Monday, December 29, 2014

Tax Season Opens As Planned Following Extenders Legislation

Following the passage of the extenders legislation, the Internal Revenue Service announced today it anticipates opening the 2015 filing season as scheduled in January.

The IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time.

The decision follows Congress renewing a number of "extender" provisions of the tax law that expired at the end of 2013. These provisions were renewed by Congress through the end of 2014. The final legislation was signed into law Dec 19, 2014.

"We have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems," IRS Commissioner John Koskinen. "Our employees will continue an aggressive schedule of testing and preparation of our systems during the next month to complete the final stages needed for the 2015 tax season."

The IRS reminds taxpayers that filing electronically is the most accurate way to file a tax return and the fastest way to get a refund. There is no advantage to people filing tax returns on paper in early January instead of waiting for e-file to begin.

More information about IRS Free File and other information about the 2015 filing season will be available in January.

Friday, December 26, 2014

IRA Rollovers Clarified

It is well known that a taxpayer does not have to pay tax on a trustee-trustee transfer of an IRA into another IRA.  It is also well know that an IRA distribution is not taxable if the distribution is rolled into an IRA within 60 days of the distribution.  It is also well known that a taxpayer can only perform such a rollover once every 365 days.  It also has been a known fact that the once-every-365-days applies only to the two IRA accounts involved in the rollover and a taxpayer could still do another rollover as long as it involves two other IRA accounts.  This position was in IRS Publication 590 and IRS regulations.

IRS challenged Mr. Bobrow (TC Memo 2014-21) who performed multiple rollovers in a tax year even though no rollover involved a tainted account.  Basically IRS argued its own regulations and Publication 590 were an incorrect interpretation of the Internal Revenue Code.  Tax Court ruled in favor of IRS stating the restriction applies to all of the taxpayer’s IRAs as if they were one IRA.  Basically Tax Court said a rollover from one of a taxpayer’s IRA accounts to another of the taxpayer’s IRA accounts restricts the taxpayer from performing such a rollover for the next 365 days regardless of what IRA accounts were involved.  Now IRS is rewriting the regulation and Publication 590 to match Tax Court’s position.  IRS has generously said it will not enforce its new regulations on any rollover that takes place before January 1, 2015.

NOW THE LATEST information can be found in Announcement 2014-32.  We’ll present the main issues numerically:

Wednesday, December 24, 2014

Happy Holidays From MA/RI NATP

Happy Holidays from your Massachusetts/Rhode Island Board of Directors.

Hope to see in Sturbridge on January 8th, 2015 for our State Update Seminar!

Wednesday, December 17, 2014

Section 263(a)-1(f) De Minimus Safe Harbor Elections

What Is A Section 263(a)-1(f) De Minimus Safe Harbor Election? Why Is It Important? And, What Also Must Be Done (If Anything)? By William Delaney, EA

The IRS has issued regulations and procedures dealing with the expense, repair, or capitalization of various types of assets, materials and supplies.  As a result, we must advise all of our clients who claim depreciation and/or write-off such purchases as a business expense that they need to do something, specifically adopt an accounting method which is permitted under the new regulations and make an election to do so.

IRC Section 263A was originally enacted in 1986 and amended a number of times over the years, most recently in 2005.  It is, at least in the eyes of the Internal Revenue Service, the operative guide to what is permitted and/or allowed regarding expense v. capitalization.

IRC Section 263A(i) includes this language:  “The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section…”  This is a directive, by the Congress to the Secretary of the Treasury, to write regulations (shall prescribe) applicable to a particular Code section.  IRC Section 263 (which predates Section 263A by many years) does not have any similar language.

Reg. 1.263(a)-1 – Capital expenditures; in general. -  appears to be written under the authority of IRC Section 263A(i).  This would appear to allow the Secretary of the Treasury the authority to “carry out the purposes” of Code Section 263A, which may include defining an accounting method change.  See the general rule as contained in IRC Section 446(e) - requirements respecting change of accounting method.  Regulation 263(a)-1(g) excludes the safe harbor election method change (see below) from the need to obtain accounting method change approval by stating that this is not an accounting method change.  This appears to be a reinterpretation of Code Section 446(e).

Code Section 446, however, does not provide for any delegation of authority.

Now comes Regulation Sec. 1.263(a)-1(f) which provides for a safe harbor election available for our clients who do not have “applicable financial statements” which are, essentially financials which are submitted to the SEC and/or are “certified audited” by a CPA or a foreign equivalent.  The annual election is made on an original return filed by the due date, including extensions.  The election, or failure to make one, is irrevocable.

Regulation 1.263A-1(k) defines and explains that this type of action is a change in accounting method and requires advance approval from the IRS in accordance with Code Section 446(e).  See also Reg. 1.446-1(e)(3)(ii) which sets out the authority for the IRS to establish administrative procedures (i.e. use of Form 3115) for obtaining the required approval.  The procedures are outlined in Rev. Proc. 2011-14.
William Delaney, EA
Westwood, MA

Rev. Proc. 2014-16 modifies Rev. Proc. 2011-14 (issued to outline the Code Section 446 requirements) and changes the automatic (if applied for) accounting change approval to the extent that a Section 263 Election action does not rise to the level of an accounting method change.  If that is so, there is no need to file a Form 3115.
At this point, if you are totally confused, so am I.  There is more than enough contradictory information for this writer to conclude that the only prudent course to follow  to protect clients who are making this election is to also make a one-time filing of Form 3115 and invoke an automatic consent provision under Rev. Proc. 2011-14.  This appears to be a change #8 under Part I, 1(a) of Form 3115 and would require some boiler plate explanation under Part II, 12 and 13, and Part III, 18.  It does not seem that the remainder of the form need be completed.

A sample safe harbor election (for internal accounting record use) is attached.  Many preparers plan to use a more detailed format.  Most professional software packages already have a boiler plate format available for attachment to the actual return.  We are unable to provide guidance as to what will be acceptable by the IRS.

Internal Expense/Capitalization Policy for Books & Records And Financial Statement Preparation

This will confirm our formerly unwritten policy which has been and continues to be that a capital asset is a unit of property with a useful life exceeding one year and a per unit acquisition cost exceeding $500.  Such capital assets will be depreciated over their useful lives.

Tangible assets with a cost not to exceed $500 are expensed in the year of purchase.

Invoices substantiating such purchases are retained for a minimum of seven years for assets expensed in the year of purchase, and for the useful life of a capital asset which is subject to depreciation over a period of years.

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