Archive for the ‘IRS’ Category

Form 1042 Filing Deadline is Monday, March 16th

Thursday, March 12th, 2015

Most people are aware of Form 1099; that’s the form you send individuals in the US to report various kinds of income. There’s a similar form used when you’re sending paperwork to non-Americans: It’s Form 1042-S. These forms must be mailed to the recipient and filed with the IRS by Monday, March 16th. If you file electronically with the FIRE system, no Form 1042-T (the cover page used with the 1042-S’s) is needed. Form 1042 is the annual report of withholding.

The deadline for filing these forms is Monday. Like the deadline for corporate tax returns, this is a postmark deadline. So if you need to mail these forms to the IRS, go to the Post Office and mail them certified mail, return receipt requested. It’s the only proof that’s accepted (other than efiling the forms).

Corporate Tax Deadline is Monday, March 16th

Thursday, March 12th, 2015

The deadline for calendar year corporations (both C-corporations and S-corporations) to file their 2014 tax returns is Monday, March 16th. If you’re not ready to file, simply file an extension. This can be done electronically, or download Form 7004 and mail it–using certified mail, return receipt requested, of course–with a postmark no later than Monday.

The penalty for late filing an S-Corp return is $195 per month per shareholder. That’s a hefty price for not filing an extension.

“Give us a tax code that is simple enough for taxpayers to comply with and simple enough for the IRS to administer, and you’ll dramatically reduce fraud.”

Thursday, March 12th, 2015

It’s not brain surgery. Tom Giovanetti hits the nail squarely on the head in his op-ed in The Hill.

Mr. Giovanetti notes that keeping the voters happy is why fraud prevention hasn’t been a big issue. But it is now, when identity theft (which voters really dislike) is mixed into the fraud. Add in the IRS’s lackidaisical attitude in the past and you have a recipe for massive fraud.

It’s not as if the IRS didn’t know about the fraud.

A July 2012 TIGTA report noted that problems “had been brought to [IRS] management’s attention long ago” via a September 2002 report, but “management has failed to take sufficient action to address those deficiencies.”

For the IRS, it might be nice to shift priorities toward this and away from your Quixotic battle for regulating tax professionals (this year, the Annual Filing Season Program). Meanwhile, I’ve tried for three days to call the IRS Practitioner Priority Service only to hear, “We’re sorry, but due to extremely high call volumes on that particular subject you’re call cannot be answered at this time.”

You Have to Have an Unreimbursed Loss to Claim a Casualty Loss

Sunday, March 8th, 2015

On Monday, February 23rd it was raining as I left for the gym. As I got to the gym, the road felt funny–slicker than in a normal rain. I realized that it was snowing. Now, our “blizzard” wasn’t crippling or anything like what people back east have gone through this winter, but it did inspire one of the best pictures I’ve seen this year:

vegas blizzard 2015

This came up because of a question I received from a reader on casualty losses:

Our business had a fire in 2014. We recently received a settlement from our insurance company for $225,000. We had estimated the amount of damages as $175,000, but the insurance company also paid us for relocation costs, and some other things, too. Can we claim a casualty loss on our tax return?

To claim a casualty loss, you need a casualty–an unexpected event that caused damage. You had that. You also must have suffered a financial loss. A fundamental rule of US taxation is you can only deduct things you pay for; a corollary is you can only take a loss on losses you incur. Here, you didn’t suffer a loss. You had excellent insurance coverage and there was no doubt you and your insurance agent did an excellent job. You did not suffer a financial loss as your losses were reimbursed. Thus, there’s no deductible casualty loss.

My reader has rebuilt. I’m happy to say Las Vegas has fully recovered from our blizzard, too.

Don’t Call Us

Monday, March 2nd, 2015

Today I attempted to call the IRS Practitioner Priority Service (PPS). I had an outstanding issue I needed to resolve. I didn’t get through.

I’m used to being on hold for two hours when calling the IRS. Unfortunately, the IRS has cut staff in customer service. When I called today I reached the normal recording, but every time I attempted to obtain help for an individual not in collections (that’s one of the options when calling the PPS) all I got was, “Due to extremely high call volumes that option is not available now. Please try your call again later.” Sigh.

I imagine the regular phone numbers are just as bad. The IRS estimates that only 53% of phone calls will be answered this tax season. (Of course, given that the IRS’s accuracy in answering tax help questions isn’t particularly good, some of the missed calls may be to a taxpayer’s benefit.)

Still, I have to wonder about the IRS’s priorities. First, the IRS eliminated the ability for tax professionals to use e-services to enter Power of Attorney forms; that increased call volume. The IRS has apparently cut staff at the CAF Unit–the unit that processes the POAs that we now must fax in. It’s taking over a week for those POAs to be processed (the IRS “promised” four business days). That’s increased call volume. Adding the complexity of the new property regulations and the Affordable Care Act is making things worse for everyone.

There’s no moral here–this is more of a rant. But it’s a rant with a consequence: If tax professionals can’t get through on the phone to resolve issues, we’re forced to write letters. This causes delays in resolving matters, leading to more phone calls, more letters, and more cost to the IRS. Unless I’m missing something this is the path we’re heading down.

Oops Gets Bigger

Friday, February 20th, 2015

Or, first California, now the United States.

Last week I reported on Cover California’s error impacting an estimated 100,000 individuals who received incorrect Form 1095-A’s. It turns out that was just the tip of the iceberg. As reported by AP:

About 800,000 customers got the wrong tax information from the government, the Obama administration said Friday, and officials are asking those affected to delay filing their 2014 returns.

This represents one-fifth of the Form 1095-A’s sent out by the federal exchange. That means there are a lot of people who can’t correctly file taxes until the corrected 1095-A’s are sent out. That should hapen in a couple of weeks but there’s an issue that’s implicit in the AP story: The government isn’t sure how the error happened. If that’s the case there’s an obvious question; how do you know that the ‘corrected’ 1095-A’s are correct?

Given that the majority of Americans would like to see ObamaCare go to the scrap heap, I’m sure these new revelations will inspire more confidence in the law. Given further that it is also quite likely that the majority of those who received subsidies for health care will have to repay some to all of the subsidy on their tax returns, I’m sure even more people will embrace ObamaCare….


Monday, February 16th, 2015

This past weekend I saw my first Form 1095-A. That’s the form that individuals covered by health insurance through a plan form an exchange will receive. In California, 800,000 of these were mailed. Unfortunately, 100,000 of these were wrong. Oops.

As reported by the Los Angeles Times, Covered California sent out the wrong forms:

Covered California said it sent incorrect information on some forms because its customer data didn’t match what health plans had on file.

For instance, there may have been a discrepancy for the person’s length of coverage in 2014 and amount of subsidy received.

Amy Palmer, an exchange spokeswoman, said the agency is reconciling that information and sending revised forms to the affected customers by later this month.

There’s another major issue here: No one knows which of the forms are correct until Covered California completes its review of all of the accounts. Heh, there’s only a 12.5% chance that any specific 1095-A is wrong….

And let’s give a huge demerit to Covered California’s webpages. One would think that if there’s a mistake impacting 12.5% of customers you would publicize it. That’s especially the case when this is a mistake that impacts these individuals when they file their tax returns. However, Covered California’s main webpage and its 1095-A page are both silent about this error.

No wonder customer dissatisfaction with ObamaCare remains high, and this is before many individuals discover that they’ll owe money on the advanced credits they received.

IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Friday, February 13th, 2015

The IRS apparently figured out that under a literal reading of the new property/capitalization/depreciation regulations, every business would have to submit a Form 3115. The IRS determined that being buried under a tsunami of paper wasn’t a great idea. Today, the IRS announced in Revenue Procedure 2015-20 that a business which has under $10 million of average sales (for the last three years) or less than $10 million of assets (as of the beginning of their 2014 tax year) can use a simplified method for complying with the new property regulations.

I’ve done a quick read of the new Revenue Procedure. What I suspect we will have to do is attach a statement stating that the taxpayer is an eligible taxpayer under Revenue Procedure 2015-20, and has elected to follow this Revenue Procedure to come into compliance with the regulations. This will be far easier and far more palatable to most of my clients.

IRS Launches Directory of Tax Professionals

Thursday, February 5th, 2015

This morning I received an email noting that the IRS has released an online directory of tax professionals. The system lists EAs, CPAs, attorneys, and participants in the IRS’s Annual Filing Season Program.

The first time I tried to use it I saw this:


To be fair, the second time I searched the system was up and I found myself. The system sorts alphabetically (by default), though you can select one credential, or look for a specific last name.

There are errors, though; my business partner is listed based on my address (the main office) rather than his address (which is only 2000 miles away).

The good about this system is that a taxpayer can verify that someone has a credential. (That’s about all it’s good for to me.) Was this worth the effort, employee hours, and money that the IRS spent on it? Well, I’d much rather the IRS have spent the money on more employees for the Practitioner Priority Service so I’m not on hold for (on average) two hours. Or bring back the ability for tax professionals to enter POAs through e-services; that would be a great use of money that would save the IRS money (as there would be fewer phone calls to e-services).

The Form 3115 Conundrum

Monday, January 26th, 2015

[Accounting Today readers: Here’s a link to Fail, Caesar.]

Form 3115 is the form used to request an accounting method change. For example, if your business is changing from cash to accrual, this form is filed. Many such changes are automatic; you just notify the IRS, file the paperwork, and life moves on. Of course, even the simple is complex: Form 3115 gets filed twice: once with your tax return, and once to either Ogden, Utah or to Washington, DC.

This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.? And no one seems to know the answer.

The cause of the problem is the new repair/capitalization/property regulations. These new regulations are effective for the 2014 tax year, and specify how certain things are supposed to be done. Why is this a big issue? Because Form 3115 is complex: The IRS estimates it will take 24 work hours to complete one form for one client.

It’s a certainty that companies that manufacture or have inventory will need to file Form 3115 with their returns. But what about someone with a side business? A couple who rents out their old home? There is a 12-page thread on TaxProTalk on this subject and I don’t think anyone there has a good handle on this.

Let’s take a real world example: John and Mary Smith. The Smiths own one residential rental property here in Las Vegas. The property has been depreciated for the last five years. In 2013, they put in a new garage door and are depreciating it. Their tax return is otherwise quite blase: they have wage income, a home mortgage, property tax, and some minor investment income.

I still don’t have a good answer for this. I’d love to hear from other tax professionals on this issue.