Archive for the ‘IRS’ Category

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 HealthCare.gov 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….

Oops

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:

Capture

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.

Waiting for Godot

Wednesday, January 14th, 2015

Yesterday, I called the IRS on behalf of a client. The client’s 2013 tax return was not processed correctly, so we had to file an amended return. The client received a CP503 notice demanding payment; however, we believe that she will actually receive a refund. It’s been four months since the amended return was received. It will likely be another four months before the issue is resolved…and it might be longer. The IRS put a 15-week hold on collection activities, so my client’s issue was resolved (for the moment).

But for the taxpaying public it’s gloom and doom this year when dealing with the IRS. IRS Commissioner John Koskinen sent a memo to all employees on Tuesday:

There is no way around the severity of these budget cuts without taking some difficult steps. Congress approved a $10.9 billion budget for us, which means we must absorb a cut of $346 million during the remaining nine months of the fiscal year. But that really amounts to a total reduction of about $600 million when you count another $250 million in mandated costs and inflation. This is the lowest level of funding since 2008, and the lowest since 1998 when inflation is considered.

In the memo, Commissioner Koskinen noted that there will be delays to IT work, less enforcement, and cuts in overtime and temporary staffing. For the public, interfacing with the IRS will get worse:

o Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week—or possibly longer—to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.
o Increasing correspondence inventories. We realize there will be growing inventories in Accounts Management, and taxpayer correspondence will face lengthy delays.
o Taxpayer service diminished further over the phone and in person. We now anticipate an even lower level of telephone service than before, which raises the real possibility that fewer than half of taxpayers trying to call us will actually reach us. During Fiscal Year 2014, 64 percent were able to get through. Those who do reach us will face extended wait times that are unacceptable to all of us.

What this means for you and I is that we have deadlines, but there’s none on the IRS. If you’re going to call the IRS, expect very lengthy hold times; yesterday I was on hold for 101 minutes before speaking with an IRS representative. I expect the hold times to get far worse as we head into Tax Season. If you’re sending mail to the IRS, you will be waiting for a response for weeks to months. Given the volume of mail, this will lead to more individuals mail not being responded to in a timely manner; this will lead to more Tax Court petitions being filed.

Back in December 2013 I sent a letter to the IRS on behalf of a taxpayer who had an issue with an electronic payment. I received the response to that letter last week. Humorously, the IRS had first said they lost my letter. (It was sent certified mail, return receipt, so I knew it was received.) This kind of delay is going to become the norm.

What can the taxpaying public do? First, don’t take out your anger with IRS employees; it’s not their fault. Almost all IRS employees do try their best. As Commissioner Koskinen said, “But I know firsthand the commitment and dedication you and your colleagues have to the nation and to taxpayers, and I know you will continue to do your best even as we are forced to do less than all of us want.” Yes, the IRS partially brought this on themselves with their obfuscating responses to the IRS scandal, but that has nothing to do with the rank and file IRS employees.

Second, document everything. If you mail something to the IRS, send it certified mail, return receipt requested. If you call the IRS, document who you spoke to (especially if the call relates to an examination/audit). At the beginning of any call with an IRS employee, they will state their name and badge number. You may need this information later.

Third, if you work with a tax professional get your paperwork to him or her early this year. This return season would have been challenging without the IRS issues; it will likely be one for the record books (and not in a good way). I expect my firm’s deadlines for clients to be applied to all this year.

Finally, be very patient. The IRS will eventually get back to you. If you have an issue and have to call the IRS, try first thing in the morning (especially if you live on the East Coast) or at the end of the day (especially if you live on the West Coast); avoid calling on Mondays.

I wish I had good news here, but the reality is that dealing with the IRS over the next few months will be a very unpleasant experience.

Business EFiling Reopens on Friday

Wednesday, January 7th, 2015

The IRS will reopen business electronic filing this Friday, January 9th. This is just for prior-year business returns (2012 and 2013). Current year (2014) business return electronic filing opens on Tuesday, January 20th — the same day that the IRS will begin accepting 2014 individual returns. Prior-year individual returns (2012 and 2013) can also be electronically filed beginning on January 20th.

1099 Time (2015 Version)

Saturday, January 3rd, 2015

As we start 2015, we’re running some repeats of important issues.

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)

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 2nd: Deadline for mailing most 1099s to recipients;
  • Monday, March 2nd: Deadline for filing paper 1099s with the IRS (postmark deadline); and
  • Tuesday, 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.

It’s Time to Start Your 2015 Mileage Log

Saturday, January 3rd, 2015

I’m going to start the new year with a few reposts of essential information. Yes, you do need to keep a mileage log:

Monday is the first business day of the new year for many. You may have resolved to keep good records this year (at least, we hope you have). Start with keeping an accurate, contemporaneous written mileage log.

Why, you ask? Because if you want to deduct all of your business mileage, you must do this! IRS regulations and Tax Court rulings require this. Written is defined as ink, so that means you likely need a paper log.

The first step is to go out to your car, and note the starting mileage for the new year. So go out to your car, and jot down that number (mine was 40,315). That should be the first entry in your mileage log. I use a small memo book for my mileage log; it conveniently fits in the center console of my car.

Here’s the other things you should do:

On the cover of your log, write “2015 Mileage Log for [Your Name].”

Each time you drive for business, note the date, the starting and ending mileage, where you went, and the business purpose. Let’s say you drive to meet a new client, and meet him at his business. The entry might look like:

1/5 40315-40350 Office-Acme Products (1234 Main St, Las Vegas)-Office,
Discuss requirements for preparing tax return, year-end journal entries

It takes just a few seconds to do this after each trip, and with the standard mileage rate being $0.575/mile, the 35 miles in this hypothetical trip would be worth a deduction of $20. That deduction does add up.

Some gotchas and questions:
1. Why not use a smartphone app? Actually, you can but the current regulations require you to also keep a written mileage log. You can transfer your computer app nightly to paper, and that way you can have the best of both worlds. Unfortunately, current regulations do not guarantee that a phone app will be accepted by the IRS in an audit.

That said, if you backup (or transfer) your phone app on a regular basis, and can then print out those backups, that should work. The regular backups should have identical historical information; the information can then be printed and will function as a written mileage log. I do need to point out that the Tax Court has not specifically looked at mileage logs maintained on a phone. A written mileage log (pen and paper) will be accepted; a phone app with backups should be accepted.

2. I have a second car that I use just for my business. I don’t need a mileage log. Wrong. First, IRS regulations require documentation for your business miles; an auditor will not accept that 100% of the mileage is for business–you must prove it. Second, there will always be non-business miles. When you drive your car in for service, that’s not business miles; when you fill it up with gasoline, that’s not necessarily business miles. I’ve represented taxpayers in examinations without a written mileage log; trust me, it goes far, far easier when you have one.

3. Why do I need to record the starting miles for the year?
There are two reasons. First, the IRS requires you to note the total miles driven for the year. The easiest way is to note the mileage at the beginning of the year. Second, if you want to deduct your mileage using actual expenses (rather than the standard mileage deduction), the calculation involves taking a ratio of business miles to actual miles.

So start that mileage log today. And yes, your trip to the office supply store to buy a small memo pad is business miles that can be deducted.