Friday, February 24, 2017

Tax Reform: Making Progress Slowly

The House Republican tax plan relies on revenue from a provision to tax imports and exempt exports to help defray rate reduction costs and Rep. Ken Brady, chair of the Ways and Means Committee, has even said that without the provision it is not possible to have a tax reform bill. Apparently, the Senate is willing to call his bluff, with Sen. Lindsey Graham (R-SC) even saying that there are not ten votes in the Senate in favor of the current House plan.
 
Former Senate Banking Committee chair Sen. Phil Gramm (R-Texas) agrees with Graham, writing in the Wall Street Journal that Republicans are "poisoning" tax overhaul efforts by including the contentious border adjustment tax and should look to the 1986 model of eliminating tax breaks to reduce the rates.
 
Gramm said a tax revamp could grow the economy even if the corporate rate isn't as low as the 20 percent rate Republicans have touted. "The House bill 'pays' for its 20% corporate tax rate by implementing policies that have little basis in economic logic, hinder economic efficiency, violate the letter and the spirit of numerous trade agreements, subject the economy to excruciatingly painful adjustments, expose America and the world to unacceptable economic risks—and in the process diminish or even eliminate the positive effect of the 20% rate," Gramm said.
 
So, where do we go from here?
 
Recently confirmed Treasury Secretary Steve Mnuchin said that, "I think there's a consensus on the majority of where we are on tax reform," without noting exactly what might be included in such a consensus other than a desire to enact something that can be called tax reform.
 
Mnuchin said it remains too early to reveal details of a tax plan from the Administration, such as retroactivity, revenue neutrality and distribution, but said the administration is committed to passage by August. "We've been working closely with the leadership in the House and the Senate, and we're working on a combined plan," Mnuchin said.
 
Stay tuned.

Want A Sales Tax Refund? Pennsylvania May Demand Audit First

Requests for a sales tax refund in Pennsylvania could require taxpayers to first agree to an audit under a new policy under consideration by the Pennsylvania Department of Revenue.
 
In a draft bulletin, the DOR said it is considering changing its procedure for reviewing "large and complex sales and use tax refund petitions" by addressing them "through the field audit process." The draft bulletin was distributed to a limited number of practitioners and has not been posted on the department's website. The department is still reviewing the draft bulletin and no publication date has been set.
 
If finalized as written, however, the DOR could choose to audit a company as soon as it files a refund request at the Board of Appeals, which could dissuade taxpayers from filing refund petitions at all and well as lengthening wait times for refunds. A number of practitioners who have reviewed the proposed policy termed it "a retaliatory audit provision," or "a scare tactic for the wary taxpayer who would not want to subject themselves to an audit."
 
"The decision to conduct a field audit will be at the discretion of the Department, but in general, large or complex refund petitions or recurring issues are more likely to be referred for a field audit," the bulletin says.
 
The term "large and complex" has not been defined under the proposal, which could lead to the threat of audits for virtually any business entity, especially if this tactic is employed in states where the additional revenue from foregone refunds is used to supplement state tax revenues.

IRS Easing ACA Individual Mandate After Trump Order

The IRS will not require taxpayers to indicate whether they have health insurance when filing their tax returns, a return to the policy the agency had in place in prior years.
 
The agency reversed a previous decision to require an indication of coverage on tax returns filed this year after President Donald Trump signed an executive order January 20 requiring federal agencies to reduce the burden of the ACA. After accepting returns that did not indicate coverage in 2014 and 2015, the IRS said it had set up a system for this year that would reject tax returns during processing if an individual did not provide health coverage information. The agency decided to continue accepting electronic and paper returns for processing, even if they lack the coverage information, following the executive order, according to an IRS statement released on February 15.
 

The IRS cautioned that, while the step may be seem to be a weakening of the ACA's mandate, the IRS makes clear that the law is still in force and "taxpayers remain required to follow the law and pay what they may owe." IRS Commissioner John Koskinen has previously said despite the flurry of activity on the Hill regarding the ACA, taxpayers should follow current law until there is a new one.

IRS Reminds Farmers, Fishermen about March 1 Tax Deadline

The Internal Revenue Service reminds farmers and fishermen about the March 1 deadline to take advantage of special rules that can allow them to forgo making quarterly estimated tax payments.

Taxpayers with income from farming or fishing have until March 1 to file their 2016 Form 1040 and pay the tax due to avoid making estimated tax payments. This rule generally applies if farming or fishing income was at least two-thirds of the total gross income in either the current or the preceding tax year.

Ways to Pay:
  • IRS Direct Pay – IRS Direct Pay offers individual taxpayers an easy way to quickly pay the tax amount due or make quarterly estimated tax payments directly from checking or savings accounts without any fees or pre-registration. Direct Pay is available 24 hours a day, seven days a week and taxpayers can schedule a payment up to 30 days in advance. Last year, IRS Direct Pay received more than nine million tax payments from individual taxpayers totaling more than $31.6 billion. When a taxpayer uses the tool they receive instant confirmation after they submit their payment.  Direct Pay cannot be used to pay the federal highway use tax, payroll taxes or other business taxes.
  • EFTPS – The Electronic Federal Tax Payment System allows individual and business taxpayers to pay their federal taxes electronically. Taxpayers must enroll and receive a PIN in the mail to use EFTPS. Visit IRS.gov/payments to check out other payment options.
Farmers and fishers choosing not to file by March 1 should have made an estimated tax payment by Jan. 17 to avoid a penalty.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

March 1 Tax Deadline Nears for Many Farmers and Fishermen; IRS Direct Pay Offers an Easy Way to Pay Taxes

The Internal Revenue Service is reminding farmers and fishermen about Wednesday’s deadline to take advantage of special rules that can allow them to forgo making quarterly estimated tax payments.

Taxpayers with income from farming or fishing have until Wednesday, March 1 to file their 2016 Form 1040 and pay the tax due to avoid making estimated tax payments. This rule generally applies if farming or fishing income was at least two-thirds of the total gross income in either the current or the preceding tax year.

Since 2014, IRS Direct Pay has offered individual taxpayers an easy way to quickly pay the tax amount due or make quarterly estimated tax payments directly from checking or savings accounts without any fees or pre-registration.

IRS Direct Pay is available 24 hours a day, seven days a week and can be scheduled up to 30 days in advance. Last year, IRS Direct Pay received more than nine million tax payments from individual taxpayers totaling more than $31.6 billion.

When a taxpayer uses the tool they receive instant confirmation after they submit their payment. Direct Pay cannot be used to pay the federal highway use tax, payroll taxes or other business taxes.

Taxpayers who wish to pay their federal business taxes electronically should enroll in the Electronic Federal Tax Payment System (EFTPS), or visit IRS.gov/payments to check out other payment options.

Farmers and fishers choosing not to file by March 1 should have made an estimated tax payment by Jan. 17 to avoid a penalty.

Related Items

Thursday, February 23, 2017

IRS Reminds International Taxpayers of Tax Obligations; Clarifies Rules for Tax Withholding Agents

The Internal Revenue Service today reminded non-U.S. citizens who may have taxable income, such as international students and scholars who may be working or receiving scholarship funds, that they may have special requirements to file a U.S. tax return.

The IRS also reminded withholding agents -- such as payroll professionals or universities -- that accurately filed Forms 1042-S help speed any refunds due to their non-U.S. citizen taxpayers. Errors on forms or returns could result in some refunds being delayed.

What Non-U.S. Citizen Taxpayers Must Do

The Internal Revenue Code generally requires non-U.S. citizens, whom the code defines as either resident or non-resident aliens, who are engaged in a trade or business within the U.S. to file tax returns. Non-resident aliens such as foreign students, teachers or trainees temporarily in the United States on F, J, M or Q visas are considered engaged in a trade or business.

Most individuals in F-1, J-1, M-1, Q-1 and Q-2 non-immigrant status are eligible to be employed in the U.S. and are eligible to apply for a Social Security number if they are actually employed in the United States. Those not eligible for an SSN but who have a tax filing requirement may request an Individual Taxpayer Identification Number from the IRS.

The non-U.S. citizen’s name must be reported exactly as it appears on the official documentation provided to the withholding agent (such as a Social Security Administration card or some other form of official governmental documentation).

Filing a Form 1040-NR or 1040NR-EZ is required by non-U.S. citizens who have a taxable event such as:
  • A taxable scholarship or fellowship, as described in Chapter 1 of Publication 970, Tax Benefits for Education;
  • Income partially or totally exempt from tax under the terms of a tax treaty; and/or
  • Any other income, which is taxable under the Internal Revenue Code.
Non-U.S. citizens also must attach one copy (generally Copy B) for each Form 1042-S received to their tax returns. Non-U.S. citizens should review the Form 1042-S to ensure it accurately reflects their name and income. If the form does not contain accurate information, they must contact the withholding agent for an amended Form 1042-S.

What Withholding Agents Must Do

Generally, non-U.S. citizens who have taxable income also may have withholding of taxes by the source of their income. Withholding agents are required to complete Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.

Withholding agents must provide five copies of the Form 1042-S. Copy A should go to the IRS; Copies B, C and D to the recipient of the income; and copy E should be retained by the withholding agent. All information, including the name of the taxpayer, must match exactly on all copies of Form 1042-S.

If withholding agents create a substitute Form 1042-S, all five copies must be in the same physical format. The size, shape and format of any substitute form must adhere to the rules of Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. The official Form 1042-S is the standard for substitute forms.

A common error is to have a Form 1042-S listing two or more recipients in box 13a. The 2016 instructions to Form 1042-S have been updated to clarify that in the case of joint owners, Form 1042-S can only list one of the owners in box 13a.


Withholding agents should review Fact Sheet 2017-3, where they can find the latest changes to Form 1042-S instructions and common errors that delay processing of tax returns.

IRS Releases Tax Time Guide: Use IRS.gov Tools to Answer Tax Questions

The Internal Revenue Service today encouraged taxpayers to take advantage of the online tools and resources available on IRS.gov as the IRS expects heavy call volume during the last two weeks of February.

This is the first in a series of 10 IRS tips called the Tax Time Guide. The guide is designed to help taxpayers navigate common tax issues as this year’s April 18 deadline approaches.

There are a variety of easy-to-use, online tools on IRS.gov. Through these tools, taxpayers can check the status of their refund, prepare and file their taxes or get answers to tax questions around the clock.

Taxpayers can use the Interactive Tax Assistant (ITA) to get information about credits, deductions and general filing topics. Taxpayers get the same answers as if they’d called and spoken with an IRS representative, and they can print out the answers for their records. IRS information and some tools also are available in Spanish.

Below are a few of the most common tax time queries and the tools to find answers:

Checking on a tax refund?

Taxpayers can easily find information about their refund by using the “Where’s My Refund?” tool. It’s available on IRS.gov and on the official IRS mobile app, IRS2Go. Refund information is normally available within 24 hours after the IRS receives a taxpayer’s e-filed return or four weeks after the IRS receives a mailed-in paper return. The system is updated daily, so there’s no need to check more often.

Taxpayers who have already filed before Feb. 15 and claimed the Earned Income Tax Credit or the Additional Child Tax Credit on their tax returns are reminded that their refunds likely won’t arrive into their financial accounts until the week of Feb. 27. By law, the IRS was required to hold refunds that contain those credits until Feb. 15.

Need help preparing a tax return?

Through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) programs, eligible taxpayers can get help filing their return for free at one of several thousand community-based tax help sites. Sites are staffed by IRS trained and certified volunteers. Low- and moderate-income taxpayers and those age 60 and above can find the nearest site on IRS.gov’s VITA/TCE Site Locator.

Want a free do-it-yourself tax option?

Taxpayers doing their own taxes can find free tax preparation help on IRS.gov. Answers to many tax questions are in a user-friendly format. Taxpayers can start by clicking on the Filing tab on IRS.gov. It’s the place to find important updates and information regarding return preparation and electronic filing options.

The IRS Free File program, available at IRS.gov, offers 12 brand-name tax preparation software packages for free to the 70 percent of taxpayers who earned $64,000 or less in 2016. By answering questions in an interview format, the software does the work of finding deductions, credits and exemptions for which the taxpayer qualifies. For those earning more than $64,000 who are comfortable preparing their own taxes, IRS.gov offers Free File Fillable Forms. These are the electronic versions of paper IRS tax forms.

Taxpayers can also use Free File to deposit all or part of their refunds into myRA, a retirement savings account from the Treasury Department. Just use Form 8888 or follow the software product’s instructions.

Looking for a tax professional for help?

Taxpayers may also use the searchable directory on IRS.gov to find a tax professional. Taxpayers can sort the list of preparers by credentials and qualifications. Taxpayers should choose their return preparer wisely as the taxpayer is ultimately responsible for the accuracy of their return.

Need a tax return transcript?

For those who need a copy of their tax return, the IRS has an online tool to help. Transcripts are free and available for the most current tax year after the IRS has processed the return. Get Transcript provides online access to transcripts. Taxpayers can view, print or download their transcripts.

Need an answer right now to tax law questions?

Have questions about who can be claimed as a dependent, what filing status to choose, or whether to file a tax return? Besides the Interactive Tax Assistant, Publication 17 offers a comprehensive tax guide for individuals. The IRS Tax Map can also be searched by topic or keyword for single-point access to tax law information.

Need to make a payment?

IRS Direct Pay offers taxpayers the fastest and easiest way to pay what they owe. Available through the Pay Your Tax Bill  icon on IRS.gov, this free online system allows individuals to securely pay their tax bills or make quarterly estimated tax payments directly from checking or savings accounts without fees or pre-registration. See IRS.gov/Payments for information on this and other payment options.

Can’t pay a tax bill?

For taxpayers concerned about a tax bill they can’t pay, the Online Payment Agreement tool can help determine if they qualify for a payment plan with the IRS. The Offer in Compromise Pre-Qualifier can help determine if a taxpayer qualifies for an offer in compromise. An Offer in Compromise is an agreement with the IRS that settles a person’s tax liability for less than the full amount owed. 

Questions about an amended return?

The “Where’s My Amended Return?” tool provides the status of an amended tax return, Form 1040X. Taxpayers can check on the current year 1040X and up to three prior years. Allow up to three weeks after filing to check on the initial status, and up to 16 weeks for processing.

What about tax withholding?

The IRS Withholding Calculator helps employees make sure the amount of income tax taken out of their pay is neither too high nor too low. This tool can be particularly useful to taxpayers who, after filling out their tax returns, find that the refund or balance due was not what they expected.

IRS.gov should be the first stop to get faster help and answers to tax questions

Apart from providing a wide variety of interactive tools, IRS.gov offers many resources and answers about most tax matters. Tax Topics, Tax Trails and Frequently Asked Questions are usually good places to start.

IRS2Go, the official IRS mobile app, can be used to check a refund’s status, make a tax payment, watch the IRS YouTube channel, find free tax preparation help, get the latest IRS news, subscribe to filing season updates or get daily tax tips. The free app is available through Google Play, the App Store or on Amazon.

Name Change? How It Impacts Taxes

A name change can have an impact on taxes. All the names on a taxpayer’s tax return must match Social Security Administration records. A name mismatch can delay a tax refund. Here’s what taxpayers should know if they changed their name:
  • Reporting Name Changes. Got married and now using a new spouse’s last name or hyphenate a name? Divorced and now back to using a former last name? In either case, taxpayers should notify the SSA of a name change. That way the new name on IRS records will match the SSA records.
  • Making Dependent’s Name Change. Notify the SSA if a dependent had a name change. For example, if a taxpayer adopted a child and the child’s last name changed. If the child does not have a Social Security number, the taxpayer may use an Adoption Taxpayer Identification Number on their tax return. An ATIN is a temporary number. Apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Visit IRS.gov to get the form.
  • Getting a New SS Card. File Form SS-5, Application for a Social Security Card. The form is on SSA.gov or by calling 800-772-1213. The taxpayer’s new card will reflect the name change.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Wednesday, February 22, 2017

Capital Gains and Losses – 10 Helpful Facts to Know

When a person sells a capital asset, the sale normally results in a capital gain or loss. A capital asset includes inherited property or property someone owns for personal use or as an investment.

Here are 10 facts that taxpayers should know about capital gains and losses:
  1. Capital Assets. Capital assets include property such as a home or a car. It also includes investment property, like stocks and bonds.
  2. Gains and Losses. A capital gain or loss is the difference between the basis and the amount the seller gets when they sell an asset. The basis is usually what the seller paid for the asset. For details about inherited property, see IRS Publication 544, IRS Publication 550 and IRS Publication 551.
  3. Net Investment Income Tax. Taxpayers must include all capital gains in their income. Capital gains may be subject to the Net Investment Income Tax if the taxpayer’s income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
  4. Deductible Losses. Taxpayers can deduct capital losses on the sale of investment property but can’t deduct losses on the sale of property they hold for their personal use.
  5. Limit on Losses. If a taxpayer’s capital losses are more than their capital gains, they can deduct the difference as a loss on their tax return. This loss is limited to $3,000 per year, or $1,500 if married and filing a separate return.
  6. Carryover Losses. If a taxpayer’s total net capital loss is more than the limit they can deduct, they can carry it over to next year’s tax return.
  7. Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.
  8. Net Capital Gain.  If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.
  9. Tax Rate. The tax rate on a net capital gain usually depends on the taxpayer’s income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
  10. Forms to File. Taxpayers often will need to file Form 8949, Sales and Other Dispositions of Capital Assets. Taxpayers also need to file Schedule D, Capital Gains and Losses, with their tax return.
For more on this topic, see Schedule D instructions. Taxpayers can visit IRS.gov to get tax forms and documents anytime.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

IRS Makes Approved Form 1023-EZ Data Available Online

The Internal Revenue Service announced today that publicly available information from approved applications for tax exemption using Form 1023-EZ, Streamlined Application for Recognition of Exemption, is now available electronically for the first time.

The data on IRS.gov is available in spreadsheet format and includes information for approved applications beginning in mid-2014, when the 1023-EZ form was introduced, through 2016. The information will be updated quarterly, starting with the first quarter of calendar year 2017. The IRS’s Tax Exempt and Government Entities division approved more than 105,000 applications for exemption submitted on the Form 1023-EZ from 2014 through 2016.

Previously, Form 1023-EZ data was only available through a lengthier process that included completing and submitting Form 4506-A to the IRS.

“The new online availability of Form 1023-EZ data is an important step forward and will allow taxpayers to more easily research information on tax-exempt organizations,” said IRS Commissioner John Koskinen. The IRS is committed to ongoing improvements in taxpayer service across the agency and we continue to look for innovative ways like this to provide taxpayers the information they need, when they need it.”

Information in the Form 1023-EZ includes basic identifying information such as the name of the organization, Employer Identification Number and the names of officers, directors and trustees. The Form also contains information regarding items such as the organizing documents, state of incorporation, purpose and activities of the organization.

Form 1023-EZ must be filed electronically. The IRS reminds filers that they should not include Social Security numbers on their submissions.


This is part of continuing effort to provide information about the tax-exempt community. In June 2016, the IRS announced that it was making publicly available data on electronically filed Forms 990 in machine-readable format through Amazon Web Services.