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WASHINGTON—The Internal Revenue Service will be resuming issuing collections notices to taxpayers that were previously suspending during the COVID-19 pandemic, although a date on when they will begin to be sent out has not been set.

WASHINGTON—The Internal Revenue Service will be resuming issuing collections notices to taxpayers that were previously suspending during the COVID-19 pandemic, although a date on when they will begin to be sent out has not been set.

"Right now, we are planning for restarting those notices," Darren Guillot, commissioner for collection and operation support in the IRS Small Business/Self Employment Division, said May 5, 2023, during a panel discussion at the ABA May Tax Meeting. "We have a very detailed plan."

Guillot assured attendees that the plan does not involve every notice just starting up on an unannounced day. Rather, the IRS will "communicate vigorously" with taxpayers, tax professionals and Congress on the timing of the plans so no one will be caught off guard by their generation.

He also stated that the plan is to stagger the issuance of different types of notices to make sure the agency is not overwhelmed with responses to them.

"The notice restart is really going to be staggered," Guillot said. "We’re going to time it at an appropriate cadence so that we believe we can handle the incoming phone calls that it can generate."

Guillot continued: "We want to also be mindful of the impact that it will have on the IRS Independent Office of Appeal. Some of those notices come with appeals rights and we want to make sure that we give taxpayers a chance to resolve their issues without the need to have to go to appeal or even get to that stage of that notice. So, it will be a staggered process."

In terms of helping to avoid the appeals process and getting taxpayers back into compliance, Guillot offered a scenario of what taxpayers might expect. In the example, if a taxpayer was set to receive a final Notice of Intent to Levy right before the pause for the pandemic was instituted, "we’re probably going to give most of those taxpayers a gentle reminder notice to try and see if they want to comply before we go straight to that final notice. That’s good for the taxpayer and it’s good for the IRS. And it’s good for the appellate process as well."

Guillot also said the agency is going to look at the totality of the 500-series of notices and taxpayers and their circumstances to see if there is a more efficient way of communicating and collecting past due amounts from taxpayers.

He also stressed that the IRS has been working with National Taxpayer Advocate Erin Collins and she has offered "input that we’re incorporating and taking into consideration every step of the way."

Collins, who also was on the panel, confirmed that and added that the IRS is "trying to take a very reasonable approach of how to turn it back on," adding that the staggered approach will also help practitioners and the Taxpayer Advocate Service from being overwhelmed as well as the IRS.

Guillot also mentioned that in the very near future, the IRS will start generating CP-14 notices, which are the statutory due notices. This is the first notice that a taxpayer will receive at the end of a tax season when there is money that they owe and those will start to be sent out to taxpayers around the end of May.

By Gregory Twachtman, Washington News Editor

The Internal Revenue Service will use 2018 as the benchmark year for determining audit rates as it plans to increase enforcement for those individuals and businesses making more than $400,000 per year.

The Internal Revenue Service will use 2018 as the benchmark year for determining audit rates as it plans to increase enforcement for those individuals and businesses making more than $400,000 per year.

The agency is "going to be focused completely on … closing the gap," IRS Commissioner Daniel said April 27, 2023, during a hearing of the House Ways and Means Committee. "What that means is the auditrate, the most recent auditrate, we have that’s complete and final is 2018. That is the rate that I want to share with the American people. The auditrate will not go above that rate for years to come because for the next several years, at least, we’re going to be focused on work that we’re doing with the highest income filers."

Werfel added that even if the IRS were to expand its audit footprint a few years from now, "you’re still not going to get anywhere near that historical average for quite some time. So, I think there can be assurances to the American people that if you earn under $400,000, there’s no new wave of audits coming. The probability of you being audited before the Inflation Reduction Act and after the Inflation Reduction Act are not changed at all."

He also noted that many of the new hires that will be brought in to handle enforcement will focus on the wealthiest individuals and businesses. Werfel said that there currently are only 2,600 employees that cover filings of the wealthiest 390,000 filers and that is where many of the enforcement hires will be used.

"We have to up our game if we’re going to effectively assess whether these organizations are paying what they owe," he testified. "So, it’s about hiring. It’s about training. And it’s not just hiring auditors, it’s about hiring economists, scientists, engineers. And when I [say] scientists, I mean data scientists to truly help us strategically figure out where the gaps are so we can close those gaps."

Werfel did sidestep a question about the potential need for actually increasing the number of audits for those making under $400,000. When asked about a Joint Committee on Taxation report that found that more than 90 percent of unreported income actually came from taxpayers earning less than $400,000, he responded that "there is a lot of mounting evidence that there is significant underreporting or tax gap in the highest income filers. For example, there’s a study that was done by the U.S. Treasury Department that looked at the top one percent of Americans and found that as much as $163 billion of tax dodging, roughly."

And while answering the questions on the need for more personnel to handle the audits of the wealthy, he did acknowledge that "a big driver" of needing such a large workforce to handle the filings of wealthy taxpayers is due to the complexity of the tax code, in addition to a growing population, a growing economy, and an increasing number of wealthy taxpayers.

Other Topics Covered

Werfel’s testimony covered a wide range of topics, from the size and role of the personnel to be hired to the offering of service that has the IRS fill out tax forms for filers to technology and security upgrade, similar to a round of questions the agency commissioner faced before the Senate Finance Committee in a hearing a week earlier.

He reiterated that a study is expected to arrive mid-May that will report on the feasibility of the IRS offering a service to fill out tax forms for taxpayers. Werfel stressed that if such a service were to be offered, it would be strictly optional and there would be no plans to make using such a service mandatory.

"Our hope and our vision [is] that we will meet taxpayers where they are," he testified. "If they want to file on paper, we’re not thrilled with it, but we’ll be ready for it. If they want the fully digital experience, if they want to work with a third-party servicer, we want to accommodate that."

Werfel also reiterated a commitment to examine the use of cloud computing as a way to modernize the IRS’s information technology infrastructure.

And he also continued his call for an increase in annual appropriations to compliment the funding provided by the Inflation Reduction Act. He testified that modernization funds were "raided" so that phones could be answered and to prevent service levels from declining while still being able to modernize the agency, more annual funds will need to be appropriated.

By Gregory Twachtman, Washington News Editor

The Supreme Court has held that the exception to the notice requirement in Code Sec. 7609(c)(2)(D)(i) does not apply where a delinquent taxpayer has a legal interest in accounts or records summoned by the IRS under Code Sec. 7602(a). The IRS had entered official assessments against an individual for unpaid taxes and penalties, following which a revenue officer had issued summonses to three banks seeking financial records of several third parties, including the taxpayers. Subsequently, the taxpayers moved to quash the summonses. The District Court concluded that, under Code Sec. 7609(c)(2)(D)(i), no notice was required and that taxpayers, therefore, could not bring a motion to quash. 

The Supreme Court has held that the exception to the notice requirement in Code Sec. 7609(c)(2)(D)(i) does not apply where a delinquent taxpayer has a legal interest in accounts or records summoned by the IRS under Code Sec. 7602(a). The IRS had entered official assessments against an individual for unpaid taxes and penalties, following which a revenue officer had issued summonses to three banks seeking financial records of several third parties, including the taxpayers. Subsequently, the taxpayers moved to quash the summonses. The District Court concluded that, under Code Sec. 7609(c)(2)(D)(i), no notice was required and that taxpayers, therefore, could not bring a motion to quash. The Court of Appeals also affirmed, finding that the summonses fell within the exception in Code Sec. 7609(c)(2)(D)(i) to the general notice requirement.

Exceptions to Notice Requirement

The taxpayers argued that the exception to the notice requirement in Code Sec. 7609(c)(2)(D)(i) applies only if the delinquent taxpayer has a legal interest in the accounts or records summoned by the IRS. However, the statute does not mention legal interest and does not require that a taxpayer maintain such an interest for the exception to apply. Further, the taxpayers’ arguments in support of their proposed legal interest test, failed. The taxpayers first contended that the phrase "in aid of the collection" would not be accomplished by summons unless it was targeted at an account containing assets that the IRS can collect to satisfy the taxpayers’ liability. However, a summons might not itself reveal taxpayer assets that can be collected but it might help the IRS find such assets.

The taxpayers’ second argument that if Code Sec. 7609(c)(2)(D)(i) is read to exempt every summons from notice that would help the IRS collect an "assessment" against a delinquent taxpayer, there would be no work left for the second exception to notice, found in Code Sec. 7609(c)(2)(D)(ii). However, clause (i) applies upon an assessment, while clause (ii) applies upon a finding of liability. In addition, clause (i) concerns delinquent taxpayers, while clause (ii) concerns transferees or fiduciaries. As a result, clause (ii) permits the IRS to issue unnoticed summonses to aid its collection from transferees or fiduciaries before it makes an official assessment of liability. Consequently, Code Sec. 7609(c)(2)(D)(i) does not require that a taxpayer maintain a legal interest in records summoned by the IRS.

An IRS notice provides interim guidance describing rules that the IRS intends to include in proposed regulations regarding the domestic content bonus credit requirements for:

An IRS notice provides interim guidance describing rules that the IRS intends to include in proposed regulations regarding the domestic content bonus credit requirements for:

• --the Code Sec. 45 electricity production tax credit,
• --the new Code Sec. 45Y clean electricity production credit,
• --the Code Sec. 48 energy investment credit, and
• --the new Code Sec. 48E clean energy investment credit.

The notice also provides a safe harbor regarding the classification of certain components in representative types of qualified facilities, energy projects, or energy storage technologies. Finally, it describes recordkeeping and certification requirements for the domestic content bonus credit.

Taxpayer Reliance

Taxpayers may rely on the notice for any qualified facility, energy project, or energy storage technology the construction of which begins before the date that is 90 days after the date of publication of the forthcoming proposed regulations in the Federal Register.

The IRS intends to propose that the proposed regs will apply to tax years ending after May 12, 2023.

Domestic Content Bonus Requirements

The notice defines several terms that are relevant to the domestic content bonus credit, including manufactured, manufactured product, manufacturing process, mined and produced. In addition, the notice extends domestic content test to retrofitted projects that satisfy the 80/20 rule for new and used property.

The notice also provides detailed rules for satisfying the requirement that at least 40 percent (or 20 percent for an offshore wind facility) of steel, iron or manufactured product components are produced in the United States. In particular, the notice provides an Adjusted Percentage Rule for determining whether manufactured product components are produced in the U.S.

Safe Harbor for Classifying Product Components

The safe harbor applies to a variety of project components. A table list the components, the project that might use each component, and assigns each component to either the steel/iron category or the manufactured product category.

The table is not exhaustive. In addition, components listed in the table must still meet the relevant statutory requirements for the particular credit to be eligible for the domestic content bonus credit.

Certification and Substantiation

Finally, the notice explains that a taxpayer that claims the domestic content bonus credit must certify that a project meets the domestic content requirement as of the date the project is placed in service. The taxpayer must also satisfy the general income tax recordkeeping requirements to substantiate the credit.

A taxpayer certifies a project by submitting a Domestic Content Certification Statement to the IRS certifying that any steel, iron or manufactured product that is subject to the domestic content test was produced in the U.S. The taxpayer must attach the statement to the form that reports the credit. The taxpayer must continue to attach the form to the relevant credit form for subsequent tax years.

A married couple’s petition for redetermination of an income tax deficiency was untimely where they electronically filed their petition from the central time zone but after the due date in the eastern time zone, where the Tax Court is located. Accordingly, the taxpayers’ case was dismissed for lack of jurisdiction.

A married couple’s petition for redetermination of an income tax deficiency was untimely where they electronically filed their petition from the central time zone but after the due date in the eastern time zone, where the Tax Court is located. Accordingly, the taxpayers’ case was dismissed for lack of jurisdiction.

The deadline for the taxpayers to file a petition in the Tax Court was July 18, 2022. The taxpayers were living in Alabama when they electronically filed their petition. At the time of filing, the Tax Court's electronic case management system (DAWSON) automatically applied a cover sheet to their petition. The cover sheet showed that the court electronically received the petition at 12:05 a.m. eastern time on July 19, 2022, and filed it the same day. However, when the Tax Court received the petition, it was 11:05 p.m. central time on July 18, 2022, in Alabama.

Electronically Filed Petition

The taxpayers’ petition was untimely because it was filed after the due date under Code Sec. 6213(a). Tax Court Rule 22(d) dictates that the last day of a period for electronic filing ends at 11:59 p.m. eastern time, the Tax Court’s local time zone. Further, the timely mailing rule under Code Sec. 7502(a) applies only to documents that are delivered by U.S. mail or a designated delivery service, not to an electronically filed petition.

Internal Revenue Service Commissioner Daniel Werfel said changes are coming to address racial disparities among those who get audited annually.

Internal Revenue Service Commissioner Daniel Werfel said changes are coming to address racial disparities among those who get audited annually.

"I will stay laser-focused on this to ensure that we identify and implement changes prior to the next tax filing season," Werfel stated in a May 15, 2023, letter to Senate Finance Committee Chairman Ron Wyden (D-Ore.).

The issue of racial disparities was raised during Werfel’s confirmation hearing an in subsequent hearings before Congress after taking over as commissioner in the wake of a study issued by Stanford University that found that African American taxpayers are audited at three to five times the rate of other taxpayers.

The IRS "is committed to enforcing tax laws in a manner that is fair and impartial," Werfel wrote in the letter. "When evidence of unfair treatment is presented, we must take immediate actions to address it."

He emphasized that the agency does not and "will not consider race as part of our case selection and audit processes."

He noted that the Stanford study suggested that the audits were triggered by taxpayers claiming the Earned Income Tax Credit.

"We are deeply concerned by these findings and committed to doing the work to understand and address any disparate impact of the actions we take," he wrote, adding that the agency has been studying the issue since he has taken over as commissioner and that the work is ongoing. Werfel suggested that initial findings of IRS research into the issue "support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population."

Werfel added that elements in the Inflation Reduction Act Strategic Operating Plan include commitments to "conducting research to understand any systemic bias in compliance strategies and treatment. … The ongoing evaluation of our EITC audit selection algorithms is the topmost priority within this larger body of work, and we are committed to transparency regarding our research findings as the work matures."

By Gregory Twachtman, Washington News Editor

The American Institute of CPAs expressed support for legislation pending in the Senate that would redefine when electronic payments to the Internal Revenue Service are considered timely.

The American Institute of CPAs expressed support for legislation pending in the Senate that would redefine when electronic payments to the Internal Revenue Service are considered timely.

In a May 3, 2023, letter to Sen. Marsha Blackburn (R-Tenn.) and Sen. Catherine Cortez Masto (D-Nev.), the AICPA applauded the legislators for The Electronic Communication Uniformity Act (S. 1338), which would treat electronic payments made to the IRS as timely at the point they are submitted, not at the point they are processed, which is how they are currently treated. The move would make the treatment similar to physically mailed payments, which are considered timely based on the post mark indicating when they are mailed, not when the payment physically arrives at the IRS or when the agency processes it.

S. 1338 was introduced by Sen. Blackburn on April 27, 2023. At press time, Sen. Cortez Masto is the only co-sponsor to the bill.

The bill adopts a recommendation included by the National Taxpayer Advocate in the annual so-called "Purple Book" of legislative recommendations made to Congress by the NTA. The Purple Book notes that IRS does not have the authority to apply the mailbox rule to electronic payments and it would need an act of Congress to make the change.

"Your bill would provide welcome relief and solve a problem that taxpayers have been faced with, i.e., incurring penalties through no fault of their own because they believed their filings or payments were timely submitted through an electronic platform," the AICPA letter states. This legislation would provide equity by treating similarly situated taxpayers similarly. It would also improve tax administration by eliminating IRS notices assessing unnecessary penalties when the taxpayer or practitioner electronically submits a tax return by the deadline regardless of when the IRS processes it.

Tax policy and comment letters submitted to the government can be found here.

By Gregory Twachtman, Washington News Editor

WASHINGTON—The Inflation Reduction Act Strategic Operating Plan was designed to be a living document, an Internal Revenue Service official said.

The plan, which outlines how the IRS plans to spend the additional nearly $80 billion in supplemental funds allocated to it in the Inflation Reduction Act, was written to be a "living document. It’s not meant to be something static that stays on the shelf and never gets updated, and just becomes an historic relic," Bridget Roberts, head of the IRS Transformation and Strategy Office, said May 5, 2023, at the ABA May Tax Meeting.

WASHINGTON—The Inflation Reduction Act Strategic Operating Plan was designed to be a living document, an Internal Revenue Service official said.

The plan, which outlines how the IRS plans to spend the additional nearly $80 billion in supplemental funds allocated to it in the Inflation Reduction Act, was written to be a "living document. It’s not meant to be something static that stays on the shelf and never gets updated, and just becomes an historic relic," Bridget Roberts, head of the IRS Transformation and Strategy Office, said May 5, 2023, at the ABA May Tax Meeting.

Roberts also described the plan as a tool to help bring the agency together and more unified in its mission.

"We intentionally wrote the plan to sort of break down some of those institutional silos," she said. "So, we didn’t write it based on business unit or function."

She framed the development of the plan a "cross-functional, cross-agency effort," adding that it "wasn’t like, ‘here’s how we’re going to change wage and investment or large business.’ It was, ‘here’s how we’re going to change service and enforcement and technology. And those pieces touch everything."

Roberts also highlighted the need for better data analytics across the agency, something that the SOP emphasizes particularly as it beings to ramp up enforcement activities to help close the tax gap.

"We are never going to be able to hire at a level that you can audit everybody," she said. "So, the ability to use data and analytics to really focus our resources on where we think there is true noncompliance," rather than conducting audits that result in no changes. "That’s not helpful for taxpayers. That’s not helpful for the IRS."

By Gregory Twachtman, Washington News Editor

The IRS Independent Office of Appeals, in coordination with the National Taxpayer Advocate, has invited public feedback on how it can improve conference options for taxpayers and representatives who are not located near an Appeals office, encourage participation of taxpayers with limited English proficiency and ensure accessibility by persons with disabilities. Taxpayers can send their comments to ap.taxpayer.experience@irs.gov by July 10, 2023.

The IRS Independent Office of Appeals, in coordination with the National Taxpayer Advocate, has invited public feedback on how it can improve conference options for taxpayers and representatives who are not located near an Appeals office, encourage participation of taxpayers with limited English proficiency and ensure accessibility by persons with disabilities. Taxpayers can send their comments to ap.taxpayer.experience@irs.gov by July 10, 2023.

Appeals resolve federal tax disputes through conferences, wherein an appeals officer will engage with taxpayers in a way that is fair and impartial to taxpayers as well as the government to discuss potential settlements. Additionally, taxpayers can resolve their disputes by mail or secure messaging. Although, conferences are offered by telephone, video, the mode of meeting with Appeals is completely decided by the taxpayer. Recently, appeals expanded access to video conferencing to meet taxpayer needs during the COVID-19 pandemic. Further, taxpayers and representatives who prefer to meet with Appeals in person have the option to do so as, appeals has a presence in over 60 offices across 40 states where they can host in-person conferences.

A taxpayer changing its method of accounting must either request advance IRS consent or apply for automatic IRS consent on Form 3115, Application for Change in Accounting Method, to make the change. Automatic consent is more favorable because the taxpayer can request the change on its return filed after the year it makes the change. A taxpayer requesting automatic consent must submit Form 3115 by the due date of the return for the year of the change. Recent IRS actions indicate that a taxpayer who fails to make a timely request for a change of accounting method may qualify for an extension of time to request the change.

A taxpayer changing its method of accounting must either request advance IRS consent or apply for automatic IRS consent on Form 3115, Application for Change in Accounting Method, to make the change. Automatic consent is more favorable because the taxpayer can request the change on its return filed after the year it makes the change. A taxpayer requesting automatic consent must submit Form 3115 by the due date of the return for the year of the change. Recent IRS actions indicate that a taxpayer who fails to make a timely request for a change of accounting method may qualify for an extension of time to request the change.

In 2013, the IRS issued “repair regs” that determine whether a taxpayer must capitalize or can deduct its costs related to the use of tangible property. To take advantage of the treatment provided in the regs, taxpayers often had to change their accounting methods. The IRS provided automatic consent for taxpayers to change their methods of accounting to comply with the repair regs.

Regulatory Elections

If a taxpayer fails to make a “regulatory” election on time, the IRS has discretion to grant an extension of time for making the election. A regulatory election is whose deadline is established by the IRS in regulations or other guidance, in contrast to an election whose deadline is set by statute. A taxpayer must submit a private letter request asking for an IRS ruling that grants relief. The IRS will grant relief only if it is satisfied that the taxpayer acted reasonably and in good faith when it failed to make a timely election, and that granting an extension will not prejudice the government.

Extensions Granted

The IRS has granted extensions of time to several taxpayers who missed the deadline for requesting automatic IRS consent to change a method of accounting under the repair regs. The IRS gave the taxpayer an additional 60 days (after the IRS issued the favorable letter ruling) to make the election.

In one sample ruling request, the taxpayer (a corporation) was required to submit the original of Form 3115 with its timely income tax return filed for the year of change, and to provide a copy of the Form 3115 to the IRS in Ogden, Utah. The taxpayer’s return preparer timely e-filed the taxpayer’s Form 1120, prepared Form 3115, and submitted a copy of the form to Ogden. However, the preparer inadvertently failed to scan the Form 3115 and include it with the taxpayer’s return. The preparer discovered the omission and the taxpayer applied for an extension. The IRS granted the taxpayer an additional 60 days to elect the change of accounting method permitted under the repair regs.

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Stolen identity refund fraud

Tax-related identity theft occurs when a criminal uses the personal identification of another to obtain a fraudulent refund. According to the IRS and the Treasury Inspector General for Tax Administration (TIGTA), tax-related identity theft continues to grow despite efforts to uncover and apprehend criminals. In 2014, the IRS estimated that it prevented the issuance of nearly $25 billion in fraudulent refunds. However, criminals obtained more than $5 billion in fraudulent refunds.

More often than not, individuals are unware they have been victims until they file their return and discover that a return has already been filed by an identity thief. In some cases, the IRS may send a letter to the taxpayer reporting that the agency identified a suspicious return using the individual’s personal information.

On May 19, the House approved the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832). HR 3832 would require the IRS to notify victims of tax-related identity theft as soon as practicable that his or her personal information was used without authorization. The IRS also would be required to notify victims of tax-related identity theft of any criminal changes brought against the alleged identity thief.

Additionally, the bill would create a centralized point of contact for victims of identity theft. The centralized point of contact may be a team or subset of specially trained employees who can work across functions to resolve problems for the victim and who is accountable for handling the case to completion. The makeup of the team may change as required to meet IRS needs, but the procedures must ensure continuity of records and case history and may require notice to the taxpayer in appropriate instances.

The bill also would make willful misappropriation of a taxpayer’s identity for the purpose of making any return a felony. Under the bill, this offense would be punishable by a fine of up to $250,000 ($500,000 for a corporation), imprisonment for up to five years, or both, plus prosecution costs.

Disclosures

The House approved the bipartisan Recovering Missing Children Bill (HR 3209) on May 10. The bill amends the Tax Code to grant law enforcement access to taxpayer information while investigating missing and exploited children. Under Code Sec. 6103, return information is confidential.

Exempt organizations

The Preventing IRS Abuse and Protecting Free Speech Bill (HR 5053) limits the contributor information that must be reported by a Code Sec. 501(c) on its annual return. Generally, the IRS may not require an exempt organization to report the name, address, or other identifying information of any contributor to the organization with respect to any contribution, grant, bequest, devise, or gift of money or property, regardless of amount. The bill is awaiting action by the full House after having been approved by the Ways and Means Committee.

If you have any questions about these or other pending bills, please contact our office.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2016.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2016.

May 2
Employers. File Form 941 for the first quarter of 2016 for employment taxes if you have not deposited the tax for the quarter timely, properly, and in full. Deposit or pay any undeposited tax under the accuracy of deposit rules. 
Deposit federal unemployment tax owed through March if more than $500. 

May 4
Employers. Semi-weekly depositors must deposit employment taxes for April 27–29. 

May 6
Employers. Semi-weekly depositors must deposit employment taxes for April 30 and May 1–3. 

May 10
Employers. File Form 941 for the first quarter of 2016 for employment taxes if you deposited the tax for the quarter timely, properly, and in full.
Employees who work for tips. Employees who received $20 or more in tips during April must report them to their employer using Form 4070. 

May 11
Employers. Semi-weekly depositors must deposit employment taxes for May 4–6. 

May 13
Employers. Semi-weekly depositors must deposit employment taxes for May 7–10. 

May 16
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in April. 

May 18
Employers. Semi-weekly depositors must deposit employment taxes for May 11–13. 

May 20
Employers. Semi-weekly depositors must deposit employment taxes for May 14–17. 

May 25
Employers. Semi-weekly depositors must deposit employment taxes for May 18–20. 

May 27
Employers. Semi-weekly depositors must deposit employment taxes for May 21–24. 

June 2
Employers. Semi-weekly depositors must deposit employment taxes for May 25–27. 

June 3
Employers. Semi-weekly depositors must deposit employment taxes for May 28–31.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made permanent many popular but previously temporary tax breaks for individuals and businesses. The PATH Act also enhanced many incentives. These enhancements should not be overlooked in tax planning both for 2016 and future years. Some of the enhancements are discussed here. If you have any questions about these or other tax breaks in the PATH Act, please contact our office. 

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made permanent many popular but previously temporary tax breaks for individuals and businesses. The PATH Act also enhanced many incentives. These enhancements should not be overlooked in tax planning both for 2016 and future years. Some of the enhancements are discussed here. If you have any questions about these or other tax breaks in the PATH Act, please contact our office.

Business incentives

Code Sec. 179 expensing. The PATH Act made permanent the Code Sec. 179 $500,000 dollar limit and $2 million investment limit. For tax years beginning after 2015 these amounts are adjusted for inflation. The IRS has announced that 2016 will not see any increase in the $500,000 limit and only a slight rise to $2,010,000 for the investment limit.

Enhancements, for tax years only beginning after 2015, include allowing the Code Sec. 179 expense deduction for air conditioning and heating units. Additionally, the $250,000 limitation on the amount of Code Sec. 179 property that can be attributable to qualified real property is eliminated, with a corresponding removal of carryforwards of disallowed amounts.

Bonus depreciation. Under the PATH Act, bonus depreciation is available at its 50 percent level starting in 2015 through 2017. However, the bonus rate is reduced from 50 percent to 40 percent for property placed in service in 2018 and to 30 percent for property placed in service 2019, after which it sunsets (ending after 2020, in the case of certain noncommercial aircraft and property with a longer production period). Effective for property placed in service after 2015, bonus depreciation for qualified leasehold improvement property is replaced with a bonus depreciation deduction for "qualified improvement property" made to the interior portion of a nonresidential building whether or not the building is subject to a lease; and the improvement need not be made only more than three years after the building was placed in service.

Research tax credit. The PATH Act made permanent the research tax credit. Effective for tax years beginning after December 31, 2015, a qualified small business during a tax year may elect to apply a portion of its research credit against the 6.2 percent payroll tax imposed on the employer’s wage payments to employees. The research credit is also added to the list of general business credit components designated as "specified credits" that may offset alternative minimum tax (AMT) as well as regular tax.

Work Opportunity Tax Credit. The Work Opportunity Tax Credit (WOTC) is extended through December 31, 2019 by the PATH Act. The WOTC also is expanded and made available to employers that hire individuals who are qualified long-term unemployment recipients beginning work for the employer after December 31, 2015.

Film/TV/live theatrical productions. The special expensing provision for qualified film and television productions is expanded by the PATH Act to apply to qualified live theatrical productions. These productions must commence after December 31, 2015, and before January 1, 2017.

Incentives for individuals

Exclusion from gross income of discharges of acquisition indebtedness on principal residences. The PATH Act extended for two additional years (through December 31, 2016) the exclusion from gross income for discharges of qualified principal residence indebtedness. The provision also provided for an exclusion from gross income in the case of those taxpayers whose qualified principal residence indebtedness was discharged on or after January 1, 2017, if the discharge was pursuant to a binding written agreement entered into prior to January 1, 2017.

Code Sec. 25C credit. The PATH Act extended and modified the popular Code Sec. 25C credit for energy-efficient improvements. For property placed in service after December 31, 2015, the standards for energy efficient building envelope components are modified to meet new conservation criteria.

Teachers’ classroom expense deduction. The $250 annual limit for the now permanent above-the-line deduction for classroom expenses under the PATH Act is inflation-adjusted starting in 2016. Due to low inflation, the $250 limit will not rise for 2016. Starting in 2016, expenses for professional development are added to the list of eligible expenses.

Your tax planning needs to respond to changes in the tax laws. Please contact our office and we can discuss how these and other changes in recent tax legislation may impact your comprehensive tax planning.

The IRS has issued the 2016 optional standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, and moving purposes (Notice 2016-1; IR-2015-137). The decline in gas prices appeared to spur the drop in the optional rates.

The IRS has issued the 2016 optional standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, and moving purposes (Notice 2016-1; IR-2015-137). The decline in gas prices appeared to spur the drop in the optional rates.

The optional standard mileage rate for business will drop from 57.5 cents a mile (for 2015) to 54 cents a mile for 2016, a decrease of 3.5 cents, and the lowest rate in five years. The optional standard mileage rates for medical and moving expenses drops from 23 cents for 2015 to 19 cents per mile for 2016, a decrease of four cents and, again, the lowest rate in five years. The optional standard mileage rate for charitable expenses, which is set by statute, remains at 14 cents per mile for 2016.

Rules for use

Rev. Proc. 2010-51 provides rules for computing deductible costs of operating an automobile, including the use of the optional standard rates. The business standard mileage rate is a substitute for all the costs of an automobile for business use, including depreciation, maintenance and repairs, and gasoline.

However, a taxpayer may not use the business standard mileage rate after using a depreciation method under Code Sec. 168 or after claiming the Code Sec. 179 deduction for that vehicle. Furthermore, a taxpayer may not use the business rate for more than four vehicles at a time.

To compute the allowance under a fixed and variable rate plan, the standard automobile cost may not exceed $28,000 for cars or $31,000 for trucks and vans.

Depreciation

For automobiles used for business, a taxpayer must use 24 cents per mile as the portion of the standard mileage rate treated as depreciation for 2016. For prior years, these amounts are 24 cents for 2015, 22 cents for 2014, and 23 cents for both 2012 and 2013. These amounts are used to calculate basis reductions for depreciation taken under the standard mileage rate.

The tax rules surrounding the dependency exemption deduction on a federal income tax return can be complicated, with many requirements involving who qualifies for the deduction and who qualifies to take the deduction. The deduction can be a very beneficial tax break for taxpayers who qualify to claim dependent children or other qualifying dependent family members on their return. Therefore, it is important to understand the nuances of claiming dependents on your tax return, as the April 18 tax filing deadline is just around the corner.

The tax rules surrounding the dependency exemption deduction on a federal income tax return can be complicated, with many requirements involving who qualifies for the deduction and who qualifies to take the deduction. The deduction can be a very beneficial tax break for taxpayers who qualify to claim dependent children or other qualifying dependent family members on their return. Therefore, it is important to understand the nuances of claiming dependents on your tax return, as the April 18 tax filing deadline is just around the corner.

Dependency deduction

You are allowed one dependency exemption deduction for each person you claim as a qualifying dependent on your federal income tax return. The deduction amount for the 2010 tax year is $3,650. If someone else may claim you as a dependent on their return, however, then you cannot claim a personal exemption (also $3,650) for yourself on your return. Additionally, your standard deduction will be limited.

Only one taxpayer may claim the dependency exemption per qualifying dependent in a tax year. Therefore, you and your spouse (or former spouse in a divorce situation) cannot both claim an exemption for the same dependent, such as your son or daughter, when you are filing separate returns.

Who qualifies as a dependent?

The term "dependent" includes a qualifying child or a qualifying relative. There are a number of tests to determine who qualifies as a dependent child or relative, and who may claim the deduction. These include age, relationship, residency, return filing status, and financial support tests.

The rules regarding who is a qualifying child (not a qualifying relative, which is discussed below), and for whom you may claim a dependency deduction on your 2010 return, generally are as follows:

-- The child is a U.S. citizen, or national, or a resident of the U.S., Canada, or Mexico;

-- The child is your child (including adopted or step-children), grandchildren, great-grandchildren, brothers, sisters (including step-brothers, and -sisters), half-siblings, nieces, and nephews;

 -- The child has lived with you a majority of nights during the year, whether or not he or she is related to you;

 -- The child receives less than $3,650 of gross income (unless the dependent is your child and either (1) is under age 19, (2) is a full-time student under age 24 before the end of the year), or (3) any age if permanently and totally disabled;

 -- The child receives more than one-half of his or her support from you; and

 -- The child does not file a joint tax return (unless solely to obtain a tax refund).

Qualifying relatives

The rules for claiming a qualifying relative as a dependent on your income tax return are slightly different from the rules for claiming a dependent child. Certain tests must also be met, including a gross income and support test, and a relationship test, among others. Generally, to claim a "qualifying relative" as your dependent:

-- The individual cannot be your qualifying child or the qualifying child of any other taxpayer; -- The individual's gross income for the year is less than $3,650; -- You provide more than one-half of the individual's total support for the year; -- The individual either (1) lives with you all year as a member of your household or (2) does not live with you but is your brother or sister (include step and half-siblings), mother or father, grandparent or other direct ancestor, stepparent, niece, nephew, aunt, or uncle, or inlaws. Foster parents are excluded.

Although age is a factor when claiming a qualifying child, a qualifying relative can be any age.

Special rules for divorced and separated parents

Certain rules apply when parents are divorced or separated and want to claim the dependency exemption. Under these rules, generally the "custodial" parent may claim the dependency deduction. The custodial parent is generally the parent with whom the child resides for the greater number of nights during the year.

However, if certain conditions are met, the noncustodial parent may claim the dependency exemption. The noncustodial parent can generally claim the deduction if:

-- The custodial parent gives up the tax deduction by signing a written release (on Form 8332 or a similar statement) that he or she will not claim the child as a dependent on his or her tax return. The noncustodial parent must attach the statement to his or her tax return; or

-- There is a multiple support agreement (Form 2120, Multiple Support Declaration) in effect signed by the other parent agreeing not to claim the dependency deduction for the year.