Friday, December 28, 2018

2019 MA / RI NATP Annual State Update Seminar - LAST DAY TO REGISTER ONLINE!!

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 3rd 2019




Join the Massachusetts / Rhode Island NATP Chapter on Thursday, January 3rd, 2019 for our Annual State Update Seminar. This all day event will be held at the Southbridge Hotel & Conference Center, Southbridge 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. Registration is from 7:30am to 8:30am & Education is from 8:30am to 4:30pm.
  • Register online with credit card.
  • For more information or to register by phone, fax or mail, use this form.
  • After December 28th, please register at the door with the form above.
If you are planning to stay at the hotel, we have secured a room rate of $95/night. The reservations can be made here.

Topics:

Massachusetts State Tax Update presented by Massachusetts Department of Revenue.



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



Connecticut State Tax update presented by Kristin A. Roberts, MBA, EA, ABD.



Roberts holds the position of Post University’s Assistant Program Manager of Accounting. Her previous position at Post University was as an Associate Faculty in Accounting. Her course specialties at the university level include Financial Accounting, Individual Taxation, and Corporate Taxation. Roberts is actively involved in her local community, volunteering on a variety of councils for the historic district of Torrington.  She is also the Treasurer of the NW CT Chamber Education Foundation, and also serves as the Education Committee Chairperson for the CT Chapter of the National Association of Tax Professionals.  She is also a current member of the CT Department of Revenue External Editorial Board. Roberts is married with grown children.  She enjoys horror movies and classic rock music. When not working, her favorite pastime is spending time with her sons or listening to her husband singing and playing his guitar.


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.

Monday, December 24, 2018

Misc. Itemized Deductions are Mostly a Thing of the Past, But I Want to Deduct My Broker's Wrap Fee, What Can I Do?

William Delaney, EA
Westood, MA
This is tempting, and you want to be creative for your client. It’s a lot of money, after all. So, someone at a seminar told us a few years ago to add it to the cost of the mutual fund and/or securities. That way you can deduct it when the investments are sold. Sounds great, but is it too good to be true? Read on…

At that time, this pie in the sky advice really didn’t hit your radar screen. After all, those fees (subject to the 2% floor) could be deducted and the tax saved would be at your client’s highest marginal rate, as opposed to the much lower capital gain rate if capitalized.

But now, when there is no place to deduct these fees, why not capitalize. Well, it turns out that better minds than ours have already addressed this issue. See IRS Chief Counsel Memo. 200721015 (6/25/07).

Our creative petitioner inquired if these fees qualified as a “carrying charge” which would then allow the taxpayer an election to capitalize. See Reg. 1.266-1(b)(1)(iv). See also Reg. 1.266-1(b)(2) which provides that if an expense is not otherwise deductible, it may not be capitalized under Sec. 266. This second reference was not important to the petitioner in 2007 (since he could claim a deduction), but it would be now since the new tax law has eliminated the deduction.

The Office of the Chief Counsel first concluded (for reasons detailed In the memo) that “…’carrying charges’ are charges other than interest paid or incurred to carry personal property.” Mutual funds and securities are personal property for purposes of the Internal Revenue Code.

The memo also referred to a tax court case, Ralph E. Purvis v. Comm., 65 T.C. 1165, 3/30/1976. In Purvis, the Court looked to the regulations which authorized the IRS to consider “sound accounting principles” as a basis for determining if a carrying cost may be capitalized. The Court, as a result of its independent research, concluded that generally accepted accounting principles looked unfavorably upon the capitalization of such costs. As a result, the Office of the Chief Counsel opined that “Fees for consulting and advisory services are better viewed as currently deductible investment expense.”

That was fine, then, but not so fine now due to current tax law. Heads I win; tails you lose!

Thursday, December 20, 2018

2019 MA / RI NATP Annual State Update Seminar - TWO WEEKS AWAY!!

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 3rd 2019




Join the Massachusetts / Rhode Island NATP Chapter on Thursday, January 3rd, 2019 for our Annual State Update Seminar. This all day event will be held at the Southbridge Hotel & Conference Center, Southbridge 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. Registration is from 7:30am to 8:30am & Education is from 8:30am to 4:30pm.
  • Register online with credit card.
  • For more information or to register by phone, fax or mail, use this form.
  • After December 28th, please register at the door with the form above.
If you are planning to stay at the hotel, we have secured a room rate of $95/night. The reservations can be made here.

Topics:

Massachusetts State Tax Update presented by Massachusetts Department of Revenue.



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



Connecticut State Tax update presented by Kristin A. Roberts, MBA, EA, ABD.



Roberts holds the position of Post University’s Assistant Program Manager of Accounting. Her previous position at Post University was as an Associate Faculty in Accounting. Her course specialties at the university level include Financial Accounting, Individual Taxation, and Corporate Taxation. Roberts is actively involved in her local community, volunteering on a variety of councils for the historic district of Torrington.  She is also the Treasurer of the NW CT Chamber Education Foundation, and also serves as the Education Committee Chairperson for the CT Chapter of the National Association of Tax Professionals.  She is also a current member of the CT Department of Revenue External Editorial Board. Roberts is married with grown children.  She enjoys horror movies and classic rock music. When not working, her favorite pastime is spending time with her sons or listening to her husband singing and playing his guitar.


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.

Wednesday, December 12, 2018

Does Your State Have a Throwback or Throwout Rule?

Katherine Loghead, Policy Analyst
TaxFoundation.com
This week’s state tax map examines states that have a throwback or throwout rule in their corporate tax code. Throwback and throwout rules are not widely understood, but they have a notable impact on business location and investment decisions.

For purposes of corporate taxation, multistate businesses are required to apportion their income among the states in which they operate. Most apportionment formulas assign weighting among three factors–property, payroll, and sales–to determine the amount of income taxed by each state in which the business operates. The goal of apportionment is to prevent double taxation of corporate income, but there is wide variation among states in how apportionment formulas are designed. For example, some states weight the three factors equally, while others weight the sales factor more heavily or use it as the only factor.

Varying state corporate income tax practices sometimes result in businesses having what is known as “nowhere income,” or income that is not taxed by any state. States with throwback or throwout rules seek to counter this phenomenon by requiring 100 percent of profits be apportioned among states. As such, businesses with nowhere income are required to “throw” that income “back” into a state where it will be taxed, even though that income was not earned in that state.

Although throwback rules are more common, three states adopt what are known as throwout rules. The difference is in how the “nowhere income” is treated. In both cases, the state is looking at a fraction: the amount of sales associated with the state over total sales. With a throwback rule, “nowhere income” is placed in the numerator (the amount apportioned to the state). With a throwout rule, it is removed from the denominator (the amount of total sales). Both increase in-state tax liability, though throwback rules are more aggressive than throwout rules.

Because two or more states can potentially stake claim to “nowhere income,” rules are needed to determine where that income should go, injecting another layer of complexity into already complicated state corporate tax structures. Throwback and throwout rules discourage investment and are inconsistent with the purpose of apportionment, which is to tax the share of a company’s income reasonably associated with that state—not to tax revenue clearly associated with other states just because those states choose not to tax that income.

States with corporate income taxes are nearly evenly divided between those that have a throwback or throwout rule and those that do not. The map below shows throwback rules in 22 states and the District of Columbia, as well as throwout rules in three states.


Wednesday, December 5, 2018

IRS: Taxpayers Have Extra Day to File and Pay; Returns and Payments Due Dec. 5 Are Now Due Dec. 6

WASHINGTON — The Internal Revenue Service today granted taxpayers an extra day, until Thursday, Dec. 6, 2018 to file any return or pay any tax originally due on Wednesday, Dec. 5.

The IRS granted the extra time, following the Dec. 1 Executive Order closing all federal agencies on Dec. 5, as a mark of respect for George Herbert Walker Bush, the forty-first President of the United States

The one-day extension applies to any return, required to be filed with the IRS, on Wednesday, Dec. 5, 2018. It also applies to any required federal tax payment, originally due on that day. In addition, it also applies to any federal income, payroll or excise tax deposit due on Dec. 5, including those required to be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).

Small Business Taxpayers (as defined below) May Use an Automatic Approval Procedure to Change to the Cash Method of Accounting for Income Tax Purposes

William Delaney, EA
Westwood, MA
Yes, the Congress said that we can do it, now the IRS is telling us how to do it automatically – see Rev. Proc. 2018-40.

Who May Do It – A small business taxpayer (defined) which has an average annual gross receipts for the three prior taxable years of $25,000,000 or less (to be adjusted for inflation).

Effective for taxable years beginning after December 31, 2017.

Accounts Receivable in existence when the change becomes effective will be recorded as income “as the amounts are actually or constructively received…”

Reduced filing requirement - Section 3, 15.18(7) outlines six bits of information needed for successful completion of Form 3115.  Automatic change number for the form is 233.

See the Rev. Proc. for additional information which you may need. 

Monday, December 3, 2018

Inflation-Adjusted Amounts Set for Tax Year 2019 - RI Division Also Posts Changes For Certain Items Involving 2018 Tax Year

PROVIDENCE, R.I. – The Rhode Island Division of Taxation announced the standard deduction amounts, tax bracket ranges, and other key items for the Rhode Island personal income tax for tax years beginning on or after January 1, 2019.

The inflation-adjusted amounts apply for tax year 2019, and therefore will not appear on tax returns until early 2020 (covering the 2019 tax year). Nevertheless, they are important to know now for tax-planning purposes.

The inflation-adjusted numbers will also aid tax professionals and taxpayers throughout 2019 as they make any needed adjustments to withholding or estimated payments, or for other purposes. The inflation-adjusted amounts are presented in the following tables.



Most taxpayers are able to claim the full amount of their applicable standard deduction. The same
is true for personal exemptions and dependency exemptions. However, if a taxpayer’s federal adjusted gross income (as modified for Rhode Island tax purposes) falls within a certain income range, the standard deduction amount – and the personal and dependency exemption amounts – are limited.

If income exceeds the range, the taxpayer cannot claim a standard deduction or personal or dependency exemption amount. The income ranges are listed in the following table. 


Personal income tax: uniform rate schedule

The Division of Taxation has recalculated tax bracket ranges for tax year 2019, as required by statute. The changes were made to the Rhode Island personal income tax’s uniform tax rate schedule, which is used by all filers.

If the dollar figures in tax brackets remained constant, a taxpayer might be bumped into a higher bracket solely because of an annual wage increase that is intended to help the worker keep pace with inflation -- an outcome often referred to as “bracket creep.” To help offset the effects of bracket creep, the General Assembly adopted a provision that requires the tax brackets to be adjusted annually with inflation. (Standard deduction and exemption amounts are adjusted in similar fashion.) The effect can be seen in the following two tables: one for tax year 2018, the other for tax year 2019.


Trusts and estates: income tax rate schedule

The Division of Taxation has posted the income tax rate schedule for 2019 that will be used by
fiduciaries for many trusts and estates. As a convenience, tables for tax year 2018 and tax year 2019 appear below.


Withholding tables, W-4 withholding certificate

By December 31, 2018, the Division of Taxation plans to post on its website the booklet of income tax withholding tables for tax year 2019. Employers use the tables to calculate how much to withhold from an employee’s pay for Rhode Island personal income tax purposes.

The booklet will also include a copy of the 2019 version of Form RI W-4, “Employee’s Withholding Allowance Certificate.” Both documents will be available via the following website:

Social Security and pension modification amounts for TY 2018

The Division of Taxation has set key numbers associated with the Social Security and pension/annuity/401(k) modifications for the 2018 tax year. The Division has also established the maximum credit amount for the statewide property-tax relief credit (Form RI-1040H) for the 2018 tax year. These numbers apply retroactively to the tax year beginning on or after January 1, 2018, and will appear on forms and instructions during the filing season which begins in January 2019.

SOCIAL SECURITY

Rhode Island legislation enacted in 2015 established a new modification involving the personal income tax.

Effective for tax years beginning on or after January 1, 2016, the modification decreases federal adjusted gross income for Rhode Island purposes for qualifying taxpayers who receive Social Security benefits. In general, a taxpayer is eligible for the modification if all three of the following conditions are met:
  • The taxpayer’s federal adjusted gross income (AGI) includes taxable income from Social Security;
  • The taxpayer has reached “full retirement age” as defined by the Social Security Administration; and
  • The taxpayer’s federal AGI is below a certain amount (see table below).

PENSIONS, 401(K) PLANS, MILITARY RETIREMENT PAY, ANNUITIES, ETC.

Rhode Island legislation enacted in 2016 established a new modification involving the personal income tax.

Effective for tax years beginning on or after January 1, 2017, the modification decreases federal adjusted gross income for Rhode Island purposes for qualifying taxpayers who receive income from private‐sector pensions, government pensions, 401(k) plans, 403(b) plans, military retirement pay, annuities, and/or certain other sources.

In general, a taxpayer is eligible for the modification if all three of the following conditions are
met:
  • The taxpayer’s federal AGI includes taxable income from pensions, 401(k) plans, annuities, and/or other such sources;
  • The taxpayer has reached “full retirement age” as defined by the Social Security Administration; and
  • The taxpayer’s federal AGI is below a certain amount. (Please see table below.)

PROPERTY-TAX RELIEF CREDIT (FORM RI-1040H)

The Division of Taxation has set the maximum property-tax relief credit for the 2018 tax year. The credit is claimed on Form RI-1040H. The amount is listed in the table below.


Friday, November 30, 2018

2019 MA / RI NATP Annual State Update Seminar

Massachusetts / Rhode Island NATP Chapter Annual State Update Seminar - January 3rd 2019




Join the Massachusetts / Rhode Island NATP Chapter on Thursday, January 3rd, 2019 for our Annual State Update Seminar. This all day event will be held at the Southbridge Hotel & Conference Center, Southbridge 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. Registration is from 7:30am to 8:30am & Education is from 8:30am to 4:30pm.
  • Register online with credit card.
  • For more information or to register by phone, fax or mail, use this form.
  • After December 28th, please register at the door with the form above.
If you are planning to stay at the hotel, we have secured a room rate of $95/night. The reservations can be made here.

Topics:

Massachusetts State Tax Update presented by Massachusetts Department of Revenue.



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



Connecticut State Tax update presented by Kristin A. Roberts, MBA, EA, ABD.



Roberts holds the position of Post University’s Assistant Program Manager of Accounting. Her previous position at Post University was as an Associate Faculty in Accounting. Her course specialties at the university level include Financial Accounting, Individual Taxation, and Corporate Taxation. Roberts is actively involved in her local community, volunteering on a variety of councils for the historic district of Torrington.  She is also the Treasurer of the NW CT Chamber Education Foundation, and also serves as the Education Committee Chairperson for the CT Chapter of the National Association of Tax Professionals.  She is also a current member of the CT Department of Revenue External Editorial Board. Roberts is married with grown children.  She enjoys horror movies and classic rock music. When not working, her favorite pastime is spending time with her sons or listening to her husband singing and playing his guitar.


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.

Security Summit Plans National Tax Security Awareness Week, Dec. 3-7; New Twitter Handle Launched, ‘Dark Web’ Webinar Planned


WASHINGTON – With the approach of the holidays and the upcoming tax season, the Internal Revenue Service, state tax agencies and the nation’s tax industry will sponsor a nationwide campaign in December urging people to better protect their sensitive tax and financial data.

The third annual National Tax Security Awareness campaign, to be held Dec. 3-7, will feature events nationwide, highlight a daily security topic and mark the launch of a special @IRSTaxSecurity Twitter handle that will keep the public aware of emerging threats throughout the 2019 tax filing season.

“This time of year marks an especially risky period for people and their sensitive financial data,” said IRS Commissioner Chuck Rettig. “There are added risks with online holiday shopping and tax scams that could threaten people’s tax data. We encourage people to review some simple steps to protect their data and protect their tax returns during filing season.”

The IRS, states and the tax industry, partners in the Security Summit initiative, will join with consumer, business and community groups to host more than 20 events in 19 states to raise cybersecurity awareness.

The campaign is especially timely as the holiday season brings out online shoppers sharing sensitive financial data as well as online thieves seeking to con people into disclosing information that can be used to file fraudulent tax returns.

Each day starting Dec. 3, National Tax Security Awareness Week will focus daily on a single key issue that poses a threat to individuals, businesses and tax professionals and provides tips to better protect sensitive data from cybercriminals.

The campaign will highlight simple steps taxpayers can take such as using strong security software and strong passwords. It will highlight common tactics used by identity thieves to target taxpayers, businesses and tax professionals. It will also focus on specific threats to businesses and to tax professionals, both of whom are increasingly targeted by crooks.

@IRSTaxSecurity to keep taxpayers, tax professionals aware of scams

The IRS also is launching a special Twitter handle called @IRSTaxSecurity to share the latest scam and security alerts that routinely increase during tax season. Taxpayers can follow @IRSTaxSecurity. The Summit partners encourage people to share security information using the #TaxSecurity hashtag.

Individuals, businesses and tax professionals can get all the information they need during National Tax Security Awareness Week by visiting a special section on IRS.gov, following @IRSTaxSecurity on Twitter or by signing up for news releases and tax tips on IRS.gov.

Taxpayers looking to spread the word and show their support for this effort can also add a temporary National Tax Security Awareness Week overlay to their profile photos on Facebook through Dec. 7.

Free public webinar on how identity thieves use the Dark Web

In support of Tax Security Awareness Week, a free IRS webinar is being offered to help taxpayers understand the Dark Web and how it is used as a repository for: stolen identities, credit data, tax information and banking/financial information. During this webinar, IRS Criminal Investigation representatives will provide an overview of the Dark Web and answer questions that will help people recognize the risks and use of the Dark Web by cybercriminals.

This 100-minute webinar will be held on Monday, Dec. 3, 2018, at 2 p.m. EST. To register go to https://www.webcaster4.com/Webcast/Page/1148/28472.

Security Summit makes progress, needs help from public

Since forming the Security Summit partnership in 2015, the IRS, state tax agencies and the tax industry have made significant inroads into tax-related identity theft. Learn more about their efforts and their progress at Security Summit on IRS.gov.

While the Summit partners continue to improve their internal defenses, more help is needed from taxpayers, businesses and tax professionals to better protect the data that identity thieves need to file fraudulent tax returns.

Increasing public awareness about people’s role in protecting their own data is a critical part of the Security Summit efforts. Partners launched the “Taxes. Security. Together” awareness campaign in the fall of 2015. Tax professionals can also keep track of alerts, awareness efforts and security news at “Protect Your Clients, Protect Yourself,” an effort that’s included several campaigns including this summer’s “Tax Security 101.”

Thursday, November 29, 2018

MA Department of Revenue Announces Updated Filing and Payment Information For Taxpayers Affected by the Merrimack Valley Gas Explosions

BOSTON — The Department of Revenue has announced it is taking additional steps to address the concerns of taxpayers in Lawrence, Andover, and North Andover who have been affected by the September gas explosions.

The Department recognizes that taxpayers in these areas may be unable to comply with their tax filing or payment due dates that occurred on or after the date of the explosions. The Department would like to continue to assist those taxpayers as much as possible.

The Department will waive any penalties associated with any late-filed return or payment that was due on or after September 12th and before December 1st. The Department will waive penalties through December 15th, and will later revisit whether any further extensions should be granted.

If any taxpayer in the affected areas receives notice of a penalty for this period they should reach out to the Department of Revenue at (617) 887-6367.

Wednesday, November 28, 2018

Remote Seller Sales Tax Issues (South Dakota v. Wayfair, Overstock and Newegg, US 17-494 06/21/18) Settled to the Satisfaction of the State of South Dakota

William Delaney, EA
Westwood, MA
This is the very big issue of whether or not a state may impose a sales tax collection obligation on a remote seller.  It was thought that, unless you transact business within the state, in some way, you were outside the reach of that state.  If there is no physical presence (warehouse, employees, representatives, etc.). the state could not impose its will on internet (remote) sales.

States now have adopted the concept of economic nexus, which stands for the theory that sales to residents of that state, no matter how generated or originated, are an adequate substitute for the physical presence test.  The only limitation on a state’s authority to assert a sales tax collection obligation is quantity (dollar amount of sales, a percentage of your total sales, or total number of sales).

South Dakota went to court and successfully challenged the Quill concept (physical presence test), as the only applicable standard.  In 2016, the state of South Dakota enacted a sales tax collection obligation on remote sellers when their South Dakota sales exceeded $100,000 or if they completed 200 or more transactions within a year.  The United States Supreme Court upheld the South Dakota statute.

Effective January 1, 2019, Wayfair, Overstock and Newegg will be required to submit to the economic nexus concept and begin to collect sales tax on South Dakota sales.

Mass. has a similar statute which requires a minimum of 100 transactions or $500,000 in sales.  RI also has a similar statute which requires a minimum of 100 transactions or $100,000 in sales.

Friday, November 9, 2018

Does Your State Have a Marriage Penalty?

Katherine Loughead
Policy Analyst
Tax Foundation
Today’s map examines states that have a “marriage penalty” in their individual income tax brackets.

Under a progressive, graduated-rate income tax system, as a taxpayer’s marginal income increases, tax rates also increase. A marriage penalty exists when a state’s income brackets for married taxpayers filing jointly are less than double the bracket widths that apply to single filers. Under this scenario, married couples face a higher effective tax rate filing jointly than they would if filing as two single individuals with the same amount of combined income.

This non-neutral tax treatment is particularly harmful to owners of pass-through businesses, who pay taxes on their business income under the individual income tax system. When a marriage penalty exists, married business owners are subject to higher effective tax rates on their business income than they would be otherwise.

Fifteen states (displayed in yellow on the map below) have a marriage penalty embedded in their bracket structure. Seven additional states (Arkansas, Delaware, Iowa, Mississippi, Missouri, Montana, and West Virginia), as well as the District of Columbia, offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately on the same return to avoid losing credits and exemptions. While this tactic offsets the dollar cost of the marriage penalty, it comes at the cost of added complexity. States that have a graduated-rate income tax but double their brackets to avoid a marriage penalty are Alabama, Arizona, Connecticut, Hawaii, Idaho, Kansas, Louisiana, Maine, Nebraska, and Oregon.



Posted with permission from Katherine Loughead and TaxFoundation.org

Wednesday, October 31, 2018

Real Estate Professional {Sec. 469(c)} - A Win For The Taxpayer

William Delaney, EA
Westwood, MA

Taxpayers Roberta and William Birdsong claimed that real property rental losses were fully deductible (and not subject to the passive activity loss limitation of $25,000) because Roberta qualified as a real estate professional and met the requirements of Sec. 469(c) as to material participation, and at least 750 hours of services performed.

Under Temporary Reg. 1.469-5T(f)(4)…

“The extent of an individual’s participation in an activity may be established by any reasonable means.  Contemporaneous daily time report, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means.  Reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such periods, based on appointment books, calendars, or narrative summaries.  (emphasis added)

In Roberta Birdsong and William H. Birdsong v. Comm. of Internal Revenue, T.C. Memo 2018-148 (9/10/2018), the IRS conceded that Roberta satisfied the material participation requirements of Sec. 469(c)(7)(B)(i) “because she was not otherwise employed in 2014.”  However, the IRS asserted that Roberta had not satisfied the 750 hour test under Sec. 469(c)(7)*B)(ii) because the logs presented “were not contemporaneous and contained inaccuracies.”  The Court disagreed---see below.


William is employed full-time as an emergency physician.  Roberta divides her time between “caring for their children and managing their rental properties.  The rental properties consisted of one five unit building and another four unit building.  Roberta introduced two spreadsheets – the first documents 844.75 hours managing rental properties in 2014; the second documents 1,136.25 hours for the same period.  The second adds “previously omitted tasks such as investor hours and driving time between the rental properties and…locations pertinent to the management of the units.”

Taxpayers used Roberta’s calendar and receipts to reconstruct time for the first half of 2014.  For the second half, a contemporaneous, detailed, phone log was used, together with receipts and invoices to support the entries.

“Petitioners testified credibly and in detail about petitioner wife’s activities and extensive management of their rental properties…We find petitioners’ narrative summary and thorough time logs convincing because petitioners owned numerous rental units that petitioner wife operated alone.”  Referencing Hailstock v. Commissioner , TC Memo 2016-146, “Although we caution petitioners wife to construct more strictly contemporaneous time logs for her future endeavors, we find her credible testimony and time logs to be a “reasonable means” of proof.  (emphasis added)

What to take from this Case.  It is important that satisfactory evidence which meet the test of material participation and 750 hours be maintained.  In this Case, the taxpayers also elected to treat both rental properties as one for purposes of the 750 hour rule.  While they easily met the requirement of the temporary regulation, the IRS auditor did not place great weight on the regulation and asserted that contemporaneous records were not maintained (even though they are not a requirement if other reasonable means will serve the same purpose.

Now that we have the new Sec. 199A pass-through deduction in place, it is important to note that this type of taxpayer will meet the trade or business definition of a pass-through entity (although a loss will be suspended and not pass-through).  It is the only non-Schedule C filer which meets the definition.

Monday, October 29, 2018

Annual e-file production shutdown and switch over is November 17. That will be the last day to e-file Rhode Island returns for tax year 2017


PROVIDENCE, R.I. – The Rhode Island Division of Taxation’s annual electronic filing shutdown and switch over will occur on November 17, 2018. Individuals and businesses seeking to e-file their Rhode Island returns for tax year 2017 must do so on or before Saturday, November 17, 2018. After that date, returns for tax year 2017 must be filed on paper. 

Each year, the Division temporarily closes its system to e-filing in order to prepare the system for the upcoming filing season. The Internal Revenue Service, and many other states, follow the same practice. This year, the Rhode Island modernized e-file (MeF) shutdown and cutover will occur on Saturday, November 17, 2018, the same date as the IRS’s. 

Transmission schedule  

To ensure that all e-filed Rhode Island returns for tax year 2017 on Form RI-1040 (resident and nonresident), Form RI-1120C, Form RI-1120S, and Form RI-1065 are processed in a timely manner, transmitters must abide by the schedule. 

All e-filed Rhode Island returns for tax year 2017 will have a transmission deadline of 10:00 p.m. Eastern Time on Saturday, November 17, 2018. To avoid any last-minute logjams, preparers and taxpayers should get their electronic submissions to their transmitters well in advance of the deadline.

For e-file purposes, Rhode Island accepts only current-year returns. Thus, November 17, 2018, is the deadline for e-filing Rhode Island personal and business tax returns for the 2017 tax year. 
When the switchover is completed, and the Division of Taxation reopens to e-filing, scheduled for January 2019, e-filing will be available only for returns for the 2018 tax year. 

Fiscal-year filers
 
How the annual e-file production shutdown will affect fiscal-year filers depends on the filer’s deadline. For example, a fiscal-year filer with a due date of November 30, 2018, can still e-file, but only if willing to file early, by the November 17, 2018, e-file shutdown. Otherwise, the entity will have to file on paper. 

Practitioners who, because of the e-file shutdown and cutover, must file their client returns on paper will not be penalized under terms of Rhode Island’s e-file mandate. For more on the mandate, see Rhode Island General Laws § 44-1-31.1 and Regulation 280-RICR-20-30-2 (“Electronic Filing for Paid Preparers”). 

Friday, October 26, 2018

Taxability of Long-Term Disability Benefits and Social Security Disability Benefits


William Delaney, EA
Westwood, MA
Your Editor rarely sees this issue, so I thought that this case and fact pattern would be useful to our membership.

Catherine Clay (petitioner) was employed as a teacher by the School District of the City of Saginaw, MI.  Her employer provided long-term disability insurance as part of her benefits package.  The benefit was equal to 2/3 of pre-disability compensation, less deductible income.  For this purpose, deductible income included any entitlement under  Social Security Disability.

If a long-term disability benefit were paid without an offset, and the recipient later received a Social Security Disability benefit, this deemed “overpayment” was required to be refunded to the disability insurance carrier.

Under the terms of the contract, disability benefits ceased at age 65 (subject to certain limited exceptions – see following paragraph). 

 On October 8, 2009, Ms. Clay, at age 49, was involved in an automobile accident.  She received sick pay from her employer through January 5, 2010.  After applying for long-term disability benefits, her claim was approved retroactive to January 6, 2010.  In September 2010, Ms. Clark received a lump-sum payment of $29,245 (8 months of benefits – 1/6/2010 thru 9/5/2010).  She continued to receive monthly payments until December 2011, when they ceased.  The insurance carrier relied upon an exception in  the contract which limited the payments to a maximum of 24 months if the disability was due to a “mental disorder.” 

On October 6, 2010, Ms. Clark had signed an agreement expressing her understanding that receipt of deductible income (such as a Social Security Disability benefit) was to be immediately repaid to the insurance carrier.  It was left unsaid how someone with a “mental disorder” could execute a valid agreement, but that is probably a story for another day.

The carrier issued W-2 forms for wages paid - $43,868 – for both 2010 and 2011.

Ms. Clay disputed the mental disorder determination; the carrier disagreed.  This dispute was ongoing as the tax dispute (below) went to trial.

Ms. Clay filed for Social Security Disability (SSD) benefits and her claim was denied (sound familiar?).  She engaged an attorney and her application was approved retroactive to April 2010.  She was advised, by letter, that there would be a retroactive benefit of $32,965, less $6,000 to be paid to her attorney for legal services.

When she received her adjustment check it also included one month of ongoing benefits, for a gross amount of $34,700.  Of the amount received in 2011, $13,880 was attributable to 2010 and the balance was attributable to 2011.

The carrier then invoked the repayment provision of its policy and issued a demand for immediate payment of $36,694.  Ms. Clay took the position that she need not repay anything at that time, since the carrier could recover the overpayment from subsequent benefits which were due (the non-continued payments, as you will recall, which were in dispute).  Instead, she used the SSD money to pay off an old tax debt and travel out of state for physical therapy.

Taxpayer (Ms. Clay) did not report her W-2 disability wages from the carrier on her 2011 federal income tax return.  She did report $34,700 of Social Security benefits (line 20a) and zero as taxable (line 20b).  On Schedule A. taxpayer deducted $6,000 (attorney fee) as a misc. itemized deduction not subject to the 2% floor (against zero taxable income – line 20b – as you may remember).

The IRS asserted on audit that…

Wednesday, October 24, 2018

Annual Meeting & Educational Seminar In Review

Our 2018 Fall Educational Seminar and Annual Meeting were held yesterday and to all in attendance we thank you for coming!

The entire morning and early afternoon was spent with renowned speaker Cheryl Morse where we were engulfed in topics on "Divorce & Changes to Alimony", "Disability Tax Benefits" & "Education Credits". We then learned about "Education Debt" from Shelley Honeycutt, owner of College Advisors NE. Our day was capped off with a riveting talk on "Ethics" from one of our own chapter members, Bill Delaney.

Prior to our Annual Meeting, we heard from National NATP Board Member from Utah, Sherri Hosskisson. Here are some interesting facts about our chapter that she shared with us -



As part of our Annual Meeting, our 2019 Board of Directors were instilled in front of the crowd and here is the group -

2019 Board of Directors (L to R)
Christine Miarecki, Jeff Schweitzer, Sonny Drenen, Virginia Arlingon, June Massee, Paul DeBlois, Bill Delaney, Dave Johnson, Lous Vastano, Ron Fisher, Sharon Cummings (Jr BOD Member Emily), Joe Gniadek, Mary Ellen Fillo, Dot Dimo


Our Board also elected Chapter Officers for the 2019 year and they are as follows -

President - Ron Fisher
Vice President - Christine Miarecki
Treasurer - Bill Delaney
Secretary - Jeff Schweitzer

Hope to see you in January at our next educational session!