Archive for the ‘IRS’ Category

IRS Computers Crash

Thursday, February 4th, 2016

2015 was a year the IRS would like to forget. Unfortunately, 2016 may be heading the same way. Yesterday, the IRS had a computer failure impacting multiple systems.

Those systems are still down this morning (as of 6:30am PST). The IRS currently cannot accept returns, and IRS e-services (the tool tax professionals use to pull transcripts) is also down. However, “Where’s My Refund” and IRS Direct Pay are working. More importantly, tax professionals can still submit returns to their software vendors; these returns are being held by the software companies until the IRS computers come back online.

The IRS’s statement on the failure notes,

Taxpayers can continue to prepare and file their tax returns as they normally would. Taxpayers can continue to send their tax returns to their e-file provider; these companies will hold the tax returns until the IRS resumes accepting electronic tax returns. Taxpayers who have already filed their tax returns do not need to take any additional action.

As a reminder to anyone who works with a computer (which is probably everyone who reads this), back up your computer! Your computer will crash at the least opportune moment (my corollary to Murphy’s Law). Do not keep your backups on your computer! And, most importantly, periodically test your ability to restore from your backups.

FTB’s New MyFTB Impresses; Will the IRS Take Heed?

Monday, January 25th, 2016

Submitting a Power of Attorney form to the IRS means I must fax the form to the IRS’s Centralized Authorization File (CAF) unit and hope that the POA is entered in timely. A few years ago authorized e-services providers (which I am) could enter the POAs directly in the IRS system but no more.

Meanwhile, California’s Franchise Tax Board (FTB), the state’s income tax agency, has never allowed California POAs to be entered by practitioners. The procedure was to fax or mail them and wait weeks for them to be entered. No more.

The FTB debuted the new MyFTB on January 4th, and it’s a winner. I signed up, and waited for my PIN to be mailed to me (that took the expected 7-10 days). I then input the PIN, and have access. I can see the accounts I’m authorized for, and the new system allows me to enter a POA.

However, the POA does not immediately go into effect. The FTB requires that a pdf of the POA be attached so that the FTB can review it. The FTB states that within two weeks (well, 15 days) the POA will be in their system.

The FTB’s procedure appears to me to allay the issues that the IRS had with rogue professionals entering POAs without authorization. And consider the time savings here. I’ve entered all the information into the FTB’s computer system. An FTB employee can match the pdf I uploaded to the POA I entered. If it matches, the employee can make my POA go live. He or she doesn’t have to retype the information I entered, saving the FTB time (and money). The POA gets into the FTB’s systems faster, making me happy (and my client). It’s a win-win.

There’s a lot more that’s doable with the FTB’s new MyFTB. I can look at account balances, estimated payments amounts (clients get these wrong all the time), 1099 information on the state level (IRS wage and income transcripts don’t have this information), calculate a balance due for a future date, protest an assessment, view images of notices and correspondence, and more.

If you’re a tax professional who deals with California clients or a California taxpayer, I urge you to enroll in MyFTB. I’m very impressed. I may rag on the FTB (especially in the enforcement area) but from my point of view MyFTB is a model to be emulated by the rest of the country.

Such a system, if implemented by the IRS, would also be a win-win. Unfortunately, my expectations on that end aren’t particularly high. Indeed, I’ll be surprised if we see such a system for the IRS in the next five years.

1099 Time for 2016

Sunday, January 10th, 2016

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

  • Corporations (except attorneys)
  • Entities you purchased tangible goods from
  • Entities you purchased less than $600 from (except royalties; the limit there is $10)
  • Where you would normally have to send a 1099 but you made payment by a credit or debit card

Otherwise, you need to send a Form 1099-MISC to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-MISC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement.

Finally, there are strict deadlines with information returns. Here are the deadlines for 2014 information returns:

  • Monday, February 1st: Deadline for mailing most 1099s to recipients;
  • Monday, February 29th: Deadline for filing paper 1099s with the IRS (postmark deadline); and
  • Thursday, March 31st: Deadline for filing 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

IRS Errs on Identity Theft PIN Letters

Tuesday, January 5th, 2016

One would think that the IRS proofed important letters and notices before they’re finalized. That didn’t happen with IRS Notice CP 01A, the notice used when sending out an Identity Theft PIN (personal identification number).

The IRS announcement is reproduced in full below:

Due to an error, taxpayers are receiving Identity Protection PIN letters with an incorrect year listed. Taxpayers and tax professionals should be advised the IP PIN listed on the CP 01A Notice dated Jan. 4, 2016, is valid for use on all individual tax returns filed in 2016.

The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return. The IRS emphasizes the IP PIN listed on the CP 01A notice is valid for the 2015 returns. Taxpayers and their tax professionals should use this PIN number for 2015 tax returns, which the IRS will begin accepting from taxpayers starting Jan. 19, 2016.

The IRS apologizes for the confusion and any inconvenience.

For more information, see the questions and answers below.

Q. When were the CP01A notices mailed?

A. The notices are all dated Jan. 4, 2016, but were mailed in late December. Taxpayers are receiving these now through mid-January.

Q. What does an IP PIN do?

A. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN.

If a return is e-filed with your SSN and an incorrect or missing IP PIN, our system will reject it until you submit it with the correct IP PIN or you file on paper. If the same conditions occur on a paper-filed return, we will delay its processing and any refund you may be due for your protection while we determine if it’s yours.

Q. Does this issue affect anything else involving the IP PIN process?

A. No

The IRS will not be sending out replacement letters. Somehow, this all seems apropos when dealing with the IRS.

It’s Only Wrong by Three Days

Sunday, January 3rd, 2016

Friday’s Las Vegas Review-Journal included a free calendar (with a retail price of $2). Remember the cliche, “You get what you pay for”? Well, that was definitely the case with this free calendar.

Highlighted on Friday, April 15 is “Tax Day.” There’s only one problem with that—Tax Day is Monday, April 18th this year, not Friday, April 15th. Oops.

As the IRS noted

The filing deadline to submit 2015 tax returns is Monday, April 18, 2016, rather than the traditional April 15 date. Washington, D.C., will celebrate Emancipation Day on that Friday, which pushes the deadline to the following Monday for most of the nation. (Due to Patriots Day, the deadline will be Tuesday, April 19, in Maine and Massachusetts.)

Well, one would hope that the Review-Journal would check with their accounting department or just do a basic search or maybe ask a local tax professional before printing their calendar…and one would be wrong.

IRS: We’ll Trust You on Health Insurance for 2015 Because…

Monday, December 28th, 2015

Earlier today I saw a tweet from Joe Kristan:

The delay didn’t surprise me; I felt that given this was the first year that Form 1095-B and 1095-C were required that there would be issues. But I felt that taxpayers would eventually need to provide the forms to tax professionals.

I was wrong.

From Notice 2016-04:

Similarly, some individual taxpayers may be affected by the extension of the due date for providers of minimum essential coverage to furnish information under section 6055 on either Form 1095-B or Form 1095-C. Individuals generally use this information to confirm that they had minimum essential coverage for purposes of sections 36B and 5000A. Because, as a result of the extension, individuals may not have received this information before they file their income tax returns, for 2015 only individuals who rely upon other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive the Form 1095-B or Form 1095-C or any corrections. Individuals need not send this information to the Service when filing their returns but should keep it with their tax records. [emphasis added]

Do note that taxpayers aren’t getting a complete free ride here. The IRS reserves the right to challenge taxpayers who say they had coverage but didn’t (which is why the notice states to keep the information with the tax returns). However, given that the IRS can’t force taxpayers to pay penalties regarding health insurance coverage, it’s possible the IRS won’t be looking at this for 2015.

This is good news for tax professionals and taxpayers in another regard. We won’t have delays regarding filing returns because taxpayers haven’t received Forms 1095-B or 1095-C as long as they’re aware of their health insurance coverage. That’s a very good thing for all.

Tax Season to Open on January 19th

Monday, December 21st, 2015

The IRS announced today that the 2016 Tax Season (for filing 2015 tax returns) will begin on Tuesday, January 19th. The tax deadline will be Monday, April 18th (for federal individual returns) except for taxpayers in Maine and Massachusetts–they get an extra day until Tuesday, April 19th (because of Patriots Day).

Once Again, the IRS Doesn’t Start by Calling You

Sunday, December 20th, 2015

My mother received a phone call on Saturday morning at 6 am from “Agent Smith” of the IRS demanding immediate payment of her taxes or she would find herself “thrown in jail.” Yes, the scamsters are still out there.

Now imagine you’re a senior citizen, and you get a phone call waking you up telling you to pay the IRS or you’ll find yourself in prison. It doesn’t take a genius to know that these scamsters can intimidate their victims.

Luckily, my mother is well trained. She’s already reported the scamster who called her. She knew it was phony because:

  1. The IRS never initiates collection activities with a phone call.
  2. The IRS will never call you in proscribed times without your permission. (It’s illegal to make collection calls at 6am on a Saturday morning.)
  3. The IRS will never demand payment without giving you appeal rights. And,
  4. “The IRS is a government agency. They wouldn’t have people working on a Saturday morning!”

I could add to that I’ve trained her pretty well on this. In any case, I hope that the lead passed on to TIGTA will result in one less scammer out there. And if you’re reading this Mr. Smith, don’t mess with my mother!

The Great, the Good, and the Bad of the Extender Legislation

Sunday, December 20th, 2015

Normally I would write about the good, the bad, and the ugly of the extender legislation. It’s different this year, because the legislation passed by Congress and signed into law doesn’t have much that’s ugly. Instead, there’s some great news, some good news, and a bit of bad news.

Let’s start with what I think are the two best things about the extender legislation. First, many provisions were made permanent:

  • Section 179 deduction of $500,000;
  • Taxpayers age 70 1/2 (or older) can make $100,000 annual charitable contributions from their IRAs that will not be included in their income;
  • The sales tax deduction (as an alternative to deducting state and local income taxes);
  • The educator expense deduction (and it’s also indexed for inflation); and
  • We have a sense of permanency on many of the extenders.  There are more items made permanent (some of which are detailed below), but the fact that these are made permanent makes it far easier to plan for taxes.

Second, a few states have barred Enrolled Agents (what I am) from calling themselves Enrolled Agents. While this provision has not impacted me directly, EAs in Ohio and North Carolina could not in the past call themselves EAs. This was due to lobbying from state CPA associations in those states. Section 410 of the PATH legislation (which is where the Extenders are) contains the following provision:

Section 410. Clarification of enrolled agent credentials. The provision permits enrolled agents approved by the IRS to use the designation “enrolled agent,” “EA,” or “E.A.” The provision is effective on the date of enactment.

So my colleagues in Ohio and North Carolina (and perhaps elsewhere) can now call themselves what they are.

There are a few more provisions that I would put in the “Good” section. The Child Tax Credit, the American Opportunity Tax Credit (an education/college credit), and the Enhanced Earned Income Credit were made permanent. The research credit and the five-year recognition period for the Built In Gains Tax (C Corporations converting to S Corporations) were also made permanent. (There are other items made permanent; I’m just noting the highlights.)

Some items were extended solely for five years. These include 50% bonus depreciation (which is being phased-out over five years), the new markets tax credit, the work opportunity tax credit, and a controlled foreign corporation provision.

Many other items were extended for just two years. Note that nothing was extended for simply one year, so we know today what 2016 taxes are going to be. This is likely the first time in ten years (or longer) that we’ve had a very good idea of what the Tax Code for a year would be on January 1st of that year. The two-year items include the ability to deduct mortgage insurance (as an itemized deduction), the “above-the-line” deduction for qualified tuition expenses, tax credits for renewable energy sources, and the exclusion for qualified mortgage debt forgiveness.

There are some bad items, and these include a couple of the points I’ve mentioned. I strongly dislike welfare being done through the Tax Code. It causes the Tax Code to be complex, and puts the IRS in a mission it shouldn’t be in. Second, I dislike refundable tax credits; they lead to fraud and are difficult for the IRS to manage.

Overall, the fact that this has passed means that Tax Season should be able to open around January 19th. And that’s perhaps the best news of all.

2016 Standard Mileage Rates Released

Thursday, December 17th, 2015

The IRS today announced the standard mileage rates for 2016:

  • $0.54/mile for business miles driven (down from $0.575/mile in 2015);
  • $0.19/mile for medical or moving purposes (down from $0.23/mile in 2015); and
  • $0.14/mile in service of a charitable organization (unchanged; set by statute).

You can either use this standard mileage rate or use actual expenses. Either way, it’s important to keep a mileage log!