IRS Scheduled System Maintenance Starting November 22, 2014

Individual (1040) returns cannot be filed between November 22nd and sometime in January

Each year, the IRS shuts down e-file temporarily for a maintenance period.  After 10 am on November 22nd, 2014, IRS will stop processing individual (1040) income tax returns.  Transmissions for 2012 and 2013 returns will resume sometime in January 2015, or in accordance with the start-up of the filing season for 2014 returns.  2011 returns can no longer be e-filed after this shut down.  IRS supports 3 years at a time.

Because of the extended period of time, which will be approximately 2 months, most software companies will not be accepting files during this period.

NOTE:  This does not apply to business returns at this time.  The tentative date for shut down of business e-file is 12/26/2014.

Minimum Wage and Unemployment Wage Base Changes for 2015

Did you know…the MA unemployment tax wage base for 2014 is $14,000, but it will increase to $15,000 as of 1/1/2015.  The RI wage base (for rates other than the maximum) is currently $20,600. The 2015 rate has not been announced.

For 2015, the MA minimum hourly wage will increase to $9.00; for 2016, the minimum will be $10.10; for 2017, the minimum will be $11.00 (highest state rate in the nation). The MA minimum hourly tip worker wage will increase in increments from $2.63 to $3.75 by 2017.

For 2015, the RI minimum hourly wage will increase to $9.00.

RI Governor Chafee and RI DLT Announce Repayment 6 Months Early of the Federal Unemployment Insurance Loans

Providence, RI—Governor Lincoln D. Chafee joined Rhode Island Department of Labor and Training (DLT) Director Charles J. Fogarty on today at DLT in Cranston to announce repayment of the funds the state borrowed to cover Unemployment Insurance (UI) benefit payments.

Since March 2009, the U.S. Treasury has loaned our state $905 million to assist unemployed Rhode Islanders through the recession. With the final payment of $2,690,368.70 to the U.S. Treasury six months early, businesses will save more than $50 million in 2015 – including $36 million in Federal Unemployment Tax Act (FUTA) payments and $14.5 million in interest assessment taxes. Rhode Island's 32,000 employers — who pay for the Unemployment Insurance Trust Fund (UITF) — will save $45 million more in FUTA taxes in 2016.

"This is a big win for Rhode Islanders and our business community," Governor Chafee said. "In 2011, my administration faced a huge challenge with an insolvent Unemployment Insurance system, an existing UI loan and a lack of a plan to repair the system or repay the loan. By borrowing from Treasury, we spared the business community the burden of repaying the loan. That was our only course of action acceptable to me."

In January of 2011, Governor Chafee requested Director Fogarty develop a balanced UI repayment plan that made the UITF solvent, eased the tax burden on employers; aligned our benefit structure with Connecticut and Massachusetts; and built the required reserves in the UITF to lower the UI tax payment schedule. The FY 2012 state budget adopted by the General Assembly included this UI repayment plan that would be phased in over three years.

"Nobody liked the overhaul plan. We really had to sell it," Director Fogarty said. "Claimants didn't like the changes we were making to their wage replacement rate and employers didn't like the additional contributions that were asking them to make. The only way for the plan to work was to appeal to shared sacrifice."

Currently, DLT projected that in 2019 the UITF will reach the required reserve level, which will allow the State UI Tax Schedule to drop Rhode Island from the highest bracket for the first time since 1992. When this occurs, dropping one tax schedule will save R.I. employers an additional $21 million annually.

In an August 2011 report, the National Employment Law Project (NELP) recognized two states out of the more than 30 states that borrowed federal money as having dealt with their UI system crises head-on. "Only Colorado and Rhode Island this year implemented effective financing reform, by raising and indexing their taxable wage bases, and by requiring that contributions into their trust funds be based on the amount businesses draw in benefits," the NELP reported.

It added: "Rhode Island also enacted harsh changes to its benefit calculation formula that will result in that state's wage replacement rate falling from among the best in the nation to the middle of the pack."

The Cohan Rule is Still Alive and (Sort Of) Well, At Least Some of the Time

Submitted by William Delaney, EA of Westwood, MA

William Delaney, EA

George M. Cohan was a well-known entertainer in the1920s and 1930s.  He traveled across the U.S. and in many foreign countries.  He did not maintain good business records; sometimes he maintained no business records at all.  In a well publicized decision issued in 1930, the 2nd Circuit Court of
Appeals allowed a portion of Cohan’s poorly documented travel related expenses based upon credible testimony and the obvious fact that if he earned income while appearing at physical location X he must have incurred some expense in traveling to and residing temporarily at physical location X. Thus we have the Cohan Rule.  See Cohan v. Commissioner, 39 F. 2nd 540 (2nd Cir. 1930).

Many years later, the IRS decided to limit the application and impact of the Cohan Rule and it issued temporary regulation 1.274-5T (effective for taxable years beginning on or after 1/1/1986).  This “temporary” regulation is still the applicable guideline.

Under the regulation, “…no deduction or credit shall be allowed with respect to---(travel, entertainment, gifts, listed property [editor’s insert])…unless the taxpayer substantiates each element of the expenditure or use…in the manner provided in paragraph (c) [i.e. the substantiation requirements – editor’s insert]…This limitation supersedes the doctrine found in Cohan v. Commissioner…”