1/23/2018. The Scoop. Agenda. Agenda

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1 The Scoop January 24, 2018 Agenda The EIC Election to Use PYEI Due to Disaster Declaration Denial of Passport in Case of Certain Tax Delinquencies U.S. Supreme Court Agrees to Hear South Dakota v. Wayfair National Taxpayer Advocate Delivers Annual Report to Congress; Discusses Tax Reform Implementation and Unveils Purple Book Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California Iowa Letters to Taxpayers Minnesota Information on First Time Homebuyers 2 Agenda Minnesota Couples on Sinai Issue Cryptocurrencies guidance POA Call Center Changes Can I Recharacterize a Rollover or Conversion to a Roth IRA? Combined Annual Withholding Report 3 1

2 The EIC Election to Use PYEI Due to Disaster Declaration You may be able to elect to use the 2016 earned income to figure the EIC if: (a) the 2016 earned income is more than the 2017 earned income, and (b) the main home was located in one of the Presidentially declared disaster areas eligible for this relief on the specified date Pub. 976 has details but not yet posted If you make the election to use your 2016 earned income to figure your EIC, enter PYEI and the amount of your 2016 earned income in the space next to line 66a. Denial of Passport in Case of Certain Tax Delinquencies When a certified taxpayer applies for a passport, the State Department will provide the applicant with 90 days to resolve their tax delinquency (such as by making full payment, entering into an installment agreement, or IRS acceptance of an offer in compromise before denying the application If a taxpayer needs their passport to travel within those 90 days, the taxpayer must contact the IRS and resolve the matter within 45 days from the date of application so that the IRS has adequate time to notify the State Department 5 Denial of Passport in Case of Certain Tax Delinquencies Generally, the sole remedy for a taxpayer who believes that a certification is erroneous, or that the Commissioner incorrectly failed to reverse a certification because the tax debt is either fully satisfied or ceases to be a seriously delinquent tax debt is to file a civil action in court The taxpayer may not go to IRS Appeals to challenge the certification or the decision by the Commissioner However, the taxpayer may contact the phone number in the Notice CP508C to request reversal of the certification if the taxpayer believes that the certification is erroneous 6 2

3 Notice Revocation or Denial of Passport in Case of Certain Tax Delinquencies IRS provided guidance for implementation of new 7345 Requires IRS to notify State Dept. of taxpayers certified to have seriously delinquent tax debt The State Dept. is generally required to deny passport application for such individuals and may also revoke or limit passports previously issued to such individuals The notice also describes exceptions to certification and taxpayer remedies 7345(d) requires the IRS to contemporaneously notify an individual when he or she is the subject of a certification or reversal of a certification Notice CP508C 7 U.S. Supreme Court Agrees to Hear South Dakota v. Wayfair On Friday, January 12, 2018, the U.S. Supreme Court agreed to hear a significant case involving a South Dakota law that requires an out of state seller to collect sales tax from South Dakota customers if the seller's gross revenue from taxable sales delivered in South Dakota exceeds $100,000, or if the seller makes more than 200 deliveries of these sales in South Dakota annually In September 2017, the South Dakota Supreme Court ruled that the statute violates the physical presence requirement articulated in Quill Corp. v. North Dakota, 504 US 298 (1992) The fate of Quill's physical presence rule could be decided as early as this summer 8 National Taxpayer Advocate Delivers Annual Report to Congress; Discusses Tax Reform Implementation and Unveils Purple Book Describes challenges the IRS will face as it implements the recently enacted tax reform legislation Unveiling a new publication, The Purple Book, that presents 50 legislative recommendations intended to strengthen taxpayer rights and improve tax administration The report also examines a wide range of other tax administration issues, including the IRS's administration of the private debt collection program, the agency's increasing emphasis on online taxpayer accounts, and its implementation of a recent law that would deny or revoke the passports of taxpayers with significant tax debts 9 3

4 Purple Book Most Serious Problems PRIVATE DEBT COLLECTION: The IRS s Private Debt Collection Program Is Not Generating Net Revenues, Appears to Have Been Implemented Inconsistently with the Law, and Burdens Taxpayers Experiencing Economic Hardship TELEPHONES: The IRS Needs to Modernize the Way It Serves Taxpayers Over the Telephone, Which Should Become an Essential Part of an Omnichannel Customer Service Environment ONLINE ACCOUNTS: The IRS's Focus on Online Service Delivery Does Not Adequately Take into Account the Widely Divergent Needs and Preferences of the U.S. Taxpayer Population 10 Purple Book Most Serious Problems AUDIT RATES: The IRS Is Conducting Significant Types and Amounts of Compliance Activities that It Does Not Deem to Be Traditional Audits, Thereby Underreporting the Extent of Its Compliance Activity and Return on Investment, and Circumventing Taxpayer Protections EXEMPT ORGANIZATIONS: Form 1023 EZ, Adopted to Reduce Form 1023 Processing Times, Increasingly Results in Tax Exempt Status for Unqualified Organizations, While Form 1023 Processing Times Increase PASSPORT DENIAL AND REVOCATION: The IRS s Plans for Certifying Seriously Delinquent Tax Debts Will Lead to Taxpayers Being Deprived of a Passport Without Regard to Taxpayer Rights 11 Purple Book Most Serious Problems EMPLOYEE TRAINING: Changes to and Reductions in Employee Training Hinder the IRS s Ability to Provide Top Quality Service to Taxpayers TAXPAYER RIGHTS: The IRS Does Not Effectively Evaluate and Measure its Adherence to the Taxpayer s Right to a Fair and Just Tax System OUTREACH AND EDUCATION: The IRS Is Making Commendable Strides to Develop Digitized Taxpayer Services, But It Must Do More to Maintain and Improve Traditional Outreach and Education Initiatives to Meet the Needs of U.S. Taxpayers 12 4

5 Purple Book Most Serious Problems TAXPAYER ASSISTANCE CENTERS (TACs): Cuts to IRS Walk In Sites Have Left the IRS With a Substantially Reduced Community Presence and Have Impaired the Ability of Taxpayers to Receive In Person Assistance VITA/TCE PROGRAMS: IRS Restrictions on Volunteer Income Tax Assistance (VITA) and Taxpayer Counseling for the Elderly (TCE) Programs Increase Taxpayer Burden and Adversely Impact Access to Free Tax Preparation for Low Income, Disabled, Rural, and Elderly Taxpayers EARNED INCOME TAX CREDIT (EITC): The IRS Continues to Make Progress to Improve Its Administration of the EITC, But It Has Not Adequately Incorporated Research Findings That Show Positive Impacts of Taxpayer Education on Compliance 13 Purple Book Most Serious Problems MILITARY ASSISTANCE: The IRS s Customer Service and Information Provided to Military Taxpayers Falls Short of Meeting Their Needs and Preferences SHARING ECONOMY: Participants in the Sharing Economy Lack Adequate Guidance from the IRS INTERNATIONAL: The IRS s Approach to Credit and Refund Claims of Nonresident Aliens Wastes Resources and Burdens Compliant Taxpayer INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINs): The IRS s Failure to Understand and Effectively Communicate with the ITIN Population Imposes Unnecessary Burden and Hinders Compliance 14 Purple Book Most Serious Problems APPEALS: The IRS Office of Appeals Imposes Unreasonable Restrictions on In Person Conferences for Campus Cases, Even As It Is Making Such Conferences More Available for Field Cases APPEALS: The IRS s Decision to Expand the Participation of Counsel and Compliance Personnel in Appeals Conferences Alters the Nature of Those Conferences and Will Likely Reduce the Number of Agreed Case Resolution IDENTITY THEFT: As Tax Related Identity Theft Schemes Evolve, the IRS Must Continually Assess and Modify Its Victim Assistance Procedures 15 5

6 Purple Book Most Serious Problems FRAUD DETECTION: The IRS Has Made Improvements to Its Fraud Detection Systems, But a Significant Number of Legitimate Taxpayer Returns Are Still Being Improperly Selected by These Systems, Resulting in Refund Delays REFUND ANTICIPATION LOANS: Increased Demand for Refund Anticipation Loans Coincides with Delays in the Issuance of Refunds 16 CA , Jan. 17, 2018 Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California May Qualify for Tax Relief from IRS The President has declared that a major disaster exists in the State of California Individuals who reside or have a business in Los Angeles, San Diego, Santa Barbara and Ventura Counties may qualify for tax relief The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area For instance, certain deadlines falling on or after Dec. 4, 2017 and before April 30, 2018, are granted additional time to file through April 30, CA , Jan. 17, 2018 Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California May Qualify for Tax Relief from IRS This includes 2017 individual income tax returns normally due on April 17, 2018 It also includes the fourth quarter estimated tax payment normally due on Jan. 16, 2018 In addition, penalties on payroll and excise tax deposits due on or after Dec. 4, 2017, and before Dec. 19, 2017, will be abated as long as the deposits were made before Dec. 19, 2017 If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty 18 6

7 CA , Jan. 17, 2018 Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California May Qualify for Tax Relief from IRS The IRS disaster hotline at The counties listed constitute a covered disaster area for purposes of Treas. Reg A 1(d)(2) and are entitled to the relief In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief 19 CA , Jan. 17, 2018 Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California May Qualify for Tax Relief from IRS Affected taxpayers in a federally declared disaster area have the option of claiming disaster related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year Individuals may deduct personal property losses that are not covered by insurance or other reimbursements Affected taxpayers claiming the disaster loss on a 2017 return should put the Disaster Designation, California, Wildfires Flooding, Mudflows, and Debris Flows at the top of the form so that the IRS can expedite the processing of the refund 20 CA , Jan. 17, 2018 Victims of the Wildfires, Flooding, Mudflows and Debris Flows that Took Place Beginning on Dec. 4, 2017 in Parts of California May Qualify for Tax Relief from IRS Other Relief The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers Taxpayers should put the assigned Disaster Designation California, Wildfires Flooding, Mudflows, and Debris Flows in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506 T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS 21 7

8 Iowa Letters to Taxpayers Have you seen anything related to S Corporation or Partnership K 1 recipients that Iowa claims hasn t filed their tax returns for 2014? The notice indicates that You have not filed an Iowa individual income tax return for these year(s) Both of my clients clearly have the information on their returns and we e filed them Response from IDR: IDOR customer service states the program is just matching the K 1 s social security number to a 1040 SSN number filing, and if mismatch the 1040 SSN number is getting the letter No additional like name verification is happening 22 Minnesota The Minnesota Department of Revenue has updated its guidance on the first time homebuyer savings account Taxpayers may be required to report an addition to Minnesota taxable income for nonqualified withdrawals from a first time homebuyer savings account 23 Minnesota Taxpayers must report an addition to Minnesota taxable income if any of the following apply: (1) the taxpayer previously reported a First time Homebuyer Savings Account Subtraction, and a withdrawal from the account was used for anything other than eligible costs; and/or (2) the account balance exceeds contributions at the close of the tenth year the accounts are open Taxpayers must complete Schedule M1HOME, First Time Homebuyer Savings Account, to determine this addition 24 8

9 Minnesota Couples on Sinai Issue A provision within the 2017 Federal Tax Cuts and Job Act designates the Sinai Peninsula as a hazardous duty area as of June 9, 2015 If a client served in the Sinai Peninsula on or after June 9, 2015, they may be eligible for the Minnesota refundable credit for military service in a combat zone (Form M99) A hazardous duty area is treated as if it were a combat zone The credit is $120 per full or partial month served 25 Minnesota When is this Credit Available? Tax credits for service in the Sinai Peninsula are available for 2015, 2016, and 2017 The client has 3½ years from the original due date of their tax return to claim the credit If the client served in the Sinai Peninsula between June 9, 2015 and December 31, 2015, they must claim the 2015 credit before it expires October 15, Cryptocurrencies A lack of information from the government leaves many cryptocurrency investors in the dark on tax matters The American Institute of Certified Public Accountants has written to the IRS, asking the agency to "release additional, much needed, guidance on virtual currency" The Treasury Department's Inspector General issued a report on virtual currencies, recommending that the IRS more clearly define its policy Notice

10 POA Call Center Changes Taxpayer representatives are now being asked for their Social Security number and date of birth, in addition to their Centralized Authorization File (CAF) number, so that IRS agents can verify their identity when they call the IRS The new questions result from an updated version of Internal Revenue Manual (IRM) Section , which took effect Jan. 3, POA Call Center Changes IRM Section , titled Third Party (POA/TIA/F706) Authentication, instructs IRS agents on how to complete the appropriate research to verify the identity of taxpayer representatives who indicate that they have a third party authorization on file with the IRS, such as Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization In the previous version of IRM Section , updated in October 2017, agents were told to ask the representative for the taxpayer s name and taxpayer identification number (TIN), for the tax period and forms in question, and for the representative s name and CAF number 29 Can I Recharacterize a Rollover or Conversion to a Roth IRA? Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No ), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans 30 10

11 How Does the Effective Date of the Tax Cut and Jobs Act Apply to a Roth IRA Conversion Made in 2017? A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018 A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized 31 Combined Annual Wage Reporting Some practitioners have contacted the local Stakeholder Liaison in Minnesota due to client s receiving a civil penalty for not filing W 2s The IRS matches 941 s filed with the IRS with the W 2s and W 3 filed with the Social Security Administration Some taxpayers file Form 941 with the IRS but they don t file the W 2s and W 3 with the Social Security Administration Maybe they didn t file the W 2s or W 3 at all, or maybe they filed them late 32 Combined Annual Wage Reporting The first step is that the Social Security will send two letters to the taxpayer If there s no response, the IRS will send a letter to tell them that the IRS received their 941 s, but it appears they did not file the W 2/W 3 with the Social Security Administration For some reason, there seems to be a low response rate to this first letter The result is they get a penalty and that s when they contact you 33 11

12 Combined Annual Wage Reporting Your first task is to ask them if they got any letters before they got the penalty letter. Ask to see the letter(s) It s always best if the taxpayer responds timely to the first letter They might need to prove they filed the W 2/W 3 on time, or they might need to file them now even though they are late They might still get a penalty, but at least it will be for the correct amount 34 Combined Annual Wage Reporting The penalty for not filing the W 2s on time is as follows: 35 Combined Annual Wage Reporting If they get a penalty: It s possible to get the penalty removed due to reasonable cause, but it s not a sure thing The normal rules for reasonable cause don t apply to this civil penalty Another circumstance is when the taxpayer files the W 2s and W 3 with SSA, but does not file the 941 s with IRS If that s the case, the taxpayer will need to file the 941 s with the IRS as well as Form

13 Combined Annual Wage Reporting Another issue maybe that the numbers on Form 941 don t match the W 2/W 3, total wages, federal income tax withheld, or FICA If that s the case, the taxpayer will have to fix whatever is wrong: the 941s or W 2/W 3 Some of you like to research the Internal Revenue Manual. Here is a link to IRM r 37 Combined Annual Wage Reporting This section explains what the IRS does when the taxpayer replies late to the initial letter: r#idm This section explains the rules for abating the penalties related to W 2s: ( ), Responses to Combined Annual Wage Reporting (CAWR) r#idm Questions 39 13

14 Up Coming Scoops February 14, 2018 February 28, 2018 March 14, 2018 March 28, 2018 April 11, 2018 April 25, 2018 May 16, 2018 June 6, 2018 June 20, 2018 Held at 8:00 am and 12:00 pm Central time 40 The CALT Staff William Edwards Interim Director for the Beginning Farmer Center Interim Director for the Center for Agricultural Law and Taxation Heady 518 Farm House Ln Ames. Iowa Kristine A. Tidgren Assistant Director E mail: ktidgren@iastate.edu Phone: (515) Fax: (515) The CALT Staff Kristy S. Maitre Tax Specialist E mail: ksmaitre@iastate.edu Phone: (515) Fax: (515) Tiffany L. Kayser Program Administrator E mail: tlkayser@iastate.edu Phone: (515) Fax: (515)