States Focus On Sharing Economy Tax Liabilities

One of the main areas of focus at the recent annual meeting of the MultiState Tax Commission is the sharing economy and how to address the growing tax gap problems for the IRS and states.  The issue?  Tax liabilities for Uber Technologies Inc., Airbnb Inc. and other peer-to-peer companies and the many independent contractors who work for them.
 
The tax gap is growing because on-demand service providers such as Lyft Inc. and TaskRabbit are a growing part of the economy according to a number of speakers at the meeting.  One study delivered to Congress in May estimated that more than 2.5 million Americans earned income via on-demand platforms like Airbnb, Etsy Inc. and Lyft in 2014, and the companies generated an estimated $15 billion in revenue. But tax dollars on much of that revenue could be lost because the companies don't withhold taxes on the income they pay to people who provide services or sell items via their platforms, the study said.
 
Annette Nellen, director of San Jose State University's graduate tax program, noted that code Section 6050W, which addresses returns relating to payments made in settlement of payment card and third-party network transactions, requires processors of credit cards and debit cards to issue a Form 1099-K to vendors and the Internal Revenue Service, she said. The section also requires Form 1099-K reporting for third-party network transactions in which a third party—such as PayPal Inc.—processes payments.  The statute includes a threshold for these transactions so that a Form 1099-K needs to be issued only when service providers have at least 200 transactions in a year and earn at least $20,000, Nellen said. "There are a lot of people working in the sharing economy where the number of transactions fall below that."
 
Generally, Nellen questioned whether there is enough guidance for taxpayers working in the sharing economy, including on "long-standing" issues like worker classification.  The debate has been couched as a labor law issue, Nellen said, and "a lot of people are saying, once the labor law gets solved, everything is done. I think they will be very surprised if the IRS comes in and says maybe they aren't contractors for tax purposes."
 
Panelists at the meeting agreed that the barriers to entry in the sharing economy are so minimal that many participants have no idea of the tax consequences involved.  Why don't Uber and Lyft and Airbnb provide the necessary tax guidance to their service providers?  Uber and Lyft don't want to give the information to them "because it will look like they're training them and they are employees rather than independent contractors," Nellen said.

Property Received For Services Rendered? No More Section 83(b) Filing Requirement

Individuals who receive property related to the performance of services and choose to include the value in their income no longer have to file a copy of the written election statement with their tax returns, the IRS said in final regulations issued on July 25.  The regulations, contained in T.D. 9779, make no changes to proposed rules (REG-135524-14) issued in July of last year.
 
Under Section 83(b), a taxpayer who provides services and received payment in the form of property may make an election to include in income, as ordinary income the fair market value of the property on the date of the election.  Under the final regulation, no written election statement needs to be filed.  Previously, the statement had to be filed with the IRS no later than 30 days after the date of the transfer.
 
The final regulations apply to property transferred on or after Jan. 1, 2016. For property transfers in 2015, taxpayers can also rely on the guidance on the final regulations, the IRS said.
 
A copy of T.D. 9779 is available here.

Make a Late Payroll Deposit in 2017, and the IRS May be at Your Door

When new software for analyzing EFTPS transmissions is in place, the IRS will issue an alert within 72 hours of a missed employment tax deposit, an IRS official said at a recent tax conference. Once the final system is in place, the IRS is likely to send enforcement staff to your door soon after the alert. The staffer will point out the missed/late payment, explain the consequences of missed deposits, and offer you help. This "pre-enforcement" visit will run 45 - 60 minutes.

Thus, the IRS is upping the ante from the previously announced combination of emails and automated phone calls. Now it will visit in person if the employer does not respond to the alert. The IRS believes that the early visit will result in much more effective payroll tax compliance in most cases than waiting until after a quarterly employment tax return, by which time the employer nay already be several months or more in arrears.

Still more aggressive enforcement will be implemented more quickly if timely payments are not made after the visit -- such as seeking a court injunction that required an employer to make timely tax deposits in full. Once an injunction is in place, if there is a missed or late payment or other violation, the IRS can ask the court to find the employer in contempt. A contempt citation would give the IRS and court a wide range of options: requiring the employer to post bonds or obtain IRS approval before making any expenditures, and other restrictions. In serious cases, a receiver could be appointed over the business.

In the worst cases -- a responsible person is notified of employment tax requirements and does not respond, an owner used employment tax funds for personal expenditures, a responsible person has used tax deposits to keep a business operating over several quarters or a large deposit is not made -- the IRS could seek criminal contempt and possible jail time. Alert: In a new wrinkle, the IRS official said that classifying workers who are employees as ICs might lead to criminal action -- e.g., owners notified by the IRS that they have fallen behind on tax deposits convert all their workers to ICs to get our of paying employment taxes.

Tip: The IRS plans to use even more resources to ensure payroll tax compliance because 60% - 85% of annual tax revenue is from employment tax deposits, which include employer payroll taxes and withheld employee FIT. So the IRS has a huge incentive to get in touch with you if you are even a little late with a deposit, or even worse, miss one.

How to Request a Transcript or Copy of a Prior Year’s Tax Return

You should always keep a copy of your tax return for your records. You may need copies of your filed tax returns for many reasons. For example, they can help you prepare future tax returns. You’ll need them if you have to amend a prior year’s tax return. You often need them when you apply for a loan to buy a home or to start a business. Or, you may need them to apply for student financial aid. If you can’t find your copies, the IRS can give you a transcript of the information you need, or a copy of your tax return. Here’s how to get your federal tax return information from the IRS:

• Transcripts are free. You can get them for the current year and the past three years. In most cases, a transcript includes the tax information you need.
• A tax return transcript is a summary of the tax return that you filed. It also includes items from any accompanying forms and schedules that you filed. It doesn’t reflect any changes you or the IRS made after you filed your original return.
• A tax account transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income. It also includes any changes that you or the IRS made to your tax return after you filed it.
• The quickest way to get a copy of your tax transcript is to use the Get Transcript application. Once you verify your identity, you will be able to view and print your transcript immediately online. This Fact Sheet provides details on how to complete this step. 
• If you're unable or prefer not to use Get Transcript Online, you may order a tax return transcript and/or a tax account transcript using the online tool Get Transcript by Mail or by calling 800-908-9946. Transcripts arrive at the address we have on file for you in five to 10 calendar days from the time IRS receives your request.

o To order by phone, call 800-908-9946 and follow the prompts. You can also request your transcript using your smartphone with the IRS2Go mobile phone app.

o Businesses that need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.

• If you need a copy of your filed and processed tax return, it costs $50 for each tax year. You should complete Form 4506, Request for Copy of Tax Return, to make the request. Mail it to the IRS address listed on the form. Copies are generally available for the current year and past six years. You should allow 75 days for delivery. 
• If you live in a federally declared disaster area, you can get a free copy of your tax return. Visit IRS.gov for more disaster relief information.

You can get tax forms anytime at www.irs.gov/forms. 

IRS Tax Tips provide valuable information throughout the year. IRS.gov offers tax help and info on various topics including common tax scams, taxpayer rights and more.

Additional IRS Resources:

• Tax Topic 156 – Copy of Your Tax Return – How to Get One