TAX PROFESSIONALS – Circular 230 Revisions

TAX PROFESSIONALS – IRS Provides Online Information on Circular 230

The Internal Revenue Service Office of Professional Responsibility ensures that tax professionals who practice before the IRS are aware of the regulations contained in Circular 230 and follow those rules. Tax professionals who represent taxpayers before the IRS should be aware that there were significant revisions made to Circular 230 on June 12, 2014.

Practice before the IRS includes all matters connected with a presentation to the IRS relating to a taxpayer’s rights, privileges or liabilities under laws or regulations administered by the IRS. Practice includes, but is not limited to, preparing or filing documents, corresponding and communicating with the IRS, rendering written tax advice and representing a client at conferences, hearings and meetings. Tax return preparation is not “practice” as currently defined by case law.

Key Circular 230 Provisions

The most important Circular 230 provisions for tax professionals to review are either new or are areas where professionals are most likely to make errors including:

  • Diligence as to Accuracy (10.22)
  • Due Diligence Standards for Signing and Advising – Returns/Docs (10.34)
  • Negotiation of Taxpayer Checks (10.31)
  • Giving False or Misleading Info (10.51(a)(4))
  • Willfully Assisting, Counseling or Encouraging a Client to Evade Taxes or Payment Thereof (10.51(a)(7))
  • Conflicting Interests (10.29)
  • Due Diligence for Written Advice (10.37)
  • Competence (10.35)
  • Expedited Suspension (10.82)

Circular 230 and the Authority and Responsibility of the Office of Professional Responsibility (OPR)

Under regulation section10.1(a)(1), OPR has exclusive authority for disciplinary proceedings and sanctions. The section was revised as of June 2014, to provide that exclusive authority for disciplinary procedures and sanctions rests with OPR.

OPR makes independent determinations about whether a practitioner has behaved in a way that reflects on their fitness to continue to practice before the IRS. OPR can propose and negotiate discipline or can commence a proceeding before an administrative law judge to impose discipline.

Procedures to Ensure Compliance Under Circular 230 Section 10.36

The person with principal authority and responsibility for overseeing a firm’s practice has to take reasonable steps to ensure that the firm has adequate procedures in place to ensure everyone adheres to the duties and responsibilities under Circular 230.

Administrative Hearings, Appeals and Discipline

OPR receives referrals regarding practitioner misconduct. OPR evaluates for jurisdiction; 230 violations and willful, grossly incompetent or reckless conduct; considers alternative discipline options; issues pre-allegation letters; investigates; issues allegation letters; settles disciplinary matters; and commences proceedings for discipline.

A decision becomes a Final Agency Decision either 30 days after the administrative law judge’s initial decision and order has been issued and no appeal is filed with the appellate authority; or immediately after the appellate authority issues a decision in the case. After a Final Agency Decision, a practitioner may file a complaint against OPR to challenge the decision in Federal District Court.

OPR is committed to rendering fair and independent determinations regarding conduct alleged to be in violation of Circular 230.

Discipline options include:

  • Reprimand (private)
  • Censure
  • Suspension
  • Disbarment
  • Monetary sanction (individuals and firms)

History of the Statute and Circular 230

Congress enacted 31 U.S.C., Section 330, in 1884. The statute authorizes the Secretary of the Treasury to regulate the practice of representatives of persons before the Treasury Department.

The statute identifies fitness to practice as:

  • Good character,
  • Good reputation,
  • Necessary qualifications to provide valuable service to the client and
  • Competency to advise and assist persons in presenting their cases.

The Treasure Department issued guidance under Section 330 in the form of regulations. Treasury reissued the regulations in publication format as Treasury Department Circular 230 in 1921.

OPR Contact Information

Tax professionals who need to write to the Office of Professional Responsibility may address correspondence to:

Internal Revenue Service
Office of Professional Responsibility
SE:OPR, Room 7238/IR
1111 Constitution Avenue NW
Washington, DC 20224

NEW IRS INTERIM GUIDANCE – Relief From Failure To Pay Penalty

IRS Interim Guidance – Failure to Deposit Penalty under IRC Section 6656 for Taxpayers Unable to get a Bank Account

 

The IRS has recently issued interim guidance related to the abatement of the failure to deposit penalty under Internal Revenue Code section 6656 for taxpayers who are unable to get a bank account (unbanked taxpayers) or make other arrangements for depositing their tax deposit obligations (as described in Treas. Reg. section 31.6302-1(h)(3)), which are required to be made by electronic funds transfer (EFT). Under Treas. Reg. section 31.6302-1(h)(3), this includes corporate income taxes, excise taxes, and employment taxes. This interim guidance is effective immediately.

BACKGROUND:

The Electronic Federal Tax Payment System (EFTPS) was designed by the Department of the Treasury to allow taxpayers to deposit or pay their taxes by EFT. Since January 1, 2011, almost all businesses have been required to make their deposits by electronic funds transfer using the EFTPS. It has come to the Internal Revenue Service’s attention that there are unbanked taxpayers who, after undertaking reasonable efforts to obtain a bank account, are unable to do so and are unable to make other arrangements for depositing their taxes through the EFTPS. The penalty for not depositing electronically through the EFTPS is 10% of the amount deposited (the “failure to deposit penalty”). This failure to deposit penalty is not applicable if the taxpayer demonstrates that the failure to deposit electronically was due to reasonable cause and not due to willful neglect.

IRM 20.1.4.2 provides that a taxpayer is required to deposit taxes by EFT deposit systems and failure to do so could result in a failure to deposit penalty.

IRM 20.1.4.26 provides that penalty relief determinations for the failure to deposit penalty must be made on a case-by-case basis and that the Service will not impose, or will abate the failure to deposit penalty when the taxpayer establishes that due to specific penalty relief provisions, the assessed penalty should not be imposed or should be abated after taking into account documentation supporting the taxpayer’s position. This IRM also references the general reasonable cause provisions in IRM 20.1.1, which provide (in part) as follows.

IRM 20.1.1.3.2 states that “Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.”

IRM 20.1.1.3.2.2 states that “Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that he or she exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.”

PROCEDURAL CHANGE:

For unbanked taxpayers who are timely in meeting their tax deposit obligations, the Service will not impose or will abate the failure to deposit penalty if a taxpayer can show they made reasonable efforts but were unable to get a bank account during the period at issue. To request penalty relief under this guidance, the unbanked taxpayer must include a signed statement that explains the taxpayer’s attempt to get a bank account and must include any corroborating documentation (denied account applications, correspondence from banks, etc.). The signed statement does not have to be in a particular format.

This guidance does not apply to situations in which the taxpayer can obtain a bank account, but chooses not to maintain a bank account. Such cases will continue to be handled on a case by case basis.

EFFECTIVE DATE:

This interim guidance is effective June 9, 2015.

ABLE Accounts for People with Disabilities – New Proposed Regulations

Proposed Regulations Offer Guidelines for New State-Sponsored ABLE Accounts for People with Disabilities

The Internal Revenue Service (IRS) recently released Proposed Regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people with disabilities who became disabled before age 26.

The Achieving a Better Life Experience (ABLE) account provision was signed into law in December 2014. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses.

The new law authorizes any state to offer its residents the option of setting up an ABLE account. Alternatively, a state may contract with another state that offers such accounts. The account owner and designated beneficiary of the account is the disabled individual. In general, a designated beneficiary can have only one ABLE account at a time, and must have been disabled before his or her 26th birthday. The law provides what it means to be disabled for this purpose.

Contributions in a total amount up to the annual gift tax exclusion amount, currently $14,000, can be made to an ABLE account on an annual basis, and distributions are tax-free if used to pay qualified disability expenses.

These are expenses that relate to the designated beneficiary’s blindness or disability and help that person maintain or improve health, independence and quality of life. For example, they can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other expenses.

In general, an ABLE account is not to be counted in determining the designated beneficiary’s eligibility for many federal means-tested programs, or in determining the amount of any benefit or assistance provided under those programs, although special rules and limits apply for Supplemental Security Income (SSI) purposes.

The Proposed Regulations, available for public inspection at www.federalregister.gov, provide guidance to state programs, designated beneficiaries and other interested parties on a number of issues. For example, the Proposed Regulations explain the flexibility the programs have in ensuring an individual’s eligibility for an ABLE account. They also indicate that the IRS will develop two new forms that ABLE account programs will use to report relevant account information annually to designated beneficiaries and the IRS — Form 1099-QA for distributions and Form 5498-QA for contributions.

Until the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.

The IRS welcomes comments. Comments must be received by Sept. 21, 2015, and may be submitted electronically, by mail, or hand delivered to the IRS. A public hearing is scheduled for Oct. 14, 2015, at the IRS Auditorium, 1111 Constitution Ave. NW, in Washington. See the proposed regulations for details on submitting comments or participating in the public hearing.

 

Filing Deadlines – Foreign Income & Assets

Don’t Miss Filing Deadlines Related to Foreign Income and Assets

All U.S. citizens and residents must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2014 tax return is Monday, June 15, 2015. Similarly, the deadline to report interests in certain foreign financial accounts is the end of June. Here are some important tips to know if these reporting rules apply to you:

  • FATCA Requirements. FATC refers to the “Foreign Account Tax Compliance Act”. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file “Schedule B”, “Interest and Ordinary Dividends”, with your tax return.

    You may also have to file IRS Form 8938, “Statement of Special Foreign Financial Assets”, with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form Instructions for details.

  • FBAR Requirements.  FBAR refers to IRS Form 114, “Report of Foreign Bank and Financial Accounts”. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.
  • View the IRS Webinar.  You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:
  • FBAR legal authorities
  • FBAR mandatory e-filing overview
  • Using FinCEN Form 114; and Form 114a
  • FBAR filing requirements
  • FBAR filing exceptions
  • Special filing rules
  • Recordkeeping
  • Administrative guidance

Are You Getting Married?

Getting Married This Summer?

 

Congratulations! You have tied the knot and cut the cake. Here are some simple steps to make your first joint income tax return less stressful.

 

Step 1: Marriage can mean a change in name. Make sure that the names you enter on your first tax return match the names and Social Security numbers on file with the Social Security Administration (SSA). For example, if the wife is taking the husband’s surname, she should contact SSA of the change in her name

 

Step 2: No matter when you get married, even on Dec. 31, the IRS considers you to have been married for the entire year for tax purposes. To make sure you are having enough taxes taken out of your paychecks, check your withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket.

 

Step 3: Let the IRS know your new address by completing IRS Form 8822, “Change of Address”. Mail the completed change of address form to the address listed on Page 2 of the form.

 

Step 4: The U.S. postmaster will also want to make sure the post office has your correct address. So, don’t forget to notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.

 

Step 5: Just in case you forgot to invite your employer to the wedding, make sure you let them know about any name and address changes. This will ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year. Make sure banks or other payers that may send you year-end tax statements have your updated name and address as well.

 

Step 6: If you purchased insurance coverage from the Health Insurance Marketplace and have advance payments of the premium tax credit made directly to your insurer, it’s important that you report changes in circumstances, such as changes in your income or family size, to your Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

 

Step 7: Select the right tax form. Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. You must claim itemized deductions on a IRS Form 1040, not a 1040A or 1040EZ.

 

Step 8: Choose the best filing status. A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial. Note for same-sex married couples: If you are legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage.

IRA – Rules for IRA Contributions & Minimum Distributions

Do you know the rules for IRA contributions and required minimum distributions?

 

Most of us have retirement savings to help us afford the lifestyle we want when we retire. Some savings are in Individual Retirement Accounts (IRA) usually managed by the financial institutions of our choice.

What a lot of us don’t know are the contribution and withdrawal rules governing IRA accounts and the penalties for non-compliance.

For 2015, the maximum you may be able to contribute to a traditional or Roth IRA is:

  • $5,500 ($6,500 if you are age 50 or older), or

  • your taxable compensation for the year.

This is the maximum you may contribute to any or all IRAs combined. The penalty you pay for contributing more than is allowed is an excise tax of 6 percent (6%) on amounts over the contribution limit.

You may contribute to a Roth IRA for as long as you want, as long as you continue to receive compensation.

However, there are other IRA rules that may limit or eliminate your ability to contribute to an IRA, including income, filing status and the amount of your taxable compensation.

Tax deductions may be limited based on whether you or your spouse has an employer retirement plan if your income is above certain levels.

If you are age 701⁄2 or older, you may not contribute to a traditional IRA at all.

Generally, you must make withdrawals from a traditional IRA by April 1, of the year following your 701⁄2 birthday; failure to do so requires that you pay a 50 percent excise tax on the amount you are required to take. You can request a waiver of the tax if you did not take your required withdrawal.

401(k) Plan Loans – What You Should Consider

401(k) Plan Loans – What you should consider before taking a 401(k) plan loan

 

Your 401(k) plan may allow you to borrow from the plan. However, you should consider a few things before taking a plan loan.

If you don’t repay the full amount of the loan, including interest, according to the loan’s terms, the unpaid loan amount is a distribution to you from the plan. Your plan may even require you to repay the remaining amount of the loan in full if you stop working for the employer that is sponsoring the plan. Otherwise, the unpaid amount is considered a plan distribution to you.

Generally, you have to include any previously untaxed amount of the distribution in your gross income for the year in which the distribution occurs. You may also have to pay an additional 10 percent (10%) tax on the amount of the taxable distribution, unless you:

  • are age 59 1/2 or older, or

  • qualify for another exception to this additional 10 percent (10%) tax.

Any unpaid plan loan amount also means you will have less money saved for your retirement.

Your 401(k) plan is designed so you can save money while working for your retirement. So, carefully consider all other alternatives before borrowing from your future.

IRS Tax Problems – What To Do If You Disagree with IRS

IRS Tax Problems – What you should do if you disagree with the IRS about a tax decision

 

The IRS Office of Appeals offers taxpayers an opportunity to resolve their tax disputes without going to court. Appeals is an independent function within the IRS that provides an impartial review of your tax dispute.

Appeals also offers mediation services through “Fast Track Settlement” and other programs. These mediation programs are designed to help you resolve your dispute at the earliest possible stage in the audit or collection process.

How do you know if you should appeal an IRS decision about your taxes?

 

The Appeals process is right for you, if:

         You received a letter from the IRS explaining your right to appeal the IRS’s decision.

         You do not agree with the IRS’s decision.

         You are not signing an agreement form sent to you.

If all of the above are true, then you may be ready to request an Appeals hearing or conference.

The Appeals process is not right for you, if any of the following apply:

  • The correspondence you received from the IRS was a bill, and there was no

mention of Appeals.

  • You did not provide all information to support your position to the examiner

during the audit.

  • Your only concern is that you cannot afford to pay the amount you owe

Remember, you are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. You generally have the right to take your cases to court.

DISASTER LOSSES – Deducting Losses From a Disaster

Deducting Losses from a Disaster

If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are some tips you should know about deducting casualty losses:

  1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
  3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
  4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.
  5. Amount of loss.  You figure the amount of your loss using the following steps:
    • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way.
    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
    • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.

  1. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
  2. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
  3. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
  4. Form 4684.  Complete IRS Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule “A”, Itemized Deductions.
  5. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.