The Scoop. Agenda 10/16/2017. October 18, 2017

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1 The Scoop October 18, 2017 Agenda Presidents October 12, 2017 Directive Subsidies Payments to Stop to insurance Companies Social Security for 2017 Amount E Services Scam IRS says set yourself apart and take the EA Examination Social Security COLA for 2018 Phasing Out the myra Program Notice Health Insurance Adjusted Dollar Fee PCORI Four Fair Tax Collection Practices Violations Resulted in Administrative Actions in Fiscal Year

2 Agenda Improvements Are Needed in the Estate and Gift Tax Return Examination Process Procedures for Retirement Accounts and Thrift Savings Plans Levies are Not Always Followed by Revenue Officers Notice Foreign Currency Guidance 3 Presidents October 12, 2017 Directive Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States Section 1. Facilitate the purchase of insurance across State lines and develop and operate a healthcare system that provides high quality care at affordable prices for the American people The Patient Protection and Affordable Care Act (PPACA), however, has severely limited the choice of healthcare options available Produced large premium increases 4 2

3 Presidents October 12, 2017 Directive The average exchange premium in 39 States that are using in 2017 is more than double the average overall individual market premium recorded in 2013 The PPACA has failed to provide meaningful choice or competition between insurers, currently one third of America's counties having only one insurer in Presidents October 12, 2017 Directive Section 1 Three areas for improvement in the near term will be prioritize: Association Health Plans (AHPs) Short Term, Limited Duration Insurance (STLDI) and Health Reimbursement Arrangements (HRAs) Expanding access to AHPs can help small businesses overcome the competitive disadvantage, allowing them to group together to self insure or purchase large group health insurance 6 3

4 Presidents October 12, 2017 Directive Short term, limited duration insurance (STLDI) is exempt from the onerous and expensive insurance mandates and regulations included in Title I of the PPACA Appealing and affordable to alternative to government run exchanges for many people without coverage available to them through their workplaces Heath Reimbursement Arrangements (HRAs) are taxadvantaged, account based arrangements that employers can establish for employees to give employees more flexibility and choices regarding their healthcare 7 Presidents October 12, 2017 Directive Expanding the flexibility and use of HRAs would provide many Americans, including employees who work at small businesses, with more options for financing their healthcare To the extent consistent with law, government rules and guidelines affecting the United States healthcare system should: Expand the availability of and access to alternatives to expensive, mandate laden PPACA insurance, including AHPs, STLDI, and HRAs 8 4

5 Presidents October 12, 2017 Directive Re inject competition into healthcare markets by lowering barriers to entry, limiting excessive consolidation, and preventing abuses of market power and Improve access to and the quality of information that Americans need to make informed healthcare decisions, including data about healthcare prices and outcomes, while minimizing reporting burdens on affected plans, providers, or payers 9 Presidents October 12, 2017 Directive Section 2 Expanded Access to Association Health Plans: within 60 days the Secretary of Labor shall consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs Consider expanding the conditions that satisfy the commonality of interest requirements under current Department of Labor advisory opinions interpreting the definition of an "employer" Consider ways to promote AHP formation 10 5

6 Presidents October 12, 2017 Directive Section 3 Expanded Availability of Short Term, Limited Duration Insurance Consider proposing regulations or revising guidance, consistent with law, to expand the availability of STLDI Consider allowing such insurance to cover longer periods and be renewed by the consumer 11 Presidents October 12, 2017 Directive Section 4 Expanded Availability and Permitted Use of Health Reimbursement Arrangements Consider proposing regulations or revising guidance to increase the usability of HRAs, to expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage 12 6

7 2017 Health Care Reform: Trump Eliminates ACA Insurance Subsidies for Low Income Individuals The Trump Administration has announced that it is eliminating billions of dollars in Affordable Care Act (ACA or Obamacare) subsidies to private health insurers for lowincome individuals 1402 of the ACA requires insurers offering qualified health plans through ACA Exchanges to reduce deductibles, coinsurance, copayments, and similar charges for eligible insured individuals enrolled in their plans These reductions are referred to in the ACA as cost sharing reductions (or CSR payments) These payments were $7 billion this year and had been estimated to rise to $10 billion in Health Care Reform: Trump Eliminates ACA Insurance Subsidies for Low Income Individuals Participating insurers are supposed to be reimbursed by the U.S. government for these CSRs Back in May of 2016, the district court for the District of Columbia granted summary judgment to the House of Representatives in their challenge to 1402 The court found that 1402 of the ACA impermissibly appropriated money for reimbursements to insurers in violation of Article I, 9, clause 7 of the Constitution, which requires that such monies be appropriated by Congress 14 7

8 2017 Health Care Reform: Trump Eliminates ACA Insurance Subsidies for Low Income Individuals Subsidies cut off On Thursday (Oct. 12, 2017), President Trump issued an Executive Order aimed at letting small businesses band together across state lines to buy less expensive, less regulated health plans for their employees with fewer benefits Afterwards, Attorney General Jeff Sessions announced that the Trump Administration will not make the next payment to insurers, scheduled for Wednesday October 18 Also that day, the Secretary of Health and Human Services (HHS) reportedly issued a statement saying that CSR payments to issuers must stop, effective immediately, and that CSR payments are prohibited unless and until a valid appropriation exists Health Care Reform: Trump Eliminates ACA Insurance Subsidies for Low Income Individuals A White House statement said that based on guidance from the Justice Department, the Department of Health and Human Services has concluded that there is no appropriation for cost sharing reduction payments to insurance companies under Obamacare. Reported by Checkpoint Thomson Reuters 16 8

9 Social Security wage base increases to $128,700 for 2018 This is up from $127,200 for 2017 For 2018, the FICA tax rate for employers is 7.65% 6.2% for OASDI and 1.45% for HI For 2018, an employee will pay: 6.2% Social Security tax on the first $128,700 of wages (maximum tax is $7, [6.2% of $128,700]), plus 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return 17 For 2018, the Self Employment Tax Imposed on Self Employed 12.4% OASDI on the first $128,700 of self employment income, for a maximum tax of $15, (12.40% of $128,700); plus 2.90% Medicare tax on the first $200,000 of self employment income ($250,000 of combined self employment income on a joint return, $125,000 on a separate return plus 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self employment income in excess of $200,000 ($250,000 of combined self employment income on a joint return, $125,000 for married taxpayers filing a separate return) 18 9

10 Manny Tax for 2018 Nanny tax threshold increases to $2,100 for 2018 The Social Security Administration has announced that, for 2018, cash remuneration paid by an employer for domestic service in the employer's private home isn't FICA wages if the amount paid during the year is less than $2,100. This is up from $2,000 for 2017 The dollar threshold applies separately to each domestic employee Checkpoint Thomson Reuters 19 COLAs Alter Optional Methods for Determining Self Employment Earnings for 2018 COLA s for 2018 including the quarter of coverage figure, rises from $1,300 for 2017 to $1,320 Reminder: The increase in the quarter of coverage figure serves to increase the lower and upper limits under optional methods for computing selfemployment tax Optional Method will adjust accordingly 20 10

11 E Services Scam The IRS warns all e Services users to beware a new phishing scam that tries to trick tax professionals into signing a new e Services user agreement The phishing scam seeks to steal passwords and data All tax professionals should be aware that as e Services begins its move later this month to Secure Access authentication and its two factor protections, cybercriminals likely will make lastditch efforts to steal passwords and data prior to the transition The scam claims to be from e Services Registration and uses Important Update about Your e Services Account in the subject line 21 E Services Scam It states, in part, We are rolling out a new user agreement and all registered users must accept its revised terms to have access to e Services and its products It asks you to review and accept the agreement but takes you to a fake site instead If you have clicked onto this link, you should perform a deep scan with your security software, contact your office s IT/cybersecurity personnel and contact the IRS e Help Desk 22 11

12 E Services Update e Services users Unfortunately, the migration of e Services to a new platform is taking longer than anticipated IRS is working hard to get this technology upgrade in place and hope to have applications back online within the next two weeks They will provide weekly updates until we are ready to launch. Meanwhile, TDS, TIN Matching, SOR and Registration are functional

13 Social Security COLA for 2018 The CPI W rises when prices increase, making cost of living go up This means prices for goods and services, on average, are a little more expensive The COLA helps to offset these costs As a result, more than 66 million Americans will see a 2.0 percent increase in their Social Security and SSI benefits in Social Security COLA for 2018 Other changes that will happen in January 2018 are based on the increase in the national average wage index For example, the maximum amount of earnings subject to Social Security payroll tax will increase to $128,700 The earnings limit for workers younger than full retirement age will increase to $17,040 and the limit for people turning full retirement age in 2018 will increase to $45,

14 Phasing Out the myra Program The U.S. Department of the Treasury has decided to phase out the myra retirement savings program, and the program is no longer accepting new enrollments Existing accounts can remain open until further notice What is happening to accounts? The account remains open and taxpayers can continue to manage the account until further notice The funds in the account remain in an investment issued by the U.S. Department of the Treasury 27 Phasing Out the myra Program Any myra with a zero ($0) balance as of September 15, 2017 or later, will be subject to possible automatic closure beginning on September 18, 2017 The funds in the account are safe and remain in an investment issued by the U.S. Department of the Treasury Treasury will be reaching out to all of the account holders with more information regarding the transfer or closure of the account over the next few weeks outlining when they stop accepting and processing deposits 28 14

15 Phasing Out the myra Program It is recommended taxpayers log in to their account to make sure their contact information is complete and up to date They can also update their information by contacting customer service They can initiate a direct transfer of their full account balance to another Roth IRA at any time First identify or open an account at the new Roth IRA provider where they will continue to save and invest 29 Phasing Out the myra Program Then, work with a new Roth IRA provider selected to transfer the myra balance to the new Roth IRA By opening another Roth IRA and working with the new Roth IRA provider to initiate a transfer of the funds in the myra to the new Roth IRA, taxpayers avoid withholding and potential tax liabilities (including potential tax penalties) that may apply to earnings if funds are paid directly to them To request closure of the account, call myra customer support at or TTY/TDD or International

16 Phasing Out the myra Program Remember that a myra follows Roth IRA rules To avoid tax liabilities that may apply to earnings if funds are paid directly to the taxpayer they will need to deposit the amount of the distribution (including any tax withholding) into a private sector Roth IRA within 60 days of the distribution Taxpayers may have received an additional payment due to a timing difference between when interest earned was reflected in the account balance, and when the requested a withdrawal (or distribution) is issued 31 Phasing Out the myra Program Taxpayers may contact the Call Center Monday through Friday from 8 a.m. to 8 p.m., E.T. at Transferring the account myra has no fees to move funds to another Roth IRA provider (or to withdraw funds and close the account) Have the taxpayer check with the new Roth IRA provider to learn whether they have applicable fees Can the taxpayer transfer or roll over the account into my employersponsored retirement plan, such as a 401(k), or into a traditional IRA? No. As is the case with all Roth IRAs, the myra can t be transferred or rolled over into an employer sponsored retirement plan or a traditional IRA Roth IRAs must be transferred or rolled over into other Roth IRAs 32 16

17 Notice Health Insurance Adjusted Dollar Fee PCORI Patient Centered Outcomes Research Institute fee The applicable dollar amount that must be used to calculate the fee for policy years and plan years that end on or after October 1, 2017, and before October 1, 2018, is $

18 Four Fair Tax Collection Practices Violations Resulted in Administrative Actions in Fiscal Year 2016 TIGTA identified four FTCP violations closed in Fiscal Year 2016 that resulted in administrative actions for IRS collection employees These violations included contacting taxpayers directly without the required consent of the taxpayers power of attorney, harassing or abusing taxpayers, and using obscene or profane language with taxpayers during collection related activities In addition, TIGTA identified four additional misconduct cases that were not closed timely on the IRS s tracking system 35 Four Fair Tax Collection Practices Violations Resulted in Administrative Actions in Fiscal Year 2016 It is imperative that case closing information be input timely and correctly because data on misconduct cases are used for reports provided to a number of other offices and, at times, are the basis for information provided to Congress on legislation affecting the IRS In addition, during Fiscal Year 2016, the TIGTA Office of Investigations referred 14 complaints to the IRS that were not entered into the IRS tracking system or reviewed to determine if they were violations of the FTCP 36 18

19 Four Fair Tax Collection Practices Violations Resulted in Administrative Actions in Fiscal Year 2016 After TIGTA brought this to IRS management s attention, the IRS began working on a new computer site to control complaints before they are added to the tracking system Lastly, there were no civil actions resulting in monetary awards for damages to taxpayers because of an FTCP violation 37 Improvements Are Needed in the Estate and Gift Tax Return Examination Process The Internal Revenue Service (IRS) needs to make improvements in the classification, prioritization, and inventory assignment processes for the Estate and Gift Tax Return Examination Program TIGTA found that IRS estate and gift tax examiners do not always follow estate and gift tax return examination case documentation and timeframe guidelines Federal estate tax is a tax on the right to transfer property at death The Federal gift tax is a tax on transfers of property from a living person to other persons or trusts 38 19

20 Improvements Are Needed in the Estate and Gift Tax Return Examination Process After taxpayers file tax returns with estate or gift transfers and the IRS processes them, the IRS might select some and assign them for further examination if filing requirements have not been met or there are pending issues Taxpayers could be treated inconsistently if estate and gift tax returns are not properly assigned to IRS personnel or not properly examined by them The IRS reported in its Fiscal Year 2016 data records that it estimated that over $1 billion of tax should be assessed for estate and gift tax returns that were examined and closed for that fiscal year 39 Improvements Are Needed in the Estate and Gift Tax Return Examination Process TIGTA s review found that there is minimal IRS operational guidance for estate and gift tax return examination case classification, prioritization, and examination case inventory assignment processes In addition, TIGTA auditors found that some classification documentation sheets, when filled out by classifiers, are difficult to read or are incomplete Only one employee is responsible for prioritizing cases selected for examination during classification sessions and assigning these cases to the field for examination 40 20

21 Improvements Are Needed in the Estate and Gift Tax Return Examination Process Risks are present due to a lack of documented managerial reviews over the processes TIGTA also found that examination case documentation guidelines were not followed in 18 (47 percent) of 38 randomly sampled estate tax examinations, and in 17 (46 percent) of 37 randomly sampled gift tax examinations TIGTA made several recommendations to improve the examination of estate and gift tax returns, including the creation of a readable document for classifying cases 41 Improvements Are Needed in the Estate and Gift Tax Return Examination Process Revisions to the IRM Strengthening of internal controls Development of guidance on the circumstances in which it is advisable to propose and issue inconsistent notices of tax return case deficiency in estate and gift tax examinations IRS management agreed with all of TIGTA s recommendations and plans to take corrective actions 42 21

22 Procedures for Retirement Accounts and Thrift Savings Plans Levies are Not Always Followed by Revenue Officers To satisfy tax debts, the IRS may levy funds held in retirement accounts. Special procedures are required before levying retirement accounts because taxpayers may need to rely on those funds, either now or in the near future, to pay living expenses The audit was initiated to determine whether the IRS has adequate controls and procedures in place to properly issue levies on retirement income, retirement accounts, and TSP accounts. Pre levy procedures for retirement income require managerial approval for Automated Collection System (ACS) employees and more discretion by revenue officers 43 Procedures for Retirement Accounts and Thrift Savings Plans Levies are Not Always Followed by Revenue Officers TIGTA s review of a random sample of 30 levies of retirement income issued by ACS employees and 28 levies of retirement income issued by revenue officers showed that pre levy procedures were properly followed in most cases However, TIGTA s analysis of the financial condition of these taxpayers showed that 11 taxpayers were potentially in economic hardship at the time of the levies 44 22

23 Procedures for Retirement Accounts and Thrift Savings Plans Levies are Not Always Followed by Revenue Officers Revenue officers must determine if the taxpayer has: Other property or non retirement assets that could be used to collect the liability If a payment agreement can be reached The taxpayer has exhibited flagrant behavior or They need the money in the retirement account (or will in the near future) to pay necessary living expenses In addition, revenue officers must obtain Collection function Area Director approval for such levies 45 Procedures for Retirement Accounts and Thrift Savings Plans Levies are Not Always Followed by Revenue Officers TIGTA s review of a judgmental sample identified 11 of 27 retirement account levies for which some or all of the required special procedures were not followed The IRS levied $140,615 from four retirement accounts Taxpayers were burdened because their retirement accounts were improperly levied The average age for all 27 sampled taxpayers with retirement accounts was 61 years, so the taxpayers may have relied on these funds in the near future These taxpayers would have experienced other resulting tax consequences from the improper levy as well 46 23

24 Notice Foreign Currency Guidance The IRS intend to amend final and temporary regulations 987, which governs currency gains and losses with respect to the operations of a qualified business unit (QBU) with a different functional currency than the taxpayer The effective date would be deferred under the amended regulations by one year Notice also states that they are considering changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and alternative rules for determining 987 gain or loss 47 The Scoop Upcoming Dates November 1 December 13, 2017 Held at 8:00 am and 12:00 pm Central time 48 24

25 Up Coming Webinars node field seminardate/month New Partnership Audit Rules October 19 Farm Expenses October 24, 2017 Farm Income October 26, 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 25

26 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)