Health Insurance Sign-up Date to Avoid Penalty Extended

The last day to sign up for health insurance and avoid an additional tax penalty has been extended to coincide with the open enrollment end date of March 31, 2014.  This was announced by the Obama administration on October 28, 2013.

Before this change, a person had to enroll by February 15, 2014 in order to ensure that their insurance went into effect before March 31, 2014 and avoid the possibility of being subject to a penalty for not having insurance for at least nine months out of the year under the Affordable Care Act.

IRS Outreach and Compliance Efforts for Education Credits

As part of a broader strategy to increase oversight on refundable tax credit claims, the IRS has begun to look more closely at claims for the American Opportunity Credit (AOTC) — one of the two education credits on Form 8863. As part of this effort, the IRS is expanding their educational outreach to taxpayers and preparers as well as increasing their scrutiny of returns that are claiming this credit.

Outreach Efforts to Preparers

The IRS has added a new section to their EITC Central website for Other Refundable Credits. One part of this new section is devoted to the AOTC and the Lifetime Learning Education Credit (LLC).

On the What You Need to Know about AOTC and LLC page, the IRS has provided the following to assist return preparers in understanding the American Opportunity and Lifetime Learning Education credits:

• Explaining the eligibility requirements, Form 1098-T, Form 8863, and how to avoid the most common errors related to the American Opportunity Credit.
• Links to relevant publications, forms, and instructions.
• Information on what questions a preparer should ask their customers about refundable credits.
• Education benefit videos.

Compliance Efforts

In an effort to reduce the number of errors that the IRS believes are occurring on returns that are claiming the American Opportunity Credit (AOTC), they have started to do the following:

• Implemented an Automated Questionable Credit Program to more closely review claims for which the AOTC is claimed for a student whose age is not typical of someone attending college before the refund is issued. This is mainly directed to claimants that are under age 13.
• Selecting returns for examination that are claiming the AOTC where the student(s) age is not typical of someone whom attends college.
• Sending educational letters to taxpayers explaining the eligibility requirements for the credit.

For preparers, the IRS will begin to focus their efforts on tax preparers who are preparing 25 or more returns that have claimed the AOTC and where it appears that the preparers have had errors associated with these returns as follows:

• Send educational letters to the preparers explaining the eligibility requirements for the credit.
• Modify the selection process for the Automated Questionable Credit Program to target more taxpayer returns that have been completed by preparers whom the IRS has determined are at high risk for completing inaccurate AOTC claims.

IRS Earned Income Tax Credit Compliance Efforts for Upcoming Filing Season

In a continuing effort to improve Earned Income Tax Credit (EITC) preparer due diligence, the IRS will be performing the following educational and due diligence audit activities this fall and during the 2014 Filing Season.

The IRS continues to use a risk based scoring model to classify preparers of EITC returns. Based on this score, a preparer may be subject to one of the following:

• Warning Compliance Letter 
  The IRS will send approximately 11,000 letters regarding specific errors that they observed on 2012 returns to medium risk preparers prior to the filing season that will include the following:
  • Inform the preparer that they may have submitted inaccurate returns
  • State the primary EITC issues the IRS observed
  • Explain the consequences to the taxpayer and preparer for filing inaccurate EITC returns
  • List what their due diligence requirements are
These letters are designed to help the preparers file more accurate EITC returns in the future. The IRS will be monitoring these preparers as the 2014 Filing Season begins and may do a follow-up with these preparers if they do not see improvement. This action may be a phone call, additional warning letter, or due diligence audit.
See Reaching Out To Preparers on the IRS EITC Central website for more information and to see examples of the letters.
• Educational Visit
  
  This fall, an IRS agent and criminal investigator will conduct educational visits to preparers whom the IRS believes have filed EITC claims with a high chance of error. The goal of these visits is to help preparers understand what the errors were and how to avoid them. They will also discuss the consequences of filing inaccurate returns and what their due diligence requirements are.
  No penalties are assessed during these visits; however, the IRS will be closely monitoring EITC returns filed by these preparers during the 2014 Filing Season. If the IRS does not see improvement the IRS will conduct a due diligence audit during the filing season.
  See Visiting Preparers Filing Highly Questionable Returns on the IRS EITC Central website for what occurs during these visits.
• Due Diligence Audits
  
  The IRS will again be conducting around 1,000 due diligence audits with 700 standard audits performed during the fall of 2013 based on 2012 EITC returns, and 300 real-time audits will be performed during the filing season based on 2013 EITC returns.
  The IRS conducts a due diligence audit on preparers whom they consider to be filing a large number of highly questionable EITC claims.
  See Auditing for Due Diligence Compliance on the IRS EITC Central website for more information on what occurs during a EITC due diligence audit.
  Since a Real-Time Due Diligence audit has some differences from the standard due diligence audit, see the Real Time EITC Preparer Pilot page on EITC Central website for what these differences are.

To learn more about the IRS EITC compliance program see the following on the IRS EITC website:

• EITC Preparer Compliance — Targeted, Tailored and Tiered
• EITC Preparer Due Diligence

IRS Change for Filing Federal Individual Returns for Same-Sex Couples

The IRS announced on August 29, 2013 that all legal same-sex married couples will be treated as married for Federal tax purposes (including income and gift and estate taxes) as of September 16, 2013.

The ruling contained in IRS Revenue Ruling 2013-17 implements the Federal tax aspects of the June 26, 2013 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

The new rule applies to legally married same sex couples regardless of whether they reside in a State that recognizes same-sex marriage or in a State that does not recognize the validity of same-sex marriages.

It does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

For 2013 and beyond, same sex married couples must file their individual Federal return using either a filing status of married filing jointly or married filing separately. For 2012, this applies only if their original return for 2012 was filed on or after September 16, 2013. If the 2012 return was filed before September 16, 2013, they may choose (but are not required) to amend their 2012 Federal return.

This ruling is also retroactive to any prior open tax years if they were legally married during those years. As a result, they may file an amended return for Tax Years 2010, 2011, or 2012.

This ruling does not affect how a State individual return is filed if the State does not recognize the validity of same-sex marriages. We will continue to provide updates as more information on what filing status is available to same-sex married couples for State individual returns is released.

For more information see the following on the IRS website:

• IRS Announcement of August 29, 2013
• IRS Revenue Ruling 2013-17
• FAQs for Same-Sex Couples
• FAQs for Registered Domestic Partners and Individuals in Civil Unions