Tax Update: Voluntary Continuing Education Program for Unenrolled Tax Return Preparers

The IRS started a new voluntary program that allows tax return preparers to show the IRS and their customers that they are keeping up with tax law changes and increasing their tax knowledge by completing tax related continuing education courses each year. It is called the Annual Filing Season Program. Preparers who choose to participate will receive a Record of Completion from the IRS, provided that they complete the required hours of continuing education, have an active PTIN, and consent to adhere to specific obligations under Circular 230.

Any preparer who receives a Record of Completion for the 2016 Filing Season will have limited representation rights before the IRS. This means that they will be able to represent their clients, whose returns they have signed, before revenue agents, customer service representatives, and similar IRS employees. All other unenrolled return preparers will have no representation rights and will only be allowed to complete returns and sign them.

Another advantage for tax return preparers who participate in the Annual Filing Season Program is inclusion in the database of tax return preparers on the IRS website.

This is how the program works:

In order to receive an Annual Filing Season Program – Record of Completion for calendar year 2016, most preparers must meet the following requirements by December 31, 2015:

• Complete 18 hours of continuing education which must include:
• A six hour Annual Federal Tax Refresher course that covers filing season issues and federal tax law updates. The course must also include a knowledge-based comprehensive test (that the tax preparer must pass) that is given at the end of the course by the continuing education provider.
• Seven hours of other federal tax law topics
• Two hours of ethics
• Renew their PTIN
• Consent to adhere to specific practice obligations outlined in Circular 230, Section 10.51

All continuing education courses must be taken from an IRS approved CE provider and completed by the end of each calendar year.

Unenrolled preparers who passed the Registered Tax Return Preparer test, are an established participant in a state based return preparer program, are a VITA volunteer, or have met a limited number of other criteria will be considered exempt. This means their continuing education hours requirement will be 15 hours. For more details on which unenrolled preparers are exempt and the details of their requirements, see the Reduced Requirements for Exempt Individuals on the IRS website.

For more information on the IRS Annual Filing Season Program see the following:

• Main Annual Filing Season Program page on the IRS website
• General Requirements
• Chart of Annual Filing Season Program CE Requirements

IRS, Industry, and State Security Summit and Collaborative Effort to Fight Identity Theft

The IRS joined with representatives of the tax software industry and state tax administrators on June 11, 2015 to announce the new collaborative effort to help protect the nation’s taxpayers from identity theft and tax fraud.

CrossLink has been part of this effort for the past three months and looks forward to being part of the continuing partnership with other tax industry companies, the IRS, and states in the months ahead to help combat the growing impact of identity theft to the federal and state tax systems.

This effort began in March 2015 with the establishment of three teams that focused on developing ways to improve tax return authentication and validation, information sharing between the industry, IRS, and states, and fraud detection and assessment of risks in order to develop strategies in preventing emerging threats.

The members of the IRS Security Summit agreed to several new initiatives in the following areas:

• Taxpayer authentication - Industry and government groups identified numerous new data elements that can be included with the return to help authenticate the taxpayer and detect identity theft fraud.
• Fraud detection - An agreement was made to expand the sharing of fraud leads between industry and government.
• Information assessment - The groups will look at establishing a formalized Refund Fraud Information and Assessment Center to more efficiently share information between the public and private sector to help identify fraud schemes and reduce the risk to taxpayers.
• Cyber-security framework - Industry agreed to align with the IRS and states under the National Institute of Standards and Technology cyber-security framework to promote the protection of the information technology infrastructure.
• Taxpayer awareness and communication - A joint effort between the IRS, states, and industry to increase the effort to inform taxpayers and raise awareness of the importance of protecting taxpayers’ sensitive personal tax and financial data to help prevent identity theft and refund fraud.

To learn more about this new IRS, industry, and state collaborative effort to fight identity theft and protect taxpayers, see the following on the IRS website:

• IRS news release on IRS, Industry, and State Security Summit
• 2015 IRS Security Summit Report
• IRS Security Summit page

IRS Update: Reminders for Upcoming 2015 Filing Season

As the January 20 start date for the 2015 filing season draws near, it is important to review the IRS Identity Protection PIN program and the new IRS direct deposit limit.

Identity Protection PIN

For the upcoming filing season the IRS will issue 1.7 million Identity Protection PINs (IP PIN) to individuals who have had an identity theft indicator applied to their IRS tax account.

These are the key items to know about the Identity Protection PIN:

• If a taxpayer received an IP PIN last year they should have received a new 6-digit IP PIN from the IRS in December via IRS notice CP01A.
• If a taxpayer received an IP PIN, the taxpayer and spouse must enter their IP PIN on their 2014 federal return or the IRS will reject the return.
• Read More

New IRS Direct Deposit Limits

Beginning this filing season, the IRS will be limiting the number of refunds that may be electronically deposited into a single financial account or pre-paid debit card to three (3).

Any subsequent deposits will be automatically converted to a paper refund check and mailed to the taxpayer at the address shown on the federal return... Read More

Click here to read the entire CrossLink Tax Update on reminders for the 2015 Filing Season.

New IRS Direct Deposit Limits

Beginning with the upcoming filing season the IRS will be limiting the number of refunds that may be electronically deposited into a single financial account or pre-paid debit card to three.

Any subsequent deposits will be automatically converted to a paper refund and mailed to the taxpayer at the address shown on the federal return.

If this occurs, the taxpayer will be sent a notice informing them the reason why the refund will not be direct deposited and that they will receive a paper check in approximately four weeks.

This new procedure has been instituted as part of the IRS’ continuing efforts to combat fraud and identity theft.

To read more about this new limitation on direct deposits see the Direct Deposit Limits page on the IRS website.

IRS Update: 2015 Employer Shared Responsibility Payment (Penalty) Under the Affordable Care Act

As a reminder, the employer shared responsibility (penalty) portion of the Affordable Care Act will be applied beginning on January 1, 2015. Therefore, all large employers (generally employed 100 or more full-time employees during 2014) are required to offer affordable health insurance to their employees that provides minimum essential coverage. Large employers who fail to do so will be subject to a shared responsibility payment (penalty). Read More

For 2015 there is transitional relief from the penalty for businesses that employed between 50 and 100 full-time equivalent employees during 2014. To be eligible, an employer must meet the following conditions:

• Did not reduce the size of its workforce or overall hours of service of its employees during the period starting on February 9, 2014 and ending on December 31, 2014.
• Did not eliminate or materially reduce the health coverage it offered as of February 9, 2014 during the period beginning on February 9, 2014 and ending on December 31, 2015.
• Read more

If the employer does not meet these conditions, then the definition of a large employer is 50 or more full-time employees during 2014.

Generally, a large employer will be subject to a shared responsibility payment (penalty) for 2015 once at least one full-time employee receives a premium tax credit and:

• Employer does not offer health insurance coverage to at least 70% of their employees – Penalty is calculated as $2,000 x (Total number of full-time employees minus 30) which is prorated for each month that they did not offer coverage;

Or

• Employer offers health insurance coverage that is not affordable or does not meet the minimum value standards – Penalty is $3,000 for each full-time employee who opts out of the employer’s coverage and obtains their health insurance through a Marketplace and is eligible for a premium tax credit.

Click here to read the entire CrossLink Tax Update that includes further information on the 2015 Employer Shared Responsibility Payment (Penalty) under the Affordable Care Act.

IRS Update: Reminder to Renew Your PTIN for 2015

The IRS has begun accepting renewals and new applications for PTINs for calendar year 2015. Read More

All paid preparers of federal tax returns must renew their PTINs for 2015. Renewal must be completed before preparing any 2014 tax returns.

Although the IRS may not require federal tax return preparers who are not EAs, CPAs, or attorneys to pass a test and complete yearly continuing education, the IRS still has the authority to require that all paid federal tax return preparers register with the IRS and obtain a PTIN.

Click here to read the entire CrossLink Tax Update that includes further information on renewing or registering your PTIN for the 2015 tax season.

IRS UPDATE: Update on Expired Federal Tax Provisions

The industry is awaiting on Congress to act on federal tax provisions that expired at the end of 2013. The earliest any extender legislation will be taken up by Congress is after the election in November. Once again, it appears that any extension of these provisions will not take place until late December.

Right now it appears that a two year extension is on the table but it is not clear that all of the expired provisions will be extended. So we will have to wait and see what Congress does include in any extender bill that is passed in December.

With that in mind, below is a list of the some of the provisions that have either expired or have significantly changed for tax year 2014.

Provisions no longer applicable for tax year 2014 returns:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917
• Itemized Deduction for Sales Tax
• 50% Bonus Depreciation
• Exclusion of gain from income for foreclosed home mortgage debt (Form 982)
• 15 year straight line depreciation allowed for qualified leasehold restaurant and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Nonbusiness energy property tax credit on Form 5695
• Contributions of capital gain real property made for conservation purposes (50% limitation applies instead of 30% limitation)

Also note that the following Section 179 Expense provisions have been reduced as follows for 2014:

• Maximum Section 179 Deduction amount: $25,000
• Maximum Cost before Section 179: $200,000
• Qualified Real Property category is eliminated

Stay tuned for more information on which provisions will be extended and what impact the lateness of any extender legislation passage will have on the start of the 2015 filing season.

See below for a complete listing of the expired federal tax provisions:

• Individual
• Business

IRS to Limit the Number of Direct Deposit Refunds into Single Account

As part of the ongoing IRS effort to combat fraud and identity theft, beginning with the 2015 filing season, the IRS will limit the number of refunds that may be electronically deposited into a single bank account or pre-paid debit card to three. Read more.

Once the limit of three is reached, any subsequent refunds will be switched to a paper check which will be mailed to the taxpayer at the address that is included on their federal return.

If this occurs, the taxpayer will receive a notice informing them they have exceeded the limit of direct deposits that may be made to a single account and that they will receive a paper check within 4 weeks.

It will also prevent tax preparers from obtaining payment of their tax preparation fees by having part of the taxpayer’s refund deposited into their bank account through the use of Form 8888 (Allocation of Refund) or by preparers opening a joint account with the taxpayer. Read more

Click here to read the entire CrossLink Tax Update that includes further information on the IRS's limit on direct deposit refunds into a single account.

IRS Update: Change in Income or Family Size During 2014 and the Advanced Premium Tax Credit (Subsidy)

For individuals that received an advanced premium tax credit (subsidy) to help pay for their 2014 health insurance premiums, it is important to report any change in their circumstances (such as in their income or family size) to the Health Insurance Marketplace (Exchange) where they obtained their insurance. This is important because any change in circumstances for an individual can affect the subsidy amount that was calculated when they first signed up for health insurance.

The subsidy is actually an advance of the 2014 premium tax credit which is paid directly to an individual’s health insurance provider each month. This amount will be reconciled with the actual premium tax credit that will be calculated on the individual’s 2014 federal return (which is based on the 2014 income and family size reported on it).

The impact of this reconciliation to the individual is as follows:

• A refundable credit will occur if the actual credit is greater than the subsidy received.
• An additional tax will be due if the subsidy received is greater than the actual credit.
• Read More

Click here to read the entire CrossLink Tax Update that includes further information on changes in income or family size during 2014 and how it affects the advanced premium tax credit subsidy.

Federal Tax Provisions Not Applicable for 2014 Tax Returns

This is a reminder that a number of tax provisions expired at the end of 2013.

Looking ahead to next year’s filing season, everyone will need to keep an eye out on what Congress does with regard to these expired tax provisions.

Below is a list of the most used provisions that have either expired or have significantly changed for Tax Year 2014.

Provisions no longer applicable for Tax Year 2014 returns:

• $250 Educator Expense Deduction - Form 1040, line 23
• Tuition and Fees Deduction - Form 8917
• Itemized Deduction for Sales Tax
• 50% Bonus Depreciation
• Read more

Also note that the following Section 179 Expense provisions have been reduced as follows:

• Maximum Section 179 Deduction amount: $25,000
• Maximum Cost before Section 179: $200,000
• Read more

Click here to read the entire CrossLink Tax Update that includes further information on federal tax provisions that are not applicable for 2014 tax returns.

IRS Update: Net Investment Income Tax for High Income Individuals

Beginning in 2013, a new 3.8% additional tax on net investment income will apply when a taxpayer's modified adjusted gross income exceeds the following thresholds:

• $250,000 for Married Filing Joint filers or Qualifying Widow(er)
• $125,000 for Married Filing Separate filers
• $200,000 for taxpayers that file Single or Head of Household

Modified adjusted gross income is defined as the taxpayer's adjusted gross income increased by the net amount of exempt foreign sourced income.

Investment income generally includes interest, dividends, capital gains, rental or royalty income, non-qualified annuities, income from businesses involved in trading financial instruments or commodities, and passive activity business income.

Click here to read the entire CrossLink Tax Update about the new Net Investment Income Tax.

IRS Update: Additional Medicare Tax for High Income Taxpayers

Beginning in 2013, the additional Medicare tax will apply to individuals with wage income, other compensation, and/or self-employment income that exceed the following threshold amounts:

• $250,000 for Married Filing Jointly
• $125,000 for Married Filing Separately
• $200,000 for taxpayers that file Single, Head of Household, or Qualifying Widow(er).

The additional Medicare tax is calculated as 0.9% of the total of wages, other compensation, and self-employment income that is in excess of the taxpayer's threshold amount.

For self-employed taxpayers, the Medicare portion of their self-employment tax will be calculated as follows:

• Net self-employment income up to the taxpayer's threshold amount will be . . . Read more
• Amount over the threshold amount will be . . . Read more

Click here to read the entire CrossLink Tax Update about the additional Medicare tax for high income taxpayers.

IRS Update: New IRS Tool to Check Status of Federal Amended Return

Taxpayers now have a way to find the status of their Form 1040X (Amended Tax Return) that they filed for the current year or three prior years via the IRS website. Learn more

They may do this by using the new IRS look-up tool “Where’s My Amended Return?”. Once they have mailed their amended return to the IRS, their status will be available in three weeks.

Click here to read the entire CrossLink Tax Update about the new IRS tool for checking the status of Federal Amended Returns.

IRS Update: April 15 Filing Deadline Reminders

This is a reminder that the Federal filing deadline for individual returns is this Monday, April 15, 2013.

April 15, 2013 is also the deadline for the following:

• To file an automatic six month extension (Form 4868). Remember the six month extension is for filing the return only. Any tax due must be paid by April 15, 2013 to avoid any penalty and interest.
• First individual estimated tax payment for 2013
• See more deadlines

Also, for returns rejected on April 15, 2013, the return will be considered timely filed if it is retransmitted and accepted by April 20, 2013.

Click here to read the entire CrossLink Tax Update about filing deadline reminders.

Six Tips for Taxpayer Clients with Foreign Income

Here are six tips provided by the IRS for taxpayer clients with foreign income:

1. Report Worldwide Income. The law requires U.S. citizens and resident aliens to report any worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Some taxpayers may need to file additional forms. For example, some may need to file Form 8938, Statement of Specified Foreign Financial Assets, while others may need to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department. See Publication 4261, Do You Have a Foreign Financial Account?, for more information.

3. Consider the Automatic Extension. U.S. citizens and resident aliens living abroad on April 15, 2013, may qualify for an automatic two-month extension to file their 2012 federal income tax returns. The extension of time to file until June 17, 2013, also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion. This means taxpayers who qualify will not pay taxes on up to $95,100 of their wages and other foreign earned income they received in 2012. See Forms 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion, for more information.

5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income.

6. Get Tax Help Outside the U.S. Taxpayers living abroad can get IRS help in four U.S. embassies and consulates. IRS staff at these offices can help with tax filing issues and answer questions about IRS notices and tax bills. The offices also have tax forms and publications. To find the nearest foreign IRS office, taxpayers should visit the IRS.gov website. At the bottom of the home page click on the link labeled ‘Contact Your Local IRS Office.’ Then click on ‘International.’

Additional IRS Resources:

• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• Report of Foreign Bank and Financial Accounts (FBAR)
• Publication 4261, Do You Have a Foreign Financial Account?
• Form 8938, Statement of Specified Foreign Financial Assets
• Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts
• Form 2555, Foreign Earned Income
• Form 2555-EZ, Foreign Earned Income Exclusion
• International IRS offices

(Source: adapted from IRS e-mail "IRS Tax Tip 2013-42:  Seven Tips for Taxpayers with Foreign Income")

IRS Update: Safeguarding Taxpayer Data

The IRS requires all tax professionals to implement safeguards to protect taxpayer data. This includes paper data as well as electronic data. Read more

Under IRS Revenue Procedure 2007-40 (rules governing e-file providers and the overall IRS e-file program), Section 5.03 states:

The security of taxpayer accounts and personal information is a top priority for the Service. It is the responsibility of each Authorized IRS e-file Provider to have security systems in place to prevent unauthorized access to taxpayer accounts and personal information by third parties . . . Read more

The IRS has created publications to provide guidance to the tax professional community to help them meet their responsibilities for safeguarding taxpayer data. Read the publications here.

Click here to read the entire CrossLink Tax Update about safeguarding taxpayer data.

IRS Late Payment Penalty Relief for Returns with Delayed Forms

The IRS is providing late payment penalty relief to individuals and businesses that file an extension to file their tax returns. However, the relief only applies to those who owe additional tax because their return includes a form that the IRS did not allow to be filed until after January 2013.

Individuals and businesses can qualify for this relief if they properly file an extension to file their 2012 tax returns. Eligible taxpayers do not need to make any special notation on their extension request; however, they must properly estimate their expected tax liability and pay the estimated amount by the due date of the return. Interest will still apply to tax due after the original due date.

Some examples of returns that qualify for this relief are returns that include the following:

·         Form 4562 (Depreciation and Amortization)

·         Form 4136 (Credit for Federal Tax Paid on Fuels)

·         Form 8863 (Education Credits)

·         Form 3800 (General Business Credit)

·         Form 5695 (Residential Energy Credits)

·         Form 8582 (Passive Activity Loss Limitations)

For a complete listing of all eligible forms see Exhibit 1 of Notice 2013-24

For more information see the March 20, 2013 Relief Available to Many Extension Requesters Claiming Tax Benefits article on the IRS newswire page.

IRS Update: Things to Know for the Remainder of the 2013 Filing Season

Reduction in Refundable Portion of the Small Business Health Care Tax Credit

Due to the sequestration legislation that went into effect on March 1, 2013, the refundable portion of the Small Business Health Care Tax Credit will be reduced by 8.7 percent for the remainder of the Federal fiscal year (September 30, 2013). This reduction may be restored if Congress restores the automatic cut that affected this credit. Read more

2012 Federal Returns with Form 8839 (Qualified Adoption Expenses)

Because of the late passage of legislation that permanently extended the adoption credit and made the credit nonrefundable, the IRS is requiring that 2012 Federal returns that include Form 8839 be filed on paper. In addition, there is no longer a requirement to attach supporting documentation for the adoption expenses. Read more

New IRS Video Explaining How to Report Certain Military Retirement Income

The IRS has added a new video that explains how to report military retirement income for veterans when there is an increase in the percentage of disability by the Veterans Administration, or the veteran was granted combat-related special compensation after an award for concurrent retirement and disability.

Click here to read the entire CrossLink Tax Update about things to know for the remainder of the 2013 Filing Season.

IRS Update: 2012 Health Insurance Rebates for Individuals

If you have customers that paid for their own insurance in 2011, they may be affected by a provision in the Affordable Care Act that requires health insurance companies to issue rebates to their customers. The rebates are required to be issued if health insurance companies do not spend a minimum specified percentage of their premium dollars on medical care and quality improvement activities. This is known as the Medical Loss Ratio standard. Read more

The Medical Loss Ratio provisions require insurance companies to spend at least 80% or 85% of premium dollars on medical care. If they fail to meet these standards they are required to provide a rebate to their customers starting in 2012. Read more

A taxpayer who received a rebate on their individual health insurance during 2012 may have to show the rebate amount as income on their 2012 Federal income tax return. The rebate will need to be reported as income if the taxpayer received a tax benefit on their 2011 Federal return because they included those insurance payments:

• In their total medical expenses reported on Schedule A; or
• As a deduction on Form 1040, line 29 for self-employed health insurance premiums.

Click here to read the entire CrossLink Tax Update about 2012 health insurance rebates for individuals.

IRS Update: New IRS Tool for Offers in Compromise

In an effort to help taxpayers that have an outstanding tax debt determine whether they may be eligible for an offer in compromise, the IRS has added a new Offer in Compromise Pre-Qualifier tool to their website. Read more

By adding this tool, the IRS believes that taxpayers and tax practitioners will save time by doing the work in advance of filing their return to determine if an offer in compromise is worth pursuing. This is important because an offer is generally not accepted if the IRS believes the tax liability can be paid in full as a lump sum or through a payment agreement. Read more

Click here to read the entire CrossLink Tax Update about the new IRS tool for Offers in Compromise.