IRS Notice 2015-38 (IRS New Designation of Private Delivery Services)

IRS New Designation of Private Delivery Services –

IRS Notice 2015-38

 

IRS Notice 2015-38 updates the list of designated private delivery services (“designated PDSs”) set forth in Notice 2004-83, 2004-2 C.B. 1030, for purposes of the timely mailing treated as timely filing/paying rule of Section 7502 of the Internal Revenue Code (“IRC”), provides rules for determining the postmark date for these services, and provides a new address for submitting documents to the Internal Revenue Service (“IRS”) with respect to an application for designation as a designated PDS. These changes are effective May 6, 2015.

 

BACKGROUND:

IRC Section 7502(f) authorizes the Secretary to designate certain private delivery services (“PDSs”) for the timely mailing treated as timely filing/paying rule of IRC Section 7502.

NATURE OF CHANGES:

The IRS is adding four (4) new delivery services to the list of designated delivery services. Federal Express Corporation (“FedEx”): FedEx First Overnight, FedEx International First Next Flight Out, and FedEx International Economy; and United Parcel Service (“UPS”): UPS Next Day Air Early AM are added to the list published in Notice 2004-83.

In addition, the IRS is removing five (5) delivery services previously designated that are no longer provided. Notice 2004-83 contained five (5) services provided by DHL Express (DHL Same Day Service; DHL Next Day 10:30 am; DHL Next Day 12:00 pm; DHL Next Day 3:00 pm; and DHL 2nd Day Service) that had been designated for purposes of IRC Section 7502. Since the publication of Notice 2004-83, DHL Express substantially altered or discontinued its delivery services within the domestic United States, and the DHL Express services listed in Notice 2004-83 are no longer provided. Accordingly, the DHL Express services listed in Notice 2004-83 are no longer designated.

 

This notice also updates, and consolidates in one place, the rules for determining the postmark date for documents delivered by a designated delivery service.

LIST OF DESIGNATED PDSs:

Effective May 6, 2015, the list of designated PDSs is as follows:

FedEx:

  1. FedEx First Overnight
  2. FedEx Priority Overnight
  3. FedEx Standard Overnight
  4. FedEx 2 Day
  5. FedEx International Next Flight Out
  6. FedEx International Priority
  7. FedEx International First
  8. FedEx International Economy

UPS:

  1. UPS Next Day Air Early AM
  2. UPS Next Day Air
  3. UPS Next Day Air Saver
  4. UPS 2nd Day Air
  5. UPS 2nd Day Air A.M.
  6. UPS Worldwide Express Plus
  7. UPS Worldwide Express.

Only the specific delivery services enumerated in this list are designated delivery services for purposes of IRC Section 7502(f). FedEx and UPS are not designated with respect to any type of delivery service not enumerated in this list. Taxpayers are cautioned that merely because a delivery service is provided by FedEx or UPS, it does not mean that the service is designated for purposes of the timely mailing treated as timely filing/paying rule of IRC Section 7502.

This list of designated PDSs and designated services will remain in effect until further notice. The IRS will publish a subsequent notice setting forth a new list only if a designated PDS (or service) is added to, or removed from, the current list, or if there is a change to the application and/or appeal procedures.

SPECIAL RULES FOR DETERMINING POSTMARK DATE IN THE CASE OF A PDS:

IRC Section 7502(f)(2)(C) requires a PDS to either (1) record electronically to its data base (kept in the regular course of its business) the date on which an item was given to the PDS for delivery or (2) mark on the cover of the item the date on which an item was given to the PDS for delivery. Under IRC Section 7502(f)(1), the date recorded or the date marked by the PDS under IRC Section 7502(f)(2)(C) is treated as the postmark date for purposes of IRC Section 7502.

For each PDS designated in this notice, the delivery service records electronically the date on which an item was given to it for delivery, which is treated as the postmark date for purposes of IRC Section 7502. Under this notice, the postmark date for an item delivered after the due date is presumed to be the day that precedes the delivery date by an amount of time that equals the amount of time it would normally take for an item to be delivered under the terms of the specific type of delivery service used (e.g., two (2) days before the actual delivery date for a two-day delivery service).

Taxpayers who wish to overcome this presumption must provide information that shows that the date recorded in the delivery service’s electronic data base is on or before the due date, such as a written confirmation produced and issued by the delivery service.

Each delivery service stores the date recorded in its database only for a finite period, but for no less than six (6) months. Senders or recipients using a designated delivery service can obtain information concerning the date recorded by contacting the designated delivery service. Contact information for each delivery service is available on the company’s website.

EXPORTER’S ALERT – “IC-DISC” TAX SAVINGS FOR EXPORTERS

EXPORTERS ALERT – “IC-DISC” Offers Tax Savings for Exporters

If your Company earns significant income from exporting United States domestic-made products—or from engineering or architectural services on foreign construction projects—you may be eligible to form, and you should consider forming, an “Interest Charge – Domestic International Sales Corporation” (IC-DISC).

Due to its status as an IC-DISC, the IC-DISC pays NO Federal Income Taxes and reduces the Exporter’s tax liability by effectively converting a portion of the Exporter’s net export income, which is taxable at ordinary income rates as high as 40.5 percent (39.6& plus 0.9% Medicare Surtax), into qualified dividends generally taxed at 23.8 percent (20% plus 3.8% Tax on Net Investment Income).

An IC-DISC’s tax benefits are not retroactive, but rather prospective only. The tax benefits are available only for export sales made after the IC-DISC is established.

What is an IC-DISC?

A domestic “C” corporation must request and receive IRS approval to be treated as an IC-DISC for federal tax purposes. It also must maintain its own bank account, keep separate accounting records, and file United States tax returns. But it need not have an office, employees, or tangible assets, nor is it required to perform any invoicing or provide services.

Due to its status as an IC-DISC, the IC-DISC pays NO Federal Income Taxes and reduces the Related Exporter’s tax liability by effectively converting a portion of the Related Exporter’s net export income, which is taxable at ordinary income rates as high as 40.5 percent (39.6& plus 0.9% Medicare Surtax), into qualified dividends generally taxed at 23.8 percent (20% plus 3.8% Tax on Net Investment Income).

To qualify as an IC-DISC, a corporation must also:

  • Be incorporated in one of the 50 states or in the District of Columbia,
  • File an election with and receive approval from the IRS to be treated as an IC-DISC for federal tax purposes,
  • Maintain a bank account,
  • Maintain a minimum capitalization of $2,500 of authorized and issued shares,
  • Have only a single class of stock, and
  • Meet an annual qualified export receipts test and a qualified export assets test. This last requirement means that at least 95 percent of an IC-DISC’s gross receipts and assets must be related to the export of property whose value is at least 50 percent attributable to United States domestic-produced content.

How Does an IC-DISC Work?

           Since the “C” corporation qualifies as an IC-DISC, it is presumed to have participated in the export sales activity, and due to that participation, it is entitled to earn a commission. Your Company (the Related Exporter) is then allowed to pay tax-deductible commissions to the IC-DISC, which are equal to the greater of (i) 4 percent of your Company’s gross receipts from Qualified Exports, or (ii) 50 percent of your Company’s net income from Qualified Exports. Your Company’s taxable income is reduced by the amount of the commissions paid to the IC-DISC and such commissions are deductible against ordinary income.

The IC-DISC, as a tax-exempt entity, pays no federal tax on the commission income. When the IC-DISC distributes its income to its shareholders, their dividend income is taxed at the qualified dividend rate of 20 percent (plus 3.8% Tax on Net Investment Income). The qualified dividend rate is available only to individuals; thus, you’ll need to structure the ownership of the IC-DISC so that the IC-DISC dividends are considered to be received by individuals.

If your Company is a pass-through entity—such as a partnership, S corporation, or LLC—you can form an IC-DISC as a subsidiary. Dividends that the IC-DISC distributes to your Company will retain their character and be passed through to individual shareholders and qualify for the 20 percent rate.

            If your Related Exporter company is a “C” corporation, however, you will need to have the corporation’s individual shareholders form the IC-DISC as a brother-sister corporation in order to obtain the lower tax rate on qualified dividends. If you set up the IC-DISC as a subsidiary instead, the dividends will be paid to the Related Exporter “C” corporation and taxed at regular corporate income tax rates – therefore, no tax savings.

An IC-DISC Calculation Example

EXAMPLE: A Related Exporter is an “S” corporation has $10 million in qualifying export sales and $1 million in net export income on those sales. If the Related Exporter has an IC-DISC subsidiary, it can pay commissions to the IC-DISC equal to the greater of 50 percent of its export net income or 4 percent of its export gross receipts. In this case, the maximum commission is 50 percent of net income, or $500,000.

The IC-DISC distributes the entire $500,000 of commission income as a qualified dividend to its sole shareholder, the Related Exporter “S” Corporation. The consequences are as follows:

  • The Related Exporter “S” corporation incurs an ordinary tax deduction of $500,000 for the commission paid to the IC-DISC.
  • The IC-DISC receives $500,000 of nontaxable commission income.
  • The IC-DISC pays a qualified dividend to the Related Exporter “S” corporation of $500,000, which also flows through the Related Exporter “S” corporation to its individual shareholders.
  • The Related Exporter “S” corporation shareholders pay 23.8 percent federal income tax on the IC-DISC qualified dividend income.
  • The IC-DISC net tax savings is $83,500.

IRS Tax Problems – IRS Collection Process

IRS Tax Problems – The IRS Collection Process

If you do not pay in full when you file your tax return, you will receive written Notice of the amount you owe, a Bill from the IRS. This Bill starts the IRS Collection Process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time period for collection has expired.

The First Notice you receive from the IRS will be a Letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest added to your unpaid balance from the date the tax was due.

If you are unable to immediately pay your balance in full, the IRS, upon request, may be able to offer you a monthly Installment Payment Agreement. If you cannot full pay under an Installment Payment Agreement, you may propose an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability by payment of an agreed upon reduced amount.

If you are unable to pay anything because of a current financial hardship, the IRS may temporarily suspend certain collection actions, such as issuing a levy, until your financial condition improves. The IRS may, however, file a Notice of Federal Tax Lien while your account is suspended. Interest and late payment penalties will continue to accrue while collection is suspended. If you are a member of the Armed Forces, you may be able to defer payment.

It is important to contact the IRS and make arrangements to pay the tax due voluntarily. If you do not contact the IRS, the IRS may take action to collect the liability. Some of the actions the IRS may take to collect taxes include:

  1. Filing a Notice of Federal Tax Lien
  2. Serving a Notice of Levy, or
  3. Offsetting a Refund to which you are entitled

The Federal Tax Lien is a legal claim to your property, including property that you acquire after the Lien arises. The Federal Tax Lien arises automatically when you fail to pay in full the taxes you owe within ten (10) days after the IRS sends its First Notice of taxes owed and demand for payment, and the IRS makes an Assessment of the tax. The IRS also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. Once a Lien arises, the IRS generally cannot release the Lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.

The IRS will withdraw a Notice of Federal Tax Lien if the Notice was filed while a bankruptcy automatic stay was in effect. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that (1) the Notice was filed too soon or not according to IRS procedures; (2) you enter into an Installment Payment Agreement to satisfy the liability unless the Installment Payment Agreement provides otherwise; (3) withdrawal will allow you to pay your taxes more quickly; or (4) withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the IRS.

The IRS also may use a Levy to collect taxes. The IRS may Levy assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize your property for the purpose of selling the property to satisfy a tax debt including your car, boat, or real estate. In addition, any future federal tax refunds or state income tax refunds that you are owed, may be applied to your federal tax liability.

The Affordable Care Act (ACA) – Why Worforce Size Matters

The Affordable Care Act (ACA) – Why Workforce Size Matters

The Affordable Care Act (ACA) contains several tax provisions that affect “Employers”. Under the ACA, the size and structure of a workforce – small, or large – helps determine which parts of the law apply to which employers.

The number of employees an employer had during the prior year determines whether it is an applicable large employer for the current year. This is important because two provisions of the Affordable Care Act (ACA) apply only to applicable large employers. These are the employer shared responsibility provision and the employer information reporting provisions for offers of minimum essential coverage.

An employer’s size is determined by the number of its employees.

  • An employer with 50 or more full-time employees or full-time equivalents is considered an applicable large employer – also known as an ALE – under the ACA.
  • For purposes of the employer shared responsibility provision, the number of employees a business had during the prior year determines whether it is an ALE the current year. Employers make this calculation by averaging the number of employees they had throughout the year, which takes into account workforce fluctuations many employers experience.
  • Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.
  • Calculating the number of employees is especially important for employers that have close to 50 employees or whose work force fluctuates during the year.

To determine its workforce size for a year, an employer adds the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year. The employer then divides that combined total by 12.

 

IRS TAX PROBLEMS – Landscapers and Gardeners

IRS TAX PROBLEMS – Landscapers and Gardeners

If you are a self-employed landscaper or gardener, here are some topics that you should know:

  • Accounting Method.  An accounting method is a set of rules about when to report income and expenses. Many small businesses use the cash method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them.
  • Business Taxes.  There are four (4) general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. You may have to pay self-employment tax as well as income tax if you make a profit. Self-employment tax, or SE tax, includes Social Security and Medicare taxes. You may need to pay your taxes by making estimated tax payments.
  • Tax Forms.  There are two 2) IRS forms to report self-employment income. You must file a Schedule “C”, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. Use Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.
  • Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the gardening or landscaping industry. A necessary expense is one that is helpful and proper for your trade or business.
  • Business Use of a Vehicle.  If you use your car or truck for your business, you may be able to deduct the costs to operate the vehicle for the business use.

 

IRS TAX PROBLEMS – Many Tax-Exempt Organizations Must File with IRS by May 15, 2015

IRS TAX PROBLEMS – Many Tax-Exempt Organizations Must File with IRS by May 15, 2015

The Internal Revenue Service (IRS) is reminding tax-exempt organizations that many have a filing deadline for IRS Form 990 series information returns in mid-May.

With the May 15, 2015 filing deadline facing many tax-exempt organizations, the IRS is cautioning these groups not to include Social Security numbers or other unneeded personal information on their IRS Form 990, and consider taking advantage of the speed and convenience of electronic filing.

IRS Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making Thursday, May 15 the deadline for them to file for 2014.

Many Groups Risk Loss of Tax-Exempt Status

By law, organizations that fail to file annual reports for three (3) consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third (3rd) required filing. The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual IRS Form 990-series informational returns or notices with the IRS. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement on small organizations. Churches and church-related organizations are not required to file annual reports.

No Social Security Numbers on 990s

The IRS generally does not ask organizations for SSNs and in the form instructions cautions filers not to provide them on the form. By law, both the IRS and most tax-exempt organizations are required to publicly disclose most parts of form filings, including schedules and attachments. Public release of SSNs and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.

The IRS also urges tax-exempt organizations to file forms electronically in order to reduce the risk of inadvertently including SSNs or other unneeded personal information. Details are on IRS.gov.

Tax-exempt forms that must be made public by the IRS are clearly marked “Open to Public Inspection” in the top right corner of the first page. These include IRS Form 990, 990-EZ, Form 990-PF and others.

 

 

What to File

Small tax-exempt organizations with average annual receipts of $50,000 or less may file an electronic notice called a IRS Form 990-N (“e-Postcard”), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual receipts above $50,000 must file a IRS Form 990 or 990-EZ depending on their receipts and assets. Private foundations file a IRS Form 990-PF.

Organizations that need additional time to file a Form 990, 990-EZ or 990-PF may obtain an extension. Note that no extension is available for filing the Form 990-N (e-Postcard).

Check Tax-Exempt Status Online

The IRS publishes the names of organizations identified as having automatically lost their tax-exempt status for failing to file annual reports for three (3) consecutive years. Organizations that have had their exemptions automatically revoked and wish to have that status reinstated must file an application for exemption and pay the appropriate user fee.

The IRS offers an online search tool, “Exempt Organization Select Check”, to help users more easily find key information about the federal tax status and filings of certain tax-exempt organizations, including whether organizations have had their federal tax exemptions automatically revoked.

Special Penalty Relief – Available for Late Returns Filed by June 2, 2015 for Certain Small Retirement Plans

Special Penalty Relief – Available for Late Returns Filed by June 2, 2015 for Certain Small Retirement Plans

With Small Business Week (May 4 to 8) just around the corner, the Internal Revenue Service recently reminded small businesses that have failed to timely file certain required retirement plan returns that they have until Tuesday, June 2 to take advantage of a special penalty relief program.

Launched June 2, 2014, the one-year temporary pilot program is designed to help small businesses with retirement plans that may have been unaware of the reporting requirements that apply to these plans. Normally, the plan administrators and sponsors of these plans who fail to file required annual returns, usually IRS Form 5500-EZ, can face stiff penalties – up to $15,000 per return.

By filing late returns by June 2, 2015, eligible filers can avoid these penalties.  So far, about 6,000 delinquent returns have been filed under this program.

This program is generally open to certain small business (owner-spouse) plans and plans of business partnerships (together, “one-participant plans”) and certain foreign plans. Those who have already been assessed a penalty for late filings are not eligible for this program.

Applicants under the program may include multiple late returns in a single submission. There is no filing fee or other payment required.