The Scoop March 22, 2017 Deadlines Agenda Offer in Compromise Changes Secretary of the Treasury Announces Senior Staff S Corporation Issues IRS Online Accounts SBSE-04-0217-0014 - Pilot Program Auditing Schedule F Expenses SBSE-04-0117-0008 - Interim Guidance on Alimony Recipient Non-Filer Pilot Program Proposed Legislation 2 1
Deadlines for the 2017 Tax Season 3 Deadlines for the 2017 Tax Season The ERO has 5 days or until April 23rd to fix the reject and retransmit the return for the return to be considered timely filed If the taxpayer chooses not to have the electronic portion of the return corrected and transmitted to the IRS, or if the IRS cannot accept the return for processing, the taxpayer must file a paper return In order to timely file the return, the taxpayer must file the paper return by the later of the due date of the return or ten calendar days after the date the IRS gives notification that it rejected the electronic portion of the return or that the return cannot be accepted for processing Taxpayers should include an explanation in the paper return as to why they are filing the return after the due date 4 2
5 In a Nutshell Dismantles the Obamacare Eliminates the individual and employer mandate penalties Prohibits health insurers from denying coverage or charging more money to patients based on pre-existing conditions Helps young adults access health insurance and stabilize the marketplace by allowing dependents to continue staying on their parents plan until they are 26 Establishes a Patient and State Stability Fund Modernizes and strengthens Medicaid Empowers individuals and families to spend their health care dollars the way they want and need Enhancing and expanding Health Savings Accounts (HSAs) Helps Americans access affordable, quality health care by providing a monthly tax credit between $2,000 and $14,000 a year for low- and middle-income individuals and families who don t receive insurance through work or a government program 6 3
7 Changes That Have Occurred Since Saturday 8 4
Planned Thursday vote in the House Changes made to get passage: The bill provides the maximum relief possible from the Cadillac tax Accelerate the expiration of ACA taxes Amendment accelerates repealing the Obamacare taxes to 2017, rather than 2018 Further restrict the Federal Medicaid program - Freeze and Unwind Obamacare s Medicaid expansion Give states the ability to implement optional work requirements for their Medicaid programs Beef up tax credits for older Americans - Additional 85 billion in aid to those between 50-65 Americans can deduct from their taxes the cost of medical expenses that exceed 10 percent of their income The proposed amendment reduces this threshold to 5.8 percent of income for those 65 and older 10 5
Original Bill 11 Repeal virtually all of the Affordable Care Act (ACA, or Obamacare) including the following tax provisions: The individual mandate making the penalty amounts zero, effective for months beginning after Dec. 31, 2015 The employer mandate reducing the penalty amounts to zero, effective for months beginning after Dec. 31, 2015 12 6
The premium tax credit would be repealed for coverage months that begin after Dec. 31, 2019 The credit would also be subject to a number of amendments, generally effective for tax years beginning after Dec. 31, 2017, including: (i) removing the repayment limits for excess advance payments effective for tax years beginning after Dec. 31, 2017 (ii) modifying the definition of a qualified health plan to include catastrophic-only plans and certain plans not offered through an Exchange (iii) modifying the applicable percentage tables which determine a taxpayer s eligibility for the premium tax credit 13 The 3.8% net investment income tax (NIIT) effective for tax years beginning after Dec. 31, 2017 - repeal The 0.9% additional Medicare tax after, and tax years beginning after, Dec. 31, 2017 - repeal The higher floor for medical expense deductions repeal and replace with the 7.5% floor Extend the relief which delayed the 10% floor if the taxpayer or the taxpayer s spouse is 65 before the end of the tax year, to apply to tax years beginning after Dec. 31, 2016 14 7
The small employer health insurance credit effective for amounts paid or incurred in tax years after Dec. 31, 2019 For tax years beginning after Dec. 31, 2017 and up to the credit s repeal, the credit would not be available with respect to a qualified health plan that provides coverage relating to elective abortions The limitation on health Flexible Spending Account (FSA) contributions, for tax years beginning after Dec. 31, 2017 15 Repeal the Cadillac tax on high cost employersponsored health plans would not apply to any tax period beginning after Dec. 31, 2019 and before Jan. 1, 2025. The Cadillac tax is currently scheduled to go into effect for tax years beginning after Dec. 31, 2019 The AHCA doesn t repeal it, but instead further delays its effective date 16 8
The exclusion from qualified medical expenses of over-the-counter medications for purposes of Health Savings Accounts, Archer Medical Savings Accounts, Health Flexible Spending Arrangements (Health FSAs) and Health Reimbursement Arrangements effective for amounts paid, and expenses incurred, with respect to tax years beginning after Dec. 31, 2017 17 The ACA s increase to the additional tax on HSAs and Archer MSAs for distributions not used for qualified medical expenses, effective for distributions made after Dec. 31, 2017 The percentages would be reduced from 20% to 10% and 15%, respectively The 10% tanning tax effective for services performed after Dec. 31, 2017 18 9
The main feature of the AHCA s ACA replacement would be a new refundable tax credit for health insurance The AHCA would also make a number of significant changes to strengthen HSAs Health insurance coverage credit The AHCA would create a new 36C refundable tax credit for health insurance coverage generally, state-approved major medical health insurance and unsubsidized COBRA coverage 19 The credit would generally equal the lesser of: (i) the sum of the applicable monthly credit amounts or (ii) the amount paid by the taxpayer for eligible health insurance for the taxpayer and qualifying family members 20 10
Monthly credit amount The monthly credit amount with respect to any individual for any eligible coverage month (in general, a month when the individual is covered by eligible health insurance and is not eligible for other specified coverage, such as coverage under a group health plan or under certain governmental programs, like Medicare and Medicaid) during any tax year would be 1/12 of: 21 (A) $2,000 for an individual who has not attained age 30 as of the beginning of the tax year; (B) $2,500 for an individual age 30-39; (C) $3,000 for an individual age 40-49; (D) $3,500 for an individual age 50-59; and (E) $4,000 for an individual age 60 and older 22 11
The credit would phase out at higher levels of income Specifically, it would be reduced by 10% of the excess of the taxpayer s modified adjusted gross income for a tax year over $75,000( adjusted for inflation) (double that for a joint return) 23 The credit would be subject to a $14,000 annual dollar limitation with respect to the taxpayer and the taxpayer s qualifying family members (generally meaning the taxpayer s spouse, dependent, and any child of the taxpayer who hasn t attained age 27 In addition, monthly credit amounts would be taken into account only with respect to the five oldest qualifying individuals of the family. (B)) Married couples would have to file jointly in order to receive the credit 24 12
No credit would be allowed with respect to any individual who is a dependent of another taxpayer There is some coordination between the credit and other rules, medical expenses no double dipping for insurance costs 25 Advance credit payments Would establish a program for making payments to providers of eligible health insurance for taxpayers eligible for the new credit, no later than Jan. 1, 2020 Payments of Excess amounts Create an excess health insurance coverage credit that a taxpayer s can request, be contributed to a designated HSA 26 13
Increased contribution limits for: HSA effective for tax years beginning after Dec. 31, 2017 Currently $2,250 as adjusted for inflation ($3,400 for 2017) for self-only coverage and $4,500 as adjusted for inflation ($6,750 for 2017) for family coverage Under AHCA, they would be at least $6,650 for self-only and $13,100 for family coverage beginning in 2018 could be adjusted for inflation by then 27 Catch-up contributions by both spouses Amend the code to allow both spouses to make catch-up contributions to the same HSA, effective for tax years beginning after Dec. 31, 2017 Pre-HSA medical expenses Amend to provide a special rule under which, if an HSA is established within 60 days of the date that certain medical expenses are incurred, it would be treated as having been in place for purposes of determining if the expense is a qualifying medical expense Effective for coverage beginning after Dec. 31, 2017 28 14
IRS Staffing 29 Post-Filing Notices and Refund Delays that Generate Taxpayer Contacts 2015 30 15
Offer in Compromise Changes Beginning with Offer applications received on or after March 27, 2017: The IRS will return any newly filed Offer in Compromise application if the taxpayer has not filed all required tax returns Any application fee included with the OIC will also be returned Any initial payment required with the returned application will be applied to reduce the balance due This policy does not apply to current year tax returns if there is a valid extension on file 31 Secretary of the Treasury Announces Senior Staff Counselor Dan Kowalski joins Treasury after serving 19 years on Capitol Hill, most recently as the Deputy Staff Director of the Senate Budget Committee Counselor Shannon McGahn joins Treasury with more than 15 years of experience on Capitol Hill and in public affairs, most recently serving as Staff Director for the House Financial Services Committee under Chairman Jeb Hensarling 32 16
Secretary of the Treasury Announces Senior Staff Counselor Justin Muzinich joins Treasury having held leadership roles in policy and in business As Counselor, Muzinich will work closely with Secretary Mnuchin on major policy initiatives, both domestic and international, and will work with the Office of Tax Policy and the Office of Economic Policy on tax reform Counselor Craig Phillips - joins Treasury having played a variety of leadership roles in the financial services industry over a 40 year career As Counselor, Phillips will work with Secretary Mnuchin on issues relating to domestic finance, housing finance policy and regulatory reform. 33 S Corporation Issues The IRS is no longer issuing letter rulings to S corporations on Disproportionate distributions Specific second class of stock regulation issues Incorrect entity filings 34 17
S Corporation Issues Relief is available at the Campus level or some issues Reg 1.1362 6(b)(3)(iii) permits an extension for an S Corporation to file consents to an election if shareholders fail to file timely consents Bad filings is one of 3 issues related to S Corporations that IRS has placed on a NO informal rule list IRS will continue to issue rulings when an election wasn t made at all or wasn t signed by the required parties 35 IRS Online Accounts Expanded to 18 months of payment history Formally 12 months 36 18
SBSE-04-0217-0014 - Pilot Program Auditing Schedule F Expenses The pilot is expected to begin April 1, 2017 and conclude April 1, 2018 Totaling 50 cases from the year 2015 Purpose: This interim guidance communicates temporary procedures for a pilot program auditing Schedule F Expenses The pilot will focus on verifying certain Schedule F expenses 37 SBSE-04-0117-0008 - Interim Guidance on Alimony Recipient Non-Filer Pilot Program This memorandum issues guidance on a pilot program for Alimony Recipient Non-Filers for SB/SE Correspondence Examination This interim guidance communicates temporary guidance for a pilot program in which alimony recipients with potential tax liability without a return on record will be contacted in accordance with Non-Filer program procedures 500 2014 cases 38 19
Proposed Legislation 39 Online Sales Simplification Act of 2016 The Act adopts a hybrid-origin approach for collecting, remitting and reporting remote sales tax on products and services, including guidelines and restrictions on states that do not impose a sales tax and do not participate in a statutory state tax clearinghouse established by participating states The Act is similar to the January 13, 2015 release of The Online Simplification Act of 2015 with a few distinctions that appear to be in response to concerns raised with the first draft 40 20
H.R.439 - Stolen Identity Refund Fraud Prevention Act of 2017 To amend the Internal Revenue Code of 1986 to prevent tax-related identity theft and tax fraud, and for other purposes Centralized point of contact for identity theft victims Notification of suspected identity theft Use of information in Do Not Pay Initiative in prevention of identity theft refund fraud Report on identity theft refund fraud 41 H.R.451 - Permanently Repeal the Estate Tax Act of 2017 This bill amends the Internal Revenue Code to repeal the federal estate tax, effective for estates of decedents dying after December 31, 2016 42 21
S.482 - PHIT Act of 2017 Personal Health Investment Today Act of 2017 or the PHIT Act of 2017 Amends the IRC to allow a medical care tax deduction for up to $1,000 ($2,000 for a joint return or a head of household) of qualified sports and fitness expenses per year The bill defines "qualified sports and fitness expenses" as amounts paid exclusively for the sole purpose of participating in a physical activity, including: (1) fitness facility memberships (2) physical exercise or activity programs, and (3) equipment for a physical exercise or activity program. 43 S 470 - Child and Dependent Care Tax Credit Enhancement Act of 2017 Amends the IRC, with respect to the tax credit for employment-related expenses incurred for the care of a taxpayer's dependent, to: (1) increase to $120,000, the adjusted gross income threshold level above which such credit is incrementally reduced; (2) increase the dollar limit on the allowable amount of such credit; (3) allow an inflation adjustment to the adjusted gross income threshold and the maximum credit amounts, beginning after 2018; and (4) make such credit refundable. 44 22
H R 1280 Health Savings Acct Act Amend to increase the maximum contribution limit to HSA 45 The Scoop Upcoming Dates April 5 April 19 May 3 May 17 May 31 June 7 June 21 July 5 Held at 8:00 am and 12:00 pm Central time 46 23
47 Upcoming Seminars Mark Your Calendar Final Dates May 11-12, 2017 Back to the Basics: A Foundational Income Tax Return Preparation Course Live and Webinar September 21, 2017 Ag Law Seminar, Live and Webinar September 22, 2017 Farm and Estate Tax Review, Live and Webinar S Corporation and Entity Review July 20-21, 2017, Live and Webinar Retirement and Social Security Issues(Webinar) = October 10-11, 2017 48 24
Back to the Basics: A Foundational Income Tax Return Preparation Course Live and Webinar May 11-12 Live and Online As new income tax return preparers enter the profession, they must quickly build a solid foundation of basic skills Some experienced tax preparers driven by a need to continually produce may also wonder if they have some holes in this allimportant foundation In response to this need, CALT is offering a new two-day introductory course focused on teaching the basics of federal income tax return preparation Our Back to the Basics: A Foundational Income Tax Preparation Course will teach basic tax return preparation skills all tax return preparers must know 49 Back to the Basics: A Foundational Income Tax Return Preparation Course Live and Webinar Attendees will receive two days of federal individual income tax return preparation training, as well as the opportunity to complete a comprehensive return from beginning to end Whether you re new to the profession or simply looking for a comprehensive refresher, we think this course will be of value. You ll experience personal interaction with knowledgeable instructors excited about the material and willing to field all types of questions This is a great program for new employees needing training in first and second-year tax law and procedures It should also serve as an excellent comprehensive refresher for others 50 25
Back to the Basics: A Foundational Income Tax Return Preparation Course Live and Webinar The interview process and tips for conducting an interview Determination of filing status, including a review of advantages and disadvantages of each Taxable and nontaxable income - where to report Adjustments to Income Standard Deduction vs. Itemized Deduction Various Tax Credits including Child Tax Credit, Earned Income Tax Credit and the American Opportunity Tax Credit, along with associated forms. Who must file Exemptions/Dependents rules and changes Form 1040, line by line Domestic Production Activity Deduction Itemized Deductions Due Diligence Requirements for Credits Child and Dependent Care Credit Premium Tax Credit Overview Schedule C Depreciation Schedule E Business Expenses Schedule F Standard Mileage vs. Actual Expenses Bonus Depreciation Form 4562 Sale of Business Assets and Form 4797 Capital Gains and Losses, including Schedule D and Form 8949 Casualty Loss Comprehensive Hands-On Problem 51 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 26
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 27