Senate panel advances IRS commissioner and introduces IRS reform bill

A closely divided Senate Finance Committee advanced the nominee for the next Internal Revenue Service commissioner, Charles Rettig, by a vote of 14 to 13, but he awaits a vote by the full Senate.

Rettig is a tax attorney at the Beverly Hills law firm Hochman, Salkin, Rettig, Toscher & Perez, P.C. who has spent most of his career representing clients before the IRS. If he is confirmed by the full Senate, he would succeed acting commissioner David Kautter, who is also the Assistant Secretary of the Treasury for Tax Policy. Kautter has been acting commissioner since the end of John Koskinen’s term last November. Rettig would be coming in at a time when the IRS is dealing with the massive tax cuts law that Congress passed last December.

“For the IRS to implement the biggest tax overhaul in a generation, it is essential that the agency is fully staffed and led by a strong, capable commissioner,” said Senate Finance Committee chairman Orrin Hatch, R-Utah, in a statement. “The job of commissioner is further complicated by years of mistrust and scandals at the agency. Chuck Rettig is the right pick to both implement tax reform and restore trust in the IRS. I am pleased that the committee advanced his nomination, and I look forward to the Senate acting quickly on his nomination so he can get started on the hefty tasks he will be charged with as the agency’s leader.”

However, Democrats on the committee voted against confirming Rettig, in part as a protest against the IRS and the Treasury Department’s decision this week to let 501(c)4 tax-exempt organizations, such as political action groups, avoid listing the names of their donors (see Many political tax-exempts no longer required to report donors).

“The Trump administration has taken a qualified nominee and dumped him right in the middle of a dark-money political firestorm of their own creation,” said Sen. Ron Wyden, D-Ore., the ranking Democrat on the committee. “And a radical change in tax law regarding transparency and disclosure has dragged the IRS and Treasury into a swirling set of questions about the president’s foreign financial ties and motivations. As a result, this nomination is no longer an isolated debate that can begin without context.”

Despite their differences, Hatch and Wyden agreed to introduce bipartisan legislation Thursday aimed at reforming some of the IRS’s administrative practices, echoing legislation that already passed the House in April.

The Taxpayer First Act is also based on two 114th Congress bills (S. 3156 and S. 3157) that passed the Finance Committee unanimously in 2016. It aims to increase taxpayer protections and electronic filing; enhance whistleblower protections; reform policies concerning IRS employees; increase scrutiny of IRS audit criteria; and support prevention of identity theft and tax refund fraud.

“Ensuring the IRS has greater flexibility and bringing it into the 21st century continues to be a top priority – especially with the largest rewrite of the tax code in more than three decades on the books,” Hatch said in a statement. “We’ve been working hand in glove with the administration to ensure a proper and seamless implementation of new policies and are confident this bill will streamline the agency in a way that protects taxpayers from fraud and abuse, increases electronic filing and supports IRS employees.”

“With every passing day there’s a new headline about hackers and crooks stealing taxpayer dollars and personal data,” Wyden stated. “Congress must do more to protect American taxpayers from fraud and financial abuse. This bipartisan legislation will make common-sense changes to help taxpayers and streamline administrative rules at the IRS, which will allow tax officials and agents to better safeguard the American people against financial predators.”

Filing season begins Jan. 29

Filing season will begin on Monday, Jan. 29, the Internal Revenue Service announced.

The final tax deadline will be Tuesday, April 17. (April 16 is Emancipation Day, a legal holiday in Washington, D.C.). The IRS expects nearly 155 million individual returns to be filed in 2018.

In 2017, the IRS began accepting returns on January 23; it set the date at January 29 this year to make sure that its key processing systems are ready, and to give it time to determine how late December’s Tax Cuts and Jobs Act will impact tax returns.

Many tax professionals and tax preparation chains will begin preparing returns before January 29, and many software companies are planning to accept them and then submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper returns on January 29, paper returns will start to be processed later in mid-February as system updates continue. 

The IRS said that it expects to issue more than 90 percent of refunds in less than three weeks, but did not that it legally cannot issue refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit before mid-February.

IRS adjusts due dates for partnerships

The Internal Revenue Service has issued a notice providing more time for partnerships, real estate mortgage investment conduits and some other types of businesses to file their returns.

Notice 2017-71 provides that any act performed for the 2016 taxable year of a partnership, REMIC, or certain other entities will be treated as timely for all purposes under the Tax Code, except with respect to interest, if the act would have been timely if the Surface Transportation Act had not changed the due date for partnership returns.

The 2015 legislation had accelerated the due date to March 15 for filing partnership returns and issuing K-1 schedules to partners instead of the traditional due date of April 15. However, the bill provoked objections and in September the IRS issued guidance providing penalty relief for some types of partnerships that didn’t file the required returns by the new due date for tax years beginning in tax year 2016. The new notice appears to expand that relief to REMICs.

A REMIC isn’t a partnership, the IRS noted, but under Section 860F(e) of the Income Tax Regulations it’s generally treated as a partnership for purposes of the Tax Code. For example, the due date and availability of an extension of time for filing a REMIC’s annual return are determined as if it were a partnership. As a result, the new due date also applies to the returns of a REMIC for taxable years beginning after Dec. 31, 2015.

A partnership can get a six-month extension of time to file Form 1065, 1065-B, or 8804, and a REMIC can receive a six-month extension to file Form 1066, by filing Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns,” by the statutory due date. A partnership that receives an extension of time to file Form 1065 receives a concurrent extension to furnish its partners with Schedules K-1. Also, a partnership that receives an extension of time to file Form 8804 receives a concurrent extension of time to file Forms 8805 and to furnish copies of the forms to its partners. The six-month extension can apply to additional returns that a partnership may be required to file by the due date of its Form 1065 or 1065-B, but that doesn’t affect the due date for a partnership to furnish partners with K-1 schedules. 

An entity that fails to timely meet its obligations to file and furnish returns is still subject to penalties, the IRS cautioned, including those that fail to file Forms 1065, 1065-B, 1066, 8804 and 8805 by the due date.

Planning tips for the year-end tax strategies.

The potential tax reform makes year-end planning even more important for public companies. Your shareholders expect you to understand and respond to the risks and opportunities created by the legislative process, and the possibility of a substantial cut in the corporate rates creates unique planning opportunities. Public companies should look for ways to accelerate deductions into 2017 while rates are high, and defer income into future years when rates might be lower.

Read about our planning tips to implement this and other strategies.

Perform an accounting methods review – IRS rules provide many different methods for recognizing certain types of income and expenses. Most public companies employ dozens of separate accounting methods on everything from inventory and rebates to software development and advanced payments. Consider a comprehensive review of all your accounting methods. Identifying a more favorable method can allow you to accelerate a deduction into 2017 while rates are high and defer income into a future year when rates might be lower. The IRS has identified more than 150 accounting method changes that can be made automatically, and there are scores of others you can change after receiving IRS approval.

Accelerate your capital cost recovery – Commercial real estate is depreciated over nearly 40 years, so one of your biggest opportunities for tax savings might be identifying and reclassifying building assets that can be depreciated using shorter lives. A cost segregation study can often identify scores of building components that can be segregated and depreciated more quickly. It is just as important to understand whether any of your capital improvements qualify as repair or maintenance costs that can be immediately deducted instead of depreciated. New IRS rules allow many common expenses that are treated as improvements for book purposes to be deducted as repairs for tax purposes.

Deduct bonuses before the year’s end – The potential for a corporate rate cut next year means that it may be more valuable to take deductions for employee compensation this year instead of next year. You may have many opportunities in your compensation and benefit plans, and one of the best is employee bonuses. The accrual method of accounting used by public companies allows you to take a deduction in 2017 for bonuses paid within the first two and a half months of 2018 if you meet certain conditions. The bonuses must meet the “all-events” test. For bonuses, this typically means that the full bonus pool must be set before year-end.

Consider a reverse audit for sales and use tax refund: Companies that make frequent or large purchases resulting in hefty sales and use taxes should consider a sales and use tax “reverse audit.” Many states offer exceptions for property both for machinery and property bought for further manufacture or resale. You may be eligible for a refund for missed exceptions, misapplied rates and overpayments.

Perform a property tax assessment: Businesses have the right to challenge the valuation a state or local government places on their property in order to assess it. A property tax assessment involves analyzing nearby or similar locations to reveal property value overestimations by state and local authorities that can be successfully challenged to lower taxes.

IRS provee alivio tributario a residentes de Puerto Rico y las Islas Vírgenes de los Estados Unidos

El Servicio de Impuestos Internos, IRS, emitió esta semana directrices para proporcionar alivio tributario a los residentes de Puerto Rico y las Islas Vírgenes de los EE. UU. que desalojaron o no pudieron regresar debido a los huracanes Irma o María.

El alivio extiende el período habitual de ausencia de 14 días a 117 días (comenzando el 6 de septiembre de 2017 y finalizando el 31 de diciembre de 2017) para la prueba de presencia para residencia bajo las reglas de impuestos.

Además, un individuo que está ausente de cualquier territorio de los EE.UU. en cualquier día durante este período de 117 días será tratado como que se tuvo que ir o fue incapaz de regresar al territorio de los EE. UU. como resultado de los huracanes Irma y María en tal día.

Hay varias excepciones a la prueba general de presencia de 183 días que requiere que una persona esté en el lugar donde reclama residencia por 183 días durante el año tributario. Por lo general, los residentes pueden incluir hasta 14 días en el período de 183 días debido a un desastre declarado.

 Sin embargo, debido a los daños sin precedentes y catastróficos causados por los huracanes Irma y María en Puerto Rico y en las Islas Vírgenes de los EE. UU., la Agencia Federal para el Manejo de Emergencias, FEMA, emitió avisos de una declaración presidencial de desastre mayor para ambos territorios y el IRS en el Aviso 2017-56 Notice 2017-56(en inglés), ha extendido el período de 14 días a 117 días.

La publicación 570 contiene una explicación de la prueba de presencia para residentes de territorios como Puerto Rico y las Islas Vírgenes de los EE. UU.

IRS prodded to use credit card payment data to do more tax audits

The Internal Revenue Service could be auditing more tax returns where it sees big discrepancies in the payments reported on the Form 1099-K and the income reported on tax returns, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, pointed to legislation that Congress passed in 2008 requiring reporting of payment card transactions, such as from credit cards, debit cards and stored value cards. In response, the IRS developed Form 1099-K, Payment Card and Third Party Network Transactions, which payment settlement entities began submitting to the IRS in 2012. The law requires payers to report annual gross payment transactions to the IRS and send a written statement containing the same information to the participating payees that received the payments.

The IRS uses the Form 1099-K to help compare gross receipts from payment card sales to gross receipts reported on a taxpayer’s return. The requirement includes not only payments via credit cards, debit cards, and stored-value cards, but also through third-party networks such as PayPal.

TIGTA reviewed a sample of taxpayers with one Form 1099-K (although it noted some taxpayers have more than one) and found a total of 20,881 taxpayers with discrepancies of more than $10,000 between the income reported on their tax returns and their Form 1099-K amounts (and reporting less than 90 percent of the amount on the Form 1099-K). The tax accounts for these taxpayers showed no indication the IRS had audited them.

“Without contacting taxpayers through a notice or initiating an audit, the IRS cannot determine the reasons for discrepancies between amounts reported on Form 1099-K and income reported on tax returns,” said TIGTA Inspector General J. Russell George in a statement. “The IRS needs to take appropriate action at all times, and particularly when the discrepancy is large.”

TIGTA recommended the IRS consider implementing compliance projects to test the use of Form 1099-K data to identify certain types of tax returns for audit. The IRS should also identify and address the reasons why tax returns with large discrepancies between the income reported on tax returns and the amounts reported on Form 1099-K were not selected for audit or other treatment, TIGTA suggested. The IRS agreed with the recommendations in the report and intends to take action, but it also disagreed with TIGTA on the magnitude of the issue.

“With respect to TIGTA’s sample cases, we not only identified the same discrepancies, but for the vast majority of those cases also identified the reasons why we did not ultimately select cases for additional treatment, e.g. additional available information indicated that they would not be as productive as they otherwise appeared,” said Mary Beth Murphy, commissioner of the IRS’s Small Business/Self-Employed Division, in a statement. “Of the 20,881 discrepancy cases identified by TIGTA, we identified the reason why 18,053 were not selected for audit or other treatment.”

Consejos de impuestos para extranjeros residentes y no residentes

Incluso si no eres un ciudadano estadounidense, si vives en los Estados Unidos o pasas una cantidad significativa de tiempo allí, todavía tienes que pagar el impuesto sobre la renta de EE.UU.

Extranjero residente o no residente:
El IRS (siglas en inglés para Servicio de Impuestos Internos) usa dos pruebas, la prueba de la tarjeta verde y la prueba de presencia sustancial, para evaluar tu estado de extranjero. Si cumples con los requisitos de cualquiera de ellos, se te considera un extranjero residente para efectos fiscales, de lo contrario, te tratan como un extranjero no residente.
Si eres un extranjero con una tarjeta de residencia, es decir, cuando el Servicio de Inmigración y Ciudadanía de los Estados Unidos te permiten residir legalmente en el país, eres un extranjero residente. Sin embargo, si no tienes una tarjeta de residencia y pasas al menos 31 días en los EE.UU. durante el año fiscal en curso y un total de 183 días, durante los tres últimos años fiscales (incluido el año fiscal en curso), lo más probable es que satisfagas el requisito de presencia física y también te traten como un extranjero residente.

Impuestos a los residentes extranjeros:
Como residente legal de EE.UU., estás sujeto a las normas fiscales de los ciudadanos estadounidenses. Esto significa que tienes que reportar todos los ingresos que ganas en las declaraciones de impuestos anuales, con independencia del país en el que lo ganas. Al preparar tu declaración, siempre puedes utilizar el 1040, o si eres elegible, el 1040A o el 1040EZ.

Impuestos a los no residentes:
Un no residente también debe pagar impuestos a los ingresos al IRS, pero sólo en el ingreso que está vinculado efectivamente a los EE.UU., que generalmente incluye el dinero que gana, mientras está en los EE.UU. Sin embargo, el IRS, no tiene autoridad para imponer impuestos sobre los ingresos que los no residentes ganan en sus países de origen o en cualquier país extranjero para este caso. Al preparar tu declaración de impuestos de los EE.UU., debes usar el Formulario 1040NR o uno más corto como el 1040NR-EZ, si eres elegible. Independientemente de la forma que utilices, sólo informarás de las cantidades que se consideran ingresos de fuente estadounidense. Al igual que los extranjeros residentes y ciudadanos estadounidenses, hay deducciones y créditos que puedes reclamar para reducir tu ingreso gravable.

Doble condición de los contribuyentes:
En el año de transición entre ser un no residente y un residente para efectos fiscales, se considera en general un Contribuyente en Estado Dual. Un Contribuyente en Estado Dual presenta dos declaraciones de impuestos para el año, una declaración para la porción del año que fue considerado un no residente y otra por la porción del año considerado residente. En algunas situaciones, el contribuyente puede optar por ser tratado como residente durante todo el año en el año de transición para evitar tener que presentar dos declaraciones separadas.

IRS offers email option for tax payment notifications

The Internal Revenue Service has introduced an email feature that enables taxpayers to get notifications in their personal email accounts about their payments using IRS Direct Pay or the Electronic Federal Tax Payment System.
In an email to tax professionals last month, the IRS said tax clients can now opt into the new system. “Your clients who use EFTPS can opt in to receive email notifications when they enroll or update their enrollments,” said the IRS.

“Business clients making payments through a payroll service provider can also opt in to receive email notifications. If they opt in, they’ll receive email notifications for all payments made through EFTPS, including those made by their payroll service provider. Your clients who use Direct Pay can opt in to receive email notifications each time they make a payment. “

The IRS noted that to protect taxpayers, there will be no web links within the email notifications. “To avoid phishing scams, if taxpayers see links in an email appearing to be from the IRS about payments, they shouldn't click on those links,” the IRS warned.

The IRS asked tax professionals to let their clients know about the new option. The IRS launched the Direct Pay system in 2014, allowing taxpayers to pay their tax bills or make estimated tax payments directly from their checking or savings accounts without extra fees. The EFTPS system has been around since 1996 and became available through the web in 2001.

Properly classifying workers remains a major problem

Worker misclassification is a perennial issue for the Internal Revenue Service and state taxing authorities due to the perception that many employers are not properly classifying their workers.
By avoiding labeling their workers as employees, employers also avoid paying minimum wages, overtime, payroll taxes, worker’s compensation, unemployment, Social Security contributions, health benefits, paid leave, 401(k) benefits and unpaid leave under the Federal Family and Medical Leave Act. 

And workers have some benefits to being considered independent contractors, such as the ability to deduct certain business expenses that are not available to employees, the ability to set up their own retirement plans, and the fact that they are not subject to withholding. Of course, many workers want to be considered employees so they can get the benefits due to employees, such as vacation pay, overtime pay and health insurance.

It’s easy for an accountant to make a mistake because there is no bright-line test to judge whether a worker is an employee or an independent contractor. 

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