Tax Update: New Tax Benefit for the Disabled - ABLE Accounts

The Achieving a Better Life Experience (ABLE) Act of 2014 was signed into law in December 2014. This new provision authorizes any state to offer its residents the option of setting up an ABLE account. The ABLE account allows people with disabilities, and their families, the ability to save and pay for disability related expenses.

These accounts are modeled after Section 529 college savings plans. Once a state enacts legislation, a qualified ABLE account may be set up by a taxpayer. The account will then be maintained by the state and managed by a financial institution. Contributions to an ABLE account are not tax deductible for federal income tax purposes. However, the earnings on the account are not taxable either. An eligible individual is limited to one ABLE account.

Key points for ABLE accounts are:

• An individual is eligible for an ABLE account if that person is diagnosed with blindness or a disability prior to their 26th birthday.
• The yearly contribution limit is the amount of the annual federal gift tax exclusion, which is currently $14,000.
• States must either pass legislation that allows ABLE accounts to be set up or contract with another state that offers ABLE accounts.
• Distributions are tax-free as long as they are used to pay qualified disability expenses.
• Beneficiaries of ABLE accounts can save up to $100,000 in the plan without losing Medicaid and Supplemental Security Income benefits.

At the present time, each state’s legislature is considering legislation to allow the setup of ABLE accounts. As of the end of June, here is the status of ABLE legislation in each state:

• Enacted (23): Alabama, Arkansas, Colorado, Connecticut, Delaware, Florida, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia
• Still considering (13): California, Hawaii, Illinois, Iowa, Michigan, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Wisconsin
• Will not consider until 2016 (14): Alaska, Arizona, Georgia, Idaho, Indiana, Kentucky, Maine, Mississippi, New Hampshire, New Mexico, Oklahoma, South Carolina, South Dakota, Wyoming

Later in the year, we will be giving additional updates on the status of the legislation in each state and additional details on ABLE accounts once the regulations are finalized. The IRS has just recently released proposed regulations that will govern ABLE accounts. We will update you when these become final later this year.

For more details on ABLE accounts see the following on the IRS website:

• Tax Benefit for Disability
• Proposed Regulations Offer Guidelines for New State-Sponsored ABLE Accounts for People with Disabilities announcement and details on ABLE accounts
• Proposed IRS Regulations for ABLE Accounts (June 19, 2015)

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.

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.

IRS Will Start Processing 8863 Returns Tomorrow, 8:00AM Eastern

BREAKING NEWS: The IRS will start processing Tax Year 2012 returns that contain Form 8863 Education Credits at 8AM EST tomorrow.

We highly encourage transmitting these returns as soon as possible today in anticipation.

NEWS UPDATE: IRS Will Accept 8863, Education Credits, Starting Feb 14, 2013

NEWS UPDATE: The IRS just released the following information:

"On Thursday, Feb. 14, 2013, the IRS plans to start processing Tax Year 2012 returns that contain Form 8863, Education Credits."

They also stated:

"Effective Sunday, Feb. 10, 2013, the IRS will start processing Tax Year 2012 returns that contain Form 4562, Depreciation and Amortization. After completing the 9:00 am, Eastern maintenance build window, the various business rules used to reject returns with Form 4562 attached will be disabled. That includes the Form 1040-family tax returns, Form 1065/1065-B, Form 1120-family tax returns and Form 990-family tax returns."

Tax Update: IRS and Schedule C Due Diligence Letters and Visits

As part of the IRS’s continued efforts to increase paid preparer accuracy and due diligence in preparing tax returns, the IRS has begun to focus on returns that include a Schedule C. This past November and last month (January 2013) the IRS sent out 4,000 letters to preparers whom had been identified as preparing Schedule C’s that may have contained errors. Read more

In November, 1,200 return preparers received a letter informing them that the IRS would be conducting an educational visit to go over their responsibilities in preparing returns containing a Schedule C.

Click here to read more about the IRS and Schedule C Due Diligence Letters and Visits, as well as to view IRS Letters 4810, 5102, and 5105 for further details.

IRS News: Business e-filing for Corporations & Partnerships to open Monday, February 4th

The IRS just released a Quick Alert which states the following:

The IRS will open business e-filing for 2012 returns for Corporations and Partnership returns this Monday, February 4, 2013.

The restriction on the forms that were delayed until late February or early March for individual returns applies to business returns as well.

These forms include any business returns that include Form 3800 (General Business Credits), Form 4562 (Depreciation and Amortization) as well as many business tax credit forms shown in the list below.

List of forms delayed by IRS until late February or March 2013:

• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuels
• Form 4562 Depreciation and Amortization (Including Information on Listed Property)
• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5695 Residential Energy Credits
• Form 5735 American Samoa Economic Development Credit 
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8396 Mortgage Interest Credit
• Form 8582 Passive Activity Loss Limitations
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8839 Qualified Adoption Expenses
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8859 District of Columbia First-Time Homebuyer Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

IRS Update Regarding Form 8863 Delay

Filers who need to attach Form 8863 used to claim the American Opportunity Tax Credit and the Lifetime Learning Credit to their tax return can prepare their return now but must wait to submit it in mid-February.
This applies to paper and electronic Forms 8863.

What you need to know:

• If the IRS received an electronic or paper tax return with a Form 8863 attached prior to Jan. 27, the IRS will hold it and push it through as soon as they are able to process Form 8863 in mid-February. Taxpayers/tax professionals do not need to take any additional action at this time.
• If you submitted an electronic tax return with a Form 8863 attached on Jan. 27 or later and the transmitter/taxpayer received a reject notification from the IRS tell the taxpayer they don't need to take any additional action. Tell them you will hold their return and resubmit it to the IRS as soon IRS is able to process it.
• If the IRS received a paper or e-filed F1040/1040A return with F8863 attached before Jan. 27, Where's My Refund will show the taxpayer that their return has been received. However, progress to the next phase: Refund Approved, will not occur before mid-February when the IRS can begin processing these returns. So taxpayers will not be given a refund date during this waiting period. Reassure taxpayers that this is expected due to the delayed processing of Forms 8863 and they do not need to contact the IRS about their return or take any other action.
• If the IRS received a paper F1040/1040A return with Form 8863 attached on Jan. 27 or later, the return will be held and will not show up on “Where's My Refund” until the IRS can begin processing Forms 8863. The taxpayer does not need to contact the IRS about their return or take any other action.
• If the IRS received an e-filed F1040/1040A with Form 8863 attached will debit payments be processed as scheduled for the F1040/1040A returns in suspense? Yes, since payments are processed separately from the returns (in paper and electronic) suspending the return will not interrupt the payment transaction. Payments should be debited as scheduled or processed as received.
• The IRS successfully opened the tax season for most taxpayers. The Jan. 30 opening includes people claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction. Forms that will be able to be filed later are listed on IRS.gov.

Updated information will be as it becomes available.

IRS Announces Delay in Form 8863 (Education Credits - American Opportunity and Lifetime Learning Credits)

The IRS has announced that they will not be accepting Form 8863 until late Feburary to early March 2013. This hold is industry-wide and will impact all transmitters and all tax preparers.

What you need to know:

• The IRS announced they will NOT be accepting Form 8863
• The hold is industry-wide direction from the IRS
• Form 8863 will be accepted by the IRS in the approximate timeframe: late February to early March 2013

“Like” us on Facebook at www.facebook.com/CrossLinkTax to receive the latest industry updates on this and other relevant topics.

Next Steps:

1. We are working with the IRS to determine the status of returns that have already been submitted with From 8863 and received acknowledgements. CrossLink will continue to keep you updated.
2. CrossLink has “blocked” Form 8863 until such time that the IRS is accepting this form. You CAN STILL SUBMIT RETURNS!
3. You will need to file an amended return once the IRS begins accepting Form 8863.

IRS Announcement: IRS Delays Start of the 2013 Tax Season

"January 8, 2013

WASHINGTON — Following the January tax law changes made by Congress under the American Taxpayer Relief Act (ATRA), the Internal Revenue Service announced today it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30.

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers -- more than 120 million households -- should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension.

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.”

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.

The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.

Who Can File Starting Jan. 30?
The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can’t File Until Later?
There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.

Updated information will be posted on IRS.gov."

(The above content is as it appeared in an official IRS press release distributed on January 8th, 2013.)

IRS Announcement: Modernized E-File (MeF) Delay for Some 2012 Business Returns

"The IRS continues to review the details and impact of the new tax law signed this week, but a number of these provisions will require changing forms and updating our processing systems involving non-1040 business returns. As a result, electronic filing of many business returns will be delayed while we update forms, related instructions and corresponding systems. This delay is not expected to significantly impact business filers since most of these returns with reporting periods ending Dec. 31, 2012, are not due until March or April 2013, depending on the form.

The IRS will not accept these business tax returns for processing through MeF at this time*:

• All 2012 tax year business forms (other than Forms 2290 and 7004)
• Form 8849, Schedule 3 - Certain Fuel Mixtures and the Alternative Fuel Credit
• Form 990 series (Tax Exempt tax returns)

Beginning Jan. 7, 2013, the IRS will accept these forms for processing through MeF:

• Fiscal year returns with a year ending prior to 12/31/2012
• All 2011 tax year and 2012 fiscal year business returns, including Form 1120 series
• 2012 tax year Form 2290, Heavy Highway Vehicle Use Tax Return
• 2012 tax year Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns

We will share additional information on when we can accept the remaining 2012 tax year business forms as soon as it becomes available. More information will also be available soon regarding 2012 individual 1040 tax returns impacted by this week’s legislation.

* Note: Business tax returns not processable through MeF at this time will also not be processed if submitted on paper."

(The above content is as it appeared in an official IRS Quick Alerts e-mail distributed on January 4th, 2013.)