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

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.

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

·        Premium payments for employee benefits

·        Records of any disputes

SUPPLEMENTAL RECORD RETENTION – 2 years

·        Time cards

·        Wage rate tables

·        Work time schedules

·        Order/shipping/billing records

·        Records of additions to or deductions from wages

The U.S. Tax Court lacks jurisdiction over a taxpayer’s appeal of a levy in a collection due process hearing when the IRS abandoned its levy because it applied the taxpayer’s later year overpayments to her earlier tax liability, eliminating the underpayment on which the levy was based. The 8-1 ruling by the Court resolves a split between the Third Circuit and the Fourth and D.C. Circuit.

The U.S. Tax Court lacks jurisdiction over a taxpayer’s appeal of a levy in a collection due process hearing when the IRS abandoned its levy because it applied the taxpayer’s later year overpayments to her earlier tax liability, eliminating the underpayment on which the levy was based. The 8-1 ruling by the Court resolves a split between the Third Circuit and the Fourth and D.C. Circuit.

The IRS determined that taxpayer had a tax liability for 2010 and began a levy procedure. The taxpayer appealed the levy in a collection due process hearing, and then appealed that adverse result in the Tax Court. The taxpayer asserted that she did not have an underpayment in 2010 because her then-husband had made $50,000 of estimated tax payments for 2010 with instructions that the amounts be applied to the taxpayer’s separate 2010 return. The IRS instead applied the payments to the husband’s separate account. While the agency and Tax Court proceedings were pending, the taxpayer filed several tax returns reflecting overpayments, which she wanted refunded to her. The IRS instead applied the taxpayer’s 2013-2016 and 2019 tax overpayments to her 2010 tax debt.

When the IRS had applied enough of the taxpayer’s later overpayments to extinguish her 2010 liability, the IRS moved to dismiss the Tax Court proceeding as moot, asserting that the Tax Court lacked jurisdiction because the IRS no longer had a basis to levy. The Tax Court agreed. The taxpayer appealed to the Third Circuit, which held for the taxpayer that the IRS’s abandonment of the levy did not moot the Tax Court proceedings. The IRS appealed to the Supreme Court, which reversed the Third Circuit.

The Court, in an opinion written by Justice Barrett in which seven other justices joined, held that the Tax Court, as a court of limited jurisdiction, only has jurisdiction under Code Sec. 6330(d)(1) to review a determination of an appeals officer in a collection due process hearing when the IRS is pursuing a levy. Once the IRS applied later overpayments to zero out the taxpayer’s liability and abandoned the levy process, the Tax Court no longer had jurisdiction over the case. Justice Gorsuch dissented, pointing out that the Court’s decision leaves the taxpayer without any resolution of the merits of her 2010 tax liability, and “hands the IRS a powerful new tool to avoid accountability for its mistakes in future cases like this one.”

Zuch, SCt

The Internal Revenue Service collected more than $5.1 trillion in gross receipts in fiscal year 2024. It is the first time the agency broke the $5 trillion mark, according to the 2024 Data Book, an annual publication that reviews IRS activities for the given fiscal year.

The Internal Revenue Service collected more than $5.1 trillion in gross receipts in fiscal year 2024.

It is the first time the agency broke the $5 trillion mark, according to the 2024 Data Book, an annual publication that reviews IRS activities for the given fiscal year. It was an increase over the $4.7 trillion collected in the previous fiscal year.

Individual tax, employment taxes, and real estate and trust income taxes accounted for $4.4 trillion of the fiscal 2024 gross collections, with the balance of $565 billion coming from businesses. The agency issued $120.1 billion in refunds, including $117.6 billion in individual income tax refunds and $428.4 billion in refunds to businesses.

The 2024 Data Book broke out statistics from the pilot year of the Direct File program, noting that 423,450 taxpayers logged into Direct File, with 140,803 using the program, which allows users to prepare and file their tax returns through the IRS website, to have their tax returns filed and accepted by the agency. Of the returns filed, 72 percent received a refund, with approximately $90 million in refunds issued to Direct File users. The IRS had gross collections of nearly $35.3 million (24 percent of filers using Direct File). The rest had a return with a $0 balance due.

Among the data highlighted in this year’s publication were service level improvements.

"The past two filing seasons saw continued improvement in IRS levels of service—one the phone, in person, and online—thanks to the efforts of our workforce and our use of long-term resources provided by Congress," IRS Acting Commissioner Michael Faulkender wrote. "In FY 2024, our customer service representatives answered approximately 20 million live phone calls. At our Taxpayer Assistance Centers around the country, we had more than 2 million contacts, increasing the in-person help we provided to taxpayers nearly 26 percent compared to FY 2023."

On the compliance side, the IRS reported in the 2024 Data Book that for all returns filed for Tax Years 2014 through 2022, the agency "has examined 0.40 percent of individual returns filed and 0.66 percent of corporation returns filed, as of the end of fiscal year 2024."

This includes examination of 7.9 percent of taxpayers filing individual returns reporting total positive incomes of $10 million or more. The IRS collected $29.0 billion from the 505,514 audits that were closed in FY 2024.

By Gregory Twachtman, Washington News Editor

IR-2025-63

The IRS has released guidance listing the specific changes in accounting method to which the automatic change procedures set forth in Rev. Proc. 2015-13, I.R.B. 2015- 5, 419, apply. The latest guidance updates and supersedes the current list of automatic changes found in Rev. Proc. 2024-23, I.R.B. 2024-23.

The IRS has released guidance listing the specific changes in accounting method to which the automatic change procedures set forth in Rev. Proc. 2015-13, I.R.B. 2015- 5, 419, apply. The latest guidance updates and supersedes the current list of automatic changes found in Rev. Proc. 2024-23, I.R.B. 2024-23.

Significant changes to the list of automatic changes made by this revenue procedure to Rev. Proc. 2024-23 include:

• (1) Section 6.22, relating to late elections under § 168(j)(8), § 168(l)(3)(D), and § 181(a)(1), is removed because the section is obsolete;
• (2) The following paragraphs, relating to the § 481(a) adjustment, are clarified by adding the phrase “for any taxable year in which the election was made” to the second sentence: (a) Paragraph (2) of section 3.07, relating to wireline network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-27; (b) Paragraph (2) of section 3.08, relating to wireless network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-28; and (c) Paragraph (3)(a) of section 3.11, relating to cable network asset capitalization methods of accounting under Rev. Proc. 2015-12;
• (3) Section 6.04, relating to a change in general asset account treatment due to a change in the use of MACRS property, is modified to remove section 6.04(2)(b), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because the provision is obsolete;
• (4) Section 6.05, relating to changes in method of accounting for depreciation due to a change in the use of MACRS property, is modified to remove section 6.05(2) (b), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because the provision is obsolete;
• (5) Section 6.13, relating to the disposition of a building or structural component (§ 168; § 1.168(i)-8), is clarified by adding the parenthetical “including the taxable year immediately preceding the year of change” to sections 6.13(3)(b), (c), (d), and (e), regarding certain covered changes under section 6.13;
• (6) Section 6.14, relating to dispositions of tangible depreciable assets (other than a building or its structural components) (§ 168; § 1.168(i)-8), is clarified by adding the parenthetical “including the taxable year immediately preceding the year of change” to sections 6.14(3)(b), (c), (d), and (e), regarding certain covered changes under section 6.14; June 9, 2025 1594 Bulletin No. 2025–24;
• (7) Section 7.01, relating to changes in method of accounting for SRE expenditures, is modified as follows. First, to remove section 7.01(3)(a), relating to changes in method of accounting for SRE expenditures for a year of change that is the taxpayer’s first taxable year beginning after December 31, 2021, because the provision is obsolete. Second, newly redesignated section 7.01(3)(a) (formerly section 7.01(3)(b)) is modified to remove the references to a year of change later than the first taxable year beginning after December 31, 2021, because the language is obsolete;
• (8) Section 12.14, relating to interest capitalization, is modified to provide under section 12.14(1)(b) that the change under section 12.14 does not apply to a taxpayer that wants to change its method of accounting for interest to apply either: (1) current §§ 1.263A-11(e)(1)(ii) and (iii); or (2) proposed §§ 1.263A-8(d)(3) and 1.263A-11(e) and (f) (REG-133850-13), as published on May 15, 2024 (89 FR 42404) and corrected on July 24, 2024 (89 FR 59864);
• (9) Section 15.01, relating to a change in overall method to an accrual method from the cash method or from an accrual method with regard to purchases and sales of inventories and the cash method for all other items, is modified by removing the first sentence of section 15.01(5), disregarding any prior overall accounting method change to the cash method implemented using the provisions of Rev. Proc. 2001-10, as modified by Rev. Proc. 2011- 14, or Rev. Proc. 2002-28, as modified by Rev. Proc. 2011-14, for purposes of the eligibility rule in section 5.01(e) of Rev. Proc. 2015-13, because the language is obsolete;
• (10) Section 15.08, relating to changes from the cash method to an accrual method for specific items, is modified to add new section 15.08(1)(b)(ix) to provide that the change under section 15.08 does not apply to a change in the method of accounting for any foreign income tax as defined in § 1.901-2(a);
• (11) Section 15.12, relating to farmers changing to the cash method, is clarified to provide that the change under section 15.12 is only applicable to a taxpayer’s trade or business of farming and not applicable to a non-farming trade or business the taxpayer might be engaged in;
• (11) Section 12.01, relating to certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers, is modified as follows. First, to provide that section 12.01 applies to a taxpayer that uses a historic absorption ratio election with the simplified production method, the modified simplified production method, or the simplified resale method and wants to change to a different method for determining the additional Code Sec. 263A costs that must be capitalized to ending inventories or other eligible property on hand at the end of the taxable year (that is, to a different simplified method or a facts-and-circumstances method). Second, to remove the transition rule in section 12.01(1)(b)(ii)(B) because this language is obsolete;
• (12) Section 15.13, relating to nonshareholder contributions to capital under § 118, is modified to require changes under section 15.13(1)(a)(ii), relating to a regulated public utility under § 118(c) (as in effect on the day before the date of enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017)) (“former § 118(c)”) that wants to change its method of accounting to exclude from gross income payments or the fair market value of property received that are contributions in aid of construction under former § 118(c), to be requested under the non-automatic change procedures provided in Rev. Proc. 2015- 13. Specifically, section 15.13(1)(a)(i), relating to a regulated public utility under former § 118(c) that wants to change its method of accounting to include in gross income payments received from customers as connection fees that are not contributions to the capital of the taxpayer under former § 118(c), is removed. Section 15.13(1)(a)(ii), relating to a regulated public utility under former § 118(c) that wants to change its method of accounting to exclude from gross income payments or the fair market value of property received that are contributions in aid of construction under former § 118(c), is removed. Section 15.13(2), relating to the inapplicability of the change under section 15.13(1) (a)(ii), is removed. Section 15.13(1)(b), relating to a taxpayer that wants to change its method of accounting to include in gross income payments or the fair market value of property received that do not constitute contributions to the capital of the taxpayer within the meaning of § 118 and the regulations thereunder, is modified by removing “(other than the payments received by a public utility described in former § 118(c) that are addressed in section 15.13(1)(a)(i) of this revenue procedure)” because a change under section 15.13(1)(a)(i) may now be made under newly redesignated section 15.13(1) of this revenue procedure;
• (13) Section 16.08, relating to changes in the timing of income recognition under § 451(b) and (c), is modified as follows. First, section 16.08 is modified to remove section 16.08(5)(a), relating to the temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 for certain changes under section 16.08, because the provision is obsolete. Second, section 16.08 is modified to remove section 16.08(4)(a)(iv), relating to special § 481(a) adjustment rules when the temporary eligibility waiver applies, because the provision is obsolete. Third, section 16.08 is modified to remove sections 16.08(4)(a) (v)(C) and 16.08(4)(a)(v)(D), providing examples to illustrate the special § 481(a) adjustment rules under section 16.08(4)(a) (iv), because the examples are obsolete;
• (14) Section 19.01, relating to changes in method of accounting for certain exempt long-term construction contracts from the percentage-of-completion method of accounting to an exempt contract method described in § 1.460-4(c), or to stop capitalizing costs under § 263A for certain home construction contracts, is modified by removing the references to “proposed § 1.460-3(b)(1)(ii)” in section 19.01(1), relating to the inapplicability of the change under section 19.01, because the references are obsolete;
• (15) Section 19.02, relating to changes in method of accounting under § 460 to rely on the interim guidance provided in section 8 of Notice 2023-63, 2023-39 I.R.B. 919, is modified to remove section 19.02(3)(a), relating to a change in the treatment of SRE expenditures under § 460 for the taxpayer’s first taxable year beginning after December 31, 2021, because the provision is obsolete;
• (16) Section 20.07, relating to changes in method of accounting for liabilities for rebates and allowances to the recurring item exception under § 461(h)(3), is clarified by adding new section 20.07(1)(b) (ii), providing that a change under section 20.07 does not apply to liabilities arising from reward programs;
• (17) The following sections, relating to the inapplicability of the relevant change, are modified to remove the reference to “proposed § 1.471-1(b)” because this reference is obsolete: (a) Section 22.01(2), relating to cash discounts; (b) Section 22.02(2), relating to estimating inventory “shrinkage”; (c) Section 22.03(2), relating to qualifying volume-related trade discounts; (d) Section 22.04(1)(b)(iii), relating to impermissible methods of identification and valuation of inventories; (e) Section 22.05(1)(b)(ii), relating to the core alternative valuation method; Bulletin No. 2025–24 1595 June 9, 2025 (f) Section 22.06(2), relating to replacement cost for automobile dealers’ parts inventory; (g) Section 22.07(2), relating to replacement cost for heavy equipment dealers’ parts inventory; (h) Section 22.08(2), relating to rotable spare parts; (i) Section 22.09(3), relating to the advanced trade discount method; (j) Section 22.10(1)(b)(iii), relating to permissible methods of identification and valuation of inventories; (k) Section 22.11(2), relating to a change in the official used vehicle guide utilized in valuing used vehicles; (l) Section 22.12(2), relating to invoiced advertising association costs for new vehicle retail dealerships; (m) Section 22.13(2), relating to the rolling-average method of accounting for inventories; (n) Section 22.14(2), relating to sales-based vendor chargebacks; (o) Section 22.15(2), relating to certain changes to the cost complement of the retail inventory method; (p) Section 22.16(2), relating to certain changes within the retail inventory method; and (q) Section 22.17(1)(b)(iii), relating to changes from currently deducting inventories to permissible methods of identification and valuation of inventories; and
• (18) Section 22.10, relating to permissible methods of identification and valuation of inventories, is modified to remove section 22.10(1)(d).

Subject to a transition rule, this revenue procedure is effective for a Form 3115 filed on or after June 9, 2025, for a year of change ending on or after October 31, 2024, that is filed under the automatic change procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and modified by Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2021-34, 2021-35 I.R.B. 337, Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, Rev. Proc. 2017-59, 2017-48 I.R.B. 543, and section 17.02(b) and (c) of Rev. Proc. 2016-1, 2016-1 I.R.B. 1 .

Rev. Proc. 2025-23

The Treasury Department and IRS have issued Notice 2025-33, extending and modifying transition relief for brokers required to report digital asset transactions using Form 1099-DA, Digital Asset Proceeds From Broker Transactions. The notice builds upon the temporary relief previously provided in Notice 2024-56 and allows additional time for brokers to comply with reporting requirements.

The Treasury Department and IRS have issued Notice 2025-33, extending and modifying transition relief for brokers required to report digital asset transactions using Form 1099-DA, Digital Asset Proceeds From Broker Transactions. The notice builds upon the temporary relief previously provided in Notice 2024-56 and allows additional time for brokers to comply with reporting requirements.

Reporting Requirements and Transitional Relief

In 2024, final regulations were issued requiring brokers to report digital asset sale and exchange transactions on Form 1099-DA, furnish payee statements, and backup withhold on certain transactions beginning January 1, 2025. Notice 2024-56 provided general transitional relief, including limited relief from backup withholding for certain sales of digital assets during 2026 for brokers using the IRS’s TIN-matching system in place of certified TINs.

Additional Transition Relief from Backup Withholding, Customers Not Previously Classified as U.S. Persons

Under Notice 2025-33, transition relief from backup withholding tax liability and associated penalties is extended for any broker that fails to withhold and pay the backup withholding tax for any digital asset sale or exchange transaction effected during calendar year 2026.

Brokers will not be required to backup withhold for any digital asset sale or exchange transactions effected in 2027 when they verify customer information through the IRS Tax Information Number (TIN) Matching Program. To qualify, brokers must submit a customer's name and tax identification number to the matching service and receive confirmation that the information corresponds with IRS records.

Additionally, penalties that apply to brokers that fail to withhold and pay the full backup withholding due are limited with respect to any decrease in the value of received digital assets between the time of the transaction giving rise to the backup withholding obligation and the time the broker liquidates 24 percent of a customer’s received digital assets.

Finally, the notice also provides additional transition relief for brokers for sales of digital assets effected during calendar year 2027 for certain preexisting customers. This relief applies when brokers have not previously classified these customers as U.S. persons and the customer files contain only non-U.S. residence addresses.

Notice 2025-33

IR-2025-67

The IRS failed to establish that it issued a valid notice of deficiency to an individual under Code Sec. 6212(b). Thus, the Tax Court dismissed the case due to lack of jurisdiction.

The IRS failed to establish that it issued a valid notice of deficiency to an individual under Code Sec. 6212(b). Thus, the Tax Court dismissed the case due to lack of jurisdiction.

The taxpayer filed a petition to seek re-determination of a deficiency for the tax year at issue. The IRS moved to dismiss the petition under Code Sec. 6213(a), contending that it was untimely and that Code Sec. 7502’s "timely mailed, timely filed" rule did not apply. However, the Court determined that the notice of deficiency had not been properly addressed to the individual’s last known address.

Although the individual attached a copy of the notice to the petition, the Court found that the significant 400-day delay in filing did not demonstrate timely, actual receipt sufficient to cure the defect. Because the IRS could not establish that a valid notice was issued, the Court concluded that the 90-day deadline under Code Sec. 6213(a) was never triggered, and Code Sec. 7502 was inapplicable.

L.C.I. Cano, TC Memo. 2025-65, Dec. 62,679(M)

A limited partnership classified as a TEFRA partnership was not entitled to exclude its limited partners’ distributive shares from net earnings from self-employment under Code Sec. 1402(a)(13). The Tax Court found that the individuals materially participated in the partnership’s investment management business and were not acting as limited partners “as such.”

A limited partnership classified as a TEFRA partnership was not entitled to exclude its limited partners’ distributive shares from net earnings from self-employment under Code Sec. 1402(a)(13). The Tax Court found that the individuals materially participated in the partnership’s investment management business and were not acting as limited partners “as such.”

Furthermore, the Court concluded that the limited partners’ roles were indistinguishable from those of active general partners. Accordingly, their distributive shares were includible in net earnings from self-employment under Code Sec. 1402(a) and subject to tax under Code Sec. 1401. The taxpayer’s argument that the partners’ actions were authorized solely through the general partner was found unpersuasive. The Court emphasized substance over form and found that the partners’ conduct and economic relationship with the firm were determinative.

Additionally, the Court held that the taxpayer failed to meet the requirements under Code Sec. 7491(a) to shift the burden of proof because it did not establish compliance with substantiation and net worth requirements. Lastly, the Tax Court also upheld the IRS’s designation of the general partner LLC as the proper tax matters partner under Code Sec. 6231(a)(7)(B), finding that the attempted designation of a limited partner was invalid because an eligible general partner existed and had the legal authority to serve.

Soroban Capital Partners LP, TC Memo. 2025-52, Dec. 62,665(M)

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.

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.