Center for Agricultural Law & Taxation The Scoop August 15, 2018 Agenda IRS Budget Status IRS New Tax Reform Page Updated Postcard a look at Schedule A Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 TD 9836 Charitable Contributions The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct Maintaining EFINs Protecting EFINS New Proposed Regulations Issued 2 1
IRS Budget Status The Senate on July 1 approved a spending measure The Interior, Environment, Financial Services, and General Government Appropriations Act, 2019 (H.R. 6147) provides $11.263 billion for IRS, an increase of $186 million above the fiscal year 2018 enacted level Of this amount, $77 million is dedicated to implementation of tax reform In total, the bill provides Taxpayer Services an additional $31 million above the fiscal year 2018 enacted level to support IRS's customer service and funding for fraud prevention, and cybersecurity 3 IRS Budget Status The bill also includes prohibition on funds: Bonuses To rehire former employees unless employee conduct and tax compliance is given consideration IRS to target groups for regulatory scrutiny based on their ideological beliefs, not allowed IRS to target individuals for exercising their First Amendment rights not allowed For the production of inappropriate videos and conferences The bill must now be reconciled with the House version which that chamber approved on July 19 4 2
https://www.irs.gov/tax reform IRS New Tax Reform Page 5 Draft of Form 1040 Schedule A 6 3
Draft of Form 1040 Schedule A 7 Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 Remote Sellers Minnesota law requires all sellers to collect sales or use tax to the extent allowed under the United States Constitution The June 21, 2018 U.S. Supreme Court decision in South Dakota v. Wayfair allows states like Minnesota to require remote sellers with no physical presence, such as online and mail order companies, to collect and remit the applicable sales or use tax on sales delivered to locations within their state 8 4
Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 The Court s decision in Wayfair caused Minnesota s existing law, which was enacted in 1989, to become effective Remote sellers that sell goods or services into Minnesota from other states must register and begin collecting and remitting Minnesota sales tax no later than October 1, 2018 9 Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 Minnesota has a Small Seller Exception, which does not require remote sellers to collect sales tax until their sales during a period of 12 consecutive months total either: 100 or more retail sales shipped to Minnesota 10 or more retail sales shipped to Minnesota that total more than $100,000 10 5
Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 Marketplace Providers Minnesota law also requires certain Marketplace Providers to collect and remit Minnesota sales tax on all taxable retail sales made into Minnesota facilitated by the marketplace Remote sellers do not need to collect sales tax when a Marketplace Provider is collecting and remitting The Court s decision in Wayfair also caused Minnesota s 2017 Marketplace Provider law to become effective 11 Minnesota Will Require Remote Sellers and Marketplace Providers Facilitating Sales into Minnesota to Collect Sales Tax No Later than October 1, 2018 Marketplace Providers must register and begin collecting Minnesota sales tax on behalf of remote sellers using their marketplace no later than October 1, 2018 Guidance for sellers MDR have updated their Frequently Asked Questions to help sellers outside Minnesota and in Minnesota understand how the Court s decision affects filing requirements and resources to help collect and file 12 6
TD 9836 Charitable Contributions 170(f)(8), provides that no deduction shall be allowed for any contribution of $250 or more, cash or noncash, unless the taxpayer substantiates the contribution with a contemporaneous written acknowledgment of the contribution by the donee organization The contemporaneous written acknowledgment must include: (1) the amount of cash and a description (but not value) of any property other than cash contributed (2) a statement of whether the donee organization provided any goods or services in consideration, in whole or in part, for any such cash or property; and (3) a description and good faith estimate of the value of any such goods or services or, if such goods or services consist solely of intangible religious benefits, a statement to that effect 13 TD 9836 Charitable Contributions Blank Pledge Cards are Not Substantiation Final regulations provides that a single written acknowledgment that satisfies all substantiation requirements under both 170(f)(8) and 170(f)(17) is adequate substantiation for contributions of a cash, check, or other monetary gifts 14 7
TD 9836 Charitable Contributions Non Cash Substantiation Requirements Final 1.170A 16 provides that a donor who claims a deduction for a noncash contribution of less than $250 is required only to obtain a receipt from the donee or keep reliable records A donor who claims a noncash contribution of at least $250 but not more than $500 is required only to obtain a contemporaneous written acknowledgment For claimed noncash contributions of more than $500 but not more than $5,000, the donor must obtain a contemporaneous written acknowledgment and must also file a completed Form 8283 (Section A), Noncash Charitable Contributions, with the return on which the deduction is claimed 15 TD 9836 Charitable Contributions Non Cash Substantiation Requirements For claimed noncash contributions of more than $5,000, in addition to a contemporaneous written acknowledgment, the donor generally must obtain a qualified appraisal and must also complete and file either Section A or Section B of Form 8283 (depending on the type of property contributed) with the return on which the deduction is claimed For claimed noncash contributions of more than $500,000, the donor must also attach a copy of the qualified appraisal to the return for the taxable year in which the contribution is made 16 8
TD 9836 Charitable Contributions Bank record or written communication required Written communication includes email Deadline for receipt of substantiation The substantiation must be received by the donor on or before the earlier of (1) The date the donor files the original return for the taxable year in which the contribution was made; or (2) The due date, including any extension, for filing the donor s original return for that year 17 TD 9836 Charitable Contributions Both the proposed and final regulations require an appraiser to use a taxpayer identification number on an appraisal, but that number does not need to be the appraiser s social security number An appraiser may use an employer identification number The IRS has modified the instructions to Form 8283 to make clear that an appraiser may use either a social security number or an employer identification number 18 9
TD 9836 Charitable Contributions Form 8283 is not a contemporaneous written acknowledgment Attaching appraisal to carryover year returns remains a requirement New Requirements for Qualified Appraisals and Qualified Appraisers Education and experience requirement for qualified appraisers a qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed 19 TD 9836 Charitable Contributions Contributions made by payroll deduction Meets the substantiation requirements if the donor obtains (i) A pay stub, Form W 2, Wage and Tax Statement, or other employer furnished document that sets forth the amount withheld during the taxable year for payment to a donee; and (ii) A pledge card or other document prepared by or at the direction of the donee 20 10
TD 9836 Charitable Contributions Charitable contributions made by partnership or S corporation If a partnership or an S corporation makes a charitable contribution, the partnership or S corporation is treated as the donor 21 TD 9836 Charitable Contributions For contributions of certain inventory and scientific property, excess of amount claimed over cost of goods sold taken into account In determining the amount of a donor s contribution of property relating to contributions of inventory and other property or relating to contributions of scientific property used for research applies, the donor must take into account only the excess of the amount claimed as a deduction over the amount that would have been treated as the cost of goods sold if the donor had sold the contributed property to the donee 22 11
TD 9836 Charitable Contributions Inventory Example X Corporation makes a contribution of inventory The contribution is for the care of the needy The cost of the property to X Corporation is $5,000 and the fair market value of the property at the time of the contribution is $11,000 X Corporation claims a charitable contribution deduction of $8,000 ($5,000 + 1/2 ($11,000 5,000) = $8,000) The amount taken into account for purposes of determining the $5,000 threshold is $3,000 ($8,000 $5,000) 23 TD 9836 Charitable Contributions For each item of contributed property for which a Form 8283 (Section A or Section B) is required, a donor must attach a separate Form 8283 (Section A or Section B) to the return on which the deduction for the item is claimed Exception for similar items 24 12
TD 9836 Charitable Contributions For each contribution a receipt from the donee showing the following information: (i) The name and address of the donee; (ii) The date of the contribution; (iii) A description of the property in sufficient detail Individuals, partnerships, and certain corporations also required to file Form 8283 (Section A) Additional requirement for certain vehicle contributions 25 The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct Only a relatively small number of civil examinations are pursued against preparers each year relative to complaints about tax preparers For example, during Fiscal Year 2016, the IRS investigated just 140 (15 %) of 951 misconduct referrals Additionally, the SB/SE Division does not establish goals addressing preparer misconduct or track them in any meaningful way Collection of tax preparer penalties is not effectively prioritized or worked given that only about 15% of assessed penalties are being collected 26 13
The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct The Return Preparer Office, which was originally established to lead the now defunct regulatory effort, is still in existence but now primarily focuses its efforts on tax professionals and those few tax return preparers who volunteer to be subject to certain annual training The Return Preparer Office checks tax compliance for tax professionals but not for most unregulated preparers More than 26,000 Preparer Tax Identification Number recipients acknowledged being tax noncompliant 27 The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct Additionally, while preparing tax returns without a Preparer Tax Identification Number is subject to a penalty, the penalties are assessed on a limited ad hoc basis In Processing Year 2016, the IRS failed to assess $121,175,195 in Preparer Tax Identification Number penalties TIGTA could not independently verify the numbers because of IRS computer system limitations 28 14
Social Security Matching Notices issued Employer Correction Request Notices SSA recently began mailing informational notifications to businesses and third parties, who submitted wage and tax statements (Form W 2) that contain name and Social Security number (SSN) combinations that do not match SSA records There are a number of reasons why reported names and SSNs may not agree with our records 29 Social Security Matching Notices issued Educational Correspondence (EDCOR) Announcement Employer Correction Request You reported X# employee names and Social Security numbers (SSN) on the Wage and Tax Statements (Forms W 2) for tax year xxxx that do not match our records We need corrected information from you so that we can reconcile employer wage reports and credit your employees earnings to their Social Security records Third Party Provider Notification 30 15
Maintaining EFINs Once a tax professional has completed the EFIN application process and received an EFIN, it is important that they keep their account up to date at all times Review the e File application periodically Tax professionals e file application must be updated within 30 days of any changes such as individuals involved, addresses or telephone numbers Failure to do so may result in the inactivation of an EFIN 31 Maintaining EFINs Ensure proper individuals are identified on the application, and update as necessary The principal listed on the application is the individual authorized to act for the business in any legal or tax matters Periodically access the account Add any new principals or responsible officials promptly Update any business address changes, including adding new locations 32 16
Maintaining EFINs EFINs are not transferable; if selling the businesses, the new principals must obtain their own EFIN There must be an EFIN application for each office location; for those expanding their business, an application is required for each location where e file transmissions will occur 33 Monitoring EFINs, PTINs and CAFs Tax professionals can obtain a weekly report of the number of tax returns filed with their EFIN and PTIN For PTIN holders, only those preparers who are attorneys, CPAs, enrolled agents or Annual Filing Season Program participants and who file 50 or more returns may obtain PTIN information Weekly checks will help flag any abuses by cybercriminals 34 17
Here s How: For EFIN totals: Access the e Services account and the EFIN application Select EFIN Status from the application Contact the IRS e help Desk if the return totals exceed the number of returns filed For PTIN totals: Access the online PTIN account Select View Returns Filed Per PTIN Complete Form 14157, Complaint: Tax Return Preparer, to report excessive use or misuse of PTIN 35 Centralized Authorization File (CAF) For those with a Centralized Authorization File (CAF) number, make sure to keep authorizations up to date Tax professionals should make an annual review to identify outstanding third party authorizations for people who are no longer their clients It is important that tax professionals remove authorizations for taxpayers who are no longer their clients See Withdrawal of Representation in Publication 947, Practice Before the IRS and Power of Attorney Information also is available in the instructions for Form 2848, Power of Attorney and Declaration of Representative, or Form 36 8821, Tax Information Authorization 18
Protecting EFINs The same good security habits for protecting client data also can protect the EFIN Those include the use of strong anti virus software, strong and unique passwords, two factor authentication where available Learn to recognize and avoid phishing scams; do not open links or attachments from suspicious emails, most data thefts begin with a phishing email Secure all devices with security software and let it automatically update 37 Protecting EFINs Use strong passwords of eight or more mixed characters; use phrases that are easily remembered and password protect all wireless devices Encrypt all sensitive files/emails and use strong password protections Backup sensitive data to a safe and secure external source not connected fulltime to the network Wipe clean or destroy old computer hard drives that contain sensitive data All professional tax preparers must have a written data security plan 38 19
New Proposed Regulations Issued The IRS issued proposed regulations this week for a new provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 % of their qualified business income The new section 199A deduction is available for tax years beginning after Dec. 31, 2017 (REG 107892 18) The Treasury Department and the IRS also issued proposed regulations this week on the new 100 % depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service (REG 104397 18) 39 Other Guidance Notice 2018 62 announces that the Treasury Department and the IRS intend to issue proposed regulations providing clarification on the new rules increasing the contribution limits to ABLE accounts from certain designated beneficiaries Notice 2018 64 proposes a revenue procedure that provides guidance on methods for calculating W 2 wages for purposes of 199A of the Internal Revenue Code and proposed 1.199A 1 through 6 of the Income Tax Regulations 40 20
Other Guidance Revenue Procedure 2018 40 provides the procedures by which a small business taxpayer may obtain automatic consent to change its methods of accounting to reflect these statutory changes and requests comments containing suggestions for future guidance under 263A, 447, 448, 460, and 471 41 Questions 42 21
Tax Cuts & Jobs Act Resources https://www.calt.iastate.edu/tax cuts jobs act resources 43 TAS Problem Solving Day What: Taxpayer Advocate Service Problem Solving Day Where: Des Moines Taxpayer Advocate Service Office, 210 Walnut Street, Room 483, Des Moines, IA When: Wednesday, September 5, 2018, 9:00 am 2:00 pm To make an appointment with your case call: 515-564-6888 44 22
Up Coming Scoops Held at 8:00 am and 12:00 pm Central time August 29, 2018 September 12, 2018 October 10, 2018 October 24, 2018 November 14, 2018 December 12, 2018 45 UP Coming Webinars August 15 Penalty Abatement and Reasonable Cause August 17 Trusts 102 Review of More Complex Trusts and Estates: Income Tax Matters August 21 Ethics Webinars Part 1 Disciplinary Proceedings August 21 Ethics Webinars Part 3 Ethics and Security Responsibilities August 24 Trust 103 Income, Gift and Estate Planning for Trusts and Estates August 28 Partnership Hot Assets 46 23
The CALT Staff Kristine A. Tidgren Director for the Center for Agricultural Law and Taxation Iowa State University 211 Curtiss Hall 513 Farm House Lane Ames, IA 50011 E mail: ktidgren@iastate.edu Phone: (515) 294 6365 Fax: (515) 294 0700 Micki Nelson New Program Administrator (515) 294 5217 micki@iastate.edu 48 24
The CALT Staff Kristy S. Maitre and Oliver Tax Specialist E mail: ksmaitre@iastate.edu Phone: (515) 296 3810 Fax: (515) 294 0700 25