The Scoop. Agenda 12/11/2017

Transcription

1 The Scoop December 13, 2017 Agenda Government shutdown Delay in Publications and Some Tables Draft of Form 4684 e Services Message from the IRS Return Preparer Office 5000A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice Social Security Wages Base Corrected Additional Proposed Regulations Issued on Centralized Partnership Audit Regime & International Issues 2 1

2 Agenda USPS Tracking System Entry Not Relevant under Timely Filing Rules IRS Summons Aimed at Uncovering Unreported Virtual Currency Gains Enforced in Part Fall SOI Bulletin Provides Statistics on 2015 Sole Proprietorship Returns Tax Proposals 3 No Government Shutdown YET On December 8, President Trump signed a two week funding resolution funding the government, including IRS, through December 22 Without the measure, funding would have expired at the end of the day, December 8 4 2

3 Delay in Publications and Some Tables 2018 Federal withholding tables & some IRS Pubs will likely come later this year 5 Draft of Form

4 Draft of Form All e Services users Starting Dec.10, 2017, all e Services users must register through a new, more rigorous identity proofing process called Secure Access Any e Services user who has not previously created a Secure Access account through Get Transcript Online, IP PIN tool, View Balance or by exception processing in recent days must validate their identity through this more rigorous process This also includes all TIN Matching users and users who received Letter 5903 last December and authenticated by telephone 8 4

5 All e Services users This new process is not optional on the part of the IRS or its online users The IRS must make this change to meet federal information system standards Additionally, cybercriminals increasingly are targeting tax professionals to steal e Services usernames and passwords, putting taxpayer data at risk 9 All e Services users In recent years, we authenticated each e Services user individually When you registered for e Services, you were asked for your name, address, social security number, your date of birth, adjusted gross income and filing status That limited amount of information no longer is enough to meet federal information system standards Users will continue to be authenticated as individuals 10 5

6 All e Services users Here s how Secure Access helps First, it strengthens the initial identity proofing process to make sure the person registering is who they say they are Second, it strengthens security through a two factor authentication process for returning users that helps prevent account takeover by cybercriminals Two factor authentication means you must have your credentials (username and password) plus a security code sent to your mobile phone or generated by your IRS2Go app each time you log in 11 All e Services users Once you have authenticated your identity and established a Secure Access account for e Services, there is no further action required Learn more about the steps you must take to successfully complete the Secure Access process, alternatives to online processing and how to use the IRS2Go app Important Update about Your e Services Account at

7 Message from the IRS Return Preparer Office To protect your clients and yourself from cybercriminals, you must make data security an everyday priority This includes having a security plan Some steps you should take as part of that security plan are: Having security software that includes a firewall, antimalware and anti virus programs Creating strong passwords that are changed periodically Educating employees on the dangers of phishing s and other threats to taxpayer data 13 Message from the IRS Return Preparer Office Exercising caution with attachments and web links Secure password protected wireless connection It is particularly important for you and your staff to be cautious when opening attachments or clicking links in s Hold your cursor over the link to see the URL Look closely at the full address of the sender 14 7

8 5000A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice This notice provides guidance on computing the affordability exemption under 5000A(e)(1) and A 3(e) of the Regulations for taxpayers with a family member who (i) is not eligible for coverage under an eligible employer sponsored plan, and (ii) resides in an area in which the Health Insurance Marketplace (Marketplace) serving the area does not offer a bronze level qualified health plan A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice For each month beginning after December 31, 2013, 5000A requires individuals to do one of the following: (i) maintain minimum essential coverage for themselves and any family members who are not exempt under 5000A and A 3 of the Regulations (ii) qualify for a coverage exemption, or (iii) include an individual shared responsibility payment with their Federal income tax return for the taxable year 16 8

9 5000A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice The Code provides that an individual qualifies for an exemption for a month for which the individual lacks access to affordable minimum essential coverage An individual lacks access to affordable coverage if the individual's required contribution (determined on an annual basis) for minimum essential coverage exceeds a percentage (8.16 percent for 2017) of the individual's household income for the taxable year A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice Market instability has resulted in limited offerings of plans on the Marketplaces in some regions, and, as a result, there are some individuals who live in rating areas where no bronze plan was offered for 2017 If an individual resides in a rating area served by a Marketplace that does not offer a bronze plan, use the applicable plan the lowest cost metal level plan available If the Marketplace serving the rating area where an affected taxpayer resides does not offer a single bronze plan (or, if no bronze plan is available, any lowest cost metal level plan) that would cover all nonexempt members of the taxpayer s family, determine the applicable plan by adding the premiums for the lowest cost bronze plans, or the lowest cost metal level plans if a bronze plan is not offered, that would cover in the aggregate all of the nonexempt members of the affected taxpayer s family 18 9

10 5000A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice Example 1. Individual K resides in an area served by a Marketplace that does not offer a bronze plan but does offer several silver plans K is not eligible for employer sponsored coverage To determine if he qualifies for the affordability exemption under 5000A(e)(1) and A 3(e) of the Regulations, K should use as his applicable plan the lowest cost silver plan available in the Marketplace that would cover K A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice Example 2. Individual J has three dependents, A, B, and C None of the four family members is eligible for employer sponsored coverage A and B reside with J in an area served by a Marketplace that offers bronze plans C resides with J s former spouse in an area served by a Marketplace that does not offer a bronze plan but does offer a silver plan The Marketplace serving the area where J resides offers bronze plans that cover J and her three dependents Thus, J uses the lowest cost bronze plan offered by the Marketplace serving the area where J resides as her applicable plan to determine if J qualifies for the affordability exemption 20 10

11 5000A Guidance for Individuals with No Available Marketplace Bronze Level Plan Notice Example 3. Same facts as Example 2 except, although the Marketplace where J resides offers bronze plans covering J, A, and B under one policy, none of these plans also cover C Because no bronze plan in the Marketplace serving the area where J resides covers all nonexempt members of J s family, J must aggregate the cost of more than one plan to determine the premium for J s applicable plan J adds the cost of the lowest cost bronze plan covering J, A, and B and, because the Marketplace where C resides offers no bronze plans, the cost of the lowest cost silver plan offered by the Marketplace serving the area where C resides, to determine if J qualifies for the affordability exemption Social Security Wages Base Corrected The Social Security Administration (SSA) has announced a correction to its previously issued announcement regarding the wage base for computing the Social Security tax in 2018 The corrected amount is $128,

12 Additional Proposed Regulations Issued on Centralized Partnership Audit Regime & International Issues IRS has issued proposed regulations that provide rules on how certain international rules operate in the context of the centralized partnership audit regime This also includes rules relating to the withholding of tax on foreign persons, withholding of tax to enforce reporting on certain foreign accounts, and the treatment of creditable foreign tax expenditures of a partnership Preamble to Prop Reg 11/29/2017, Prop Reg (a) 1, Prop Reg , Prop Reg , Prop Reg , Prop Reg Tax Court Agrees; USPS Tracking System Entry Not Relevant under Timely Filing Rules Pearson, (2017) 149 TC No. 20 In a case with facts almost identical to those of a recent Seventh Circuit case that reversed a Tax Court holding, the Tax Court has held that the date of the United States Postal Service (USPS)'s entry of taxpayer's envelope into its tracking system is not the equivalent of a postmark date and thus is irrelevant for purposes of the timelymailing as timely filing rule of Code Sec

13 Tax Court Agrees; USPS Tracking System Entry Not Relevant under Timely Filing Rules Pearson, (2017) 149 TC No. 20 Background timely mailing as timely filing 7502(a)(1) provides that, if a taxpayer sends his or her petition for delivery to the Court by United States mail within the prescribed period for filing the petition, and the Court receives the petition after that period has ended, the date of the USPS postmark on the envelope containing the petition will be considered the date of delivery 7502(b) provides that the rule of 7502(a) applies, in the case of postmarks not made by the USPS, only to the extent provided by regulations 25 Tax Court Agrees; USPS Tracking System Entry Not Relevant under Timely Filing Rules Pearson, (2017) 149 TC No. 20 Facts The last day for the taxpayer, Mr. Pearson, to seek Tax Court review was Apr. 22, 2015 His lawyer prepared the petition, but his lawyer's staff did not put a stamp on the envelope, and the USPS did not apply a postmark Instead the staff purchased postage from Stamps.com, a service that supplies print at home postage The staff purchased and printed a certified mail label from Stamps.com; it was dated Apr. 21, 2015, and a member of the staff stated that she delivered the envelope to the USPS in Salt Lake City, Utah, on that date The envelope was entered into the USPS's tracking system for certified mail on Apr. 23. The Tax Court received Pearson's petition on Apr. 29,

14 Tax Court Agrees; USPS Tracking System Entry Not Relevant under Timely Filing Rules Pearson, (2017) 149 TC No. 20 The Tax Court has held that the date of the United States Postal Service (USPS)'s entry of taxpayer's envelope into its tracking system is not the equivalent of a postmark date and thus is irrelevant for purposes of the timelymailing as timely filing rule of Tax Court Agrees; USPS Tracking System Entry Not Relevant under Timely Filing Rules Pearson, (2017) 149 TC No. 20 Alternatively, the petition would still be timely under Reg (c)(1)(iii)(B)(2), which applies to a document bearing a non USPS postmark that is received late The critical question is whether the document was actually deposited in the U.S. mail on or before the last date prescribed for filing the document The last date prescribed for filing the petition was Apr. 22, 2015 Petitioners' representative averred that she actually deposited the envelope in the U.S. mail on Apr. 21, 2015 A USPS expert testified that the envelope was most likely deposited with the USPS on Apr. 22, 2015 Either way, the petition was timely mailed under Reg (c)(1)(iii)(B)(2) 28 14

15 IRS Summons Aimed at Uncovering Unreported Virtual Currency Gains Enforced in Part IRS has been granted partial enforcement of a summons served on Coinbase, a virtual currency exchange that represents the largest U.S. exchange of bitcoin into dollars As part of its investigation into the reporting gap among virtual currency users, IRS originally sought information concerning all U.S. persons who conducted any transaction in a virtual currency over a multi year period However, the summons was ultimately narrowed to include information pertaining only those accounts with at least the equivalent of $20,000 in any one transaction type 29 Fall SOI Bulletin Provides Statistics on 2015 Sole Proprietorship Returns Between 2014 and 2015, the number of individual income tax returns reporting nonfarm sole proprietorship activity increased 2.4% to 25.2 million Growth in ride sharing businesses, such as Uber and Lyft, contributed to this large increase in the number of returns with transportation and warehousing income The sector with the largest number of returns was the other services sector, mainly comprised of personal and laundry services, which had a 7.4% increase to 3.5 million returns 30 15

16 Fall SOI Bulletin Provides Statistics on 2015 Sole Proprietorship Returns For 2001, there were 126,437 sole proprietorship returns that indicated status as a limited liability company (LLC), or just 0.7% of total sole proprietorship returns In contrast, for Tax Year 2015, there were 1,715,430 such sole proprietorships, which accounted for 6.8% of the total nonfarm sole proprietorship returns, a 13 fold increase since 2001 The share of total nonfarm sole proprietorship business receipts attributed to LLCs has also risen during this period from approximately 2.3% for 2001, to 24.5% for Similarly, the portion of total net income (less deficit) of all nonfarm sole proprietorships attributable to LLCs increased from 1.0% for 2001 to 13.7% for Tax Proposals Senate and House What Happen to Tax Reform? 32 16

17 Individual Tax Brackets Senate 7 brackets 10% 38.5% House 4 brackets 12% 39.6% Note: under the House bill all individual changes would expire after 2025, the Senate bill would make the brackets permanent 33 Standard Deduction Senate $24,000 MFJ and $12,000 single The additional standard deduction for the aged and blind would remain intact House $24,400 for MFJ and $12,200 for Single Additional standard deduction for aged and blind would be eliminated 34 17

18 Personal Exemptions Eliminated in both the House and Senate Bills 35 Alternative Minimum Tax Late amendments to the Senate bill would preserve the AMT for individuals and corporations, but increase exemption amounts and phase out thresholds for individuals through 2025 House: The House bill would eliminate the individual AMT 36 18

19 Eliminating Many Deductions Senate The Senate bill would eliminate a number of deductions. Specifically eliminated deductions would include: State and local tax deduction, except for a $10,000 state and local property tax deduction (this exception, which mirrors the one included in the House bill was added in the final hours before passage) Deduction for Moving Expenses 37 Eliminating Many Deductions Senate Miscellaneous Itemized Deductions above the 2% floor These include, for example Deductions for unreimbursed employee expenses Tax preparation expenses Hobby expenses, and Safe deposit box rental Personal casualty losses would not be deductible unless the loss was due to a natural disaster addressed by a Presidential disaster declaration 38 19

20 Eliminating Many Deductions Senate The Senate bill would retain: Charitable contribution deductions The deductions for medical expenses exceeding 10% of adjusted gross income Alimony, and Student loan interest A late amendment to the bill would decrease the AGI threshold for the medical expenses deduction for those 65 and older to 7.5 percent for years 2017 and Eliminating Many Deductions Senate The Senate plan would also retain the home mortgage interest deduction at the current mortgage debt limit of $1.1 million (for original indebtedness) 40 20

21 Eliminating Many Deductions House The House plan would retain The charitable contribution Deduction for property taxes, up to a $10,000 limit, and The home mortgage interest deduction, for new mortgage debt up to $500,000 The current home mortgage interest deduction limit is $1.1 million 41 Eliminating Many Deductions House The House plan would eliminate other itemized deductions: State and local taxes (other than the $10,000 property tax deduction) Medical expenses Tax preparation fees Moving expenses (except for those in the Armed Services) Student loan interest Unreimbursed employee expenses 42 21

22 Eliminating Many Deductions House Personal casualty losses, and Alimony payments Alimony payments would be treated as child support payments under the House proposal The recipient of the alimony would be able to exclude the income from taxation This change would impact new divorce decrees after December 31, 2017, although parties could elect to apply to the provisions to modifications of decrees already in place 43 Increasing the Child Tax Credit and Creating a New Credit Senate To offset the considerable impact of the loss of many deductions and the $4,050 personal exemption per person upon families, the bills would significantly increase the child tax credit The Senate bill raises the child tax credit to $2,000 per qualifying child It would also expand the credit to apply to children under the age of 18, instead of 17 Up to $1,000 of the credit would be refundable The Senate proposal also provides a nonrefundable $500 credit for dependents who do not qualify for the child tax credit The Senate proposal would significantly expand the phase out threshold for credit eligibility 44 22

23 Increasing the Child Tax Credit and Creating a New Credit House The House bill raises the child tax credit to $1,600 per qualifying child (from the current amount of $1,000) The plan would also increase the income levels at which the child tax credit begins to phase out The child tax credit would continue to apply only to children under the age of 17 A new nonrefundable $300 family credit would also be allowed for each spouse and non child dependent This family credit would be offered for five years Up to $1,000 of the child tax credit would be refundable beginning in Other Credits and Exclusions Senate The Senate bill would retain the American Opportunity Tax Credit, the Earned Income Tax Credit, and the Adoption Credit The Senate bill (and the House bill) would continue to allow taxpayers to exclude gain from the sale of a personal residence, but would require that the taxpayer live in the residence for five out of the past eight years, instead of the current requirement of two out of the last five years Taxpayers could only use the IRC 121 exclusion once every five years 46 23

24 Other Credits and Exclusions Senate The Senate bill would preserve and increase from $250 to $500 the above the line deduction for educators out of pocket expenses Eliminated under both Senate and House bills would be the exclusion from income for employer provided transportation fringe benefits and moving expenses 47 Other Credits and Exclusions House The House bill would also eliminate the exclusion from income for employer provided dependent care expenses and achievement awards The House bill would also expand the AOTC to a fifth year and apply one half of the yearly credit amount in that fifth year 48 24

25 Note Tax benefits permitted for retirement plans would be largely unchanged by both bills, although the Senate bill would eliminate the ability of individuals to recharacterize contributions to another type of IRA before the due date of the individual s tax return 49 Estate, Gift, and Generation Skipping Tax Senate The Senate bill would double the basic exclusion amount and retain basis adjustment at death The Senate plan, however, would not repeal the estate tax and generation skipping tax for estates valued greater than the increased basic exclusion Under this bill, every person could die with up to $11.2 million in assets in 2018 and owe no estate tax Portability would continue to allow a surviving spouse to elect to apply the deceased spouse s unused exclusion If both spouses were to die in 2018, they could exclude up to $22.4 million in property from the estate tax 25

26 Estate, Gift, and Generation Skipping Tax House The House proposal would initially double the basic exclusion amount allowed for each person Under the House plan, the estate and generationskipping tax would be repealed altogether beginning in 2024 The gift tax would remain, although the higher exclusion amounts would apply Basis adjustment at death would continue 51 Note In 2016, there were only 5,219 estate tax returns filed for taxable estates Only 682 of those taxable estates had any farm property (2% of total taxable assets) 52 26

27 Lowering the Corporate Tax Rate Senate The Senate bill would lower the maximum corporate tax rate from 35% to 20%, beginning in 2019 Reducing the corporate tax rate over a 10 year period would cost nearly $1.5 trillion The House bill would implement this change beginning in Lowering Tax Rates for Pass thru Businesses House and Senate Since most small businesses, including farmers, conduct business through a sole proprietorship, partnership, or S corporation, lowering the corporate tax rate would not aid them The House and Senate bills provide different ways to reduce taxes for these businesses, while at the same time trying to prevent taxpayers from abusing the special provision 54 27

28 Lowering Tax Rates for Pass thru Businesses House and Senate Under the Senate bill, beginning in 2018, individuals receiving income from a pass thru business could generally deduct 23 % of qualified business income (this was a final hour increase from the 17.4% deduction included in the original text) from a partnership, S corporation, or sole proprietorship Qualified business income would not include an S corporation shareholder s reasonable compensation or a partner s guaranteed payments 55 Lowering Tax Rates for Pass thru Businesses House and Senate This deduction would generally be limited to 50 percent of W 2 wages (like the current DPAD deduction) However, the wages limitation would only apply to businesses with income greater than $500,000 (MFJ) This would ensure that small businesses without employees could still take advantage of this deduction Only small services businesses could take advantage of this deduction They could use the deduction if income is equal to or below $500,000 (MFJ) The deduction would then be phased out for the next $100,000 of income (MFJ) 56 28

29 Expensing Senate The Senate bill expands current expensing options for businesses The Senate would allow 100 percent bonus depreciation for five years beginning with property placed into service on September 27, 2017 (taxpayers could elect to use 50 percent bonus for 2017 purchases) After five years of 100 percent bonus, the bill would then allow one year of 80 percent bonus, one year of 60 percent bonus, one year of 40 percent bonus, and one year of 20 percent bonus 57 Expensing Senate The Senate bill does not expand bonus depreciation to used property The Senate would expand 179 to provide an immediate $1 million deduction with a $2.5 million phase out threshold The Senate bill would also allow farm equipment to be depreciated over a period of five years, instead of seven years It would also remove the requirement that farm property is depreciated using the 150 percent declining balance method (except for 15 or 20 year property) 58 29

30 Expensing House The House bill also provides five years of 100% bonus depreciation, which would include used, in addition to new property This provision would apply to property placed into service on September 27, 2017, or later The Section 179 deduction would be expanded to $5 million, with a phase out threshold of $20 million 59 Also Significant Both the Senate and House bills retain IRC 1031 likekind exchange treatment for real property, but eliminate it for personal property, such as farm equipment or breeding heifers The increase in expensing options lessens the impact of this change The bills also eliminate the domestic production activities deduction (DPAD), which is frequently used by agricultural producers and cooperatives, beginning in

31 Also Significant The new deduction for pass thru businesses is intended to replace the need for that deduction Although both bills restrict business interest deductions generally to 30 percent of adjusted gross income, those restrictions would not apply to businesses with revenue below $25 million (House) and $15 million (Senate) The Senate bill also revises the limitation on the deduction of business interest to allow a farming business (as defined in 263A(e)(4)) to elect not to be subject to the business interest limitation 61 Also Significant Such farming businesses would then be required to use the alternative depreciation system to depreciate any property used in the farming business with a recovery period of ten years or more The Senate and House bills would also leave intact the current Capital gains system Cash accounting The conservation easement deduction, and Income averaging 62 31

32 Note on Sequestration One concern raised by both proposals is the impact on the deficit The Congressional Budget Office has stated that because the proposals would increase the deficit by $1.5 trillion over the next ten years, sequestration would be triggered In 2018, that would require $111 billion to be sequestered from mandatory accounts, including those allotted for farm program benefits, in 2018 alone 63 Note on Sequestration This could mean a decrease in farm program payments, beginning in 2018, absent further action by Congress The Senate bill would disallow a deduction for expenses associated with meals provided for the convenience of the employer; however, this would not appear to kick in until after

33 Individual Shared Responsibility Payment House and Senate The Senate bill would set the Individual Responsibility Payment to $0, beginning in 2019, meaning that individuals who do not have health insurance will not be liable for the penalty The House bill does not reference the individual shared responsibility payment 65 Other Provisions The Senate bill includes a number of other specific tax provisions, some of which are listed below: Allowing an employer to take a general business credit of 12.5 % of the amount of wages paid to qualifying employees during periods of FMLA leave if the rate of payment is 50 % of the wages normally paid to the employee Expanding the use of ABLE accounts Imposing a new due diligence requirement on tax professionals when making head of household determinations 66 33

34 Other Provisions Limiting the net operating loss deduction to 80 % of taxable income (determined without regard to the deduction) in taxable years beginning after December 31, 2023 The House proposal limits the NOL deduction to 90 % percent of taxable income and restricts all carrybacks, with the exception of one year for small businesses and farms with some casualty and disaster losses Allowing 529 plans to be used to finance private elementary and secondary education (Cruz Amendment) 67 What s Ahead? The passage of the Senate bill virtually guarantees tax reform by year end Although differences in the House and Senate bills must be resolved through a conference process, it is clear that the majority of each chamber is set on reaching a common resolution It would seem that a final law would look more like the Senate bill, rather than the House bill, given the slim margin of victory in the Senate Both chambers must again approve changes to a final bill, before it would go to the President for his signature 68 34

35 Checkpoint Big Thanks to Checkpoint and Thompson and Reuters for this weeks Scoop 69 Questions 70 35

36 Up Coming Ethics Classes Ethics Part 1 and Part 2 (November 13) Ethics Part 1 and Part 2 (November 14) Ethics Part 1 and Part 2 (December 15) Ethics Part 1 and Part 2 (December 18) Ethics Part 1 and Part 2 (December 19) 71 Webinar: The Importance of Updating Your Electronic Filing Identification Number (EFIN) December 21, 2017 Online All tax practitioners want to ensure their tax season goes as smoothly as possible To avoid any delays, your EFIN application information should be updated within 30 days of any changes and failure to do so may result in the inactivation of your EFIN Please join Kristy for this one hour webinar as she provides guidance on accessing e services and making sure your application is current December 21, 2017 Noon to 1 PM (CST) 1 hour of CPE To register: $37 for 1 hour of CPE 72 36

37 Free Webinar: Annual Iowa Department of Revenue Update for the 2018 Filing Season January 11, 2018 Online The Iowa Department of Revenue will provide their annual update, including a summary of the 2017 Legislative Session and information on electronic W 2/1099 reporting The IDOR will provide two sessions: Thursday, January 11 Noon to 1 PM Friday, January 12 Noon to 1 PM Registration is free. No CPEs will be provided. Registration: To register for the January 11 session: Free Webinar: Annual Iowa Department of Revenue Update for the 2018 Filing Season January 11, 2018 Online The Iowa Department of Revenue will provide their annual update, including a summary of the 2017 Legislative Session and information on electronic W 2/1099 reporting The IDOR will provide two sessions: Thursday, January 11 Noon to 1 PM Friday, January 12 Noon to 1 PM Registration is free. No CPEs will be provided. Registration: To register for the January 12 session:

38 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)