Reminder: Employers Face New Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

IR-2016-143, Oct. 28, 2016

WASHINGTON — The Internal Revenue Service today reminded employers and small businesses of a new Jan. 31 filing deadline for Forms W-2. The IRS must also hold some refunds until Feb. 15.

A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate the W-2 filing deadline for employers to Jan. 31. For similar reasons, the new law also requires the IRS to hold refunds involving two key refundable tax credits until at least Feb. 15. Here are details on each of these key dates.

New Jan. 31 Deadline for Employers

The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by Jan. 31. The new Jan. 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors.

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. In addition, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available and this extension is not automatic. If an extension is necessary, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by January 31. Please carefully review the instructions for Form 8809, for more information.

"As tax season approaches, the IRS wants to be sure employers, especially smaller businesses, are aware of these new deadlines," said IRS Commissioner John Koskinen. "We are working with the payroll community and other partners to share this information widely."

The new accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past.

The Jan. 31 deadline has long applied to employers furnishing copies of these forms to their employees and that date remains unchanged.

Some Refunds Delayed Until at Least Feb. 15

Due to the PATH Act change, some people will get their refunds a little later. The new law requires the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

Even with this change, taxpayers should file their returns as they normally do. Whether or not claiming the EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. Though the IRS issues more than nine out 10 refunds in less than 21 days, some returns are held for further review.

Taxpayers Are Avoiding Billions of Dollars in Backup Withholding Because of Lack of IRS Enforcement

WASHINGTON — The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report of the Internal Revenue Service’s (IRS) progress with enforcing backup withholding requirements.

The purpose of backup withholding is to make sure that the Government is able to collect taxes on all appropriate income, particularly income that is not usually subject to withholding.  In September 2015, TIGTA issued a report that identified deficiencies with backup withholding and other reporting requirements related to payment cards.  TIGTA’s current audit continues an assessment of the IRS’s actions to ensure compliance with backup withholding provisions.

TIGTA found that, although payers submitted the majority of information returns with valid Taxpayer Identification Numbers (TINs), they did not withhold nearly $9 billion in backup withholding tax when they submitted Tax Year (TY) 2013 information returns with missing or incorrect TINs.  TIGTA also identified 13,647 payers who submitted 27,576 information returns with the same missing payee TIN for two years in a row (TYs 2012 and 2013).  These returns reported payments of about $14.3 billion.  Payers were required to immediately withhold nearly $4 billion from these payees, but just more than $1 million was withheld.

In addition, TIGTA identified 62,714 payers who submitted 203,751 information returns for which the payee TIN was incorrect in four consecutive years.  These returns reported payments totaling nearly $17 billion, and payers were required to withhold nearly $5 billion from these payees, but only $1 million was withheld.

TIGTA also found that there is no justification for criteria used to exclude payers from receiving backup withholding notices that include missing or incorrect TINs.  For example, the IRS notified payers of the missing or incorrect TINs associated with only 10.8 million (57 percent) returns of the 18.9 million that were identified.  Finally, TIGTA’s review of TY 2013 information returns identified 2.3 million returns were submitted for 1.6 million individuals with reportable payments totaling more than $4 billion for which the payee TIN was that of a deceased individual.

“While the legal requirements for backup withholding have been in effect for over 30 years, a substantial amount of tax is not being withheld as required,” said J. Russell George, the Treasury Inspector General for Tax Administration.  “The IRS’s enforcement of backup withholding requirements is essential to help ensure that taxes are paid,” he added.

The IRS agreed with TIGTA’s audit recommendations and will use the report’s findings and recommendations when finalizing and implementing its backup withholding strategy.

Read the report.

Health Care Information Reporting: Seven Things Employers Can Think About Now

If your organization is an applicable large employer, you must report information about the health care coverage you offered to your full-time employees. As an employer, it’s not too early to start thinking about these seven facts related to your information reporting responsibilities under the health care law.

1. The health care law requires ALEs to report information about health insurance coverage offered to its full-time employees and their dependents as well as to the IRS.

2. ALEs must report information about themselves, the coverage they offered – if any – and the individuals covered under the policy.

3. ALEs are required to furnish a statement to each full-time employee that includes the same information provided to the IRS by January 31, 2017.

4. ALEs that file 250 or more information returns during the calendar year must file the returns electronically.

5. ALEs must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage with the IRS annually, no later than February 28, 2017 or March 31, 2017 if filed electronically. Forms 1095-C are filed accompanied by the transmittal form, Form 1094-C.

6. Self-insured employers that are applicable large employers, and therefore are also subject to the information reporting requirements for offers of employer-sponsored health insurance coverage, must combine reporting under both provisions by filing a single information return, Form 1095-C, and transmittal, Form 1094-C.

7. The ACA Assurance Testing System opens November 7, 2016 for tax year 2016 testing. Software developers – including employers and issuers who passed AATS for tax year 2015 – will not have to retest for tax year 2016; the Tax Year Software Packages will be moved into Production status. New participants need to comply with test requirements for tax year 2016. For more information, see Publication 5165, Guide for Electronically Filing ACA Information Returns for Software Developers and Transmitters.

Applicable large employers can find a complete list of resources and the latest news at the Applicable Large Employer Information Center.

In 2017, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged

WASHINGTON — The Internal Revenue Service today announced the tax year 2017  annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2016-55 provides details about these annual adjustments. The tax year 2017 adjustments generally are used on tax returns filed in 2018.   The tax items for tax year 2017 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
• The personal exemption for tax year 2017 remains as it was for 2016: $4,050.  However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
• For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
• The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
• The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking,
• For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
• For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount  is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from  tax year 2016.
• For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
• For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
• Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

Roll over your retirement plan or IRA to a new plan or IRA

Did you know that most pre-retirement payments you receive from a retirement plan or IRA can be “rolled over” by depositing the payment in another retirement plan or IRA within 60 days? You can also have your financial institution or plan directly transfer the payment to another plan or IRA.

Why roll over?

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. If you don’t roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed). You may also be subject to additional tax, unless you’re eligible for one of the exceptions to the 10 percent additional tax on early distributions.

How do I complete a rollover?

1. Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
2. Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
3. 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it into an IRA or a retirement plan within 60 days. In certain situations, the 60-day rollover requirement may be waived if you missed the deadline because of circumstances beyond your control. Taxes will be withheld from a distribution from a retirement plan, so you’ll have to use other funds to roll over the full amount of the distribution. Otherwise, you:

• must include the withheld amount in your gross income in the year the distribution was made, and
• may owe an additional early distribution tax on the withheld amount.

If your distribution includes property, you can either roll over the property to the new plan or IRA, or sell the property and roll over the proceeds. In either case, you must deposit into the new plan or IRA within 60 days of receiving the distribution or qualify for a waiver of the 60-day requirement.

By rolling over your pre-retirement distributions to another retirement plan or IRA, you’re saving for your future, and your money continues to grow tax-deferred.

To maintain your eligibility for 2017 advance payments of the premium tax credit, you must file a tax return

The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2015, but who have not yet filed their tax return. You must file a tax return to reconcile any advance credit payments you received in 2015 and to maintain your eligibility for future premium assistance. If you do not file, you will not be eligible for advance payments of the premium tax credit in 2017.

If you receive Letter 5858 or 5862, you are being reminded to file your 2015 federal tax return along with Form 8962, Premium Tax Credit. The letter encourages you to file within 30 days of the date of the letter to substantially increase your chances of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2017.

Here’s what you need to do if you received a 5858 letter:

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete your return. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even if you don’t normally have to file.
• If you have already filed your 2015 tax return with Form 8962, you can disregard the letter.

Here’s what you need to do if you received a 5862 letter:

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete Form 8962. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even though you have an extension until Oct. 17, 2016, to file.
• If you have already filed your 2015 tax return with Form 8962, please disregard this letter.

Filing electronically is the easiest way to file a complete and accurate tax return. Electronic filing options include free volunteer assistance, IRS Free File, commercial software and professional assistance.

The tax effects of divorce and separation

Income tax may be the last thing on your mind after a divorce or separation. However, these events can significantly affect your taxes. Alimony and a name change are just a few items you may need to consider. Here are some key tax tips to keep in mind if you are recently divorced or separated.

• Child Support — If you are making child support payments, they are not deductible. If you receive child support, the amount you receive is not taxable.
• Alimony Paid — If you make payments under a divorce or separate maintenance decree or written separation agreement, you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. Voluntary payments made outside a divorce or separation decree are not deductible. You must enter your spouse's Social Security Number or Individual Taxpayer Identification Number on your Form 1040, Individual Tax Return, when you file.
• Alimony Received — If you get alimony from your spouse or former spouse, it’s taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
• Name Changes — If you legally change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund. You cannot apply for a card online. There is no charge for a Social Security card. This service is free.

Health Care Law Considerations

• Special Marketplace Enrollment Period — If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
• Changes in Circumstances — If you purchase health insurance coverage through the Health Insurance Marketplace, you may get advance payments of the premium tax credit. If you do, you should report changes in circumstances to your Marketplace throughout the year. These changes include a change in marital status, a name change, a change of address, and a change in your income or family size. Reporting these changes will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
• Shared Policy Allocation — If you divorced or were legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.

For more on this topic, see Publication 504, Divorced or Separated Individuals. You can get it on IRS.gov/forms at any time.

The IRS must hold refunds for tax returns claiming EITC or ACTC until February 15

Beginning in 2017, if you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on your tax return, the IRS must hold your refund until at least February 15.

This new law, approved by Congress, requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure that you receive the refund you are owed by giving the agency more time to help detect and prevent fraud.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. You can file as you normally do. Even though the IRS cannot issue refunds for some early filers until at least February 15, most refunds will still be issued within the normal timeframe: in less than 21 days, after being accepted for processing by the IRS.

Be careful when planning any financial obligations that are based on any specific refund date when claiming these credits. This includes being cautious of loan and preparer fee agreements where repayment is dependent upon the refund. Be especially aware of any stated repayment dates that are earlier than February 15. You don’t want to incur more costs by committing to any re-payment schedule that requires a full payment before the refund will actually become available.

You can check the status of your refund with the Where's My Refund? tool on IRS.gov or the IRS2Go Mobile App. Where’s My Refund? remains the best way to check the status of your refund after February 15.

New requirement for dependents whose passports don’t have a date of entry into the U.S.

The IRS changed its policy on acceptable documentation for issuing dependent Individual Taxpayer Identification Numbers (ITIN). The agency no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from countries other than Canada or Mexico or dependents of military members overseas.

In addition to their passport, affected applicants will now be required to submit either

• U.S. medical records for dependents under age six or
• U.S. school records for dependents under age 18, along with the passport.

Dependents aged 18 and over can submit a rental or bank statement or a utility bill listing the applicant’s name and U.S. address, along with their passport.

Form W-7 dependent applications submitted after Sept. 30, 2016, that don’t meet the new identification requirement, will be incomplete. Applicants will be notified by correspondence and given 45 days to respond with the appropriate documentation.

The new policy ensures that any dependent issued an ITIN will be used for legitimate tax purposes and serves to further protect the ITIN program and refund process.

If you use the services of a Certifying Acceptance Agent when applying for an ITIN for your dependents, changes to the ITIN program allow you to keep those all-important documents. Certifying Acceptance Agents are now allowed to authenticate the passport and birth certificate for your dependents. They will continue to certify identification documents for the primary and secondary applicants.

Further details can be found on the ITIN page on IRS.gov. 

New requirements for some taxpayers who have Individual Taxpayer Identification Numbers

The IRS is implementing a change to the Individual Taxpayer Identification Number (ITIN) program to require some taxpayers to renew their ITIN. The Protecting Americans from Tax Hikes Act requires that if you were issued an ITIN, but have not used it (as the primary filer, spouse or dependent) on a federal tax return at least once in the last three years, your ITIN will expire at the end of 2016.

Additionally, if you have an ITIN with middle digits 78 or 79, whether you used it on a tax return or not, it will also expire at the end of 2016. The IRS has mailed Letter 5821 to affected taxpayers whose ITIN number has middle digits 78 and 79, and who have filed a return at least once in the last three years. The letter explains the steps to take to renew your ITIN.

If you have to file a tax return, you will need to renew your ITIN. To renew your ITIN, you must complete Form W-7, Application for IRS Individual Taxpayer Identification Number, follow the instructions and include all information and documentation required. No tax return is required when renewing an ITIN. Taxpayers who have a filing requirement and whose ITIN will expire at the end of the calendar year can begin the renewal process starting October 1. Taxpayers are reminded to use the most current revision of the Form W-7 (Rev. 9-2016).

If you have an ITIN with the middle digits of 78 or 79 and receive a renewal letter from the IRS, you can choose to renew the ITINs of all your family members at the same time. Family members include the tax filer, the spouse and any dependents claimed on their tax return.

If taxpayers do not renew their ITIN and file a U.S. tax return with the expired ITIN, there may be a delay in processing. Taking timely action to renew will help avoid delays.

The new policy will ensure that ITINs are being issued for legitimate tax purposes and serve to further protect the ITIN program.

Further details can be found on www.irs.gov by searching “ITIN.”

Retirement Plans Can Make Loans, Hardship Distributions to Victims of Hurricane Matthew

WASHINGTON —The Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Matthew and members of their families. This is similar to relief provided this summer to Louisiana flood victims.

Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Matthew and designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, parts of North Carolina, South Carolina, Georgia and Florida qualify for individual assistance. For a complete list of eligible counties, visit https://www.fema.gov/disasters. To qualify for this relief, hardship withdrawals must be made by March 15, 2017.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Matthew to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less.  Under current law, hardship distributions are generally taxable. Also, a 10 percent early-withdrawal tax usually applies.

Further details are in Announcement 2016-39, posted today on IRS.gov. More information about other relief related to Hurricane Matthew can be found on the IRS disaster relief page.

Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance

IR-2016-137, Oct. 21, 2016

WASHINGTON — As international compliance efforts pass several new milestones, the Internal Revenue Service reminds U.S. taxpayers with undisclosed offshore accounts that they should use existing paths to come into full compliance with their federal tax obligations.

Updated data shows 55,800 taxpayers have come into the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties.

“The IRS has passed several major milestones in our offshore efforts, collecting a combined $10 billion with 100,000 taxpayers coming back into compliance,” said IRS Commissioner John Koskinen. “As we continue to receive more information on foreign accounts, people’s ability to avoid detection becomes harder and harder. The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations.”

Under the Foreign Account Tax Compliance Act (FATCA) and the network of inter-governmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting has entered its second year. More information also continues to come to the IRS as a result of the Department of Justice’s Swiss Bank Program. As part of a series on non-prosecution agreements, the participating banks continue to provide information on potential non-compliance by U.S. taxpayers.

OVDP offers taxpayers with undisclosed income from foreign financial accounts and assets an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign financial accounts and assets now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

The IRS developed the Streamlined Filing Compliance Procedures to accommodate taxpayers with non-willful compliance issues. Submissions have been made by taxpayers residing in the U.S. and from those residing in countries around the globe. The streamlined procedures have resulted in the submission of more than 96,000 delinquent and amended income tax returns from the 48,000 taxpayers using these procedures. A separate process exists for those taxpayers who have paid their income taxes but omitted certain other information returns, such as the Report of Foreign Bank and Financial Accounts (FBAR).

Form Updates and Change in Phone Numbers

The IRS recently revised the certification forms used for the Streamlined Filing Compliance Procedures. The most current versions of Forms 14653 and 14654 are available on IRS.gov.

Commonly used telephone numbers relating to the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures have also changed.

Simpler Goodwill Impairment Test Coming for Companies

Companies will have a simpler and less expensive way to apply the goodwill impairment test under rules the Financial Accounting Standards Board approved for finalization on October 10. 

  

The new rule proposes to eliminate the second step of the two-step goodwill impairment test that companies are currently required to perform. The goal of the simplification, first proposed in May, is to reduce costs for preparers while maintaining the usefulness of information provided to financial statement users, board members said. 

  

Under current rules, companies are required to perform a goodwill impairment test at least once a year.  Many have complained that the current two-step test is costly and complex, which led to FASB's initial proposal in May.  However, some firms have now written FASB that the proposed change, though simpler, could decrease precision of goodwill impairment calculations and cause some firms to recognize impairment where none exists.  FASB decided to move forward with the proposal despite the negative comments. 

  

Among other decisions the board affirmed is that the proposal would require prospective application. FASB said it would still need to do an external review of the potential changes, which are being worked on under Phase 1 of a two-phased project.

IRS Regulations Modify Election To Claim Prior-Year Disaster Losses

The IRS has issued final and temporary regulations extending the due date for the election to deduct in the prior tax year a loss attributable to a federally-declared disaster, and for revoking such an election, as well as a revenue procedure explaining how to make or revoke the election. 

  

Casualty losses are generally allowed as a deduction only for the tax year in which the loss is sustained (disaster year). However, a taxpayer may elect to treat a loss occurring in a federally-declared disaster area as sustained in the tax year immediately prior to the disaster year. 

  

Taxpayers made the election on the original return, amended return, or refund claim that must be filed on or before the later of: (1) the due date (without extension) of the tax return for the disaster year; or (2) the due date (without extension) of the tax return for the preceding year. 

  

The final and temporary regulations issued on October 13 generally provide that the due date for electing to deduct in the prior tax year a loss attributable to a federally-declared disaster is six months after the due date (without extension) for filing the taxpayer's federal income tax return for the disaster year. The temporary regulations also extend the time period for revoking the election to 90 days after the due date for making the election. 

  

The new rules also prevent the taxpayer from deducting the same loss in more than one tax year, if the taxpayer has already deducted the loss for the disaster year, the taxpayer must amend the disaster-year return to make the disaster loss election in the prior year. Similarly, the taxpayer must amend the prior-year return to revoke the election before filing a return or amended return to deduct the loss in the disaster year. The temporary regulations also define the terms federally declared disaster; federally declared disaster area; disaster loss; disaster year; and preceding year for purposes of the temporary regulations. 

  

Rev. Proc. 2016-53, I.R.B 2016-44, was issued with the temporary regulations to specify how a taxpayer would make or revoke an election. The revenue procedure states that the taxpayer need not request an extension of time to file the federal tax return for the disaster year in order to benefit from the due date identified in the temporary regulations. 

  

A taxpayer makes the election by deducting the disaster loss on either an original or amended federal tax return for the preceding year. A taxpayer must include with the return an election statement indicating the taxpayer is making a Code Sec. 165(i) election. The election statement must contain the following information:

1. The name or a description of the disaster and date or dates of the disaster that gave rise to the loss; and
    
2. The address, including the city, town, county, parish, state, and zip code, where the damaged or destroyed property was located at the time of the disaster.

For an election made on an original tax return, the above information generally must be provided on Lines 1 or 19 (as applicable) of Form 4684, Casualties and Thefts. A taxpayer filing an electronic return may attach the information as a PDF document if there is insufficient space on Lines 1 or 19. For an election made on an amended return, a taxpayer may provide the information by any reasonable means, such as writing the name or a description of the disaster, the state in which the damaged or destroyed property was located at the time of the disaster, and "Section 165(i) Election" on the top of the Form 4684 and providing the rest of the information in either the Explanation of Changes on Form 1040X, Form 1120X, another appropriate form, or directly on the Form 4684, attaching a statement if there is insufficient room on the form. A taxpayer may revoke a previously made election by filing an amended return for the preceding year that contains a revocation statement. The revocation statement must include the following information:

1. A statement clearly showing that the Section 165(i) election is being revoked;
    
2. The name or a description of the disaster and date or dates of the disaster for which the election was originally claimed; and
    
3. The address, including the city, town, county, parish, state, and zip code, where the damaged or destroyed property was located at the time of the disaster and for which the taxpayer originally claimed the election.

The above information should be provided in the Explanation of Changes on Form 1040X, Form 1120X, or other appropriate form, or on a statement attached to the amended return.  The final and temporary regulations and revenue procedure are effective October 13, 2016, and apply to elections, revocations, and any other related actions that can be made or taken on or after October 13, 2016. 

  

The regulations are available here.  A copy of Rev. Proc. 2016-53 is available here. 

FASB Will Issue New Rules To Classify Debt

The Financial Accounting Standards Board on October 19 approved the preparation of a proposed accounting rule to provide a less costly, simpler way for companies to determine whether to classify debt as "current" or "noncurrent" in a classified balance sheet.
 
The proposal, unanimously approved by FASB on Oct. 19 would replace existing rules-based guidance with an overriding classification principle. The principle would be based on legal terms of the debt agreement and the company's contractual rights as of the balance sheet date.
An exception would be included for waivers of debt covenant violations received after the reporting date but before the issuance date of the company's financial statement, the board said. Violating a covenant—meaning terms of a loan—means the lender can demand repayment in full or impose other penalties unless the company is given a waiver.
 
The new rule addresses complaints FASB has received from companies that the current approach for classifying debt is costly and complex.  Classifying whether a company's debt is due in the near term, "current," or long term, "noncurrent," is significant because the amount can sometimes be in the billions of dollars for large corporations.  In turn, this can affect how banks analysts, investors, lenders and other interested parties evaluate a company's financial health, and its ability to meet its obligations.
 
In addition to cost savings, the potential changes would improve, or maintain usefulness, of the information reported to financial statement users, according to board discussions.
 
The proposal will include other matters including how prominent information about waivers of debt covenant violations should be in the financial statement. FASB said by a 5-2 majority that debt that is classified as noncurrent as a result of a waiver should be presented as a separate line item.
 

The proposal is expected to be issued by the end of December of early January, and the public comment is likely to conclude by the beginning of May.

Companies Can Use New Business Definition in 2017

Companies wanting to use what U.S. accounting standard setters call an improved definition of a business may start to apply the new principles in January 2017. 

  

The Financial Accounting Standards Board tentatively decided at its October 10 meeting that both public and non-public companies would be able to have a 2017 early adoption timetable for planned guidance to be issued by December 31. The new guidance will be the product of two related phases of an effort on:

• clarifying the definition of a business; and
• clarifying what transactions are covered by rules on derecognizing nonfinancial assets.

Public entities not using the option to apply the planned standards early will be required to apply the rules in financial reports covering fiscal years starting after Dec. 15, 2017, including interim periods within those fiscal years, FASB decided.  Non-public enterprises will have a year longer than that schedule—effectively for calendar-year companies, in January 2019 for fiscal-year reporting and interim-period reporting starting in January 2020. 

  

FASB's proposed changes to the definition of a business are aimed at better distinguishing a business combination from a purchase or sale of a bundle of assets.  Drawing a clearer line between a business that is bought or sold and the transfer of a group of assets can have big financial reporting implications—with prescriptions for either significant capitalizations or expensing of items, for example.

Updated plan correction procedures, extension of temporary nondiscrimination relief

Updated procedures for correcting plan errors – highlights of the new revenue procedure for the Employee Plans Compliance Resolution System (Rev. Proc. 2016-51)

Extension of temporary nondiscrimination relief for closed defined benefit plans through 2017 under certain conditions (Notice 2016-57)

Deadline extended to Dec. 5 to submit comments on Form 5500 modernization proposals

IRS Compliance Questions on the 2015 and 2016 Form 5500-Series Returns – list of questions plan sponsors don’t need to answer for the 2015 and 2016 plan years

Updated IRS Checklists for Retirement Plan Documents – used by IRS employees to review plans that apply for a determination letter during the third Cycle A, due January 31, 2017

Employee Plans Compliance Unit (EPCU) projects:

• SIMPLE IRA Plans - Eligible Sponsors asked for information from sponsors who appeared to have more than 100 employees earning $5,000 or more
• Partial Termination in plans that have a 20% or more decrease in participation and must fully vest affected employees
• Ineligible Employer – 403(b) Project –  designed to educate IRC Section 501(c)(3) organizations whose tax-exempt status had been automatically revoked per IRC Section 6033(j) to ensure that an employer eligibility failure had not occurred in the sponsoring of an IRC Section 403(b) plan

Filing Extension Deadline Almost Here Double Check ACA Information on Your Return

If you received an extension of time to file your 2015 federal tax return, you have until Oct. 17 to double check your return and information on it that is related to the Affordable Care Act. The health care law includes  the individual shared responsibility provision and the premium tax credit that may affect your return.

Many people already have minimum essential coverage. If this applies to you, you'll simply report your coverage when you file your tax return by checking a box on your Form 1040, 1040A or 1040EZ.

Most taxpayers simply need to check a box on their tax return to indicate you had health coverage for all of 2015. For any month that you or anyone in your family did not have minimum essential coverage, you need to either claim or report a coverage exemption or make a shared responsibility payment when you file your tax return.

If you enrolled in health coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit. If you benefited from advance payments of the premium tax credit, you must file a federal income tax return to reconcile your advance credit payments, even if you’re otherwise not required to file.  Failing to file will prevent you from receiving advance credit payments in future years.

The Interactive Tax Assistant tool can help you determine if you qualify for an exemption, if you need to make a payment, or if you are eligible for the premium tax credit. Taxpayers can visit IRS.gov/aca for additional information on how the Affordable Care Act affects their return.

Remember that filing electronically is the easiest way to file a complete and accurate tax return. Electronic filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

Before filing the 2015 return, be sure to make a copy and keep it and all supporting documents for a minimum of three years. Doing so will make it easier to fill out a 2016 return next year. In addition, you will often need the adjusted gross income amount from your 2015 return to properly e-file your 2016 return.

For more information about the Oct. 17 extension deadline for filing 2015 tax returns, see IRS Special Edition Tax Tip 2016-14 and news release IR-2016-130. 

ACA and Employers: Terms to Know about Offers of Health Coverage

Under the Affordable Care Act, certain employers – known as applicable large employers – are subject to the employer shared responsibility provisions. You might be thinking about these topics as you make plans about 2017 health coverage for your employees.

If you are an employer that is subject to the employer shared responsibility provisions, you may choose either to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, or to potentially owe an employer shared responsibility payment to the IRS.

Here are definitions of key terms related to health coverage you might offer to employees:

Affordable coverage: If the lowest-cost self-only only health plan is 9.5 percent or less of your full-time employee’s household income, then the coverage is considered affordable. Because you likely will not know your employee’s household income, for purposes of the employer shared responsibility provisions, you can determine whether you offered affordable coverage under various safe harbors based on information available to you as the employer.

Minimum essential coverage: For purposes of reporting by applicable large employers, minimum essential coverage means coverage under an employer-sponsored plan. It does not include fixed indemnity coverage, life insurance or dental or vision coverage.

Minimum value coverage: An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

See IRS.gov/aca for more information on the employer shared responsibility provisions.