Archive for 'General'

Jul 31

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Additional information on returns relating to mortgage interest.

Sec. 6050H is amended to require new information on the mortgage information statements that are required
to be sent to individuals who pay more than $600 in mortgage interest in a year. These statements will now be
required to report the outstanding principal on the mortgage at the beginning of the calendar year, the address
of the property securing the mortgage, and the mortgage origination date. This change applies to returns and
statements due after Dec. 31, 2016.

Jul 31

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The short-term highway funding extension passed by the Senate on Thursday contains several important tax
provisions. The bill modifies the due dates for several common tax returns, overrules the
Supreme Court’s Home Concrete decision, requires that additional information be reported on mortgage
information statements, and requires consistent basis reporting between estates and beneficiaries.

         

Due date modifications

For partnership returns -  the new due date is March 15 (for calendar-year partnerships) and the 15th day of the
third month following the close of the fiscal year (for fiscal-year partnerships).

For C corporations – the new due date is the 15th day of the fourth month following the close of the
corporation’s year.

The new due dates will apply to returns for tax years beginning after Dec. 31, 2015. However, for C
corporations with fiscal years ending on June 30, the new due dates will not apply until tax years beginning
after Dec. 31, 2025.

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Oct 01

Regulations issued on Tuesday finalize rules the IRS put into effect in 2012 allowing employees to deduct certain expenses paid or incurred for local lodging as business expenses.
Normally, lodging expenses a taxpayer incurs while not traveling away from home are considered personal expenses under Sec. 262(a) and are not deductible. However, under the new rules, local lodging expenses that meet certain criteria will be considered ordinary and necessary business expenses and therefore deductible under Sec. 162.
To be deductible, local lodging expenses must meet a facts-and-circumstances test under Regs. Sec. 1.162-32(a) or qualify for a safe harbor under Regs. Sec. 1.162-32(b). Local lodging expenses paid by an employer on behalf of an employee may be deductible under Sec. 132 as a working condition fringe benefit if they meet the new tests. If an employee is reimbursed by the employer for local lodging expenses, the reimbursement amount may be excludable from the employee’s income if the expense allowance arrangement qualifies as an accountable plan under Sec. 62(c).
One factor considered under the facts-and-circumstances test is whether the expense is a “bona fide condition or requirement of employment imposed by the taxpayer’s employer.” Examples given in the regulations to illustrate the facts-and-circumstances test include employees who are required to stay at a local hotel during a work-related training session; professional athletes who are required to stay at a local hotel before a home game; an employee who is relocating for work and looking for a new home; an employee who has to stay at a hotel near the office while working long hours; and employees who occasionally are on call for a night duty shift and stay at a local hotel.
Under the safe harbor, local lodging expenses will be treated as an ordinary and necessary business expense if:
· The lodging is necessary for the employee to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function;
· The lodging does not exceed five calendar days and does not occur more than once each calendar quarter;
· The employer requires the employee to remain at the activity or function overnight; and
· The lodging is not extravagant or lavish and does not provide a significant element of personal pleasure.
The final regulations clarify that expenses that do not qualify for the Regs. Sec. 1.162-32(b) safe harbor may nevertheless be deductible under the facts-and-circumstances test.
Taxpayers may apply the new rules to any tax year that is still open.

Sep 15

Ninety-four percent of small businesses use QuickBooks software for their accounting records, but the IRS does not have the budget to update its QuickBooks software yearly. Thus, it is unable to accept electronic records from many of the small businesses it is auditing. Without access to electronic records, the audit will be less efficient. Is that good or bad news for the taxpayer and/or the tax practitioner? More later.

Sep 15

The GAO says that since FY 2010, the IRS has lost 10,000 employees and had its budget cut by $900 million. More cuts are proposed for the 2015 IRS budget. Identity theft issues, foreign asset reporting, and Affordable Care Act (ACA) responsibilities will continue to absorb personnel and resources. This budget reality will hamper IRS audit goals, but there are still many audit targets that you will want to discuss with your business clients in the next few months.

The rich and their entities. High-income taxpayers will continue to receive audit attention (at about a 9% rate for those reporting income of $1 million to $5 million). Since these taxpayers often have complex tax returns with income and losses from many flow-through entities, the audit of the owner will often lead to an expansion of the IRS examination into the various entities.

Partnership returns. Partnerships are the fastest-growing segment of all tax returns filed. The IRS hopes to expand its audits of partnership and LLC returns. Flow-through losses from developers and real estate investors will get special attention. The audit rate of partnerships and LLCs was a dismal .42% for FY 2013. The IRS did special training this year to increase the number of auditors with a specialized knowledge in partnership law.

Employment taxes. Employment taxes are a focus this year, and this includes a continuing look by the IRS at:
1. Employee versus independent contractor,
2. Form 1099 compliance, and
3. S corporation reasonable compensation issues.
Remember that when the ACA’s employer mandate takes effect in 2015 and 2016, the employee versus independent contractor determination will become more important. Employer ACA penalties can be up to $3,000 for each misclassified employee.

Cash businesses. The tax gap remains a hot item, so cash-intensive businesses will receive a little more attention from the IRS. The IRS is using Form 1099-K to help it select some of these businesses for audit.

Mar 28

Keep your actual tax returns forever.  They can help when you, apply for a mortgage or disability insurance or need clues to the value of other assets. (You don’t need to keep the originals; you can scan the tax returns and keep a digital copy.

 

The IRS generally has up to three years after the tax-filing deadline to initiate an audit, so you should hold on to supporting documents for at least that long. Those documents include credit-card statements, canceled checks, debit-card transactions and receipts showing deductions; letters from charities reporting gifts; and paperwork reporting mortgage interest, capital-gains distributions and income

 

Most people can safely shred those supporting documents three years after the tax-filing deadline. But people who are self-employed or who have a small business or  income from a variety of sources or complex tax situations should keep their records longer. The IRS has up to six years to audit people who neglect to report more than 25% of their income. Shred the old documents rather than just throwing them away, so you don’t create a treasure trove of personal information for ID thieves.

 

Other tax files you should keep include records establishing the basis of your assets for as long as you own the asset (you should file those records with your tax files for the year you sell the asset).

 

Keep records showing the purchase date and price of stocks and mutual funds in taxable accounts. When you sell the investment, you’ll have to report the purchase date and price so you can establish the basis. Brokers are required to report the cost basis of stocks purchased in 2011 or later and mutual funds and ETFs purchased in 2012 and later, but Ziegler says it’s a good idea to keep your own records even for purchases after those dates in case you switch brokers. Also keep records of reinvested dividends that you’ve already paid taxes on, so you can add them to your basis when you sell and you won’t have to pay taxes on them twice. If you inherit any stocks or funds, keep records of the value on the day the original owner died, which will generally be the basis when you sell it.

 

Keep Form 8606 reporting nondeductible contributions to traditional IRAs until you withdraw all of the money from the IRAs. That way, you’ll be able to prove that you already paid taxes on the contributions and you won’t have to pay taxes on that portion of the money again when you start taking withdrawals.

 

Keep records of your home purchase cost and home improvements. You generally aren’t taxed on home-sale profits if you’ve lived in the home for at least two of the past five years and your profit is less than $250,000 if single or $500,000 if married filing jointly. But if you live in the home for a shorter time or have a bigger profit, you may have to pay taxes on part of your profits, and you can add the cost of major home improvements (not basic repairs) to the basis to reduce your taxable gain.  

 

You can toss pay stubs as soon as the information matches up with your W-2 for the year (but keep your December pay stub if it shows charitable contributions made via payroll deduction). You can toss monthly brokerage statements when the information matches up with your year-end report and your 1099s. You can toss most credit-card receipts that you don’t need for tax purposes after you check them against your monthly bill. And you can usually toss utility, phone and cable bills as soon as the next month’s bill arrives, unless you need them for tax purposes. For example, you should hang on to them if they show self-employed business expenses or they’re used for a home-office deduction, or if you want to show prospective home buyers the average monthly cost of your utilities.

 

Dec 19

The Internal Revenue Service has been doing business with nearly 1,200 vendors that owe back taxes, including one unnamed contractor that owes a whopping $525 million, the new inspector general’s report says.

 

The IRS’s 1,168 vendors owed back taxes totaling $589 million as of July 2012, according to the report released Tuesday.  Only 50 were in a payment plan to pay off their debt.

 

Apparently the IRS checks whether vendors owe back taxes when the agency awards contracts but it doesn’t continually monitor their tax bills after the contracts have been awarded.

 

The inspector general’s office is prohibited by law from revealing the name of any delinquent vendor, including the one that owed $525 million. The report says most of the back taxes, including the biggest, were delinquent for less than a year.

 

The report also excluded back taxes that were being contested, counting only those that either agreed to by the taxpayer or ordered by the court.

 

The IRS stated, “The vast majority of vendors that conduct business with the IRS meet their federal tax obligations.  We appreciate (the inspector general’s) acknowledgement that IRS has effective controls in place to prevent suspended and debarred vendors’ from receiving IRS contracts.”

 

Huh? What planet are they on?

 

Dec 11

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Nov 29

IRSTargetsThousandsOf Small BusinessesForExtraScrutiny – In 3 Parts

 

Part I – What the IRS is doing.

 The IRS has always been able to match individual tax returns against information statements and propose under reporter adjustments that come in the form of CP2000 notices. ?? But things are changing, and a new era at the IRS is upon us. ?? Now, the IRS is using information statements to find under reporting on business returns.

 

Thetaxagencyisdoingsome targetingofitsown,fingeringatleast 20,000smallbusinesses. Andthatnumber willgrow. Thescrutinyonthisgroupandinthisway isalittlefrightening.   Smallbusinesspeople acrossAmericaarereceivingIRSnotices. Morewillbecoming.TheIRSgathersdata frommanythirdparties-including credit cardcompanies-toseeif youpickedup everynickelofincome. Remembertorecordandpay

tax on all transactions?

 

In September, the IRS started its first information return-matching program for business return Forms 1120, 1120S and 1065. This program matched business return incomes to the total amounts reported on all information returns. ??  That would include merchant reporting of credit cards and third party network payments and cash reporting.

 

This year, business taxpayers also started receiving Form 1099-K, Merchant Card and Third-party Network Payments, reporting amounts received from payment settlement entities (from debit/credit cards and third-party network payers such as PayPal). To avoid taxpayer burden, the IRS stated in a letter to the National Federation of Independent Business on Feb. 9 that it will not require taxpayers to separately report amounts from Forms 1099-K on returns, and has no plans to in the future. ??

 

Wait a minute; not everyone is convinced. One Congressman, Sam Graves (R­ Mo), Chairman of the House Committee on Small Business, notes that the IRS’s first sentence begins, “Your gross receipts may have been underreported.” Says Congressman Graves that sounds like the IRS is looking for more than just additionalinformation. It soundslikeitcouldmeanmoretaxes,penalties andinterest,Sam Graves wroteinthislettertothe agency.

Mr.Gravessuggeststhattheletterscouldintimidate businesses.Hesaysthatasmallbusinessowner receivingthisnoticemaybealarmedandfeel threatened. TheIRSnoticegoesontosayyour receiptsareofffromanIRSaverage. Within30 days,pleaseprovidedocumentationtoprovewhy yournumbersdon’tfallwithinIRS’sstandard,the IRSasks.

 

YettheIRSdoesn’trevealitssourceanddoesn’tsay

whatthestandardisorwhereitcamefrom. It soundslikeyouarebeingaskedtoprovethat youdidn’tunderreportyourincome. That’s provinganegative,andcouldrequireextensive correspondenceanddocumentation.

 

AsaresultofForm1099changesandtheever-increasingwebofreporting,theIRSreceives detaileddataaboutcredit-anddebit-card transactions. TheIRSminesthedataandmaythink thatahighpercentageofcardtransactionsmay meanyouarenotreportingall thecashyoureceive.

 

‘Pleaseexplain,’theIRSmayask. – go to Part II

Sep 05

Tax collectors throughout history haven’t been as popular as athletes or entertainers–or even garbage collectors. But even against the decidedly lukewarm standard applied to most tax collectors, the IRS isn’t looking too good. It isn’t on most people’s favorites, and these days is at a low ebb.

 

The targeting scandal is three months old and is still going strong. Smack in the middle of it is Lois Lerner, famously invoking the Fifth Amendment. Then there were all the expense issues, the pricey conferences and the team building.

 

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One report said some IRS Brass Spent $100K Each On Travel. And who can forget the kitschy Star Trek, Gilligan’s Island and line dancing videos. Then there were the abused credit cards. Who wouldn’t like a charge card with bills direct to Uncle Sam? And this-  Audit Finds $119 of Unused Nerf Footballs in IRS Cabinet.

A watchdog report found little oversight. Another report from the Treasury Inspector General for Tax Administration said 30% of IRS Seizures of don’t comply with the law. In short, this isn’t your parents’ IRS.

 

Sure, the President now has a so-called turnaround expert in line to run the , er IRS. But you have to wonder, what’s the behemoth agency’s turning radius?  In the meantime, Congress–or at least Congressional Republicans–are sharpening up their axes to do a little IRS Profiling of their own.

 

If you aren’t too happy with the IRS right now, you’re not alone. House Republicans aren’t either, so passed an Internal Revenue Code-sized passel of bills by voice vote before their August recess. If nothing else, you have to love the names:

 

STOP IRS Act, H.R.2565. Actually, this bill has an alternate handle too, the Stop Targeting Our Politics Act. If passed, this law that would expand the existing grounds for firing an IRS employee. New firing offenses would include performing, delaying, or failing to perform (or threatening) any official action–including an audit–for purposes of personal gain or for a political purpose.

 

The Stop Playing on Citizen’s Cash Act, H.R.2769. This proposed law would impose a moratorium on any IRS conference until the Treasury Inspector General for Tax Administration submits a report to Congress certifying that IRS has implemented all the recommendations set out in its report covering the now notoriously expensive 2010 IRS conference . See “Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California.”

 

Government Spending Accountability Act of 2013, H.R.313. This proposed law would limit any government agency from spending more than $500,000 to support a single conference.

 

Government Customer Service Improvement Act of 2013, H.R.1660. You have to love this name. This bill would require the Director of the Office of Management and Budget (OMB) to develop government-wide standards for customer service delivery.

 

The Taxpayer Bill of Rights Act of 2013, H.R.2768. This bill would amend the tax code to say the duty of the IRS Commissioner is to ensure that IRS employees are familiar with and act in compliance with certain taxpayer rights.

 

Will all these bills actually pass and be signed into law by President Obama? Unlikely. Will any of them pass and be signed by the President? Maybe, but even that is far from clear. Stay tuned.

 

Thanks Forbes