TCJA 2018 “quick facts”

TCJA 2018 “quick facts”

• Seven tax brackets (mostly "3% lower" tax rates)
• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%
• Standard deduction: 
• MfJ      24,000
• Single  12,000
• HoH     18,000
• In TY2017, 70% of taxpayers used the standard deduction
• In TY2018, estimated 94% of taxpayers will use the standard deduction
• Rev. Reg. §1.163-8T - interest tracing - HELOC interest NO longer deductible
• Use form 8801 AMT credit from prior-year - carry forward to current year to take an AMT credit in current year, provided you have No AMT tax in the current year
• There's No longer a Pease phase-out on itemized deductions. No limitation on income for itemized deductions for TY2018
• C-Corp 21% tax rate on first dollar and last dollar. 
• No QBI deduction for C-Corp’s because they already have the low flat 21% tax rate
• 20% QBI deduction cannot exceed 20% of taxable income. 
• use the correct SIC code. IRS is tracking SIC code for QBI purposes 
• 20% deduction 
• Not allowed in Computing AGI 
• Does not reduce self-employment tax 
• Is Allowed as a deduction reducing taxable income
• Keep your business taxable income under $315,000 to get full QBI deduction
• Because not all states adopted new federal law, there will be federal and state differences on medical expenses and other itemized deductions such as the SALT deduction
• Gambling winnings/losses. 
• Mileage to and from the casino is deductible as part of your gambling losses.
• Losses cannot exceed winnings. 
• Gamblers still have to itemize to deduct losses.
• Vehicle depreciation 
• 1st  year  10,000 
• 2nd year  16,000 
• 3rd year     9,600
• Thereafter 5,760
• Switch the straight-line depreciation in year straight-line exceeds accelerated depreciation
• Capital gains tax
• No significant changes
• Rates don’t match brackets exactly
• STCG still ordinary income
• 15% LTCG rate starts at 38,600 for single. 77,200 for MfJ
• 20% LTCG rate starts at 425,800 for single. 479,000 for MfJ
• NOLs limited to 80% of Taxable Income
• DPAD §199 (Domestic Production Activities Deduction) Repealed
• Inventory - Businesses under $25 million gross receipts need NOT account for inventory under §471. May treat inventory as non-incidental Materials and Supplies
• Marriage penalty eliminated for couples earning under $400K
• §179
• Is NOT depreciation
• Expensed
• Unadjusted Basis of Property equals ZERO
• §1231 “Like-kind exchange” NOW only for Real Estate
• New $500 credit for dependents 17 years or older
• §529 now okay for tutoring grades K - 12 and private school
• Mortgage interest - deduction on debt only up to $750K
• SALT capped at $10K MFJ, $5K Single
• Beginning 2019 Alimony NO longer deductible
• Prior to 2019 alimony grandfathered
• ACA
• 3.8% NIIT (same)
• 0.9% Medicare tax (same)
• No more ACA penalty (for lack of health insurance) after TY2018
• AMT exemption phaseout thresholds:
• $1MM MfJ
• $500K Single
• Medical Expenses
• 7.5% for TY2017 and TY2018 
• 10%  for TY2019

Footnote:

• Steve’s three accounting rules:
• Never take too much depreciation
• Bank transfers are never taxable
• Federal Income Tax (FIT) is never deductible
• Four types of Assets
• Inventory
• Capital 
• Real Estate 
• Depreciable (§1231, §1245, §1250)

Have a Blessed Day.

History of Enrolled Agents

History of Enrolled Agents

• The following is provided as an overview of how Enrolled Agents fit into the US tax system. Post Civil War (April 12, 1861 – April 09, 1865) Congress enacted legislation that gave citizens of the US authority to make claims for the value of horses and other property lost during the Civil War. These claims were to be filed with the Treasury Department.
• It soon became evident that more claims had been submitted than horses lost?
• July 7, 1884 - Under President Chester Arthur, the General Deficiency Appropriation Bill (HR 2735) signed into law. (known as the Horse Act of 1884 or the Enabling Act.)
• This law gave the Secretary of the Treasury authority to regulate the admission of attorneys and agents who represented claimants before the Treasury Department and to take appropriate disciplinary action against those who failed to comply with the regulations or who were incompetent.
• 1966- More revisions to Circular 230 became effective in September 1966.
• The Treasury Department/IRS agreed to continue the Special Enrollment Exam and provide an official name for these representatives by establishing the “Enrolled Agent” designation.
• 1994 More revisions to Circular 230 became effective in 1994.
• Enrolled Agents were approved to use the initials “EA" to denote the Enrolled Agent title.

White House Proposal

White House proposal

(President President Trump Releases a One Page Plan):
Individual Tax Reform

• Reduce seven (7) tax brackets into three (3) tax brackets. 
• The current marginal rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. 
• Three new proposed rates of 10%, 25%, and 35%. 
• The administration has yet to identify the tax bracket income levels for these new rates? 
• Repeal the Affordable Care Act's (ACA) 3.8% net investment income tax imposed upon unearned income and capital gains of high-income taxpayers.
• Double the standard deduction.
• Limit itemized deductions to mortgage interest and charitable contributions.
• Repeal the estate tax.
• Repeal the Alternative Minimum Tax (AMT).
• Provide tax relief for families with child and dependent care expenses. 
• The administration has yet to clarify how this relief will differ from the current expenses under IRC §21.

Business Tax Reform

• Lower the business tax rate to 15%. While the current corporate tax rate is 35%, many small businesses  (S-Corp's P-Ships)  pass through their income via K-1's to the individual level. 
• The administration has yet to identify any rules which may be established to prevent individuals from creating pass-through entities to avoid being taxed at a lower business rate, rather than higher individual rate?  But there would be rules established to prevent this practice from taking place?
• Establish a territorial tax system. 
• Foreign earned income would generally be excluded from this system.
• Eliminate tax breaks for special interests. 
• Establish a "one-time tax" on corporate earnings realized and held overseas (on which tax is deferred).

Source: NAEA E@lert Newsletter April 28, 2017

Proposed Tax Plan from President-Elect Trump

Proposed Tax Plan from President-Elect Trump

• Tax brackets reduced to three: 12%, 25% and 33%.
• Elimination of:
• Alternative Minimum Tax
• Head of Household filing status
• Net Investment Income Tax
• Personal Exemptions
• Estate Tax

• Business tax rate lowered to 15%.
• Cap on itemized deductions at $100,000 for single filers and $200,000 for married filing joint. 
• Standard deduction $15,000 for single filers and $30,000 for married filing joint. 
• Low-income families get a credit up to $1,200 a year for child-care costs. 
• Close the "carried interest" exemption. Essentially, it allows big money managers to count earnings as capital gains instead of ordinary income. 
• Carried interest would be taxed at ordinary tax rates instead of capital gains rates.

Alternative Minimum Tax Adjustments

Alternative Minimum Tax Adjustments
Under regular tax, deductions subtracted from AGI reducing  taxable income, lower the amount of tax, but under AMT specific deductions are not permitted.

Below is a list of deductions allowed under regular tax, but not permitted for AMT:
• Standard deduction (for non-Schedule A filers).
• Personal exemption(s)
• Property tax
• State & local income tax
• General sales tax
• Personal excise tax
• Investment advisory fees
• Employee business expenses (Form 2106) itemized on Schedule A

While regular tax allows a deduction for mortgage interest on acquisition indebtedness and home equity indebtedness, AMT allows a deduction only on acquisition indebtedness.

Under AMT, medical & dental expenses are deductible when your expenses are more than 10% of AGI -- 7.5% of AGI for taxpayers 65 years or older. 

Charitable donations ARE allowed under the AMT as an itemized deduction.

Lower tax rates that apply to qualified dividends & long-term capital gains for regular tax purposes apply for AMT purposes as well.

Most people's goal to reduce total tax, (the sum of regular tax plus AMT), is spoiled when deductions reducing regular tax are added back for AMT, increasing AMT. A plan to reduce or eliminate AMT, by decreasing deductions will cause regular tax to increase, resulting in a "no-win" situation—AMT goes down, but regular tax goes up,"Catch-22"

Sadly, there is little taxpayers can do to reduce their AMT exposure.

Where Tax Dollars Went in 2015

Premium Tax Credit

Check Out this Graphic to Determine if You Might be Eligible for the Premium Tax Credit

• IRS Health Care Tax Tip 2016-30, March 10, 2016 Español
• The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. Answer the yes-or-no questions in the following chart – or in this accessible text – and follow the arrows to find out if you may be eligible for the premium tax credit.
• Here are links to information and resources referenced in the graphic:
• Form 8962, Premium Tax Credit (PTC) and Instructions
• Information about the federal poverty line (FPL)
• Publication 974, Premium Tax Credit (PTC)
• Interactive Tax Assistant: Am I Eligible to Claim the Premium Tax Credit

New Minimum Late File Penalty

• The Trade Facilitation and Trade Enforcement Act of 2015, referred to as the "Customs Bill", was signed into law on Feb 24th, 2016.   The Bill originally grabbed tax headlines news for it's ban on local taxation of InterNet access.  
• This law included late-filing penalties. 
• For tax returns filed after Dec 31, 2015, the minimum late-file penalty is the smaller of $205 or 100% of the unpaid tax. 
• The previous minimum late-file penalty was the smaller of $135 or 100% of the unpaid tax. 
• The late-file penalty is assessed on tax returns filed 60 days after the filing deadline, usually April 15th.

IRS Penalties

• Normally, the IRS treats each late filer individually and calculates penalties and interest on a case-by-case basis.
• Once the IRS receives or accepts your return, the penalties are computed (plus interest) and a separate bill is sent to the taxpayer.
• There is no penalty if you're getting a tax refund, provided you file within 3 years of the April 15 deadline (or October 15 deadline if you filed an extension).
• After 3 years, unclaimed tax refunds are forfeited and become the property of the US Treasury.
• There is no late-file penalty if you filed an extension and paid any additional taxes owed by April 15, as long as you file your return by the October 15 deadline.
• A late-file penalty applies if you owe taxes and didn't file your return or extension by April 15.
• This penalty applies if you owe taxes, filed an extension, but didn't file your return by October 15.
• The late-file penalty is 5% of the additional taxes owed amount for every month (or fraction thereof) your return is late, up to a maximum of 25%.
• If you file more than 60 days after the due date, the minimum penalty is $205 or 100% of your unpaid tax, whichever is smaller.
• The late-file penalty is 10 times higher than the late-pay penalty. Even if you can't pay your tax bill, file your return on time, or at least file a 6-month extension. You can file an amendment later.
• A late-pay penalty applies if you didn't pay any balance due owed by April 15, whether you filed an extension or not.
• The late-pay penalty is 0.5% (1/2 of 1%) of any balance due amount for every month (or fraction thereof) the owed tax remains unpaid, up to 25% maximum.
• For any month(s) in which both the late-pay and late-file penalties apply, the 0.5% late-pay penalty is waived.

Case Study:  Let's say you haven't filed your return or an extension by April 15, and you still have a $10,000 balance due the IRS.

• If you file your return on April 29 (2 weeks late) and submit your payment for $10,000, you would likely owe an additional $500 for the late-file penalty ($10,000 x 5% = $500).
• Had an extension been filed by April 15, your late-pay penalty would only be $50 ($10,000 x .05% = $50) and not a late-file penalty of $500. 
• Say instead, you filed your return and submit your payment for $10,000, 5-years late, (past the original due date).  You would owe an additional $5,000 for filing late and paying late ($10,000 X 25%), (5% per month up to 25% for filing late) plus ($10,000 X 25%), (0.5% per month up to 25% for paying late)*, plus possible interest.

* The late-pay penalty is 0.5% of the unpaid taxes, assessed on a monthly basis, up to a maximum of 25%.

Courtesy: IRS Tax Topic 653

Special Alert: 2015 Tax Extenders

Special Alert: 2015 Tax Extenders 
President Obama has signed the Protecting Americans from Tax Hikes (PATH) Act which extends numerous tax provisions. Some important tax provisions have been made permanent, while others were extended through 2016 or 2019. The PATH Act adds in other provisions to mitigate "erroneous" education credit, child tax credit and earned income tax credit claims. Some of the most notable provisions include:

• A permanent extension of the $500,000 §179 limit.
• An extension for bonus depreciation through 2019.
• A permanent extension of the general state and local sales tax deduction.
• A permanent extension of the $250 educator expense deduction.
• An extension for the exclusion from the cancellation of debt of qualified principal residence indebtedness through 2016.
• The research credit.
• A requirement that a tax preparer exercise due diligence, similar to the earned income tax credit, for the American opportunity tax credit and child tax credit, with similar penalties for failure to do so.

A full listing of PATH Act provisions can be found here.

• By signing into law the Tax Extenders bill, President Barack Obama extended over 50 provisions in the tax code due to expire. 
• If your house was foreclosed, and the foreclosure sale did not satisfy the mortgage debt, there is an exclusion for the mortgage debt that is cancelled as a result of the foreclosure.
• Tuition deduction, aimed at students pursuing higher education, e.g. Master's or PhD degrees, is a deduction up to $2,000 or $4,000, subject to income thresholds.
• Earned Income Tax Credit (EITC), an antipoverty program set to expire in 2016, is extended permanently. 
• EITC is intended to encourage workers with children. 
• Max credit for families with 3 or more children has been raised from 40% to 45%.
• American Opportunity Tax Credit (AOTC) is extended permanently, AOTC is a benefit for college students, who can claim a tax credit of up to $2,500 per academic year subject to income limitations.
• "Teacher Deduction" is made permanent, which allows teachers to deduct up to $250 of their personal expenses spent on school supplies for their classrooms.

For a list of the 50 provisions, visit the Journal of Accountancy for more detailed information.

References:

National Association of Tax Professionals

Journal of Accountancy

Tax Extenders You Can Count On

Tax Extenders You Can Count On
Tax extenders, temporary tax provisions that are reinstated by Congress on a regular basis, have been a recurring part of the tax arena for years. Most of the current group up for debate have expired at the end of 2013, and their eventual extension will be retroactive, but not all will be extended. Here are the best bets.

Beware of Expiring Tax Breaks
Even though the tax extenders have been known since the end of last year, and there is general bipartisan agreement that they need to be acted on, there is no guarantee as to when they will be passed.

The Senate passed a comprehensive extenders bill, the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, in April 2014. The bill would extend for two years over 50 expired provisions. The House, on the other hand, has focused on permanent extension of tax provisions in a series of bills. Added to the mix, of course, is President Obama, who has threatened to use his “veto pen” on legislation he doesn’t like.

Businesses would like to know for tax planning purposes, and the IRS would like to know so they can get out the forms and program their systems on time. Preparers would like to know so tax season begins on time. Following is a list of extenders most likely to be passed, either in the upcoming lame-duck session or early next year.

R&D Credit
This perennial extender, also known as the research tax credit or the research and experimentation tax credit, was available as either a 20% traditional research tax credit or a 14% alternative simplified credit.

Section 179 Expensing
For tax years beginning in 2012 and 2013, the maximum Section 179 deduction was $500,000. The maximum dropped to $25,000 for tax years after 2013. Extender legislation would restore the enhanced amount and phase-out threshold under Section 179, as it was prior to 2014.

50% Bonus First-Year Depreciation
This tax break was available at a 50% rate for qualified property placed in service prior to 2014.

Food Donation Tax Deduction
This deduction, the enhanced charitable deduction for contributions of inventory, was enacted in response to Hurricane Katrina in 2005. It allowed a deduction for the contribution of food inventory by taxpayers that are not C corporations.

Option to Deduct State and Local Sales Taxes
Prior to 2014, taxpayers were allowed to deduct state and local sales and use taxes in lieu of state and local income taxes on Schedule A.

Work Opportunity Tax Credit
The WOTC allowed businesses to claim a tax credit of 40% of the first $6,000 of wages paid to new hires of one of eight targeted groups, including members of families receiving benefits under the Temporary Assistance to Needy Families program, qualified ex-felons, qualified veterans, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients and long-term family assistance recipients.

Qualified Small Business Stock
The holder of such stock, acquired at original issue by a non-corporate taxpayer and held for more than five years, could exclude 100% of gain from its sale, rather than 50% of the gain, if acquired prior to 2014.

Credit for Energy Efficient Improvements to Existing Homes
The 10% credit for purchases of energy efficient improvements to existing homes allowed up to $150 for an energy efficient furnace, up to $200 for energy efficient windows, and up to $300 for other improvements such as insulation, with the total credit capped at $500 per taxpayer.

Above-the-Line Deduction for Higher Education Expenses
This deduction was $4,000 for taxpayers with adjusted gross incomes of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns).

Tax-free Distributions from IRAs for Charitable Purposes
IRA owners older than 70 1/2 could exclude up to $100,000 per year in distributions made directly from the IRA to public charities.

Offshore Tax Break
One extender that is unlikely to be passed is the look-through treatment of payments between related CFCs [controlled foreign corporations], according to Dean Sonderegger, executive director of product management for Bloomberg BNA Software. “It allows corporations to more easily move off-shore earnings across different borders,” he said. “If they move money back to the US, they have to pay tax. The rule is a way to get around some of the taxes. It’s very popular with international businesses, but I can’t see it making it through the legislative process in today’s environment.”

Tax Increase Prevention Act of 2014 (HR 5771)

Tax Increase Prevention Act of 2014 (HR 5771)
Provisions being extended, which include:

• 50% Bonus depreciation on new equipment acquisitions
• §179 expensing limitations:
• $250K qualified real property §179 limit
• R&D credit
• Tuition and fees "Above-the-line" deduction 
• Itemized deduction for state and local general sales taxes
• Itemized deduction for mortgage insurance premiums (PMI) (MIP) treated as qualified residence interest
• Qualified principal residence discharge of indebtedness exclusion from gross income 
• Charitable distributions from IRAs (up to $100,000 per taxpayer per year) of individuals at least 70 1/2 years of age
• Educator's $250 tax deduction of qualified out-of-pocket expense
• 15 year recovery period for qualified leasehold improvements, restaurant property and retail improvements  

An In-Depth Look: House Passes Tax Extenders Bill, Possibly Breaking Year-Long Impasse. (Parker Tax Publishing December 05, 2014)

On December 03, 2014, the House of Representatives made the latest move in this year's tax extenders drama, passing a bill that would extend numerous expired tax provisions through the end of 2014. HR 5771 (12/03/2014).

Titled the "Tax Increase Prevention Act of 2014", the House bill would extend retroactively for one year, through the end of 2014, virtually all of the tax breaks that had previously been temporarily extended by the American Taxpayer Relief Act of 2012 (ATRA). In addition to the extensions, HR 5771 corrects numerous technical and clerical errors in the tax code, as well as eliminating many superfluous provisions (known as "deadwood").

To become law, HR 5771 still needs to pass the Senate and be signed by the President.

The following is a summary of the House bill's key provisions and a brief recap of the Senate and White House reactions. For a complete synopsis of the bill, see the Ways and Means Committee Tax Staff Summary of HR 5771.

Individual Tax Extenders
HR 5771 would extend eight tax relief provisions for individuals through the end of 2104. Notable provisions include:

• Extend the exclusion from gross income from the discharge of qualified principal residence indebtedness.
• Continue the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for taxpayers with adjusted gross income between $100,000 and $110,000 (half those amounts for married taxpayers filing separately).
• Extend the exclusion from gross income of qualified charitable distributions from IRAs of individuals at least 70 1/2 years of age. The exclusion is for up to $100,000 per taxpayer per year.

HR 5771 would also extend the following tax breaks through the end of 2014:

1. Above-the-line deduction for higher education expenses.
2. Deduction for expenses of elementary and secondary school teachers.
3. Increased exclusion from income for employer-provided mass transit and parking benefits.
4. Deduction for state and local general sales taxes.
5. Special rules for contributions of capital gain real property made for conservation purposes.

Business Tax Extenders
HR 5771 would extend forty-one tax relief provisions for businesses, including the research and development tax credit, bonus depreciation, and increased expensing limitations and the treatment of certain real property as Code Sec. 179 property. A rundown of the more important provision follows:

• Extend the research and development tax credit, which generally allows taxpayers a 20% credit for qualified research expenses or a 14 percent alternative simplified credit. 
• Extend 50% bonus depreciation to property acquired and placed in service during 2014 (2015 for certain property with a longer production period). This provision would continue to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2014. The provision would also continue a special accounting rule involving long-term contracts and a special rule for regulated utilities.
• Extend increased §179 expensing limitation and phase-out amounts ($500,000 and $2,000,000 respectively; without the extension the amounts would be $25,000 and $200,000, respectively). The special rules that allow expensing for computer software, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property also would be extended through 2014.

Other notable tax breaks that would be extended through the end of 2014 include:

1. New markets tax credit.
2. Work opportunity tax credit.
3. 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
4. Enhanced charitable deduction for contributions of food inventory.
5. Look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
6. Temporary exclusion of 100 percent of gain on certain small business stock.
7. Reduction in S-corporation recognition period for built-in gains

Energy Tax Extenders
HR 5771 also would extend multiple tax incentives for alternative and renewable energy sources, including: 

1. credits for nonbusiness energy property, 
2. an extension of the second generation biofuel producer credit, 
3. credits for facilities producing energy from certain renewable resources including wind power, 
4. credits for energy-efficient new homes, and 
5. deductions for energy efficient commercial buildings.

Extend the credit for purchases of nonbusiness energy property (a.k.a. residential energy credits). The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500.

Extend the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.

Technical Corrections and Deadwood Provisions
In addition to the tax extenders provisions, HR 5771 contains numerous corrections to various technical and clerical errors. These technical and clerical errors create confusion for taxpayers and complicate administration of the tax laws. Title II of HR 5771 the Tax Technical Corrections Act of 2014 would make technical and clerical corrections to recently enacted tax legislation, including the American Taxpayer Relief Act of 2012, the Creating Small Business Jobs Act of 2010, and the Economic Stimulus Act of 2008. Notably absent from the list of technical corrections is the Affordable Care Act (i.e. Obamacare). In general, the amendments made by these technical and clerical corrections would take effect as if included in the original legislation to which each amendment relates.

Under current law, there are numerous provisions that relate to past tax years (and generally are no longer applied in computing taxes for open tax years), involve situations that were narrowly defined and unlikely to recur, or otherwise have outlived their usefulness. These types of provisions are often referred to as "deadwood" provisions and HR 5771 would repeal these current-law deadwood provisions. This repeal generally would be effective on the date of enactment, although the tax treatment of any transaction occurring before that date, of any property acquired before that date, or of any item taken into account before that date, would not be affected.

Senate and White House Reactions
For a fairly tame piece of legislation that passed the House with overwhelming bipartisan support, HR 5771 received surprisingly bitter criticism on initial response from the Senate, which had stalled on its own tax extenders bill earlier this year.

The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014, which would have extended tax breaks for two years, was passed by the Senate Finance Committee but was blocked when it reached the Senate floor in May. Aside from the two-year time frame, the Senate bill is nearly identical in substance to the House bill.

Despite members' dissatisfaction with the House version, it appears likely that the Senate will vote to pass the year-long extension. A top Senate Democrat suggested that they may have little alternative but to accept the House's plan, as time is running out and a mindset that one year is better than none is setting in. According to Treasury Secretary Jack Lew, the Obama administration is open to the short term deal.

If the Senate does follow the House and passes the one-year bill and the President signs it into law, Congress will have set itself up to revisit the extenders again in 2015.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Source:  Parker Tax Pro Library (Staff Editor Parker Tax Publishing)

Implementation of Affordable Care Act (ACA)

Implementation of Affordable Care Act (ACA)
Under the Affordable Care Act (ACA), both:

• health insurance providers and 
• "large employers" who have: 
• 50 or more full-time equivalent employees 
• FTE = 30 hours per week or 130 hours per month 

have new reporting requirements to ensure they are meeting health care coverage obligations. The information reporting obligations are meant to provide policy details for each person who is provided with coverage to the IRS. At the end of the year, taxpayers and their dependents must be able to prove that they were participating in a qualified health plan, thereby producing a need for third-party tax information reporting.

IRC §6056 requires employers to report to the IRS information about their compliance with the employer shared responsibility provisions, including the type of health care coverage they offer to their employees. In addition, employers are required to furnish related benefit statements to employees to assist them in determining whether they can claim a premium tax credit on their tax return.

IRS Form 1095-C (Employee statement) and a Form 1094-C (Transmittal) are the proposed designated forms to be used for §6056 reporting. Use the following links to view a draft of each of these forms:
Form 1095-C
Form 1094-C

Tax Penalty Abatement Letter Request & Form 843

Tax Penalty Abatement Letter Request & Form 843
Below is a sample penalty abatement letter request to the IRS. It is intended to be used as a guide and is for information purposes only when trying to abate tax penalties.

Date:  September 20, 20xx

To:  IRS (Penalty Abatement)
(address given on notice of tax amount due)

From:  Jane Doe
123 Any Street
Any City, State 99999
SSN: (***-**-****)

Re: Request for Penalty Abatement

Dear Sir:

I am writing to request an abatement of penalty in the amount of $(amount) as assessed in the attached notice that is dated ____/____/____.

The reason why I _________(pick one)

• Paid late 
• Filed late 
• Failed to report income 

was because I ____________ (pick one) 

• Had a serious medical condition 
• House burned down 
• Documents were stolen 
• Death of a close family member 
• ...or any other reason that prevented you from complying with the IRS requirements 

Please find the enclosed (documents that support my claim) 

• Death notice of a family member 
• Letter from a doctor stating the conditions of your illness that prevented you from filing or paying 
• Picture of house burned down in fire 
• Insurance notice of theft of private property and documents 
• ...or any proof you can enclose (a copy of) to prove statement above 

Please consider my request for abatement of penalty based upon reasonable cause. If there are any questions or further information required, I can be reached at (telephone number) from 9am to 6pm. I have enclosed a payment in the amount of taxes owed, net of the penalty portion.

Sincerely,
/s/ Jane Doe

Editorial Note:

• If you have the funds to pay, you should pay the tax owed. 
• If you do not have the funds, you can apply for an Installment Agreement to pay back taxes owed over time or file an Offer-in-Compromise based upon reasonable collection potential (RCP).
• When enclosing your documents, be sure to keep copies for yourself.
• Review the penalty to determine:
• how and why it was assessed (late-file, late-pay and/or underreporting penalties), 
• what happened to create a situation for the taxpayer (TP) where a penalty was assessed (why the TP didn’t file or pay), and 
• whether the penalty abatement program would benefit the TP, and
• should TP apply for penalty abatement?
• For example, a TP who is Currently-Not-Collectible (CNC) would not benefit from penalty abatement; although, a first time abatement may be beneficial for someone who qualifies for CNC and has maxed out the 25% failure to pay penalty on their oldest tax year. 
• Abatements can be requested and authorized over the phone with ACS.
• More difficult to obtain are Reasonable Cause abatements. These abatements generally must be submitted on Form 843 and have well established reasonable cause criteria that must be met to qualify. File for these abatements at the end once a collection status has been resolved for the client.
• It will take a few months to get a response from the IRS, and whether the abatement is possible.  
• Reason for an abatement request cannot be illegal or a ‘protester’ argument. 
• When filing Form 843, know the IRS is the determining party. The TP will receive notice of acceptance or denial within three to six months. Any denial has appeal rights, so if the TP disagrees, the TP can respond to the IRS denial accordingly.
• IRM §20.1 contains the Penalty Abatement Handbook, which includes the reasonable cause standards.

Enc.

Federal Tax Collection Rules & Procedures :: Internet Resource Links

Federal Tax Collection Rules & Procedures :: Internet Resource Links:
Purpose of this public resource: This site provides an organized assembly of many rules and procedures that govern the collection of unpaid federal tax. Electronic links connect researchers to the full text of many statutes, regulations, Internal Revenue Manuals, US Attorney Manuals, IRS Forms, US Government internet resources, several published cases and other materials. Source: irscollectionlaw.com

Chief Counsel Notices
Chief Counsel Bulletins
CODES - transcript and processing, 2011
FOIA Request Forms, IRS
Innocent Spouse, IRS self-help tool and information
Installments, IRS self-help tool and information
Internal Revenue Code
Internal Revenue Manuals
IRS Forms
IRS Publications
IRS Reading Room (notices, CCA, training material, etc.)
Treas. Regulations
US Attorney Manuals, index
Criminal Tax Manual (DOJ)

50% Bonus Depreciation Permanently Extended: Faster Tax Write-Off for Equipment

50% Bonus Depreciation: Faster Tax Write-Off for Equipment 

• 50% Bonus depreciation in some form has been in place since 2008 during President George W. Bush’s tenure in the White House to help stimulate a lagging economy.
• Under "Bonus Depreciation", companies can deduct an additional 50% of the cost of an equipment purchase in the first year of service, on top of the regular depreciation schedule.
• 50% Bonus depreciation is eligible in 1st year of service only.
• Bonus depreciation must be taken: 
• AFTER any elected §179 deduction and 
• BEFORE any regular depreciation.
• 50% Bonus depreciation must be on: 
• New property, 
• NOT Used property, and 
• New-in-Service to the taxpayer.
• Illustration: Assume that in 2013, a taxpayer purchased new depreciable property and placed it in service. (Consider elected §179 expensing to the cost of the property to be 20,000).
• Property’s cost is 100,000, and it is 5-year property subject to 200%/DB/Half-Year (MACRS method/convention).
• §179 elected is 20,000
• Additional first-year (50% Bonus depreciation) depreciation allowed is 40,000. [50% x (100,000 - 20,000)] 
• The remaining 40,000 (100,000 - 20,000 - 40,000) of the cost of the property is depreciated under the rules applicable to 5-year property. 
• 8,000 is allowable as current year depreciation expense in 2013 (8,000 results from the application 200%/DB/Half-Year method and convention to the remaining 40,000). 
• Total depreciation deduction with respect to the property for 2013 is 68,000. The remaining 32,000 Adjusted Basis of the property will be recovered over the remaining life of the asset using applicable depreciation rules.
• Additional first-year depreciation deduction is allowed for both the regular tax and the alternative minimum tax (“AMT”).
• IRC §168(k). Additional first-year depreciation deduction is subject to the general rules regarding whether an item must be capitalized under §263A.
• 100% of the adjusted basis of qualified original-use property that meets the requirements for the additional first-year depreciation is eligible. 

H.R.4718 - To amend the Internal Revenue Code of 1986 to modify and make permanent bonus depreciation

Tax Implications of Internet Currencies

Tax Implications of Internet Currencies

Not surprisingly in IRS Notice 2014-21 the IRS concluded that virtual currency transactions for services and goods had tax consequences. Virtual currency is a growing digital phenomenon where internet users trade real currency for board game dollars, like Monopoly. BitCoin has the most virtual currency activity. Refer to: weusecoins.com for background about internet currency.

The IRS clearly determined this digital currency activity is a property transaction that is measured by the FMV equivalent in US Dollars. The notice contains several key declarations.

• No foreign currency gain or loss is allowed
• 1099 reporting requirements exist
• A business/hobby determination is required
• Payroll and self-employment taxes are required for services and compensation
• Sections 6662, 6721, and 6722 penalties can be applied.

IRS Notice 2014-21 was written by the division of self-employment taxes within the Chief Counsel's Office. When reviewing your internet activity keep in mind the requisites of bartering activities and retain an internet money transaction log as part of your recordkeeping.
Courtesy: Massachusetts Society of Enrolled Agents

• BitCoin received in connection with a trade or business or received as wages is subject to ordinary income treatment at time received. BitCoin held for less than a year prior to disposition may be declared short-term capital gains or foreign exchange gains, receiving ordinary income treatment. BitCoin held more than one year prior to disposition, may be declared long term capital gains (with proper records) or foreign exchange gains.
• Don’t forget to include BitCoin activity when calculating your net investment income tax (NIIT).  If you are fortunate enough to have MAGI over the threshold amounts ($200,000 Single/$250,000 MfJ), BitCoin gains may be subject to NIIT. The statutory definition for net investment income includes interest, dividends, capital gains, rental and royalty income, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to a taxpayer. BitCoin could fall into several of these categories, depending on your personal circumstances. Non-passive business income is not subject to the NIIT tax.
• Declare foreign banking activity by filing a Foreign Bank Account Report (FBAR), if necessary. US persons (citizens, residents and entities created in the US) must file the FBAR if, at any time during the year, they had a financial interest or signature authority over a foreign financial account with a value of more than $10,000. A wallet with an exchange located in a foreign country, such as Mt. Gox, (Mt. Gox was a BitCoin exchange based in Tokyo, Japan) would cause the taxpayer to be subject to the FBAR rules. Note that the reporting threshold applies to your account balance on every day of the year, not the average balance or balance on just the last day. The FBAR threshold is also crossed when multiple foreign financial accounts have an aggregate value of greater than $10,000.

IRS' "New & Improved" Taxpayer Bill of Rights

IRS' "New & Improved" Taxpayer Bill of Rights

The ten rights, IRS website, are:

1. The Right to Be Informed: Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
2. The Right to Quality Service: Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax: Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard: Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
5. The Right to Appeal an IRS Decision in an Independent Forum: Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
6. The Right to Finality: Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
7. The Right to Privacy: Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality: Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
9. The Right to Retain Representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System: Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

"The Taxpayer Bill of Rights contains fundamental information to help taxpayers," said IRS Commissioner John A. Koskinen. "These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before."

Techniques for Seeking Tax Penalty Relief

Techniques for Seeking Tax Penalty Relief
Taxpayers can request relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties in three ways, depending on their situation:

1. Before the IRS assesses a penalty, the taxpayer can file a penalty non assertion request with a paper return to request that the IRS not automatically assess a penalty.
2. After the IRS has assessed a penalty, the taxpayer can request penalty abatement, typically by writing a penalty abatement letter or by calling the IRS. Tax professionals can also request abatement using IRS e-services.
3. After the taxpayer has paid the penalty, the taxpayer can request a refund using Form 843, Claim for Refund and Request for Abatement.  The taxpayer must file the claim within three years of the return due date or filing date, or within two years of the date the penalty was paid.

Reasons to Request Abatement
Generally, relief from penalties falls into four separate categories: 

1. reasonable cause, 
2. statutory exceptions, 
3. administrative waivers, and 
4. correction of IRS error. 

Under the category of administrative waivers, the IRS may formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess. The IRS may address an administrative waiver in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions. The most widely available administrative waiver is First-Time Abatement waiver.

Penalty Abatement Request Letter - Sample

You should also complete IRS Form 843 – Claim for Refund and Request for Abatement

Date

Penalty Abatement Coordinator
Address (as stated on your IRS notice of penalty) 

Your Name
Your Address
Your Social Security Number 

RE: Request for Penalty Abatement 

Dear Sir/Madam: 

I am requesting an abatement of the penalties on the taxes that I owe. These penalties are in the total amount of  $___________, as shown by the IRS tax  notice of penalties dated ____________, which I have enclosed.  

(select one of the following options)

_____ paid my taxes late
_____ filed my taxes late
_____ did not report income  

for the following reason(s):

(In this section of your letter, describe the reason(s) that you paid your taxes late, filed your taxes late, or failed to report income. Common examples of valid reasons include the death of a family member, serious illness of you or a family member, a civil disturbance such as a tornado, flood, or fire, or any other reason that prevented you from complying with the IRS.)

.______________________________________________________

.______________________________________________________

.______________________________________________________

Please find enclosed a copy of documentation that supports my reason(s) for requesting an abatement of penalties.

(In this section of your letter, describe the type of documentation supporting the reason(s) that you paid your taxes late, filed your taxes late, or failed to report income. Examples of supporting documentation include death certificates, statements from a doctor regarding illness or a medical condition, or pictures showing your home following a fire or hurricane.)

.______________________________________________________

.______________________________________________________

.______________________________________________________

(Omit the next sentence if you cannot enclose a payment toward your taxes.  However, you should try to enclose a payment if possible.) 

Please approve my request for abatement of penalties for good cause. I also have enclosed a payment in the amount of $_____________ toward the taxes that I owe.

If you have any further questions, please feel free to contact me at __________________ (your phone number, including area code). 

Sincerely, 

(Your Signature) 

Your Name

You can only receive a penalty abatement from the IRS if you can show good or reasonable cause for being unable to pay your delinquent taxes in full.  Reasons beyond your control that made you unable to determine your tax or pay your tax even though you were using ordinary care in your business operations.

Failure-to-File-or-Pay-Penalties:-Eight-Facts

References:

Forbes.com, Reducing IRS Penalties, 09/01/2013

IRS.gov

Internal Revenue Manual - 20.1.1

The Tax Advisor, Practice & Procedures, AICPA, July 01, 2013

Please copy & distribute freely

FBAR: Form FinCEN 114 replaces TD F 90-22.1

FBAR: Form FinCEN 114 replaces TD F 90-22.1 replaced

• On September 30th, 2013, the Financial Crimes Enforcement Network (FinCEN) made a very important change to the FBAR form which will effect it's filing for 2014. 
• Form FinCEN 114 reporting threshold (total value of foreign assets) is $10,000 at any time during the calendar year.

What Are The Changes:

• The FinCEN Form 114 supersedes TD F 90-22.1 as the official FBAR form. 
• The new FinCEN Form 114 is only available online on the BSA E-Filing System website. 
• A paper copy of the FinCEN Form 114 will not be accepted. 
• The system allows the filer to enter the calender reported, including past years on the online form. 
• The online form offers an option to explain a late filing. 
• It also lets you indicate if a filing is being made in conjunction with an IRS compliance program. 
• If you are filing FBAR with your spouse jointly or if you wish to have a third party preparer file your FBARs on your behalf, you can use the new FinCEN Form 114a. Form 114a is not filed with the Form 114 but maintained with the FBAR records by the filer. 

BSA E-Filing System

• The taxpayer has to go on the website and can download an Adobe PDF version of the FBAR, fill out the report, sign & save a copy & then submit the FBAR on the BSA Website. 
• Or the taxpayer can designate their EA, CPA or attorney to file on the BSA website on their behalf. 

Becoming a BSA Filer:

• An Enrolled Agent, CPA or Attorney can become a designated third-party filer. 
• The EA, CPA or attorney must make sure they have documented authority from the taxpayers required to file to sign & submit FBARs on their behalf through the BSA E-Filing System. 
• If such authority has been provided, the EA, CPA or attorney can file the FBARs through the single BSA account established for them. 
• Professional tax software programs may have included the FinCEN Form 114, enabling e-fling with the BSA Website. 

FBAR (Foreign Bank Account Report FinCEN 114) due no later than June 30th annually.

• The electronic version of the FBAR is currently available and must be filed electronically effective July 1, 2013.
• To file an FBAR report
• Line Item Instructions for completing the FBAR (Form 114)
• Record of Authorization to Electronically File FBARs (Form 114a) Click on the link to open the form to authorize spouse (if filing jointly) or a third party (individual or entity) to file the FBAR on your behalf. This form may be completed and saved electronically. Follow the instructions and complete all of the requested information. The filer and the account owner should maintain a copy of the completed form. The form must be made available upon request by FinCEN or the IRS. 
• Special notice for 2013 filings due by June 30, 2014

New Reporting Requirements by US Taxpayers Holding Foreign Financial Assets (Form 8938)

• Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. File Form 8938 if max value of account(s) exceeds $50,000 at any point during the year. Must use US Treasury FMS website Treasury Reporting Rates of Exchange to calculate foreign currency exchange rate. 
• The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.
• Attach Form 8938 Statement of Specified Foreign Financial Assets to Form 1040 if max value of account(s) is more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the tax year

Offshore Voluntary Disclosure Program

• On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.