Small Business Taxes & Management

News and Tip of the Day


Small Business Taxes & ManagementTM--Copyright 2015, A/N Group, Inc.

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  Health Care Tax Tips

 

July 7, 2015

News

In Wayne L. Brown (U.S. District Court, S.D. Ohio, East. Div.) the IRS mistakenly issued the taxpayer a tax refund that was $15,000 more than what he was actually due. The taxpayer didn't dispute the fact that he was not entitled to the $15,000. The IRS discovered the error a year later and sent the taxpayer a notice of intent to levy. The taxpayer entered into an installment agreement to repay the amount, but later requested a hearing to challenge the levy. The IRS denied the his request. He made a second request which was also denied. The taxpayer averred that the IRS's actions, specifically attempting to collect the erroneous refund via a levy, violated the Code. As a result, he sued the IRS pursuant to Sec. 7433 which provides for civil damages for certain unauthorized collection actions. The Court found that while it appeared that the IRS may have improperly attempted to collect the erroneous refund via levy, the taxpayer's claim was barred by the statute of limitations in Sec. 7433 which allows two years from the date of the Notice of Intent to Levy.

You can provide your representative with a number of powers to act on your behalf through an IRS power of attorney form (2848). But in the case of Steven N. Levi et ux. (T.C. Memo. 2015-118) the power of attorney attached to the tax return did not authorize the agent to sign the return. The Court noted that neither taxpayer was disabled or injured such that they were unable to sign nor were they continuously absent from the U.S. for a period of at least 60 days. Since the taxpayers did not sign and the agent was not authorized, the Court found it was not a valid return.

Tip of the Day

Health care penalty on employers . . . Employers with 50 or more full-time employees must provide employees with health care or face a penalty. More than a few small businesses who don't provide insurance help employees defray the cost of insurance by reimbursing them for their purchase of coverage. Unfortunately, under the law doing so can subject the employer to a penalty of $100 per day per employee up to a maximum of $500,000. Imposition of the penalty, previously delayed, took effect July 1, 2015. Several small business groups are trying to change the law and there are bills in Congress that would do so, but until then you don't want to run afoul of the rules. It could be very costly.

 

July 6, 2015

News

In Jeffrey T. Webber (144 T.C. No. 17) the taxpayer, a U.S. citizen, established a grantor trust that purchased "private placement" variable life insurance policies insuring the lives of two elderly relatives. The taxpayer and various family members were the beneficiaries of these policies. The premiums paid for the policies, less various expenses, were placed in separate accounts whose assets inured exclusively to the benefit of the policies. The money in the separate accounts was used to purchase investments in startup companies with which the taxpayer was intimately familiar and in which he otherwise invested personally and through private-equity funds he managed. The taxpayer effective dictated both the companies in which the separate accounts would invest and all actions taken with respect to these investments. The IRS argued the taxpayer retained sufficient control and incidents of ownership over the assets in the separate accounts to be treated as their owner for Federal income tax purposes under the "investor control" doctrine. The powers the taxpayer retained included the power to direct investments; the power to vote shares and exercise other options with respect to these securities; the power to extract cash at will from the separate accounts; and the power in other was to derive "effective benefit" from the investments in the separate accounts. The Tax Court held the IRS rulings enunciating the "investor control" doctrine are entitled to deference and weight. The Court also held the taxpayer was owner of the assets in the separate accounts for Federal income tax purposes and was taxable on the income earned on those assets during the taxpayer years in issue. Finally, the Court held the taxpayer was not liable for the accuracy-related penalties (Sec. 6662(a)) because he relied in good faith on professional advice from competent tax professionals.

Tip of the Day

Education exclusion for gift tax . . . You can avoid any gift tax consequences if you pay your grandchildren's tuition or medical expenses--but only if you pay them directly to the provider. For example, you cut a check to the college or doctor. Any other approach will not qualify for this special exclusion. But before doing so you should keep in mind that the check will count as untaxed income to the parents. If the parents might otherwise qualify for financial aid, that cold seriously reduce the amount.

 

July 2, 2015

News

Victims of a severe storms, tornadoes, straight-line winds and flooding that took place on May 5, 2015, in parts of Oklahoma may qualify for tax relief from the IRS. The IRS has updated the list of counties that qualify for relief. They now include Atoka, Beckham. Bryan, Caddo, Canadian, Choctaw, Cleveland, Comanche, Cotton, Grady, Johnston, Kiowa, Le Flore, Marshall, McClain, McCurtain, McIntosh, Oklahoma, Pittsburg, Pottawatomie, Rogers, Seminole, Tillman and Wagoner. Certain deadlines falling on or after May 5, and on or before August 31 have been postponed to August 31, 2015. For more details go to www.irs.gov/uac/Tax-Relief-for-Severe-Storms-Tornadoes-Straightline-Winds-and-Flooding-in-Oklahoma.

In an audit, the Treasury Inspector General for Tax Administration (TIGTA) found the IRS has made progress in providing taxpayers with online customer service options. However, it needs to prioritize the completion of key information technology projects that are needed to provide the electronic platform for developing future projects that will provide taxpayers with dynamic online access capabilities. Although the IRS Commissioner noted that the IRS expects to deliver these capabilities in three to five years and IRS stakeholders continue to emphasize the importance of providing taxpayers with online account access, additional funding needs to be committed to fully complete the key information technology projects. The Service on Demand Initiative is the IRS’s latest attempt to deliver such capability and contains specific projects that will provide online account access options. This initiative identified 71 projects to improve customer service but does not adequately emphasize dynamic online account access when assigning a priority rank to these projects. For example, TIGTA determined that 12 of the 71 projects directly address providing taxpayers with dynamic online account access or improved digital communication. For the complete report go to www.treas.gov/tigta/auditreports/2015reports/201540053fr.html.

In Don Warner Reinhard (T.C. Memo. 2015-116) the IRS was able to convince the Court the taxpayer substantially understated his taxable income for the year at issue and was liable for the fraud penalty. The taxpayer claimed a passthrough loss from an S corporation of some $554,622 despite the fact that no such loss was taken on the S corporation's return. Moreover, ten days after the taxpayer filed the return, he submitted a different version of the return to a bank while applying for a loan which omitted the $554,622 deduction. The Court noted that many of the "badges of fraud" were present. In addition to other factors, the taxpayer substantially understated his income, engaged in inconsistent and implausible behavior when he reported substantially higher income on his loan application than on his income tax return and attempted to conceal assets during his bankruptcy proceeding.

Tip of the Day

Selling to small business owners? . . . Whether you're selling to the business or the owners themselves, most are short on time. Going through a big sales pitch and holding back on the fact that this model is twice the price of their current system, won't work with their computers, etc. could end up wasting their time and yours. Is it new technology that needs an explanation? Make sure you can explain it quickly and accurately. If it sounds too complicated you could lose your audience quickly.

 

July 1, 2015

News

Notice 2015-43 (IRB 2015-29) notice provides interim guidance based in part on the definition of expatriate health plans set forth in the temporary relief under ACA Implementation Frequently Ask Questions (FAQs) Part XIII (issued March 8, 2013) and Part XVIII (issued January 9, 2014). Additionally, the notice provides guidance on the requirements for certain individuals to be considered qualified expatriates under the EHCCA. The notice does not apply to the health insurance providers fee imposed by section 9010 of the ACA.

In Ruey Read (T.C. Memo. 2015-115) the taxpayer claimed the capital gains generated by a brokerage account in her name was not income to her, arguing that the account and a checking account had been opened by her ex-husband. The Court did not believe a fraud defense applied. It noted the brokerage account application required her signature and a copy of her signed driver's license. Her signature on the power of attorney form that authorized her ex-husband to buy and sell stocks on the account was consistent with her signature on her driver's license and on the brokerage account application. The Court found it implausible that her ex-husband would have traced the miniature version of her signature on her driver's license to create a larger replica on the account application and power of attorney as the taxpayer claimed. In addition, she received monthly statements from the account to her solely controlled post office box address during the year at issue. The Court found she at least had knowledge of the account. The checking account in issue had been opened some ten years before the taxpayer was alerted to any possible fraud on the account. The Court held the accounts and the income belonged to her.

Tip of the Day

Critical workers should be employees . . . For many business owners it would be nice if all your workers could be independent contractors. You'd save on unemployment, FICA, worker's compensation, health insurance, etc. But that's generally neither possible nor a good idea. Workers who are critical to the business should generally be employees. You want to be able to rely on the workers, keep information confidential, maintain continuity, etc. Another point. If the workers are essential to your business (e.g., licensed plumbers for a plumbing contractor) there's a better chance the IRS or the state may find the workers are employees even if you call them independent contractors.

 

June 30, 2015

News

Victims of the severe storms, tornadoes, straight-line winds and flooding that took place beginning on May 7, 2015 in parts of Arkansas may qualify for tax relief from the IRS. Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Arkansas will receive tax relief. The President has declared Crawford, Garland, Howard, Jefferson, Little River, Miller, Perry, Sebastian, and Sevier counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief. For more details go to Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds and Flooding in Arkansas.

On June 25, 2015 the disaster notice for victims of the severe storms, tornadoes, straight-line winds and flooding that took place beginning on May 4, 2015 in parts of Texas (see IRS Announces Relief for Victims of Severe Storms, Tornadoes and Flooding in Texas for complete details) was updated to include Fayette county. The complete list of counties now includes Bastrop, Blanco, Caldwell, Cooke, Dallas, Denton, Eastland, Fort Bend, Fannin, Fayette, Gaines, Grayson, Guadalupe, Harris, Hays, Henderson, Hidalgo, Johnson, Liberty, Milam, Montague, Navarro, Nueces, Rusk, Smith, Travis, Van Zandt, Walker, Wichita, Williamson, and Wise.

Tip of the Day

Machinery sales tax exemption . . . Most states provide a sales tax exemption for tools and machinery used in manufacturing, agriculture, etc. Often determining whether or not a machine qualifies for the exemption is easy. You make kitchen cabinets. Items such as drill presses, shapers, etc. qualify. But sometimes what qualifies isn't as obvious. A trailer used in the plant yard to move items between buildings? It may have to be used substantially or exclusively in the production process. There's often a better chance it would qualify if it can't be used over the road. Ask your tax advisor to check state law. Most states have a list of rulings on such items. Can't find a decision on the item? You should be able to make a formal ruling request to the state.

 

June 29, 2015

News

In Obergefell v. Hodges the U.S. Supreme Court has held that all states must allow and recognize same-sex marriages. Before the ruling 14 states did not allow or recognize such unions. Since any legal same-sex marriage has already been recognized for federal tax purposes (e.g., recognition provided based on where the marriage occurred, not where the couple live), the major effects will be that same-sex couples no longer need to get married out of state and on state income tax returns.

The Trade Preferences Extension Act has passed both the House and Senate. The bill extends for six years a refundable tax credit for health care for taxpayers who are eligible for trade adjustment assistance. The bill increases the penalties for failure to file certain information returns.

In an audit, the Treasury Inspector General for Tax Administration (TIGTA) found the IRS did not have effective controls in place to prevent the award of contracts to corporations with certain Federal tax debt and/or felony convictions. TIGTA identified 17 corporations that were awarded a total of 57 contracts valued at about $18.8 million during FYs 2012 and 2013, while they had Federal tax debt. The IRS has not established a definition of Federal tax debt for this purpose and does not perform proactive tax checks to comply with this Federal law. In addition, TIGTA found that the IRS did not follow the Department of the Treasury requirement to insert specific language in solicitations requiring corporations to assert whether or not they have certain Federal tax debt and/or felony convictions. Based on a statistical sample of contracts awarded in FYs 2012 and 2013, TIGTA found that the IRS did not require corporations to self-certify prior to contract award, as required, for any of our 143 sample cases. Finally, TIGTA identified three contracts worth more than $67,000 awarded to one corporation with a felony conviction within the preceding 24 months prior to award. IRS contracting officers did not include the required Department of the Treasury self-certification language in any of these three contracts. For the full report, go to www.treas.gov/tigta/auditreports/2015reports/201510011fr.html.

Tip of the Day

Purchase orders . . . Small businesses often forgo issuing a purchase order when buying items. A verbal order may work for smaller items that aren't critical to the business, can be purchased elsewhere, are standard items, etc. For example, you regularly order paper from a local supplier. He's unlikely to surprise you by making a substitution, delivering late, etc. But if he does, it won't affect your business. It's different if you're ordering supplies for a contract you're working on. The parts must meet certain specifications and they have to be delivered by a certain date. You don't want to take a chance on a misunderstanding or mistake. Put the purchase order in writing and get confirmation from the vendor. Concentrate on the critical terms. Make it clear that a mistake will be costly for you. That puts the supplier on notice.

 

June 26, 2015

News

In a 6-to-3 decision, the Supreme Court has upheld an important provision of the Affordable Care Act, finding the payment of subsidies to those individuals who get health insurance through the federal exchange is legal. The decision removes a major uncertainty to the Affordable Care Act.

Normally you can't challenge the existence or amount of your underlying tax liability in a collection due process hearing. In Ifeanyi Obiakor (T.C. Memo. 2015-112) the taxpayer was allowed to do so because he did not receive a copy of Letter 1153. But the Court found the IRS did not abuse its discretion in sustaining a levy because the taxpayer did not provide requested documentation and did not present collection alternatives.

Were it not for Sec. 351 the contribution of assets to a newly formed corporation in exchange for stock might be construed as a sale. In J. Michael Bell, Sandra L. Bell, and MBA Real Estate, Inc. (T.C. Memo. 2015-111) the Court found that the transfer of assets to a corporation was a capital contribution and not a sale. The taxpayers transferred property to the corporation in exchange for payments over time. The Court looked at 11 factors and found that the transaction was a contribution of capital and the payments the taxpayers received were dividends.

Tip of the Day

Get big or sell out . . . Some businesses owners want to grow as big as possible; many others are happy to have a good, stable business that provides a comfortable living. But sometimes you don't have an option. A big firm is buying up the smaller players in your industry. You may have to sell out to the big firm early or run the risk your business will decline after they're done consolidating in your area. Some businesses may have other options such as diversifying, buying up weak similar businesses in the area to become a big factor in a small market, etc. There's no easy answer here. If you're nearing retirement, selling out may make the most sense. But probably the worst thing you can do is nothing. That will insure a poor ending.

 

June 25, 2015

News

The IRS has updated two retirement plan related FAQ pages on its Web site--Reporting IRA and Retirement Plan Transactions and Retirement Plans Frequently Asked Questions.

In William Billy Devy (T.C. Memo. 2015-110) the taxpayer argued that he should not have to repay the $1,853 overpayment because the IRS applied that amount to pay his child support debt. The Tax Court held that the fact hat a tax overpayment for a particular year was applied to a child support debt does not affect whether a taxpayer must pay a deficiency subsequently determined for the same tax year. Whether an overpayment for a given taxable year is refunded directly to a taxpayer or is intercepted for past-due child support, the IRS nevertheless may determine that there is a deficiency in tax for that year. The Court also found that it lacked jurisdiction to review the application of the taxpayer's overpayment to his outstanding child support debt.

Tip of the Day

Cutting your losses . . . Many individuals think they can time the market. Well, it isn't easy; even many pros fail at it. But there's something worse than bad timing and that's holding on to a losing investment. Knowing when to sell an investment is just as important as picking the right one in the first place. You bought Madison Inc. 6 years ago because it had a unique product line and marketing flexibility. There are now several competitors, two of them much larger, that have much the same line and some of Madison's marketing tricks no longer work. It looks like Madison's one-trick pony is being put out to pasture. Whether you're ahead or behind, holding on now makes little sense. The same reasoning can be applied to your own products or services. In the case of most businesses, times change--and the rate of change has been accelerating. You shouldn't bail at the slightest downturn, but you've got to take a realistic look and if there's a fundamental change in the market that you can't work around, you should seriously consider shutting the line, operation, etc.

 

June 24, 2015

News

The law imposes a penalty on any person who fails to include on any return or statement any information with respect to a reportable transaction which is required under Sec. 6011 to be included with such return or statement. A reportable transaction is any transaction with respect information is required to be included with a return or statement because the IRS has determined that such a transaction is of a type which the IRS as having a potential for tax avoidance or evasion. In Stephen T. May (U.S. District Court, D. Arizona) the taxpayer engaged in one of these transactions. The taxpayer signed several Form 872, consenting to extend the statute of limitations but as to the tax year of the penalty. The Court noted that a different statute of limitations applies to listed transactions--one year after the earlier of one of two tests are met. The taxpayer insisted that the IRS's collection of the needed information through means other than a Form 8886, Reportable Transaction Disclosure Statement put the Government on "constructive notice" and started the running of the one-year limitations period. The Court sided with the taxpayer. It found there was no mutual agreement to extend the statute of limitations with respect to the penalty and that the IRS was furnished with all the required information more than a year before it imposed the penalty.

Tip of the Day

Distinguishing your business . . . Most businesses don't have a unique product or service. Because you can get just about anything online, that's more true than ever for products. You may be able to compete on price, but that cuts your profits. There may be other options, some of them cheaper. One company advertises next day installation of appliances; but the price is generally higher. Another option is becoming an expert in all or a part of your business and being the "go to" company for information in that area. Professionals often write articles or give talks at local libraries, etc. Doing volunteer work with a high profile is an option for more than a few businesses. In some cases you can offer for free or for an additional charge services you've become experienced in. The best approach will depend on your business and product or service.

 

June 23, 2015

News

The IRS has released proposed regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people with disabilities who became disabled before age 26. The Achieving a Better Life Experience (ABLE) account provision was signed into law in December 2014. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses. The new law authorizes any state to offer its residents the option of setting up an ABLE account. Alternatively, a state may contract with another state that offers such accounts. The account owner and designated beneficiary of the account is the disabled individual. Contributions in a total amount up to the annual gift tax exclusion amount, currently $14,000, can be made to an ABLE account on an annual basis, and distributions are tax-free if used to pay qualified disability expenses. These are expenses that relate to the designated beneficiary’s blindness or disability and help that person maintain or improve health, independence and quality of life. For example, they can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other expenses. The IRS will develop two new forms that ABLE account programs will use to report relevant account information annually to designated beneficiaries and the IRS--Form 1099-QA for distributions and Form 5498-QA for contributions.

The IRS has issued draft versions of the following forms:

1095-A Health Insurance Marketplace Statement
1095-B Health Coverage
1095-C Employer-Provided Health Insurance Offer and Coverage
5498-QA ABLE Account Contribution Information

Tip of the Day

Failure to claim reimbursement for casualty losses . . . If your property is covered by insurance, you must file a claim for reimbursement, otherwise, you cannot deduct the loss as a casualty or theft loss. This rule does not apply to the portion of the loss not covered by insurance, e.g., a deductible. For example, you incur $4,000 of wind damage to your home. Your policy has a 5% deductible for such damage so you would not be able to recover anything even if you filed a claim. If you won't be filing a claim with your insurance company, be sure to document the claim by taking photos, filing a police report, etc.

 

June 22, 2015

News

On June 17, 2015 the disaster notice for victims of the severe storms, tornadoes, straight-line winds and flooding that took place beginning on May 4, 2015 in parts of Texas (see IRS Announces Relief for Victims of Severe Storms, Tornadoes and Flooding in Texas for complete details) has been updated to include additional counties. It now includes the counties of Bastrop, Blanco, Caldwell, Cooke, Dallas, Denton, Eastland, Fort Bend, Fannin, Gaines, Grayson, Guadalupe, Harris, Hays, Henderson, Hidalgo, Johnson, Liberty, Milam, Montague, Navarro, Nueces, Rusk, Smith, Travis, Van Zandt, Walker, Wichita, Williamson, and Wise.

The IRS has announced that for all estate tax returns filed on or after June 1, 2015, estate tax closing letters will be issued only upon request by the taxpayer. The IRS wait at least four months after filing the return to make the closing letter request to allow time for processing. Some returns filed on or after January 1, 2015 and before June 1, 2015 may not automatically receive a closing letter. For questions about estate tax closing letter requests, call (866) 699-4083. For more information on the new rules go to Frequently Asked Questions on Estate Tax.

Tip of the Day

Keep those shelves stocked . . . Empty shelves in a retail store aren't good for business. First, they can convey an eerie feel to customers. There's something strange about seeing empty shelves. The same is true of shabby decorating. (Some years ago we commented to a friend on the very worn carpets in a major department store at Christmas time. Sure enough, six months later the chain declared bankruptcy.) You could be scaring off customers. Second, customers come into a store expecting certain merchandise to be there. A rain check may work if someone shows up on the last day of a sale for a item. On the other hand, being out of a popular item that should be there (e.g., milk and bread at a grocery store; oil and oil filters in an automotive store; etc.) will surely be annoying. Perhaps enough so to drive the customer to a competitor.

 

June 19, 2015

News

The IRS has announced (IR-2015-90) nearly 44,000 tax return preparers participated in the Annual Filing Season Program in its first year. The voluntary program was announced a year ago and designed to encourage continuing education (CE) and filing season readiness. This year and in future years, return preparers will generally need to complete 18 hours of continuing education including a six-hour refresher course, 10 hours on federal tax law topics and two hours of ethics. Some return preparers who have passed certain recognized national or state tests are exempt from the six-hour refresher course and can participate in the program by taking 15 hours of continuing education. Beginning Jan. 1, 2016, rules about who may represent clients before the IRS will change. Attorneys, certified public accountants, and enrolled agents will continue to have full representation rights for all clients before all IRS offices. Annual Filing Season Program Record of Completion holders will have limited representation rights, meaning they can represent clients whose returns they prepare and sign, but only before examination, customer service representatives, and the Taxpayer Advocate Service. (To have limited representation rights, you must participate both in the year of return preparation and the year of representation.) Other tax return preparers who do not participate in the Annual Filing Season Program will not be permitted to represent any clients before the IRS for tax returns and claims for refund prepared and signed after Dec. 31, 2015.

Generally, the IRS is presumed correct when it asserts a tax deficiency. There are some exceptions, notably in the case of fraud and asserting penalties. The burden of proof can be shifted to the IRS if the taxpayer produces credible evidence with respect to any factual issue and the taxpayer has maintained all records required and has cooperated with reasonable requests of the IRS. And there's another way. In Denise Celeste McMillan (T.C. Memo. 2015-109) under Tax Court Rule 142 the IRS bore the burden of proof on all issues because it raised these issues for the first time in its answer to the taxpayer's petition. The IRS failed to meet its burden on two issues and the Court allowed the taxpayer to deduct 50 percent of claimed legal fees as a business deduction because they related to a condominium which she used 50 percent for business.

Tip of the Day

Need to change your will? . . . There are a number of reasons for you to review your will--marriage, divorce, death of a spouse or other beneficiary, birth of a child, grandchild or other relative, etc. Your tax advisor or attorney may recognize the need if he or she is familiar with you personally. But one reason for a review might be missed by both you and a professional with whom you normally deal. The change is a substantial increase or decrease in the value of one or more assets or a change in form (from the cash in that TOD account to a vacation home). A change either way could make you want to reallocate your bequests, change your tax strategy, etc. Talk to your tax advisor or attorney.

 

June 18, 2015

News

Victims of a severe storms, tornadoes, straight-line winds and flooding that took place on May 5, 2015, in parts of Oklahoma may qualify for tax relief from the IRS. The affected counties include Atoka, Beckham. Bryan, Caddo, Canadian, Cleveland, Comanche, Grady, Johnston, Kiowa, Le Flore, Marshall, McClain, McCurtain, McIntosh, Oklahoma, Pittsburg, Pottawatomie, Seminole, and Wagoner. Certain deadlines falling on or after May 5, and on or before August 31 have been postponed to August 31, 2015. For more details go to IRS Disaster Relief

The IRS has issued a Small Business/Self-Employed Memorandum (SBSE-04-0615-0045) providing interim guidance related to the abatement of the failure to deposit penalty for taxpayers who are unable to get a bank account or make other arrangements for depositing their tax deposit obligations which are required to be made by electronic funds transfer. This includes corporate income taxes, excise taxes, and employment taxes. Taxpayers may establish reasonable cause by providing facts and circumstances showing that he or she exercised ordinary business care and prudence. To request relief a taxpayer must explain his or her attempts to get a bank account and must include any corroborating documentation such as denied applications, correspondence from banks, etc.

If you lose your case in Tax Court you can appeal to a higher court, but that doesn't stay collection and you'll have to pay the tax or post a bond. In Sivantharan Natkunanathan (T.C. Memo. 2015-106) the settlement officer sustained a proposed levy because the taxpayer did not propose a collection alternative or provide financial information. The taxpayer's argument that he was appealing to the U.S. Supreme Court was incorrect because he failed to file his petition on time. The Court granted the IRS summary judgment in finding the there was no abuse by the settlement officer in sustaining the levy and affirmed the proposed collection action.

Tip of the Day

Electronic filing? . . . Generally it's a great time-saving tool. You don't have to go to the post office, you've got instant confirmation, etc. But there can be a downside. If the state or federal system is down for maintenance you may still be responsible for the filing deadline. And there are no excuses if your internet connection is down. In some cases the date for determining the start of a penalty is when your account is debited and that can be one or two days after you send your return. So to be on the safe side file a day or two early.

 

June 17, 2015

News

The IRS has issued final regulations (T.D. 9725) that provide guidance under Sec. 2010 and 2505 on the estate and gift tax applicable exclusion amount, in general as well as on the applicable requirements for electing portability of a deceased spousal unused exclusion (DSUE) amount to the surviving spouse and on the applicable rules for the surviving spouse's use of the DSUE amount. The statutory provisions underlying the portability rules were enacted as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and these provisions were made permanent by the American Taxpayer Relief Act of 2012. The portability rules affect the estates of married decedents dying on or after January 1, 2011, and the surviving spouses of those decedents.

The U.S. Treasury Department's Community Development Financial Institutions Fund (CDFI Fund) reported that more than $3.5 billion in New Markets Tax Credit awards aimed at stimulating investment and economic growth in low-income urban neighborhoods and rural communities will be allocated to a total of 76 organizations under the 2014 round of the program.

Tip of the Day

Lodging tax . . . A separate tax on hotel stays, bed and breakfasts, etc. is common among the states. In many cases the tax is several percentage points higher than the regular sales tax, but the concept is the same. The tax doesn't apply to long-term stays, but the definition varies among the states. If you're renting out your vacation home on a short-term basis-- often 7 days or less--the tax may apply to you. The same caution applies if you're renting a room in your home to guests using one of the new on-line services. Checking the rules in your state should be pretty simple.

 

June 16, 2015

News

The IRS has issued final regulations (T.D. 9724) regarding the summary of benefits and coverage (SBC) and the uniform glossary for group health plans and health insurance coverage in the group and individual markets under the Patient Protection and Affordable Care Act. It finalizes changes to the regulations that implement the disclosure requirements under section 2715 of the Public Health Service Act to help plans and individuals better understand their health coverage.

Revenue Procedure 2015-37 (IRB 2015-26) informs taxpayers that the IRS will not issue letter rulings or determination letters regarding whether the assets in a grantor trust receive a Section 1014 basis adjustment at the death of the deemed owner of the trust for income tax purposes when those assets are not includable in the gross estate of that owner under chapter 11 of subtitle B of the Internal Revenue Code.

The IRS has announced (IR-2015-88) that all empowerment zone designations remained in effect through the end of 2014. Empowerment Zones are certain urban and rural areas where employers and other taxpayers qualify for special tax incentives. This announcement primarily affects businesses that would benefit from claiming the tax incentives for empowerment zones on their 2014 returns, either original or amended. The IRS issued Notice 2015-26 in March to address the relevant provision of the Tax Increase Prevention Act of 2014. The notice provided that any nomination for an empowerment zone in effect on Dec. 31, 2013, will have a new termination date of Dec. 31, 2014, unless the governing state or municipality declined the extension in a notification to the IRS. The deadline for notification was May 11, 2015, and no state or municipality contacted the IRS to decline the extension. Therefore, all empowerment zone designations in effect on Dec. 31, 2013, remain in effect through Dec. 31, 2014. This is the third extension of the expiration date.

Tip of the Day

Transferee liability . . . The rules vary from state to state but the general idea is that corporations, LLCs and certain other entities where the owners are generally not held personally liable for the debts of the entity can be liable if the entity transfers assets to the owners for less than full consideration and that causes the entity to become insolvent. For example, Madison Inc. owes the IRS $65,000. Madison's only assets are six trucks worth $90,000. Madison transfers the trucks to Fred, the company's sole shareholder for $5,000. Fred could be liable for the $65,000 owed the IRS. While we used the IRS as the creditor, it doesn't matter if the creditor is the IRS, the state, a bank, a vendor, etc. The situation is not that unusual for small businesses which are often capitalized heavily by debt. You should be careful with any distributions when the corporation is, or is close to be, insolvent. Get good legal advice.

 

June 15, 2015

News

A House Appropriations Subcommittee has approved an IRS funding bill for fiscal year 2016 that cut the IRS budget another $838 million from the fiscal year 2015 budget. The proposed budget is some $2.8 billion less than that requested by President Obama. The bill does include an increase for improving taxpayer assistance.

The IRS has issued final and temporary regulations (TD.DD. 9722) that prevent a corporate partner from avoiding corporate-level gain through transactions with a partnership involving equity interests of the partner. These regulations affect partnerships and their partners. The text of these temporary regulations serves as the text of proposed regulations (REG-149518-03).

Tip of the Day

Scan documents . . . Years ago scanners were expensive. The same was true of computer memory. That's no longer true. You can now buy a multifunction machine (fax, copy, scan, print) for less than $200 that should give you several years' service even with moderately heavy use. There are other reasonably priced machines for automatically scanning business documents such as receipts. There's no reason you shouldn't be able to scan virtually all your business records and store on an outboard disk or flash drive. If you keep your accounting records on an accounting program you can save the files; no hard copy is needed. You can do the same for business and personal tax returns, or ask your accountant for the files. Most tax software can create PDF files. Scan documents on a regular basis, at least monthly. Make two copies. Each disk will be identical except that one will be one month behind the other. For example copy 1 would be on site; copy 2 in a safe location. Once copy 1 is up to date send it off site and retrieve copy 2 for backing up with the latest files. That way in a worst case scenario you'll only be out a month's data should there be a catastrophe. Ask your accountant for additional guidance.

 

June 12, 2015

News

The IRS has joined with representatives of tax preparation and software firms, payroll and tax financial product processors and state tax administrators to announce a sweeping new collaborative effort to combat identity theft refund fraud and protect the nation's taxpayers. The agreement includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. IRS News Release IR-2015-87 details a number of new steps that will be taken to authenticate the taxpayer, gather the IP address of the sending computer, check the time to complete a return to test for computer mechanized fraud, etc.

The IRS has issued proposed amendments (REG-101652-10) to the consolidated return regulations. These amendments would revise the rules concerning the use of a consolidated group's losses in a consolidated return year in which stock of a subsidiary is disposed of.

Tip of the Day

Inadvertent termination of pension plan? . . . It can happen. Employee turnover that's a result of layoffs from economic factors or the closing of a plant or even a disaster such as a fire (if the employer decides not to rebuild) at the factory can trigger a partial termination. And the threshold is only 20% of the participants in the plan. The threshold could be even less if it's the result of egregious abuse by the employer. Voluntary terminations aren't generally included in determining the threshold unless the employer makes it difficult for an employee to continue to work. This is a complex area. If you even think the rules might apply, get professional guidance.

 

June 11, 2015

News

The IRS has made several changes to the Form 5500 series forms. For a chart go to Changes to Forms 5500 For 2014.

The Senate has approved the Defending Public Safety Employees' Retirement Bill which would provide an exception to the 10-percent penalty for early distributions from pension plans to public safety officials allowing them to receive retirement savings at age 50 if they have 20 years of service. A companion bill was passed by the House by a vote of 407 to 5 in May.

A receipt and a canceled check may not be sufficient to support a deduction. In Zetina Renner et vir T.C. Memo. 2015-102 the IRS denied the taxpayers deductions for business travel and medical expenses. Mileage logs were not prepared on a contemporaneous basis and lacked information on the business purpose of the travel. The wife's log did not provide the names and addresses of customers or businesses visited or the purpose of the trips. Medical expenses were denied because they did not specify the name of the patient, the medical purpose of the service, the medical purpose for the expense, nor the doctor. The Tax Court sided with the IRS in denying the deductions. Tip of the Day

Form 8938 and FinCEN Form 114 . . . The IRS is again reminding taxpayers with foreign financial accounts or foreign assets that they must file Form 8938 (with their Form 1040) or FinCEN Form 114 (by June 30). The two forms are different with different filing thresholds and asset types and you might have to file both. The filing threshold for FinCEN Form 114 is only $10,000 and you only have to have a financial interest in the account or signatory authority. The account doesn't have to be in your name. The penalties for failing to file are steep--they can start and $10,000--more for willful failure to file. For a comparison chart and some basic information go to Comparison of Form 8938 and FBAR Requirements.

 

June 10, 2015

News

On June 8, 2015 the disaster notice for victims of the severe storms, tornadoes, straight-line winds and flooding that took place beginning on May 4, 2015 in parts of Texas (see IRS Announces Relief for Victims of Severe Storms, Tornadoes and Flooding in Texas for complete details) has been updated to included the counties of Bastrop, Blanco, Caldwell, Denton, Eastland, Fort Bend, Gaines, Guadalupe, Henderson, Hidalgo, Johnson, Milam, Montague, Navarro, Rusk, Smith, Travis, Wichita, Williamson, and Wise.

You may be able to recover your litigation costs if you are the prevailing party in a dispute with the IRS. But you have to meet certain other criteria, one is that the IRS's position cannot be substantially justified. In Howard W. Mylander et ux. (T.C. Memo. 2015-100) the IRS argued its position was substantially justified because the taxpayers did no provide all relevant information under their control until after the answer was filed and that, regardless of the documents provided, its position was substantially supported by the legal precedent. The Court sided with the IRS, finding that the taxpayers did not provide the documents relevant to their defense in a timely manner. In addition, the taxpayers did not identify any case as legal authority until some 10 months after the answer had been filed.

Tip of the Day

Good manager? . . . There are plenty of individuals who think they're good managers, but they're not. Being a manager is much more than technical skills. You might be an expert in all areas of the company's operation, but that doesn't guarantee you're a good or even an adequate one. Expertise in managing and technical skills don't necessarily go together. If you're in charge of promoting, you should be aware of the difference. It's not unusual for the founder of a company to assume he's the best manager for the firm--but that might not be the case and he should recognize that and step aside for a more qualified individual.

 

June 9, 2015

News

Revenue Procedure 2015-36 (IRB 2015-25) modifies Rev. Proc. 2011-49 by expanding the scope of the pre-approved program to include defined benefit plans containing cash balance features and defined contribution plans containing employee stock ownership plan (ESOP) features and extends the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans to October 30, 2015. In addition, this revenue procedure updates Rev. Proc. 2011-49 to reflect changes made to the determination letter program in 2012. Rev. Proc. 2011-49 is superseded.

The government likes its money up front. In Michael H. Stough et ux. (144 T.C. No. 16) the taxpayers constructed a commercial building and entered into a 10-year lease with the lessee. The lease required the lessee to pay monthly rent to the taxpayers. The leased provided the lessee with the unilateral option to make a one-time payment to the taxpayers to be used in the calculation of rent and thus reduce the amount otherwise owed under the lease. In 2008 the lessee elected to make a $1 million payment to the taxpayers pursuant to the terms of the lease. The IRS argued the $1 million payment was rental income and reportable in the year received. The taxpayers argued that the $1 million payment is not rental income. Alternatively they argued that pursuant to Sec. 467 the $1 million payment received is reportable as rental income ratably over the 10-year life of the lease. The Tax Court held the $1 million was rental income in the year received. The Court further held that Sec. 467(b)(1)(A) provides that the amount of rent under any Sec. 467 agreement shall be determined by allocating rents in accordance with the agreement. If a rental agreement does not provide a specific allocation of fixed rent the amount of fixed rent allocated to a rental period is the amount of fixed rent payable during that rental period. The lease stated only when rent is payable and did not specifically allocate rent. Finally, the Court held that under Sec. 1.467-1(d)(2)(i) and (ii) the constant rental accrual and proportional rental accrual methods are inapplicable to the lease at issue.

Tip of the Day

Commissions and quotas . . . Some salesmen are on straight salary, many are at least partly dependent on commissions for their earnings. And many have quotas. When a salesman has to meet a quota or gets paid on commission he's got more incentive to work for himself. That can be bad if you're the customer. It can be especially bad if you're making a big investment where you aren't getting independent advice, you're dealing in an area you have little or no knowledge, and the investment is substantial. While a new home is a huge investment, you're almost assuredly getting a bank loan. The bank wants to protect its interest so there will be an appraisal, termite inspection, title insurance, etc. Buying a car? You can check the ratings in a consumer magazine; maybe not perfect but you'll likely avoid a real lemon. Buying stocks from your broker? An annuity from an insurance salesman? There's probably little or no guidance that you can easily tap and the investment can be substantial. In fact, on a percentage of investment basis, it's probably more expensive to get out of an annuity than a house. Consider a second opinion from an independent advisor such as a Certified Financial Planner before investing. Have your tax return done by a CPA? Many are very knowledgable about a broad range of investment vehicles.

 

June 8, 2015

News

The IRS has issued final regulations (T.D. 9721) under Section 382 that modify the effective date provision of recently published regulations. These regulations affect corporations whose stock is or was acquired by the Department of the Treasury pursuant to certain programs under the Emergency Economic Stabilization Act of 2008.

Turn in your employer, ex-spouse, etc. to the IRS and if they recover taxes or other payments based on your information you could end up with an award based on the percentage of the amount they collect. In Whistleblower 21276-13W (144 T.C. No. 15) the petitioner-husband (P-H) was arrested for participating in a conspiracy to launder money. The minimize his punishment he informed Government agents including IRS agents that a foreign business assisted U.S. taxpayers in evading income tax. He told the government that the business had no presence in the U.S. and told its employees to stay out of the U.S. While P-H did not have information to inculpate the business, he knew someone who could. P-H and his wife P-W designed a plan to induce the individual to come to the U.S. With the aid of this individual, the business pleaded guilty and paid the U.S. approximately $74 million. The petitioners filed separate Forms 211, Application for Award for Original Information with the IRS Whistleblower Office, seeking awards under Sec. 7623(b). The forms were filed after the business pleaded guilty and paid the fine. The IRS rejected the claim noting the forms were filed after the proceeds were collected and sent the petitioner a letter rejecting the award stating that no proceeds were collected using the information the petitioners provided. The Tax Court held that the Tax Relief and Health Care Act of 2006 does not endow the Whistleblower Office with exclusive authority to investigate the individual or entity that is the subject of an application for an award. The fact that the petitioners supplied their information to other Federal agencies, including an IRS operating division, before submitting the information to the Whistleblower Office on Form 211 does not, as a matter of law, render the petitioners' ineligible for an award.

Tip of the Day

Deferral of gain . . . A like-kind exchange will defer the gain on the disposition of an asset. You can also defer the gain on an asset destroyed in a casualty (e.g., your building is destroyed in a fire and you use the insurance proceeds to build or buy a new one) or condemned by a state or municipal government. But what are your options if only a portion of the property is destroyed or condemned? For example, you operate a trucking business with a large warehouse on one acre of land surrounded by six acres for truck parking. The city takes the six acres of land used for parking but not the acre with the building. Clearly, the property is no longer useful to you since there's nowhere to park the trucks. That was the situation in Masser (30 T.C. 741) where the Court found that the properties were so closely related economically that the taking of one part was the same as the taking of the whole. In a recent letter ruling one part of an apartment complex was destroyed by a hurricane; the other, though damaged, could be repaired. The IRS held that the cost to rebuild would have made the project economically unfeasible. Thus, the gain on the sale could be deferred. Whether or not you may qualify for such treatment will depend on the facts and circumstances. Get expert advice.

 

June 5, 2015

News

The Internal Revenue Service has announced (Rev. Rul. 2015-12; IRB 2015-26) that interest rates will remain the same for the calendar quarter beginning July 1, 2015. The rates will be:

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

The IRS has issued final regulations (T.D. 9720) regarding when an expanded affiliated group will be considered to have substantial business activities in a foreign country (Sec. 7874). These regulations affect certain domestic corporations and partnerships (and certain related parties) and foreign corporations that acquire substantially all of the properties of such domestic corporations or partnerships.

Victims of a severe storms, flooding, landslides, and mudslides that took place from April 13 to 15, 2015 (FEMA-4221-DR), in parts of West Virginia may qualify for tax relief from the IRS and be able to deduct the losses on their 2014 federal income tax return. The affected counties are Cabell, Calhoun, Greenbrier, Jackson, Pleasants, Roane, Summers and Wirt.

How payments to the IRS are applied can be critical. In Kathy L. Riggs (T.C. Memo. 2015-98) the petitioner failed to collect and remit employment taxes on behalf of a corporation that she controlled. This corporation's successor-in-interest, a second corporation, eventually entered Chapter 11 bankruptcy and made several adequate protection payments to the IRS. These payments were made by checks which indicated they were to be applied against the petitioner's personal liability for the trust fund recovery penalty. The IRS, however, applied the amounts against the corporation's tax debt and initiated collection action against the petitioner. At the petitioner's collection due process hearing, the Appeals officer denied the petitioner currently not collectible (CNC) status. The petitioner appealed the determination to the Tax Court. The Court found it had jurisdiction because the bankruptcy stay applicable to the corporation did not apply to her as an individual. The Court also held that the petitioner was not entitled to CNC status because of the equity in her assets and that the IRS correctly applied the payments against the corporate tax liability.

Tip of the Day

Workers' compensation insurance . . . Depending on your line of business, the premiums can be a nominal cost or a huge burden. If all your employees work in the office on clerical functions the premiums per employee are hardly noticed. On the other hand, in some risky businesses the premiums can approach an employee's salary. But doing without can be even more costly. We know of one state that has a minimum $5,000 fine for being without coverage for any part of a month. Check the rules in your state. Some states don't require coverage if the only employees are shareholders or owners. Your insurance agent should be able to help with the details.

 

June 4, 2015

News

Section 7543 provides that Tax Court proceedings are conducted in accordance with the rules of evidence applicable in trials without a jury in the U.S. District Court of the District of Columbia. The Federal Rules of Evidence which incorporate the common law rules of attorney-client privilege apply to the proceedings in that court. The attorney-client privilege applies to communications made in confidence (1) by a client to an attorney for the purpose of obtaining legal advice and (2) by an attorney to a client, where the communication contains legal advice or reveals confidential information regarding the client's request for advice. But the privilege does come with rules and restrictions. The proponent must conclusively prove each element of the privilege. The Tax Court has generally required the submission of a privilege log whenever a party asserts the privilege over a large number of documents. A privilege log must set forth facts that establish, as to each document, each element of the claimed privilege. In Pacific Management Group, BSC Leasing, Inc., Tax Matters Partner, et al. (T.C. Memo. 2015-97) the Court found the privilege log kept contained no information about the subject of the allegedly privileged communications. The Court granted the IRS's motion to compel production of the documents in question.

You don't have to be the CFO, CEO, shareholder, partner etc. of a company to be held responsible for employment taxes. In Scott B. Gann (U.S. Court of Federal Claims) the Court found that because an individual had ultimate control over the finances of the entity as its controlling shareholder, funder, only corporate director, and personal guarantor he was a responsible person and personally liable for the entity's unpaid taxes. The Court granted summary judgment to the IRS on that issue. However, there remained material questions of fact as to what the individual knew and when he knew it. The Court denied the IRS summary judgment as to the IRS's request as to the question of the individual's willful failure to pay.

Tip of the Day

Buying real property? . . . There's a good chance the property will be reassessed not long after title changes. In most cases the new assessment is likely to be higher. You should be prepared for the change and be prepared to dispute it.

 

June 3, 2015

News

FEMA has amended three disaster notices--Connecticut (FEMA-4213-DR), Georgia (FEMA-4215-DR), and Kentucky (FEMA-4317-DR). The Connecticut notice now includes the county of New Haven; the Georgia notice now includes Hart County; and the Kentucky notice includes Floyd, Lincoln, Nicholas, Owen, Pike, Spencer and Whitley Counties.

The sale of real property can result in ordinary income, if held for sale in the normal course of business, or capital gain if held for investment. Usually the correct result is clear. But where the seller is engaged in property development or other real estate activities, that's not always the case. In Victor Fargo and Virginia King (T.C. Memo. 2015-96) the taxpayers were partners in a partnership that was in the real estate business. The real estate business was conducted through a partnership and several other entities. The taxpayers argued that one of the properties in question was held for investment. Some of the factors the Court examined favored capital gain treatment and some suggested ordinary income treatment. But the Court found that, based on the fact that the taxpayer was continuously increasing its developments efforts and that they continually engaged in efforts to plan and develop the property up until the sale that the intent to develop the property was never abandoned and remained the primary motive for holding the property.

Tip of the Day

Identity theft checklist . . . Need a list of actions you should take if you think your identity has been compromised? The Federal Trade Commission has posted a page with list of steps you should take. It doesn't cover every possibility, but it comes close. Unless you've been through this before, it's the first place you should go. You can find the site at IdentityTheft.gov.

 

June 2, 2015

News

Victims of the severe storms, tornadoes, straight-line winds and flooding that took place beginning on May 5, 2015 in parts of Oklahoma may qualify for tax relief from the Internal Revenue Service. Following recent disaster declarations for individual assistance issued by FEMA, the IRS has announced that affected taxpayers in Oklahoma will receive tax relief, and other locations may be added in coming days based on additional damage assessments by FEMA. The President has declared Cleveland, Grady, and Oklahoma counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 5, and on or before Aug. 31, have been postponed to Aug. 31, 2015. This includes the May 15 deadline for many tax-exempt organizations to file their annual Form 990. It also includes the June 15 deadline for making quarterly estimated tax payments. A variety of business tax deadlines are also affected including the July 31 deadline for quarterly payroll and excise tax returns. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief. For more details go to Tax Relief for Severe Storms, Tornadoes, Straight-Line Winds and Flooding in Oklahoma.

Revenue Procedure 2015-32 establishes a permanent program providing administrative relief to plan administrators and plan sponsors of certain retirement plans from the penalties otherwise applicable under Secs. 6652(e) and 6692 for failing to timely file Form 5500-EZ. The new program, which begins June 3, 2015, generally follows the pilot program under Rev. Proc. 2014-32 which expires on June 2, 2015. The program provides relief for certain small business owner-spouse plans and plans of business partnerships and foreign plans. The most significant change of the new program is a $500 fee for each delinquent return (to a maximum of $1,500 per plan).

Revenue Procedure 2015-33 (IRB 2015-24) clarifies several items in Rev. Proc. 2015-13, regarding certain procedures for changing a method of accounting. Specifically, this revenue procedure (1) modifies the transition rules under section 15.02(1)(a)(ii) of Rev. Proc. 2015-13 to provide additional time to file Forms 3115 under Rev. Proc. 2011-14; (2) clarifies when the automatic change procedures do not apply if the taxpayer engages, within the requested year of change, in a transaction to which Sec. 381(a) applies; (3)clarifies the meaning of "three-month window" under section 8.02(1)(a)(ii) of Rev. Proc. 2015-13 for a taxpayer with a 52-53 week taxable year; and (4) discusses a clarification to the applicable Ogden, UT, address provided in section 9.05 of Rev. Proc. 2015-1.

Tip of the Day

Need a mortgage broker? . . . Maybe, maybe not. A mortgage broker can be a big help if your credit is less than stellar, there's a special situation involved such as problems with the property, you can't afford to put much down, etc. You may not need a broker if you've got a great credit score, the house will appraise at well above the selling price, you've got time to shop for a loan, etc. The same is true of many other intermediaries. Selling a home in a neighborhood that's particularly attractive? You may be able to sell the property on your own. Doing it yourself makes even more sense if you've been through the process several times before, are aware of any technical issues, and have the time. Be sure you can recognize when it's time to call in the pros.

 

June 1, 2015

News

Victims of a severe storms, flooding, landslides, and mudslides that took place from April 3 to 5, 2015 (FEMA-4219-DR), in parts of West Virginia may qualify for tax relief from the IRS and be able to deduct the losses on their 2014 federal income tax return. The affected counties are Boone, Cabell, Lincoln, Logan, Mingo, and Wayne. In addition, taxpayers affected by severe storms, flooding, landslides and mudslides during the period April 8 to 11, 2015 (FEMA-2220-DR) in the counties of Braxton, Brooke, Doddridge, Gilmer, Jackson, Lewis, Marshall, Ohio, Pleasants, Ritchie, Tyler and Wetzel may deduct losses incurred on their 2014 return.

Notice 2015-40 (IRB 2015-24) requests comments regarding the effect of the new revenue recognition standards on taxpayers’ methods of tax accounting. Comments are due on or before September 16, 2015. (In 2014 the Financial Accounting Standards Board and the International Accounting Standards Board announced new financial accounting standards for recognizing revenue.)

Identity theft continues to be a serious and evolving issue which has a significant impact on tax administration. Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in the Federal tax system. In an audit, the Treasury Inspector General for Tax Administration (TIGTA) found that efforts continue to result in increased detection and prevention of identity theft tax returns. Nonetheless, the extent of the IRS’s ability to stem this problem is still limited because it does not have access to third-party income and withholding information until well after tax return filing begins. The IRS continues to propose legislation to accelerate and expand its access to data that would further improve its detection efforts. TIGTA’s analysis of Tax Year 2012 tax returns identified 787,343 undetected potentially fraudulent tax returns with tax refunds totaling more than $2.1 billion that have the same characteristics as IRS-confirmed identity theft tax returns. In addition, TIGTA’s analysis continues to identify multiple tax returns with the same addresses and/or bank accounts which were not identified by the IRS’s cluster-filtering tool. Lastly, Individual Taxpayer Identification Numbers continue to be used to file potentially fraudulent tax returns. TIGTA identified more than 140,000 Tax Year 2012 tax returns filed by individuals using an Individual Taxpayer Identification Number that have the same characteristics as IRS-confirmed identity theft tax returns. These tax returns resulted in the issuance of approximately $375 million in potentially fraudulent tax refunds. For the full report go to www.treas.gov/tigta/auditreports/2015reports/201540026fr.html.

Tip of the Day

Record retention . . . It's a question that's often asked of CPAs. How long do you need to keep information. Generally the statute of limitations is three years from the due date, or if a return is filed later, three years from the filing date. (There are exceptions to the rule for substantial understatements and for fraud.) But there are special rules for some returns. For example, employment tax returns reporting FICA taxes and income tax withholdings (e.g., Form 941) that are filed prior to April 15 for the prior calendar year are deemed filed on April 15. For example, your 941 for the second quarter 2015 is due July 31. It's deemed filed April 15, 2016. If you simply follow the three-year rule you'll have tossed your documentation early. It might be simpler to just add a safety factor to your redemption period. Keep in mind that your state may have a different retention period and payroll and employment records are often subject to longer holding periods.

 


Copyright 2015 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536


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