Thursday, December 31, 2015

MA Income Tax Rate Lowered to 5.10%

New Tax Tables Available

The final threshold required to lower the income tax rate from 5.15% to 5.10% was recently met and the new rate will be effective as of January 1, 2016. All necessary changes have been made to the upcoming Tax Tables to reflect the decrease. As you may remember, there was a similar decrease in January, 2012, January, 2014 and January, 2015 when the thresholds were also met.

Wednesday, December 30, 2015

It's A Bad Debt Deduction, Isn't It?

William Delaney, EA
The classic answer to that question is---well, it depends.  Let’s look at an all too frequent example.  In June Shaw v. Comm., 116 AFTR 2d (CA-9), 11/18/2015 (affirming a Tax Court decision), the issue was whether or not the taxpayer was entitled to a bad debt deduction for loans made to her corporation, SRG Corp. (owned by June Shaw and her mother).  Shaw established and funded a revolving line of credit for the corporation and, over a period of time, advanced more than $800,000 against the unsecured line of credit, even though the finances of the business were shaky, to say the least. 

Shaw claimed to have made an oral request for repayment of $5,000 in 2009.  Her brother Kenneth, President of SRG, informed her that the corporation could not repay the loans.  Shaw did not initiate any collection effort or legal action, nor is there a record that she consulted an accountant or other competent financial advisor.  Instead, she deducted the entire amount of $808,475 as a bad debt on her 2009 personal income tax return.  The deduction was disallowed by the IRS.

Quoting from the Appeals Court decision:  “Shaw failed to show that her advances to SRG constituted a bona fide debt that arose from a debtor-creditor relationship…she continued to advance money to SRG despite its unstable finances…she produced no evidence beyond her and her brother Kenneth’s testimony that SRG had become insolvent.”

Reg. 1.166-2(b) allows a deduction for worthlessness if it can be shown that legal action to enforce payment would probably not result in collection of the amount in question.  It is difficult to apply this standard if the debtor (in this case SRG) does not maintain books and records, has title to assets of unspecified value, does not prepare and file income tax returns, and has not initiated a bankruptcy filing.  Something of value must be there and available to creditors.  What it is, and how much it is worth, has not been determined.  Keep in mind, also, that the creditor claiming the bad debt deduction is also a major shareholder of the debtor corporation.

On appeal, Shaw argued that the advances were capital contributions (if it isn’t a bad debt it must be something).  However, since this issue was not raised at the Tax Court (i.e. lower court level), the Appeals Court refused to give it consideration (it was waived).

So, if it is worthless, follow formalities.  Post and reconcile books and records; prepare and file tax returns; liquidate assets and turn them into cash.  Then make your case for a full or partial bad debt deduction.  Otherwise, you will lose it every time.

Tuesday, December 29, 2015

Rhode Island Division of Taxation Corporate Tax Regulations & Payroll Updates

Apportionment and Nexus


The Division of Taxation this afternoon posted, as final, regulations involving apportionment and nexus for corporate income tax purposes. The regulations help to implement sweeping changes to the structure of the corporate income tax that were enacted in 2014 and that took effect for tax years beginning on or after January 1, 2015. The regulations will take effect January 12, 2016.

To view the apportionment regulation, please use the following link:

http://go.usa.gov/c8NRC

To view the nexus regulation, please use the following link:

http://go.usa.gov/c8NRd



Combined Reporting

The Division of Taxation recently held a public hearing on a third corporate tax regulation, involving mandatory unitary combined reporting. The Division of Taxation is working on a revised version of that regulation and anticipates a re-posting, in January 2016.

Although there are no major differences between the version presented at the recent public hearing and the revised version, there are enough differences to warrant a re-posting and a second public hearing, said Acting Tax Administrator Neena S. Savage.

“We believe that stakeholders will find no major differences, but we nevertheless plan to re-post the regulation and schedule a second public hearing in the interest of transparency, and to keep everyone informed,” she said. A date for the re-posting will be publicly announced once the revised version is completed.


Payroll withholding Updates

The Rhode Island Division of Taxation today posted on its website the booklet of income tax withholding tables for tax year 2016. Employers use the tables to calculate how much to withhold from an employee’s pay for Rhode Island personal income tax purposes.

The booklet also includes a copy of the 2016 version of Form RI W-4, "Employee’s Withholding Allowance Certificate." To view a copy of the booklet, please use the following link:

http://go.usa.gov/c8HxP

Monday, December 28, 2015

National NATP Elects New Executive Director

Scott Artman, NATP Executive Director
After an extensive search, NATP is pleased to announce the selection of a new Executive Director, Scott Artman, effective January 1, 2016. Scott is a seasoned association executive who comes to us with 25 years of experience, serving as Chief Financial Officer and Chief Volunteer Management Officer for a leading global provider of education, credentialing, support and advocacy for information technology professionals. During his tenure, he was instrumental in helping grow revenues and membership in the organization through his volunteer leadership, global chapter system support, member benefit initiatives and responsible fiscal policies.

Please join us in welcoming Scott to NATP! We believe he will be a great addition to our organization, and will help build upon our foundation of premier education and tax professional support.

We are also pleased to announce the results of the election that was held the week of December 18, for the National Executive Committee:

    President – Gerard Cannito
    Vice President - Jean Millerchip
    Secretary – Kelly Nokleby
    Treasurer – Rich Ganong

Congratulations to all on their positions. With all the pieces in place for the year to come, we are looking forward to a great 2016.

Happy New Year!

Jean Millerchip
National NATP President

Friday, December 25, 2015

Thursday, December 24, 2015

Sharing a MA Tax Connect Experience

William Delaney, EA
Your Editor accessed a client account intending to make a MA withholding tax payment for Nov. 2015.  However, there were no unfiled months available (i.e. Nov. could not be accessed).  It was my only SEASONAL FILER client.  Under the “old” system, all 12 months could be filed, even if zero.  Under the “new” system, I suspected that this was not so.  Last Wed. I e-mailed MTCinfo@dor.state.ma.us as instructed on the web site and explained my problem.  As of the following Monday, there was no response (why was I not surprised?).

So, I called the DOR and went through the multiple options menu, multiple times, and was placed on hold.  Had to listen to loud, loud music (how else do you know when a representative is available---you can’t shut the thing down).  Finally, a ring, but it then disconnected!  Tried again and received a message---too many callers, try again later.
Tried again, went through the options, etc., was put on hold (again, loud music), finally reached someone who was able to switch the client to MONTHLY.  Under the “new” system, if you are set-up as SEASONAL (let’s say April thru Oct.), the system will deny access to any other month, even if the taxpayer has wages/withholding for that month.

Was trying to avoid the type of long phone delay experience which we must deal with at the IRS, but it now appears that the MA DOR is moving in that same direction.  One step forward (new system) and two steps backward (difficult to get through to “them’).  Your Editor recently read that the MA DOR staff was reduced by 1/6 as a result of the Governor’s early retirement incentive.  I fear that this is just the tip of the iceberg.

Wednesday, December 23, 2015

Protecting Americans from Tax Hikes Act of 2015 – aka Extender Bill

On December 18, 2015, President Obama signed into law HR 2029 which contains the Protecting Americans from Tax Hikes Act of 2015 (PATH).  The pdf version of this Act is 887 pages with PATH starting on page 797.  Some of the tax provisions were extended and some were made permanent.  Here are the highlights of PATH.
 
EXTENDER ITEMS MADE PERMANENT
* Section 179 limit of $500,000 with a phaseout beginning at $2,000,000.  These amounts will also be indexed in $10,000 increments in future years.  For tax years beginning in calendar year 2015 the $250,000 limit remains in effect for qualified real estate.  For tax years beginning after 2015 qualified real estate could use the entire $500,000.  Also made permanent is the ability to claim 179 for qualified software and the ability to claim more or revoke a prior election.
 
Air conditioning and heating units are treated as eligible for Section 179 for property placed in service after December 31, 2015.
 
* 15-year depreciable life for qualified leasehold improvements, retail improvements, and restaurant property.
 
* Research Credit with some modifications
 
* S corporation Built-in Gains recognition period of five year
 
* Exclusion of 100% of gain on certain small business stock
 
* Lower S shareholder basis reduction for noncash charitable contributions
 
* Enhanced deduction for food inventory
 
* Employer Wage Credit for employees who are active duty members of the uniformed services
 
* Refundable part of the Child Tax Credit using the $3,000 wage base
 
* American Opportunity Credit
 
* Earned Income Credit (higher amount for third child and higher AGI phaseout level for married taxpayers filing jointly)
 
* Educator deduction ($250).  It is also now indexed for inflation in increments of $50 and has a modification for professional development for years beginning after December 31, 2015.
 
* Sales tax deduction
 
* Tax free distributions (direct transfer) from IRAs to charity
 
* Transit passes and parking benefits using an indexed base of $175 (instead of the former $100 base) to make permanent the matching of the higher levels of excluded benefits.
 
 
 
EXTENDER ITEMS EXTENDED FOR TWO YEARS (2015 & 2016):
 
* Energy Credit (10%) for energy efficient items for the taxpayer’s principal residence (i.e., storm windows and doors, insulation, certain furnaces, etc.) with same limitations as previous (i.e., $500 lifetime limitations, etc.)
 
* Mortgage insurance premiums
 
* Cancellation of Indebtedness exclusion for qualified principal residence indebtedness of $2,000,000
 
* Tuition deduction
 
* Alternative Fuel Vehicle Recycling Property
 
* Two-Wheeled Electric Plug-in Vehicles (but not the 3-wheeled vehicles)
 
* Energy Efficient Home Credit (builder’s credit of $1,000 or $2,000)
 
* Energy Efficient Commercial Building Property Deduction under 179D
 
* Credit for Fuel Cell Vehicles
 
* Indian Employment Credit
 
* Domestic Productive Activities Deduction for Puerto Rico
 
* Empowerment Zone
 
* 179 expensing for Film and TV production expenses (and expanded)
 
* 7-year depreciable life for motorsports racing track facilities
 
* 3-year depreciable life for race horses
 
* Accelerated depreciation for business property on an Indian reservation
 
 
 
EXTENDER ITEMS EXTENDED FOR VARIOUS TIMES:
 
* Work Opportunity Tax Credit through 2019
 
* New Markets Tax Credit through 2019
 
* Bonus Depreciation at 50% for calendar years 2015-2017, 40% for calendar year 2018, and 30% for calendar year 2019.  The first year depreciation maximum for autos and trucks is again increased by $8,000 for calendar years 2015-2017, $6,400 for calendar year 2018, and $4,800 for calendar year 2019.  For plants planted or grafted after December 31, 2015 and before January 1, 2020, bonus depreciation is allowed for trees, vine, and plants bearing fruit or nuts when planted or grafted, instead of when they are placed in service.
 
 
 
NEW ITEMS:
* No refunds are to be issued before February 15th if the return contains EIC or refundable child tax credit effective for tax years beginning after December 31, 2016.  This is intended to give IRS more time to conduct fraud checks on the return before issuing a refund.
 
* Retroactive EIC, American Opportunity Credit, and refundable child tax credit.  In the past a taxpayer with an ITIN who later obtained a valid SSN was able to amend prior year returns to claim these credits.  This is no longer available for tax years beginning after December 31, 2014, if the SSN was obtained AFTER the due date for filing the original return.  There is an exception to this denial for a tax year beginning in 2015 as long as the original 2015 return was timely filed.
 
* Improper claims for EIC, American Opportunity Credit, and the refundable child tax credit will result in taxpayers being denied these items for a period of 10 years.
 
* Errors on information returns and payee statements.  If the amount of income is incorrect but the error does not exceed $100, the form does not need to be amended.  If the amount of federal income tax withholding is incorrect but the error does not exceed $25, the form does not need to be amended.
 
* The due date for sending Forms W3 and W2 to Social Security Administration and Forms 1099 to IRS showing nonemployee compensation is moved up to January 31st effective for calendar years beginning after December 31, 2015.
 
* The medical device excise tax is postponed until after December 31, 2017.
 
* The 40% tax on Cadillac plans is postponed for two years.
 
* Wind facility.  In the case of any facility using wind to produce electricity, the credit is phased out by 20% for tax years beginning after December 31, 2016; by 40% for tax years beginning after December 31, 2017; and 60% for tax years beginning after December 31, 2018, and before January 1, 2020.
 
* Solar energy property.  The credit is extended through years beginning prior to January 1, 2022, with some modifications and lower credit percentages.
 
* Forms 1098T will report the amount PAID for qualified tuition and related expenses paid after December 31, 2015, for education furnished after that date.
 
* Exclusion from income for civil damages, restitution, or other monetary award received by a wrongfully incarcerated individual.  This provision is available for any open year.  If a year is closed, it appears the taxpayer can still get a refund as long as the claim is filed no later than December 18, 2016 (one year from the date of enactment of this Act).
 
* Streamlined exemption process.  IRS is to provide a streamlined recognition process for organizations seeking tax exemption under section 501(c)(4).  Instead of the current process, these organizations must file a simple one-page notice of registration with IRS within 60 days of the organization’s formation.  Within 60 days after an application is submitted, IRS must provide a letter of acknowledgement of the registration, which the organization can use to demonstrate its exempt status.  Certain limitations apply.
 
* W-2s and SS numbers.  IRS has been given the authority to require employers to include an identifying number for each employee, rather than an employee’s SSN, on Forms W-2.
 
* Enrolled agent designation.  Allow enrolled agents approved by IRS to use the designation “enrolled agent”, “EA”, or “E.A.”.
 
Please see the Act for specific details on each of these provisions.

Monday, December 21, 2015

Interest Rates Remain the Same for the First Quarter of 2016

WASHINGTON — The Internal Revenue Service today announced that interest rates will remain thesame for the calendar quarter beginning Jan. 1, 2016, as they were in the previous quarter.  The rates will be:
  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during Oct. 2015 to take effect Nov. 1, 2015, based on daily compounding.

Revenue Ruling 2015-23 announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2015-52, dated Dec. 28, 2015.

Friday, December 11, 2015

Message from George Barresi, Formerly of MA DOR

I hope this finds you and yours well. I'm George Barresi, formerly of the Massachusetts DOR. I have had the pleasure over these past many years to present information sessions on Massachusetts state taxation as a representative of the Massachusetts DOR.

As of October 31, 2015, I officially retired from state service. However, I will miss the assignments to NATP and the other tax professional groups. As word of my retirement spread, many members of NATP contacted me to wish me well on my retirement and thank me for the help I provided them over the years. If you would, at your next meeting, please express my thanks to all of them for the good tidings as well as for all their past courtesy.

Though retired, I'm still actively involved in teaching taxation at Bunker Hill Community College and participating in tax seminars at the University of Massachusetts Tax School, Salem State University, Northern Essex Community College, and The University of New Hampshire Tax Institute.

If I can be of any assistance to your NATP Chapter's education program, please contact me. I can't think of a nicer group of professionals to work with.

Best wishes to all,

George P. Barresi, EA
201 Pine Brook Drive
Peabody, MA 01960
978-996-8005
georgetax07@yahoo.com

Thursday, December 10, 2015

New MA Gambling Deduction and Withholding Requirements

MA DOR TIR 15-14 explains the new MA gambling deduction as well as gambling tax reporting and withholding requirements.

The new MA gaming deduction is restricted to MA based casino and racing losses to the extent that they can be matched to MA source casino and racing winnings. MA casino winnings are taxed as MA sourced income for residents and non-residents alike. MA defines gaming occasions and record keeping requirements the same as the IRS.

Although much attention is paid to gambling establishments, make note that TIR 15-124 also identifies beano gaming and raffles. Within ten days of an event, information returns must be filed with DOR with names and addresses when winnings exceed the threshold for that activity. A 5% MA withholding rate is required when state lottery winnings exceed $600, bingo $1,200, slots $1,200, keno $1,500, beano $500 and table games $5,000.

Wednesday, December 9, 2015

2016 IRA and Pension Plan Limitations Announced

The 2016 IRA and pension plan limitations have been announced.  Many amounts did not change.

Below are some of the more common amounts for 2016.

The defined benefit plan limitation remains at $210,000 (same amount applicable for 2015).

The defined contribution plan maximum remains at $53,000.

The annual compensation limit for most employer contributions remains at $265,000.

The beginning of the phaseout for the Retirement Savers Credit are:  MFJ = $61,500, HH = 46,125, and all others = $30,750 (up from $61,000, $45,750, and $30,500 respectively).

A year of service for SEP coverage remains at $600.

The maximum elective deferral for §401(k), §403(b), §457, and SARSEPs remains at $18,000.  The catch up contribution limit for those aged 50 or older as of the end of the year remains at $6,000.

The maximum elective deferral to SIMPLE plans remains at $12,500.  The catch-up maximum remains at $3,000.

The maximum contribution to IRAs remains at $5,500.  The catch-up for IRAs is not subject to annual indexing and remains at $1,000.  The modified AGI phase-out ranges for 2016 are:
$61,000-$71,000 (up from $60,000-$70,000); MFJ = $98,000-$118,000 (up from $96,000-$116,000); and MFJ when the taxpayer is not covered but the spouse is = $184,000-$194,000 (up from $183,000-$193,000)

Roth IRA AGI phase-out limits increase to $117,000-$132,000 (up from $116,000-$131,000 applicable for 2015).  For MFJ these amounts are $184,000-$194,000 (up from $183,000-$193,000 applicable for 2015).

The IRS News Release also has the other pension related indexed amounts such as key employee, top heavy, and “control employee” limits.

A copy of News Release 2015-118 can be found at www.irs.gov/pub/ by clicking on irs-news and then clicking on IR-15-118.

Tuesday, December 8, 2015

Taxpayer Rights Act of 2015

William Delaney, EA
Westwood, MA
Every year, several well intentioned Members of Congress get together and introduce legislation intended to benefit and/or protect taxpayers in dealing with tax law and tax administration.  And, every year the legislation ends up on a shelf somewhere, gathering dust and attracting paper mites.  This year we have US H 4128 and its Senate companion US S 2333 (both introduced on 11/30/2015).  Here is a summary of what they contain…

1.  There is a very detailed “statement of taxpayer rights” (10 specific rights as proposed by the National Taxpayer Advocate) including the Right to pay no more than the correct amount of tax (gee, how is that going to be determined?); Right of appeal from a decision of the Internal Revenue Service in an independent forum (maybe I can land a job with that new independent forum---I’ll sock it to the IRS as good as anybody else);  Right to a fair and just tax system, including access to the Taxpayer Advocate Service
(sounds nice, but will “they” fund it).

2.  Grants for VITA and similar benefit plans for low-income taxpayers.  Learn all about “qualified return preparation programs.”

3.  Establishes the “National Center to Promote Quality, Excellence, and Evaluation in Volunteer Income Tax Assistance” aka the “Center.”  There shall be designated one “lead national organization” to “carry out the purposes of the Center.”  Oh, did I forget to mention that an annual grant shall be provided to the lead national organization.  This lead organization means any organization as described in IRC Sec. 501(c) and exempt from tax under Sec. 501(a).  The AICPA would qualify (others go to the back of the line).

4.  Regulation of Tax Return Preparers.  Section 330 of Title 31 U.S. Code is amended so that the authority of the Secretary of the Treasury or his delegate (i.e. Commissioner of Internal Revenue) to regulate is expanded to include tax return preparers in general. Likewise, Title 31 is amended to expand the authority to sanction.

5.  Penalty Increases (big time increases).  IRC Sec. 6695 penalties for failing to furnish a taxpayer with a copy of a tax return; failure to sign a tax return; failure to provide an identification number on a tax return are increased from $50 per violation to $1,000 per violation.  The annual $25,000 cap (maximum) on each type of penalty assessment has been removed.

6.  Sec. 204(b) of the Act – “Any enrolled agents properly licensed to practice as required under rules promulgated under subsection (a) [of Sec. 330 of Title 31 U.S. Code] shall be allowed to use the credentials or designation of enrolled agent, EA, or E.A.”  The Section is silent, however, in providing any mechanism to override any existing state accountancy statutes which prohibit the use of the initials EA by persons not licensed by the state accountancy board.  If the Section included additional language such as “…when engaged in income tax preparation and/or interaction with federal and state tax agencies and departments” it would effectively override existing state level prohibitions.  Otherwise, it is nothing more than stuff and nonsense and a restatement of what one is already allowed to do at the federal level.  “it is a tale…full of sound and fury, Signifying nothing.”  MacBeth, Act. 5, Scene V.

7.  Lengthy sections on Improving IRS Procedures.; Lien Information, etc.; Tax Court review of innocent spouse determinations; Levies.

8.  Finally, several sections dealing with the National Taxpayer Advocate.

Your Editor has seen it all before and remains hopeful as in “hope springeth eternal.”

Monday, December 7, 2015

IMRS Monthly Call Invitation-December 9th 10 am

The next IMRS Discussion Call Meeting will take place Wednesday morning.  We look forward to talking to you Wednesday morning December 9th  at 10:00 a.m.

The meeting will take place via web conference with audio by phone.

For the Web (visual) portion of the meeting:
Click on this link to join. WebInterpoint Log-in


Enter Participant Code 70137491 and indicate that you are a participant.
Enter your name, organization and e-mail address, and log in.

For the conference call (audio) portion of the meeting:
Use the following Call-in Information.
Dial-in Number (toll-free) 888-331-8226
Participant access code 1458492

Please note that the audio portion is ONLY offered via telephone.  Audio will not come through your computer.

Dial the conference phone number and log onto the Web 5-10 minutes prior to the start time.

 The call will not last more than 30 minutes.  I hope you will be able to join us.

Carl F. Young
Stakeholder Liaison
Internal Revenue Service
15 New Sudbury Street
JFK Federal Building Stop 21300
Boston, MA 02203-0208
Phone:  617-316-2319
Fax:       617-316-2713

email:    carl.f.young@irs.gov

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 7th 2016 - ONE MONTH AWAY!

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 7th 2016




Join the Massachusetts / Rhode Island NATP Chapter on Thursday, January 7th, 2016 for our Annual State Update Seminar. This all day event will be held at the Sturbridge Host in Sturbridge MA. Registration details are below, and will be handled online by National this year. A link to the registration website is listed below. Please take a look at the details on our speakers and topics provided in this great update opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities PLUS even 2 CE Credit Hours.

  • Register online with credit card.
  • For more information or to register by phone, fax or mail, use this form.
  • After January 6, please register at the door with the form above.


Topics:

Connecticut State Tax Update presented by Danielle Toce of Connecticut Department of Revenue Services.


Massachusetts State Tax Update presented by Brian Lynch & Dana Ackerman of Massachusetts Department of Revenue.


Rhode Island State Tax Update presented by Matthew Lawlor & Kenneth Drezek of Rhode Island Division of Taxation.


New York State Tax Update presented by Kathryn Keane, VP of New York NATP Chapter.


Federal Tax Update presented by Kathryn Keane of New York NATP Chapter. (2 Hours of CE Credits)

Featured Speaker - Kathryn M. Keane, EA.

Kathryn is a principal of Macanta, a small tax and related services practice located in Brooklyn, NY, serving over 850 individual clients and 50 businesses. In December 2006, Kathryn completed two three-year terms on the National Board of Directors of NATP and was twice awarded Chapter Person of the Year for 2002 and 2008 for her volunteer service to the community at large as well as to NATP. In addition to serving as an Education Committee member for NY NATP, she currently serves as Chair of the IRS Tri-Boro Practitioner Liaison Committee. Kathryn is a frequent speaker for NATP Chapters. She has also presented for VASEA, NCCPAC (Nassau-Suffolk County Chapter) and local chapters of NYSSCPA. Kathryn has a B.S. degree from Brooklyn College.

Friday, December 4, 2015

AFSP - Annual Filing Season Program: What You May Not Know

William Delaney, EA
Westwood, MA
If you are not an attorney, a CPA or an EA, your representation rights are limited to participation in an audit or examination of a return which you have prepared, and such rights do not extend to the appeal level.  When developing the Voluntary Annual Filing Season Program, the IRS decided that participation in this voluntary program would allow an unenrolled preparer to continue to enjoy these limited representation rights.  However, those who opt out of participation will no longer be allowed any representation rights after December 31, 2015.  What does this mean…

Communication with the IRS regarding an audit or examination of a return which I have prepared – PROHIBITED.

Not only does this shut you out, it shuts “them” out, since the IRS auditor no longer has access to the person who prepared the return.  The auditor must deal with the taxpayer only, unless the taxpayer has secured the services of a licensee who has representation rights.

So, how “voluntary” is a program which shuts you out if you do not voluntarily participate in the program?  It may make sense to the Commissioner of Internal Revenue to shut off access to a valuable resource (the tax return preparer), but it makes no sense at all to your Editor.  However, that’s the road which they have taken.

Thursday, December 3, 2015

The Rhode Island Division of Taxation’s “Seminar for Tax Preparers” will be held on December 10, 2015, in Newport. The seminar – intended for paid preparers of tax returns – is free, but pre-registration is required.




Many preparers have already signed up, but there are still some seats available. If you plan to attend, please pre-register soon; the pre-registration window closes tomorrow (Friday) at 4:00 p.m. To pre-register, click here.

2016 Federal Income Tax Rates and Other Interesting Stuff

Most of the inflation adjusted amounts are indexed based on inflation factors as of August 31st each year.  Various tax reference sources, such as CCH and RIA, make projections based on these factors.

We have chosen to wait until the official numbers have been released.  Here are the official 2016 amounts.

Revenue Procedure 2015-53 contains most of these inflation adjusted amounts for 2016.  A copy of the Rev. Proc. can be found at www.irs.gov/pub/ by clicking on irs‑drop and clicking on rp-15-53.

- Tax Rates - Ceilings

Single
10% bracket tops at $9,275
15% tops at $37,650
25% tops at $91,150
28% tops at $190,150
33% tops at $413,350
35% tops at $415,050
39.6% applies to anything over $415,050

MFJ
10% bracket tops at $18,550
15% tops at $75,300
25% tops at $151,900
28% tops at $231,450
33% tops at $413,350
35% tops at $466,950
39.6% applies to anything over $466,950

Head of Household
10% bracket tops at $13,250
15% tops at $50,400
25% tops at $130,150
28% tops at $210,800
33% tops at $413,350
35% tops at $441,000
39.6% applies to anything over $441,000

MFS
10% bracket tops at $9,275
15% tops at $37,650
25% tops at $75,950
28% tops at $115,725
33% tops at $206,675
35% tops at $233,475
39.6% applies to anything over $233,475

Estates & Trusts
15% bracket tops at $2,550
25% tops at $5,950
28% at $9,050
33% at $12,400
39.6% applies to anything over $12,400

- Exemption amount is $4,050.

- Standard deduction amounts are:  MFJ-$12,600, Single & MFS-$6,300, HH-$9,300, Additional amounts for aged/blind-$1,550 for unmarried and $1,250 for married status.

- Exemption and itemized deduction phase outs begin for MFJ at $311,300, HH at $285,350, S/HH at $259,400, and MFS at $155,650.

- Kiddie Tax
Standard Deduction is $1,050, the next $1,050 is taxed at child’s rate, and the excess is taxed at parent’s rate.  AMT Exemption amount is the child’s earned income plus $7,400.

- AMT – The exemption amounts are:
MFJ/QW = $83,800
S/HH = $53,900
MFS = $41,900
Estates/trusts = $23,900

The excess taxable income level (where the 28% AMT rate applies) is:
MFJ/QW/S/HH = $186,300
MFS = $93,150

- Adoption Credit - $13,460 is the maximum for the credit or assistance amounts.  The phase out starts at $201,920 and is completely phased out at $241,920.

- Child Tax Credit – refundable portion uses an income base of $3,000.

- Education Credits.  The phaseout for the American Opportunity Credit starts at $80,000 ($160,000 for MFJ).  The phaseout for the Lifetime Learning Credit $55,000 ($111,000 for MFJ)

- EIC maximum AGI/earned income for MFJ is $44,846 for one child, $50,198 for two children, $53,505 for three or more children, and $20,430 for no children.  The EIC maximum AGI/earned income for other taxpayers is $39,296 for one child, $44,648 for two children, $47,955 for three or more children, and $14,880 for no children.  Excessive investment income level for EIC is $3,400.

- Transportation Fringe maximum exclusion for monthly parking is $255/month and for commuter highway vehicle and transit passes is $130.

- Savings Bonds for Education phase out level starts at $116,300 for MFJ and $77,550 for other filing statuses.  This is completely phased out at $146,300 for MFJ and $92,550 for other filing statuses.

- §179 election maximum is $25,000.

- Foreign Earned Income exclusion is $101,300.

- Long-term care premiums are limited to:
Age
40 or less-------$390
>40, but not >50------$730
>50, but not >60------$1,460
>60, but not >70------$3,900
>70------$4,870

- Long-term care contract benefit amount is $340 per day.

- Student loan interest maximum is $2,500, with a phase out starting at $65,000 ($130,000 for MFJ).  This is completely phased out at $80,000 ($160,000 for MFJ)

- Annual gift tax exclusion is $14,000, while the limit on gifts to noncitizen spouses is at $148,000.

- Attorney Fee Awards are limited to $200 per hour.

- MSA
Self-only coverage annual deductible is not less than $2,250 nor more than $3,350, with out-of-pocket limits not in excess of $4,450.

Family coverage annual deductible is not less than $4,450 nor more than $6,700, with out-of-pocket limits not in excess of $8,150.

- Cafeteria Plan – The dollar limitation for §125 health FSAs remains at $2,550.

- Nanny Tax – The wage threshold for the Nanny tax for 2016 is $2,000.

- Small Business Health Insurance Credit – The dollar amount for purposes of limiting this credit is $25,900.

- Exclusion amount for Estate/Gift tax is $5,450,000.

Many penalties are now indexed every five years.  2016 is the year of the first indexed amounts.  Three common penalties are:
- Penalty for failure to file a Partnership or S corporation return remains $195 per month per Schedule K-1.

- Penalty for failure to file correct Forms 1099 is $260.

- Penalty for failing to exercise due diligence in connection with EIC claims is $510.


This text has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (fax 920-496-9111).

Wednesday, December 2, 2015

MA Regulation Review: Public Listening Sessions

Governor Baker has initiated a comprehensive review of all regulations issued by state agencies within the Executive Branch of Massachusetts government through Executive Order 562.  Each state agency is currently in the process of reviewing its regulations to be sure those regulations are clear and concise and not unduly burdensome.

As part of this “Regulatory Reform” initiative, the Department of Revenue (DOR) has scheduled two, two-hour Listening Sessions.  These sessions are intended to provide the public with an opportunity to comment on any of the regulations under the jurisdiction of DOR. These Listening Sessions are in addition to the statutory regulatory process for the issuing, amending, or repealing of a regulation, which includes a public comment period.

We encourage the public to provide comments on any DOR regulation. Please note that each session has a special focus (see Listening Session descriptions below). Agency representatives will be present to hear your comments.

DOR Listening Sessions will be held as follows:

Session 1, December 3, 2015, 2:30 PM – 4:30 PM

Massachusetts Department of Revenue
100 Cambridge Street, 2nd floor
Boston, MA  02114

Highlighted Topics:  Business Taxes

Session 2, January 7, 2016, 10:00 AM – 12:00 PM

Massachusetts Department of Revenue
100 Cambridge Street, 2nd floor
Boston, MA  02114

Highlighted Topics:  Personal Income Tax and Tax Administration Issues

DOR greatly appreciates your input in this review process.  If you are unable to attend either of the listening sessions and would like to send us your comments and/or suggestions, please email DOR at RulesandRegs@dor.state.ma.us.

Additionally, we invite you to participate in our regulation survey posted on the Department’s website.

Sullivan of RI DOR Helps Launch Effort to Protect Personal Tax Data

Rhode Island Acting Director of Revenue David M. Sullivan joined federal and state officials and tax industry representatives today to help announce a new joint campaign aimed at encouraging more people to protect their personal and financial data online and at home.


Rhode Island's Acting Revenue Director David M. Sullivan (second from right)
The “Taxes. Security. Together.” campaign is designed to raise public awareness that even routine actions on the Internet and on personal communications devices can affect the safety of one's financial and tax data.

The education campaign will complement the expanded series of protections that the IRS, the states, and the tax industry are putting in place for the start of the 2016 filing season to address tax-related identity theft.

"The governments and industry are taking new steps to protect taxpayers," said Sullivan, who is also Rhode Island Tax Administrator and the immediate past president of the Federation of Tax Administrators (FTA). "To build on this even further, we are joining forces to share important information across our websites -- whether it's at the state level, in the tax industry, or at the IRS. This is an unprecedented collaborative effort for tax administration," Sullivan said.

“Identity thieves are evolving, and so must we. Everyone has a part to play,” said IRS Commissioner John Koskinen. "The IRS, the states and the tax industry are putting in place even tougher safeguards for 2016. But, we need the public’s help. We need people to join with us and take an active role in protecting their personal and financial data from thieves.”

The campaign, which will continue through the April tax deadline, was announced today at an event in Washington, D.C.,  hosted by the FTA. The effort is part of the Security Summit, a collaborative effort started in March between the states, the IRS, and the tax industry. The joint consumer campaign features several components, including a YouTube video (see screenshot below). Click here for more information about the campaign.

Tuesday, December 1, 2015

RI Tax Administrator Leaving For Private-Sector Post

Rhode Island Tax Administrator David M. Sullivan is leaving for a job in the private sector.

Sullivan, who is also Acting Director of the Department of Revenue, has been in State service for nearly 10 years and has led the Division of Taxation through a number of significant changes, including implementation of two major tax reforms and the conversion of the agency’s computer systems.

Nationally known in tax circles, Sullivan was in Washington, D.C., last week with IRS and state tax officials and tax industry representatives to launch the latest element in a multi-pronged effort to combat tax refund fraud (see photo below). Click here to view the announcement about Sullivan’s leaving for the private sector and about the State’s transition plan.



In Washington, D.C., last week was Rhode Island Tax Administrator David M. Sullivan (at lectern), with IRS Commissioner John Koskinen (far left), Connecticut Revenue Commissioner Kevin Sullivan (next to David Sullivan) and others to launch an effort to combat tax refund fraud

Monday, November 30, 2015

New Electronic Filing System—MassTaxConnect—is now live!

Earlier this morning DOR officially launched its newest online portal for filing and paying business taxes in the Commonwealth: MassTaxConnect
. MassTaxConnect has replaced WebFile for Business, offering all the benefits the old system offered, along with a host of new functionalities that will make paying and filing taxes in Massachusetts easier, simpler, and more efficient than ever before.
Users can access MassTaxConnect at the following URL:
mass.gov/masstaxconnect
Same username and password!
As someone who has filed or paid taxes online with us in the past, you’ll be able to immediately log-in to MassTaxConnect using your WebFile for Business username and password.

Identity verification!
The first time you log on to MassTaxConnect from a new computer, you will be asked for an authentication code as an additional security measure.  Request the code in the pop-up window and enter it on the login page.  Be sure to click “trust this computer,” and you’ll only have to do this once for any given computer.
 
MassTaxConnect Resources!
To help make the transition to the new system as smooth and seamless as possible, we’veredesigned our MassTaxConnect informational page
 with an arsenal of resources at your disposal. This includes tutorials, FAQs, and DOR contact information if the site does not adequately answer your questions.

Video Tutorials!
Perhaps most importantly, DOR has put together a series of mini-video tutorials that show you step-by-step how to complete the following tasks
 in MassTaxConnect:
  • Log-in as an existing WfB user
  • Log-in as a new user (non-WfB users)
  • Add, access, and manage your accounts
  • File a return
  • Pay a bill
  • View and file and amended return
  • Authorize a 3rd party to manage your account
  • Request 3rd party access to an account
  • Send an e-message, including with an attachment
  • Update my address or my contact information?
  • File a dispute of audit or penalty (abatement request)
  • Access DOR letters and notices
  • Get on a payment plan for money I owe
 Account ID
Once you’re in the system, you’ll notice that you have a new alphanumeric account identification number. This will replace federal employer identification numbers and other personally identifiable information. Doing so will enhance the security of our system and protect your identity from fraudsters. Take note: You’ll also soon be receiving a letter in the mail with your new account ID.

Two Situations Where Spouses Were Not On The Same Wave Length

William Delaney, EA
Westwood, MA
When is a jointly filed income tax return not a jointly filed income tax return?  Answer:  When one signs the return and the other does not.  Sounds simple enough, but the devil is always in the details

Reg. 1.6012-1(a)(5) proscribes the way in which one spouse may sign for both and the requirement for an attachment regarding same to the tax return.  In Bradley C. & Nancy Reifler v. Comm., TC Memo 2015-199 (10/13/2015), the Reiflers had their 2000 income tax return prepared by their accountant.  It was then signed by Mr. Reifler and left somewhere for Mrs. Reifler to sign.  So far, so good.

Now comes Oct. 15th, and Mr. Reifler awakens to the fact that he needs to do something with this paper return (yes, you win a prize---he must mail it to the IRS and today’s the deadline).  So, that’s what he did.  But, what he didn’t do is get it signed by his spouse!  Believe it or not, it gets worse…

The IRS “bounced” the return because of the missing signature.  Mr. Reifler received the original return with some red marks on it and nothing else as to why the return had not been processed.  So, what’s a taxpayer to do?  In Mr. Reifler’s case, he did nothing, as if that were an option.  He just set aside the return (you can’t make up this stuff).

In 2002, the IRS sent the taxpayers a delinquency notice (where is that 2000 tax return which you did not file?), so the taxpayers (this time both of them) signed a second Form 1040 and mailed it in.  However, the IRS knew nothing about a “bounced” return, and the taxpayers did not make mention of it when sending the second return, so the IRS considered the “second” return to be the “original” return filed quite late and imposed the Sec. 6651(a) failure-to file penalty (maximum of 25% of the tax shown on the return).

But, not to worry, the taxpayers have some strong (?) arguments.  First, they argued the substantial compliance doctrine---the original return need not be perfect in order to be valid.  However, the Court held that signing (or not signing) a tax return is a different set of circumstances from substantial completion of a return.  Furthermore, an unsigned return does not start the running of the statute of limitations.

Again, not to worry.  The taxpayers have another argument.  In the White decision – Daniel Joseph White v. Comm., TC Summary Opinion 2002-101 (8/5/2002), Mr. White signed and submitted a joint income tax return which was not signed by Mrs. White.  The return “bounced” and the White’s resubmitted a signed return within the time period provided by the IRS for correcting the original return (a departure from what Mr. Reifler did not do).  The initial return was deemed to be timely filed and the late filing penalty was not imposed.  But, the Reiflers did not have a valid argument because they chose not to do what the Whites did---fix the problem.  The Reiflers did nothing until contacted by the IRS more than one year later.  There was no evidence that the taxpayers attempted to consult with or inquire of anyone when their tax return “bounced.”



In Mark A. Williams v. Comm., TC Memo 2015-198 (10/17/2015) we have some very clever tax planning.  Let’s suppose that your employer tells you that he will stop writing paychecks and deducting all of those taxes.  Instead, he will write a check for your gross pay and deposit it in a bank account for you each week.  It won’t appear on payroll (i.e. won’t be reported anywhere) and you can take the money each week tax-free and use it as you will.  (Now, why didn’t my accountant tell me about this great deal?).  Anyhow, the employee (Mrs. Williams) discussed it with her husband, and he told her not to do it, and she didn’t for two years (while other people apparently were not so fussy and enjoying their no-tax windfall).  However, the husband eventually gave in and agreed to it when the employer assured him that it was legal (free legal advice is only worth what you pay for it, didn’t he know?).  The paychecks stopped; the tax-free money commenced, and all was happiness until a few years later when the scheme imploded and the taxpayers pleaded guilty to willfully filing false tax returns which omitted Mrs. Williams’ income.

Now comes Mr. Williams asking for relief under the Innocent Spouse provision of the Code, specifically Sec. 6015(f) – Equitable Relief.  There are multiple factors set out in Rev. Proc. 2013-34 for consideration in such circumstances.  For most of them, the analysis was neutral---neither favorable nor unfavorable to Mr. Williams.  What cooked his goose, however, was the “knowledge or reason to know” test.  Why are you not surprised?  He was not an uninvolved and uninformed person.  He checked it out, if you recall.  Not only that, he signed a Form 4549 for each year (that’s the form which sets out the audit adjustments) and agreed that he was liable for a fraud penalty.  He did not dispute that he was aware of the omissions from income at the time that they occurred.

And, finally, it was shown that Mrs. Williams did not sign-up for the tax avoidance scheme until Mr. Williams said that it was OK to do so (remember he initially said no and she remained outside looking in).  So, Mr. Williams was a “contributing cause” of the income omissions on the tax returns.