In this Issue
Driver License Info in Tax Software May Not Be Required after All
Tax software used by tax professionals asks for client driver license numbers even though only two states – New York and Alabama – currently have state laws requiring such information to be provided on state tax returns. No federal law requires this information to be provided on federal tax returns.
When NSA made inquired how this information came to be included in this year's version of the software, we were told it was included at the behest of the Federation of Tax Administrators, the trade group for the state tax administrators. It seems that FTA wanted the information so its members could use the drive license numbers as one indication of a valid return, even while making the argument it was just too difficult to enact state laws requiring such information to be provided.
During a meeting with other members of the Security Summit, we pointed out that most tax software packages ask for the driver license number and, if it is not provided, asks the preparer to check a box indicating that there is no driver license. We made the point that our members do not want to sign a sign stating there is no driver license if the client does have one. We also stated there should not be a requirement to provide a license number merely because it is on the FTA wish list.
Apparently, the tax software is written so that the return will be processed even if the driver license information box is left blank. Check with your software provider to make sure. And, if you are preparing a New York or Alabama return, this does not apply to you.
Form W-2 Scam again Targeting Payroll, Human Resource Departments
The IRS, state tax agencies and the tax industry this week renewed their warning about an email scam that uses a corporate officer's name to request employee Forms W-2 from company payroll or human resources departments.
This email scam is making its way across the nation for a second time. The W-2 scam first appeared last year and aims to trick payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns for tax refunds.
This phishing variation is known as a "spoofing" e-mail. It will contain, for example, the actual name of the company chief executive officer. In this variation, the "CEO" sends an email to a company payroll office or human resource employee and requests a list of employees and information including SSNs.
The following are some of the details that may be contained in the emails:
- Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
- Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary)?
- I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me ASAP.
IRS PTIN and EA List to be Available at No Cost
In compliance with Freedom of Information Act (FOIA) laws, the IRS makes available a list of PTIN holders and a list of enrolled agents to interested parties. The lists are currently provided via CD-ROM to those who submit a request and pay a $35 fee to cover IRS costs.
This process will soon change as a result of the FOIA Improvement Act of 2016 signed by the President on June 30, which requires agencies to "make available for public inspection in electronic format...copies of all records...that have been requested 3 or more times." The PTIN list has been requested more than 1,200 times, well over the limit.
The IRS is working to implement downloadable versions of the two lists in the Electronic Reading Room on irs.gov, which will be updated twice per year and available at no cost.
AICPA Proposal Seeks to Counter Pressure to Prepare Misleading Financial Statements
The American Institute of CPAs has proposed an update to its ethics standards that seeks to identify and counter attempts to knowingly produce misleading statements. A copy of the proposal is available here.
According to the proposal, AICPA members are urged to discuss "the matter with the individual who is exerting the pressure to seek to resolve it and escalating the matter to higher levels of management, internal or external auditors, or those charged with governance." It goes on to say that, "The member might also consider reporting the matter to an internal or external confidential ethics hotline, when such is available."
In cases where these efforts don't thwart pressure to commit unethical acts, the member should refuse to perform them and consider leaving the organization that perpetrates them, the proposal says.
A copy of the proposal is available The AICPA's Professional Ethics Division is asking for comments on the proposal by April 17, presumably from accountants who do not prepare tax returns.
IRS Extends Deadline for Health Coverage Tax Credit Claims
The IRS has extended the deadline to claim the health coverage tax credit for those who lost their jobs because of free trade agreements.
Taxpayers eligible for the credit from "taxable years beginning on or after June 29, 2015, and before January 1, 2017," have three years to claim it, the IRS said Jan. 19 in Notice 2017-16. The credit provides a 72.5 percent tax break for the cost of qualified health care plans under tax code Section 35. For example, a taxpayer who files a 2016 income tax return by April 18, 2017, has until April 15, 2020, to file Form 8885, Health Coverage Tax Credit. The form must be submitted with the taxpayer's returns.
This guidance is unlikely to apply to a large group of taxpayers. Most receive the credit through advanced payments under Section 7527, the IRS said.
Notice 2017-16 is scheduled to publish Feb. 13 in Internal Revenue Bulletin 2017-7 and is also available at https://www.irs.gov/pub/irs-drop/n-17-16.pdf
Mnuchin Favors IRS Funding Increase
Treasury secretary nominee Steven Mnuchin said one of his priorities if confirmed would be to increase staff and modernize technology at the Internal Revenue Service. "I would use my expertise to bring the IRS up to date," Mnuchin, a former Goldman Sachs Group Inc. executive, said during his confirmation hearing before the Senate Finance Committee Jan. 19. Mnuchin highlighted how IRS staff has plunged 30 percent over the past several years, and how the agency lacks internal technology experts to update its systems.
"Cybersecurity is such a big issue," and the IRS needs to protect American taxpayers' information, he said.
The IRS has suffered from years of budget slashing in part because of House Republicans who made the agency a target after gaining power in 2010. The number of employees at the agency dropped 16 percent from 2010 to 2015, according to the IRS. The agency's budget is determined by Congress through appropriations legislation. It had its first budget increase in fiscal 2016, but was still about $900 million less than its budget for fiscal year 2011, according to a report last year from the Government Accountability Office.
House Republicans don't seem likely to support an expanded agency. A tax blueprint released in June 2016 by House Speaker Paul D. Ryan calls for "a streamlined structure" for the IRS that focuses on customer service for families, individuals and businesses, while also setting up an independent "small claims court" unit to resolve disputes entities have with the agency. Conservative Republicans have more pointedly attacked the IRS.
Nevertheless, Mnuchin said modernizing the IRS could receive bipartisan support. Senate Finance Committee Chairman Orrin G. Hatch said in a statement that he looked forward to working with the administration on restoring the IRS and overhauling tax laws. "A simplified tax code will allow for a more streamlined IRS, and will require a reassessment of the agency's budgetary and personnel needs," Hatch said.
Mnuchin also said he would be able to easily convince President-elect Donald Trump that the IRS needs more employees. "I can assure you that the president-elect understands the concept of 'we add people, we make money,"' Mnuchin said. "That's a very quick conversation with Donald Trump."
IRS Plans to Update Circular 230
The IRS has begun a long-delayed effort to overhaul Circular 230, which contains the statute and regulations under which tax professionals practice before the IRS, but which still contains references to registered tax return preparers and other outdated material.
"There are provisions in Circular 230 that are outdated, inconsistent, incomplete," according to Steve Whitlock, director of the IRS Office of Professional Responsibility. Speaking at an IRS National Public Liaison meeting on January 26, Whitlock said he has begun informal discussions with practitioners and industry groups to get their recommendations and noted that he has often met with NSA Executive Vice President John Ams.
One suggestion the office has received is to review the Circular 230 rules on contingent fee arrangements. A contingent fee is a fee a tax professional agrees to accept as a fixed percentage of the amount finally paid to the client. There are abuse issues with those arrangements that the Service is concerned about, Whitlock said, but it would be interesting "as we go through a process like this to understand what it is about the current rule that's not working."
Another issue Whitlock is considering is the obligation of a practitioner to protect a client's information, specifically against threats such as cyber attacks, he said. The OPR is trying to determine whether that area needs to be addressed in the "tax context," he said, especially whether a tax professional should be required to make a "good faith effort" to protect his or her client's data.
The final issue mentioned by Whitlock is a practitioner's responsibility to have a written plan in place for the disposition of client records in the event the practitioner is incapacitated or passes away. Whitlock said this is particularly an issue with a sole practitioner, since a landlord or spouse may not be aware of the restrictions against unauthorized disclosure of taxpayer data.
PTIN Updates
IRS Return Preparer Office Director Carol Campbell said at an IRS Liaison meeting that there are currently 646,000 active PTINs. That number includes 50,283 EAs, 205,078 CPAs, 42,883 AFSP participants, 28,937 attorneys and 633 Retirement Plan Agents, among others. She also stated that 56% of PTIN holders do not hold an EA, CPA, AFSP, ERPA or attorney license.
With the start of the tax filing season, Ms. Campbell also said the IRS has sent PTIN expiration notices to approximately 160,000 PTIN holders who did not renew their PTIN. The email notice explains to recipients that they can still renew their PTIN at any time, but until they do, their status is expired and they should not be preparing returns. The email also details the various ways the PTIN can be renewed.
IRS Updates Instructions for AMT Forms
The IRS announced on its website on January 19 that the instructions for various 2016 AMT forms will be amended. The affected instructions are for 2016 Form 6251, Alternative Minimum Tax – Individuals, Form 4626, Alternative Minimum Tax – Corporations, and Form 1041, Schedule I, Alternative Minimum Tax – Estates and Trusts. The revisions primarily updated the instructions to provide that property for which a taxpayer elects out of bonus depreciation is not subject to an AMT depreciation adjustment, effective for property placed in service after 2015. This change, according to the IRS, was made by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) (P.L. 114-113).
The IRS explained in is announcement that a technical correction made by section 143(b) of the PATH Act provides that the AMT adjustment does not apply to "qualified property" as defined in Code Sec. 168(k)(2) (Code Sec. 168(k)(2)(G), as amended by the PATH Act). However, if the election out is made for a class of property, Code Sec. 168(k)(7) simply provides that the bonus depreciation deduction allowed under Code Sec. 168(k)(1) does not apply. Therefore, the status of the property for which an election out is made technically remains "qualified property" under Code Sec. 168(k)(2) and exemption from the AMT adjustment applies. Prior to amendment by the PATH Act, the AMT adjustment was only waived for property for which bonus depreciation was claimed
