2017 PTIN Renewal Period Underway for Tax Professionals

WASHINGTON –– The Internal Revenue Service today reminded the nation’s more than 725,000 federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) for 2017. All current PTINs will expire Dec. 31, 2016.

Anyone who prepares or helps prepare any federal tax return, or claim for refund, for compensation must have a valid PTIN from the IRS. The PTIN must be used as the identifying number on returns prepared.

“We ask that you renew your PTIN as soon as possible to avoid a last-minute rush,” said Carol A. Campbell, Director, IRS Return Preparer Office. “It’s easy to let this slip as the holiday season approaches.”

For those who have a 2016 PTIN, the renewal process only takes a few moments online. The renewal fee is $50. If you cannot remember your user ID and password, there are online tools to assist you. Preparers can get started at www.irs.gov/ptin. If you are registering for the first time, the PTIN application fee is $50.00 and the process may also be completed online.

Paper Form W-12, IRS Paid Preparer Tax Identification Number Application and Renewal, is available for paper applications and renewals, and takes four to six weeks to process. Failure to have and use a valid PTIN may result in penalties. All enrolled agents, regardless of whether they prepare returns, must have a PTIN in order to maintain their status.

Annual Filing Season Program Participation Kicks Off

The voluntary IRS Annual Filing Season Program is intended to encourage non-credentialed tax return preparers to take continuing education (CE) courses to increase their knowledge and improve their filing season readiness. Participation generally requires 18 hours of CE, including a course in basic tax filing issues and updates, ethics, as well as other federal tax law courses. More information on the types and amounts of CE required for the program is available at www.irs.gov/Tax-Professionals/Annual-Filing-Season-Program.

Preparers desiring to receive an Annual Filing Season Program - Record of Completion for 2017, must (1) complete their continuing education requirements by Dec. 31, 2016; (2) have a valid 2017 PTIN; and (3) consent to adhere to specific practice requirements in Treasury Department Circular No. 230.

The IRS has a video to demonstrate how to sign the Circular 230 consent and print the Record of Completion.

Enrolled agent credential

The Annual Filing Season Program is a filing season qualification while an enrolled agent license provides professional status. The enrolled agent credential is an elite credential issued by the IRS to tax professionals who demonstrate special competence in federal tax planning, individual and business tax return preparation and representation matters.  Enrolled agents have unlimited representation rights; allowing them to represent any client before the IRS on any tax matter.  As non-credentialed return preparers consider the next steps in their professional career, the IRS encourages them to consider becoming an enrolled agent.

Enrolled agents and participants in the Annual Filing Season Program are included in the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications created on IRS.gov to help taxpayers make wise decisions when choosing tax return preparers.

The directory also contains information on attorneys, certified public accountants (CPAs), enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.

IRS.gov has a page that explains the various tax return preparer credentials and qualifications, as well as a page with information regarding how to become an enrolled agent.

IR-2016-142, Oct. 28, 2016

Give This Taxpayer An "A" For Creativity; An "F" In Application of Tax Law

William Delaney, EA
Westwood, MA

Dear Readers---you can’t make up this stuff!  Here are the facts in Hatcher v. Comm., T.C. Memo 2016-188 (10/6/2016).

Taxpayer Mary B. Hatcher was employed for ten years by Blockbuster Corp., including three years as Senior Vice President and Treasurer.  Her responsibilities included tax matters.  She possessed an undergraduate business degree and an MBA in corporate finance.  After her employment ended, in 2010, she continued with Blockbuster as a 1099-MISC consultant.

While still single (she married in 2010), she made a series of loans to her boyfriend, Brad Carpenter.  She advanced $75,000 in March 2004, and obtained a promissory note to be repaid “based on mutually agreed company performance, beginning 1 year following distribution or licensing agreement” of a comic strip which Carpenter hoped to develop and syndicate.  In April of the same year, she advanced $50,000 which Carpenter used to purchase a Hummer vehicle, apparently with Hatcher’s approval.  Hatcher continued to advance funds, and by October of 2005 (when they had stopped dating) the total was $430,500.

The 2004 promissory note was superseded by one issued June 1, 2006, which stated that the purpose of the loans was “to fund Carpenter’s personal expenses and the development of his comic strip.”  The note was due on December 31, 2007.  Carpenter did not pay the note.  In February 2008 and April 2010 the past-due note was amended.  The second amendment required monthly installment payments of $1,000 (no mention of interest although the past-due note carried a 5% rate of interest).  Payments totaling $7,000 were made between March and October 2010; then, the payments stopped.  No interest was attributed to the repayments.

Mary believed that no further payments would be made, especially since Carpenter had e-mailed to her on December 17, 2010 that “I have no money.”  Hatcher sent to Carpenter a formal notice of default and, on February 15, 2012 she obtained a court awarded judgment for damages of $573,175 (principal - $430,500; interest - $142,675) and attorney fees of $50,000.

In an effort to collect, Hatcher, via discovery, alleged that he was receiving $7,500 per month of disability income plus unexplained bank deposits.  This occurred in 2012, so the Court noted that “As of December 31, 2010, the Carpenter note had not become completely worthless.

So far, a not uncommon fact pattern.  Love blinds one to the other persons faults, and may cause you to do things which you would normally not do, such as lend large sums of money while failing to check on the background and credit worthiness of the borrower.  The Court made note of this, and of Hatcher’s extensive financial background, when arriving at its determination.

It appears that Hatcher thought about a bad debt deduction on her 2010 personal income tax return and may have concluded that this defaulted obligation should not be classified as a personal bad debt (with the limitation on how much could be deducted each year); she wanted a business bad debt deduction which would wipe out her jointly filed 2010 income plus create an NOL which would carryback to 2008 (a year in which she had significant income).  Ah, so how to tax plan for the desired result, thought this business major with an MBA!  I’ve got it…

Hatcher formed an LLC, MBH Partners LLC (apparently a single member LLC because it filed a Schedule C) and, almost immediately, contributed the Carpenter note to the LLC.  At the end of 2010, the LLC held the note and nothing else.  It had not engaged in lending or other trade or business activities; it had no customers, although it was formed to provide advisory and consulting services.

Here's Some Info on Our Chapter Makeup

Say Hello to Our Newest Board of Directors Member

Ronald Fisher, EA
Whitinsville, MA

My name is Ron Fisher and I have lived in the Uxbridge/Whitinsville area my entire life. I currently reside in Whitinsville with my wife Carol. I have one daughter (Alison) who lives in Uxbridge and works for me during tax season.

I attended Bryant University and have a BSBA in Accounting. For the past 40+ years I have held various full time Finance and Credit Director Positions for local consumer products manufacturers including Hasbro, Safety 1st, Teknor Apex and Honeywell.

I started preparing tax returns part time out of a home office in 1981. Since then, I have built a tax practice that today includes over 450 clients mainly in the Blackstone Valley area.  In 2013 I made my tax practice my full time pursuit and I opened a tax office in Whitinsville. I have been an enrolled agent since 2002 and a member of both the NATP as well as the NAEA since 2003. I also belong to both Massachusetts and RI local NAEA organizations.

Thank you for voting for me and I am looking forward to being more involved with NATP in a director role.

Ron was voted to the Massachusetts / Rhode Island Board of Directors at the chapter's Annual Meeting on October, 26th, 2016. His 3 Year Term beings on January 1st, 2017.

Court Cases For Today's Seminar Session

Welcome to the Massachusetts/Rhode Island Annual Meeting and Seminar.

Below, you will find references to the court cases that Cheryl Morse will be referring to during the sessions.

Court Cases

Ashworth v. Commissioner of IRS

Eichler v. Commissioner of IRS

English v. Commissioner of IRS

Hugee v. Commissioner of IRS

Johnson v. United States

Morris v. Commissioner of IRS

Olivo v. Commissioner of IRS

Weiss v. Commissioner of IRS

Thank you for attending today's session.

2017 MA / RI NATP Annual State Update Seminar

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 5th 2017

Join the Massachusetts / Rhode Island NATP Chapter on Thursday, January 5th, 2017 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 are handled online directly by National NATP. 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. Remember, if you sign up for this event at the October 25th 2016 event, you get 50% off of your registration!!

• 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:

What You Need To Know Regarding FBAR & Form 8938 presented by William Delaney, EA of MA/RI NATP Chapter.

Massachusetts State Tax Update including Launch of MASSTAXCONNECT for Personal Income presented by Brian Lynch, Dana Ackerman & Gilbert Gonzalez of Massachusetts Department of Revenue.

Rhode Island State Tax Update presented by Scott Lewis of Rhode Island Division of Taxation.

New York State Tax Update presented by Kathryn Keane 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.

Mortgage Interest Deduction Denied by IRS

James Jackson claimed Schedule A deduction for mortgage interest expense.  IRS denied the deduction.  Tax Court agreed with IRS.

Mr. Jackson’s girlfriend, Julie, obtained a loan and purchased a residence back in 2005.  Only Julie’s name was on the loan and the property’s title.  Mr. Jackson was unable to join Julie on the loan because he had personal debt problems.

Mr. Jackson claimed a little over $15,000 of interest expense while the 1098 issued to Julie showed almost $2,000 less. He testified that he gave Julie $1,000 in cash every month for each year under examination.  He produced a letter from Julie that stated he had given her this cash every month for the past 10 years.  He also testified that Julie paid all real estate taxes and insurance on the home. The Court rejected Mr. Jackson’s argument that Nevada’s community property laws as it relates to domestic partners gave him ownership.

IRS denied the deduction stating Mr. Jackson was not liable for the debt and therefore not allowed the deduction.  Tax Court ruled in favor of IRS.

One key we see in this case is included in the Court’s reasoning.  It specifically mentioned regulation 1.163-1(b) which states, in part, “interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”  The key in this phrase is the words “or equitable owner”.  This has been interpreted by the Court as saying, briefly, that a taxpayer whose name is not on the loan and/or the title may still be able to deduct the interest the taxpayer paid AS LONG AS the taxpayer is an equitable owner.  An equitable owner is someone who has the burdens and benefits of ownership of the property.  This can be shown to exist when the taxpayer can prove he/she:

1) Has the right to possess the property and to enjoy its use, rents, or profits,
2) Has a duty to maintain the property,
3) Is responsible for insuring the property,
4) Bears the property’s risk of loss,
5) Is obligated to pay the property’s taxes, assessments, or charges,
6) Has the right to improve the property without the owner’s consent, and
7) Has the right to obtain legal title at any time by paying the balance of the purchase price.
Mr. Jackson did not prove any of the above items.

The Court’s decision refers to other cases for and against this equitable ownership position.  Reading this case and the others it refers may be helpful if you have a situation where “equitable ownership” may be an issue.

Side note – Mr. Jackson claimed the mortgage interest expense on line 10 of Schedule A, which may be the reason the return was selected for examination.  Line 10 is where deductible mortgage interest expense is reported if the taxpayer has received a Form 1098 in his/her name and SSN.  Since the 1098 issued in connection with Mr. Jackson’s residence was issued to Julie in her SSN, there was a mismatch IRS found in connection with Mr. Jackson’s return.  Line 11 is where deductible mortgage interest expense is reported when the taxpayer has NOT received a Form 1098 in his/her name and SSN.

James David Jackson, TC Summary 2016-33

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

Online Seminars from the 2016 IRS Nationwide Tax Forums are Now Available

WASHINGTON — The Internal Revenue Service today reminded tax professionals that they can earn continuing education credits online through seminars filmed at the 2016 IRS Nationwide Tax
Forums. The forums are three-day events that provide tax professionals with the most up-to-date information on federal and state tax issues; in 2016, they were held in five cities across the nation.

More than a dozen self-study seminars are now available on the IRS Nationwide Tax Forums Online (NTFO). Self-study seminars provide information to participants through interactive videos, PowerPoint slides and transcripts.

The 2016 online forum seminars cover many topics of interest to tax professionals including:

• Is Your Case Ready for Appeals? (Examination Edition)
• Foreign Tax Credit for Individuals
• Emerging Issues in Tax Practice Due Diligence
• ACA Employer and Coverage Provider Information Reporting Requirements

The online seminars are registered with the IRS Return Preparer Office and the National Association of State Boards of Accountancy (NASBA) as a qualified sponsor of continuing education. For a fee, CPAs, Enrolled Agents and Annual Filing Season Program participants taking NTFO seminars can earn continuing education credits. To earn credit, users must create an account, answer review questions throughout the seminar and pass short tests at the end of the seminars.

The seminars can also be audited for free. Individuals who choose to audit seminars will not have access to the review questions or final examination and will not receive credit for the seminar.

In addition to the recently added seminars, NTFO also offers many seminars from prior-year IRS Nationwide Tax Forums. For more information, please visit www.irstaxforumsonline.com.

IR-2016-134, Oct. 17, 2016

Communications Being Sent to Massachusetts WebFile for Income Users

As you may recall, MassTaxConnect will be open for individual taxpayers on December 5, 2016. We10 additional tax types and that WebFile for Income will be phased out on November 6, 2015 at midnight.
are currently sending communications to WebFile for Income users and other stakeholders to let them know that MassTaxConnect will begin accepting

Massachusetts recently joined the Free File Alliance to increase free filing options for taxpayers as MassTaxConnect will not accept personal income tax returns. DOR estimates that approximately 70 percent of taxpayers will qualify to file their state and federal returns together for free.

Upcoming Form Changes

The integration of personal income and other  tax types into MassTaxConnect requires some tax form changes for the upcoming tax season. Please click on the links below to learn more.

• Estate
• Fiduciary
• Partnership
• Personal Income Tax

Deadline for Payments Made Via WebFile for Income

All current bills must be paid electronically through WebFile for Income before it shuts down on November 6, 2016. After that date, any outstanding bills must be paid by mail using the attached payment coupon. Payments may be made through MassTaxConnect for bills issued after December 5.

Important Shutdown Dates

The transition to MassTaxConnect will require some interruptions in our online services, please note the following shutdown dates:

• October 26, 2016 Last day to make Small Payment Arrangements on the web
• November 6, 2016 Last day to:
• Use WebFile for Income to make payments
• To access the Check Your Refund application
• Request Certificates of Good Standing online
• All of these functions will be available through MassTaxConnect beginning on December 5. If you need assistance during the off-line period please contact customer service at (617) 887-6367.

Rhode Island Online Payment of Personal Income Tax by Credit Card or Debit Card

PROVIDENCE, R.I. – Taxpayers may now use their credit cards or debit cards to pay their Rhode
Island personal income tax online, through the Rhode Island Division of Taxation website.

This provides taxpayers with another, convenient option for paying their personal income tax. It
is available now, on the Division of Taxation website, in time for the extended due date of October 17, and in time for the next full tax-filing season, which begins in January 2017.

The credit card and debit card online payment service, created through a partnership with
Rhode Island Interactive LLC, is available through the Division of Taxation website:
http://www.tax.ri.gov/misc/creditcard.php.

The system will accept credit cards and most debit cards and can be used for payments of the following taxes:

• personal income tax
• corporate income tax
• sales and use tax
• withholding tax

For each transaction with a credit card or debit card, the taxpayer will be charged a transaction
fee equaling 2.0 percent of the transaction amount, plus a $1.00 flat fee.1 You will be notified of
the fee amount before making your payment.

Other payments

Taxpayers may continue to pay their Rhode Island personal income tax by check. In addition,
for personal income tax payments with final returns, taxpayers may pay by automatic debit of
their bank or credit union accounts. (Arrangements for automatic debits are made using tax preparation software and must be completed before the return is electronically filed.)

Certain business taxes may be paid online, via ACH debit/credit, through the following Division
of Taxation website: http://www.tax.ri.gov/onlineservices/

For additional info, check out Notice RI ADV2016-19.

2016 Annual Meeting & Seminar - 2 WEEKS FROM TODAY!

2016 Annual Meeting & Seminar

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 25th 2016

Join the Massachusetts / Rhode Island NATP Chapter on Tuesday, October 25th, 2016 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 24th, please print the form (see link above) and register at the door.

Speaker - Cheryl A. Morse, EA

Cheryl Morse has been a tax practitioner since 1982 and an enrolled agent since 1996. She is a manager for Emerging Business Partners, Inc., which prepares over 1500 tax returns in three offices. Cheryl graduated Magna Cum Laude with a B.S. degree in accounting from Bentley College in Waltham, MA.  In addition to speaking for NATP, she works on taxpayer education through various community outreach speaking engagements. She currently represents the Northeast Region as Area 1 Chair of the Taxpayer Advocacy Panel, is a contributor to the development of the IRS EA Examination, and a contributing writer to Forbes.

Education Savings, Deductions, Credits and Tax Issues:

Education and Taxes; it is not as easy as 1-2-3.  This course clarifies who can or should claim the many education benefits, and how to make the most of all the available deductions, credits and savings plans.  Do you know why the "optimize" button on your software does not really work?  We review the education savings plans and point out some pitfalls regarding withdrawals.  We finish up with taxable education benefits and discuss when that might be a good thing. IRS #JSAQG-T-00021-16-I

Elder Issues, SS, IRA, Medical Expenses, Long Term Care, Life Insurance:  

We are all aging, preparer and our clients alike.  It is more important than ever that we understand the issues that affect the "age advantaged" population.     This session is packed with information regarding the various Social Security options including the new changes to "file and suspend", planning for retirement distributions and strategies for handling finances upon retirement.  We review the inevitable cost of medical expenses, including long term care contracts, and finish up with the tax implications of long term care and life insurance payments.  This session is intended as a resource in helping your clients plan for retirement or other life events. IRS #JSAQG-T-00022-16-I

Helping a Delinquent Taxpayer, POA, Notices, Audits, Collections, Penalty/Interest Relief:

As long as there is "death and taxes" there will be delinquent taxpayers.  The requirements of our profession have changed.  In this climate of identity theft helping our clients can be more difficult.  In this session, we discuss the best way to help a client, and how best to protect ourselves when dealing with someone who may be non-compliant in more than one area of his life.  We look at some of the more common notices, such as this year's 1095A Letter and how to get relief for our client. IRS #JSAQG-T-00023-16-I

IRS Notices, Responses, Avoidance:

Is there anything preparers can do to stop the flurry of notices some clients receive?  This part of our day continues with more looks into notices, what prompts them to be issued, and way to best avoid notices in the first place.  IRS #JSAQG-T-00024-16-I

Special Offer for the January 5, 2017 State Update Seminar

Sign up on October 25, 2016 and pay by November 8, 2016 for ½ Price 

Massachusetts Rent Deduction - Did You Know?

William Delaney, EA
Westwood, MA

Massachusetts rent payers are allowed a limited deduction for rent paid on their primary residence, as we all know.  See MA Form 1, line 14.  But, the devil is always in the details.  Did you know…

“Rent includes the amount paid for heat, hot water, gas, electricity, furniture or parking, if the landlord makes no separate charge for these items.”

“Rent may include the rental of a mobile home or of a mobile home site.”

“The rental deduction may only be taken for the taxable year in which the rent was paid.”  “Rent does not include amounts paid as a security deposit or amounts paid for the last month’s rent…”

Amount of deduction allowed (has not changed since 2001) – 50% of the rent paid, up to a maximum of $3,000 (i.e. $6,000 x 50%).

See 830 CMR 62.3.1 – Rent Deduction.

Sale of Scrap Metal Not SE Income

Mr. Ryther had a corporation in the steel manufacturing business.  The scrap metal accumulated on a neighboring lot appearing to have no value.

The corporation filed bankruptcy and dissolved.  The bankruptcy trustee ignored and abandoned the large pile of scrap steel deeming it to be worthless.

Mr. Ryther took over the corporation’s land leases as well as the scrap steel with hopes of starting a new business.  The new business had very little income.  Having bills to pay Mr. Ryther looked into trying to sell the scrap steel and found wholesalers were willing to pay him for it.  He sold scrap for cash when he had financial need.  Over the next seven years he collected over $300,000 in cash from the scrap sales.

Although he was late, he eventually filed tax returns showing the income on his Form 1040, line 21 as Other Income.  IRS assessed SE taxes claiming Mr. Ryther was in the business of selling scrap.  Tax Court had to determine if this was indeed a business subject to SE taxes.

The Court looked at many factors including:

1) How Mr. Ryther obtained the scrap.  If he obtained it by picking up scrap through his sole proprietorship, the sales would likely be SE income.  In this case Mr. Ryther obtained the scrap from another party (i.e., a bankrupt corporation) when it terminated.  Mr. Ryther did not acquire the scrap with the intention of selling it, but merely because it was on the land covered by the land lease that he assumed.

2) Whether the scrap could be considered inventory.  There were no additional purchases noted in the case.  Mr. Ryther did not do anything with the scrap other than sell it.

3) The frequency of his sales.  Mr. Ryther sold scrap 24 times during the year in question.  The Court determined this was sporadic and not regular.

4) The amount of effort spent in the activity.  Mr. Ryther’s efforts mainly consisted of contacting wholesalers letting them know he was ready to sell some.

5) Although the sales of $300,000 over seven years   represented 100% of Mr. Ryther’s income, these sales resulted from capital appreciation rather than his personal efforts.

After examining all the issues, the Court ruled in favor of Mr. Ryther.

Editors note:  If he had been picking up scrap from other businesses’ garbage heaps, SE may be applicable.  However, in this instance it appears that Ryther had acquired an asset, the sale of which might better have appeared on Form 8949 (Schedule D).  It could be that reporting the income on the miscellaneous income line (Form 1040, line 21) caused the IRS to question SE.

Thomas L Ryther, TC Memo 2016-56

This case can be found by going to www.ustaxcourt.gov, clicking on the Opinion Search tab and entering RYTHER in the Case Name box.


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

©2016 Ashwaubenon Tax Professionals.  No reproduction of this article is permitted without the express written consent of Ashwaubenon Tax Professionals, 2140 Holmgren Way, Suite 1040, Green Bay, WI  54304.

Rhode Island Division of Taxation Seminar For Tax Preparers

The Rhode Island Division of Taxation is holding a seminar for paid preparers of tax returns. Topics will include what's new for filing season and what's new for tax year 2017.

The seminar will take place on November 4, 2016, at the Community College of Rhode Island campus in Warwick. The session will be repeated on December 2, 2016, at the CCRI campus in Newport. Each session will run from 9:00 a.m. to 12:00 noon.

The seminar is free, but pre-registration is required. To register, click here