by | Oct 28, 2020 | Tax Tips and News
The Internal Revenue Service has revealed a second settlement effort for taxpayers under audit who took part in abusive micro-captive insurance transactions.
This is the second such settlement offer to go out from the IRS. This second offer, however, puts forth stricter terms than the first, which went out last year. The IRS has now deployed its 12 newly formed micro-captive examination teams to increase examinations of abusive micro-captive insurance transactions.
What are the new terms for the settlement?
The IRS says it can resolve certain cases if the taxpayer agrees to “substantial concessions” of the income tax benefits claimed, along with penalties that can be partly mitigated if the taxpayer can demonstrate good faith, reasonable reliance on an independent, competent tax advisor, and if the taxpayer can demonstrate they did not participate in any other reportable transactions.
“The IRS maintains a relentless agency-wide commitment to combat abusive transactions,” said IRS Large Business & International Commissioner Douglas O’Donnell. “Our offer terms are only getting stricter; and taxpayers would be well advised to consult with an objective, competent advisor with the aim of getting out now and putting this behind them.”
At present, this newest settlement offer is limited to taxpayers with at least one open year under exam.
Taxpayers who also have unresolved years under the jurisdiction of the IRS Independent Office of Appeals may also be eligible, but those with tax years involving micro-captive transactions docketed in Tax Court under Counsel’s jurisdiction, in general, are not eligible.
Taxpayers who do not receive an offer letter are not eligible for this settlement.
The terms only get tougher from here.
Because the terms of this new settlement offer reflect the IRS’ current settlement position, certain taxpayers who received an offer under the first limited-time initiative—but rejected it—are eligible to get a new offer but under the new, stricter terms.
In other words, they get a second chance, but the rules have changed.
“Taxpayers who receive offer letters under this settlement initiative, but who opt not to participate, will continue to be audited by the IRS under its normal procedures,” an IRS news release states. “Potential outcomes include, but are not limited to, full disallowance of captive insurance deductions, inclusion of income by the captive, withholding tax related to any foreign captives and imposition of all applicable penalties.”
Taxpayers who decline to take part in this new settlement offer will have full Appeals rights. However, the IRS Independent Office of Appeals is aware of the settlement initiative. Given the current state of the law, the IRS says taxpayers shouldn’t bank on getting better terms in the Appeals process than those in this new settlement offer.
More information on micro-captive insurance transactions, including which transactions may qualify as having potential for tax avoidance and evasion, can be found in Notice 2016-66.
– Story provided by TaxingSubjects.com
by | Oct 25, 2020 | Tax Tips and News
The Internal Revenue Service has released an early draft of the instructions to Form 1065, U.S. Return for Partnership Income for tax year 2020 (filing season 2021). The changes include revised instructions for partnerships that are required to report capital accounts to partners on Schedule K-1 (Form 1065).
The revision, the IRS says, is part of its larger effort to improve the quality of the information reported by partnerships to the agency and furnished to partners to encourage increased compliance.
New verbiage directs partnerships filing Form 1065 for tax year 2020 to calculate partner capital accounts using the transactional approach for the tax basis method. Under the tax basis method in the instructions, partnerships report partner contributions, the partner’s share of partnership net income or loss, withdrawals and distributions, and other increases or decreases using tax basis principles as opposed to reporting using other methods such as GAAP.
The IRS contends the change should not come as a surprise. The agency says its data shows most partnerships already use the tax basis method, although previously partnerships could report capital accounts determined under multiple methods.
This change represents a new level of compliance.
The IRS release announcing the draft instructions says its new directions are geared toward bringing capital reporting into a new standard:
“Partnerships that did not prepare Schedules K-1 under the tax capital method for 2019 or otherwise maintain tax basis capital accounts in their books and records (for example, for purposes of reporting negative capital accounts) may determine each partner’s beginning tax basis capital account balance for 2020 using one of the following methods: the Modified Outside Basis Method, the Modified Previously Taxed Capital Method, or the Section 704(b) Method, as described in the instructions, including special rules for publicly traded partnerships.”
The Department of the Treasury and the IRS have released Notice 2020-43 in an effort to get public comment on other possible methods to report capital accounts to partners. The IRS says it’s already gotten “numerous comments from taxpayers requesting the tax basis approach be retained.”
At the same time, however, the IRS says it did not get any suggestions for a practical alternative approach to partner capital account reporting. The IRS sees this as good news, as reporting using only one method helps it assess compliance risk and helps to assure that compliant taxpayers’ returns are less likely to be examined.
IRS is helping partnerships ease into compliance.
The Treasury and IRS say they want to help partnerships comply with the new instructions, so they’ll issue a notice that provides additional penalty relief for the transition in tax year 2020.
The notice will provide that solely for tax year 2020 (for partnership returns due in 2021), the IRS will not assess a partnership a penalty for any errors in reporting its partners’ beginning capital account balances on Schedules K-1 if the partnership takes ordinary and prudent business care in following the form instructions to calculate and report the beginning capital account balances.
This relief will be in addition to the reasonable cause exception to penalties for any incorrect reporting of a beginning capital account balance.
The IRS says it released the draft instructions to give tax professionals a preview of the changes and to provide software providers the information needed to update systems before the final version is released in December.
IRS is now accepting comments for 30 days at lbi.1065.comments@irs.gov.
The agency plans similar revisions, as they apply, to Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships.
– Story provided by TaxingSubjects.com
by | Oct 23, 2020 | Tax Tips and News
This week has been set aside by the Internal Revenue Service and charitable organizations across the globe to highlight their annual International Charity Fraud Awareness Week (ICFAW).
The week brings together those in the charity and not-for-profit circles to raise awareness of good practices for tackling fraud and cybercrime—and to encourage sharing of those practices. The activities run through Oct. 23.
The award-winning campaign is led by a coalition of more than 40 charities, regulators, law enforcement agencies, representatives and other not-for-profit stakeholders. The IRS is partnering with ICFAW as part of its commitment to fight fraud against charities, businesses and individuals.
All charities are vulnerable to fraud and can be targeted by cybercriminals. Those that provide services and support local communities may be especially vulnerable to fraudsters attempting to exploit the current pandemic or weather-related disasters. More than ever, charities need to be fraud-aware and take steps to protect their money, people and assets from harm.
“Especially during these uncertain times, it’s vital for everyone to remain vigilant against fraud, identity theft, scams and schemes,” said IRS Director of Exempt Organizations and Government Entities, Margaret Von Lienen. “Cybercriminals are always on the lookout for new opportunities, and COVID-19 is just one more chance to take advantage of unsuspecting individuals and charities. This campaign provides resources that can help protect charities and other organizations.”
This year’s campaign has three core messages:
- Be fraud-aware
- Take time to check
- Keep your charity safe
Visit the ICFAW Charity Fraud Hub for helpful documents, free tutorials, videos, case studies and on-demand webinars. One featured offering is COVID-19 and charity fraud: what to watch for and how to stay safe.
Anyone interested in fighting fraud can take part in the ICFAW social media campaign using #charityfraudout.
Those encouraged to participate in the week’s activities include:
- Trustees, staff and volunteers from charities, non-government organizations, and non-profits
- Organizations that represent the interests of non-profits
- Accountants, auditors and those acting as professional advisors to non-profits
- Regulators, law enforcement officials and policymakers working to safeguard non-profits
In addition to crooks who target existing charities, those who create fake charities are a problem for the non-profit community. In fact, fake charities are once again part of the IRS’ “Dirty Dozen” tax scams for 2020. Taxpayers can find legitimate and qualified charities with the Tax Exempt Organization Search tool on IRS.gov.
Visit the Fraud Advisory Panel website to learn more about ICFAW and how to get involved.
– Story provided by TaxingSubjects.com
by | Oct 21, 2020 | Tax Tips and News
Taxpayers dealing with the fallout from wildfires in California and Hurricane Delta in Louisiana yesterday received some good news from the Internal Revenue Service. Following the Federal Emergency Management Agency’s disaster declarations for affected areas, the IRS is giving victims additional time to meet certain filing and payment deadlines.
What parts of California have been granted tax relief due to September wildfires?
Individuals and businesses in the following wildfire-affected California counties automatically have until January 15, 2021, to meet filing and payment deadlines that would have occurred on or after September 4, 2020:
- Fresno
- Los Angeles
- Madera
- Mendocino
- San Bernardino
- San Diego
- Siskiyou
What filing and payment deadlines in California are affected by the tax relief?
Deadlines beginning September 4, 2020, for individuals and businesses in affected California counties will be pushed back to January 15, 2021, including:*
- September 15, 2020 quarterly estimated income tax payment deadline
- October 15, 2020, individual tax return extension deadline
- October 15, 2020, calendar-year corporation extension deadline
- November 2, 2020 quarterly payroll and excise tax return deadline
- November 16, 2020, calendar-year tax-exempt organization extension deadline
As with other disaster-related tax relief, this list could grow, and affected taxpayers will not need to contact the IRS to receive updated filing and payment deadlines. Further, this tax relief also helps taxpayers who owe “penalties on payroll and excise tax deposits due on or after September 4 and before September 21.” If taxpayers in affected California counties make a deposit by September 21, 2020, the penalty will be abated.
That said, the IRS explains there are edge cases: “If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.”
The IRS also notes that “this relief is separate from that provided for the California wildfires that began on August 14,” directing taxpayers interested in more information about that tax relief to the announcement made on August 26.
What parts of Louisiana have been granted tax relief due to Hurricane Delta?
Individuals and businesses in the following hurricane-affected Louisiana parishes automatically have until February 16, 2021, to meet filing and payment deadlines that would have occurred on or after October 6, 2020:*
- Acadia
- Calcasieu
- Cameron
- Jefferson Davis
- Vermilion
If any of the included parishes were previously granted tax relief due to Hurricane Laura, they will now benefit from the updated filing and payment deadline.
What filing and payment deadlines in Louisiana are affected by the tax relief?
Deadlines beginning on October 6, 2020, for individuals and businesses in affected Louisiana parishes will be pushed back to February 16, 2021, including:
- October 15, 2020, individual tax return extension deadline
- October 15, 2020, calendar-year corporation extension deadline
- November 2, 2020, quarterly payroll and excise tax return deadline
- November 16, 2020, calendar-year tax-exempt organization extension deadline
- January 15, 2021, quarterly estimated income tax payments
- February 1, 2021, quarterly payroll and excise tax return deadline
Like the California tax relief, taxpayers will have certain penalties abated if they make a payment by the designated date. Louisianans living in affected areas with “penalties on payroll and excise tax deposits due on or after October 6 and before October 21, will [have those penalties] abated as long as the deposits are made by October 21, 2020.”
What deadlines are not affected by the tax relief for disaster victims in California and Louisiana?
Deadlines that occurred before the dates indicated in the IRS press releases are not affected by this tax relief, including—importantly—the July 15 tax payment deadline.
* These lists of affected deadlines are not exhaustive. Check the “Disaster Assistance and Emergency Relief for Individuals and Businesses” page on IRS.gov for links to more details.
Sources: IR-2020-236; IR-2020-237
– Story provided by TaxingSubjects.com
by | Oct 21, 2020 | Tax Tips and News
The Internal Revenue Service Return Preparer’s Office is reminding tax professionals about the PTIN renewal deadline and Annual Filing Season Program perks. According to the Friday IRS newsletter, the RPO is set to send two separate messages: one to all current PTIN holders, and another to all non-credentialed PTIN holders.
What does the RPO say about renewing a PTIN?
The PTIN message directs users to IRS.gov/PTIN to start the renewal process before the December 31, 2020 application deadline. At the time of writing, we were unable to reach that web page, but the current renewal page—RPR.IRS.gov—is active. The RPO also reminds PTIN holders that renewal will now require a non-refundable $35.95 fee, a change we covered back in April.
Returning users sign in with their user ID and password, complete the renewal application, then pay the fee with an accepted method:
- Credit card
- Debit card
- ATM card
- eCheck
The RPO says that users who forget their login information should use the “Forgot User ID” and “Forgot Password” tools. On the current page, you can also click “Forgot or cannot access email?” to update the email tied to your PTIN account.
What does the RPO say about the Annual Filing Season Program?
The RPO explains that the Annual Filing Season Program is a “voluntary program … for non-credentialed return preparers who aspire to a higher of professionalism,” and it requires completion of “15 or 18 hours of continuing education in specific categories … [before] December 31, 2020” from “IRS-approved CE providers.”
While learning more about tax preparation will help you better serve clients, completion of the AFSP confers the Annual Filing Season Program Record of Completion and grants limited representation rights for clients whose returns you prepared and signed.
You will also be listed in the IRS Directory of Federal Tax Preparers with Credentials and Select Qualifications, “a searchable database that includes the names, city, state, ZIP code, and credentials of all current year Annual Filing Season Program participants, enrolled agents, attorneys, CPAs, enrolled retirement plan agents, and enrolled actuaries with a valid PTIN.”
Does Drake Software offer AFSP courses?
Visit DrakeCPE.com to sign up for e-learning-based continuing professional education courses required for completing Annual Filing Season Program requirements and more!
Drake Software is an IRS-approved continuing professional education provider that is registered with the National Association of State Boards of Accountancy and Texas State Board of Public Accountancy and approved by the California Tax Education Council.
Sources: IRS e-News for Tax Professionals 2020-42; DrakeCPE.com
– Story provided by TaxingSubjects.com
by | Oct 17, 2020 | Tax Tips and News
The Internal Revenue Service says its Affordable Care Act Information Returns system—also known as AIR—will be unavailable over the weekend while maintenance is carried out.
Under the Affordable Care Act (ACA), insurance companies, self-insured companies, and large businesses and businesses that provide health insurance to their employees must submit information returns to the IRS reporting on individual’s health insurance coverage. Users are required to file electronically if submitting 250 or more information returns.
The IRS warns the AIR system, which is used by software developers, employers, insurance issuers or carriers, government agencies and some third parties to file information returns relating to the Affordable Care Act.
The system will be unavailable from 10 a.m. EST on Saturday, Oct. 17 until 3 p.m. EST.
During that time, users are asked not to attempt to access the Application to Application (A2A) or the User Interface (UI) Channels for the duration of the maintenance period.
The information returns affected by this maintenance outage include:
- Form 1094-B, Transmittal of Health Coverage Information Returns
- Form 1095-B, Health Coverage
- Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
The IRS apologizes for any inconvenience the maintenance outage may cause.
Source: IRS QuickAlerts for Electronic ACA Information Returns
– Story provided by TaxingSubjects.com
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