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2008 tax rates for single, married filing jointly, married filing separately, head of household taxpayers, and social security retirement wage limits.
(Other than certain long-term capital gains) Single Taxpayer
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 8,025.00 | 802.50 | 15% | 32,550.00 | 4,481.25 | 25% | 78,850.00 | 16,056.25 | 28% | 164,550.00 | 40,052.25 | 33% | 357,700.00 | 103,791.75 | 35% |
Married Filing Jointly or Qualifying Widower
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 16,050.00 | 1,605.00 | 15% | 65,100.00 | 8,962.50 | 25% | 131,450.00 | 25,550.00 | 28% | 200,300.00 | 44,828.00 | 33% | 357,700.00 | 96,770.00 | 33% |
Married Filing Separately Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 8,025.00 | 802.50 | 15% | 32,550.00 | 4,481.25 | 25% | 65,725.00 | 12,775.00 | 28% | 100,150.00 | 22,414.00 | 33% | 178,850.00 | 48,385.00 | 35% |
Head of Households
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 11,450.00 | 1,145.00 | 15% | 43,650.00 | 5,975.00 | 25% | 112,650.00 | 23,225.00 | 28% | 182,400.00 | 42,755.00 | 33% | 357,700.00 | 100,604.00 | 35% |
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. | After you attain FRA | No limit after attaining FRA | |
2007 tax rates for single, married filing jointly, married filing separately, head of household taxpayers, and social security retirement wage limits.
(Other than certain long-term capital gains)
Single Taxpayer Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,825.00 | 782.50 | 15% | 31,850.00 | 4,386.25 | 25% | 77,100.00 | 15,698.75 | 28% | 160,850.00 | 39,148.75 | 33% | 349,700.00 | 101,469.25 | 35% |
Married Filing Jointly or Qualifying Widower Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 15,650.00 | 1,565.00 | 15% | 63,700.00 | 8,772.50 | 25% | 128,500.00 | 24,972.50 | 28% | 195,850.00 | 43,830.50 | 33% | 349,700.00 | 94,601.00 | 33% |
Married Filing Separately Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,825.00 | 782.50 | 15% | 31,850.00 | 4,386.25 | 25% | 64,250.00 | 12,486.25 | 28% | 97,925.00 | 21,915.25 | 33% | 174,850.00 | 47,300.50 | 35% |
Head of Households Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 11,200.00 | 1,120.00 | 15% | 42,650.00 | 5,837.50 | 25% | 110,100.00 | 22,700.00 | 28% | 178,350.00 | 41,810.00 | 33% | 349,700.00 | 98,355.50 | 35% |
Social Security Earnings Limit for 2007
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 2007 | $12,960 | $1 of benefits is withheld for every $2 you earn above $12,960. | If you attain FRA in 2007 | $34,440 before the month in which you attain FRA | $1 of benefits is withheld for every $3 you earn above $34,440. | After you attain FRA | No limit after attaining FRA | |
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 | $218,950 | Married filing separately | $109,475 | Heads of Households | $182.450 |
Standard Mileage Rates
Business use of auto – Jan to Aug 2005 | 40.5 cents per mile | Business use of auto – Sept to Dec 2005 | 48.5 cents per mile | Charitable use | 14 cents per mile | Medical use - Jan to Aug 2005 | 14 cents per mile | Medical use - Sept to Dec 2005 | 22 cents per mile | Moving - Jan to Aug 2005 | 14 cents per mile | Moving - Sept to Dec 2005 | 14 cents per mile |
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. After you attain FRA No limit after attaining FRA
2005 tax rates for single, married filing jointly, married filing separately, head of household taxpayers, and social security retirement wage limits.
(Other than certain long-term capital gains)
Single Taxpayer
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,300.00 | 730.00 | 15% | 29,700.00 | 4,090.00 | 25% | 71,950.00 | 14,652.50 | 28% | 150,150.00 | 36,548.50 | 33% | 326,450.00 | 94,727.50 | 35% |
Married Filing Jointly
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 14,600.00 | 1,460.00 | 15% | 59,400.00 | 8,180.00 | 25% | 119,950.00 | 23,317.50 | 28% | 182,800.00 | 40,915.50 | 33% | 326,450.00 | 88,320.00 | 33% |
Married Filing Separately
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,300.00 | 730.00 | 15% | 29,700.00 | 4,090.00 | 25% | 59,975.00 | 11,658.75 | 28% | 91,400.00 | 20,457.75 | 33% | 163,225.00 | 44,160.00 | 35% |
Head of Households
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 10,450.00 | 1,045.00 | 15% | 39,800.00 | 5,447.50 | 25% | 102,800.00 | 21,197.50 | 28% | 166,450.00 | 39,019.50 | 33% | 326,450.00 | 91,819.50 | 35% |
Social Security Full Retirement Age
Year of Birth | Full Retirement Age (FRA) | 1937 or prior | 65 years | 1938 | 65 years + 2 months | 1939 | 65 years + 4 months | 1940 | 65 years + 6 months | 1941 | 65 years + 8 months | 1942 | 65 years + 10 months | 1943 | 66 years | 1944 | 66 years + 2 months | 1945-54 | 66 years + 4 months |
Social Security Earnings Limit for 2005
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 2005 | $12,000 | $1 of benefits is withheld for every $2 you earn above $12,000. | If you attain FRA in 2005 | $31,800 before the month in which you attain FRA | $1 of benefits is withheld for every $3 you earn above $31,800. | After you attain FRA | No limit after attaining FRA | |
2006 tax rates for single, married filing jointly, married filing separately, head of household taxpayers, and social security retirement wage limits.
(Other than certain long-term capital gains)
Single Taxpayer
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,550.00 | 755.00 | 15% | 30,650.00 | 4,220.00 | 25% | 74,200.00 | 15,107.50 | 28% | 154,800.00 | 37,675.50 | 33% | 336,550.00 | 97,653.00 | 35% |
Married Filing Jointly
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 15,100.00 | 1,510.00 | 15% | 61,300.00 | 8,440.00 | 25% | 123,700.00 | 24,040.00 | 28% | 188,450.00 | 42,170.00 | 33% | 336,550.00 | 91,043.00 | 33% |
Married Filing Separately
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 7,550.00 | 755.00 | 15% | 30,650.00 | 4,220.00 | 25% | 61,850.00 | 12,020.00 | 28% | 94,225.00 | 21,085.00 | 33% | 168,275.00 | 45,521.50 | 35% |
Head of Households
Taxable Income | Tax | % on Excess | $ 0.00 | 0.00 | 10% | 10,750.00 | 1,075.00 | 15% | 41,050.00 | 5,620.00 | 25% | 106,000.00 | 21,857.50 | 28% | 171,650.00 | 40,239.50 | 33% | 336,550.00 | 94,656.50 | 35% |
Social Security Full Retirement Age
Year of Birth | Full Retirement Age (FRA) | 1937 or prior | 65 years | 1938 | 65 years + 2 months | 1939 | 65 years + 4 months | 1940 | 65 years + 6 months | 1941 | 65 years + 8 months | 1942 | 65 years + 10 months | 1943 | 66 years | 1944 | 66 years + 2 months | 1945-54 | 66 years + 4 months |
Social Security Earnings Limit for 2006
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 2006 | $12,480 | $1 of benefits is withheld for every $2 you earn above $12,480. | If you attain FRA in 2006 | $33,240 before the month in which you attain FRA | $1 of benefits is withheld for every $3 you earn above $33,240. | After you attain FRA | No limit after attaining FRA | |
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:
o Participating?
o Investments?
o Distributions?
· 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 | | |
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| Percentage of workers by amounts | |
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| Less than $25,000 | | | | 52% | 52% < 25,000 | |
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| $25,000-$49,000 | | 13% |
| | 65% < 50,000 | |
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| $50,000-$99,000 | | 13% |
| | 78% < 100,000 | |
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| $100,000-$249,000 | | 12% |
| | 90% < 250,000 | |
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| $250,000 or more | | 11% |
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| Source: Employee Benefit Research Institute | Note: Does not add up to 100 because of rounding |
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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.
Websites:
www.hisle-cpa.com/newsletter.html - Understanding Social Security Reform
www.socialsecuritsocialsecurity.gov – Trustee’s Report www.aarp.org/socialsecurity
March 2005, 2nd Edition Article from AICPA
Understanding Social Security Reform: The Issues and Alternatives
Understanding Social Security Reform: The Issues and Alternatives
March 2005, 2nd Edition
By the American Institute of Certified Public Accountants
Executive Summary and Full Report are available at www.aicpa.org/members/socsec.htm
Executive Summary
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:
o Participating?
o Investments?
o Distributions?
· 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?
Estate Tax Rates, Credits, and Exemptions.
ESTATE TAX RATES
Taxable Amount Over | Tax | % on Excess | 0 | 0 | 18% | 10,000 | 1,800 | 20% | 20,000 | 3,800 | 22% | 40,000 | 8,200 | 24% | 60,000 | 13,000 | 26% | 80,000 | 18,200 | 28% | 100,000 | 23,800 | 30% | 150,000 | 38,800 | 32% | 250,000 | 70,800 | 34% | 500,000 | 155,800 | 37% | 750,000 | 248,300 | 39% | 1,000,000 | 345,800 | 41% | 1,250,000 | 448,300 | 43% | 1,500,000 | 555,800 | 45% | 2,000,000 | 780,800 | 49% | 2,5000,000 | 1,025,800 | 50%* |
* For estates of decedents dying and gifts made after 12/31/01.
Year | Applicable Credit Amount | 2004-2005 | $ 555,800* | 2006-2008 | $ 780,000* | 2009 | $1,455,000* | 2010 | Repealed |
| Reinstated at $345,800 |
Year | Exemption Amount | 2004-2005 | $ 1,500,000* | 2006-2008 | $ 2,000,000* | 2009 | $ 3,500,000* | 2010 | Repealed | 2011 | Reinstated at $ 1,000,000 |
The gift tax applicable credit remains at $1,000,000 for 2002-2009
Federal Estate and Trust Income Rates
Taxable Income | Tax | % on Excess | 0 | 0 | 15% | 2,000 | 300 | 25% | 4,700 | 975 | 28% | 7,150 | 1,661 | 33% | 9,750 | 2,519 | 35% |
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
· 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 Proposed regulations spell out the critical mineral and battery component requirements of the new clean vehicle credit, while also clarifying several other components of the credit. The proposed regs, along with modified Frequently Asked Questions on the IRS website, largely adopt previous IRS guidance, including Rev. Proc. 2022-42, Notice 2023-1, and Notice 2023-16. Proposed regulations spell out the critical mineral and battery component requirements of the new clean vehicle credit, while also clarifying several other components of the credit. The proposed regs, along with modified Frequently Asked Questions on the IRS website, largely adopt previous IRS guidance, including Rev. Proc. 2022-42, Notice 2023-1, and Notice 2023-16. Similarly, the critical minerals and battery component regs largely adopt the White Paper the Treasury Department released last December.
However, the proposed regs also:
- detail the income and price limits on the credit,
- prohibit multiple taxpayers from dividing the credit for a single vehicle, and
- coordinate the credit with other credits.
The regs are generally proposed to apply to vehicles placed in service after April 17, 2023, but taxpayers may rely on them for vehicles placed in service before that date. Comments are requested.
Critical Minerals Requirement
For purposes of the $3,750 credit for a qualified vehicle that satisfies the critical minerals requirement, the proposed regs provide a three-step process for determining the percentage of the value of the applicable critical minerals in a battery:
- 1. Determine the procurement chain for each critical mineral.
- 2. Identify qualifying critical minerals.
- 3. Calculate qualifying critical mineral content.
The proposed regs define relevant terms, including "procurement chain," "criticalminerals," "criticalmineral content," "extraction," "processing," "constituent materials," "recycling," and "value added."
For vehicles placed in service in 2023 and 2024, the proposed regs consider a critical mineral to meet the test if at least 50 percent of the value added by extracting, processing or recycling the mineral is due to extraction, processing or recycling in the U.S. or a country with which the U.S. has a free trade agreement in effect. The proposed regs identify the following countries as ones with a free trade agreement in effect with the U.S.: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. The regs also propose criteria for identifying additional countries, such as the factors that are part of the Critical Minerals Agreement (CMA) the U.S. recently entered into with Japan.
Battery Component Requirement
For purposes of the $3,750 credit for a qualified vehicle that satisfies the battery components requirement, the proposed regs provide a four-step process for determining the percentage of the value of the battery components in a battery:
- 1. Identify components that are manufactured or assembled in North America.
- 2. Determine the incremental value of each battery component and North American battery component.
- 3. Determine the total incremental value of battery components.
- 4. Calculate the qualifying battery component.
MAGI Limit
The credit does not apply if the taxpayer’s modified adjusted gross income (MAGI) for the credit year or, if less, the previous year exceeds a limit based on filing status. The proposed regs clarify that if the taxpayer’s filing status changes during this two-year period, this test applies the MAGI limit for each year based on the taxpayer's filing status for that year.
The proposed regs also clarify that the MAGI limit does not apply to a corporation or any other taxpayer that is not an individual for which AGI is computed under Code Sec. 62.
MSRP Limits
A vehicle does not qualify for the credit if the manufacturer’s suggested retail price (MSRP) exceeds $80,000 for a van, sport utility vehicle (SUV), or pickup truck; or $55,000 for any other vehicle. The proposed regs adopt the vehicle classification system the IRS announced in Notice 2023-16. This is the vehicle classification that appears on the vehicle label and on the website FuelEconomy.gov. The regs also provide a more detailed definition of "MSRP" using information reported on the label affixed to the vehicle’s windshield or side window.
Vehicle with Multiple Owners
The proposed regs generally prohibit any allocation or proration of the credit if multiple taxpayers place a vehicle in service. However, a partnership or S corporation that places a vehicle in service may allocate the credit among its partners or shareholders. The MAGI limits on the credit apply separately to each individual partner or shareholder. The seller’s report for the vehicle lists the entity’s name and TIN.
Final Assembly in North America
To qualify for the credit, the final assembly of a new clean vehicle must occur in North America. The proposed regs reiterate earlier guidance on this requirement, but they also provide more detailed definitions of "final assembly" and "North America." Taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN), or the final assembly point reported on the label affixed to the vehicle. Taxpayers may also continue to rely on the information in the "VIN decoder sites" at https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit and https://www.nhtsa.gov/vin-decoder.
Coordination with Other Credits
While the new vehicle credit is generally a nonrefundable personal credit, the credit for a depreciable vehicle is treated as part of the general business credit. If the taxpayer’s business use of a qualified vehicle is less than 50 percent of its total use, the proposed regs require the taxpayer to apportion the credit. Only the portion of the credit that corresponds to the percentage of the taxpayer’s business use of the vehicle is part of the general business credit; the rest of the credit remains a nonrefundable personal credit.
The proposed regs clarify that when the new clean vehicle credit is allowed for a particular vehicle, a subsequent buyer in a later tax year may still claim the used clean vehicle credit. However, a subsequent buyer cannot claim the commercial clean vehicle credit.
Effective Dates
Taxpayers may rely on the proposed regulations before they are published as final regs, provided the taxpayer follows them in their entirety and in a consistent manner. The regs are generally proposed to apply to new clean vehicles placed in service after April 17, the date the regs are scheduled to be published in the Federal Register.
Comments Requested
The IRS requests comments on the proposed regs. Comments may be mailed to the IRS, or submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-120080-22). Written or electronic comments and requests for a public hearing must be received by June 16, 2023.
In particular, the IRS seeks comments on the following issues:
- 1. the critical mineral and battery component requirements, including the distinction between processing of applicable critical minerals and manufacturing and assembly of battery components, and related definitions;
- 2. the 50-percent value added test for critical minerals, and the best approach for adopting a more stringent test after 2024;
- 3. the list of countries with which the United States has free trade agreements in effect, proposed criteria for identifying other such countries, and other potential approaches; and
- 4. whether rules similar to those provided for partnerships and S corporation should apply to trusts and similar entities that place a qualified clean vehicle in service.
The IRS is obsoleting Rev. Rul. 58-74, 1958-1 CB 148, as of July 31, 2023. Rev. Rul. 58-74 generally allows a taxpayer that adopted the expense method for research and experimental (R&E) expenses to use a refund claim or amend a return to deduct R&E expenses that the taxpayer failed to deduct when they were paid or accrued. The IRS is obsoleting Rev. Rul. 58-74, 1958-1 CB 148, as of July 31, 2023. Rev. Rul. 58-74 generally allows a taxpayer that adopted the expense method for research and experimental (R&E) expenses to use a refund claim or amend a return to deduct R&E expenses that the taxpayer failed to deduct when they were paid or accrued.
Rev. Rul. 58-74 conflicts with current procedures for accounting method changes.
TCJA Changes for R&E Expenses
The decision to obsolete Rev. Rul. 58-74 is unrelated to the changes made by the Tax Cut and Jobs Act (TCJA) (P.L. 115-97), even though the ruling relates to pre-TCJA accounting methods for R&E expenses.
Taxpayers could elect to amortize R&E expenses paid or incurred in tax years beginning before 2022, or deduct them currently. If the taxpayer did not make either election, the expenses had to be capitalized. A taxpayer that elected the expense method had to use it for all qualifying expenses unless the IRS consented to a different method for some or all of the expenses.
TCJA ended the expense election for R&E expenses paid or incurred in tax year beginning after 2021. Instead, the expenses must be amortized over five years (15 years for foreign expenses).
Rev. Rul. 57-74 and Change of Accounting Method Procedures
The IRS is obsoleting Rev. Rul. 58-74 because it includes insufficient facts to properly analyze whether the taxpayer’s failure to deduct certain R&E expenditures, such as the cost of obtaining a patent, when it deducted other R&E expenditures, constituted a method of accounting or an error.
For example, Rev. Rul. 58-74 does not explain whether the taxpayer consistently treated the costs of obtaining a patent in determining its taxable income. It also fails to describe the cause and extent of the deviation in the treatment of certain R&E expenditures that were not deducted.
In addition, filing an amended return, refund claim, or administrative adjustment request (AAR) under Rev. Rul. 58-74 is inconsistent with the IRS position that a taxpayer may not, without prior consent, retroactively change from an erroneous to a permissible method of accounting by filing amended returns. Rev. Rul. 58-74 is also inconsistent with the procedures for accounting method changes that qualify for automatic IRS consent.
Prospective Application of Decision to Obsolete Rev. Rul. 58-74
A taxpayer may rely on Rev. Rul. 58-74 if the taxpayer:
(1)
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files the refund claim, amended return or AAR no later than July 31, 2023;
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(2)
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is claiming a deduction for an R&E expense that is eligible for the pre-TCJA expense election; and
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(3)
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is using the expense method for other such R&E expenses.
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However, eligibility to rely on Rev. Rul. 58-74 does not imply that the IRS will grant the refund, deduction, or AAR. Instead, the IRS will continue to challenge the applicability of Rev. Rul. 58-74 when appropriate. For example, the IRS might challenge reliance on Rev. Rul. 58-74 when the taxpayer’s facts are distinguishable from Rev. Rul. 58-74, including where the taxpayer failed to adopt the expense method under pre-TCJA law. The IRS has issued safe harbor deed language that may be used to amend eligible easement deeds intended to qualify for conservation contribution deductions under Code Sec. 170(f)(3)(B)(iii), to comply with changes to the law created by section 605(d) of the SECURE 2.0 Act of 2022. The IRS has issued safe harbor deed language that may be used to amend eligible easement deeds intended to qualify for conservation contribution deductions under Code Sec. 170(f)(3)(B)(iii), to comply with changes to the law created by section 605(d) of the SECURE 2.0 Act of 2022. If a donor substitutes the prescribed safe harbor deed language for the corresponding language in the original eligible easement deed, and the amended deed is then signed by the donor and donee and recorded on or before July 24, 2023, the amended eligible easement deed will be treated as effective for purposes of Code Sec. 170 and section 605(d)(2) of the SECURE 2.0 Act. If these requirements are met, the amendment must be treated as effective from the date of the recording of the original easement deed.
The following are not considered an"eligible easement deed" for purposes of this safe harbor - any easement deed relating to any contribution:
- which is not treated as a qualified conservation contribution by reason of Code Sec. 170(h)(7);
- which is part of a reportable transaction under Code Sec. 6707A(c)(1), or is described in Notice 2017-10;
- if a deduction under Code Sec. 170 has been disallowed, the donor has contested such disallowance, and a case is docketed in federal court to resolve this dispute scheduled on a date before the date the amended deed is recorded by the donor; or
- if a claimed contribution deduction under Code Sec. 170 resulted in an underpayment penalty under either Code Sec. 6662 or 6663, and such penalty has been finally determined administratively or by final court decision.
If the safe harbor language is substituted according to the requirements spelled out in this Notice, the amended eligible easement deed will be treated as effective as of the date the eligible easement deed was originally recorded for federal purposes, regardless of whether the amended eligible easement deed is effective retroactively under the relevant state law. The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions. The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions.
The IRS has compiled a list of 12 scams and schemes that put taxpayers and tax professionals at risk. Some of them are:
- micro-captive insurance arrangements: is an insurance company whose owners elect to be taxed on the captive's investment income only;
- syndicated conservation easements: are arrangements wherein they attempt to game the system with grossly inflated tax deductions;
- offshore accounts & digital assets: unscrupulous promoters lure taxpayers into placing their asssets in offshore accounts under the pretense of being untraceable by the IRS;
- maltese individual retirement arrangements misusing treaty: are arrangements wherein the taxpayers attempt to avoid tax by contributing to foreign individual retirement arrangements in Malta; and
- puerto rican and other foreign captive insurance: are transactions wherein the business owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican or other foreign corporation in which they have a financial interest.
Taxpayers are adviced to to rely on reputable tax professionals they know and trust to avoid such schemes. The IRS has also created the Office of Fraud Enforcement (OFE) and Office of Promoter Investigations (OPE) to coordinate service-wide enforcement activities against taxpayers committing tax fraud and promoters marketing and selling abusive tax avoidance transactions and schemes to effectuate tax evasion.
As part of the Dirty Dozen awareness effort, the IRS encourages people to report taxpayers who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns. To report an abusive tax scheme or a tax return preparer, taxpayers should mail or fax a completed and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. The postal address is: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, California 92677-3405 Fax: 877-477-9135. As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information. As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information.
Cyber Security Tips to Prevent Spearphishing
Spearphishing is a tailored phishing attempt to a specific organization or business and usually begins with a suspicious email that may appear as a tax preparation application or another e-service or platform. Some scammers will even use the IRS logo and claim something like "Action Required: Your account has now been put on hold." Often these emails stress urgency and will ask tax pros or businesses to click on links to input or verify information.
How to prevent spearphishing:
- Never click suspicious links.
- Double check the requests with the original sender.
- Be vigilant year-round, not just during filing season.
The IRS and its Security Summit partners continue to see spearphishing attempts that impersonate a new potential client, known as the New Client scam. Lastly, taxpayers should never respond to tax-related phishing or spearfishing or click on the URL link. Instead, the scams should be reported by sending the email or a copy of the text/SMS as an attachment to phishing@irs.gov. The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act. The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act.
"Given the historic low levels of IRS taxpayer services, we are concerned that there was an insufficient allocation of funding to improve taxpayer services to appropriate levels" the AICPA March 28, 2023, letter to the IRS and the Department of the Treasury states, noting that the COVID-19 pandemic "made it painfully clear that the IRS was not funded to accomplish all its responsibilities."
AICPA argued that the agency’s service deficiencies "prevent taxpayers from complying with their tax obligations and hamper our members’ ability to as professional advisors to do their jobs, which is to help these taxpayers comply."
And despite funds being targeted toward enforcement and a stated goal of ensuring that wealthy individuals and corporations are paying their fair share of taxes, AICPA states that "enforcement actions must be in balance with the services the IRS provides to taxpayers."
The Inflation Reduction Act allocates $45.6 billion to enforcement activities and only $3.1 billion to service, and the AICPA suggested that more money be focused on service-related issues, including allocating sufficient funds for employee training to help replace the institutional knowledge that is expected to be lost in the coming years as the aging workforce retires.
AICPA is also calling on the IRS to develop a comprehensive customer service strategy, including creating more empowered employees; better access to timely information; and access to tailored resources, including resources designed specifically for tax professionals.
Additionally, the organization recommended that the agency develop a comprehensive plan to redesign the agency, including adopting a more customer-focused culture; integrating its technical infrastructure so the disparate legacy systems can communicate with each other; and creating a practitioner services division "that would centralize and modernize its approach to all practitioners."
Finally, AICPA recommended that IRS continue with its business systems modernizations initiatives.
"Currently, the IRS has two of the oldest information systems in the federal government making the information technology functions one of the biggest constraints overall for the IRS" the letter states. "Without modern infrastructure, the IRS is unable to timely and efficiently meet the needs of taxpayers and practitioners. … We recommend that the IRS more fully explore options to allocate IRA enforcement funding to BSM issues."
Automated Collection Notices To Resume
Another area that the organization recommends the funds be used for is the ongoing effort by the agency to reduce the backlog of unprocessed paper tax returns and other paper correspondence.
AICPA acknowledged the work done to reduce levels after the backlog spiked during the pandemic, but stated that "more needs to be done to ensure that taxpayers and practitioners are not faced at any time in 2023 with yet another year with significant levels of unprocessed returns, leading to additional delays in processing and incorrect notices and penalties."
And while this is going on, the organization recommends that the IRS "continue the suspension of certain automated collection notices until it is prepared to devote the necessary resources for a proper and timely resolution of matters. Until the IRS can respond to taxpayer replies to notices in a timely manner, these collection notices should not be restarted."
According to the letter, the agency is planning on restarting automated collection notices in June 2023, even though "this June date has not been widely publicized. The IRS should communicate the stat date of automated collection action to the public, specifically identifying what actions will be part of this process and providing resources for taxpayers on dealing with these actions."
Additionally, the organization is calling for "a streamlined reasonable cause penalty waiver without requiring a written request, similar to the procedures of the FTA administrative waiver, based solely on the pandemic’s effects on both the taxpayer and the practitioner."
By Gregory Twachtman, Washington News Editor National Taxpayer Advocate Erin Collins offered both praise and criticism of the Internal Revenue Service’s Strategic Operating Plan outlining how it will spend the additional $80 billion allocated to the agency as part of the Inflation Reduction Act of 2022. National Taxpayer Advocate Erin Collins offered both praise and criticism of the Internal Revenue Service’s Strategic Operating Plan outlining how it will spend the additional $80 billion allocated to the agency as part of the Inflation Reduction Act of 2022.
"This is a game changer to transform how the U.S. government administers the tax laws in a more helpful and efficient manner while focusing on providing the service taxpayers deserve,"Collins wrote in an April 6, 2023, blog post about the plan.
However, she reiterated criticism over how the funds would be allocated throughout the next 10 years. The IRA allocates only $3.2 billion going to taxpayer services and $4.8 billion allocated to business system modernization, two areas that are in need of funding to help improve the service the agency provides to taxpayers.
"Combined, that’s just ten percent of the total," she noted. "By contrast, 90 percent was allocated for enforcement ($45.6 billion) and operations support ($25.3 billion). The additional long-term funding provided by the IRA, while appreciated and welcomed, is disproportionately allocated for enforcement activities, and I believe Congress should reallocate IRS funding to achieve a better balance with taxpayer services and IT modernization."
Collins also cited the report in stating that the funds allocated for taxpayer services will be depleted within four years and cautioned that the agency needs to ensure that funds are continually being allocated for this specific purpose beyond that point.
"Although I share the long-term vision of the SOP, I want to caution that the IRS should not lose sight of its core mission and its immediate challenge of reducing the large backlog of amended returns and taxpayer correspondence."
Gregory Twachtman, Washington News Editor On April 4, 2023, the Internal Revenue Service released the Strategic Operating Plan, which details the agency’s plans to use Inflation Reduction Act resources to transform the administration of the tax system and services provided to taxpayers. On April 4, 2023, the Internal Revenue Service released the Strategic Operating Plan, which details the agency’s plans to use Inflation Reduction Act resources to transform the administration of the tax system and services provided to taxpayers.
The goal of the changes outlined in the Strategic Operating Plan is to "provide taxpayers with world-class customer service" and reduce the deficit by "hundreds of billions by pursuing tax evasion by wealthy individuals, big corporations, and complex partnerships," said Deputy Secretary of the Treasury Wally Adeyemo.
The Strategic Operating Plan is organized around five key objectives:
- Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.
- Quickly resolve taxpayer issues when they arise.
- Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.
- Deliver cutting-edge technology, data, and analytics to operate more effectively.
- Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.
The plan outlines a series of initiatives and projects aligned to each objective, including 42 key initiatives, 190 key projects, and more than 200 specific milestones designed to achieve the objectives set forth by the IRS.
Improved customer service, compliance efforts, and technology updates are also essential to achieving the goals set forth in the Strategic Operating Plan.
With long-term funding in place, the IRS has hired more than 5,000 phone assisters, increased walk-in service availability, and added new digital tools, according to IRS Commissioner Daniel Werfel.
"In the first five years of the 10-year plan, taxpayers will be able to securely file documents and respond to notices online," said Werfel. Taxpayers will also be able securely access and download account data and account history. "For the first time, the IRS will help taxpayers identify potential mistakes before filing, quickly fix errors that could delay their refunds, and more easily claim credits and deductions they may be eligible for," he said.
The Strategic Operating Plan also includes targeted efforts to ensure fair tax law enforcement and compliance with existing laws. The plan focuses on "areas where compliance has eroded the most," specifically compliance issues involving "wealthy individuals, complex partnerships, and large corporations," said Werfel. The IRS will increase hiring efforts for experienced accountants and attorneys to ensure enforcement "at the top." Werfel further noted that the IRS does not intend to increase the audit rate for small businesses or households making less than $400,000.
Finally, the Strategic Operating Plan utilizes Inflation Reduction Act funding to modernize the agency’s technology infrastructure to protect taxpayer data. In the first five years of the 10-year plan, the IRS aims to eliminate paper backlogs that have delayed taxpayer refunds by digitizing forms and returns when they are received and transitioning to fully digital correspondence processes.
"This plan is only the beginning of our work," Werfel said. "This is a unique opportunity for the IRS and the nation, and we will continue to work closely with our partners as this effort moves forward. This investment in the IRS is already helping taxpayers this tax season, and this plan shows that historic changes are coming." The American Institute of CPAs is calling on the Internal Revenue Service to issue guidance related to how digital asset losses affect tax obligations. The American Institute of CPAs is calling on the Internal Revenue Service to issue guidance related to how digital asset losses affect tax obligations.
"With the complexities and recent bankruptcies involved with digitalasset exchanges, taxpayers and practitioners are facing many issues with the taxtreatment of losses of digitalassets and need guidance," Eileen Sherr, AICPA Director for Tax Policy & Advocacy, said in a statement. "Taxpayers and their advisors need clear guidance to accurately calculate their losses and properly meet their tax obligations and we urge the IRS to adopt our recommendations and provide this guidance."
In an April 14, 2023, letter to the agency, AICPA said it hopes the submission of the comments that the "IRS will provide additional guidance to clarify how digitalassetlosses are handled in various scenarios. Such guidance will provide greater certainty to taxpayers and their preparers in confidently and properly complying with their overall reporting requirements for digitalassets, and better ensure consistent application of the tax law among taxpayers."
The organization offers a range of recommendations on a number of topics related to the tax treatment of digital asset losses, with a focus on losses incurred by an individual investor rather than a trade or business.
One scenario highlighted by the AICPA is the determination of worthlessness of a digital asset. The organization notes that Chief Counsel Advice (CAA) 20230211 "states that ‘a loss may be sustained…if the cryptocurrency becomes worthless resulting in an identifiable event that occurs during the tax year for purposes of section 165(a),"’ adding that the advice notes that cryptocurrency can be valued at less than one cent but still greater than zero because it can still be traded and "that could potentially create future value."
AICPA wrote that if "the position of Treasury and the IRS s that a cryptocurrency is listed on an exchange and has liquidating value greater than absolute zero, we recommend that Treasury and IRS state this in binding guidance (published in the Internal Revenue Bulletin)."
Another topic covered by the comments was the question of when, if ever, might digital assets be securities for tax purposes.
"Authoritative guidance is needed on when, if ever, the section 156(g) worthless security capital losstreatment applies to cryptocurrency and other digitalassets," AICPA wrote. "Binding guidance should also be provided on basis determination for digitalassets (currently the special options are only in non-binding FAQs), as this is a matter relevant to measuring gains and losses."
AICPA also stated that guidance "is needed on the treatment of lending of virtual currency other digital asses under sections 162 such as if the taxpayer is in a business of ‘lending’ digitalassets), 165, 166, 469, 1001, and 1058, and possibly other provisions. This guidance should cover not only losses from ‘lending’ virtual currency and other digitalassets, but the categorization of the income generated (portfolio, business or other) and related expenses."
Other topics covered by the comment letter include:
- What facts indicate abandonment of a digital asset?
- In the case of theft of a digital asset, does the Ponzi loss guidance apply beyond Ponzi-losses to other fraudulent arrangements, including digital asset losses from certain digital asset exchange activities?
- When would section 1234A apply to termination of a digital asset?
- How should a taxpayer report digital asset activity if they are unable to access their records due to bankruptcy of an exchange?
- Is a digital asset considered disposed of by transferring the investor’s interest in a bankruptcy proceeding? Must there be proof of transfer of the underlying digital asset?
This and other tax policy and advocacy comment letters filed by the AICPA can be found here.
By Gregory Twachtman, Washington News Editor 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. |
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