Tax Strategy: The ACA Marches On

Originally Published in ACCOUNTINGTODAY.COM

The Supreme Court’s recent King v. Burwell decision upheld the availability of the Code Sec. 36B refundable credit for premiums paid for health insurance purchased on Federal Exchanges. In doing so, the decision not only helps preserve the immediate viability of Federal Exchanges, but also the necessary mechanisms that make the continued imposition of the so-called individual mandate feasible. Indirectly, it also helps small businesses and their employees better cope with health care costs, although possessing some traps of their own.

In many ways, the fate of the Sec. 36B credit, the individual mandate, and small businesses in coping with health care costs are now more intertwined than ever, with certain tensions among them becoming more readily apparent. In this month’s column, we review some of the fundamentals of those relationships, as well as some recent developments, with a particular focus on small businesses and their employees.


While the employer mandate is phased in based upon workforce size, the individual mandate has been in place for everyone since 2014. And although a small business with fewer than 50 employees may never be subject to the employer mandate, its employees are generally nevertheless subject to the individual mandate.

Enforcement of the individual mandate is accomplished through an incremental penalty structure. The amount of the penalty is generally the greater of a flat dollar amount or a percentage of the taxpayer’s income, but it cannot exceed the annual average premium the taxpayer would pay for health insurance.

The flat dollar amount and the applicable percentage associated with computing the individual mandate are both phased in during 2014 through 2016. The flat dollar amount is $95 for 2014, $325 for 2015, and $695 for 2016; it is then adjusted each year for inflation. The percentage of income is a phased-in percentage of the amount of the taxpayer’s household income that exceeds the taxpayer’s filing threshold (1 percent in 2014, 2 percent in 2015 and 2.5 percent thereafter). The penalty is imposed on applicable individuals for each month that they fail to have minimum essential health coverage for themselves and their dependents.

  • Payment. The individual mandate penalty is paid with the taxpayer’s tax return, but the Internal Revenue Service cannot use liens, levies or criminal prosecutions to collect it. The penalty is coordinated with the premium assistance credit, which is intended to help defray the cost of health insurance purchased on the individual market by taxpayers with household incomes between 100 percent and 400 percent of the federal poverty line.
  • Grandfathered plans. Grandfathered plans are generally unaffected by health care reform. A grandfathered health plan is generally any group health plan or health insurance coverage in which an individual is enrolled on March 23, 2010 (the date the Patient Protection and Affordable Care Act was enacted). The covered individual’s family members can generally continue to enroll in the grandfathered plan, and an employer’s grandfathered plan can continue to enroll new employees.


The penalty that enforces the individual mandate is coordinated with the Code Sec. 36B premium assistance credit, which is intended to help defray the cost of health insurance purchased on the individual market by taxpayers with household incomes between 100 percent and 400 percent of the federal poverty line. The Sec. 36B credit allows those who cannot otherwise “afford” premiums on a basic ACA-compliant health plan a way to do so.

An employee who qualifies for the Sec. 36B credit to buy insurance on an exchange may trigger an employer-mandate penalty, but only if the employer is an applicable large employer (generally, a business with 50 or more full-time and full-time-equivalent employees).

For 2015, employers with at least 50 but fewer than 100 full-time employees, including full-time-equivalent employees, may be eligible for transition relief (TD 9655). The IRS imposed a number of requirements that employers must satisfy before they may be eligible for the transition relief. Under the transition relief employers with 100 or more full-time employees, including full-time-equivalent employees, may only be required to provide coverage to 70 percent, instead of 95 percent, of qualified employees in 2015.

The government may pay an advanced Code Sec. 36B credit amount directly to the insurer to reduce the taxpayer’s out-of-pocket premium cost, in which case the advance credit payments and the annual credit amount must be reconciled on the taxpayer’s return. Individuals refer to the information on Form 1095-A to complete Form 8962. On that form, individuals will calculate the amount of their credit and subtract the total amount of advance payments received.


The IRS finalized regulations last year on the Code Sec. 45R small-employer health insurance credit (TD 9672), another benefit to small businesses that indirectly helps their employees comply with the individual mandate. Generally, a qualified employer must have no more than 25 full-time-equivalent employees for the tax year; pay average annual wages of no more than $50,000 per FTE (indexed for inflation after 2013); and maintain a qualifying health care insurance arrangement. The tax credit is subject to a reduction (but not reduced below zero) if the employer’s FTEs exceed 10, or if average annual FTE wages exceed $25,000.

The credit is 50 percent of the eligible small employer’s premium payments made on behalf of its employees under a qualifying arrangement (35 percent for small tax-exempt employers).

An employer claiming the Code Sec. 45R credit must obtain coverage through the Small Business Health Options Program Marketplace or be eligible for an exception. Amounts made available by an employer under, or contributed by an employer to, health reimbursement arrangements, health flexible spending arrangements, and health savings accounts are not taken into account for purposes of determining premium payments by the employer when calculating the credit.


Most individuals are applicable individuals, but there are several exceptions based on the taxpayer’s status, religious objections, and income. Transition relief was available for some individuals for 2014.

The individual mandate applies to applicable individuals, also known as “non-exempt individuals.” Applicable individuals do not include prisoners, foreign citizens and nationals, members of health care sharing ministries, and individuals with religious objections to health insurance. Exceptions also apply to Native Americans, short lapses in coverage, individuals who cannot obtain affordable coverage, and individuals whose household income falls below their tax return filing threshold.

Dependents and certain persons outside the United States are also effectively exempt from the penalty.

The exemptions, whether or not they were received through the Health Insurance Marketplace, are reported or claimed on Form 8965, Health Coverage Exemptions. A partial list of the exemptions includes: unaffordable coverage, short coverage gap, general hardship, income below the filing threshold, certain noncitizens, residents of states that did not expand Medicaid, and members of Indian tribes.

The IRS’s Web site has a complete list of exemptions, including information on how to obtain them, as recently advised in FS-2015-14.


A controversy has been brewing over what tax-favored assistance a small employer may provide to employees in maintaining health care benefits. Although not subject to the employer mandate now or in the future as long as the 50-employee-threshold is not crossed, some small employers may be currently unaware of the $100-per-employee-per-day excise tax ($36,500 per year) under Code Sec. 4980D for which they may now be liable for running pre-tax health reimbursement arrangements for employees.

The controversy has its origins in Notice 2013-54, which held that employers’ use of standalone HRAs to reimburse employees for health-care-related expenses may not satisfy the Affordable Care Act’s minimum benefit and annual dollar cap requirements for health insurance plans offered by employers. As a result, the IRS warned that employers that continued to offer such HRAs would be subject to a $100-per-day, per-employee penalty, up to $36,500 for the year per employee. The IRS also implied that reimbursements for premiums to non-ACA-compliant health plans, whether pre-tax or not, would be subject to the penalty if tied to compensation.

Although small businesses were not exempt from this dis-allowance rule, the consensus was that this posed a hidden trap for many small businesses that did not exactly have Affordable Care Act compliance on their radar, especially since the employer mandate did not apply to them. As an accommodation, Notice 2015-17 was issued earlier this year to provide transition relief from the excise tax through June 30, 2015, for employers that were not applicable large employers, or ALEs. Once June 30 rolled by, however, concern continued to be voiced that many small businesses were still unaware of their non-compliance, especially as it involved such a draconian penalty.

A bipartisan group of lawmakers recently introduced companion legislation in both chambers, the Small Business Healthcare Relief Bill (HR 2911; Senate 1697), that would roll back an IRS rule imposing fines on small businesses providing HRAs. The legislation would ensure that small businesses and local municipalities with fewer than 50 employees are allowed to continue using pre-tax dollars to give employees a defined contribution for health care expenses. It would also protect employers from being financially penalized for providing HRAs to employees. In addition, the measure would allow employees to use HRA funds to purchase health coverage on the individual market.


Notice 2015-43, issued last month, provides interim guidance and continuation of transition relief issued in March 2013 from the application of the Affordable Care Act with respect to expatriate health plans. Under the guidance, pending the issuance of proposed regulations, employers, plan sponsors, and individuals may apply the requirements of the Expatriate Health Coverage Clarification Act of 2014 using a reasonable good-faith interpretation. At year-end 2014, Congress passed and President Obama signed the EHCCA. Under the new law, expatriate health plans are generally exempt from the ACA. Additionally, the EHCCA treats coverage under an expatriate plan as minimum essential coverage for ACA purposes. The EHCCA applies to expatriate health plans issued or renewed on or after July 1, 2015. This new law applies whether the plan is sponsored by any employer, large or small.

* Minimum essential coverage. Coverage provided under an expatriate group health plan is a form of minimum essential coverage that satisfies the individual shared responsibility requirements under the individual mandate of Code Sec. 5000A. For purposes of the relief, an “expatriate health plan” is an insured group health plan with respect to which enrollment is limited to primary insureds who reside outside of their home country for at least six months of the plan year and any covered dependents, and its associated group health insurance coverage.


The Supreme Court decision in King v. Burwell preserves nationwide use of the Affordable Care Act’s Sec. 36B credit. However, it does not end questions of interpretation and applicability of certain rules. Particularly for small businesses and their employees, additional guidance from the IRS is anticipated, both to lessen the negative impact of those provisions and to help coordinate them as Congress intended.


Ten Things to Know about Identity Theft and Your Taxes

Originally Published in IRS.GOV

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here are ten things to know about ID Theft:

  1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it.Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
  2. Don’t Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
  3. Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
  4. Complete an IRS Form 14039 Identity Theft Affidavit.  Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit.  Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
  5. Understand IRS Notices.  Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
  6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.
  7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
  8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
  9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.
  10. Service Options.  Information about tax-related identity theft is available online. We have a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

For more on this Topic, see the Taxpayer Guide to Identity Theft.


Six Tips to Help You Pay Your Tax Bill this Summer

Originally Published in IRS.GOV

If you get a tax bill from the IRS, don’t ignore it. The longer you wait the more interest and penalties you will have to pay. Here are six tips to help you pay your tax debt and avoid extra charges:

1. Reply promptly.  After tax season, the IRS typically sends out millions of notices. Read it carefully and follow the instructions. If you owe, the notice will tell you how much and give you a due date. You should respond to the notice promptly and pay the bill to avoid additional interest and penalties.

2. Pay online.  Using an IRS electronic payment method to pay your tax is quick, accurate and safe. You also get a record of your payment. Options for electronic payments include:

Direct Pay and EFTPS are free services. If you pay by credit or debit card, the payment processing company will charge a fee.

3. Apply online to make payments.  If you are not able to pay your tax in full, you may apply for an installment agreement. Most people and some small businesses can apply using the Online Payment Agreement Application on IRS.gov. If you are not able to apply online, or you prefer to do so in writing, use Form 9465, Installment Agreement Request to apply. The best way to get the form is on IRS.gov/forms. You can download and print it at any time.

4. Check out a direct debit plan.  A direct debit installment agreement is the lower-cost hassle-free way to pay. The set-up fee is less than half of the fee for other plans. The direct debit fee is $52 instead of the regular fee of $120. With a direct debit plan, you pay automatically from your bank account on a day you set each month. There is no need for you to write a check and make a trip to the post office. There are no reminder notices from the IRS and no missed payments. For more see the Payment Plans, Installment Agreements page on IRS.gov.

5. Pay by check or money order.  Make your check or money order payable to the U.S. Treasury. Be sure to include:

  • Your name, address and daytime phone number
  • Your Social Security number or employer ID number for business taxes
  • The tax period and related tax form, such as “2014 Form 1040”

Mail it to the address listed on your notice. Do not send cash in the mail.

6. Consider an Offer in Compromise.  With an Offer in Compromise, or OIC, you may be able to settle your tax debt with the IRS for less than the full amount you owe. An OIC may be an option if you are not able to pay your tax in full. It may also apply if full payment will create afinancial hardship. Not everyone qualifies, so you should explore all other ways to pay before submitting an OIC. To see if you may qualify and what a reasonable offer might be, use the IRS Offer in Compromise Pre-Qualifiertool.

Find out more about the IRS collection process on IRS.gov.


Revenue Ruling 2015-13: 2016 Tax Deadline will be April 18 for Most Taxpayers

The Internal Revenue Service today issued guidance regarding the filing deadline for individual tax returns next year. The guidance clarifies the effect Emancipation Day and Patriots’ Day have on the filing deadline for individuals filing their returns in April 2016.

In most years, the filing deadline is April 15. In some years, the District of Columbia’s observation of Emancipation Day can affect the nation’s filing deadline (District of Columbia holidays impact tax deadlines in the same way that federal holidays do). Because Emancipation Day falls on Saturday, April 16, in 2016 it will be observed on Friday, April 15, which pushes the tax filing deadline to the next business day – Monday, April 18, 2016. Although most individual taxpayers will have until April 18, 2016 to file and pay their taxes, Patriots’ Day will be observed next year on Monday, April 18 in Maine and Massachusetts. This means individual taxpayers in Maine and Massachusetts will have until April 19, 2016 to file and pay their taxes.

Revenue Ruling 2015-13 will be published in Internal Revenue Bulletin 2015-22 on June 1, 2015.


Thieves access IRS Get Transcript app, 100,000 accounts compromised

Originally Published in Journal of Accountancy

The IRS announced on Tuesday that criminals have used taxpayer-specific information to gain access to approximately 100,000 taxpayers’ accounts through the IRS’s Get Transcript online application and steal those taxpayers’ data. The Get Transcript app has been shut down temporarily.

The IRS says the criminals obtained enough taxpayer-specific information from outside sources that they were able to get through the Get Transcript authentication process. The IRS became aware of the problem late last week when it noticed unusual activity taking place in the application. The hacking apparently started in February and involved approximately 200,000 attempts to access the Get Transcript app. The Get Transcript app is not hosted on the IRS computer system that handles tax return filing submissions, and the IRS says that the filing submission system remains secure.

Both the Treasury Inspector General for Tax Administration (TIGTA) and the IRS’s Criminal Investigation unit are investigating the matter. As for a motive, the IRS said in its announcement of the breach, “It’s possible that some of these transcript accesses were made with an eye toward using them for identity theft for next year’s tax season.”

The IRS says it will provide a free credit monitoring service for those taxpayers whose accounts were hacked. It is also notifying all 200,000 taxpayers whose accounts were the targets of the unauthorized access attempts. Those letters will start going out this week.


Supreme Court: Maryland has been wrongly double-taxing residents who pay income tax to other states

Originally Published in The Washington Post

A divided Supreme Court ruled Monday that Maryland’s income tax law is unconstitutional because it does not provide a full tax credit to residents for income tax paid outside the state, a ruling likely to cost Maryland counties and localities across the country millions of dollars in revenue.

The court voted 5 to 4 to affirm a 2013 Maryland Court of Appeals ruling that the state’s practice of withholding a credit on the county segment of the state income tax wrongly exposes some residents with out-of-state income to double taxation. Justices said the provision violated the Constitution’s commerce clause because it might discourage individuals from doing business across state lines.

In most states, income from elsewhere is taxed both where the money is made and where tax­payers live. To guard against double taxation, states usually give residents a full credit for income taxes paid on out-of-state earnings.

Maryland residents are permitted to deduct income taxes paid to other states from what they pay in Maryland income tax. But the state did not allow the same deduction to be applied to a “piggyback” tax that is collected by the state for counties and the city of Baltimore.

The ruling affects about 55,000 Maryland taxpayers, according to the state comptroller’s office.

Those who tried to claim the credit on their county income tax returns between 2006 and 2014 are likely to be eligible for refunds, which officials estimate could total $200 million with interest.

Going forward, certain small-business owners who pay income taxes to another state on income earned in that state will be able to claim a credit for both the state and county portions of the Maryland tax, costing Maryland an estimated $42 million a year in revenue.

Montgomery County, which has the highest share of residents with out-of-state income, stands to be hardest hit. State officials estimate that the county is on the hook for about $115 million in refunds and interest, plus a loss of $24 million a year in tax revenue.

“I was hoping we would avoid this,” said County Executive Isiah Leggett (D), warning that the loss of revenue increases the likelihood of a major property tax increase next year. “This case cannot be overstated in terms of its significance.”

The ruling in Comptroller of the Treasury of Maryland v. Wynne also potentially affects thousands of other cities, counties and states with similar tax laws, including New York, Indiana, Pennsylvania and New York.

The case was brought by a Howard County couple, Brian and Karen Wynne, who reported $2.7 million in 2006 income, about half from their stake in Maxim Healthcare Services, a Columbia-based home-care and medical staffing company that does business in more than three dozen states.

The Wynnes paid $123,363 in Maryland state income tax and claimed an $84,550 Maryland credit for taxes paid in other states on income from Maxim.

Maryland taxes personal income at up to 5.75 percent. It also collects and distributes a piggyback income tax of up to 3.2 percent for each of the 23 counties and Baltimore City. But Maryland until now has offered no credit for the piggyback tax — in this case, the 3.2 percent the Wynnes owed to Howard County. The Wynnes and their attorneys contended that this represented about $25,000 in illegal double taxation.

The court was sharply divided, although not along the usual ideological lines. Justice Samuel A. Alito Jr. wrote the opinion for a majority that comprised him, Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Stephen G. Breyer and Sonia Soto­mayor.

Alito said the court has long recognized that the commerce clause has a “dormant” or underlying meaning. This holds that while the clause gives Congress the power to regulate commerce among the states, it also was intended to ensure that states would not pass laws to restrict interstate business.

Maryland’s tax law violates that implicit aspect of the commerce clause, Alito said.

State officials argued that under the due process clause of the Constitution, states have a historic right to tax the income of their residents, no matter where it is earned.

The piggyback segment is excluded from the tax credit, officials said, to ensure that all residents pay an equitable share for local government services such as schools and public safety.

But Alito said Maryland’s argument is flawed because states have long offered a similar credit for out-of-state taxes paid by corporations, who “also benefit heavily from state and local services.”

Alito called Maryland’s tax policy “inherently discriminatory,” saying it essentially operates as a tariff, or a tax designed to restrict trade.

Justices Ruth Bader Ginsburg, Antonin Scalia, Elena Kagan and Clarence Thomas dissented, with Ginsburg, Scalia and Thomas writing separate opinions.

Ginsburg, writing the principal dissent, said there was nothing in the Constitution that compelled Maryland — or any other state — to change its laws because of taxes paid by its residents elsewhere. .

In his dissent, Scalia called the dormant commerce clause “a judge-invented rule under which judges may set aside state laws that they think impose too much of a burden upon interstate commerce.” Scalia said he agreed that such a view of the clause has a long history. “So it does, like many weeds,” he wrote. “But age alone does not make up for brazen invention.”

Brian Wynne, who now lives in Carroll County and no longer works for Maxim, declined to comment Monday.

Michelle Parker, a spokeswoman for Comptroller Peter Franchot (D), said in a statement Monday that the office will “work diligently and in a timely manner to comply with the decision and enforce Maryland law consistent with the decision of the Supreme Court.” Parker added that the office is already reviewing about 8,000 refund claims dating back tjo 2006.

Money for the refunds will come from the state’s income tax reserve fund. The state will recoup that money by reducing state income tax revenue sent to localities each quarter over a period of two years, starting in June 2016.

Maryland’s General Assembly last year lowered the interest rate that applies to refunds from past years in order to cushion the blow in case the Supreme Court ruled against the state. The interest rate was reduced from 13 percent to the average prime rate during fiscal 2015, or about 3 percent.


Phishing Remains on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

Originally Published in IRS.GOV

WASHINGTON — The Internal Revenue Service today warned taxpayers to watch out for fake emails or websites looking to steal personal information. These “phishing” schemes continue to be on the annual IRS list of “Dirty Dozen” tax scams for the 2015 filing season.

“The IRS won’t send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise,” said IRS Commissioner John Koskinen. “I urge taxpayers to be wary of clicking on strange emails and websites. They may be scams to steal your personal information.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or find people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Stop and Think before Clicking

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.


‘State of the union is strong,’ Obama declares in address

Originally Published in LA Times

President Obama declared America ready to “turn the page” on years of hardship and economic insecurity in a State of the Union address Tuesday night that offered a sprawling, post-recession domestic agenda aimed at appealing to the middle class – and at revitalizing his presidency in its final two years.

“America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this: The shadow of crisis has passed, and the state of the union is strong,” Obama said.

It was the first time Obama used the familiar phrase so directly, without qualification or condition, in a State of the Union speech.

At times boastful, confident and even cocky, Obama appeared unfazed by his party’s electoral pounding in the midterm election less than three months ago or his year of slouching approval ratings. He offered few overtures to the opposition, even interrupting his rhetoric about bipartisan harmony to shoot back a zinger at Republicans.

When he noted he has “no more campaigns to run,” some Republicans cheered. Obama responded with his own dig.

“I know ’cause I won both of them,” he ad-libbed.

Obama declared 2014 a “breakthrough year for America,” a dramatic shift for a president who has spent his time in office either slogging through grim economic news or pleading for patience for better times ahead. But White House aides argued that the president was ready to move the economic debate past fights over austerity into what he labeled “middle-class economics.”

He outlined a wide-ranging platform to define the term. Obama proposed free community college, expanded child-care tax credits, a new tax benefit for two-income families, a push for paid family leave, and a proposed tax increase on the wealthy to pay for programs the White House says will help a battered middle class participate in the economic turnaround.

Obama vowed to improve job training programs, advocated “a free and open Internet” and issued a blunt challenge to lawmakers who oppose raising the minimum wage.

“If you truly believe you could work full time and support a family on less than $15,000 a year, go try it,” he said, with a smile. “If not, vote to give millions of the hardest-working people in America a raise.”

Obama’s remarks drew a contrast to his political opponents, who are aiming to turn the page from the Obama era to a new one of Republican dominance in Congress.

Delivering the party’s rebuttal, freshman Republican Sen. Joni Ernst of Iowa described Americans as still rattled from the aftershocks of the Great Recession. She squarely blamed the president’s policies, including his landmark healthcare law.

“We see our neighbors agonize over stagnant wages and lost jobs. We see the hurt caused by canceled healthcare plans and higher monthly insurance bills,” she said.

“Americans have been hurting, but when we demanded solutions, too often Washington responded with the same stale mind-set that led to failed policies like Obamacare. It’s a mind-set that gave us political talking points, not serious solutions.”

Ernst reiterated Republicans’ promise to “repeal and replace” Obamacare, known formally as the Affordable Care Act.

Obama looked out on a House chamber filled with the first entirely GOP-controlled Congress in nearly a decade and more Republican opponents than at any point in his time in office. Still, he saved his gestures toward compromise and bipartisan outreach for well into his speech — and did not offer any specific olive branch to new Senate Majority Leader Mitch McConnell of Kentucky, who could determine whether Obama chalks up any more major legislative victories before leaving office.

McConnell had little to applaud.

“The biggest problem is the president made a speech that made it look like he’s going to run for office again. His time for running is over. His time for governing is here. And in order to accomplish things over the last two years of the Obama administration, he needs to work with the Republican Congress,” McConnell said in a statement.

Obama made a broad appeal for “a better politics” and criticized partisan “gotcha moments” and “fake controversies,” but he seemed to do little else to ease the tensions.

His speech was not aimed at political centrism. Buoyed by his rising public approval and an improving economy, the president was eager to use the moment to show the public — and Washington — that he wouldn’t go quietly, aides said.

Obama pledged to veto any measures that would undo his sweeping immigration executive actions or his healthcare law. His tax proposals, which would raise $320 billion in new revenue over a decade, were more likely to frame the upcoming debate than start negotiations on tax reform.

After a year of being whipsawed by foreign crises, Obama defended his policies overseas against those who have pushed for more aggressive responses. He cast his choices as “a smarter kind of American leadership.” The phrase echoed a catchphrase the White House has used before to encapsulate his foreign policy: “Don’t do stupid stuff.”

“When we make rash decisions, reacting to the headlines instead of using our heads, when the first response to a challenge is to send in our military — then we risk getting drawn into unnecessary conflicts and neglect the broader strategy we need for a safer, more prosperous world,” Obama said in his address. “That’s what our enemies want us to do.”

He defended the ongoing multinational nuclear negotiations with Iran and restated his promise to veto proposed legislation that threatened additional sanctions against Tehran. He touted his plans to open up U.S. policy toward Cuba, urging Congress to end the half-century trade embargo as Alan Gross, the imprisoned American aid worker freed recently after five years in a Cuban prison, looked on from the balcony.

Some Republicans answered the White House’s symbolism with their own, inviting Cuban democracy activists as guests.

Even as Republicans in Congress refuse to allow the transfer of Guantanamo Bay detainees to prisons inside the U.S., Obama affirmed his belief that the United States should go beyond its dramatic reduction in the number of detainees at the U.S. military prison in Cuba and close it altogether, as he promised he would do shortly after he took office in 2009.

Obama cast the U.S.-led coalition battling Islamic State extremists in Iraq and Syria as strong and urged patience. He vowed to work with Congress to rewrite the law for use of force that has authorized the air campaign already underway.

Senior administration officials described updating that law as the president’s top legislative priority.

Another focus is likely to be passing a key trade deal, which would require Obama to persuade his own party to join the effort. To that end, he made a rare appeal aimed at the Democratic base.

“Look, I’m the first one to admit that past trade deals haven’t always lived up to the hype, and that’s why we’ve gone after countries that break the rules at our expense. But 95% of the world’s customers live outside our borders, and we can’t close ourselves off from those opportunities,” he said.

Obama offered measured remarks on two of the controversies that consumed part of the last year. First, he made a plea for criminal justice reform in the wake of the debate over race and policing that followed the unrest in Ferguson, Mo., and in New York City after white police officers killed unarmed black men, and grand juries declined to indict either officer.

People may have different “takes” on the events, “but surely we can understand a father who fears his son can’t walk home without being harassed,” he said. “Surely we can understand the wife who won’t rest until the police officer she married walks through the front door at the end of his shift.”

Similarly, on the debate over the balance between free speech and anti-Semitic and anti-Muslim messages that erupted after the terrorist attacks this month on the French magazine Charlie Hebdo, Obama appealed for understanding.

“As Americans, we respect human dignity, even when we’re threatened,” he said.

In the end, though, he returned to the heart of his message, an economic policy aimed at strengthening the middle class.

The country has recovered from hardship, he said, remaking itself like a family that suffers but works toward a better day.

“We’ve laid a new foundation,” he said. “A brighter future is ours to write.”


IRS Made Errors on 24% of EITC Payments

Originally Published in ACCOUNTINGTODAY.COM

Even though the Internal Revenue Service has reported an overall decline in the improper payment rate for the Earned Income Tax Credit since fiscal year 2003, the amount of payments made in error has increased from $10.5 billion in fiscal year 2003 to $14.5 billion in fiscal year 2013, according to a new government report.

The IRS’s fiscal year 2013 EITC improper payment report to the Treasury Inspector General for Tax Administration estimates that in fiscal year 2013, EITC claims totaled approximately $60 billion, while 24 percent of the EITC payments were paid in error, according to a report released Wednesday by TIGTA.

An earlier TIGTA report last month had reported on the IRS’s high error rate and improper payment amounts for the EITC, along with the Additional Child Tax Credit (see IRS Urged to Crack Down on Improper EITC and ACTC Payments). Using IRS data, TIGTA estimated that the potential ACTC improper payment rate for fiscal year 2013 was between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion.

The new report focused on the IRS’s compliance with Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, which requires TIGTA to assess the IRS’s compliance with the order on an annual basis. Executive Order 13520 aimed to increase federal agencies’ accountability for reducing improper payments while continuing to ensure that their programs serve and provide access to their intended beneficiaries. In the new report, TIGTA acknowledged that the IRS has taken steps to ensure access and participation by eligible individuals. The IRS estimates that the participation rate for individuals who are eligible to receive the EITC was nearly 80 percent for tax year 2010.

However, TIGTA pointed out that the IRS is not in compliance with certain requirements of Executive Order 13520 for fiscal year 2013. For example, the IRS has not established annual improper payment reduction targets as required.

Nonetheless, the IRS is making some progress related to its inability to comply with this requirement, TIGTA acknowledged. For instance, the IRS has received approval from the Office of Management and Budget to establish and report supplemental measures in lieu of annual reduction targets.
While the IRS is currently not in compliance with the quarterly reporting requirement for high-dollar improper EITC payments (that is, payments totaling more than $5,000) for fiscal year 2013, according to TIGTA, new revisions to the quarterly reporting requirements make it unlikely that the IRS would be required to report any quarterly high-dollar payments for fiscal years 2014 and beyond.

TIGTA made no recommendations in the report. In response to the report, IRS CFO Robin Canady wrote, “The Earned Income Tax Credit (EITC) is the Treasury Department’s only high risk program and poses numerous challenges with respect to improper payments and reporting.”

Canady also reiterated some of the IRS’s objections to the report last month on the EITC and the ACTC: “As we reported in our response to your performance audit on the Additional Child Tax Credit (ACTC), the IRS disagrees with your assertion that our risk assessments do not accurately reflect the risk associated with the ACTC payments and TIGTA’s potential outcome measure estimates.”

A provision in a report attached to the $1.1 trillion spending bill passed by Congress last month aims to stem the tide of improper payments of refundable tax credits such as the EITC by requiring taxpayers who use consumer tax prep software to self-prepare their tax returns to undergo the same kinds of questions that professional tax preparers are required to answer for their clients’ returns (see Congress Requires Self-Preparers and Consumer Tax Software to Check for Improper Tax Credits).


IRS Commissioner Predicts Miserable 2015 Tax Filing Season

Originally Posted on Forbes

Internal Revenue Service Commissioner John Koskinen warned that close to half the people trying to reach the IRS by phone might not get through during the upcoming 2015 tax filing season. “Phone service could plummet to 53%,” he told an audience of tax practitioners at the AICPA National Tax Conference in Washington, D.C. today. That would be down from an already unacceptable 72% during the 2014 filing season. The average hold time projection: 34 minutes! What’s to blame? Budget woes. “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for,” he said.

Koskinen’s remarks followed National Taxpayer Advocate Nina Olson who was even gloomier:“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

There are five key factors at play – complicating the upcoming filing season (that’s when you file your 2014 tax return). The IRS agency budget is the number one challenge, Koskinen said. The House has voted to cut the IRS budget for 2015 by $341 million, and the Senate has proposed to increase it by $240 million—that would still be 7% below 2010 funding levels.

In the meantime, Congress keeps passing laws that the IRS has to implement, namely the Affordable Care Act (“ACA”) and the Foreign Account Tax Compliance Act (“FATCA”). For example, Koskinen said the IRS requested $430 million in 2014 from Congress to implement the ACA but got zero, forcing it to take money out of enforcement and taxpayer services budgets.

This will be the first filing season with two major provisions from the Affordable Care Act –the premium tax credit and the individual shared responsibility payment–on Form 1040. National Taxpayer Advocate Olson said she’s very concerned about the IRS receiving accurate information from the health exchanges. It won’t be the IRS’s fault, but taxpayers will likely put the blame on the IRS. Koskinen touted the web pages that the IRS has created to help explain the ACA tax provisions.

Olson expects that implementation of FATCA, which affects taxpayers with accounts overseas, will also cause trouble this filing season. A new withholding requirement will mean there will be an issue with taxpayers trying to get refunds back in a timely manner. “If they are overseas, who are they going to call? There is not toll free number,” Olson said.

Then there are the tax extenders, 50-plus laws whose fate is uncertain. Congress has vowed to vote on the future of these laws in the upcoming lame duck session. But Koskinen warns that if the uncertainty continues into December, it could delay the start of the filing season and delay tax refunds.

Another factor Koskinen ticked off complicating this year’s filing season will be that the IRS is implementing a voluntary oversight program for return preparers. He said he’s still pushing for a mandatory oversight program. In the meantime, there will be a page on the IRS web site with a database of qualified tax preparers, including unregulated preparers who chose to participate in voluntary education programs. Attorneys, CPAs and enrolled agents, who all have separate licensing requirements, will also be listed.

Is there any promising news? Taxpayers are flocking to the IRS’s Where’s My Tax Refund feature where you can click and track the progress of your federal refund. They’re also using IRS direct pay, a secure online option for making tax payments (I use it; it really is quick and easy).

In the future (“some years from now”) Koskinen evisions a complete online tax filing experience. Taxpayers would have an account online where you could log on securely, see documents the IRS has received on your behalf, see your previous filings, and if there is an issue with your return, the IRS would contact you immediately—not two or three years down the line. “It’s not illusory,” he inists, adding that once more activities are moved online, the agency could sustain itself without annual budget increases.