Archive for the ‘Taxes’ Category

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.

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

Monday, January 26th, 2015

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.

IRS Commissioner Predicts Miserable 2015 Tax Filing Season

Monday, December 22nd, 2014

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.

The 2014 tax breaks you’ll be able to take

Thursday, December 18th, 2014

Originally Posted on CNN Money


Well, finally.

Congress on Tuesday night extended dozens of expired “temporary” tax breaks for 2014.

It took the Senate, by a 76 to 16 vote, until the week after Congress was supposed to adjourn to pass the bill, which the House had already approved.

The bill will now be sent to President Obama, who is expected to sign it.

The majority of tax breaks in the bill pertain to businesses, but a handful will affect individuals.

Among those who will benefit from the retroactive extension to January 1, 2014: Teachers who buy classroom supplies, mass-transit commuters, residents of states with no income tax, parents with kids in college, some homeowners and some retirees with IRAs.

The bill also includes a new provision that will benefit disabled adults.

What’s not clear yet is whether passage of the tax extenders bill so late in the year will force the IRS to delay when you can start filing your 2014 taxes, which typically begins in mid-January.

But whenever tax season starts, here are the extended tax breaks that you can take on your 2014 tax return:

Deduction for teachers’ expenses: This measure lets school teachers deduct up to $250 for the costs of classroom supplies that they buy with their own money. It’s available to all teachers, whether they itemize or not.

Equal treatment of commuting costs: All commuters may reduce their pre-tax income to account for their commuting costs. Under the law, however, those who drive to work and pay for parking are allowed to exclude more ($250 per month) than those who use mass transit ($130 per month). This measure again provides parity by also allowing mass transit riders to exclude $250 per month.

State and local sales tax deduction: If you itemize your taxes, this measure lets you deduct the state and local sales taxes you’ve paid in lieu of state income taxes.

The deduction can be a boon for itemizers who live in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Those are the seven states that don’t impose an income tax but where residents pay sales taxes, either at the state or local levels.

Tuition deduction: Among the many education tax breaks on the books, this one is available to all tax filers, whether you itemize or not. With it, you may deduct up to $4,000 in qualified tuition, fees and related expenses for post-secondary education, such as college and graduate school. The deduction may be taken for yourself, your spouse or your dependents.

But there are income limitations, and if you take it you may not take other types of education tax breaks, such as the Lifetime Learning Credit. Your deduction also is reduced by any grants and scholarships received to pay for school, as well as any money withdrawn from tax-advantaged, education savings accounts.

Deduction for mortgage insurance premiums: If you only put down a small amount to buy a home you may be required to pay for mortgage insurance to protect the lender against default. This tax break lets you deduct the cost of your premiums if you itemize your deductions.

Income exclusion for mortgage debt that’s been forgiven: When you sell your home for less than what you owe the bank or your home is foreclosed, the bank may agree to forgive the remaining debt you owe. But the IRS typically treats that forgiven debt as taxable income to you. This tax break lets you exclude it from your income.

Tax-free IRA withdrawals for charity: With this measure, anyone over 70-1/2 may take tax-free distributions of up to $100,000 from a traditional IRA if the money is distributed directly to an eligible charity.

While retirees can’t also take a deduction for that contribution, the money won’t count as income. So it won’t hurt when it comes to other taxes, such as those imposed on Social Security benefits when income exceeds a certain level, said Mark Luscombe, principal federal tax analyst for tax publisher WoltersKluwer, CCH.

Tax-free savings for people with disabilities: Attached to the extender bill is the Achieving a Better Life Experience (ABLE) Act. That act will permit people who were disabled before the age of 26 — as well as their family and friends — to contribute up to a combined total of $14,000 a year to an ABLE account.

Earnings would grow tax free and the money would not disqualify the disabled person from receiving federal assistance benefits such as Medicaid and Supplemental Security Income so long as it is used to pay for housing, transportation, education and wellness.

Obamacare Tax Problems to Watch Out For

Tuesday, December 16th, 2014

Originally Published in ACCOUNTINGTODAY.COM

Affordable Care Act-related tax issues await CPAs and those who prepare their own returns this upcoming tax season, according to the National Conference of CPA Practitioners.

Medical Mysteries

There has been very little clarity about many ACA policies, leaving significant opportunities for error as people try to carve out their own interpretations. Businesses and individuals will be required to be compliant, but the reality remains that many may not know how to go about achieving this goal. Here are some ACA tax issues that NCCPAP feels CPAs and their business and individual clients should know about now.

Employer Shared Responsibility

Effective Jan. 1, 2015, one of the main provisions of the Affordable Care Act—employer shared responsibility—will begin. This means all employers with 100 or more employees are required to offer health insurance. Further, all employers will have required reporting for 2015. All employers will need to file the Form 1095-C with both the IRS and their employees by the end of January 2016. This form will provide essential information for employees to prepare their taxes. Specifically, it will verify the months that each employee had minimum essential coverage.

Minimum Essential Coverage

There are no mandatory ACA employer filing requirements for 2014. The IRS is telling CPAs to use their best judgment to determine if a person had minimum essential coverage, which is a bronze plan, but also requires an individual to have had coverage for all 12 months.

Careful Before Checking the Box

If taxpayers are preparing their own returns, many may mistakenly check the box that affirms they did have minimal essential coverage, even in cases when that is not accurate. This is because individuals either don’t know what minimal essential coverage entails, or are intentionally trying to avoid a penalty

Avoid the Penalty

For example, those who had insurance for half the year with an employer, but who were unemployed for half the year without health insurance, might think they had minimal essential coverage. In this situation they would be wrong since each person is required to have coverage for all 12 months to avoid paying a penalty. 

Truth or Dare

There is no way the government will be able to verify whether or not a person is telling the truth because employers have no mandatory reporting requirements for 2014. Even if someone had purchased an individual plan on their own, since the health insurance companies have no reporting requirements for 2014, there is no way for the government to verify whether someone had an individual plan or had no insurance at all.

Watch the Timeframe

If someone purchased health insurance on the exchange, the government would be able to prove the months they were covered with the exchange-purchased insurance through Form 1095-A. For example, if an individual were uninsured for six months and covered with exchange-purchased insurance for six months, the government would only be able to see the timeframe the individual had exchange-purchased coverage. Essentially this person would not meet the minimal essential coverage guidelines and would be subject to a financial penalty—that is if the government had documentation to prove the gap in coverage, which it doesn’t.

Religious Exemptions

There is a lot of concern and confusion regarding all of the various ACA exemptions. Some are very clear: if you’re a member of a religious sect, such as the Amish, or a member of a federally recognized Native American tribe, you are exempt from minimal essential coverage. Some Catholic religious orders like nuns don’t need to have contraception coverage. Those are the basic and obvious exemptions.

Fuzzy Wording

Not all exemptions are that easy to interpret, according to Stephen Mankowski, CPA, who is the Tax Policy Chair for NCCPAP, and a partner in the Bryn Mawr, Pa., accounting practice, EP Caine & Associates. “Here is where it gets fuzzy,” Mankowski said. “You may be eligible for an exemption if you had financial difficulties, received shut-off notices, experienced the death of a close family member or were in prison for part or all of the year. In these situations, so much is left up to the taxpayer for interpretation. For example, how does one define financial difficulties, or a ‘close’ family member?  If you claim either of those, it could land you a cushy three-year exemption, according to ACA guidelines. Of course proving these in the event of an IRS audit could cause problems down the road.” Mankowski said. “There are many more exemptions beyond what I’ve listed here that will cause confusion to CPAs and the American taxpayer.”

Federal Repayments

“The repayment of premium tax credits is starting to get more attention,” said NCCPAP President Sandra G. Johnson, CPA, who runs a practice under her name out of Bellmore, N.Y.  “This is a conflict that has been underreported for a long time,” Johnson stated. “Now people are realizing for the first time that they had a premium discount for the health insurance premiums they paid in 2014 because their premium cost was based on their 2012 income. When their income increased in 2014, their premium tax credit decreased. These individuals are now going to owe the government money, and payback will occur through their 2014 federal tax return. More and more taxpayers will be faced with this sad reality.” Johnson is referring to how many taxpayers did not understand that their reasonable premiums were due to a government-offered discount based on the income they stated on their application (in many cases from their 2012 taxes). A higher 2014 income means taxpayers must now pay the government back for that premium discount that was initially credited to them if they are found ineligible.

Prosecutors Drop IRS Civil Forfeiture Case

Tuesday, December 16th, 2014

Originally Published in ACCOUNTINGTODAY.COM

Federal prosecutors in Iowa have agreed to drop a controversial civil asset forfeiture case in which the Internal Revenue Service seized nearly $33,000 from the owner of a Mexican restaurant whose cash deposits at her bank had aroused suspicion of criminal activity.

The government moved to drop its case against Carole Hinders, who owned Mrs. Lady’s Mexican Food in Arnolds Park, Iowa, after hearing her sworn testimony last week, according to the Institute for Justice, a libertarian law firm that represented her in the case.

The Institute for Justice is the same group that won another high-profile case against the IRS last year, convincing a federal judge and an appeals court that the IRS’s effort to require mandatory testing and continuing education of tax preparers exceeded its statutory authority.

In the new case, the government will return all of the nearly $33,000 it seized from Hinders in 2013. The Institute for Justice teamed up with her in October to clear her name of any wrongdoing and get her money back.

However, the firm said the IRS is asking the court for the right to refile the case in the future and repeated its claim that the case was justified. The Institute for Justice plans to file a response, asking the court to deny the government any right to refile its case and clear the way for Hinders to get interest on the money that was seized.

“I actually wanted a trial, which would have cleared my name and helped to protect others, but it is good to get the money back,” Hinders said in a statement. “My fight is far from over, though. I am willing to tell my story to Congress to help change forfeiture laws so that no one else has to go through what I suffered.”

She may already have some support in Congress. Last week, the Republican and Democratic leaders of the tax-writing House Ways and Means Committee filed legislation to protect taxpayers against the inappropriate use of civil asset forfeitures by the IRS (see Congressmen Introduce Bill to Curb IRS Civil Asset Forfeitures).

Sen. Chuck Grassley, R-Iowa, the ranking member of the Judiciary Committee, also plans to introduce legislation in the Senate to curb the practice. Grassley is expected to become chairman of the Judiciary Committee in the next Congress. He is a senior member and former chairman and ranking member of the Finance Committee, with jurisdiction over the IRS.

“I’m working on civil asset forfeiture reform legislation to introduce in the new Congress,” he said in a statement Monday. “News reports including those in The Washington Post have detailed aggressive seizures of cash and property from drivers. In the case of the Iowa restaurant owner and others like it, the IRS has now adopted an enforcement policy under which it won’t seize assets under the structuring law without evidence of underlying criminal activity unless there are extenuating circumstances. I’m looking at ways to make sure the IRS and other federal agencies’ use of these statutes are reformed permanently going forward. Since the IRS changed its approach in these cases, it could change its approach again, and the same is true for other agencies. It’s important to look at getting the right policies set in statute going forward. The government’s power to seize assets should be used fairly and with common sense. The reforms I’m developing are meant to curb instances in which government power unfairly infringes on the rights of motorists, small business owners and other Americans.”

The IRS had seized Hinders’ money under the assumption that she had structured her restaurants bank deposits to keep them under $10,000 to avoid federal bank reporting requirements. Banks are required to file Suspicious Activity Reports if they see large cash deposits coming in over $10,000, but law enforcement also looks for patterns where depositors seem to be attempting to keep the deposits under the level required for the reporting. However, the IRS has indicated that it will not pursue new cases so aggressively.

The case has received significant attention from the press, including The New York Times and Des Moines Register. Hinders owned and operated Mrs. Lady’s Mexican Food for 38 years. The restaurant only accepted cash, which meant she made frequent cash deposits at the bank. Federal law requires banks to report cash deposits larger than $10,000. Since her deposits were less than $10,000, the government claimed she was deliberately making small deposits to evade the reporting requirement.

The IRS seized Hinders’ money using civil forfeiture, which allows law enforcement agencies to take cash, cars and other property without even charging the property owner with a crime. Carole has not been charged with a crime. The government has never claimed that any of the money that it seized from Hinders’ restaurant is the proceeds of illegal activity—only that civil forfeiture law allows them to seize money merely suspected of being involved in crime.

“The IRS should not be raiding the bank accounts of innocent Americans, and it should not take a team of lawyers more than 18 months to get it back when they do,” said Institute for Justice attorney Larry Salzman in a statement. “This case again shows why civil forfeiture laws have become one of the most serious threats to private property rights in the nation.”

“Instead of simply returning the money with interest and an apology to Carole for the nightmare they put her through, the IRS is shamefully attempting to mask their retreat by insisting on the right to refile the case in the future,” said IJ attorney Wesley Hottot. “This was an outrageous abuse from the start and the government should recognize that.”

Obama Threatens Veto of Emerging Tax-Break Agreement in Congress

Tuesday, November 25th, 2014

Originally Published in ACCOUNTINGTODAY.COM

(Bloomberg) President Barack Obama would veto a tax-break agreement being negotiated in Congress by Senate Democrats and House Republicans.

“The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Jen Friedman, a White House spokeswoman, said in an e-mail today.

Lawmakers are nearing an agreement on extending U.S. tax breaks that lapsed at the end of 2013 and making others permanent. The proposal would add about $450 billion to the budget deficit over the next decade, said a Democratic aide.

A veto would require an override by two-thirds of lawmakers in the House and Senate, a high barrier for a deal that could draw opposition from some Democrats.

The biggest beneficiaries of the breaks would include corporations that conduct research, residents of states such as Washington and Texas that lack an income tax, and wind-energy producers concerned that their tax benefit would end all at once instead of being phased out. Tax breaks for low-income families that lapse at the end of 2017 wouldn’t be extended.

The tax break for corporate research, which would be expanded and made permanent, benefits companies including Intel Corp. and Johnson & Johnson. A benefit for small-business investments also would be locked in.

The plan would make permanent a provision allowing individuals to deduct state sales taxes, an issue important to Senate Democratic Leader Harry Reid of Nevada. In that state 22 percent of tax filers take advantage of the break, the second- highest percentage in the U.S., according to the Pew Charitable Trusts.

Wind Energy
The production tax credit for wind energy would be phased out over several years, said the aide, who spoke on condition of anonymity because the package wasn’t yet public.

A tax break for mass-transit commuters would be permanently extended as would a tax credit for college tuition, the aide said. Those are items championed by Senator Charles Schumer of New York, the third-ranking Senate Democrat.

Other breaks that may be made permanent include incentives for landowners to donate conservation easements and for individuals to make charitable donations directly from tax- advantaged retirement accounts.

Dozens of other tax breaks that expired at the end of 2013 would be continued through 2015. Among those that have lapsed are a provision that lets home sellers exclude from income the forgiven debt from short sales, as well as accelerated depreciation for motorsports tracks.

Child Credit
After reports of an emerging agreement yesterday, the Obama administration issued a statement signaling that it opposed a package that doesn’t extend expansions of the child tax credit and earned income tax credit that lapse at the end of 2017.

“An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle-class families,” Treasury Secretary Jacob J. Lew said yesterday. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”

Congress returns on Dec. 1 to finish its post-election session, and lawmakers want to leave Washington by Dec. 11.

That time frame might make it difficult for Obama to veto any plan, especially because the Internal Revenue Service has warned that waiting could delay tax refunds next year.

If this proposal falls apart, House Republicans’ fallback plan is to extend the lapsed breaks through Dec. 31, 2014, Ways and Means Committee Chairman Dave Camp said yesterday.

That approach would require lawmakers to return to the issue next year, when Republicans will control the House and the Senate.

IRS Offers Rules on Hardship Exemptions from ACA Individual Mandate

Tuesday, November 25th, 2014

Originally Published in ACCOUNTINGTODAY.COM

The Internal Revenue Service has issued a notice, regulations and other guidance related to the Affordable Care Act, including information on getting a hardship exemption from the individual mandate for health insurance coverage.

Notice 2014-76 provides a list of the hardship exemptions that taxpayers can claim on a federal income tax return without obtaining a hardship exemption certification from the health insurance marketplace.

Under the Affordable Care Act, for each month beginning after Dec. 31, 2013, Section 5000A of the Tax Code requires individuals to either have minimum essential health coverage for themselves and any nonexempt family member whom the taxpayer can claim as a dependent, qualify for an exemption, or include an individual shared responsibility payment with their federal income tax return.

An individual is exempt from the requirements for a month if he or she has a hardship exemption certification issued by the health insurance marketplace certifying that the person has suffered a hardship affecting their ability to obtain minimum essential coverage that month.

The IRS simultaneously released Revenue Procedure 2014-62, which announces the indexed applicable percentage table for calculating an individual’s premium tax credit for taxable years beginning after 2015. The document also announces the indexed required contribution percentage for determining whether an individual is eligible for affordable employer-sponsored minimum essential coverage for plan years beginning after 2015.

The same Revenue Procedure cross-references the required contribution percentage, as determined under guidance issued by the Department of Health and Human Services, for determining whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage, beginning after 2015.

In addition, the IRS issued TD 9705, finalizing its regulations for minimum essential coverage and other rules regarding the individual shared responsibility payment, also known as the individual mandate.

Budget Cuts Hit IRS’s Ability to Collect Delinquent Taxes

Thursday, November 6th, 2014

Originally Published in ACCOUNTINGTODAY.COM

Years of budget cuts are having a negative impact on the ability of the Internal Revenue Service to collect delinquent taxes, according to a new government report.

The IRS’s Automated Collection System is responsible for answering incoming taxpayer calls and working the inventory of taxpayer delinquent accounts, the report from the Treasury Inspector General for Tax Administration noted. Since fiscal year 2010, the ACS workforce has declined by 39 percent due to attrition or reassignment, TIGTA found. Because those resources are needed to answer telephone calls, fewer resources are available to work on the inventory of past-due taxes.

This has contributed to unfavorable trends in several ACS business results, the report noted, including the amount of new inventory of cases of uncollected taxes outpacing closures of such cases; the inventory of delinquent tax cases taking longer to close; more cases being closed as uncollectible; fewer enforcement actions being taken; and more aged cases being transferred to a holding file queue that the IRS maintains of uncollected taxes.

In addition, the IRS has not established performance metrics to measure the effect that answering incoming calls has had on compliance business results, TIGTA pointed out. Capturing such data would allow ACS management to assess the impact of prioritizing call handling.

“IRS management should take steps to ensure that inventory routing and ACS resource capabilities are aligned with overall IRS tax administration priorities and their vision for the role of the ACS in the Collection enforcement strategy,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA recommended that the IRS re-examine the ACS’s role in the collection workflow process, including inventory delivery to the ACS as well as case retention criteria, and align ACS resources accordingly. The IRS should also request a study to determine the impact of the policy change to not require Notice of Federal Tax Lien determinations on certain unpaid balances, according to TIGTA. The IRS should also establish performance metrics for ACS call handling data to measure the impact that answering taxpayer calls has on compliance business results, the report suggested.

IRS officials agreed with the recommendations and plan to take corrective actions. “We recognize the critical role ACS plays in our Collection program and, while it is our intent that ACS’s role not be diminished going forward, the current budget environment requires us to continually evaluate our programs and priorities in light of declining resources,” wrote Karen Schiller, commissioner of the IRS’s Wage & Investment Division, in response to the report. “To that end, the Wage & Investment and Small Business/Self-Employed Divisions are currently realigning our compliance programs. As part of this effort, we are creating a single Collection organization within the Small Business/Self-Employed Division. The executive lead of this new Collection organization will have end-to-end accountability for the Collection program and will be responsible for reducing redundancies in our Collection processes and improving taxpayer services while identifying emerging Collection issues. While we are continuing to develop the structure and the concept of operations for this new Collection organization, ACS will be a key component. And, as part of our work on the concept of operations for the new Collection organization, we will be reviewing our ACS program to determine whether the Collection responsibilities and authorities currently assigned to our ACS employees need to be enhanced. We are proud of ACS’s contributions to our Collection program and it is our intent that ACS’s role be enhanced going forward.”

In further response to the report, the IRS pointed out that budget cuts are havin g an impact on its ability to collect revenue and taxes. “This report dramatically illustrates the bottom-line impact that IRS budget reductions have on revenue collection and unpaid taxes,” the IRS said in a statement emailed to Accounting Today. “With the IRS funding down by $850 million since Fiscal 2010 and priority programs such as identity theft requiring more resources, staffing for Automated Collection System fell from 2,824 in 2010 to 1,730 in 2013. At the same time, the report notes that tax collection in this program fell by $400 million. This is a clear example that deep cuts to the IRS budget hurts tax collection and threatens the nation’s revenue collection.”