Tuesday, September 29, 2015

Registered Tax Return Preparer Status May Be Reinstated

By William Delaney, EA
Westwood, Massachusetts
A proposal currently scheduled for hearing by the U.S. Senate Finance Committee described as a “Bill to Prevent Identity Theft and Tax Refund Fraud” includes a major provision which would mandate the regulation of all presently unregulated paid tax return preparers by reestablishing the Registered Tax Return Preparer status.

The approach is to amend Title 31 of the U. S. Code (from which the Treasury derives its authority to regulate under Circular 230) so that it will “…encompass all aspects of Federal tax practice, without regard to whether or not it includes representation before the Treasury.”

You may recall that a major issue in the Loving decision had to do with the definition of practice or representation (presenting a case) before the Treasury.  The IRS tried to expand the statutory definition of representation so that it could regulate everyone, but the Loving Courts both strongly disagreed.  This Bill would override the Loving decision by amending the statute (which is what should have been done by IRS/Treasury when they first proposed the RTRP concept).

The proposal would require the Treasury and the IRS to expeditiously:  “(i) approve third-party examination and continuing education providers for purposes of allowing individuals to obtain registered tax return preparer status; (ii) establish a program for evaluating and approving State-based tax credential programs for purposes of providing individuals with registered tax return preparer status; and (iii) end the voluntary Annual Filing Season Program.”

Provision (i) would recognize credentials such as those issued by ACAT as sufficient for also obtaining RTRP status; (ii) would recognize programs presently in place by states such as OR as sufficient for also obtaining RTRP status and (iii) it would end the AFS so-called “voluntary” Program.

Finally, in the same area of tax preparer regulation, “The proposal also authorizes the IRS to revoke identifying numbers issued to tax return preparers (PIN number) for failure to comply with regulations…”

Since this proposal is part of a larger bill which deals with identity theft and similar issues, it promises to be a popular topic which might just make it through the Congress if our legislators are not suffering from a permanent case of distraction and disarray.

More to follow, that’s for sure.

Monday, September 28, 2015

Deadline for Estate Executor Reporting Basis to Beneficiaries is Delayed

As we reported last month one tax provision included in the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, (PL 114-41) requires executors of estates that file a Form 706 to report the basis of inherited assets to the beneficiary that inherited the property.  This reporting is to take place no later than the earlier of 30 days from the due date, including extensions for filing Form 706, or 2) 30 days from the date the return is actually filed.  This reporting has to be made to the beneficiary as well as the IRS.  The Act also said the reporting would be determined by IRS in the manner and on any form IRS dictates.

This reporting is required for all estate tax returns filed after July 31, 2015.  Therefore executors who filed a Form 706 on August 1, 2015 would have to make this report to the beneficiaries no later than August 31, 2015.  Obviously Congress asking IRS on July 31, 2015, to get the form and manner created in time for executors to meet an August 31, 2015, due date is asking a lot.  IRS has responded by issuing Notice 2015-57 which extends the due date for this reporting until February 29, 2016.  The Notice also asks taxpayers to NOT submit anything regarding this reporting until IRS issues the form or other guidance. This does not mean the Form 706 can be delayed, even if just claiming the spousal exemption carryover, it merely means the reporting of the information for the uniform basis is delayed.

The Notice also gives an address if you are interested in submitting any comments on this new reporting.

This text has been shared with you courtesy of David & Mary Mellem, EAs and Ashwaubenon Tax Professionals.

Friday, September 25, 2015

All Good Things Come To He Who Waits

The MA Dept. of Revenue has just released a working draft relating to wagering income.  As you know, MA taxes wagering income but does not allow any deduction for wagering losses.  A deduction is allowed for the cost of the winning ticket.

Now comes the working draft which deals with (among other things) newly revised MGL Ch. 62, Sec. 3(B)(a)(18) (enacted in 2015---SEE Sec. 12 of Chapter 10 of the Acts of 2015,with an emergency preamble which makes it effective for tax year 2015).  This revision provides a deduction for “Losses from wagering transactions, that were incurred at a gaming establishment licensed in accord with chapter 23K or at any racing meeting licensee or simulcasting licensee, only to the extent of the gains from such transactions.”

As a result, MA will now allow gambling losses (but not to exceed gambling winnings) incurred at any establishment licensed by the state gaming commission (i.e. chapter 23K) or at state licensed race tracks or simulcasts.  So, forget about losses at Foxwoods, but don’t forget about losses at Plainridge (Plainville).  The MA Lottery is not included in the above, so no deduction for gambling losses.

Likewise, out of state establishments (such as Foxwoods) are also not included in this new provision.

Thursday, September 24, 2015

Massachusetts/Rhode Island NATP Chapter Board Member Nominations

Pursuant to Article VI, section 2 of The Bylaws of the Massachusetts/Rhode Island Chapter of National Association of Tax Professionals, we, the nominating committee, appointed by Walter Matisewski, President and by the Board of Directors, hereby propose the following members to fill the expiring Director’s positions for the year ending December 31, 2015.

Region Term Name and Address
1 3 yr  June Massee - 21 Sperry Road, Blandford MA 01008
2 3 yr  Dorothy Dimo - 30 Lombard Street, Warren MA 01803
3 3 yr  Joseph Serrecchia - PO Box 273, Wakefield MA 01880
4 3 yr  Virginia Arlington - 2051 Acushnet Avenue, New Bedford MA MA 02745
5 3 yr  Paul DeBloise - 25 Waterfront Circle, Glendal RI 02826
5 3 yr  Louis Vastano Jr - 470 E. Greenwich Avenue, West Warwick RI 02893
At-Large 3 yr Kenneth Maloof - 25 Belmont Street, South Easton MA 02375

Furthermore, please be aware that under Article IV, section 5 of The Bylaws,, notice of the election shall be provided to every member 30 days prior to the date set to announce the result of the director elections.  The notice of election may be sent by ordinary mail as either a separate mailing or within other content such as a regular newsletter or other communication.

The election will be held on Tuesday, October 27th, 2015 at the annual meeting to be held at the Holiday Inn, Mansfield, MA.

Respectfully submitted:
Nomination Committee Members:
Sharon Cummings, Chair
Joseph Gerrior Jr
Michele Hurd

Wednesday, September 23, 2015

Identity Protection Services Not Taxable

A few months ago IRS announced it had the online transcripts request system hacked into and information on more than 100,000 taxpayers may have been wrongfully obtained.  Recently IRS announced the number was actually more than 300,000.

As a result of confidential information being wrongfully obtained, either through hacking or another security breach, companies often provide credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other similar services to the customers, employees, or other individuals whose personal information may have been compromised.  These actions are intended to prevent and mitigate losses due to ID theft resulting from the data breach.

Taxable income as defined in the law includes any ascension to wealth unless specifically exempt.  Questions have arisen regarding the taxability of these ID theft services received by taxpayers.

In Announcement 2015-22 IRS has stated the value of these ID theft services are not taxable income. Therefore the value of these services are not reportable on either Forms W-2 or Forms 1099.

This announcement can be found by going to www.irs.gov/pub/, clicking on irs-drop, and then on a-15-22.

Monday, September 21, 2015

Reversal of Mortgage Interest Deduction Limitations for Co-Owners

Back in 2013 we reported the Sophy case regarding two unmarried co-owners of co-owned real estate that they both used as their principal residence.  Tax Court had ruled their Acquisition Indebtedness limit was one combined $1,000,000 instead of $1,000,000 each and the Home Equity limit was one combined $100,000 limit instead of $100,000 each.  Now the Court of Appeals for the 9th Circuit overturned this case and ruled the limit for Acquisition Indebtedness and Home Equity debt limits are $1,000,000 and $100,000, respectively, for EACH unmarried co-owner.

There are two limits on mortgage interest debt.  First is an Acquisition Indebtedness limit of $1,000,000.  Second is a Home Equity Indebtedness limit of $100,000.  (Home Equity Indebtedness can be used for any purpose including purchasing the residence.)  The question in this case is whether these limitations are to be applied per taxpayer or per residence.

Again Tax Court agreed with IRS citing the code’s verbiage as saying “with respect to any qualified residence of the taxpayer.”  Tax Court stated it appears Congress intended the limit to apply per property and not per taxpayer.  The Court of Appeals for the 9th Circuit ruled in favor of the taxpayer.

You can find the Tax Court case by going to www.ustaxcourt.gov, clicking on the OPINION SEARCH tab and then entering Sophy in the CASE NAME box.  You can find the Appeals Case by going to ca9.uscourts.gov and entering Sophy.

Sophy, 138 TC No 8; 9th Circuit Court of Appeals

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

Wednesday, September 16, 2015

Severance Pay is Subject to FICA Taxes

The decision is final until the law changes.  Over the past few years IRS and taxpayer have argued this issue in the courts.  Taxpayers argued severance pay is not subject to FICA taxes and IRS argued it falls into the definition of “wages and compensation” and is subject to FICA taxes.

The US Court of Appeals for the Sixth Circuit ruled severance pay did not fall into the definition of wages/compensation and were not subject to FICA taxes in the case of US v Quality Stores Inc.  IRS appealed to the Supreme Court.

The Supreme Court reached a unanimous 8-0 decision determining the severance pay is subject to FICA taxes as compensation.  Although FUTA taxes were not part of this decision, IRS has taken the position that severance pay subject to FICA is also subject to FUTA.

As a result of this case IRS has disallowed all claims (over 3,000 taxpayers) for refunds of FICA taxes on severance pay.  IRS recently issued Announcement 2015-08 with the above information.

Some taxpayers may have filed a refund claim based on an additional basis or different basis than the issues involved in Qualify Stores Inc.  For these taxpayers the Announcement gives the name and telephone number of the IRS person to contact for information regarding how to proceed with their appeal request for that portion of the disallowed claim.

This text has been shared with you courtesy of David & Mary Mellem, EAs & Ashwaubenon Tax Professionals.

Tuesday, September 15, 2015

Innocent Spouse Relief Granted When MFJ Return Signed Under Duress

Mr. & Mrs. Smith married in 1998.  They had three children.  They divorced in 2010.  During their entire marriage Mr. Smith physically and verbally abused Mrs. Smith including threatening her life, physical assaults, and verbal abuse. Mrs. Smith documented several instances of abuse in a handwritten diary from December 13, 2005, to April 4, 2007.

On April 3, 2007, Mr. Smith presented Mrs. Smith with a self-prepared 2006 MFJ income tax return for her signature.   She refused to sign the return without having the chance to review it.  He allowed her a quick glance at the return.  She saw a casualty loss deduction that was much higher than their real loss and refused to sign the return.  Mr. Smith became angry and twisted Mrs. Smith’s arm several times, pulled her hair, struck her on the head with an open hand.  She still refused.  Later that evening he cornered her in the bathroom, shoved her against the wall, threatened her with harm and told her she would never see their children again.  Fearing for her safety she scrawled a signature on the tax return.  A few days later Mr. Smith went on a business trip overseas.  That day Mrs. Smith went to the police station and filed a report about the April 3rd abuser.  Shortly thereafter she filed for a divorce and a temporary restraining order.  About a year later they reconciled.

In December 2008 IRS began an examination of the 2006 MFJ return.  Mr. Smith did not allow Mrs. Smith to participate in the examination.  In March 2009 he asked that she sign several documents that would have given him sole authority to communicate with IRS.  She refused to sign them.  He became angry.  The police were called.  An emergency protective order was filed against Mr. Smith. Mrs. Smith again filed for divorce a few days later.  The divorce was final in 2010.

Upon issuance of IRS’ Notice of Deficiency Mrs. Smith filed for Innocent Spouse Relief.  Mr. Smith filed a Form 13, Notice of Intervention.  He testified in Court that they together prepared the 2006 joint tax return and both voluntarily signed it.  She provided evidence showing bruising on her left arm and a copy of the police report, the restraining order, and her diary.  The Court was more inclined to believe her than to believe him and granted innocent spouse relief.  Many issues are considered in determining if a taxpayer is entitled to this relief including, but not limited to, voluntarily signing a MFJ return, facing economic hardship if required to pay the tax, taxpayer is separated or divorced from other party, attempts to be current in filing subsequent tax returns, knowledge of the inaccuracy, and knowing the other party would not pay the tax.

Final result –When all of the issues were examined, Tax Court & Ct. of Appeals granted innocent spouse relief to Mrs. Smith.

TC Memo 2011-280, 9th Circuit Court of Appeals, 2015-1

This text has been shared with you courtesy of David & Mary Mellem, EAs & Ashwaubenon Tax Professionals.

2015 MA/RI NATP Annual Meeting & Educational Seminar - A Little Over A Month Away - Register Now

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 27th 2015

Join the Massachusetts / Rhode Island NATP Chapter on Tuesday, October 27th, 2015 for our Annual Meeting & Educational Seminar. This all day event will be held at the Holiday Inn in Mansfield, MA. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great 8 CE Hour opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities. This seminar is limited to the First 100 Registrants!

  • For online registration with credit card, click here.
  • To register by phone, fax or mail, click for the registration form.
  • After October 26th, please print the form (see link above) and register at the door.

Speaker - Kathryn M. Morgan, EA, Fellow NTPI

Born and raised in the San Diego California area as a Navy “brat”, Kathy joined the US Air Force straight out of high school.  Serving for 13 years as a Military Police Officer in Washington DC, in the Presidential Security Squadron, in the United Kingdom as RAF Greenham Common, assisting in opening the first Ground Launched Cruise Missile base in the European Theater amid large protests, and at Barksdale AFB is NW Louisiana guarding our nations B52 fleet and participating in Desert Storm.

In 1993 Kathy took an early retirement from the military during the force reduction and went to work for the Bossier City Louisiana Police Department as a Police Communications Office and Dispatcher. She worked in this position for 13 years.

While working for the police department, Kathy decided to try something completely new and took a basic income tax class from H&R Block.  The rest, as they say, is history.  She just completed her 21st  year with H&R Block working in the Bossier City Premium office.  Kathy earned her Enrolled Agent license in 2002 and has completed the prestigious National Tax Practice Institute Fellowship (NTPI).  Kathy has also been the lead writer of the Louisiana State Manual for the H&R Block Income Tax Course for the last five years, assists with upper level courses, and teaches at every level for the company.  She proudly holds the titles of Enrolled Agent, Master Tax Advisor, Fellow NTPI, Speaker, Instructor, Representation Specialist and Consultant.

She has been published by several tax research companies, including Parker Tax Publishing and TaxConnections.com.  She is a accomplished speaker and instructor on a wide variety of tax issues. Through her company, Puzzled By Taxes?, she offers speaking, writing, and instruction.

Kathy lives and practices in the Shreveport Louisiana area and when not “talking tax” she enjoys spending time with her grandchildren and family, writing and reading.

Tax Research Tips & Techniques for Citations, Court Cases & Basis Reconstruction

Good research is necessary to keep up with the ever-changing tax laws and practical procedures. This course will include research methodology, tips and techniques.  Case studies will demonstrate research methods and locations as well as due diligence procedures for reconstructing basis in capital assets. Participants will learn the hierarchy of citation authority as well as the standards of reliance on opinions when working with tax positions. IRS #JSAQG-T-00016-15-I

Notice of Deficiency: It’s NOT The End Of The World!  Judicial Review, Collections Appeals and Collections Due Process

This presentation will discuss the actions that need to be taken when a client receives a Statutory Notice of Deficiency from the IRS. A thorough review of the timing aspects of appeals and Tax Court filings will be covered as well as case reviews of each option. (IRC §6212)  Participants will learn how to use the IRS Collections Appeal Program (CAP) or the Collection Due Process (CDP) program to their client’s benefit; the pros and cons of both programs; and Judicial Review procedures and restrictions.  We will also briefly review the integration of the collections and exams sides of this topic. IRS #JSAQG-T-00017-15-I 

Living Off The Grid:  Bringing Your Client Back Into Compliance

In this course, we will tackle the long term non-filer, (I.R.M. Sec. 4.19.17) taxpayers who live by working in an “under the table” environment.  We will learn the types of situations that make non-filers need to get compliant; what options for getting and remaining compliant the taxpayer has; how far back the taxpayer needs to go to get compliant; and review payment options for taxpayers who have large balances once the returns are filed.  IRS #JSAQG-T-00018-15-I

Identity Theft: Everyone Can Become A Victim!

Identity Theft: It’s a worldwide crime wave and it can affect every aspect of a taxpayer’s life.  We will discuss how to keep clients safe from this crime, what to do if they are a victim, steps the IRS is taking to help prevent identity theft, and ways to speed the process through the IRS Identity Protection Specialized Unit to get the clients back on track in a timely manner.  IRS #JSAQG-T-00019-15-I

Special Offer for the January 7, 2016 State Update Seminar
Sign up on October 27, 2015 and pay by November 9, 2015 for ½ Price 

Monday, September 14, 2015

MassTaxConnect for Massachusetts Business Taxpayers

If you are a DOR WebFile for Business user

Please be sure that your contact information, particularly your email address, is up to date on WebFile for Business (WFB).  DOR is sending important information about the replacement of WFB with MassTaxConnect coming November 30, 2015.  It’s simple to check – just log on to WebFile for Business today and update your information.  For more information on MassTaxConnect, check out the webpage at the DOR website.

Thursday, September 10, 2015

Tax Practitioner Liaison Meeting 09/16/15 in Boston

The next IRS Practitioner Liaison Meeting will be held on Wednesday, September 16th, 2015 from 9:00 a.m. – 12:00.  The meeting will take place in the JFK Federal Building.

You will have the opportunity to meet with IRS representatives and other tax professionals to discuss current issues. The meeting agenda is still being finalized, but will include brief presentations from Small Business/Self Employed Examination, IRS Collection, IRS Taxpayer Advocate and Large Business and International Examination.

Since attendance to this event is by invitation only, if you are interested in attending, please reserve your seat no later than Thursday, September 10th. Please contact Mary Hanson, Internal Revenue Service SB/SE:CSO, Senior Stakeholder Liaison - Phone 617 316-2471, e-fax 1-877-477-8178, Mary.S.Hanson@irs.gov
If you have questions or topics you would like us to address during the meeting, please let Mary know.

Wednesday, September 9, 2015

The Value of Teamwork

Kim P. Loewer, EA, ATA
Middlebury, VT
Compare Massachusetts-Rhode Island NATP, the New England Patriots, Boston Red Sox, Bruins and Celtics. What do they all have in common? They are all great teams.  Each team relies not on individual effort, but the total focus, commitment, and involvement of each team member to achieve success.

I particularly enjoy ice hockey having grown up less than a stone’s throw from the Canadian border. A championship hockey team combines players who are scorers, defenders, role players, and back-stoppers, as well as a complete coach and training staff.  Everyone has a function and purpose. Without all team members pulling in the same direction they will not succeed.

The same is true for MA-RI NATP.  You are a member of an exceptional NATP chapter. Your chapter succeeds because there is a commitment and involvement of many members.  From the president, to the education committee, to the “meeter ‘n greeters” at registration, everyone is dedicated to excellence and success.

But a team effort is just that – the commitment and involvement of many individuals.  I would challenge each and every one of you to actively join in your chapter’s success.  The time commitment need not be overwhelming.  There are opportunities for “event champions” to focus on specific tasks, committee assignments to enhance member services from the chapter, behind the scenes details to make events run flawlessly.  You will be rewarded with the knowledge YOU made a difference for your chapter, for your profession, and in giving back to your fellow tax professionals.  The spirit of volunteerism is alive and strong at NATP.  Become part of the solution and join in enhancing the future and success of MA-RI NATP.

About Kim P. Loewer, EA, ATA

Since graduating cum laude from Middlebury College in 1976, Kim has spent the last 26 years in private practice preparing personal and business income taxes and representing clients in tax controversies. His firm, Loewer & Associates, also provides bookkeeping and payroll services. In 2012, Kim was appointed to the Vermont Tax Advisory Board and the Vermont Tax Technical Workgroup. He is a co-founder of the Vermont Chapter.

Tuesday, September 8, 2015

Part of Disability Pension Taxable

Mr. Sewards worked for the sheriff’s department for 34 years when he retired on account of a service-connected disability.  Amounts received under a workers’ compensation act or “in lieu of workmen’s compensation” are not taxable.

Mr. Sewards received a 1099-R showing the gross amount of pension received in box 1 with the “not determined” box checked in Box 2 (taxable amount).  He excluded the entire amount of the pension from income on his tax return.

Upon examination IRS looked at the statutes under which Mr. Sewards was able to receive the pension income.  The statutes provided benefits if the taxpayer suffered a service-connected disability.  The statutes also provided benefits if the taxpayer had completed 20 years with the service.  In the case of a taxpayer who has both a service-connected disability and has met the 20 years test, the statutes provide the taxpayer would receive an annual guaranteed amount equal to at least 50% of his final compensation.  If the normal retirement pension calculation is higher than the service-connected disability, the taxpayer would receive the higher amount.

IRS took the position that the pension amount received in excess of the service-connected disability amount was taxable since this excess amount was connected to the taxpayer’s age, years of service, etc. and was not related to the service-connected disability.  Both Tax Court and the 9th Circuit Court of Appeals agreed with IRS.

Results – The pension representing the service-connected disability guaranteed amount is nontaxable while the excess amount, which was received due to nondisability factors is taxable.

Jay & Francis Sewards, 9th Circuit Court of Appeals, 2015-1, 12-72985

This text has been shared with you courtesy of David & Mary Mellem, EAs & Ashwaubenon Tax Professionals.

Friday, September 4, 2015

What is a legitimate seller of Marijuana to do?

William Delaney, EA
Westwood, MA

Jason R. Beck operated medical marijuana businesses in California, where it is legal to do so.  On January 11, 2007, Beck’s West Hollywood, CA business location was raided by the federal Drug Enforcement Administration (DEA).  While Mr. Beck’s operation was legal under state law, it operated in violation of federal law.  Among other things, the DEA allegedly seized $600,000 of what would be classified in that industry as inventory, plus cash.

On his 2007 Schedule C, Mr. Beck reported $1,700,000 in gross receipts; $1,429,614 in cost of goods sold (COGS); and $194,094 in expenses.  His COGS total included the $600,000 seized by DEA.  All income and expense amounts were provided to the preparer by the taxpayer, through his attorney.  The tax preparer neither prepared any books and records nor questioned any of the taxpayer provided information.  Upon audit, it was determined that the taxpayer “…routinely destroyed most documents pertaining to the operation of both dispensaries.”  So, on the issue of substantiation, three strikes against the taxpayer.

However, the larger issue was whether anything could be deducted if documentation had been provided and someone did a decent job with the books and records.  The federal determination was that the taxpayer’s trade or business “…consists of trafficking in controlled substances…which is prohibited by Federal law.”  IRC Sec. 280E disallows deductions and/or credits “…if such trade or business…consists of trafficking in controlled substances…”  So, on the issue of allowable deductions, three strikes against the taxpayer regardless of whether or not he maintained adequate business records.