IRS Hot issues and Key Messages Catherine Murphy Sr Stakeholder Liaison August 19, 2011 Return Preparer Office PTIN Testing CE 1099 rules OIC Disaster Tax relief Other Stuff 1
What is new or not so new? Phase One Mandatory registration and Preparer Tax Identification Numbers for all paid preparers Annual user fee $64.25 SSN no longer valid ID number for paid preparers beginning Jan. 1, 2011. Must use PTIN Who needs a PTIN? Any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a U.S. federal tax return or claim for refund 2
New Online Sign-Up System www.irs.gov/taxpros PTIN status report Over 729, 000 issued to date 95% online 62% not an attorney, CPA, or EA ( provisional PTINs) Renewal season to begin Oct. 2011 3
IRS Identifies 100,000 Preparers Who Failed to Follow New PTIN Rules The Internal Revenue Service announced it will send letters to approximately 100,000 tax return preparers who prepared returns in 2011 but failed to follow new requirements. IR-2011-74, July 12, 2011 Change to Calendar Year Renewal Original renewal plan was one year from date of PTIN assignment IRS is converting to a calendar year renewal All PTINs will expire Dec. 31 All renewals will be processed October- December of each year 4
CPAs, Attorneys, and Enrolled Agents Renew PTIN annually No additional requirements Supervised Preparers and Non- 1040 Preparers Definitions: Supervised preparers: Those who do not sign returns and are employed by attorney, CPA, or EA firms and are supervised by an attorney, CPA, or EA Non-1040 preparers: Those who do not prepare any Form 1040 series returns Renew PTIN annually Submit fingerprints for a background check 5
All other preparers Renew PTIN Submit fingerprints for a background check Pass a competency test Take continuing i education courses annually Background Checks Submit fingerprints through an approved IRS vendor Prometric testing centers The UPS Store Estimated fee range: $60-90 Due process rights Estimated start date October 2011 Provisional PTIN holders have until end of 2013 Potential exemption for EFIN fingerprints less than 2 years old 6
Competency Testing Many preparers will be required to pass a competency test by Dec. 31, 2013 Testing will begin approximately Oct. 2011 Exempt from testing: Attorneys, CPAs, and enrolled agents Certain supervised preparers Those who prepare no Form 1040 series returns Competency Testing Test specifications coming soon Demonstration of minimum competency One level, Form 1040 series only One time requirement, not annual Schedule at hundreds of Prometric testing centers worldwide Estimated fee range: $100-125125 Estimated start date October 2011 Provisional PTIN holders have until end of 2013 7
Registered Tax Return Preparer Initial requirements: Pass a tax compliance check Pass a background check Pass a competency test Ongoing requirements: Obtain annual continuing education courses Renew PTIN annually Notice 2011-45 restricts use of this term until requirements are met Continuing Education Beginning in 2012, Registered Tax Return Preparers will have a new requirement to complete 15 continuing education hours per year: three hours of federal tax law updates two hours of ethics ten hours of federal tax law Courses will need to be obtained from IRS approved providers 8
Future Governance Return Preparer Office - David Williams, Director Registration PTIN System Testing Continuing Education Compliance Office of Professional Responsibility - Karen Hawkins, Director Adherence to ethical conduct and professional standards Additional Ongoing Efforts Extension of Circular 230 ethical standards to all paid tax return preparers Development of a comprehensive return preparer enforcement strategy Development of a public awareness campaign to educate taxpayers, preparers, and employees on the new requirements and standards Creation of a public database 9
Expanded Information Reporting at beginning of year Payment Card Reporting: Transactions after December 31, 2010 Rental Expense Reporting: Rental expense payments made after December 31, 2010 Basis Reporting by Brokers: Certain transactions on or after January 1, 2011 W-2 Reporting Health Insurance Reporting: Optional for 2011; Required for 2012 Enhanced Business Reporting: Payments made after December 31, 2011 Expanded Information Reporting now Payment Card Reporting: Transactions after December 31, 2010 Basis Reporting by Brokers: Certain transactions on or after January 1, 2011 W-2 Reporting Health Insurance Reporting: Optional for 2011; Required for 2012 10
1099 Third Party Reporting 1099-K 11
Offers in Compromise Fresh Start Initiatives Streamlined Offer in Compromise program expanded Offers in Compromise Expanded Streamlined OIC program includes: Fewer requests for financial information Requests for additional information by phone Greater flexibility when considering ability to pay 12
Wage earners Qualifying Taxpayers: The unemployed Self-employed taxpayers with no employees and gross receipts under $500,000 Eligibility Requirements: Total household income $100,000 or less Owe less than $50,000 when offer is filed 13
Compliance What Can I do? Submit documentation with offer Respond to requests for additional information http://www.irs.gov/businesses/small/article/0,,id=104593,00.html 14
Disaster update FEMA 1980 On May 9, 2011, the President declared the State of Missouri a disaster area with certain counties determined by the Federal Emergency Management Agency (FEMA) to be eligible for Individual Assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5206 (Stafford Act). The federal declaration was made after severe storms, tornadoes, and flooding occurred on April 19, 2011. Possible Tax Relief for Disaster Situations Special tax law provisions may help taxpayers recover er financially from the impact of a disaster. The IRS may: Grant additional time to file, pay, and perform certain other time sensitive acts during the postponement period Waive or abate interest and late filing or late payment penalties Establish waiver period for employment and excise tax 15
Tax Relief for Disaster Situations Things to consider for a faster refund for individuals and businesses in a Federally Declared Disaster Area: Claim losses related to the disaster on the previous year tax return, usually by filing an amended return, or Electronically file original tax return for the year the loss occurred Filing Options for Federally Declared Disaster Area Losses Filing Options: Tax year of the casualty- Claim disaster-related casualty loss in the tax year of the casualty, or the prior year, by amending the prior year tax return. Claiming the loss on an original or amended return Claiming the loss on an original or amended return for prior year will entitle the taxpayer to an earlier refund, but waiting to claim the loss on the return for the year of loss could result in a greater tax saving, depending on other income factors. 16
Filing Requirements for Losses Election to take casualty loss in preceding tax year must be made by the later of the following dates: Due date (without extensions) for filing tax return for the tax year in which the disaster occurred. Due date (with extensions) for filing tax return for the preceding tax year. Example: A calendar year taxpayer ordinarily has until April 15, 2009, to amend 2007 tax return to claim a casualty loss that occurred during 2008. Filing Requirements for Losses (cont d) How to deduct a loss in the preceding year: Include statement either on the original return or the amended return with the following information: - Date or dates of disaster - City, Town, County and State t of disaster Statement can be either on the return or included with the return 17
Filing Requirements for Losses (cont d) Once election is made, it can be revoked within 90 days of making the election. Must return any refund or credit received from making the choice. If revoked prior to getting refund, must return refund within 30 days of receiving it for revocation to be effective. Exempt Organizations IRS Identifies Organizations that Have Lost Tax-Exempt Status t Special Steps Announced to Help Revoked Groups Notice 2011-43, Notice 2011-44 and Revenue Procedure 2011-36 http://www.irs.gov/newsroom/article/0,,id=240239,00.html 18
Administration of ACA Provisions Health and Human Services (HHS) HealthCare.gov CuidadoDeSalud.Gov (Spanish) IRS administers tax law provisions IRS.gov for updates Small Business Health Care Tax Credit Eligibility Rules Providing health care coverage Firm size Average annual wage Taxable (for profit) and tax-exempt firms qualify Amount of Credit Maximum Amount Phase-out 19
Increase in the Adoption Credit Increases to $13,170 per child Refundable Includes carry-forwards from 2009 Credit is based on reasonable and necessary expenses Adoption fees Court costs Attorney s fees Travel expenses Requires filing Form 8839 and required adoption-related documentation with Form 1040 Cannot be filed electronically Excise Tax on Tanning Services Effective July 1, 2010 10% point-of-sale of tax for indoor services Paid to salon Salon remits tax to IRS using Form 720 Some exclusions apply: Tanning lotions/creams Dermatologists t Some physical fitness facilities Applies to tax-exempt organizations 20
New Rules for Purchases with FSAs, HSAs, and Other Workplace Health Plans Limits on Over-the-Counter Medicines Prescription required for drugs and medicines except insulin To qualify as a reimbursable expense for FSAs and Health Reimbursement Arrangements To qualify as a tax-free distribution from a Health Savings Account (HSA) or an Archer Medical Savings Account (MSA) Effective for purchases beginning on January 1, 2011 Additional Taxes on Non-Qualified Medical Expenses Tax percentage on HSAs/MSAs increases as of January 1, 2011 Does not apply to individuals who are disabled or over age 65 W-2 Reporting on Employer- Provided Insurance Coverage Reporting is for information only, the value of employer contribution is not taxable Reporting is voluntary for all employers for 2011 and small employers for 2012 Form W-2 available for employers to report the value of coverage provided to employees on Form W-2 Notice 2011-28 21
Expanded Reporting Requirements on Payments to Corporations Information Reporting on Payments to Corporations and Payments of Gross Proceeds and With Respect to Property was repealed 4/14/2011 ACA Provisions Effective Tax Year 2013 Additional Hospital Insurance Tax on High- Income Taxpayers Unearned Income Hospital Insurance Tax Modification of Medical Expense Deduction Repeal of deduction for Medicare Part D subsidy for retiree medical Plans Limit on Cafeteria Plan Health FSAs Excise Tax on Medical Device Manufacturers 22
Additional Information and Resources Affordable Care Act on www.irs.gov Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance http://www.irs.gov/newsroom/article/0,,id=222814,00.ht ml Affordable Care Act Tax Provisions http://www.irs.gov/newsroom/article/0,,id=220809,00.ht ml?portlet=6 Other health care resources: HealthCare.gov Medicare.gov Internal Revenue Service Individual Taxpayer Identification Number (ITIN) 23
Purpose of ITINs Individual Taxpayer Identification Numbers (ITIN) are used for federal tax purposes only and provide a means to efficiently process and account for tax returns and payments. Changes Made to Program All new ITIN applicants must show a federal tax purpose for seeking the ITIN. With some exceptions, this requires attaching a valid original U.S. federal income tax return. The number of documents acceptable as proof of identity to obtain an ITIN have been reduced from 40 to 13. An ITIN assignment letter is now issued in place of an ITIN card to avoid similarities to a Social Security Number card. 24
An IRS ITIN is A tax processing number, A unique 9 digit tax processing number beginning with 9 with the middle two digits ranging from *70 to 99 (9XX-90-XXXX), and Issued to individuals required to pay tax or who have a tax reporting requirement to the IRS but do not qualify for a Social Security Number. * 89 and 93 are assigned to other programs An ITIN does NOT... Entitle the recipient to Social Security benefits or Earned Income Tax Credit (EITC), Change an individual s immigration status, Give the individual the right to work in the U.S. and is not valid for employment purposes, or Serve as identification outside the tax system. 25
Who Needs an ITIN? Any U.S. resident or non-resident alien individual who: Is required to file a U.S. federal income tax return, Can be claimed as an exemption on a U.S. federal income tax return, Does not have and cannot obtain an SSN, or Meets an exception to having to file a U.S. federal income tax return, but requires an ITIN for federal reporting purposes. There are Exceptions to the Return Filing Requirement Exception 1: Passive Income - treaty benefits Exception 2: Wages, salary, compensation, honoraria and gambling winnings with tax treaty benefits claimed; and scholarships, fellowships and grants with and without tax treaty benefits claimed Exception 3: Third party Reporting mortgage interest Exception 4: Disposition by foreign person of U.S. Real Property Interest - withholding obligations Exception 5: Filing under TD-9363 with registration Form 13350 26
How to Apply for an ITIN Form W-7/W-7SP must be attached to a U.S. federal income tax return or to the documentation which proves meeting the exception criteria. Original, notarized or certified copies of identification documents must be attached. Applicant s name must be listed on the return as it appears on the Form W-7/W-7SP. The Documentation Required Applicants must submit current (unexpired) documentation to prove their foreign status and identity. The following acceptable documentation must be submitted as original, notarized or certified copies. A Passport is the only document that can be submitted by itself National U.S. Military Identification card Identification Card Foreign Military Civil Birth Certificate Identification Card continued 27
The Documentation Required The following acceptable documentation must be submitted in original or certified copies. U.S. Driver s License U.S. Visa Foreign Driver s License U.S. State Identification Card Medical Records (dependents only, under age 18 if a student) U.S. CIS Photo Identification Card Foreign Voter Registration Card School Records (dependents only, under age 18 if a student) Common Applicant Errors No return is attached and there is no indication that an exception is met. Form W-7 or W-7SP is not signed. The delegate s relationship to applicant BOX is not checked. Foreign address (or country) is not provided on Form W-7 or W-7SP (line 3), when required. Continued 28
Common Applicant Errors Proper documentation is not attached. Supporting documentation to meet exception is not attached to Form W-7. Original, notarized or certified identification documents are not provided. Identification documents have expired (where applicable). Applications not mailed to the ITIN PO Box or sent to the wrong IRS Center. By Mail: Where to Submit an ITIN Application Internal Revenue Service ITIN Operation P.O. Box 149342 Austin, TX 78714-9342 In Person: IRS Taxpayer Assistance Center Through an Acceptance Agent: Through an Acceptance Agent: To obtain a list of agents, visit the IRS website at www.irs.gov and use keyword search: Acceptance Agent. 29
Where can you request help in completing Form W-7? Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number (ITIN), available at www.irs.gov contains step-by-step instructions. In addition, you may: Call IRS at 1-800-829-1040 Visit an IRS Taxpayer Assistance Center Visit a tax professional Visit an IRS-authorized acceptance agent Is there a fee involved in applying for an ITIN? The IRS does not charge for this service or set any fees. Tax Professionals and IRS-authorized Acceptance Agents can charge for this service as a part of doing business. 30
Acceptance Agents Process Acceptance Agents (AA) are critical to the success of fthe ITIN program primarily il because of their proximity and availability to those needing ITINs for tax purposes. AAs can include educational institutions, financial i institutions, government entities/military installations, volunteer organizations and tax practitioners. Major Changes to the Acceptance Agent Program The new Open Season for applying, May 1 August 31, will remain in effect for all future calendar years. All AA applicants, new and renewing, are required to complete mandatory training, available online at www.irs.gov search How to become an AA. Continued 31
Major Changes to the Acceptance Agent Program IRS will conduct compliance reviews, both physical and by correspondence. All AA applicants are required to cooperate with these reviews as well as requests for information from the Treasury Inspector General for Tax Administration. All AAs will be required to adhere to new quality standards focusing on the quality of W-7 submissions. References Go to www.irs.gov and use keyword search ITIN and Acceptance Agent New ITIN Acceptance Agent Program Changes provides information about the major changes. How to Become an Acceptance Agent for How to Become an Acceptance Agent for IRS ITIN Numbers provides detailed instructions on how to apply and access the required training PowerPoint. 32
September 9th E-news E-news for Tax Professionals Two-Year Limit No Longer Applies to Many Innocent Spouse Requests IRS Gives Truckers Three-Month Extension; Highway Use Tax Return Due Nov. 30 2011 standard d mileage rate increase IRS Video Explains How to Regain Exempt Status 33
Audio and Video Presentations http://www.irsvideos.gov/ Training Workshops 34
Training Workshops YouTube 35
YouTube Questions 72 36