Category Archives: IRS

IRS Webinar – Electronic FBAR Reporting

The dreaded Foreign Bank and Financial Accounts Reporting — a mystery to so many! Well, the IRS is offering a webinar to help:

August 30, 2017
2 p.m. Eastern Time
1 p.m. Central Time
12 p.m. Mountain Time
11 a.m. Pacific Time

This webinar features the latest information on how to properly report foreign financial accounts on the Report of Foreign Bank and Financial Accounts, commonly called the FBAR. You’ll learn:

  1. Who must file the FBAR
  2. What accounts must be reported on the FBAR
  3. When the FBAR must be filed
  4. How to file the FBAR

Plus, it’s eligible for CPE credit in Federal Tax. Check it out: Internal Revenue Service Webinar Registration Page

IRS MeF System down for maintenance 7/22 & 8/5

Heads-up for tax preparers — the IRS’s Modernized e-File System will be down for maintenance on Saturday, July 22 and Saturday, August 5.  We will not be able to transmit tax returns or other submissions, get acknowledgements, retrieve state submissions, send state acknowledgements or submit any other service requests during these times.

Source: Modernized e-File System to be down for maintenance | Accounting Today

IRS reopens PTIN system

From the National Association of Tax Professionals:

Today, the IRS re-opened the PTIN System and is again issuing PTINs. Since the IRS is enjoined from charging a fee, it will issue the PTINs at no cost to the preparer.

If you currently have a PTIN, you can now log into your account to make changes and view CPE information as normal.

At this time, the IRS has no additional comments on whether it will appeal the recent ruling. Until that decision is made, expect no updates regarding the potential for PTIN fee refunds.

When more information is learned, it will be posted at irs.gov/taxpros.

Background

In 2010, the IRS attempted to regulate both credentialed and uncredentialled tax return preparers by promulgating regulations that established a new registered tax return preparer (RTRP) designation. The regulations required individuals other than enrolled agents, attorneys and CPAs to pass a one-time competency exam, pass a suitability check, and obtain and pay for a PTIN. The regulations also required continuing education and the annual renewal of the PTIN for all paid preparers.

In 2014, the D.C. Circuit addressed the regulations regarding the exam and education requirements, asking whether the IRS possessed the statutory authority to regulate tax preparers [Loving v. IRS., 742 F.3d 1013, 1015(D.C. Cir. 2014)]. The Court ruled that the IRS did not have that authority. After Loving, the only part of the regulations that remained was the PTIN requirement. Soon after, a group of preparers filed suit alleging the IRS did not have the authority to require a PTIN, much less charge a fee for obtaining it. As communicated in the November 22, 2016, TAXPRO Weekly, the Court allowed the current class action lawsuit.

The IRS announced the suspension of PTIN registration and renewal as a result of a court ruling on June 1, 2017, where the U.S. District Court for the District of Columbia granted the Plaintiffs’ Motion for Summary Judgment in part, ruling that the IRS may continue to require PTINs, but may not charge fees for the issuance or renewal of PTINs.

Other sources have also reported on the same big news —

IRS reopens PTIN system | Accounting Today

IRS reopens PTIN system | Journal of Accountancy

Fascinating ruling, and only time will tell where this all will end up.

Deadline Approaching for Overseas Taxpayers

National Association of Tax Professionals shared an important notice today:

Taxpayers living overseas qualify for an automatic two-month extension to file their tax returns. For 2016, the due date is Thursday, June 15. To claim the two-month extension, attach a statement to the tax return explaining which of these two situations applies:

  1. You are a U.S. citizen or resident alien living outside of the United States and Puerto Rico and your main place of business or post of duty is outside of the United States and Puerto Rico; or
  2. You are a U.S. citizen or resident alien in military or naval services on duty outside of the United States and Puerto Rico.

If your client can’t meet the June 15 deadline, you can use Form 4868 to request an extension to file until October 17.

More info from the IRS: U.S. Citizens and Resident Aliens Abroad

Taxing the Sharing & Freelance Economies – 4/12 FREE Webinar

One of my absolute favorite sources for continuing education — CPAAcademy.org — is back with a FREE session on “Taxing the Sharing & Freelance Economies”, this upcoming Wednesday, April 12th.

Millions of Americans earn money through the sharing and freelance economies, and the number of participants in those economies is expected to grow. The lack of automatic tax withholding from many of the participants in these new economies, along with novel compensation arrangements, has given rise to significant compliance issues for the Treasury. Further, the lack of IRS guidance to participants in the sharing economy has increased compliance risk and has also failed to inform market participants of potential tax benefits to which they may be entitled. This presentation will discuss the potential tax pitfalls and tax benefits for participants in the sharing and freelance economies.

If it weren’t six days before my biggest deadline of the year, I’d be right there with you. Crossing my fingers that they archive it.  If you attend, please share what you learned in the comments section below!

Source: CPA Academy

Coordinating 529/ESA Plan Withdrawals With Education Expense Benefits

I’m seeing some confusion about this from tax clients this season, so I realized it’s worth explaining a few of the basics regarding education expenses, 529 college savings plan/ Coverdell ESA distributions, and tax credits and deductions.

There are five main tax benefits used to defray the cost of education:

  1. American Opportunity Tax Credit
  2. Lifetime Learning Credit
  3. Deduction for Qualified Education Expenses
  4. Student Loan Interest Deduction
  5. 529 or Coverdell Plan Contributions and Distributions

The American Opportunity Tax Credit reduces your federal tax bill by up to $2,500 per year for each eligible college student for whom you pay qualified tuition expenses. It can be claimed on behalf of an undergraduate for four years. And if you have more than one child in college at the same time, you can claim for each eligible child. The amount of the credit is calculated as 100% of the first $2,000 in qualified tuition and fees costs paid, plus 25% of the next $2,000 paid for such fees. For lower income taxpayers who don’t owe $2,500 in tax, up to $1,000 of the credit is refundable. Source: Coordinating 529 Plan Withdrawals With The American Opportunity Tax Credit

But there are limitations here: The credit phases out if you make too much money, you can’t claim any portion that was already paid with Pell Grant money, and you cannot claim the AOTC (or any of the education benefits) based on expenses that were also used to calculate the tax-free portion of a distribution from a 529 college savings or prepaid plan, or a Coverdell Education Savings Account (ESA).

The Lifetime Learning Credit is nonrefundable but can reduce the amount of tax you owe by up to $2,000. There is no limit to the number of years this credit can be claimed, but eligible expenses are only those charged by the school for attendance that were not paid for with the Pell Grant or 529 college savings or Coverdell ESAs.  Source: http://finance.zacks.com/can-claim-education-tax-deduction-used-pell-grant-pay-5114.html

The Tuition and Fees Tax Deduction is not allowable if you take one of the educational credits — and it’s usually not as good a deal. But if you don’t qualify for one of the credits (which frequently happens, if your income is too high or you’re not able to take your dependent as an exemption), this deduction can be used to lower your taxable income by up to $4,000. You do not have to itemize deductions to get this deduction; instead, it adjusts your reported income.  Obviously, lowering your income is not as good as reducing your tax with a credit, but it’s still a nice benefit.  As with the others, the deduction is limited to the portion of expenses not paid for with the Pell Grant or 529 college savings or Coverdell ESAs.  Source: http://finance.zacks.com/can-claim-education-tax-deduction-used-pell-grant-pay-5114.html

The Student Loan Interest Deduction is something that may be a benefit in future years — but be careful: predatory for-profit colleges and universities are constantly touting this benefit as a reason to take out large loans, but the benefits often do not come to fruition.  For one, there’s a pretty low limit as to how much you can deduct each year — only $2,500 — and if you exceed that limit, the balance does not carry forward.  That college probably also promised you that getting a degree would make you much more valuable to society, and your income would skyrocket — but the loan interest deduction phases out pretty quickly as your income rises, so chances are, if they’re right… most of this interest will not end up being deductible.  Source: https://www.irs.gov/taxtopics/tc456.html

529 College Savings Plans and Coverdell Educational Savings Accounts are both great vehicles to saving for college.  Similar to a Roth IRA, these contributions are not deductible at the federal level, but all of the principal, as well as the interest, dividends and capital gains — all growth — is non-taxable upon distribution if used for qualified education expenses.  (This is pretty fantastic.)  Add to it that most states will allow a deduction for contributions, and you’ve got a no-brainer for college savings.  The important bits to remember here are: each state has pretty strict rules about what qualifies as a plan; each state decides whether the withdrawal is free of income tax or simply deductible from income; and — here’s the theme of my post — if you take a distribution to pay for educational expenses, you may not also take one of the other educational tax benefits above.  529 plans and ESAs are pretty complicated; make sure to compare and contrast, and understand the potential penalties, before signing up.  Source: http://www.360financialliteracy.org/Topics/Paying-for-Education/College-Savings-Options/529-Plans-vs.-Coverdell-Education-Savings-Accounts

I want to recommend two websites with excellent examples of how to combine these plans to get the best overall tax benefits.  Scroll part-way through to see the “example” sections, and see if any of these scenarios come close to matching your own situation.  Have fun!

Winter Storm Extension: IRS Gives Affected Businesses Extra Time to Request 6-Month Extension

S-Corporations and Partnerships had a deadline of March 15th this year to file their returns or request an extension.  However, because of Winter Storm Stella, which hit portions of the Northeast and Mid-Atlantic, the IRS granted affected businesses an additional 5 days to do so.

Business taxpayers who were victims of the storm, and unable to file their tax return by the due date of March 15, can request an automatic extension (by filing the usual Form 7004) on or before March 20, 2017.  Important tip if filing Form 7004 by paper: eligible taxpayers taking advantage of this relief should write “Winter Storm Stella” on their Form 7004 extension request.  However, the fastest and easiest way to get an extension is still to file this form electronically.

Source: Winter Storm Extension: Many Businesses Have Extra Time to Request A Six-Month Extension

IRS Data Retrieval Tool for FAFSA Will Be Unavailable For “Several Weeks” — What Are The Alternatives?

Important news from the IRS and the U.S. Department of Education Office of Federal Student Aid:

The IRS Data Retrieval Tool on fafsa.gov and StudentLoans.gov is currently unavailable. We are working to resolve the issue as quickly as possible. However, at this time, the IRS anticipates the online data tool will be unavailable for several weeks.

The online FAFSA and IDR application tool itself remains operational — it’s just the IRS’s DRT portion, which provides tax data that automatically fills in some of the financial information on the application.  The income information needed to complete the FAFSA form and apply for an IDR plan can be found on your tax return.  If you didn’t keep a copy of your tax return, you may be able to access the tax software you used to prepare your return or contact your tax preparer to obtain a copy (please note that many preparers charge a small fee for a copy, since you should be saving the pdf they send you in a safe, easily retrievable place).

If you are unable to get a copy of your tax return, visit www.irs.gov/transcript to view and download a summary of your tax return, called a tax transcript, at Get Transcript Online.  You must verify your identity to use this tool — review the rigorous identity authentication requirements for Secure Access before attempting to register.  You also may use Get Transcript by Mail or call 1-800-908-9946, and a transcript will be delivered to your address of record within five to 10 days.

While the Data Retrieval Tool is offline, the IRS offers other ways for students and families to find the tax information they need to complete student financial aid applications.

As part of a wider, ongoing effort at the IRS to protect the security of data, the IRS decided to temporarily suspend the Data Retrieval Tool (DRT) as a precautionary step following concerns that information from the tool could potentially be misused by identity thieves.

Source: Internal Revenue Service (IRS) and U.S. Department of Education Office of Federal Student Aid (FSA) Statement‎ about the IRS Data Retrieval Tool (DRT)

Webinar: Organizing & Operating a 501(c)(3) Non-Profit

CPA Academy is one of my favorite sources for topic-specific accounting education, and even better — their webinars are free.  Here’s one on a topic I’ve been asked about frequently: how to organize and operate a non-profit.  Jairo Cano, a tax attorney with Agostino Law, will be teaching this 1.5-hour webinar on Monday, March 13 and again on Monday, May 1.  Here’s a summary of the course:

In 2013, the IRS reported that tax exempt organizations held over $3.5 trillion in assets and received more than $1.8 trillion in gross receipts. Given the amount of money that passes through nonprofit organizations, it is not surprising that the IRS has increased its focus on these organizations. This webinar, offered by a leading tax controversy attorney will introduce attendees to:

  • The procedures to request and receive Section 501(c)(3) tax exempt status.
  • The requirement that the organization be organized for an exempt purpose and that it operate exclusively for exempt purposes. This discussion will include an analysis of the restrictions related to the organization’s ability to engage in for-profit activities.
  • The requirement that the organization not operate in a manner that results in providing private inurement to shareholders or a prohibited private benefit. This discussion will include an analysis on how the IRS evaluates compensation and payments for goods and services.
  • The Unrelated Business Income Tax, when it is required and how it is calculated.
  • The procedures to challenge a denial or revocation of exempt status at the administrative level as well as in Tax Court​.

This short, valuable webinar is appropriate for bookkeepers, accountants, controllers, and other non-profit professionals — as well as those looking to enter the industry or volunteer as a board member.

Source: CPA Academy

What Trump’s Executive Orders Could Mean For Taxes

Excellent, objective analysis from the most recent issue of Accounting Today on the challenges faced by preparers and tax planners — and their clients, American taxpayers — due to recent executive orders.

In rushing to get out executive orders in the first week in office to help fulfill campaign promises, the Trump administration has often acted without sufficient forethought and before Trump’s entire team has been approved by the Senate and taken their posts. Hopefully, as the Secretary of the Treasury and other key policy positions in the Treasury take their places, there will be a more careful review of how these executive orders and memoranda should apply in the tax context, with adjustments made accordingly. In the meantime, taxpayers and tax return preparers should probably assume that they will have no effect on 2016 tax return preparation. With respect to 2017, however, we will all have to stay tuned.

Read the full article here: Tax Strategy: What Trump’s executive orders could mean for taxes.