Archive for the ‘Taxes’ Category

Beyond the Extenders: The Tax Legacy of 2015

Tuesday, January 5th, 2016

Originally Published in ACCOUNTINGTODAY.COM

With so much attention being paid to the end-of-the-year passage of the tax extenders legislation, it is important to remember that an array of federal tax legislation was passed earlier in 2015 that will affect tax return preparation and advising of clients this busy season. Additionally, there were several key court cases in 2015 that will potentially affect clients’ returns moving forward.

Key federal tax legislation

In May of 2015, the Don’t Tax Our Fallen Public Safety Heroes Act (PL 114-14) was passed into law and provides that a certain level of compensation paid under Sec. 1201 of the Omnibus Crime Control and Safe Streets Act of 1968 will be excluded from gross income for tax purposes. This 1968 act established federal programs that provide death and education benefits to survivors of fallen law enforcement officers, firefighters, and other first responders as well as disability benefits to officers permanently disabled in the line of duty. The amounts are excluded from gross income and are not subject to any information reporting requirements, therefore payers should not file Form 1099 MISC to report the payments.

The Defending Public Safety Employees’ Retirement Act (PL 114-26) was passed in June of 2015 and provides extended exemption from the 10 percent penalty on retirement plan withdrawals for certain public employees in the year or after the year they turn 50. The exemption from the 10 percent penalty for early withdrawals from a retirement plan includes: certain federal law enforcement officers, federal firefighters, customs and border protection officers, and air traffic controllers. The act is effective for distributions after Dec. 31, 2015, so public safety employees contemplating a 2015 withdrawal who would otherwise be impacted by the 10 percent tax may want to defer such withdrawals to 2016.

Also, in June of 2015, the Trade Preferences Extension Act of 2015 (PL 114-27) was passed into law. This act impacts education tax credits and deductions and affects tax years after 2014. If taxpayers do not possess a valid Form 1098-T from the educational institution, they will no longer be allowed to claim the American Opportunity Tax Credit, the Lifetime Learning Credit, or the tuition and fees deduction under Section 222. Form 1098-T should accompany Form 8863, which is used to claim education credits.

In addition, the child tax credit, known as the additional child tax credit, is refundable if the credit exceeds the income tax due by the taxpayer. Beginning in 2015, the additional child tax credit is not refundable if the taxpayer has claimed a foreign earned income exclusion. This is particularly important for any U.S. expat clients.

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (PL 114-41) was passed into law in July 2015 and is of significance because tax return due dates were impacted. The good news is that the individual filing deadline was not changed and remains April 15. There was also no change to S corporations, as their return due date will remain at March 15. For partnerships, the return due date changes to March 15 or the fifteenth day of the third month after year-end (a six-month extension can be requested). The corporate return due date shifts forward one month to April 15. All changes to tax return due dates are for tax years beginning after Dec. 31, 2015. Special note should be given to the fact that due dates for estimated tax payments will not change.

Reviewing the latest status on key tax legislation initiatives can be a key component of ensuring that your clients are able to take advantage of every credit and refund opportunity available.

Critical court decisions in 2015

Other pieces of critically important information to monitor are verdicts of key judicial proceedings that will ultimate affect how tax law is interpreted moving forward. The following insights are summaries of key cases decided in the courts that will inform how certain tax laws are understood in the future.

One Supreme Court case, King v. Burwell, 135 S. Ct. 2480 (6/25/2015), is related to Premium Tax Credits provided under the Patient Protection and Affordable Care Act. The issue in question was if a federal tax credit could be applied whether the insurance was acquired via a state-run or federal-facilitated exchange. The IRS has now issued a regulation confirming that the federal tax credit is available to qualifying individuals regardless of whether they purchase insurance on a state-run or federally facilitated exchange.

In the case of Obergefell v. Hodges, Supreme Court No. 14-556, 2015-1 USTC 50,357, the Supreme Court ruled on June 26, 2015, that same-sex marriage is a constitutional right under the Equal Protection Clause and all states should allow same sex couples to file their taxes as married couples. Also, the IRS issued Proposed Regulations on Oct. 21, 2015, to clarify the treatment of same-sex spouses for federal tax purposes.

In one recent case, unmarried co-owners of a property were allowed to apply the mortgage interest deduction on a per-taxpayer basis, rather than on a per-property basis. The decision in Voss v. Commissioner, 116 A.F.T.R.2d 2015-5529 (9th Cir. 8/7/15), specified that two unmarried individuals purchasing a residence together can each deduct interest on a mortgage up to $1 million and home equity debt up to $100,000.

In Holden v. Commissioner, T.C. Memo. 2015-83 the outcome affects how a taxpayerís education deduction expenditures are viewed. In this case, the taxpayer is a medical doctor and claimed flight lessons as a business deduction, noting he was taking flight lessons to be able to fly to locations for charitable medical work. The regulations under Section 162 allow a taxpayer to deduct expenditures for education if that education either maintains or improves skills that are required by an individual in his employment, trade or business, or meets express requirements set by the individualís employer or by a law or regulation as a condition of continued employment, status, or compensation. The court found that the taxpayer failed to demonstrate that his flying lessons improved or maintained his skills as a doctor, and the deduction for flight lessons was disallowed.

Another case to review is Muniz v. Commissioner, T.C. Memo. 2015-125 (7/9/2015), in which it was determined that lump-sum alimony payments that were not scheduled to terminate at the death of the payee were determined to not be alimony as defined in Section 71 and were not deductible as alimony. This case serves as a good reminder to help the taxpayer clearly define what payments are considered alimony, child support or another portion of the settlement in relation to divorce proceedings.

And finally, in the case of Pacific Management Group v. Commissioner, T.C. Memo. 2015-97, the ruling clarified that the proper substantiation is required to assert attorney-client privilege. In this case, they noted proper substantiation was an appropriate log that is kept to track why documents can be withheld from IRS request for information. The Tax Court held in this case that the privilege log provided by taxpayer was not adequate to sustain claims of privilege.

With these key takeaways from 2015 legislation and judicial proceedings in mind, tax professionals can leverage these insights to better serve their clients and ensure proper filings on their behalf.

Year-End Tax Tips for Individuals

Tuesday, December 1st, 2015

Originally Published in ACCOUNTINGTODAY.COM

The National Society of Accountants has released some suggested year-end tax tips for individuals, courtesy of Wolters Kluwer Tax & Accounting US.

Individual income tax rates of 10, 15, 25, 28, 33, 35 and 39.6 percent remain in place for filing next April. (The more you made, the greater your percentage.) The standard deduction for 2016 income will stay the same: $6,300 if you file your taxes using the status single or married filing separately. Married joint filers still receive a $12,600 deduction; head of household filers’ deduction jumps $50, to $9,300.

Year-end tax-saving tactics include spreading recognition of your income between years by postponing year-end bonuses and maximizing both deductible retirement contributions and allowable retirement distributions for this calendar year, coordinating capital losses against the sale of appreciated assets, postponing redemption of U.S. Savings Bonds, and delaying your year-end billings and collections.

You may also want to defer corporate liquidation distributions (full cash-value payment for all a company’s stock you hold) until 2016, pay your last state estimated tax installment in 2015 and pre-pay real estate taxes or mortgage interest.

Life changes: Did you get married or divorced? Have a child? Buy a home? Change jobs or retire? A change in employment, for example, may bring severance pay, sign-on bonuses, stock options, moving expenses and COBRA health benefits, among other changes that affect your taxes.

Additionally, try to predict any life events in 2016 that might trigger significant income or losses, as well as a change in your filing status.

Retirement savings: You can contribute up to $5,500 to an individual retirement account or Roth IRA for 2015 and, if you’re 50 or older, $1,000 more in catch-up contributions. You also have until April 15, 2015, to make an IRA contribution for 2015. One tax move in this area: Delay until 2016 converting your traditional IRA to a Roth IRA, which incurs taxes.

Giving: You can still make tax-free gifts of $14,000 per recipient (a total of $28,000 in the case of married couples).

Tax-free distributions, up to a maximum of $100,000 per taxpayer each year from IRAs to public charities, have been allowed as an alternative to reporting the income and taking an itemized deduction. You must be 70½ or older to do this.

High Earners
If your income is six figures or more, you should anticipate possible liability for the 3.8 percent net investment income (NII) tax calculated on net investment income in excess of your modified adjusted gross income (MAGI). Threshold MAGIs for the NII tax are $250,000 in the case of joint returns or a surviving spouse, $125,000 for a married taxpayer filing a separate return, and $200,000 in any other case.

Keeping income below the thresholds is worth exploring, as is spreading income out over a number of years or offsetting the income with both above-the-line and itemized deductions. Of course, planning for the NII tax requires a very personalized strategy.

The tax rate on net capital gain is no higher than 15 percent for most taxpayers. Net capital gain may not be taxed if you’re in the 10 or 15 percent income tax brackets. A 20 percent rate on net capital gain can apply if your taxable income exceeds the thresholds set for the 39.6 percent rate ($413,200 if you file single, $464,850 for married filing jointly or as a qualifying widow[er], $439,000 for head of household and $232,425 for married filing separately).

Wash sale rules: These cover sales of stock or securities in which your losses are realized but not recognized for tax purposes because you acquire substantially identical stock or securities within 30 days before or after the sale.

Alternative minimum tax: The AMT is now “patched,” which permanently increases the exemption amounts and indexes those amounts for inflation. For 2015, the exemption amounts are $53,600 for single individuals and heads of household, $83,400 for married couples filing a joint return and surviving spouses and $41,700 for married couples filing separate returns.

You can take several steps to reduce the AMT’s effect on your tax liability. Avoid certain deductions, including the accelerated depreciation deduction on real property or expensed research, among others. You might also avoid exercising incentive stock options in a year in which you’re subject to AMT.

Pease limitation: This reduces a higher-income taxpayer’s allowable itemized deductions by 3 percent of the amount (up to 80 percent), with the reduction kicking in after certain income thresholds. For 2015, Pease thresholds are $309,900 for married couples and surviving spouses, $284,050 for heads of households, $258,250 for unmarried taxpayers and $154,950 for married taxpayers filing separately.

Related to the Pease limitation is the personal exemption phase-out (PEP). The threshold income amounts for the PEP are the same as those for the Pease limitation.

Health Insurance
The Affordable Care Act requires that you have minimum essential health coverage or make a shared responsibility payment, unless you’re exempt. On 2014 returns filed in 2015, taxpayers reported if they had minimum essential coverage; that reporting requirement will again be on 2015 returns filed in 2016.

If you may be liable for a shared responsibility payment, carefully review the significant number and variety of exemptions available. You may also be able to project the amount of any payment. Closely related are changes to the medical expense deduction, health flexible spending arrangements (and similar arrangements), insurance coverage for children, and more.

Potential Legislation
As of mid-November, tax bills pending in Congress included a package of tax extenders, revisions to the Affordable Care Act and more. Lawmakers might renew them either before year-end or early in 2016. Incentives include:

Exclusion of cancellation of indebtedness on principal residence: Allows you to exclude from income the cancellation of mortgage debt of up $2 million on a qualified principal residence.

Higher education tuition and fees deduction: Provides a maximum $4,000 deduction for qualified tuition and fees at post-secondary institutions of learning, subject to income phase-outs.

Classroom expense deduction. Primary and secondary education professionals may take an above-the-line deduction for qualified unreimbursed expenses up to $250 paid during the year.

Stay tuned to see which of these and other extenders continue or end. In the meanwhile, planning for their potential renewal is key.

Year-End Tax Tips for Businesses

Tuesday, December 1st, 2015

Originally Published in ACCOUNTINGTODAY.COM

The National Society of Accountants is offering some year-end tax tips for businesses, courtesy of Wolters Kluwer Tax & Accounting US.

Consider several general strategies, such as use of traditional timing techniques for income and deductions and the role of the tax extenders, as well as strategies targeted to your particular business. As in past years, planning is uncertain because of the Affordable Care Act and the expiration of many popular but temporary tax breaks.

Filing Changes

Recent legislation changed filing deadlines for some entity tax returns for 2016: Partnership tax returns will be due on March 15, not April 15 (for calendar year partnerships), and c-corporation returns will be due on April 15, not March 15 (for calendar year C Corporations). Returns for s-corporation will continue to be due on March 15.

Expensing and Bonus Depreciation
Many businesses use enhanced Code Sec. 179 expensing as a key component of year-end tax planning. Sec. 179 property is generally defined as new or used depreciable tangible property purchased for use in a trade or business. Software was also recently included, as was qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

(Congress has not renewed the enhancements to Sec. 179 expensing for 2015, but they likely will be renewed. Year-end planning should reflect both the likely extension and the possibility of no extension.)

Similarly, bonus depreciation has been a valuable incentive for many businesses. Fifty percent bonus depreciation generally expired after 2014 (with limited exceptions for certain types of property).

Qualified property for bonus depreciation must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less for a wide variety of assets.

Year-end placed-in-service strategies can provide an almost immediate cash discount for qualifying purchases.

Although you should factor a bonus-depreciation election into year-end strategy, you don’t have to make a final decision on the matter until you file a tax return. Also, bonus depreciation isn’t mandatory: you might want to elect out of bonus depreciation to spread depreciation deductions more evenly across future years.

Another potentially useful strategy involves maximizing benefits under Sec. 179 by expensing property that doesn’t qualify for bonus depreciation, such as used property, and property with a long MACRS depreciation period.

Section 199 Deduction
Year-end planning benefits from the release of guidance on the Code Sec. 199 domestic production activities deduction is an often under-utilized potential break. The guidance provides many examples of what business activities qualify; recent Internal Revenue Service guidance highlights manufacturing, construction, oil-related work, film production, agriculture, and many other pursuits.

Work Opportunity Tax Credit
If your business is considering expanding payrolls before 2015 ends, take a look at the Work Opportunity Tax Credit (WOTC). (Although the WOTC, under current law, expired after 2014, Congress is expected to renew the WOTC for 2015 and possibly for 2016).

Generally, the WOTC rewards employers that hire individuals from certain groups, including veterans, families receiving certain government benefits, and individuals who receive supplemental Social Security Income or long-term family assistance. The credit is generally equal to 40 percent of the qualified worker’s first-year wages up to $6,000 ($3,000 for summer youths and $12,000, $14,000, or $24,000 for certain qualified veterans). For long-term family-aid recipients, the credit is equal to 40 percent of the first $10,000 in qualified first-year wages and half of the first $10,000 of qualified second-year wages.

Repair-Capitalization Rules
Currently, a de minimis safe harbor under the so-called “repair regs” allows you to deduct certain items costing $5,000 or less that are deductible in accordance with your company’s accounting policy reflected on your applicable financial statement (AFS). IRS regulations also provide a $2,500 de minimis safe harbor threshold if you don’t have an AFS.

Routine Service Contracts
If you’re an accrual-basis taxpayer (meaning you have a right to receive income as soon as you earn it), you have a new tool for planning. The IRS has provided a safe harbor under which accrual-basis taxpayers may treat economic performance as occurring on a ratable basis for ratable service contracts—perhaps particularly useful in connection with your regular services that extend into 2016. If your business meets the safe harbor for ratable service contracts, you may be able take a full deduction in the current tax year for certain 2015 payments even though you may not perform the services until next year.

Affordable Care Act
For large businesses, the ACA imposes many new requirements, including the employer shared responsibility provision (also known as the employer mandate). Small businesses, although generally exempt from this mandate, need to review how they deliver employee health insurance.

Many small businesses have provided a health benefit to employees through a health reimbursement arrangement (HRA). Following passage of the ACA, the IRS described certain types of HRAs as employer payment plans – therefore subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with these reforms triggers excise taxes under Code Sec. 4980D.

Pending legislation in Congress would allow small employers (that is, those with fewer than 50 full-time and full-time equivalent employees) to have stand-alone HRAs and reimburse expenses without violating the ACA’s market reforms.

Small employers also should review the Code Sec. 45R credit. If your business has no more than 25 full-time equivalent employees, you may qualify for a special tax credit to help offset your costs of employee health insurance. You must pay average annual wages of no more than $50,000 per employee (indexed for inflation) and maintain a qualifying health care insurance arrangement. (Generally, health insurance for employees must be obtained through the Small Business Health Options Program, part of the Health Insurance Marketplace.)

IRS Flouted Procedures When Selling Seized Property

Tuesday, September 1st, 2015

Originally Published in ACCOUNTINGTODAY.COM

The Internal Revenue Service did not always follow its own procedures when selling some of the property it seized for unpaid taxes, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, found that over the past four fiscal years from 2011 through 2014, the IRS has received approximately $114 million in proceeds from the sale of seized taxpayer assets. However, personal items were not always properly documented when they were returned, and personal information such as GPS navigation data and garage door opener settings weren’t always removed from the systems installed in seized vehicles, posing a potential security risk.

The IRS Restructuring and Reform Act of 1998 required the IRS to implement a consistent process for the sales of seized property in order to protect taxpayers whose property is being sold to satisfy delinquent debts. The IRS’s property appraisal and liquidation specialists are supposed to ensure that taxpayers’ rights are protected when property is seized for unpaid taxes.

TIGTA auditors attended six IRS auctions of seized assets and reviewed a sample of 44 seizure cases. The report found that for the cases they sampled, the seized assets in general were properly inventoried, safeguarded and handled professionally.

However, the written sale plans developed by the specialists provided varying amounts of detail for the actions to be performed on the date of the sale. More consistent and specific sale plans could improve managerial oversight and ensure consistent treatment of seized assets, TIGTA noted.

Personal items found in seized assets were not always properly documented when they were returned to taxpayers. In addition, TIGTA found there is no requirement for removing taxpayer information from installed systems in vehicles. Such information could present a security risk if a third-party purchaser gained access to it.

If procedures are not followed, there is an increased risk that the completed sales will not be in the taxpayers’ or the IRS’s best interest, TIGTA cautioned.

TIGTA also identified several strategies that the IRS should consider to potentially increase the number of bidders when selling seized assets.

“The IRS Restructuring and Reform Act of 1998 (RRA 98) requires the IRS to implement a consistent process for the sales of seized property,” said TIGTA Inspector General J. Russell George. “The IRS needs to fully comply with this provision of RRA 98.”

TIGTA recommended that the IRS require the property appraisal and liquidation specialists, or PALS, to consistently prepare a detailed sale plan once custody of the seized property has been accepted, and ensure that the return of all personal items from seized vehicles is documented.

The IRS should also require the PALS to follow requirements in the Internal Revenue Manual for conducting a sale adjournment and recalculating the minimum bid, as well as ensure that any adjustments are supported by the facts of the situation and properly documented, said the report. IRS employees should also take the necessary actions to remove taxpayers’ personally identifiable information from seized vehicles such as resetting any navigation, garage door and similar installed systems, according to TIGTA.

In response to the report, IRS officials agreed with seven of the nine recommendations and said it has hired a consulting team to improve its procedures.

“We have engaged a lean six sigma to review and evaluate all aspects of our seizure and sale program and present proposals for improving the program,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “Our goal is to further clarify our seizure and sales procedures while continuing to protect taxpayers’ rights.”

IRS officials disagreed with two recommendations to add guidance in the Internal Revenue Manual for indirect expenses of seizure sales that can be charged to the taxpayer and return of license plates from seized vehicles that are sold. Schiller pointed out that the IRM currently requires the return of personal items, which include license plates and documentation on Form 668-E if a taxpayer seeks personal items. She also pointed out that the manual and Treasury regulations already provide that the expenses allowed include the “actual expense incurred with the sale” in addition to expenses for the “protection and preservation of the property.” The expenses in TIGTA’s report related to expenses incurred at seizure sales for the safety and convenience of bidders.

TIGTA, however, maintains that the appropriate IRM sections should be updated to provide clear guidance for IRS managers and employees to follow.

Tax Cut Pays Part of Its Way in Test of Republican Scoring

Thursday, August 6th, 2015

Originally Published in ACCOUNTINGTODAY.COM

(Bloomberg) A bipartisan U.S. Senate bill that would revive and extend dozens of lapsed tax breaks would spur economic growth and cover about 11 percent of its own costs, according to Congress’s nonpartisan scorekeeper.

The analysis released Tuesday is an early test of Republicans’ focus on what’s known as dynamic scoring. It refers to the principle that legislation can be significant enough to change the size of the economy and affect the U.S. budget.

Republicans say that’s a more accurate way to study bills, and they’ve changed budget rules to include the analyses. Democrats are dubious, citing the uncertainty of projections.

The bill in question was approved 23-3 by the Senate Finance Committee last month. It would extend lapsed tax breaks through 2016, including 50 percent bonus depreciation, the research and development break and the production tax credit for wind energy.

Without dynamic scoring, the bill would cost the government $96.9 billion in lost revenue over the next 10 years. The tax breaks cause production and tax revenue to grow by 0.1 percent over the first five years, according to the analysis from the Joint Committee on Taxation.

The analysis says the bill would create $10.4 billion in tax revenue by increasing economic growth, after subtracting the increased cost of federal debt stemming from higher interest rates. The result would be a net cost of $86.6 billion.

The estimate, unlike previous attempts to use dynamic scoring, produces a single number, though one that the scorekeepers say is “subject to some uncertainty.” It’s not likely to settle the partisan dispute over dynamic scoring.

“We have in hand a good start for our new scoring rule approved as part of the balanced budget resolution earlier this year,” Republican Mike Enzi of Wyoming, chairman of the Senate Budget Committee, said in a statement. “This is something from which we can build upon as we go forward in this new era of better legislative scoring and honest accounting.”

Ten Things to Know about Identity Theft and Your Taxes

Wednesday, July 1st, 2015

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

Tuesday, June 30th, 2015

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

Wednesday, June 3rd, 2015

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

Thursday, May 28th, 2015

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

Friday, May 22nd, 2015

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.