Large food and beverage establishment employers. If filing electronically, file Forms 8027 for 2016.
Applicable large employers. If filing electronically, file Forms 1094-C and 1095-C for 2016.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 29–Mar 31.
The IRS has confirmed that a new revision of the Instructions for Form 7004 correctly reflects that calendar year C corporations are eligible for an automatic six-month extension. Code Sec. 6081(a) provides that the IRS may grant a reasonable extension of time for filing returns, so long as the extension is not more than six months, the IRS explained.
Domestic corporations are required to annually file Form 1120, U.S. Corporation Income Tax Return, to report the income, credits, gains, losses, deductions, and income tax liability of the corporation unless it elects, or is required to file, a special return. Corporate income tax returns are usually filed on Form 1120, but specified types of corporations are required to file on specialized forms.
The automatic extension provided by Reg. §1.6081-3(a) to C corporations filing Form 1120 was codified by the Surface Transportation Act and changed to six-months. This change applies to returns for tax years beginning after December 31, 2015. However, a special rule under Code Sec. 6081(b) provides that in the case of any calendar-year C corporation with a tax year beginning before January 1, 2026, the maximum extension allowed is five months. In the case of a C corporation with a fiscal year ending on June 30 and beginning before January 1, 2026, the maximum extension allowed is seven months.
The IRS has announced that it will continue to process individual returns that do not report the taxpayer’s health coverage status under the Affordable Care Act (ACA). The IRS will accept returns that fail to indicate coverage, an exemption or a shared responsibility payment. The IRS had planned to reject these returns (known as "silent returns") this filing season after having accepted them in past years. Taxpayers may, however, be contacted later, the IRS cautioned.
The IRS left open the question of whether it would revise other aspects of ACA compliance during the balance of this filing season. The IRS announcement on processing silent returns began with the statement, without elaboration: "The IRS is currently reviewing the January 20, 2017, Executive Order on the ACA to determine the implications. Taxpayers should continue to file their tax returns as they normally would."
Executive order. Shortly after taking office, President Trump announced that it is the policy of his administration to seek "prompt repeal" of the ACA. In Executive Order 13765, the President instructed the heads of federal agencies "to waive, defer, grant exemptions from or delay the implementation of any provision or requirement of the ACA that would impose any cost, fee, tax, penalty, or regulatory burden on individuals."
Return processing. Processing silent returns means that returns are not systemically rejected by the IRS at the time of filing, allowing the returns to be processed and minimizing burden on taxpayers, including those expecting a refund,” the agency reported.
Follow-up. Taxpayers may receive follow-up questions and correspondence at a future date, about their coverage status, after the filing process is completed, the IRS reported. The IRS also emphasized that its revised treatment does not change the underlying legislative provisions of the ACA that remain in force at this time, including penalty payments, until changed by Congress.
The Tax Court, in Schieber v. Commissioner, TC Memo. 2017-32, found that the right to a continuing monthly payment state pension plan was not an asset in determining insolvency for purposes of exclusion from cancellation of indebtedness income. The court rejected the IRS’s argument that the ability of the taxpayers to use their monthly pension payments to continue to pay off existing tax indebtedness was sufficient to disprove insolvency.
The taxpayer-husband’s public employees’ defined benefit pension provided monthly payments with cost of living increases. Other than the monthly amounts as they became payable, the husband and his wife could not access the value in the plan. They could not convert their interest into a lump-sum cash amount, sell their interest, assign their interest, borrow against their interest or borrow from the plan. The plan withheld federal income tax from the payments.
A mortgage lender cancelled $418,000 of the taxpayers’ debt. The taxpayers claimed that their liabilities exceeded their asset by $293,000, and that should be excluded from cancellation of indebtedness income under the insolvency exception provided in Code Sec. 108. The IRS, however, claimed that the taxpayers were not insolvent since the income stream from the pension should be counted as an asset.
The Tax Court observed that although the Tax Code does not define assets, case precedent did find that an asset exempt from creditors could still be an asset for purposes of Code Sec. 108 because such an asset can give the taxpayer the ability to pay an immediate tax on income from the canceled debt. The IRS argued that the taxpayers’ interest in the pension plan should be considered an asset because they could use their monthly payments to pay liabilities.
However, the Tax Court appeared to view the insolvency test to be one predicated on whether the asset gives the taxpayer the ability to pay an “immediate tax on income” from the canceled debt, not to pay the tax gradually over time. Here, the taxpayers’ interest in the pension plan could not be used to immediately pay the income tax on canceled-debt income. Therefore, the court found that it could not be considered an asset within the meaning of Code Sec. 108.
The Ohio Department of Taxation has issued a release showing the statewide average wholesale prices of a gallon of unleaded regular gasoline at $1.439 (previously, $1.342), diesel fuel at $1.523 (previously, $1.445), and propane at $0.633 (previously, $0.509) for the second quarter of 2017 for purposes of calculating the gross receipts of a supplier subject to the petroleum activity tax (PAT).
The department notes that the averages should be used to determine the calculated gross receipts of a supplier subject to the PAT for the period April 1, 2017, through June 30, 2017. Release, Ohio Department of Taxation, March 13, 2017
The IRS has informed taxpayers via its website that the agency will begin, in early 2017, to remit certifications to the U.S. State Department for individuals who are seriously delinquent in paying their tax debt. Such certification could impact an individual’s ability to obtain or keep a U.S. passport. At this time, the IRS has not started certifying tax debt to the State Department, the agency reported on its website.
On its website, the IRS explained that seriously delinquent tax debt is an individual's unpaid, legally enforceable federal tax debt totaling more than $50,000 (including interest and penalties) for which a notice of federal tax lien has been filed and all administrative remedies under Code Sec.6320 have lapsed or been exhausted, or a levy has been issued.
However, the IRS explained, some tax debt is not included in determining seriously delinquent tax debt. Such tax debt includes:
+ Being paid in a timely manner under an installment agreement entered into with the IRS.
+ Being paid in a timely manner under an offer in compromise accepted by the IRS or a settlement agreement entered into with the U.S. Justice Department.
+ For which a collection due process hearing is timely requested in connection with a levy to collect the debt.
+ For which collection has been suspended because a request for innocent spouse relief under Code Sec. 6015 has been made.
Before an applicant’s passport is denied, the State Department will hold the application for 90 days. During the 90 days, an individual can resolve any erroneous certification issues; make full payment of the tax debt; and/or enter into a payment alternative, such as an installment agreement. There is no grace period for resolving the debt before the State Department revokes a passport, the IRS added.
The IRS will notify taxpayers in writing if the agency makes a certification to the State Department. The agency will also notify taxpayers in writing if it reverses a certification. In addition, the IRS will provide notice within 30 days of the date the debt is fully satisfied, becomes legally unenforceable or ceases to be seriously delinquent tax debt.
Taxpayers may seek judicial review of certifications. If the Tax Court or a federal district court finds the certification was erroneous, the court may order the IRS to notify the State Department. There is no administrative process before filing suit in court, the IRS explained.
The IRS has confirmed that a new revision of the Instructions for Form 7004 correctly reflects that calendar year C corporations are eligible for an automatic six-month extension. Code Sec. 6081(a) provides that the IRS may grant a reasonable extension of time for filing returns, so long as the extension is not more than six months, the IRS explained.
Domestic corporations are required to annually file Form 1120, U.S. Corporation Income Tax Return, to report the income, credits, gains, losses, deductions, and income tax liability of the corporation unless it elects, or is required to file, a special return. Corporate income tax returns are usually filed on Form 1120, but specified types of corporations are required to file on specialized forms.
The automatic extension provided by Reg. §1.6081-3(a) to C corporations filing Form 1120 was codified by the Surface Transportation Act and changed to six-months. This change applies to returns for tax years beginning after December 31, 2015. However, a special rule under Code Sec. 6081(b) provides that in the case of any calendar-year C corporation with a tax year beginning before January 1, 2026, the maximum extension allowed is five months. In the case of a C corporation with a fiscal year ending on June 30 and beginning before January 1, 2026, the maximum extension allowed is seven months.
The Tax Court determined, in Zarrinnegar v. Commissioner, TC Memo. 2017-34, that a dentist by profession, was a real estate professional, and therefore could deduct rental real estate losses. As such, the losses were not barred by the passive activity rules.
The taxpayer was a dentist married to another dentist with whom he shared a dental practice. The two worked in shifts, often with the wife working the morning shift and the husband working the afternoon shift. The couple also owned a real estate brokerage firm and four rental properties. The husband managed the properties, while the wife did not. The husband reported that he spent over 1,000 hours every year on the real estate business.
For several years, the couple reported income from the dental practice on their returns, and losses from their real estate business. The IRS disallowed the deductions for the losses after characterizing them as passive activity losses.
The Tax Court held that a passive activity is trade or business in which the taxpayer does not materially participate. Material participation requires regular, continuous and substantial involvement in business operations. Rental activities are generally considered passive in nature, regardless of a taxpayer’s material participation. However, there is an exception for rental activities of taxpayers who are real estate professionals.
A taxpayer is a real estate professional if more than one-half of the personal services performed in trades or businesses by the taxpayer during the tax year are performed in real property trades or businesses in which the taxpayer materially participates, and the taxpayer performs more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participates.
The court determined that the husband had worked more than 1,000 hours each year on the real estate business, as he substantiated this claim with credible time logs. Witness testimony also substantiated the amount of time the husband spent on the real estate business. In addition, the court found that the husband worked less than 1,000 hours every year at the dental practice. As such, the court concluded that the couple was not bared from claiming the losses from their real estate business.
