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How long are you required to keep tax returns and supporting documents according to the IRS?
Record Retention for Tax Returns and Supporting Documents
According to the IRS Publication 583, you should retain any records that support an income item or deduction on a tax return until the time when the return can no longer be amended to claim a credit or refund or the IRS can assess additional tax.
Period of Limitations
IF you...
THEN the period of retention (# of years after the return is filed) is...
1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you
3 years
2. Do not report income that you should report and it is more than 25% of the gross income shown on the return
6 years
3. File a fraudulent return
Keep indefinitely
4. Do not file a return
Keep indefinitely
5. File a claim for credit or refund after you filed your return
Later of: 3 years or 2 years after tax was paid
6. File a claim for a loss from worthless securities or a bad debt deduction
7 years
7.Employment tax records
4 years after tax is due or paid (whichever is later)
Above Table from IRS Publication 583 (1/2007), Starting a Business and Keeping Records & IRS Publication 552 (4/2005), Recordkeeping for Individuals
Before discarding any documents, ask yourself these questions.
1.Is this document connected to an asset?If the document does relate to property that you still have, you should keep the document for depreciation, amortization, or depletion deduction purposes as well as aiding you in figuring gain or loss on the sale or disposition of the property.If you no longer have the asset, you should keep the records for that asset until the period of limitations expires for the year in which you disposed of the asset.
2.Is this document needed for other non-tax purposes?You may be required by a creditor or insurance company to retain a document long after the IRS retention period.
Includes Standard Deductions, Personal Exemptions and Mileage Rates
Individual Capital Gains Rate
Individual capital gains rate can vary from 5% to 28% depending upon the type of capital gain property sold, the holding period, the date acquired and the regular tax bracket the taxpayer falls within.Certain dividend income is also taxed at capital gains rates.See your tax consultant.
Standard Deductions
Single
$5,000
Joint Filers
$10,000
Joint, Filing Separately
$5,000
Heads of Households
$7,300
Personal Exemptions
Exemption Amount- $3,200
The exemption amount is reduced by approximately 2% for each $2,500 by which the taxpayer’s adjusted gross income exceeds:
Single taxpayers
$145,950
Married filing jointly and qualified widows and widowers
Includes information on Corporate Rates, MACRS Percentages, Estate and Trust Income Rates, FICA, Benefit Limitations, and Social Security Retirement Wage Limits.
Corporate Federal Tax Rates
Corporate Federal Tax Rates 2005 - 2008
Taxable Income
Tax
% on Excess
0
0
15%
50,000
7,500
25%
75,000
13,750
34%
100,000
22,250
39%
335,000
113,900
34%
10,000,000
3,400,000
35%
15,000,000
5,150,000
38%
18,333,333
6,416,667
35%
MACRS Percentages
(with half year convention)
Year
5-year Property
7-year Property
1
20.00%
14.29%
2
32.00%
24.49%
3
19.20%
17.49%
4
11.52%
12.49%
5
11.52%
8.93%
6
5.76%
8.92%
7
--
8.93%
8
--
4.46%
FICA
Year
Maximum Salary
Rate
2008
Social Security
$102,000
6.20%
Medicare
No max
1.45%
2007
Social Security
$97,500
6.20%
Medicare
No max
1.45%
2006
Social Security
$94,200
6.20%
Medicare
No max
1.45%
2005
Social Security
$90,000
6.20%
Medicare
No max
1.45%
Self-employed individuals pay both the employee and employer portion
but get a deduction for the employer portion.
In 2008, total wages paid to household employees of at least $1,600 are subject to FICA taxes.
In 2007, total wages paid to household employees of at least $1,500 are subject to FICA taxes.
Benefits Limitations
Year
401(k) Contribution Limit (Below Aged 50)
401(k)
Contribution Limit (Age 50 or Higher)
Defined Contribution Plan Limit
Compensation Limit for Calculating Plan Contributions
Defined Benefit Plan Limit
2008
$ 15,500
$ 20,500
$ 46,000
$ 230,000
$ 185,000
2007
$ 15,500
$ 20,500
$ 45,000
$ 225,000
$ 180,000
2006
$ 15,000
$ 20,000
$ 44,000
$ 220,000
$ 175,000
2005
$ 14,000
$ 18,000
$ 42,000
$ 210,000
$ 170,000
Social Security Earnings Limit for 2008
When You Reach Full Retirement Age (FRA)
Amount You Can Earn
If Your Earnings Exceed The Limit
If you are under FRA for all of 2008
$13,560
$1 of benefits is withheld for every $2 you earn above $13,560.
If you attain FRA in 2008
$36,120 before the month in which you attain FRA
$1 of benefits is withheld for every $3 you earn above $36,120.
Let's Take a Look at Social Security
Presented to The Conversation
May 26, 2005
by DeWitt T. Hisle
What Would FDR Think?
by DeWitt T. Hisle
Presented to The Conversation on May 26, 2005
In 1935, 70 years ago, President Roosevelt signed the Social Security Act.Monthly payments began in 1940.He said:
“We have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against a poverty ridden old age.”
Social Security
Social Security is often described as the most popular government program, and Americans collectively have come to rely on it for their retirement years.But the long-term viability of Social Security must be addressed in the very near future.
The American Institute of Certified Public Accountants strongly urges that, before taking a position on a possible solution to the funding shortfall, policymakers and the public need to gain a clear understanding of the issues involved in reforming Social Security.The goal of my discussion is to provide some facts and analysis.
Social Security is Not Broke
Social Security Administrations best guess assumptions:
·The Trust Fund surplus will peak in 2028.
·It will decline steadily until 2042 at which time it will be exhausted.
·Inadequate funds do not mean zero benefits:
·Full benefits through 2042.
·Thereafter scheduled benefits would have to be reduced by 27%.
·In 2078 benefits would be reduced by 32%.
Although best guess assumptions are reasonable there is uncertainty about actual results.
·High cost assumptions Trust Fund peaks in 2021 completely depleted by 2031.
·Low cost assumptions Trust Fund would not be depleted and there is no long term problem.
Some Solutions
This Social Security “deficit” could be funded by:
·An immediate infusion of $3.54 trillion.
·By increasing the payroll tax from its current level of 12.4% to 14.3%.
·Reducing current scheduled benefits by 12.6%.
·Improving the rate of return on investments.
·Raise the cap on income subject to the tax.
QUESTIONS FOR EVALUATING PERSONAL ACCOUNT PROPOSALS
Among the most important issues to consider under any personal account proposal are the following:
·To what degree, and over what period, would benefits under the existing system remain in place?
·Will there be a safety net for low-income beneficiaries?
·How much choice will individuals have about:
oParticipating?
oInvestments?
oDistributions?
·Will benefit payments be subject to tax?If so, at what rate?
·What will the plan “cost” beneficiaries in lost traditional benefits as a trade-off for a personal account?
·Should the private accounts be in addition to the basic guaranteed benefits?
AT THE MERCY OF EVENTS
Say you retired in March of 2000 with $100,000 in your private account in an Index Fund.Your inflation-adjusted annuity would be about $680 a month.
If you retired in October 2002 with the same number of shares of the Index Fund it would be worth $60,000.Your annuity would be about $279 a month.
Saved the same – retired at different times – at the mercy of events.
We don’t save for retirement
Workers' savings
Percentage of workers by amounts
saved for retirement:
Less than $25,000
52%
52% < 25,000
$25,000-$49,000
13%
65% < 50,000
$50,000-$99,000
13%
78% < 100,000
$100,000-$249,000
12%
90% < 250,000
$250,000 or more
11%
Source: Employee Benefit Research Institute
Note:Does not add up to 100 because of rounding
Social Security was never meant to fully fund retirement.
POVERTY AND ELDERLY
Social Security is a critical component of the financial security of millions of retirees – especially for future generations of the nation’s elderly poor.
·Social Security provides more than half of the total income for almost 60% of beneficiaries.
·For almost 30%, it provides more than 90% of income.
·It also covers 4.8 million widowers, 5 million disabled workers and 3.8 million children of deceased workers.
·80% of American workers pay more Social Security taxes than federal income tax.
Reducing poverty among the elderly is Social Security’s major accomplishment to date.The poverty rate among the elderly in 2000 was approximately 10%, down from a rate of 35.2% in 1959.Without Social Security, the poverty rate among the elderly would be 48%.
Preserving Social Security matters everywhere, but particularly in Kentucky.Our population is older and poorer than most.In 2003 more than $7 billion came into Kentucky through the Social Security program.Without it 54.6% of Kentucky senior citizens would live in poverty.10.7% do.
Surveys show that many Americans want a safety net.The system they have been use to has security in its name.A lot of people like the ownership society but they want it with a warranty.
Social Security is often described as the most popular government program, and Americans collectively have come to rely on it for their retirement years. But the long-term viability of Social Security must be addressed in the very near future.
The American Institute of Certified Public Accountants strongly urges that, before taking a position on a possible solution to the funding shortfall, policymakers and the public need to gain a clear understanding of the issues involved in reforming Social Security. The goal of this report is to foster informed discussion by providing unbiased facts and analysis.
The Situation
According to the Social Security Administration’s “best guess” (intermediate) assumptions, the Social Security Trust Fund surplus will peak in 2028. Then it will decline steadily until 2042, at which time the Trust Fund will be exhausted. However, inadequate funds do not mean zero benefits. If no changes are made to Social Security, beneficiaries could receive full scheduled benefits through 2042. Thereafter, scheduled benefits would have to be reduced by 27 percent. In 2078, benefits would have to be reduced by 32 percent. This Social Security “deficit” could be funded by an immediate infusion of $3.54 trillion; by increasing the payroll tax rate from its current level of 12.4 percent to 14.3 percent; or by reducing current scheduled benefits 12.6 percent.
Although the intermediate assumptions are reasonable there is still considerable uncertainty about actual results. Under Social Security’s high-cost projections, the Trust Fund peaks in 2021 and is entirely depleted by 2031. Under low-cost projections, the Trust Fund would not be depleted and there is no long-term financing problem.
Poverty and Elderly
Social Security is a critical component of the financial security of millions of retirees – especially for future generations of the nation’s elderly poor. Social Security provides more than half of the total income for almost 60 percent of beneficiaries. For almost 30 percent, it provides more than 90 percent of income.
Reducing poverty among the elderly is Social Security’s major accomplishment to date. The poverty rate among the elderly in 2000 was approximately 10 percent, down from a rate of 35.2 percent in 1959. Without Social Security, the poverty rate among the elderly would be 48 percent.
Fairness – Economic and Otherwise
Social Security was created as a pay-as-you-go system. Most of today’s Social Security recipients are receiving – and will continue to receive – more in benefits than their actuarial “fair share” based on their contributions. Even if all promised benefits were paid, future retirees, particularly singles, two-earner couples and those with high incomes, will earn below-market rate returns on their contributions.
The rate of return earned on an individual’s Social Security contributions is affected by gender, marital status, and income level. Social policy considerations weaken the direct link between contributions made and benefits received. The Social Security benefit formula includes a declining fraction of income in the calculation. As a result, low income beneficiaries benefit from the formula, high income beneficiaries do not. Married couples benefit from spousal and survivor benefits.
Reform plans to create personal savings accounts within the Social Security system would move the program away from a pay-as-you-go social insurance program and make it more like a defined-contribution pension plan. This will result in less redistribution of income (1) from high- to low-income earners; (2) from single individuals to married couples; and (3) from two-earner couples to one-earner couples.
Impact on Labor and Savings
Although analysts do not believe that Social Security taxes have much impact on the overall labor supply, payroll taxes may affect labor supplied by individuals for whom working is not a necessity. The Social Security benefit rules also appear to affect decisions about early retirement and the amount of work retirees plan to perform during retirement.
Increased national saving is a key to increased capital formation, productivity, and long-term economic growth. The current pay-as-you-go Social Security system may have decreased workers’ overall saving rates. The anticipated shortfall in future benefits may encourage workers to save more, but the magnitude of these affects is subject to debate.
Restoring Fiscal Balance
There are four general methods of improving the financial condition of the Social Security Trust Fund: (1) reducing benefits; (2) increasing revenues; (3) improving the rate of return on Trust Fund assets; and (4) other revenue sources, such as appropriating Treasury general funds.
Benefit reductions can be accomplished through across-the-board cuts, means-testing, raising the retirement age, or changing the inflation-adjustments used to determine benefits. Revenues can be increased by raising the payroll tax rate, raising the cap on taxable income, extending the payroll tax to all government workers, raising income taxes on Social Security benefits, and diverting general tax revenues to the Trust Fund.
Investing in Private Securities
If Social Security remains a pay-as-you-go system, the average rates of return on Social Security contributions will eventually decline below rates of return historically available in financial markets. Even if Social Security became a fully funded system, its rate of return could not significantly improve unless the restriction to invest solely in U.S. government securities was lifted.
Investing Trust Fund assets, as a whole, in the stock market could improve Social Security’s financial condition, because – over long periods of time – the stock market generally outperforms the return on U.S. government securities. However, investing in private securities adds risk and increased administrative costs to the financing equation. Further, the potential for large-scale government investment in private equities could result in undue political influence on markets.
Personal Accounts
Under a system of personal accounts, a portion of payroll taxes paid by each worker under age 55 would be redirected from the Trust Fund to that worker’s own personal account. Some restrictions would be imposed on investment and payout options, but the personal account holder could generally expect to earn a higher return on their contributions.
Personal accounts would not entirely eliminate traditional Social Security retirement benefits. However, under most proposals reviewed in this report, traditional benefits would be reduced regardless of whether an individual chose to participate in the voluntary account program.
Benefit Offsets: Workers choosing to contribute to personal accounts would receive benefits from their personal account along with traditional benefits that have been reduced according to the amount redirected to an investment in a personal account. The greater this “benefit offset,” the less attractive the personal account option will be, but large benefit offsets make personal account proposals less costly for the Trust Fund.
Risk Shifting: Personal accounts expose account holders to uncertainty about their future benefit levels because of market performance risks. Although some of this risk can be eliminated through diversification; the rest may be transferred to the federal government in the form of minimum benefit guarantees.
Administrative Costs: The costs to administer private accounts have a large impact on the benefits ultimately available to retirees. For an individual with average earnings of $30,000, contributing 2 percent of earnings to an individual account, administrative costs of 0.1 percent of assets could allow an accumulated balance of $125,430 by retirement. However, if administrative costs were 1.0 percent, the accumulated balance would be approximately $98,000 – a 22 percent reduction.
Funding Transition Costs
Over the 75-year horizon used to score Social Security reforms, the creation of personal accounts by themselves worsen the financial condition of the Social Security Trust Funds. During the long transition to a personal account system, fewer funds would be available to pay traditional benefits to current retirees and near-retirees, because contributions diverted to the personal accounts of younger workers would result in lower contribution levels into the Trust Fund.
Therefore, extra funds from outside the program or cost savings from inside the program would be needed to fund the transition. All personal account proposals considered in this report include transfers from the Treasury general fund to the Social Security Trust Fund.
QUESTIONS FOR EVALUATING PERSONAL ACCOUNT PROPOSALS
Among the most important issues to consider under any personal account proposal are the following:
·To what degree, and over what period, would benefits under the existing system remain in place?
·Will there be a safety net for low-income beneficiaries?
·How much choice will individuals have about:
oParticipating?
oInvestments?
oDistributions?
·Will benefit payments be subject to tax? If so, at what rate?
·What will the plan “cost” beneficiaries in lost traditional benefits as a trade-off for a personal account?
Tips for payroll and human resource record retention, including information on how long to keep OSHA,IRS/SSA/FUTA, FLSA/INRCA, Family Medical Leave and Supplemental records.
OSHA Documents – 5 years
·Log of all occupational illnesses/accidents
·Other OSHA records
IRS/SSA/FUTA documents – 4 years
·Duplicate copies of tax returns/tax deposits
·Returned copies of Form W-2
·Canceled/voided checks
·Employee’s name/address/occupation/social security number
·Amount/date of payments for wages, annuities, pensions, tips; fair market value of wages-in-kind
·Record of allocated tips
·Amount of wages subject to withholding
·Taxes withheld (and date if different from pay date)
·Copies of Form W-4 (for at least four years after the date the last return was filed using the information on the Form W-4)
·Agreements to withhold additional amounts
·Dates when employee was absent due to injury and received payments; amount/rate of such payments (by employer or third party)
·Copies of Forms 941, 940, W-2, W-3, Schedule A, Schedule B, and other returns filed on magnetic media
FLSA/INRCA Record Retention – 3 years
·Name of employee/address/occupation/birth date/sex
·Hours worked each day/week
·Amount and date of payment
·Amounts earned for straight time and overtime/additions to and deductions from wages
·Collective bargaining agreements
·Sales and purchase records
·Immigration Reform and Control Act, Form I-9-three years after date of hire or one year after date of termination (whichever is later)
FAMILY AND MEDICAL LEAVE Record-Keeping Requirements - 3 years
The following records must be kept for at least three years, in any format, and made available no more frequently than once every 12 months for Department of Labor inspection.
·Name, address, occupation rate of pay, daily and weekly hours worked per pay period
·Additions to and deductions from wages, total compensation
·Dates of FMLA leave (or hours if taken in increments of less than one day)
·Copies of written notices of intention to take FMLA leave provided by employee
·Copies of general and specific notices provided to employees
·Plan descriptions/policies and procedures dealing with unpaid and paid leaves
President Biden, on August 16, 2022, signed the Inflation Reduction Act ( P.L. 117-169) into law following its passage along party lines in both chambers of Congress.
President Biden, on August 16, 2022, signed the Inflation Reduction Act (P.L. 117-169) into law following its passage along party lines in both chambers of Congress.
The law is a slimmed down version of the Build Back Better Act that passed the House in 2021 but failed to even come up for a vote in the Senate due to opposition primarily from Sen. Joe Manchin (D-W.V.). The Inflation Reduction Act did manage to keep some of the failed Build Back Better Act’s provisions in terms of generating revenues from corporations and wealthy taxpayers, as well as meeting some of the White House’s goals in the energy and health care sectors.
The law includes a one percent excise tax on stock repurchases, which goes into effect beginning in 2023, as well as a new corporate alternative minimum tax, although that does not apply to companies owned by private equity funds or certain manufacturing.
On the individual side, the IRS received a boost in funding of $80 billion across 10 years, part of which will be used to hire new agents who will help to the agency close the tax gap and get the wealthiest individuals to pay their fair share of taxes. Department of the Treasury Secretary Janet Yellen hasdirectedthe Internal Revenue Service to not use any of the new funding to increase the share of small businesses or households making $400,000 or less that are exposed to audit.
To help meet the Biden Administration’s environmental goals, the law includes tax credits for electric vehicle purchases, as well as new tax credits and extensions on expiring tax credits to produce electricity from renewable sources; making homes more energy efficient; and other activities aimed at reducing the carbon output of the nation.
President Biden signed the CHIPS and Science Act into law after it received bipartisan support in both the House of Representatives and the Senate.
President Biden signed the CHIPS and Science Act into law after it received bipartisan support in both the House of Representatives and the Senate.
The law (H.R. 4346)"will boost American semiconductor research, development, and production, ensuring U.S. leadership in the technology that forms the foundation of everything from automobiles to household appliances to defense systems,"the White House said in afact sheetreleased August 9, 2022, the day of the signing.
To help with that, the bill contains a 25 percent investment tax credit for the manufacture of semiconductors as well and the manufacture of the tools to do so in addition to the grants that it provides the semiconductor industry.
Department of the Treasury Secretary Janet Yellen is seeking a detailed plan from the Internal Revenue Service on how it plans to spend to the $80 billion in additional funds that the agency received as part of the Inflation Reduction Act that was signed by President Biden on August 16, 2022.
Department of the Treasury Secretary Janet Yellen is seeking a detailed plan from the Internal Revenue Service on how it plans to spend to the $80 billion in additional funds that the agency received as part of the Inflation Reduction Act that was signed by President Biden on August 16, 2022.
"I would like the IRS to work closely with the Deputy Secretary to identify specific operational initiatives and associated timelines that will improve taxpayer services, modernize technology, and increase equity in our system of tax administration by pursuing tax evasion by those at the top who today do not pay their tax bill,"Secretary Yellen said in an August 17, 2022, memorandum to IRS Commissioner Charles Rettig.
In the memo, she directed the IRS to deliver an operational plan within six months, which"should include details on how resources will be spent over the ten-year horizon on technology, service equipment, and personnel. This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements."
Yellen added that she is"prepared to approve the near-term use of funds to improve services for next filing season, but we should treat this plan as a prerequisite for expending these resources more broadly, as I think there is value in thinking carefully over the course of the next few months how work should be prioritized and sequenced to achieve our goals."
Replacing Those Who Will Be Retiring
Yellen’s memo comes in the wake of GOP messaging that states the IRS is looking to hire 87,000 new agents that will be coming after the lower and middle class individuals.
Yellen reiterated in her memo that new funds from the Inflation Reduction Act"will not result in households earning $400,000 per year or less or small businesses seeing an increase in the chances they are audited relative to historic levels. Instead, they will allow the IRS to work to end the two-tiered system, where most Americans pay what they owe, but those at the top of the distribution often do not."
Much of the new hiring will go to simply maintaining employment levels as the funds will help"to replace the attrition that is on the horizon from the expected retirement of at least 50,000 employees over the next five years,"the memo states. At this time, the official was not able to provide a breakdown in the functions of the people expected to retire, but the official emphasized that these are simply not new employees that would be added to the agency.
A Treasury official noted that revenue agents will not be the main focus of the hiring, but rather the majority will be individuals who will help improve customer service through IT upgrades and serving as customer service representatives. The IRS will also seek out auditors with specialized experience who can enforce the tax laws against high income individuals and corporations who avoid paying their tax bill.
The official noted that the number of IRS auditors that can handle the complex returns of high income individuals and corporations is roughly the same number today as the agency had during World War II, which allows the IRS to exam about 7,500 returns of the nearly 4.5 million it receives in this category.
The Criminal Investigations unit is not expected to see a spike in its number of employed. The official points out that the CI unit accounts for less than three percent of the total IRS workforce (less than 2,000 employees).
Closing The Tax Gap
The aim of the hiring of specialized auditors and agents that target high earners is to close the tax gap. The official noted that with the additional resources from the Inflation Reduction Act, the IRS could collect an additional $400 billion over the next 10 years, although others, including former IRS Commissioner Charles Rossotti puts the collection amount at more than $1 trillion during the additional funding time period, according totestimonyhe provided to the Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight during a May 11, 2021 hearing.
The Treasury official said the IRS is unable to collect 15 percent of the taxes that are owed, and over the next ten years, the tax gap could reach as high as $7.5 trillion.
National Taxpayer Advocate Erin Collins has taken an "unusual step" to appeal an Internal Revenue Service Deputy Commissioners’ decision directly to Commissioner Charles Rettig for reconsideration regarding the use of scanning technology for paper tax returns.
National Taxpayer Advocate Erin Collins has taken an"unusual step"to appeal an Internal Revenue Service Deputy Commissioners’ decision directly to Commissioner Charles Rettig for reconsideration regarding the use of scanning technology for paper tax returns.
In March, Collins issued a Taxpayer Advocate Directive calling on the agency to work with tax software companies to implement a 2-D barcode on all returns prepared using the software. The barcodes would be printed on the paper returns and, when scanned, would transfer all the information from a paper-filed return without the need for manual entry, which is currently required for all paper returns.
For handwritten returns or returns where the barcode was not readable, the directive called for the agency to use optical scanning technology to automate the processing of those returns.
"If the IRS had implemented scanning technology, it is unlikely the current processing backlog would exist,"Collins said in a March 29, 2022,letteroutlining the directive.
Collins noted in an August 4blog postthat the IRS Deputy Commissioner for Services and Enforcement Douglas O’Donnell and Deputy Commissioner for Operations Support Jeffrey Tribiano would not be following the directive.
In a July 18, 2022,memorandumfor Collins, the deputy commissioners said the agency was exploring various barcoding technologies, but it would not follow the directive related to the scanning of handwritten forms or forms where the barcode could not be read.
Collins stated in the blog that"due to the magnitude of this issue and the unprecedented backlog of paper returns, I took the unusual step of appealing the Deputy Commissioners’ decision to the Commissioner for reconsideration."
In an August 2, 2022,memorandumto Commissioner Rettig, Collins noted that deputy commissioners’ response"declined to make a commitment to implement scanning technology to machine read v-coded returns, and it expressly rejected implementing scanning technology to machine read handwritten returns."She again called for the implementation of the use of some form of barcoding technology by the start of the 2023 filing season and the use of technology to machine read handwritten returns by the start of the 2023 filing season or, if that is not feasible, by the start of the 2024 filing season.
To frame the need, Collins noted in her blog post that the IRS"will have to process an average of about 525,000 paper-filed Forms 1040 per week during the second half of 2022 to eliminate the backlog"that came about as a result of the COVID-19 pandemic."As of July 15, however, it had processed a weekly average of paper-filed Forms 1040 over the prior four weeks of just 295,000."
She added:"While we all hope the IRS can work through the backlog this year, I often say that hope is not a business plan."
The IRS and the Security Summit partners have warned tax professionals to beware of evolving identity theft scams perpetrated through phishing emails and SMS-text that are designed to trick practitioners into opening embedded links or attachments that infect their computer systems with the potential to steal personal and client information such as passwords, bank account numbers, credit card numbers, or social security numbers.
The IRS and the Security Summit partners have warned tax professionals to beware of evolving identity theft scams perpetrated through phishing emails and SMS-text that are designed to trick practitioners into opening embedded links or attachments that infect their computer systems with the potential to steal personal and client information such as passwords, bank account numbers, credit card numbers, or social security numbers. The IRS has urged tax professionals to work on strengthening their systems and protect client data by avoiding such scams and take necessary measures to protect themselves, such as:
multi-factor authentication, wherein tax professionals using cloud-based platforms are urged to use multi-factor options like phone, text, or tokens. This could avoid potential vulnerabilities with authentication done just through email, which may be accessible to identity thieves;
automatic updating of anti-virus software to prevent scams that target software vulnerabilities; and
drive encryption and regular backing up of files to help stop theft and ransomware attacks.
The IRS has also identified various kinds of scams that tax professionals should keep an eye out for, such as:
spear phishing in which scammers take time to identify their victim and craft a more enticing phishing email known as a lure;
identity thieves who pose as potential clients and exchange several emails with tax professionals before following up with an attachment that they claimed was their tax information. Once the tax professional click on the embedded URL and/or opened the attachment, malware is secretly downloaded onto their computers, and gives thieves access to passwords to client accounts or remote access to the computers themselves. After the thieves take over the computer systems, they identify pending tax returns, complete them, and e-file them, changing only the bank account information to steal the refund; and
ransomware attacks that make an unsuspecting tax professional open links or attachments, triggering malware to attack their computer system to encrypt files and the thieves hold the data for ransom.
The IRS has also reminded tax professionals that securing their network to protect taxpayer data is their responsibility as a tax preparer.
The IRS has extended the deadlines for amending a retirement plan or individual retirement arrangement (IRA) to reflect certain provisions of Division O of the Further Consolidated Appropriations Act, 2020, P. L. 116-94, known as the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and Section 104 of Division M of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan American Miners Act of 2019 (Miners Act). In addition, the IRS has extended the deadline for amending a retirement plan to reflect Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P. L. 116-136.The extended amendment deadline for (1) a qualified retirement plan or Code Sec. 403(b) plan (including an applicable collectively bargained plan) that is not a governmental plan or (2) an IRA is December 31, 2025.
The IRS has extended the deadlines for amending a retirement plan or individual retirement arrangement (IRA) to reflect certain provisions of Division O of the Further Consolidated Appropriations Act, 2020,P. L. 116-94, known as the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and Section 104 of Division M of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan American Miners Act of 2019 (Miners Act). In addition, the IRS has extended the deadline for amending a retirement plan to reflect Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),P. L. 116-136.The extended amendment deadline for (1) a qualified retirement plan orCode Sec. 403(b)plan (including an applicable collectively bargained plan) that is not a governmental plan or (2) an IRA is December 31, 2025.
SECURE Act and Miners Act
The deadlines for amending a retirement plan or IRA to reflect the provisions of the SECURE Act or the Miners Act, as set forth inNotice 2020-68andNotice 2020-86, are extended as follows:
For a qualified plan (including an applicable collectively bargained plan) that is not a governmental plan within the meaning ofCode Sec. 414(d), the deadline to amend a plan for provisions of the SECURE Act, or section 104 of the Miners Act is December 31, 2025.
The plan amendment deadline for a qualified governmental plan, within the meaning ofCode Sec. 414(d), is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
The deadline for aCode Sec. 403(b)plan (including an applicable collectively bargained plan) that is not maintained by a public school, as described inCode Sec. 403(b)(1)(A)(ii), to amend a plan for provisions of the SECURE Act or the regulations thereunder is December 31, 2025.
The plan amendment deadline for aCode Sec. 403(b)plan that is maintained by a public school, as described inCode Sec. 403(b)(1)(A)(ii), is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
The deadline to amend a governmental plan underCode Sec. 457(b)for provisions of the SECURE Act or section 104 of the Miners Act is the later of (i) 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023, or (ii) if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements ofCode Sec. 457(b).
The deadline to amend the trust governing an IRA that is an individual retirement account or the contract issued by an insurance company with respect to an IRA that is an individual retirement annuity for provisions of the SECURE Act is December 31, 2025, or such later date as the Secretary prescribes in guidance.
Amendments to a retirement plan to reflect a provision of the SECURE Act that are made on or before the dates as extended will not cause the retirement plan to fail to satisfy the anti-cutback requirements ofCode Sec. 411(d)(6)or section 204(g) of ERISA by reason of such amendments.
CARES Act
The deadlines for amending a retirement plan to reflect the provisions of section 2203 of the CARES Act are extended as follows:
the deadline for amending a retirement plan that is not a governmental plan is December 31, 2025; and
the deadline for amending a retirement plan that is a governmental plan is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023, or, if later, with respect to a governmental plan underCode Sec. 457(b), the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements ofCode Sec. 457(b).
The Treasury and IRS have issued final regulations eliminating the signature requirement for making a Code Sec. 754 election (section 754 election). The regulations finalize 2017 proposed regulations ( REG-116256-17), on which taxpayers were entitled to rely.
The Treasury and IRS have issued final regulations eliminating the signature requirement for making aCode Sec. 754election (section 754 election). The regulations finalize 2017 proposed regulations (REG-116256-17), on which taxpayers were entitled to rely.
Election Signature Requirement
A partnership can make asection 754election to adjust the basis of partnership property in the event the inside and outside bases are unequal. If the partnership files asection 754election and there is a distribution of property, the basis of partnership property will be adjusted in the manner provided inCode Sec. 734. If the partnership files asection 754election and there is a transfer of a partnership interest, the basis of partnership property will be adjusted in the manner provided inCode Sec. 743. Thesection 754election applies to all distributions of property by the partnership and to all transfers of interests in the partnership during the tax year for which the election was filed and all subsequent tax years.
The regulations underCode Sec. 754require asection 754election to be made in a written statement (section 754 election statement) filed with the partnership return for the tax year during which the distribution or transfer occurs. The requirement of a written statement applies to returns filed either electronically or on paper. For the election to be valid, the return must be filed by the due date for the return, including extensions.
The amended regulation, which is identical to the 2017 proposed amendment, removes a requirement that thesection 754election statement be signed by one of the partners. Under the regulation before its amendment, a partnership filing an unsigned section 754 election statement with its partnership return failed to make a valid section 754 election. An unsigned statement is valid under the amended regulation if it meets the remaining requirements.
The regulation, as amended, retains two requirements. It continues to provide that a taxpayer making asection 754election must file a statement with its return that:
sets forth the name and address of the partnership making thesection 754election, and
contains a declaration that the partnership elects undersection 754to apply the provisions ofCode Sec. 734(b)andCode Sec. 743(b).
Effective and Applicability Dates
The amendment eliminating the signature requirement is effective August 5, 2022, and applies to tax years ending on or after the date of publication of the final regulation in the Federal Register. Taxpayers may, however, apply the amendment to tax years ending before that date.
The American Institute of CPAs highlighted several challenges that tax practitioners are experiencing with the use of the Internal Revenue Service’s Practitioner Priority Service (PPS) line.
The American Institute of CPAs highlighted several challenges that tax practitioners are experiencing with the use of the Internal Revenue Service’s Practitioner Priority Service (PPS) line.
In an August 9, 2022,letterto the agency, the AICPA called the “plummeting” PPS line level of service"an area of continuing concern."
"Anecdotally, we are hearing from tax practitioners everyday regarding their significant PPS line challenges and the impact those challenges have on their interactions with IRS on behalf of taxpayers,"the letter states.
The letter highlights issues with the handling of power of attorney (POA), transcripts, and account management versus automated collections, as well as providing some general recommendations.
In the area of power of attorney, the AICPA offered several recommendations, including having customer service representatives provide a fax number at the start of the call if a practitioner states that the POA likely is not on file and where"a delegated POA is presented and appears in order, do not require the first POA be posted to the Central Authorization File (CAF) before recognizing the delegated POA."
The AICPA also noted that customer service representatives"are often inconsistent on what is required to be completed on a POA for it to be valid,"and called for better training of the representatives. The organization noted that the agency"should allow use of POAs that are signed by the taxpayer and the representative calling in—even if it is not yet signed by other listed representatives. While the Internal Revenue Manual (IRM) provides that IRS staff are to accept the POAs, the IRM is not universally followed in this regard."
In the area of transcripts, the AICPA asked the IRS to restore customer service representatives’ ability to provide internal screen-print type transactions as well as the IRS message line that existed solely to provide internal and other types of transcripts to practitioners as they waited.
"PPS CSRs have indicated lately that they will not provide internal screen-print type transcripts by fax or secure mailbox; they are only willing to use U.S. mail, which takes 4 to 6 weeks for receipt,"the AICPA stated, adding that the delay makes it more difficult to resolve issues in a timely manner.
The AICPA also called for the elimination of the so-called"law line."
"Practitioners should not need to consult with IRS staff on interpretations of law—the practitioners should be competent in those areas. Moreover, the breadth of knowledge of the ‘law line’ staff is often not high or incorrect information is given,"the letter states
The organization suggested the law line staff be utilized in other areas of the PPS line to help alleviate long wait times.
Another suggestion forwarded by the AICPA was that the IRS restore the ability of accounts management (AM) staff to grant cycle holds for accounts not in collection.
"Recently, AM has been unwilling to grant cycle holds, referring such requests to ACS [automated collection system],"the letter states."Restoring authority to grant cycle holds with AM before an account goes to Collection will return more speed and efficiency in resolving issues, will eliminate needless Collection Due Process cases, and will keep more cases out of the Taxpayer Advocate Service as well."
That being said, the AICPA suggested that automated collection system be empowered to resolve more account issues, such as penalty abatement and other account-related issues and authorize PPS CSRs to grant 180-day holds where correspondence was sent in.
Other general recommendations included staffing the PPS line with"highly trained, highly empowered personnel;"discontinuing the practice of asking practitioners for their social security number and date of birth; enhancing the new automatic return call system; providing more supervisor availability; and enabling PPS CSRs to handle international issues.
The American Institute of CPAs offered up suggestions to Congress, focused on the trust and estate proposals found within the fiscal year 2023 revenue proposal, as the legislative branch considers the White House Budget request.
The American Institute of CPAs offered up suggestions to Congress, focused on the trust and estate proposals found within the fiscal year 2023 revenue proposal, as the legislative branch considers the White House Budget request.
In a July 28, 2022,lettersent to Democrat and Republican leadership on both the Senate Finance Committee and the House Ways and Means Committee, AICPA outlined a number of proposals across four areas, including strengthening taxation of high-income taxpayers; modifying estate and gift taxation; and improving tax administration and compliance.
The White House budget revenue proposals were published in March 2022 in the so-called"Green Book."
With regards to strengthening taxation of high-income taxpayers, AICPA noted that it is"currently concerned that some of the provisions in the 2023 Treasury Green Book … regarding valuation rules for certain transfers of assets are inconsistent with well-established valuation principles and could result in valuations that do not reflect the true economic value of transferred assets. These inconsistencies could, in turn, unjustly negatively affect taxpayers."
Specifically, it raised concerns with treating transfers of appreciated property by gift or on death"as realization events,"which could alter how the property is valuated and could put taxpayers at a disadvantage for not having complete access to different valuations.
In the tax administration section, AICPA expressed concern that proposed reporting requirements, the organization expressed concern that reporting requirements for tax year would apply to each trust whose estimated total value on the last day of the tax year exceeds $300,000 or whose gross income for the tax year exceeds $10,000, along with what may be overly burdensome informational reporting requirements.
"These low thresholds would capture a substantial number of trusts – many of which are likely of lower risk to the IRS due to the lowers dollars at stake,"the letter states.
AICPA also called the taxing of estates the same as trusts for many of the provisions in the Green Book"problematic. The AICPA recommends that estates be treated similar to married filing separately for all estate provisions in the Green Book, as well as existing law (such as income tax and net investment income tax). This recommendation would restore estates to their federal tax position from 1954-1986."
The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.
The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.
Individual mandate
Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the "individual mandate."
Employer reporting
Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.
Marketplace coverage
Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).
Medicare, Medicaid and other government coverage
Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.
Exemptions
Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:
Short coverage gap
Religious conscience
Federally-recognized Native American nation
Income below income tax return filing requirement
The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.
The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.
Shared responsibility payment
All other individuals - individuals without minimum essential coverage and who are not exempt - must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.
The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.
Code Sec. 36B credit
Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.
All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.
A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.
IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.
Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.
Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.
Tax extenders
Every two years, like clockwork, the same scenario seems to play-out in Congress. Many popular but temporary tax incentives expire and lawmakers debate whether to extend them, make them permanent or abolish them. This year is no exception. The new filing season is fast approaching and many tax breaks are, at this time, unavailable because they expired after 2013.
The expired tax breaks are known as "tax extenders." Included within this catch-call category are a variety of tax incentives for individuals and businesses. Some are widely-claimed and are often inadvertently believed by taxpayers to be permanent...they are not. Individuals who claimed the state and local sales tax deduction, higher education tuition deduction, residential energy property credit, and others, in past years cannot claim them on their 2014 returns, unless the incentives are extended. The same is true for many business tax breaks, such as bonus depreciation, enhanced Code Sec. 179 small business expensing and the research tax credit. All of these incentives expired after 2013.
Congressional logjam
The last extension of the extenders was in the American Taxpayer Relief Act of 2012. At that time, many lawmakers wanted to discontinue the practice of renewing the extenders every two years and make some permanent while eliminating others. However, the House and Senate have taken different approaches. The Senate Finance Committee approved the EXPIRE Act (S. 2260) earlier this year. The bill extends the expired tax breaks two years. The House, on the other hand, has voted to make permanent only some of the extenders, such as bonus depreciation and Code Sec. 179 expensing.
It is unclear how lawmakers will proceed before year-end. The EXPIRE Act, while approved by committee, has yet to get a vote on the Senate floor. House GOP leaders, who endorsed the piece-meal approach to making permanent some of the extenders, have not said if they will support another comprehensive temporary extension like the EXPIRE Act. It is possible that lawmakers will punt the extenders to the new Congress that meets in January. In that case, a delayed start to the filing season is almost guaranteed. Our office will keep you posted of developments.
More tax bills
Some stand-alone tax-related bills could be passed before year-end. The ABLE Act (S. 313) enjoys bipartisan support. The ABLE Act would create new tax-free savings accounts for individuals with disabilities. Funds in the accounts could be used for qualified medical, transportation, housing, and education expenses. The Don’t Forget Our Fallen Public Safety Heroes Act (S. 2912) passed the Senate in September and could be approved by the House before year-end. The bill would exclude from income certain benefits paid to the family of a public safety officer who dies in the line of duty.
IRS funding
The federal government, including the IRS, is currently operating under a stop-gap spending bill. The temporary spending bill is scheduled to expire in December. The lame-duck Congress is expected to approve an omnibus spending bill to keep the government open. Earlier this year, appropriators in the House and Senate reached very different conclusions on funding for the IRS in 2015. House appropriators voted to cut funding; Senate appropriators voted to increase funding. The IRS has been operating under tight budgetary restraints for several years and that pattern is expected to continue into 2015.
Tax technical corrections
Congress may also take up a package of tax technical corrections. These bills are not new tax laws but are corrections to language in existing laws. For example, lawmakers may have intended that a certain language be included in a final bill and that language was left out. Frequently, these corrections are clerical. These corrections are intended to facilitate the administration of law.
If you have any questions about the extenders or year-end tax legislation, please contact our office.
In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.
In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.
Closely-related to the start of work
The move must be closely-related to the start of work at a new location. Moving for non-work related reasons is not relevant. The closely-related requirement encompasses both a time threshold and a place threshold. The IRS has explained that closely-related in time generally means an individual can consider moving expenses incurred within one year from the date he or she first reported to work at the new location as closely related in time to the start of work. Closely-related in place generally means that the distance from the individual's new home to the new job location is not more than the distance from his or her former home to the new job location.
Distance
An individual's move satisfies the distance test if his or her new main location is at least 50 miles farther from his or her former home than the old main job location was from the former home. Note that the distance test takes into account only the location of the individual's former home. An individual's main job location is the location where he or she spends most of his or her working hours. Individuals may have more than one job. In that case, the IRS has explained that an individual's main job location depends on the facts in each case. Among the factors to take into account are the total time the individual spends at each place; the amount of work performed at each place and the amount of wages earned at each place. If an individual previously had no employment, or had experienced a period of unemployment, the new job location must be at least 50 miles from the individual's old home.
Time
Time for purposes of the moving deduction looks at an individual's hours of work and where that work is performed. An individual who is a wage earner (employed by another) must work full-time for at least 39 weeks during the first 12 months immediately following his or her arrival in the general area of the new job location. Self-employed individuals must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following their arrival in the general area of the new work location.
Special rules apply to members of the U.S. Armed Forces as well as employees who are seasonal workers, individuals who have temporary absences from work, and others.
If you have any questions about the moving deduction, please contact our office.
The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").
The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").
Note. A TTIN typically appears as XXX-XX-1234 or ***-**-1234.
Identity theft/refund fraud
The IRS has more than 3,000 employees working identity-theft related issues. They are investigating refund fraud and assisting taxpayers - both individuals and businesses - that have been victims of identity theft. The IRS has also upgraded its filters that screen tax returns for indications of refund fraud. Between 2011 and 2014, the IRS reported that it prevented more than $50 billion in fraudulent refunds.
Protecting personal information from disclosure is one important tool in the IRS's toolshed to fight identity theft. IRS data systems contain personal information, such as SSNs, EINs, individual taxpayer identification numbers (ITINs) and adoption taxpayer identification numbers (ATINs) on millions of taxpayers. To thwart potential identity thieves, the agency launched a pilot program in 2009 to allow the use of TTINs. The goal of the pilot program was to reduce the risk of identity theft that could result from the inclusion of a taxpayer's entire identifying number on a payee statement or other document.
Proposed regulations
The IRS viewed the pilot program as a success and issued proposed regulations in 2013. Under the proposed regulations, TTINs would be available as an alternative to using a taxpayer's SSN, ITIN, or ATIN. The proposed regulations also permitted the use of TTINs to electronic payee statements as well as paper payee statements.
Expanded use
In July, the IRS announced that it was finalizing the proposed TTIN rules. The final rules also expand the use of TTINs to:
Employer identification numbers. The final rules allow the use of abbreviated employer identification numbers (EINs) in certain cases.
More documents. The final regulations permit the use of TTINs on any federal tax-related payee statement or other document required to be furnished to another person unless specifically prohibited.
Voluntary
The IRS encourages the use of TTINs but did not make use of TTINs mandatory. The IRS also explained that use of a TTIN will not result in any penalty for failure to include a correct taxpayer identifying number on any payee statement or other document.
Limitations
The final regulations (officially known as TD 9765) place some limits on TTINs. A TTIN may not be used on a return filed with the IRS. This includes Form 1040, U.S. Individual Income Tax Return. A TTIN also may not be used if a statute or regulation specifically requires use of an SSN, ITIN, ATIN, or EIN. Additionally, employers cannot use a TTIN on an employee's Form W-2, Wage and Tax Statement.
If you have any questions about TTINs or identity theft/refund fraud, please contact our office.
U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.
U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.
A U.S. taxpayer must report the account not only if the taxpayer has a financial interest in the account, but also if the taxpayer has signature authority over the account. The account must be reported even if it produces no income, and whether or not the taxpayer receives any distributions from the account.
FinCEN
Reporting is required by the Bank Secrecy Act (BSA), not by the Internal Revenue Code. Taxpayers submit the proper form to Treasury's Financial Crimes Enforcement Network (FinCEN), not the IRS. The form is not submitted with a tax return. However, FinCEN has delegated FBAR enforcement authority to the IRS.
New Form 114
In the past, taxpayers reported their accounts on Form TD F 90-22.1. However, effective for 2014 and subsequent years, taxpayers must report their accounts on new FinCEN Form 114. The June 30 deadline is firm; there is no extension for filing the form late. However, persons who belatedly discover the need to file an FBAR for a previous year can file on Form 114.
In the past, too, taxpayers reported their accounts on a paper form, but Form 114 is only available online, through the BSA E-Filing System website. Paper Form TD F 90-22.1 has been discontinued. This BSA E-Filing System allows the taxpayer to designate the year being reported, so taxpayers may use the same form to file late reports for a prior year. In addition, persons can now authorize a tax professional, such as an attorney, CPA, or enrolled agent, to file on their behalf, by designating an agent on BSA Form 114a.
If two persons jointly maintain an account, each must file an FBAR. However, spouses now qualify for an exception, and can file only one FBAR, provided the nonfiling spouse only owns accounts jointly with the filing spouse. The couple can complete a Form 114a, to authorize one spouse to file for the other, because the electronic system only accepts one signature for an FBAR.
Signature authority
Signature authority is authority to control the disposition of assets held in a foreign financial account. A person with a power of attorney over a foreign account must file an FBAR, even if the person never exercises the power of attorney.
FinCEN has considered amending the rules regarding signature authority. In the meantime, because there is some uncertainty about the meaning of signature authority, FinCEN has deferred FBAR filing by certain individuals that only have signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity. FinCEN Notice 2011-1 first provided an extension for these persons. In Notice 2013-1, FinCEN extended the due date for these persons to file, to June 30, 2015, while FinCEN further considers changes to the rules.
One of the most complex, if not the most complex, provisions of the Patient Protection and Affordable Care Act is the employer shared responsibility requirement (the so-called "employer mandate") and related reporting of health insurance coverage. Since passage of the Affordable Care Act in 2010, the Obama administration has twice delayed the employer mandate and reporting. The employer mandate and reporting will generally apply to applicable large employers (ALE) starting in 2015 and to mid-size employers starting in 2016. Employers with fewer than 50 employees, have never been required, and continue to be exempt, from the employer mandate and reporting.
One of the most complex, if not the most complex, provisions of the Patient Protection and Affordable Care Act is the employer shared responsibility requirement (the so-called "employer mandate") and related reporting of health insurance coverage. Since passage of the Affordable Care Act in 2010, the Obama administration has twice delayed the employer mandate and reporting. The employer mandate and reporting will generally apply to applicable large employers (ALE) starting in 2015 and to mid-size employers starting in 2016. Employers with fewer than 50 employees, have never been required, and continue to be exempt, from the employer mandate and reporting.
Employer mandate
The employer mandate under Code Sec. 4980H and employer reporting under Code Sec. 6056 are very connected. Code Sec. 4980H generally provides that an ALE is required to pay a penalty if it fails to offer minimum essential coverage and any full-time employee receives cost-sharing or the Code Sec. 36B premium assistance tax credit. An ALE would also pay a penalty if it offers coverage and any full-time employee receives cost-sharing or the Code Sec. 36B credit.
To receive the Code Sec. 36B credit, an individual must have obtained coverage through an Affordable Care Act Marketplace. The Marketplaces will report the names of individuals who receive the credit to the IRS. ALEs must report the terms and conditions of health care coverage provided to employees (This is known as Code Sec. 6056 reporting). The IRS will use all of this information to determine if the ALE must pay a penalty.
ALEs
Only ALEs are subject to the employer mandate and must report health insurance coverage under Code Sec. 6056. Employers with fewer than 50 employees are never subject to the employer mandate and do not have to report coverage under Code Sec. 6056.
In February, the Obama administration announced important transition rules for the employer mandate that affects Code Sec. 6056 reporting. The Obama administration limited the employer mandate in 2015 to employers with 100 or more full-time employees. ALEs with fewer than 100 full-time employees will be subject to the employer mandate starting in 2016. At all times, employers with fewer than 50 full-time employees are exempt from the employer mandate and Code Sec. 6056 reporting.
Reporting
The IRS has issued regulations describing how ALEs will report health insurance coverage. The IRS has not yet issued any of the forms that ALEs will use but has advised that ALEs generally will report the requisite information to the agency electronically.
ALEs also must provide statements to employees. The statements will describe, among other things, the coverage provided to the employee.
30-Hour Threshold
A fundamental question for the employer mandate and Code Sec. 6056 reporting is who is a full-time employee. Since passage of the Affordable Care Act, the IRS and other federal agencies have issued much guidance to answer this question. The answer is extremely technical and there are many exceptions but generally a full-time employee means, with respect to any month, an employee who is employed on average at least 30 hours of service per week. The IRS has designed two methods for determining full-time employee status: the monthly measurement method and the look-back measurement method. However, special rules apply to seasonal workers, student employees, volunteers, individuals who work on-call, and many more. If you have any questions about who is a full-time employee, please contact our office.
Form W-2 reporting
The Affordable Care Act also requires employers to disclose the aggregate cost of employer-provided health coverage on an employee's Form W-2. This requirement is separate from the employer mandate and Code Sec. 6056 reporting. The reporting of health insurance costs on Form W-2 is for informational purposes only. It does not affect an employee's tax liability or an employer's liability for the employer mandate.
Shortly after the Affordable Care Act was passed, the IRS provided transition relief to small employers that remains in effect today. An employer is not subject the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. Special rules apply to multiemployer plans, health reimbursement arrangements, and many more.
Please contact our office if you have any questions about ALEs, the employer mandate or Code Sec. 6056 reporting.
The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.
The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.
Required and elective changes
There is a lot of work ahead for most taxpayers to comply with the new rules. There are three categories of changes under the regulations:
Changes that are required and are retroactive, with full adjustments under Code Sec. 481(a), in effect applying the regulations to previous years;
Required changes with modified or prospective Code Sec. 481(a) adjustment beginning in 2014; and
Elective changes that do not require any adjustments under Code Sec. 481.
Required changes with full adjustments include unit of property changes, deducting repairs (including the routine maintenance safe harbor), deducting dealer expenses that facilitate the sale of property, the optional method for rotable spare parts, capitalizing improvements and capitalizing certain acquisition or production costs. Elective changes can include capitalizing repair and maintenance costs of they are capitalized for financial accounting purposes.
Rev. Proc. 2014-16
The IRS issued Rev. Proc. 2014-16, granting automatic consent to taxpayers to change their accounting methods to comply with the final regulations. Rev. Proc. 2014-16 applies to all the significant provisions in the final regulations, such as repairs and improvements; materials and supplies, including rotable and temporary spare parts; and costs that have to be capitalized as improvements. Rev. Proc. 2014-16 supersedes Rev. Proc. 2012-19, which applied to changes made under the temporary and proposed repair regulations issued at the end of 2011.
There are 14 automatic method changes provided by Rev. Proc. 2014-16 for the repair regulations. Taxpayers may file for automatic consent on a single Form 3115, even if they are making changes in more than area. The normal scope limitations on changing accounting methods do not apply to a taxpayer making one or more changes for any tax year beginning before January 1, 2015. Scope changes would normally apply if the taxpayer is under examination, is in the final year of a trade or business, or is changing the same accounting method it changed in the previous five years.
Filing deadlines
For past years, taxpayers can apply the 2011 proposed and temporary (TD 9564) regulations or the 2013 final regulations to either 2012 or 2013, and can do this on a section-by-section basis. Taxpayers that decide to apply the final or temporary regulations to 2013 must file for an automatic change of accounting method (Form 3115) by September 15, 2014. Taxpayers applying the regulations to 2014 must file for an automatic change by September 15, 2015. (Both dates apply to calendar-year taxpayers.) The government has indicated it is unlikely to postpone the effective date of the regulations.
Dispositions
Rev. Proc. 2014-16 does not apply to dispositions of tangible property. The government issued reproposed regulations in this area (NPRM REG-110732-13). Although these regulations may not be finalized until later in 2014, the IRS expects to issue Rev. Proc. 2014-17 before then to allow taxpayers to make automatic accounting method changes under the proposed regulations. The procedure will provide some relief by allowing taxpayers to revoke general asset account elections that they made under the temporary regulations. No comments were submitted on these proposed regulations; it is likely the final regulations will not have any significant changes.
