NEWS from NSA

  • New ACA-Related Tax Forms Coming For 2015 Filing Season

    Wednesday, September 03, 2014 12:32 PM | NCSA Website Manager (Administrator)

    Several new tax forms related to implementation of the Affordable Care Act will affect taxpayers in the 2015 tax filing season, according to Anne Freeman, chief of individual and specialty forms and publications at the IRS. Freeman, speaking at the 2014 IRS Nationwide Tax Forum, said the new forms will provide the IRS with information to calculate the tax penalty owed for failing to obtain health coverage as mandated by the ACA, as well as any tax credits to help pay for that coverage.

    Some taxpayers will be exempt from offering proof of coverage, Freeman said. In order to qualify for an exemption of health insurance coverage requirements mandated by the ACA, taxpayers or tax preparers must state their reason on the new Form 8965, Health Coverage Exemptions. "Some of these exemptions can only be claimed through the marketplace, some of these exemptions can only be claimed using tax returns and then there are some exemptions that can be claimed either through the marketplace or through tax returns," Freeman said.

    Freeman listed a number of possible exemptions in her presentation including:

    • taxpayers who are members of a certain religious sect that conscientiously objects to health insurance,
    • individuals experiencing certain difficulties obtaining health insurance,
    • individuals who don't have access to affordable coverage based on projected income, and
    • taxpayers who are living abroad or are incarcerated.

    If there is no exemption, taxpayers or tax preparers will have to fill out a worksheet to calculate the shared responsibility payment amount. In any event, she said that only one Form 8965 should be filed per household.

    Freeman said that another new ACA-related form, Form 8962, Premium Tax Credit (PTC), will be filed for a health insurance premium tax credit, which will help offset health insurance costs mandated by the ACA. The premium tax credit is refundable, so taxpayers with little or no income tax liability can still benefit, Freeman said.

    Freeman said that to qualify for the credit, the taxpayer must:

    • have bought health insurance through the marketplace;
    • be ineligible for coverage through an employer or government plan; and
    • be within a certain income level, which is generally between 100 percent and 400 percent of the federal poverty line and can be claimed as an independent.

    One indicator that a return preparer's clients will be able to claim the premium tax credit is that they won't receive a new Form 1095-A, Health Insurance Marketplace Statement, which is issued to individuals who enrolled in a health plan through the marketplace, Freeman said.

    Other new forms Freeman mentioned include Form 1095-B, Health Coverage, which is issued by health insurers and provides information on who provided a taxpayer's health insurance coverage, what kind of coverage, who in the household was covered and for which months during the tax year; and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, which is filed by large employers to report to the IRS on health care coverage offered to full-time employees. Form 1095-C will show whether the employer provided insurance, who was covered, for which months and whether the employer made an offer of coverage, Freeman said.

    This information will help with the computation of whether the insurance coverage was considered to be unaffordable, which will affect possible exemptions on Form 8965, Freeman said.

  • IRS Releases Draft Instructions for Key ACA Tax Return Forms

    Wednesday, September 03, 2014 12:30 PM | NCSA Website Manager (Administrator)

    The IRS has issued several key draft instructions for forms related to information returns required of employers, health insurers, and health exchange marketplaces under the Affordable Care Act.

    The draft instructions, which were issued August 28, are for Form 1095-A, Health Insurance Marketplace Statement; Forms 1094-B and 1095-B; and Forms 1094-C and 1095-C.

    The IRS said the forms and their accompanying instructions will help taxpayers reconcile the amount of advance premium tax credits they may have received during the year to pay for health insurance with their actual income. They will also help employers demonstrate satisfaction of the health coverage requirements under the health care law. In some instances, individuals may owe additional taxes if they received advance PTCs in excess of what they should have received, or they may receive tax refunds.

    Form 1095-A will be issued by a health insurance marketplace to individuals who enrolled in a health plan through the marketplace. It will be issued to both individuals and the IRS, similar to a Form W-2, Wage and Tax Statement. The draft form 1095-A is available here; the draft instructions for Form 1095-A are available here.

    Form 1095-B, Health Coverage, will be issued by health insurers and provides information on who provided a taxpayer's health insurance coverage, the type of coverage, who in the household was covered and for which months during the year. The draft form 1095-B is available here; the draft instructions for Form 1094-B and 1095-B are available here.

    Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, will be filed by large employers to report to the IRS on health care coverage offered to full-time employees. ACA defines full-time employee as someone who works an average of 30 hours or more per week. The form shows whether the employer provided insurance, who was covered, for which months and whether the employer made an offer of coverage. The draft Form 1094-C and 1095-C is available here; the draft instructions for Form 1094-C and 1095-C are available here.

    Taxpayers will not be required to file Forms 1094-B, 1095-B, 1094-C and 1095-C for tax year 2014, but will be for 2015.

    The IRS is seeking comment on the forms through notices that are to appear in the September 2 Federal Register. Comments on the forms are due November 3 and should be sent to Stacey Becker, IRS, Room 6526, 111 Constitution Ave., N.W., Washington DC 20224 or to Christie.A.Preston@irs.gov

  • IRS Plans Broader Use of IP PINs in Battle Against Identity Theft

    Wednesday, September 03, 2014 12:29 PM | NCSA Website Manager (Administrator)

    The IRS plans to increase marketing of its test program to let more people get identity protection personal identification numbers (IP PINs) for filing their returns.

    Amy Stanton, the Internal Revenue Service's director of privacy and information protection, said the goal of IRS's pilot program is to make the six-digit IP PINs available not only to those who have been victims of theft, but to anyone who wants oneundefinedbefore they become victims. Speaking at a recent IRS Nationwide Tax Forum, she noted the pilot is available to residents of Florida, Georgia and the District of Columbia who are already going online for PINs for electronic filing. The IRS plans to do more marketing of the program in these jurisdictions in coming months, but it isn't yet clear how or when it might be expanded to other states.

    In 2014, the IRS is sending victims of theft a single notice with the new PIN, which they can use for this year's return and any delinquent returns filed this year. The IRS will send the taxpayer a new PIN next year, Stanton said.

    Another key facet of the IRS's strategy to prevent ID theft is e-authentication, according to Stanton. This is a two-step process in which taxpayers have to first provide tax-related information and then provide personal information that only they would know, such as information about a loan or a mortgage. She emphasized that taxpayers must have e-mail addresses so the IRS can send them a code needed to set up their accounts.

    Stanton provided information on what taxpayers should do in the case of business identity theft: report the development to law enforcement; notify credit bureaus, banks, credit card companies and other creditors; and respond immediately to any IRS communications. "The worst thing you can do is nothing," she said.

    Stanton urged practitioners to consider Social Security numbers and other personal financial information as commodities to be protected, noting that the IRS is working hard to "mask" Social Security numbers on its notices, letters and other communications with taxpayers. "Social Security numbers are bought and sold all the time," she said.

    Stanton concluded her remarks by stating that identity theft is "one of the most critical issues facing the IRS. It's an issue that belongs to all of us, and it's not something the IRS can tackle alone," Stanton said, adding that the agency views the issue as "a call to action."

  • IRS Limits Multiple Checks into Single Account to Reduce Tax Fraud

    Wednesday, September 03, 2014 12:28 PM | NCSA Website Manager (Administrator)

    Tax practitioners should be aware that under new revisions to Circular 230, IRS computers have been reprogrammed to limit to three the number of refund checks that can be deposited into the same account electronically, according to John Dalrymple, IRS deputy commissioner of services and enforcement.

    In an effort to curb tax fraud, the IRS has implemented several new programs to stem identity theft, including the new limits on the number of refunds that can be electronically deposited to the same bank account, Dalrymple said at the 2014 IRS Nationwide Tax Forum.

    The IRS has identified several tax return preparers attempting to serve as bankers for clients or taking fees from taxpayer refunds, Dalrymple said. "We've identified about 4,400 personal accounts held by tax preparers where multiple refunds were deposited," Dalrymple said. "We're putting a stop to that too." Electronic checks for the fourth and any subsequent refund requests for that account will be frozen and paper checks will be issued. Dalrymple cautioned that practitioners should be sure to inform clients such as family groups ahead of time.

    Dalrymple said that the IRS has made progress in identifying potentially fraudulent returns in recent years. In 2013, the agency suspended or rejected 5.7 million suspicious returns totaling almost $18 billion. In the current tax year, through the end of June 2014, the agency stopped 3.9 million suspicious returns and opened almost 900 new investigations into fraud schemes related to identity theft.

  • Practitioners Must Be Knowledgeable About Circular 230 Revisions

    Wednesday, September 03, 2014 12:27 PM | NCSA Website Manager (Administrator)

    Practitioners must become knowledgeable about recent changes to Circular 230 or risk sanctions from the IRS Office of Professional Responsibility, according to OPR Director Karen Hawkins.

    Hawkins went through the revisions to Circular 230, which governs all practice before the IRS, in detail at the 2014 IRS Nationwide Tax Forum in Orlando on August 26. The changes were announced in June.

    Hawkins said the provision calling for due diligence is the most important provision in the entire circular, stressing that the task of practitioners is to "know what the law is, know what the facts are, and whether they fit." Practitioners have a responsibility to tell their clients if they have "round facts and a square law," Hawkins said, and added that due diligence requires that a standard of "reasonableness" applies to all forms of written advice to clients, including e-mails.

    Another feature she explained in detail is the circular's focus on conflicts of interest. The revised rules of practice define a conflict as a case in which one client's interest is directly adverse to another, and where there is a significant risk that representation of one client will result in "materially limiting" the representation of another, Hawkins said.

    Hawkins explained that practitioners can still continue to represent their clients if they believe they can still provide competent, diligent representation to each affected client, aren't legally prohibited from doing so, and obtain waivers in writing based on informed consent from their clients at the time of the conflict.

    Hawkins also made clear that the revised rules for tax practice under Circular 230 make it absolutely clear that tax practitioners can't play the "audit lottery" in representing their clients. "You don't get to take into account whether the client is going to get caught," Hawkins said. "That's violating every ethical principle I can think of. You shouldn't engage with the client on that issue."Hawkins highlighted the Circular 230 requirements for due diligence for tax returns, the ability of practitioners to rely on representations from their clients, and competence, among others. She noted that under a section of the circular dealing with procedures to ensure compliance, a practitioner that is in charge of a firm's Circular 230 compliance can be held responsible if there are violations by other practitioners in the firm.

  • Koskinen to NSA: Tax Preparers Should Tell Congress Why More IRS Funding Needed

    Wednesday, September 03, 2014 12:25 PM | NCSA Website Manager (Administrator)
    IRS Commissioner John Koskinen delivered the keynote speech at the NSA Annual Convention last week and issued a strong appeal for tax preparers to tell Congress how budget cutbacks are affecting them. Koskinen said that without more funding for fiscal year 2015, services undefined including phone services undefined would be cut. He said the agency's telephone help line for taxpayers would suffer, with the number of calls being answered estimated to plunge from 70 percent this year to about 52 percent in FY 2015.

    The agency asked for $12.6 billion in funding for FY 2015, but Koskinen said that level of funding will almost certainly not be provided. He urged practitioners to tell lawmakers how the cuts are affecting them. "People don't vote for me, they vote for members of Congress," Koskinen said.

    Koskinen defended the IRS's recently announced voluntary continuing education program for the 2015 filing season, known as the Annual Filing Season Program, stating the numbers indicate there is a need for the competency testing. Through 2012, of 84,000 tests given in the RTRP program, Koskinen said only about 62,000 preparers passed with a grade of 74 percent or higher. "That tells me that we do need to continue our efforts to regulate unlicensed tax preparers, including our plan for a 15-hour annual education requirement," Koskinen said. 

    Although he emphasized the IRS would prefer to have statutory authority to regulate preparers, Koskinen disagreed with any notion that the Annual Filing Season Program is mandatory in any way.

  • Hearing Witnesses Urge Congress To Expand, Simplify Cash Accounting Method

    Monday, July 21, 2014 5:11 PM | NCSA Website Manager (Administrator)

    Witnesses at a July 10 hearing before the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access asked lawmakers to protect those who qualify to use the cash method of accounting and expand the option to more small businesses. 

    “Under this method of accounting, a small business would be able to look at its checkbook to determine its taxable income; it sounds simple, and it is,” Donald Williamson, executive director of the Kogod Tax Center at American University in Washington, said. “Permitting small businesses to elect a simplified cash method of accounting would reduce compliance costs, ease the burden of tax administration and clarify the measurement of taxable income.”

    Using the cash method of accounting, taxpayers recognize income when received and expenses when paid. Taxpayers using the accrual method accrue income regardless of whether a cash transaction happens.

    As part of a draft tax overhaul released by House Ways and Means Chairman Dave Camp (R-Mich.) earlier this year, the threshold that requires companies to use the accrual method of accounting would be raised from $5 million in annual gross receipts to $10 million. Williamson’s testimony made the point that, “Raising the threshold to $10 million would mean that almost 90 percent of all businesses in the United States could adopt the cash method of accounting,” Williamson said. 

    The legislation is expected to be considered by the full House Small Business Committee and may receive that Committee’s endorsement before it is handed off to the Ways and Means Committee, which has jurisdiction over tax matters.

  • IRS Seeks Comment on Forms Used for Electronic Filing Signatures

    Monday, July 21, 2014 5:10 PM | NCSA Website Manager (Administrator)

    The IRS is asking for public comment on a number of forms, including several used for electronic filing, according to a notice published in the July 8 Federal Register. Specifically, the IRS seeks comment on the following forms:

    • Form 8453-EMP, Employment Tax Declaration for an IRS e-file Return, which would give employees in the IRS Criminal Investigation, Examination and some other divisions “immediate access” to a return instead of requiring the submission of a manual request and waiting for someone to find and send the document.
    • Form 8453-F, U.S. Estate or Trust Income Tax Declaration and Signature for Electronic and Magnetic Media Filing. The form is used to secure taxpayer signatures and declarations with the e-filing of trust and fiduciary income tax returns.
    • Form 8453-FE, U.S. Estate or Trust Declaration and Signature for an IRS e-file Return. This is a new form for the Small Business/Self-Employed Division that is used as an electronic signature letter for Form 1041 when that form is filed electronically.
    • Form 8879-F, IRS e-file Signature Authorization for Form 1041. Additionally, the IRS said it wants comments on Form 8879-EMP, IRS e-file Signature Authorization for Forms 940, 941, 941-PR, 941-SS, 943, 943-PR, 944 and 945. Data will be used to verify the 94X series of forms and enable an electronic return originator to file and sign electronically, according to the notice.
    • Form 1041-A, U.S. Information ReturnundefinedTrust Accumulation of Charitable Amounts; and
    • Form 1099-C, Cancellation of Debt.

    The IRS said comments should address: whether the collection of information has practical utility; the accuracy of the agency's estimates of the paperwork burden on taxpayers; ways to enhance the quality, utility, and clarity of the information to be collected; ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance and purchase of services to provide information.

    Comments are due by Sept. 8 to R. Joseph Durbala, IRS, Room 6129, 1111 Constitution Ave. N.W., Washington, DC 20224.

  • FASB Issues Simplification Proposals on Inventory Accounting, Extraordinary Items

    Monday, July 21, 2014 5:09 PM | NCSA Website Manager (Administrator)

    As part of its ongoing simplification initiative, the Financial Accounting Standards Board July 15 issued proposals to existing rules for the measurement of inventory and the presentation of extraordinary items in income statements. Both proposals would require prospective application for annual periods and interim periods within those annual periods beginning after Dec. 15, 2015, and allow for early adoption, FASB said.

    To simplify measurement of inventory under ASC 330, Inventory, entities would be required to consider only one measure for inventory, as opposed to the three under current U.S. generally accepted accounting principles, FASB said on July 15. The amended rules would require inventory to be measured at the lower of cost and net realizable value, the proposal states. The proposal would simultaneously eliminate the two other existing methods, the “replacement cost of inventory” method and the “net realizable value” method.

    According to the FASB announcement, the changes would reduce the cost and complexity for the subsequent measurement of inventory and result in greater consistency in the measurement of inventory.

    The other proposal issued by FASB would eliminate the concept of extraordinary items under Subtopic 225-20, Income Statement-Extraordinary and Unusual Items to simplify presentation of extraordinary items in income statements.

    The concept of extraordinary items causes uncertainty to preparers, because it's unclear when an item should be considered both unusual and infrequent, the proposal states. By eliminating that concept, preparers would no longer be required to assess whether an event or transaction is extraordinary, thereby saving them time and reducing cost, FASB said.

    FASB said it will receive comments until September 30 on the proposed ASUs, which were issued under the following titles:
    • Inventory (Topic 330): Simplifying the Measurement of Inventory.
    • Income StatementundefinedExtraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the concepts of Extraordinary Items.

    A copy of the ASUs, including how to submit comments are available here.

  • Truncated Taxpayer ID Numbers Allowed In Final IRS Regulations

    Monday, July 21, 2014 5:08 PM | NCSA Website Manager (Administrator)

    The IRS has issued final rules that will allow filers of information returns to truncate a taxpayer's identification number on payee statements and other documents, instead of having to use Social Security numbers or employer identification numbers. The truncated numbers display only the last four digits of the identifying number, with either asterisks or Xs replacing the first five digits of the number.

    The final rules (T.D. 9675), squarely aimed at mitigating identity theft, authorize the use of a truncated taxpayer identification number (TTIN) on payee statements and other documents that are furnished to another person. The TTINs can also be used in place of individual taxpayer identification numbers and adoption taxpayer identification numbers, the IRS said in a release of the final rules July 14.

    The final rules permit use of a TTIN on any federal tax-related payee statement or other document required to be furnished to another person unless prohibited by the Internal Revenue Code, regulations or other guidance published in the Internal Revenue Bulletin, forms or instructions.

    To avoid confusion, the final rules retained provisions in REG-148873-09 that amended specific information reporting requirements that could be interpreted as requiring use of an unmasked Social Security number, individual taxpayer identification numbers, adoption taxpayer identification number, or employer identification number.

    The final regulations also list the circumstances when use of a TTIN isn't permitted. For example, a taxpayer may not truncate its own taxpayer identification number on any tax form, statement, or other document that a person furnishes to another person, according to the final rules. Amendments to the specific information-reporting regulations are generally effective for payee statements due after Dec. 31, 2014, the IRS said.

    A copy of the regulations is available at https://www.federalregister.gov/a/2014-16464.

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