the scoop August 2, 2017 - Iowa State University

7/31/2017

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Center for Agricultural Law & Taxation

The Scoop

August 2, 2017


Agenda

• Tsehay v. Commissioner‐ TC Memo 2016‐200

• PTIN update

• Virtual Appeal Conference

• T.D. 9821, REG‐128483‐15, Due Dates

• Prisoner – Fraudulent Tax Returns

• Tax reform Update

• myRA – Winding Down

• Free CPE Opportunities

• Deceased Tax Professionals

• Canceling an EIN ‐ Closing The Account 2

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Agenda

• Frustratingly Normal Now! Form 706

• ACA Reform Where Are We Now? – Crashed and Burned

• Identity Theft Update

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Important EITC Case – Tsehay v. Commissioner‐ TC Memo 2016‐200

• The Commissioner does NOT ACQUIESCE in this decision

• Nonacquiescence to the holding that a taxpayer whose filing status is married filing separately is entitled to an earned income tax credit

• Issue: Whether a taxpayer whose filing status is married filing separately is entitled to an earned income tax credit (EITC) under I.R.C. § 32

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Important EITC Case – Tsehay v. Commissioner‐ TC Memo 2016‐200• The Tax Court held that the taxpayer’s filing status was married filing

separately, rather than head of household as claimed by the taxpayer, or single as determined by the Commissioner

• The Tax Court also held that the taxpayer had qualifying children and therefore was entitled to the EITC

• § 32(d) provides that a married taxpayer who does not file a joint return is not entitled to an EITC

• There is no mention of § 32(d) in the court’s opinion; therefore, it appears that the Tax Court overlooked the prohibition disallowing the EITC to married taxpayers filing separately

• Accordingly, the Service will not follow the court’s opinion in Tsehay in allowing an EITC to a married taxpayer filing separately

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PTIN Update

• A motion to “stay” the court order prohibiting IRS from collecting PTIN fees

• The “stay” gives the government time to decide whether to “appeal” the decision

• $300 million in refund are at stake

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Virtual Appeal Conference Begin August 1

• New web‐based virtual conference option for taxpayers and their representatives for taxpayer conferences

• Each year, the Office of Appeals hears appeals of more than 100,000 taxpayers attempting to resolve their tax disputes without going to court

• While a phone call works well for most taxpayers, others prefer face‐to‐face interaction

• Appeals' pilot program will use a secure, web‐based screen‐sharing platform to connect with taxpayers face‐to‐face from anywhere they have internet access

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T.D. 9821, REG‐128483‐15, Due Dates

• Form W‐2, Wage and Tax Statement (and other forms in the W‐2 series except Form W‐2G, Certain Gambling Winnings) with Form W‐3 Transmittal of Wage and Tax Statements (due Jan. 31)

• Form 1099‐MISC, Miscellaneous Income, reporting nonemployee compensation‐ Box 7 (due Jan. 31)

• Form 990 (tax‐exempt series) (allowed an automatic six‐month extension)

• Form 1041, U.S. Income Tax Return for Estates and Trusts (automatic 5½‐month extension)

• Form 1041‐A, U.S. Information Return Trust Accumulation of Charitable Amounts (automatic six‐month extension)

• Form 1065, U.S. Return of Partnership Income (due the 15th day of the third month following the close of the tax year, automatic six‐month extension)

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T.D. 9821, REG‐128483‐15, Due Dates

• Form 1120 (corporate tax return series) (due the 15th day of the fourth month following the close of the tax year, automatic six‐month extension, except for C corporations with a June 30 year end, which have a Sept. 15 due date until 2026, with an automatic seven‐month extension)

• Form 1120‐POL, U.S. Tax Return for Certain Political Organizations (automatic six‐month extension)

• Form 8804, Annual Return for Partnership Withholding Tax (§ 1446) (automatic six‐month extension)

• The regulations are effective July 20, but reflect statutory changes that were generally effective for tax years beginning after Dec. 31, 2015

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W‐2 Due Dates

• SSA receiving 30% more corrected Form W‐2 then in previous years

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Actions Need to Be Taken to Ensure Compliance With Prisoner Reporting Requirements and Improve Identification of Prisoner Returns July 20, 2017Reference Number: 2017‐40‐041

• Refund fraud associated with prisoner Social Security Numbers (SSN) remains a significant problem for tax administration

• The IRS identified more than 24,000 fraudulent tax returns using a prisoner SSN in Calendar Year 2015

• The refunds claimed on those tax returns totaled more than $1.3 billion

• IRS processes do not effectively ensure that the Federal Bureau of Prisons and the State Departments of Corrections comply with prisoner reporting requirements

• TIGTA identified 861 prisons that reported to the Social Security Administration but did not report to the IRS

• TIGTA also identified 272,931 prisoners who were in Federal Bureau of Prisons or State Departments of Corrections who were not reported to the IRS

• Approximately $48 million in potentially fraudulent refunds were claimed by 16,742 individuals incarcerated in institutions that did not report to the IRS 11


Fraudulent Tax Returns Filed Using a Prisoner SSN for Calendar Years 2013 Through 2015

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Tax Reform Update

• House Speaker Paul Ryan (RWI)

• Senate Majority Leader Mitch McConnell (RKY) Treasury Secretary Steven Mnuchin

• National Economic Council Director Gary Cohn

• Senate Finance Committee Chairman Orrin Hatch (RUT)

• House Ways and Means Committee Chairman Kevin Brady (RTX) issued the following joint statement on tax reform

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Tax Reform Update

• “The time has arrived for the two tax writing committees to develop and draft legislation that will result in the first comprehensive tax reform in a generation

• Our expectation is for this legislation to move through the committees this fall, under regular order, followed by consideration on the House and Senate floors

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myRA Program‐Winding Down

• The U.S. Department of the Treasury announced that it will begin to wind down the myRA program after a thorough review by Treasury that found it not to be cost effective

• Demand for and investment in the myRA program has been extremely low

• American taxpayers have paid nearly $70 million to manage the program since 2014

• “The myRA program was created to help low to middle income earners start saving for retirement

• Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program 15


myRA program Winding Down

• Treasury will be phasing out the myRA program over the coming months

• Participants in the myRA program are being notified of the upcoming changes, including information on moving their myRAsavings to another Roth IRA

• Participants are encouraged to visit www.myRA.gov

• Currently, the myRA program is no longer accepting new enrollments

• Existing accounts remain open and accessible, and individuals can continue to manage their accounts until further notice: individuals can make deposits, and their accounts will continue to earn interest 16

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CPE Opportunities ‐ Free

• August 10: Understanding Individual Taxpayer Identification Numbers (ITINs) and the ITIN Renewal Process

• This free web conference will provide an overview of Individual Taxpayer Identification Numbers (ITINs)

• The primary focus will be on the eligibility and application process, completing Form W‐7, working with Certified Acceptance Agents, and the 2015 legislative changes to the ITIN program

• Certificates of completion are being offered

• To register: https://www.webcaster4.com/Webcast/Page/1148/21884

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• August 17: Understanding S Corporations Part I ‐ Overview and Election

• This free web conference will provide an overview of S Corporations

• Part I of this presentation will focus on the following:

• Defining an S Corporation

• Discussing how and when to elect to be taxed as an S Corporation

• Discussing late election relief procedures

• Explaining concept of reasonable compensation for S‐Corp shareholder/employees

• Discussing the rules for fringe benefits to 2% shareholders

• Certificates of completion are being offered. Earn CE credit. Category: Federal Tax

• https://www.webcaster4.com/Webcast/Page/1148/21596

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• September 7: Understanding S Corporations Part II ‐ Shareholder Stock Basis and Debt Basis

• This free web conference will provide an overview of S Corporations. Part II of this presentation will focus on the following:

• Describing the three loss limitations for S Corporation shareholders

• Discussing the shareholder’s responsibility for tracking stock and debt basis

• Reviewing the stock basis ordering rules

• Defining when a shareholder has debt basis

• Identifying case law factors used to establish when debt is bona fide.

• Certificates of completion are being offered. Earn CE credit. Category: Federal Tax

• https://www.webcaster4.com/Webcast/Page/1148/21599

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Deceased Tax Professionals – Closing Out Authorities• The Return Preparer Office checks the National Accounts Profile (NAP)

monthly and changes Preparer Tax Identification Number (PTIN) statuses to “deceased” as appropriate

• There is no need to notify the Return Preparer Office when a PTIN holder is deceased.

• To close out a deceased tax professional’s Centralized Authorization File (CAF) number, a surviving member of the professional’s firm/business or ‐in the event of a sole proprietor or single member LLC, the executor of that person’s estate ‐must send a written request (fax or mail) to the CAF unit identified in the ‘Where to File” chart on Form 2848 and Form 8821 instructions

• Once the CAF function receives the notice of the deceased tax professional in writing, action is taken to mark the CAF # owner as deceased

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Deceased Tax Professionals – Closing Out Authorities• This action nullifies any and all authorizations listed on the CAF for the

decedent

• For e‐file provider privileges and an Electronic Filing Identification Number (EFIN), if there are more Principals on the application, they can remove the deceased individual from the application

• If the death of this individual changes the structure of the business, the EFIN location must be closed and a new application submitted with the new structure indicated

• If the business is a sole‐proprietorship with only one person on the application, the fiduciary (personal representative, executor, or estate administrator) can contact e‐Help at 866‐255‐0654 to have the individual removed and the location closed

• Documentation proving that the individual is deceased is required

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Canceling an EIN ‐ Closing The Account

• The IRS cannot cancel the EIN

• Once an EIN has been assigned to a business entity, it becomes the permanent Federal taxpayer identification number for that entity

• Regardless of whether the EIN is ever used to file Federal tax returns, the EIN is never reused or reassigned to another business entity

• The EIN will still belong to the business entity and can be used at a later date, should the need arise

• If the taxpayer receives an EIN but later determine they do not need the number (the new business never started up, for example), the IRS can close the business account

• To close the business account, send IRS a letter that includes the complete legal name of the entity, the EIN, the business address and the reason they wish to close the account

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Canceling an EIN ‐ Closing The Account

• If the taxpayer has a copy of the EIN Assignment Notice that was issued when the EIN was assigned, include that when write to the IRS at:

• Internal Revenue Service

• Cincinnati, Ohio 45999

• Note

• If the taxpayer made a Federal Tax Deposit or other Federal tax payment

• Is liable for any Business Taxes, or

• The IRS has notified them that a business tax return is due, they must file the appropriate tax return(s) before IRS can close the account

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Information for Exempt Organizations

• If the taxpayer applied for an EIN for an exempt organization that

• (1) never applied for formal exemption

• (2) is not covered in a group ruling, or

• (3) never filed an information return, send a letter requesting the closing of the account to:

• Internal Revenue Service

• Attn: EO Entity

• Mail Stop 6273

• Ogden, UT 84201 (or you may fax it to (855) 214‐7520)

• State the reason the taxpayer wishes to close the account

• If the client has a copy of the EIN Assignment Notice that was issued when the EIN was assigned, include that in the letter

• Otherwise, be sure to include the complete legal name of the entity, the EIN, and the mailing address; for additional information on dissolving an exempt organization, call (877) 829‐5500 24

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Frustratingly Normal Now!

• The tax professional filed a Form 706 to elect portability on 10‐14‐15 on a timely filed return

• This is actually the first Form 706 we did file for portability!

• The surviving spouse died and we filed a Form 706 on 10‐11‐16 timely

• We have called the IRS three times (2‐14‐17, 4‐24‐17 and 6‐12‐17) and they tell us it has not been assigned yet

• We are supposed to call back the middle of October25


ACA Update

• On July 25, the Senate, by a margin of 50‐50 with Vice President Mike Pence casting the tie‐breaking vote, agreed to a motion to open debate on H.R. 1628, the American Health Care Act of 2017 (AHCA)

• The Senate will take up the House‐approved AHCA, with an open amendment process substituting the text of that bill with the Senate's Better Care Reconciliation Act (BCRA)

• Under the reconciliation process, there must be 20 hours of debate before holding a final vote

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Identity Theft Update

• The IRS, state tax agencies and the tax industry have made significant progress in the past two years against tax‐related identity theft aimed at individuals but warned business identity theft is on the upswing

• Some of the increase in business and partnership return identity theft is fueled by cybercriminals' increasing focus on breaching tax professionals' systems and stealing client data

• So far for 2017, individuals reporting identity theft have declined sharply compared to the same time in 2016 and 2015

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• However, the IRS also saw an increase in identity theft involving business‐related tax returns

• So far for 2017, the IRS has identified approximately 10,000 business returns as potential identity theft through June 1, compared to about 4,000 for calendar year 2016 and 350 for calendar year 2015

• While the number of businesses affected was relatively low, the potential dollar amounts were significant: $137 million for 2017, $268 million for 2016 and $122 million for 2015

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• The affected returns included corporate returns (Forms 1120 and 1120S) and estate and trust returns (Form 1041)

• There also was an increase in identity theft related to the Schedule K‐1 filings made by partnerships

• Tax preparers will see new trusted customer questions on these types of returns

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FS 2017‐10, Information about Identity Theft Involving Businesses, Partnerships and Estates and Trusts

• Some of the new information people may be asked to provide when filing their business, trust or estate client returns include:

• The name and Social Security number of the company individual authorized to sign the business return. Is the person signing the return authorized to do so?

• Payment history – Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?

• Parent company information – Is there a parent company? If yes who? 30

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FS 2017‐10, Information about Identity Theft Involving Businesses, Partnerships and Estates and Trusts

• Additional information based on deductions claimed

• Filing history – Has the business filed Form(s) 940, 941 or other business‐related tax forms?

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Protecting Your Clients and Your Business from Business‐related Identity Theft

• During the 2017 filing season, the tax software industry began sharing data elements from tax returns with the IRS and states to help identity suspected identity theft business returns

• For 2018, the number of elements shared from tax returns will increase to better help identify those suspect returns

• Also for 2018, the IRS will be asking tax professionals to gather more information on their business clients. All of the data being collected assists the IRS in authenticating that the tax return being submitted is the legitimate return filing and not an identity theft return

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Simple Steps

• Educate all employees about the dangers of phishing emails posing as familiar businesses, organizations or colleagues

• Use the best security software to guard against malware, phishing sites and viruses; set it to update automatically.

• Use strong, unique passwords for all accounts and change them frequently; use a password manager if necessary

• Better yet, use two‐factor authentication whenever possible

• Encrypt all sensitive data and routinely back it up to an external disk

• Review Publication 4557, Safeguarding Taxpayer Data, to create a security plan

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The Scoop – Upcoming Dates

• August 16

• August 30

• September 13

• October 4

• October 18

• November 1

• December 13, 2017

• Held at 8:00 am and 12:00 pm Central time

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Up Coming Webinarshttp://www.calt.iastate.edu/calendar‐node‐field‐seminar‐date/month

• Ethics Part 1 and 2 August 15

• Reconstructing Records for Tax Compliance August 17

• Uber/Lyft Drivers and Business Expenses August 22

• Self‐Rental August 23

• Ethics Part 1 and 2 September 1

• Ethics Part 1 and 2 October 6, 2017

• Tax Reform and New Law Update October 17

• New Partnership Audit Rules October 19

• Iowa Farm Leases (Legal Issues) October 12

• Iowa Rural Property (Legal Issues) October 13

• The New Partnership Audit Regime October 19, 2017

• Farm Expenses October 24, 2017

• Farm Income October 26, 201735


Upcoming Seminars – Mark Your Calendar – Final Dates

• September 21, 2017 Ag Law Seminar, Live and Webinar

• September 22, 2017 Farm and Estate Tax Review, Live and Webinar

• Retirement and Social Security Issues(Webinar) = October 10‐11, 2017

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The Schedule is Finalized for the 44th Annual Federal Income Tax Schools

• November 2‐3, 2017 – Maquoketa, Iowa – Centerstone Inn and Suites

• November 6‐7, 2017 – Le Mars, Iowa – Le Mars Convention Center

• November 8‐9, 2017 – Atlantic, Iowa – Cass County Community Center

• November 9‐10, 2017 – Mason City, Iowa – North Iowa Area Community College

• November 16‐17, 2017 – Ottumwa, Iowa – Indian Hills Community College

• November 20‐21, 2017 – Waterloo, Iowa – Hawkeye Community College

• December 11‐12, 2017 – Ames, Iowa and Live Webinar – Quality Inn and Suites


The CALT Staff

William EdwardsInterim Director for the Beginning Farmer CenterInterim Director for the Center for Agricultural Law and [email protected]‐294‐6161473 Heady518 Farm House LnAmes. Iowa 50011

Kristine A. Tidgren

Assistant Director

E‐mail: [email protected]

Phone: (515) 294‐6365

Fax: (515) 294‐0700

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The CALT Staff

Kristy S. Maitre

Tax Specialist


Phone: (515) 296‐3810

Fax: (515) 294‐0700

Tiffany L. Kayser

Program Administrator


Phone: (515) 294‐5217

Fax: (515) 294‐0700

Documents

the scoop August 2, 2017 - Iowa State University