The Scoop Kristy Maitre Tax Specialist Center for Agricultural Law and Taxation July 20, 2016 Agenda IRS Walk In Office Changes Tax Preparer Safeguard of cyber data Electronic Tax Administration proposes Surprising recommendations Proposed Legislation State Tax Changes The IRS Regulation process PTIN Number issues New Filing requirement for 501( c ) ( 4) Walk In (TAC Offices) TAC Offices are beginning to change policies on appointment only services without notice 1
IRS Launches New Campaign to Safeguard Tax Preparers Leaders from the Internal Revenue Service, state tax agencies and tax preparation community today warned tax preparers that they increasingly are targets of cybercriminals and should take appropriate steps to protect clients from data theft IRS also posted new information to help tax professionals get started with safeguards to protect clients data IRS Launches New Campaign to Safeguard Tax Preparers It s the first in a series of fact sheets and tips on security, scams and identity theft prevention measures aimed at tax professionals. The Protect Your Clients; Protect Yourself campaign will run through the start of the 2017 filing season Recognizing the risk to tax preparers, this new effort is an expansion of the Security Summit s 2015 Taxes. Security Together. campaign aimed at increasing public awareness for using security software, creating stronger passwords and avoiding phishing emails IRS Launches New Campaign to Safeguard Tax Preparers We have more than 700,000 tax preparers in this country, with many of those taking good security precautions, said IRS Commissioner John Koskinen But cybercriminals are continuing to evolve, using new technology, ruses and scams The tax community handles large volumes of sensitive personal and financial information We need every tax professional to stay on top of their security to protect taxpayers as well as their businesses. 2
IRS Launches New Campaign to Safeguard Tax Preparers Fact Sheet 2016 23 Tax Professionals: Protect Your Clients; Protect Yourself from Identity Theft, urges preparers to follow the security recommendations found in Publication 4557, Safeguarding Taxpayer Data The fact sheet outlines the critical steps necessary to protect taxpayer information and to build customer confidence and trust IRS Launches New Campaign to Safeguard Tax Preparers Preparers should sign up for e News for Tax Professionals, the IRS Tax Pro Twitter Account and the Return Preparer Office s Facebook page to stay informed about this campaign and about scams and schemes in general The IRS also is creating a Protect Your Clients; Protect Yourself page on IRS.gov. The Security Summit consists of the IRS, state tax agencies and the private sector tax industry working together to safeguard taxpayers from tax related identity theft On June 28, Summit partners announced their 2017 initiatives to combat stolen identity refund fraud Cyber Security Plan CALT is putting together a generic plan that can be adopted by tax professionals Coming soon 3
Electronic Tax Administration Advisory Committee (ETAAC) Annual Reports Electronic Tax Administration Advisory Committee (ETAAC) Annual Reports Pursuant to RRA 98, ETAAC reports annually to Congress concerning: IRS progress on reaching its goal to electronically receive 80% of tax and information returns Legislative changes assisting the IRS in meeting the 80% goal Status of the IRS strategic plan for electronic tax administration and Effects of e filing tax and information returns on small businesses and the self employed IRS Challenges The erosion of the tax system s integrity from the proliferation of tax identity theft, and Inadequate levels of taxpayer service at the IRS caused by a customer service model that does not adequately leverage digital service tools 4
Report Recommendations E file is the norm for most major returns, but IRS can make improvements The IRS has committed to prior ETACC recommendations in its future state initiative, but it will need to work with industry partners Changes should be made in the Tax Ecosystem to improve tax administration Taxpayers and tax professionals need end to end capabilities in online accounts Important to Know Where this is Heading The IRS should provide a voluntary registration process for tax filers to authenticate their identities The IRS should release refunds only after the IRS can reasonably verify taxpayers and their withholding The IRS should require payers to collect a certified Taxpayer Identification Number (TIN) from all contractors receiving payments subject to Form 1099 MISC reporting for non employee compensation The IRS should expand access to TIN matching functionality beyond information returns where payments are subject to backup withholding The IRS should remove barriers to adoption of TINmatching functionality to facilitate increased use of the application Important to Know Where this is Heading The IRS should add an indicator to Forms 1099 allowing payers to flag payments made to presumed U.S. persons subject to backup withholding, so as to exclude these information returns from B Notices The IRS should automatically issue penalty notices for all missing or incorrect TINs and require proof that the payee was TINmatched as part of any reasonable cause rationale for penalty abatement Given recent regulatory changes, the IRS should ensure that information return filing systems can successfully accommodate increased filing volumes in reduced timeframes The IRS should introduce a phased reduction of the threshold for mandatory electronic filing of Forms 1099 MISC from 250 forms to 20 forms 5
Important to Know Where this is Heading Congress should fund the IRS specifically to compile information returns in a manner that allows real time matching of tax returns to information returns on file Congress should provide the IRS with the authority to question and correct returns that do not match information returns The IRS should provide taxpayers with secure online access to view and understand their tax information, tax obligations, and compliance status with the IRS Important to Know Where this is Heading The IRS should provide event driven notifications related to IRS account actions to help taxpayers comply In addition to enabling online accounts that provide taxpayers with information and tools to help before and during filing, the IRS should add capabilities for taxpayers to interact with the IRS electronically for post filing activity Important to Know Where this is Heading Taxpayers should be able to authorize third parties, such as tax professionals, Volunteer Income Tax Assistance (VITA) sites and tax software providers, to electronically receive tax account information as part of the tax preparation process The IRS should provide tax professionals who complete an enhanced Annual Filing Season Program and certified VITA volunteers with the same level of authorized access to taxpayers online tax information that Circular 230 tax professionals receive 6
Proposed Legislation New First Time Homebuyers Credit 2.5% of the home purchase price with a cap of $10,000 Phase outs would apply Expect questions and if placed into law another technical issue to deal with?????? S Corporation Modernization Act of 2016 S. 3181 Expansion of qualifying beneficiaries of an electing small business trust Modifications of the Passive Activity rules S Corporation IRS shareholders Charitable contributions for electing small business trusts Basis parity for S Corporation assets eases the recordkeeping of basis 7
State Tax Changes Taking Effect July 1, 2016 taxfoundation.org Indiana Last year, Indiana completed a four year phasedown of its corporate income tax rate from 8.5 to 6.5 percent, the culmination of legislation adopted in 2011 Subsequent legislation enacted in 2014 established a further schedule of rate reductions through fiscal year 2022, when the corporate income tax will drop to 4.9 percent Connecticut A quarter a pack increase in Connecticut s cigarette tax brings the tax per pack to $3.90, and represents the seventh cigarette tax increase the state has adopted in the past 14 years The increases on July 1 of 2015 and 2016 were both enumerated in last year s budget, which increased the tax by 50 cents over two years 8
West Virginia Cigarette Taxes The legislature agreed to a tax increase of 65 cents per pack and the imposition of a new 7.5 cent per milliliter tax on e cigarette liquid, With the tax increase, West Virginia s cigarette tax is $1.20 per pack California Gasoline Tax California s gas tax rate consists of two main components: a primary excise tax and a sales tax of 2.25 percent The primary excise tax is adjusted annually by the state s Board of Equalization to ensure that the taxes paid by consumers do not exceed what was paid in 2010 under a different tax structure. The Board of Equalization voted to decrease the state s primary excise tax from 30 cents per gallon (cpg) to 27.8 cpg, a decrease of 2.2 cpg, for the 2017 fiscal year North Carolina Gasoline Tax North Carolina s gas tax will decrease on July 1, 2016, the third decrease in the state s rate in 14 months In 2015, the state changed the gas tax to a flat tax per gallon and lowered the rate from the effective rate of 37.5 cpg at the same time The rate was lowered on April 1, 2015 (1.5 cpg), January 1, 2016 (1 cpg), and now again on July 1, 2016 (1 cpg), bringing the total rate to 34 cpg 9
Washington Gasoline Tax Washington State s gas tax will increase for the second time since August In 2015, Governor Jay Inslee and the Washington State legislature agreed on a transportation overhaul plan that included two gas tax increases, a 7 cpg increase on August 1, 2015, and a 4.9 cpg increase on July 1, 2016 Regulation Process William J. Wilkins IRS Chief Counsel Regulation process less stable getting slower Projects Proposed Regulations that need to be finalized or notices that need to be turned into regulations The net investment income tax regulations Several significant partnership regulations Inversion guidance Debt equity guidance Several international projects Partnership audits Private debt collections 10
PTIN Numbers IRS does not sell the numbers A FOIA request can be made by anyone to get this information What is A 501(c)(4)? Internal Revenue Code 501(c)(4) provides for the exemption of two very different types of organizations with their own distinct qualification requirements They are: Social welfare organizations: Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, and Local associations of employees, the membership of which is limited to the employees of a designated person(s) in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational or recreational purposes Homeowners associations and volunteer fire companies may be recognized as exempt as social welfare organizations if they meet the requirements for exemption Organizations that engage in substantial lobbying activities sometimes also are classified as social welfare organizations Examples Some nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that serves the general public in an area with no other airport and that is on land owned by a local government, which supervises the airport s operation, A community association that works to improve public services, housing and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community s traditions, architecture and appearance by representing it before the local legislature and administrative agencies in zoning, traffic and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area and An organization that holds an annual festival of regional customs and traditions 11
New Requirement for Organizations Intending to Operate under 501(c)(4): Submit Form 8976 New legislation enacted at the end of 2015 added 506 to the Internal Revenue Code It requires an organization to notify the IRS of its intent to operate as a 501(c)(4) organization The IRS has developed a new form Form 8976 that organizations should use to provide this notification The Form 8976 may only be submitted electronically Form 8976 The Form 8976 Electronic Registration System allows organizations to: Complete the notification process Keeps account information current and Enables organizations to receive secure, digital communications from the IRS A user fee of $50 must be submitted to Pay.gov to complete the organization s notification You do not need special software to submit a notification 12
Website https://apps.irs.gov/app/picklist/list/formspu blications.html;jsessionid=8w9rplbkenmwz yaavhz8bg?value=8976&criteria=formnu mber&submitsearch=find Form 8976, Notice of Intent to Operate Under Section 501(c)(4) Tax exempt Organizations Form 8976 may only be completed and submitted electronically There is no paper form This is a one time notification However, you will have to file annual information returns or notices (e.g., Form 990, Form 990 EZ, or Form 990 N) depending on your total assets and gross receipts In addition to submitting the Form 8976 notice, 501(c)(4) applicants may also choose to file a complete Form 1024 Submission of a Form 1024 does not relieve an organization of the requirement to submit a Form 8976 Who Must Submit a Notification This requirement only applies to organizations intending to operate under Section 501(c)(4) Organizations operating under any other 501(c) section should not file this notice In general, an organization that intends to be described in 501(c)(4) must notify the IRS that it is operating as a 501(c)(4) organization within 60 days of its formation 13
Who Must Submit a Notification There are certain exceptions to the notification requirement Organizations that filed a Form 990 (or, if eligible, Form 990 EZ or Form 990 N) or a Form 1024 seeking a determination letter recognizing exemption under Section 501(c)(4) on or before July 8, 2016, are not required to file the notification For additional information, please refer to Rev. Proc. 2016 41 Information You Will Need When Submitting the Notification Form 8976, Notice of Intent to Operate Under 501(c)(4), is easy to complete (3 pages) You'll need the following information about the organization: Business name Address EIN Date organized State and country organized Filing year/month Statement of purpose of the organization What Happens after Form 8976 is Submitted? The IRS is required to acknowledge that an organization s notification has been submitted In some circumstances an organization may be informed that its notification was not properly completed The IRS may communicate the acknowledgement or information regarding an incomplete notification electronically to the user account of the individual submitting the Form 8976 on behalf of the organization Accordingly, an organization should ensure that the individual submitting the Form 8976 is authorized by the organization to receive this information If you submitted a complete and accurate notification, you can expect to receive an acknowledgement from the IRS within 60 days of submitting your notification 14
Penalty The PATH Act also amended 6652(c)(4) to provide a penalty for failure to file the new notification within the prescribed period The penalty amount under 6652(c)(4)(A) and Rev. Proc. 2016 41 is $20 per day that the failure continues, not to exceed $5,000 Implementation The requirement took effect with organizations established after the enactment of the PATH Act on Dec. 18, 2015 The PATH Act also required organizations that had been established before Dec. 18, 2015, but had not by that date applied for a tax exemption determination or filed an annual return or notice, to submit the new notification within 180 days of enactment of the PATH Act (i.e., June 15, 2016) However, the IRS provided transition relief and interim guidance under Notice 2016 9, extending the due date and providing relief from penalties until 60 days after implementing regulations (these final and temporary regulations) are issued Implementation Organizations that were established between Dec. 18, 2015, and July 8, 2016, that either applied for a determination of tax exempt status or filed at least one required annual return or notice (Form 990 series) are relieved from the notification requirement Organizations formed during that interim period that do not qualify for that relief have until Sept. 6 to submit the notification Under Sec. 506(d) and the temporary regulations, the 60 day period for submitting the notification may be extended for reasonable cause (described in Rev. Proc. 2016 41) 15
What 501(c)(4) Organizations Don t Have to Submit Form 8976? 501(c)(4) organizations that were organized on or before July 8, 2016 that have either: (i) applied for a determination letter by filing IRS Form 1024, Application for Recognition of Exemption under Section 501(a); or (ii) filed at least one annual information return or notice (Form 990, Form 990 EZ, or 990 N) are not required to file Form 8976 When is Form 8976 Due? September 6, 2016 for those organizations formed on or before July 8, 2016 which have not either : (i) applied for a determination letter by filing IRS Form 1024, ; or (ii) filed at least one annual information return or notice (Form 990, Form 990 EZ, or 990 N) For organizations formed after July 8, 2016, the due date is 60 days after the date of organization, e.g., date of incorporation May an Organization that Files Form 8976 Operate as a 501(c)(4) Organization Without Filing an Application for Exemption (Form 1024)? Yes, 501(c)(4) organizations may selfdeclare tax exempt status but must annually file the applicable information return or notice (Form 990, Form 990 EZ, or 990 N) 16
CALT Website http://www.calt.iastate.edu/ Tour of the CALT Website Please Welcome Phil Harris Professor, Agricultural and Applied Economics University of Wisconsin Madison J.D., University of Chicago, 1977 M.A., Economics, University of Chicago, 1975 B.S., Economics, Iowa State University, 1973 His research program focuses on business and tax planning for agricultural producers The program includes information on the choice of entity for organizing a farm business and for transferring a farm business to the next generation Income, estate and gift tax consequences as well as non tax issues 17
Phil Harris Phil Harris CALT Speaker September 9, 2016 Farm Tax Seminar The session will also be available via webinar Instructor Farm and Urban Tax School November 21 22 Waterloo December 12 13 Ames Fall Tax Schools Though they are named the Farm and Urban Tax Schools the schools cover more than farm issues Common return issues for all kinds of returns are covered All kinds of business entities Problematic issues Sometimes we even get into to issues that you many encounter only once or twice a year or tax season The Tax Schools are a blend of diverse topics of interest to all tax professionals This year: New instructors with diverse backgrounds Your adventure awaits at Iowa State s Center for Agricultural Law and Taxation Farm and Urban Tax Schools 2016 November 2, 2016 to December 13, 2016 8 Locations in Iowa and Online Webinar Save the Date for the 2016 Annual Farm and Urban Income Tax Schools The program is intended for tax professionals and is designed to provide up to date training on current tax law and regulations November 2 3: Maquoketa November 7 8: Red Oak November 9 10: Sheldon November 14 15: Mason City November 17 18: Ottumwa November 21 22: Waterloo December 5 6: Denison December 12 13: Ames and Live Webinar 18
September Farm Tax School Navigating Changing Times September 8, 2016 to September 9, 2016, Ames, Iowa and Online Attend any one day or both days, either in person or online! Company discount for 3 or more individuals from the same employer! Ag Law Seminar, September 8 Our Thursday seminar will offer practical, interesting information you can immediately apply in your practice or ag related business. You ll leave with forms and other tools to help you more efficiently serve your ag clients. Farm Tax Workshop, September 9 Our Friday seminar will be a comprehensive one day farm tax workshop designed to equip tax practitioners with the tools they need to prepare farm income tax returns, from the simple to the complex. Online Registration: https://goo.gl/pdjtk5 Registration Fees Early Rate Registered on/by August 31 Attend in person or watch from your computer Any one day: $200 Both days: $350 Company Discount: $10 discount per individual if 3 or more are registered from the same employer this is available for either on site or online attendance Late Rate Registered after August 31 Attend in person or watch from your computer Any one day: $220 Both days: $370 Company Discount: $10 discount per individual if 3 or more are registered from the same employer this is available for either on site or online attendance Continuing Education Ag Law Seminar (September 8) Continuing Legal Education (CLEs) 7 hours (including one hour of ethics) Others Professional Education (CPEs) 7 8 hours (including one hour of ethics) Farm Tax Workshop (September 9) Continuing Legal Education (CLEs) 7 hours (including one hour of ethics) Others Professional Education (CPEs) 7 8 hours (including one hour of ethics) 19
Speakers Ag Law Seminar Shannon Ferrell, Associate Professor, Agricultural Economics, Oklahoma State University Eldon McAfee, Shareholder, Brick Gentry P.C. Erin Herbold Swalwell, Shareholder, Brick Gentry P.C. Julia Vyskocil, Shareholder, Brick Gentry P.C. Pat Dillon, Dillon Law P.C. Professor Neil Hamilton, Director of Drake Law School Agricultural Law Center John Baker, Iowa State s Beginning Farmer Center Administrator Jennifer Zwagerman, Associate Director of Drake Law School Agricultural Law Center Kristine Tidgren, Assistant Director for the Center for Agricultural Law & Taxation Farm Tax Workshop Philip E. Harris, JD, University of Wisconsin professor Kristy Maitre, Tax Specialist with the Center for Agricultural Law & Taxation Farm Tax Seminar Topics Legislative Update: The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and the Consolidated Appropriations Act, 2016 (CAA of 2016) Income Issues Constructive Receipt Installment Sales of Livestock Hedging and Other Marketing Transactions Farm Income Averaging Farm vs. Nonfarm Income Easements Sale vs. Lease of Equipment by a Retiring Farmer Conservation Reserve Program Payments Income in Respect of a Decedent Reporting Property as Self rental on Schedule E (Form 1040) Deduction Issues Tangible Property Regulations Lease vs. Purchase of Farm Equipment Segregating Fertilizer Costs Domestic Production Activity Deduction Start Up Expenses Farm Tax Seminar Topics Entity Issues Partnership Formation and Contributed Assets with Debt in Excess of Tax Basis Guaranteed Payments Qualified Joint Ventures Issues for Farmers with Multiple Entities Miscellaneous Farm Issues Material Participation Capitalization of Preproduction Expenses Farm Inventory Hobby Losses Gift of Commodities Valuation of growing crops Cases and Rulings: A summary of rulings and cases from the past year that affect farmers 20
Accommodations Quality Inn & Suites Starlite Village Conference Center 2601 East 13th Street, Ames, Iowa Discounted overnight rooms are available for $89.00 per night (for the dates of September 7, 8 and 9) Call the hotel at 515 232 9260 and mention you are attending the Iowa State University September Seminars Summer Webinars Roth IRA s Net Operating Losses The Portability Election IRS Return Preparer Penalties Overview Miscellaneous Income New Developments Tax Research with Limited Resources Injured Spouse IRS Representation Summer Webinars Inventory Issues Preparing for an IRS Audit Appeals How to Write Your Appeals Request Start Up Costs Hobby Losses 21
Beginning Tax Preparers Class CALT is working on offering a basic class for NEW tax preparers this fall in October The week long webinar will cover the basics an individual needs to know such as: Requirement to file Dependents Filing Status Itemized deductions Education Credits Other issues a first or second year preparer needs to know as well as a refresher for others who need to brush up on issues The class will be a week long or more and will be offered at a special rate The Scoop Throughout the filing season two Scoops will be held on Scoop Dates 8:00 8:30 am Central time 12:00 12:30 Central time This assists with accommodating our west coast practitioners The same information will be shared at both sessions You have the option of registering for whatever session suits your schedule https://www.calt.iastate.edu/calendar node fieldseminar date/month Future Scoop Dates August 24, 2016 September 7, 2016 October 5, 2016 October 19, 2016 November 16, 2016 December 14, 2016 http://www.calt.iastate.edu/calendar nodefield seminar date/month 22
The CALT Staff John D. Lawrence Interim Director Associate Dean, College of Agriculture & Life Sciences Extension Programs and Outreach Director, Agriculture & Natural Resources Extension 132 Curtiss Hall Iowa State University Ames, Iowa 50011 1050 Kristine A. Tidgren Assistant Director E mail: ktidgren@iastate.edu Phone: (515) 294 6365 Fax: (515) 294 0700 The CALT Staff Kristy S. Maitre Tax Specialist E mail: ksmaitre@iastate.edu Phone: (515) 296 3810 Fax: (515) 294 0700 Tiffany L. Kayser Program Administrator E mail: tlkayser@iastate.edu Phone: (515) 294 5217 Fax: (515) 294 0700 23