Security Summit Launches Education Campaign Aimed at Tax Pros

The IRS has cautioned all tax professionals to increase their computer security and be aware of email scams that identify themselves as a friend, customer or company.

As part of the Security Summit effort, the IRS, state tax agencies and the tax industry have also launched another series in the Protect Your Clients, Protect Yourself campaign called "Don't Take the Bait." It's critical that tax professionals remember they have not just an obligation but a legal requirement under federal law to protect taxpayer information.

The IRS points out that the number one goal of phishing thieves is to monetize their stolen information. Even as the IRS, states and the tax industry have made their systems more secure against tax-related identity theft, the need for criminals to have even more information to better impersonate taxpayers has increased. This is why tax professionals, who hold sensitive financial data, are critical targets.

 "We continue to see new and evolving threats involving data breaches, intrusions and various takeovers that put people's personal information at risk," said John Koskinen, IRS Commissioner. "These efforts are increasingly targeting tax professionals and businesses with tax information. Too many still overlook basic security steps needed to protect their data. As part of this, we urge the tax professional community: Beware of your inbox. Don't take the bait from these phishing scams."

Phishing scams use bait or lures to trick preparers into opening an infected link or attachment, or disclosing usernames and passwords to critical accounts. Falling for the phishing bait means exposing taxpayer data to theft. Thieves also are interested in stealing preparers' e-Services passwords, Electronic Filing Identification Numbers (EFINs), Centralized Authorization File (CAF) numbers and Preparer Tax Identification Numbers (PTINs.)

From January through May, there were 177 tax professionals or firms who reported data thefts involving client information involving thousands of people. The IRS currently is receiving three to five data theft reports a week from tax practitioners.  "We've been warning tax professionals that they are increasingly the targets of national and international cybercriminal rings. These syndicates are well-funded, knowledgeable and creative. It's going to take all of us working together to combat these identity thieves," Koskinen said. "But doing nothing or making a minimal effort is no longer an option. Anyone who handles taxpayer information has a legal responsibility to protect it."

The Security Summit will focus the "Don't Take the Bait" series on security awareness, emphasizing the various types of phishing scams - a common and successful tactic used in data breaches. The 10-week series of news releases, which began earlier this week, also focuses on what steps tax professionals can take to protect their clients and their business from these attacks.

The new series follows up on a recommendation made to the IRS last month by the Electronic Tax Administration Advisory Committee to raise awareness about the steps a tax professional can take to better protect their confidential data.

FASB Discusses Accounting Clarity for Cloud Setup Fees

The Financial Accounting Standards Board has begun discussions about the propper accounting treatment for the implementation and set up fees associated with the use of cloud systems to store data.

Rapid technological changes have caused many companies to switch to cloud systems despite substantial set-up fees.  However, there have been substantial and noticeable differences in the accounting for those fees, according to July 11 discussions among the Financial Accounting Standards Board and its Private Company Council.  FASB members were told that a cloud arrangement allows more flexibility to adapt as new technology changes, whereas a purchased hardware/software system must be replaced if it cannot accommodate the implementation of a necessary technology advancement. 

Cloud computing can be costly. Some companies can incur millions of dollars in upfront fees to set up cloud computing services. These costs are generated from additional steps companies must take to ensure their system can communicate with a cloud arrangement. These upfront costs are separate and substantially higher than the hosting fee, which is a continuing charge paid to a cloud company for housing and maintaining data.

Currently there are no specific accounting rules for how to account for the upfront set up fees. Companies therefore differ in how to account for them. Some book them as an expense whereas others capitalize them.  FASB's Emerging Issues Task Force unit will address the topic at its meeting on July 20, with the intention of beginning the process of recommending a proposed accounting rule for FASB consideration.

Trump Tax Plan Could Reduce Federal Revenue By Trillions?

President Donald Trump's proposed tax cuts would lower federal revenue by $7.8 trillion over a decade and mostly benefit the highest earners, according to a new study released July 12 by the nonpartisan Tax Policy Center (the TPC).  A copy of the study is available here.

The study evaluated the one-page outline released by the White House on April 26.  Trump's outline would create a 15 percent tax rate for businesses of all stripes—down from current rates that can top 35 percent. It would also consolidate the existing seven individual tax rates to just three—cutting the top rate to 35 percent from the current 39.6 percent. The plan would also eliminate a 3.8 percent tax on investment income for high earners that was enacted as part of Obamacare.

The study provides a glimpse of the difficulties Congress will face in enacting meaningful tax reform.  It shows that even if it achieves all the revenue-raisers it calls for, it would still add trillions to the deficit—and face criticism as a gift to the top one percent of income earners.  About 40 percent of the tax cut would go to the top 1 percent of earners, who would see an average after-tax gain of 17.8 percent. By contrast, the middle one-fifth of Americans would see an average gain of 3.3 percent, the study said.

When accounting for suggested revenue-raisers like ending most itemized deductions and personal exemptions, the 10-year revenue loss under the Trump tax plan would be $3.5 trillion, the study found. And the top 1 percent's gains would be 11.5 percent, while middle-income gains would be 1.3 percent, the report said.

The TPC noted that the White House plan lacked sufficient detail for detailed revenue scoring, so the TPC analysis filled in some blanks using proposals from Trump's presidential campaign. At the same time, some proposals, such as repealing the alternative minimum tax and the estate tax, were relatively easy to score, according to TPC officials.

Trump administration officials have repeatedly promoted the President's tax plan as a benefit for middle-class taxpayers, but some elements in it would be of particular benefit for wealthier people, according to the TPC report, which cited the estate tax as an example.  The estate tax, which the plan would repeal, currently applies only to estates worth more than $5.49 million for individuals or $10.98 million married couples.  "If you're serious about not cutting taxes for higher income people you probably wouldn't repeal the estate tax," TPC Director Mark Mazur said.  Overall under the plan, "The benefits largely flow to the top."

The study also shows the procedural struggle awaiting the plan in Congress. Under the budget reconciliation plan legislative rules that Senate Republican leaders plan to use to avoid Democrats' opposition, any tax changes that add to the deficit after a decade must automatically expire. The cost of the tax cuts alone in the second decade would be $13.1 trillion.  "There's a fairly substantial revenue hole to fill," Mazur said.

When TPC applied a "dynamic" scoring method, which accounts for economic growth, the revenue cost of Trump's tax cuts decreased slightly to $7.7 trillion; when factoring in the revenue-raisers on a dynamic basis it is $3.4 trillion.  Dynamic scoring can vary depending on which model is applied, making it somewhat controversial among economists since it relies on assumed economic growth rates.  The rosier the assumptions, the less the budget shortfall.

Overall, the TPC study found if all the cuts and revenue raisers contemplated by Trump's one-page outline were applied, 70 percent of U.S. households would enjoy a tax cut, while 20 percent would see a net tax increase under the plan.

Congressional Tax Bills That May Affect You And Your Clients

It is anybody's guess whether Congress will be able to enact a tax reform bill or any tax-related bill this year. However, there are various measures percolating at various stages of the legislative process, so it is wise to keep informed.  Below is a chart that summarizes the status of key tax policy legislation currently pending in either the House or Senate.

 

Topic	Legislative Purpose	Bill Status	Outlook
Tax Reform	Corporate, Individual and International Taxation
	(To be introduced) Congressional tax-writers want a revamp of the tax code.	House: House GOP tax reform blueprint released in June 2016 calls for a 20 percent corporate tax rate; a shift to territorial taxes on overseas income under destination-based taxes; a border adjustability provision that would tax imported goods but exempt exports; three tax brackets at 12 percent, 25 percent, and 33 percent for individuals; a 25 percent tax rate for passthroughs; and a repeal of the estate tax and alternative minimum tax. Senate: Finance Committee Chairman Orrin G. Hatch (R-Utah) had been working on a dividends paid corporate integration idea as a way to eliminate double taxes on corporate income. However, he has not released the plan and has said he is now focused on a broader tax reform effort.	House: Ways and Means Committee Chairman Kevin Brady (R-Texas) and his staff are working on turning the blueprint into legislation and plans to hold hearings in the coming weeks. He has said he will wait to mark up a bill in his committee until seeing more details from the White House plan, which he says is about 80 percent in alignment with what the House wants. The border adjustment tax is facing opposition from big retailers and some members in the House and Senate over concerns it could raise costs for consumers. Senate: Republican tax counsels in the Senate are looking at previously introduced tax reform plans for ideas. Many of them include ideas to broaden the tax base to lower tax rates. Sen. Hatch has said that his staff is working on a tax plan, but that it was too early to get into details. White House: The administration released a one-page outline April 26 that would cut the corporate rate to 20 percent. The document doesn't mention the border adjustment provision of the House plan, a signal that the administration is still working through the issue. The administration is expected to release a more detailed document in June.
Health Care	Affordable Care Act
	(Better Care Reconciliation Act) Unlike the House-passed bill (H.R. 1628), the Senate's version retains the 3.8 percent net investment income tax and the 0.9 percent Medicare surtax on wages, railroad retirement compensation, and self-employment income above a certain threshold—both of which would apply to individuals earning more than $200,000 and couples filing jointly who earn more than $250,000. The Senate bill also would retain the ACA's $500,000 limit on how much of health insurance executives' pay is tax deductible and would allow individuals to pay premiums with money from tax-favorable health savings accounts.		Senate: The Senate version was released July 13. It's not clear if the measure has the support to pass.
	(American Health Care Act) House Republicans on March 6 released legislation that would replace the Affordable Care Act. H.R. 1628 would repeal many of the ACA's related taxes and retroactively roll back penalties for employers that fail to provide coverage and individuals who fail to obtain it. The bill also includes an advanceable, refundable, age-adjusted tax credit capped at individual income of $75,000 and for joint filers at $150,000.	House: House Republicans passed the bill 217-213 on May 4. Its passage was the end of a contentious few months, which included House leadership pulling the bill from the floor before a March 24 floor vote. Last-minute amendments, including $8 billion to help individuals with pre-existing conditions pay premiums, helped get reticent members' support for the bill.	Senate: Republican senators have split into two working groups to begin working through the bill, and some say they plan to craft new legislation entirely. Republicans plan to adjust the tax credits in the bill to make them more generous for individuals who are older or who are low-income. Sen. Rob Portman (R-Ohio) said he is considering creating a new tax credit for individuals who lose Medicaid coverage and need to purchase insurance on the marketplace. Republicans can only lose two votes and still pass the bill through the chamber. White House: The White House is expected to take a bit of a back seat now that the bill is in the Senate in order to give lawmakers the time needed to pass it. Trump celebrated with House members at the White House May 4 immediately following the bill's passage.
Health Care	Tax Credits
	(VETERAN Act) H.R. 2372, introduced May 4 by Rep. Sam Johnson (R-Texas), says a veteran isn't eligible for health coverage under a Department of Veterans Affairs program unless enrolled. The bill is in response to criticism from Democrats that the American Health Care Act could bar veterans from using tax credits to pay for health insurance if they are eligible but not enrolled in VA coverage.	House: The bill passed by voice vote on June 15.
	(Verify First Act) Rep. Lou Barletta (R-Pa.) on May 22 introduced H.R. 2581 to require a Social Security number before an individual can receive a health care tax credit. The bill is part of an effort to address concerns with the American Health Care Act.	House: The bill passed 238-184 on June 13.
	(Broader Options for Americans Act) H.R. 2579 would allow some individuals to qualify for premium tax credits if they continue group health plans under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Rep. Pat Tiberi (R-Ohio) introduced the measure May 19. The bill is part of an effort to address concerns with the American Health Care Act.	House: The bill passed 267-144 on June 15.
Corporate Inversions	Debt-Equity
	(H.J. Res. 54) The legislation disapproves of the final Section 385 debt-equity rules released in October 2016. It also would use the Congressional Review Act to revoke them.	House: The bill, introduced Jan. 31 by Rep. Todd Rokita (R-Ind.), has been referred to the Ways and Means Committee. A floor vote hasn't been scheduled.	House: Democrats released a letter Feb. 8 criticizing the bill. Senate: No companion legislation has been introduced.
Estate and Gift Taxes	Estate Tax Repeal
	(H.R. 451, H.R. 198, H.R. 30, H.R. 631, S. 205) Several bills have been introduced in both chambers to repeal the estate tax.	House, Senate: Senate Finance Committee member John Thune (R-S.D.) and House Ways and Means Committee member Kristi Noem (R-S.D.) are the lead sponsors on companion repeal legislation, H.R. 631 and S. 205.	House: The House GOP tax reform blueprint includes a repeal of the estate tax. White House: President Trump called for a repeal during his election campaign, replacing it with a capital gains tax for assets held until death.