Working Together. Pennsylvania Department of Revenue Updates and Information

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1 Working Together Pennsylvania Department of Revenue Updates and Information 1

2 Pennsylvania Voluntary Disclosure Program Liaison Officers Alicia Danner & Matthew Pettigrew

3 Purpose/Availability/History The Voluntary Disclosure Program (VDP) provides an opportunity for businesses and individuals who have recently become aware of their Pennsylvania tax obligations to voluntarily come forward and comply with Pennsylvania tax laws. It is not available to registered or delinquent taxpayers. The program has been in existence since 1987.

4 Why Participate If taxpayers qualify under the voluntary disclosure program, they will be granted penalty relief and have a limited look back filing requirement of three to five years. The taxpayer will be responsible for paying the tax and interest due. The exception to this is for money collected for Business Trust Fund taxes. Taxpayers who failed to remit taxes collected must comply from the date the tax was collected and are not subject to a limited look back.

5 Exposure Limitation Corporate Tax Look Back Five (5) years plus the current year o o Limited by agreement with Auditor General Auditor General has final signoff o Current look-back year is 2010 Non-Corporate Tax Look Back Three (3) years plus the current year o o Current look back year is 2012 for business trust fund taxes Current look back year is 2011 for personal income tax Taxes include sales & use tax, employer withholding and personal income tax

6 Required Information The following information MUST be provided: The type(s) of tax involved Date taxpayer's activities began in PA Detailed description of the taxpayer's activities in PA Product sold/service provided Explanation of the taxpayer's failure to file and pay the applicable taxes in the past Statement that the taxpayer has not been contacted previously by the Department of Revenue concerning the tax liability Completed Form DEO-50, Business Activities Questionnaire All information required to be in writing

7 Analysis of Information Provided Information provided is analyzed so that: Compliance with all tax types is achieved PA law is applied to all tax types and NEXUS exists with PA

8 Eligible VDP Participants Taxpayers are not eligible to participate if: Taxpayers currently registered with Pennsylvania Department of Revenue and in non-filed or delinquent status for periods requesting voluntary disclosure participation Foreign and domestic corporations registered with Pennsylvania Department of State automatically registered with Pennsylvania Department of Revenue Taxpayers currently under investigation by Department of Revenue s Bureau of Audits or Bureau of Enforcement Planning Analysis and Discovery

9 After The Application is Submitted Case review by VDP Committee Attorney General Auditor General DOR Office of Chief Counsel and Bureau of Audits If approved by VDP Committee: Taxpayer/representative sent proposed Voluntary Disclosure Agreement for signature o o Any modification of agreement renders it void Agreement must be completed and signed by taxpayer and returned to the department

10 After The Application is Submitted Returned VDA is then: Signed by DOR and Auditor General Signed copy returned to the taxpayer or their representative with specific instructions for filing of returns and payment along with applicable forms Failure to comply with the terms of the agreement or other requirements of the program in a timely and accurate manner renders the agreement void and the taxpayer will be subject to all assessment actions deemed appropriate by the department

11 Appeals/Audits/Effective Dates Under Voluntary Disclosure, taxpayers sign an agreement, which states they will not petition for a refund of any taxes reported through the program. At the same time, the Department reserves the right to audit the taxpayer Under no condition will the Department accept prospective agreements through the Voluntary Disclosure program.

12 Ineligible Actions Requesting a refund of any kind on any tax period Submitting zero tax returns

13 Taxes Not Included In The Program Taxes Excluded Under Program Include: Inheritance Tax Property Tax Local City/Municipality Taxes o Unless under separately administered program

14 Types of Taxes Typically Handled Taxes Most Frequently Handled Under Program Include: Corporation Taxes Sales Tax Employer Withholding Tax Personal Income Tax

15 Summary Voluntary Disclosure Office goals include: Handle all processes within the Department of Revenue, beginning at registration through all filing requirements and money applications for each taxpayer VDP applicant Completion of a case assures the taxpayer is in total compliance with accurate accounts Provide all taxpayers with exceptional customer service and continue to maintain and build relationships with the taxpayer and the practitioner

16 PA Personal Income Tax Hot Topics David A. Braden, CPA Assistant to the Director 16

17 Fraud Detection and Prevention Department Deterrents Suspensions designed to stop fraudulent refunds before being paid Additional evaluation criteria built into our analysis of refunds to look for identity theft Identity Validation 7,483 identity validation letters sent so far in 2015 versus 1,131 identity validation letters sent in all of 2014 o 2,996 valid responses received so far in 2015 versus 561 valid responses received in 2014 o 1,970 failed the ID check for

18 Fraud Detection and Prevention Identity Validation (cont.) o 2,154 letters are pending responses o 363 letters timed out o Failed and timed out cases total 2,333 o $598,547 savings on failed and timed out letters Taxpayer must respond by phone to the letters o Preparer may wish to be present if taxpayer is not financially savvy or is easily confused 18

19 Identity Theft Becoming a bigger and bigger issue Cases handled by department s Office of the Taxpayers Rights Advocate (OTRA) 397 total cases handled by OTRA in 2014 for identity theft 675 total cases as of 5/12/2015 were identity theft related cases BIT works with OTRA to identify and correct accounts with ID theft Almost all contact though is with OTRA 19

20 Identity Theft To check if a fraudulent PA-40 return has been filed on the taxpayer s behalf, contact the Taxpayer Service and Information Center ( ) or a Revenue district office (See Page 3 of PA-40 IN for list of DOs and phone numbers) TSIC or the DO will refer you to the Office of the Taxpayers Rights Advocate if a PA return is on our system This step must be performed unless taxpayer receives an Identity Validation letter and taxpayer did not file a return on their own behalf 20

21 Identity Theft If a fraudulent return is confirmed as having been filed for your client, contact the Department s Office of the Taxpayers Rights Advocate (OTRA) at OTRA will send a letter to taxpayers with instructions how to verify an identity with PA DOR Taxpayer must provide: o Copy of Social Security Card o Photo ID (government issued) o PA DOR ID Theft Affidavit o Copy of filed police report or incident number o Copy of current tax return (when it is available) o REV-467, Authorization For Release of Tax Records o SSA letter of correction 21

22 Identity Theft OTRA letter (cont.) OTRA l will also provide instructions for additional contacts that should be made to the IRS, FTC, and SSA If you are not sure a client s identity information has been compromised, contact TSIC ( ) for additional information on how to proceed 22

23 Department W-2 Letters Compensation Adjustments to Medicare Wages W-2 Reconciliation Worksheet not included with filing of return o Department developed specifications so software vendors could make available with 2014 packages not all software vendors support the Worksheet o Required if Medicare wages greater than PA wages and W-2 does not provide sufficient information o If software not supporting, provide PDF copy or fax using DEX-93, Personal Income Tax Fax Cover Sheet 23

24 Department UE Letters Requests for Information vs. Adjustment of Unreimbursed Business Expenses Majority of letters request taxpayer provide information rather than making a direct adjustment Some letters will still be direct removal of expenses if department knows the expense should be denied 24

25 Department UE Letters Requests for Information Regarding Unreimbursed Business Expenses Department examinations based upon several factors: o Occupation of taxpayer o Amounts of expenses Department s normal procedure o Reimbursements None included Per-diem or allowance reimbursements o Types of expenses Commuting Travel and meals and entertainment Miscellaneous 25

26 Department UE Letters Allowable Unreimbursed Business Expenses Personal income tax does not follow federal rules o PA unreimbursed business expenses must be: Ordinary, customary and accepted in the industry or occupation in which you work; Actually paid while performing the duties of your employment; Reasonable in amount and not excessive; Necessary to enable you to properly perform the duties of your employment; and Directly related to performing the duties of your occupation or employment. 26

27 Department UE Letters Adjustments to Unreimbursed Business Expenses Personal income tax does not follow federal rules o Unreimbursed business expenses are not: Dues and subscriptions to trade and professional publications; Dues to fraternal organizations, professional societies, chambers of commerce or recreational club memberships; Job hunting expenses; Educational expenses unless questions answered in Part F of Schedule UE and required by employer to retain the position; 27

28 Department UE Letters Adjustments to Unreimbursed Business Expenses Personal income tax does not follow federal rules o Unreimbursed business expenses are not (cont.): Expenses in excess of company fixed mileage allowances or per-diem allowances are not allowable unless allowances reimbursed by the company are included in compensation by the employer; See the extensive list of other expenses that are not allowable in the PA-40 IN booklet. 28

29 Department UE Letters Requests for Information Regarding Unreimbursed Business Expenses What to do if your client receives(ed) a letter: o Evaluate the total cost in taxes for this year plus other tax years (future and previous); o Respond with copy of letter from employer regarding whether expenses are required to be incurred, if reimbursed for any expenses and what arrangement for reimbursement; o Provide copies of receipts, logs, mileage calculations etc. for the requested expenses and include summary information of the expenses; o Statements that the expenses have always been allowed in previous tax years are not acceptable proof 29

30 Department UE Letters Requests for Information Regarding Unreimbursed Business Expenses What to do if your client receives(ed) a letter (cont.): o Have the client pay the amount or accept the reduced refund if the client can t support the expenses claimed; o Notify clients that the department will continue to be looking at expenses in the coming years and may look back in some circumstances; o Review client expenses and/or summaries of expenses and make sure they have the documentation to support them; o PA refunds are not automatic. 30

31 October 2014 Legislation Act 193 Reinstated the Organ and Bone Marrow Donation Tax Credit Act 194 Combined EITC and OSTC into one TRC section Permits joint filing of returns Permits spouse to use credit earned by taxpayer 31

32 October 2014 Legislation Act 203 Exempts income for disaster related work Exempts registration requirements for businesses Relief workers from outside PA not subject to PA PIT or required to have taxes withheld Businesses exempt from taxation on income earned during disaster State of Emergency or Disaster Emergency must be declared by governor Exempts registration requirements for businesses Effective January

33 October 2014 Legislation Act 156 of 2014 Provided a Social Security cost-of-living adjustment (COLA) for years 2013 through 2016 so that it would not affect eligibility for property tax and rent rebates If income is $36,129 or less for property tax rebates or $15,484 or less for rent rebates, claimants are urged to still apply and department will determine if COLA is the only reason income is over $35,000 and $15,000, respectively Claimants must have filed in 2012 or been eligible to file in 2012 for this to apply 33