IRS and Partial Government Shutdown

The IRS is affected by the partial government shutdown as follows:

• Any paper return that is sent (this includes amended returns) to the IRS will not be processed

• IRS Help Desk is not operating

• Any refunds will not be issued

See the IRS Lapsed Appropriations Contingency Plan for more information on what is and is not operating at the IRS during the shutdown.

Form 1040 Redesign Reminder

The IRS has redesigned the 2018 Form 1040. The Form 1040 will only include the most commonly used income, deductions, credits and payments. All other line items that were on the previous Form 1040 will now be included on six new schedules.

With this redesign the Form 1040A and 1040EZ have been eliminated.

The 2018 Form 1040 has been streamlined to only include the five most common types of income, federal withholding, EITC, Additional Child Tax Credit and the Education Credit. All other types of income, adjustments to income, nonrefundable, refundable credits, other payments and other taxes that existed on the 2017 Form 1040 have been moved to one of six new schedules:

• Schedule 1 (Additional Income and Adjustments to Income)

• Schedule 2 (Tax)

• Schedule 3 (Non-refundable Credits)

• Schedule 4 (Other Taxes)

• Schedule 5 (Other Payments and Refundable Credits)

• Schedule 6 (Foreign Address and Third Party Designee)

The 2018 Form 1040 also has the following changes that are a result of the Tax Cuts and Jobs Act:

• Removal of exemption amount boxes and the total exemptions line.

• Addition of check box for the new credit for other dependents for each dependent.

• New line 9 for the new qualified business income deduction (20% deduction for pass-through business income – Sec 199A).

Visit the CrossLink Tax Resource Center today to learn more.

ACA Individual Penalty Still Applicable for 2018

The Tax Cuts and Jobs Act did remove the individual penalty provision; however, it does not go into effect until 2019. Therefore, if an individual did not have health insurance for all or part of 2018 and did not qualify for an exemption they will owe a penalty on their 2018 federal return.

If it is determined that an individual does owe a penalty for 2018, it is calculated as the greater of: 

·         2.5% of the individual’s income that exceeds their 2018 filing threshold (standard deduction for their filing status)

Or

·         A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows:

o    $695 for taxpayer, spouse, and dependents over age 18

o   $347.50.50 for each dependent under age 18

The maximum family flat dollar amount for 2018 is $2,085

See pages 16 – 20 of the draft 2018 Form 8965 instructions for more information on how the penalty is calculated.

Health Care Coverage Exemptions

Most individuals who did not have health insurance for all or part of 2018 probably qualified for an exemption. Therefore, it is important that before any penalty is calculated that an individual determines whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption they must complete the applicable parts of the 2018 Form 8965 (Health Coverage Exemptions) and include it with their 2018 federal return.

If an individual needs help in determining whether they qualify for an exemption, a Find Exemptions tool is available on the Healthcare.gov website.

IRS Tax Professional Data Theft Attacks

Due to the increase in cybercriminal attacks on tax professionals during 2018 the IRS is urging practitioners to take steps to protect their computer networks.

This increase represents a significant trend in tax-related identity theft, and it is a sign that tax practitioners must take stronger measures to safeguard their clients and their business.

The IRS also reminds all professional tax preparers that they are required by federal law to create and maintain a written data security plan. Sole practitioners are just as vulnerable to data theft as practitioners in large firms.

Here are some common clues that data theft has occurred:

• Client e-filed returns begin to reject because returns with their Social Security numbers were already filed;
• Clients who haven’t filed tax returns begin to receive authentication letters (5071C, 4883C, 5747C) from the IRS;
• Clients who haven’t filed tax returns receive refunds; 
• Clients receive tax transcripts that they did not request;
• The number of returns filed with tax practitioner’s Electronic Filing Identification Number (EFIN) exceeds number of clients;
• Network computers running slower than normal;
• Computer cursors moving or changing numbers without touching the keyboard

See IRS News Release of December 7 - IRS, Security Summit Partners warn tax professionals of high risk of data theft attacks for more information on the increase of these attacks and on what basic security steps tax preparers should take to protect themselves.

Security Summit Partners Highlight New Password Guidance

As part of National Security Awareness Week the IRS, state tax agencies and the nation’s tax industry is urging people to review new, stronger standards to protect the passwords of their online accounts.

These new standards are a reflection of the new thinking on what a strong password is. The latest guidance suggests using a passphrase such as a favorite line from a movie or a series of associated words for their password. The idea is to create a passphrase that can be remembered easily.

The National Institute of Standards and Technology or NIST last year rethought its guidance on passwords and suggested three steps to build a better password:

Step 1 – Leverage your powers of association. Identify associated items that have meaning to you. 

Step 2 – Make the associations unique to you. Passphrases should be words that can go together in your head, but no one else would ever suspect. Good example: Items in your living room such as BlueCouchFlowerBamboo. Bad example: Names of your children.

Step 3 – Picture this. Create a passphrase that you can picture in your head. In our example, picture items in your living room. The key is to create a passphrase that is hard for a cybercriminal to guess but easy for you to remember

For more information see the IRS News Release of Dec 4 - Security Summit Partners highlight new password guidance, urge taxpayers and practitioners to protect all accounts