What Information Must a Health Coverage Provider Report to the IRS
For purposes of the health care law, the information that health coverage providers, including employers that provide self-insured coverage, report to the IRS includes the following:
· The name, address, and employer identification number of the provider
· The responsible individual’s name, address, and taxpayer identification number – or date of birth if a TIN is not available
· If the responsible individual is not enrolled in the coverage, providers may, but are not required to, report the TIN of the responsible individual
· The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits
· For coverage provided by a health insurance issuer through a group health plan, the name, address, and EIN of the employer sponsoring the plan, and whether the coverage is a qualified health plan enrolled in through the Small Business Health Options Program – known as SHOP – and the SHOP’s identifier
A taxpayer identification number is an identification number used by the IRS in the administration of tax laws. Taxpayer identification numbers include Social Security numbers.
Reporting of TINs for all covered individuals is necessary for the IRS to verify an individual’s coverage without the need to contact the individual.
If health coverage providers are unable to obtain a TIN after making a reasonable effort to do so, the provider may report a covered individual’s date of birth in lieu of a TIN. A health coverage provider will not be subject to a penalty if it demonstrates that it properly solicited the TIN.
In addition to the information it reports to the IRS for each covered individual listed on the information return, a health coverage provider must include a phone number for the provider’s designated contact person – if any – that the individual recipient of the statement can contact for answers to questions about information on the statement.
For information about when and how to report this information, see our Questions and Answers on Information Reporting by Health Coverage Providers on IRS.gov/aca.
Top five reasons the corporate/partnership tax return was not filed until this week
BY JODY PADAR
Top five reasons the corporate/partnership tax return was not filed until this week (Sept. 15)
1) Still waiting on other CPA for an outside K1.
2) Still waiting on information from business owner despite multiple calls, emails, and texts to move things along.
3) Still waiting on partner to make a decision on how to handle a specific tax situation. (No additional information has been gathered or changed since March 15)
4) Still trying to figure out how to input state specific information into tax software.
5) Customer calls with new deal information and says, “Do we need to file a tax return for this?”
Hopefully, your summer extension season has gone well and you won’t be caught off guard by too many last minute emergencies. The above list made me laugh but if you haven’t vacationed all summer, next week should be a breeze. If it isn’t, maybe it’s time to consider a different approach to your current business model. What are you waiting for?
Jody Padar, CPA, MST, is the chief executive officer and principal at New Vision CPA Group and the author of The Radical CPA (www.theradicalcpa.com).
13.2% of young people out of work in August, report finds
BY SEAN MCCABE
Generation Opportunity, a national, nonpartisan youth advocacy organization, recently released its Millennial Jobs Report for August 2015. The data is non-seasonally adjusted (NSA) and is specific to 18-29 year olds.
Some highlights of the Report included:
· The effective (U-6) unemployment rate for 18-29 year olds, which adjusts for labor force participation by including those who have given up looking for work, is 13.2 percent (NSA).
· The (U-3) unemployment rate for 18-29 year olds is 8.1 percent (NSA).
· The declining labor force participation rate has created an additional 1.767 million young adults that are not counted as “unemployed” by the U.S. Department of Labor because they are not in the labor force, meaning that those young people have given up looking for work due to the lack of jobs.
· The effective (U-6) unemployment rate for 18-29 year old African-Americans is 17.6 percent (NSA); the (U-3) unemployment rate is 15.1 percent (NSA).
· The effective (U-6) unemployment rate for 18-29 year old Hispanics is 13.6 percent (NSA); the (U-3) unemployment rate is 9.5 percent (NSA).
· The effective (U-6) unemployment rate for 18-29 year old women is 11.0 percent (NSA); the (U-3) unemployment rate is 7.9 percent (NSA).
Generation Opportunity national spokeswoman Patrice Lee issued the following statement:
“Millions of millennials have no work to celebrate this Labor Day Weekend," stated Lee. "Lacking employable skills that can lead to a good job, college grads and non-grads still struggle to find a job in this economic recovery."
“Policymakers should support 21st-century reforms to our education system that help all young people," Lee continued. "Instead, they cling to tired solutions based on the model that touts a four-year college degree as the only way to get a good job. That model is broken: It graduates students with record-high loan debt and stigmatizes those who don’t go to college. We need to reboot our education system to prioritize expanding choice, lowering education cost and debt, and preparing our youth for available employment opportunities.”
Tax Court Gives Taxpayer a Snow Day
The Tax Court sided with a taxpayer who failed to get a petition protesting a tax lien delivered in time to the Tax Court’s own offices because of a federal holiday and a winter snowstorm that closed the offices.
On Jan. 16, 2015, the Internal Revenue Service sent Felix Guralnik by certified mail a notice of determination concerning a collection action. In the notice, the IRS sustained the filing of a notice of federal tax lien regarding Guralnik’s outstanding income tax liabilities for 2003 and 2005.
The notice included the language that if Guralnik wanted to dispute the determination in court, “you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.” The 30th day was Sunday, Feb. 15, 2015. The following day, Monday, Feb. 16, 2015, was Washington’s Birthday, a legal holiday in the District of Columbia.
On the next day, Tuesday, February 17, 2015, both the District of Columbia and federal government offices in the Washington, D.C. area, including the Tax Court, were officially closed for business because of Winter Storm Octavia.
Guralnik’s petition was sent by FedEx, and delivered to the Tax Court on the morning of Wednesday, Feb. 18, 2015, the same day that the court reopened. The envelope bore a “ship date” of Friday, Feb. 13, 2015. The class of service was not then among those designated by the IRS as a “private delivery service.”
The IRS filed a motion to dismiss for lack of jurisdiction on the ground that the last day to timely file a petition was Tuesday. The Tax Court held that the day of official closing of District and federal government offices, specifically including the Tax Court, was a legal holiday in the District of Columbia for purposes of section 7503 of the Tax Code, so the filing of the petition on Wednesday was timely.
“Clearly, in the case at hand the closing of both District and federal government offices, specifically including the Tax Court, because of a winter snowstorm, together with the fact that the Tax Court does not maintain an after-hours ‘drop-box’ and does not presently allow petitions to be filed electronically, means that the Tax Court’s clerk’s office was inaccessible on the day of the winter snowstorm,” the court stated in its Aug. 24 order. “Under such circumstances we find it inconceivable that Congress would have intended, absent a specific statutory provision requiring otherwise, to bar a taxpayer who fails to anticipate on a Friday that the government will decide to close a filing office on the first workday of the following week because of a snowstorm.”
“Because there is no such specific statutory provision requiring otherwise, we will deny respondent’s [the IRS’s] motion, as supplemented,” the court determined.
Moving this Year? If You Receive the Premium Tax Credit, Report this Life Event
If you moved recently, you’ve probably notified several organizations – like the U.S. Postal Service and utility companies – about your new address. You may have even notified the IRS about your address change. If you get health insurance coverage through a Health Insurance Marketplace, you should add one more important notification to your list: the Marketplace.
If you are receiving advance payments of the premium tax credit, it is particularly important that you report changes in circumstances, including moving, to the Marketplace. There’s a simple reason. Reporting your move lets the Marketplace update the information used to determine your eligibility for a Marketplace plan, which may affect the appropriate amount of advance payments of the premium tax credit that the government sends to your health insurer on your behalf.
Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. On the other hand, getting too little could mean missing out on monthly premium assistance that you deserve.
Changes in circumstances that you should report to the Marketplace include:
· an increase or decrease in your income, including lump sum payments like a lump sum payment of Social Security benefits
· marriage or divorce
· the birth or adoption of a child
· starting a job with health insurance
· gaining or losing your eligibility for other health care coverage
Many of these changes in circumstances – including moving out of the area served by your current Marketplace plan – qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. You can find information about special enrollment periods at HealthCare.gov.
Top 10 Tax Tips about Filing an Amended Tax Return
We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Here are ten tips from the IRS if you need to amend your federal tax return.
1. When to amend. You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.
Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.
2. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
3. Form 1040X. Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.
Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.
4. More than one year. If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.
5. Other forms or schedules. If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
6. Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
7. Amending to pay additional tax. If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
8. Corrected Forms 1095-A. If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A. This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.
In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund. You may also want to file an amended return if:
· You filed and incorrectly claimed a premium tax credit, or
· You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.
Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.
9. When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
10. Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.
You can get Form 1040X on IRS.gov/forms at any time.
Planning to Avoid or Minimize the 3.8% Net Investment Income Tax
The net investment income tax, or NIIT, is a 3.8% surtax on investment income collected from higher-income individuals. It first took effect in 2013. After filing your 2014 return, you may have been hit with this extra tax for two years, and you may now be ready to get proactive by taking some steps to stop, or at least slow, the bleeding for this year and beyond.
NIIT Basics. The NIIT can affect higher-income individuals who have investment income. While the NIIT mainly hits folks who consistently have high income, it can also strike anyone who has a big one-time shot of income or gain this year or any other year. For example, if you sell some company stock for a big gain, get a big bonus, or even sell a home for a big profit, you could be a victim. The types of income and gain (net of related deductions) included in the definition of net investment income and, therefore, exposed to the NIIT, include—
· Gains from selling investment assets (such as gains from stocks and securities held in taxable brokerage firm accounts) and capital gain distributions from mutual funds.
· Real estate gains, including the taxable portion of a big gain from selling your principal residence or a taxable gain from selling a vacation home or rental property.
· Dividends, taxable interest, and the taxable portion of annuity payments.
· Income and gains from passive business activities (meaning activities in which you don't spend a significant amount of time) and gains from selling passive partnership interests and S corporation stock (meaning you don't spend much time in the partnership or S corporation business activity).
· Rents and royalties.
Are You Exposed? Thankfully, you are only exposed to the NIIT if your Modified Adjusted Gross Income (MAGI) exceeds $200,000 if you are unmarried, $250,000 if you are a married joint-filer, or $125,000 if you use married filing separate status. However, these thresholds are not all that high, so many individuals will be exposed. The amount that is actually hit with the NIIT is the lesser of: (1) net investment income or (2) the amount by which your MAGI exceeds the applicable threshold. MAGI is your “regular” Adjusted Gross Income (AGI) shown on the last line on page 1 of your Form 1040 plus certain excluded foreign-source income net of certain deductions and exclusions (most people are not affected by this add-back).
Planning Considerations. As we just explained, the NIIT hits the lesser of: (1) net investment income or (2) the amount by which MAGI exceeds the applicable threshold. Therefore, planning strategies must be aimed at the proper target to have the desired effect of avoiding or minimizing your exposure to the tax.
· If your net investment income amount is less than your excess MAGI amount, your exposure to the NIIT mainly depends on your net investment income. You should focus first on strategies that reduce net investment income. Of course, some strategies that reduce net investment income will also reduce MAGI. If so, that cannot possibly hurt.
· If your excess MAGI amount is less than your net investment income amount, your exposure to the tax mainly depends on your MAGI. You should focus first on strategies that reduce MAGI. Of course, some strategies that reduce MAGI will also reduce net investment income. If so, that cannot possibly hurt.
Perhaps the most obvious way to reduce exposure to the NIIT is to invest in tax-exempt bonds via direct ownership or a mutual find. There are other ways, too. Contact us to identify strategies that will work in your specific situation.
Maximizing FDIC Insurance Coverage of Bank Deposits
The Federal Deposit Insurance Corporation (FDIC) has provided deposit insurance coverage to depositors of insured banks since 1933. This protection is important to all investors, especially those who tend to be invested heavily in cash and who are dependent on these accounts to cover living expenses.
Note: The covered institutions must display an official sign at each teller window or teller station. All FDIC institutions should have a brochure available to answer other questions regarding coverage. Additional information can be obtained atwww.fdic.gov.
Types of Deposits Protected. All types of deposits received by a financial institution in its usual course of business are insured. For example, savings deposits, checking deposits, Certificates of Deposit (CDs), cashier’s checks, and money orders are all covered. Certified checks, letters of credit, and traveler’s checks, for which an insured depository institution is primarily liable, are also insured when issued in exchange for money or its equivalent, or for a charge against a deposit account.
Any person (U.S. citizen or not) or entity can have FDIC insurance coverage in an insured bank. However, only deposits that are payable in the U.S. are covered. Deposits only payable overseas are not insured.
Securities, mutual funds, and similar types of investments, even if purchased through a bank, are not covered, nor are safe deposit boxes or their contents. Similarly, treasury securities purchased by an insured institution on the customer’s behalf are not insured, but these investments are backed by the full faith and credit of the U.S. government.
Amount of Coverage Available. A depositor is normally insured up to $250,000 in each insured financial institution. Accrued interest is included when calculating insurance coverage. Deposits maintained in different categories of legal ownership are separately insured. Accordingly, an individual can have more than $250,000 of insurance coverage in a single institution, provided the funds are owned and deposited in different ownership categories.
Deposits held in one insured bank are insured separately from any deposits held in another separately insured bank. For instance, if a person has a checking account at Bank A and has a checking account at Bank B, both accounts would be insured separately up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured.
Up to $250,000 in deposit insurance is provided for the money a consumer has deposited at the same insured institution in a variety of retirement accounts, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE Plans.
Maximizing FDIC Insurance Coverage. FDIC insurance coverage is not determined on a per-account basis, but on an ownership basis. Thus, the type of account has no bearing on the amount of insurance coverage, and the social security numbers or tax identification numbers do not determine coverage. Instead, separate insurance coverage is provided for funds held in different ownership categories. This means that a bank customer who has multiple deposits may qualify for more than $250,000 in insurance coverage if the customer’s accounts are deposited in different ownership categories and the requirements for each ownership category are met. Thus, increasing your available FDIC coverage may be as simple as retitling accounts so they fall into different ownership categories.
For example, an individual with three individual accounts each worth $100,000 for a total of $300,000 would have only $250,000 of coverage. However, a joint account worth $500,000 would be fully covered ($250,000 per person).
Supreme Court Legalizes Same-Sex Marriages in All States
Since the Supreme Court's 2013 Windsor decision, same-sex couples who are legally married under state or foreign laws are treated as married for federal tax purposes just like any other married couple. The Supreme Court's Obergefell decision (issued in late June) now requires all states to license and recognize marriages between same-sex couples. Specifically, the decision states that same-sex couples can exercise the fundamental right to marry in all states and that there is no lawful basis for a state to refuse to recognize a lawful same-sex marriage performed in another state.
Therefore, same-sex couples who are legally married in any state are now allowed to file joint state income tax returns wherever they reside. They are also entitled to the same inheritance and property rights and rules of intestate succession that apply to other legally married couples. Therefore, same-sex couples should now be able to amend previously filed state income, gift, and inheritance tax returns for open years to reflect married status and claim refunds. Furthermore, these couples likely need to rethink their estate and gift tax plans.
Before the Obergefell decision, members of married same-sex couples who live in states that did not previously recognize same-sex marriages had to file state income, gift, and inheritance tax returns as unmarried individuals. This caused additional complexity and expense in filing state returns.
Other implications of an individual's marital status include spousal privilege in the law of evidence; hospital access; medical decision-making authority; adoption rights; the rights and benefits of survivors; birth and death certificates; professional ethics rules; campaign finance restrictions; workers' compensation benefits; health insurance; and child custody, support, and visitation rights.
Note: The ruling does not apply to individuals in registered domestic partnerships, civil unions, or similar formal relationships recognized under state law, but not denominated as a marriage under the laws of that state. These individuals are considered unmarried for federal and state purposes. However, these state-law "marriage substitutes" might be eliminated now that all states must allow same-sex marriages. Individuals in these relationships can now obtain marriage licenses, get married, and thereby qualify as married individuals for both state and federal tax purposes.
Boosting Retirement Savings with a One-person 401(k) Plan
One-person 401(k) plans can provide a valuable source of retirement savings for successful entrepreneurs. Given the right circumstances, such plans allow large contributions on behalf of a business owner and maintain flexibility for making contributions in future years.
For 2015, a business owner can make an elective deferral contribution of up to $18,000 (and an additional $6,000 catch-up contribution if he or she is age 50 or older at year-end) plus an employer contribution of up to 20% of self-employment (SE) income unreduced by the elective deferral or 25% of compensation.
The total contributions (elective deferrals of up to $18,000, plus the employer contribution) cannot exceed the lesser of (1) 100% of the participant’s SE income or compensation or (2) $53,000 for 2015. Catch-up contributions to 401(k) plans of up to $6,000 in 2015 are not included in the annual additions limit.
Example: Maximizing contributions with a one-person 401(k) plan.
Kevin, age 63, is the sole owner and employee of Training Solutions, a sole proprietorship. In 2015, Kevin earns $145,000 (net of the SE tax deduction) and wishes to maximize contributions to a retirement account. He believes the business will probably continue to be profitable, but would like the flexibility of determining the amount to contribute each year. Kevin does not expect to hire employees.
The following table reflects the maximum amount that Kevin can contribute to a 401(k) plan for 2015.
Employer contribution ($145,000 × 20%) $29,000
Elective 401(k) deferrals 18,000
Contributions subject to annual limit 47,000
Catch-up contribution 6,000
Total contributions for 2015 $53,000
As an additional benefit, a business owner can borrow from his or her 401(k) plan if the plan document so permits. The maximum loan amount is 50% of the account balance or $50,000, whichever is less.
When the business employs someone other than just the owner, 401(k) contributions may be required for the other employees, in which case the plan would become a standard 401(k) plan with all the resulting complications. However, the plan can exclude from coverage any employee who is under age 21 and any employee who has not worked for at least 1,000 hours during any 12-month period.
Also, if the business’s only other employees are the owner’s spouse and/or children, a 401(k) plan covering those individuals may be even more attractive than a one-person 401(k) plan, especially for owners hitting the $53,000 contribution limit.
Expense Report Fraud Will Cost Companies $1 Billion
By Michael Cohn
Certify, a company that specializes in expense management software, wants to draw attention to the problem of expense report fraud.
It cites research from J.P. Morgan that U.S. companies will spend $186 billion on T&E expenses in 2015, $1 billion of which will be lost to fraud.
The median loss for organizations last year due to expense fraud was an average of more than $30,000, according to Certify. Companies with less than 100 employees have a 28 percent higher median fraud loss than those with 100 or more employees.
Expense report fraud can be broadly divided into four types: mischaracterized expenses, fictitious expenses, overstated expenses and multiple reimbursements.
The fifth largest T&E expense item is uncharacterized “miscellaneous” reporting, according to Certify.
An estimated 6.3 percent of all expense transactions are deemed to be out of compliance, but monitoring for compliance can lead to an estimated 70 percent reduction in noncompliant transactions.
Alabama Challenges Supreme Court's Quill Decision on Sales Taxes
Last week, the Alabama Department of Revenue challenged the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which established a physical presence test for sales tax nexus.
On September 9, the Alabama Department of Revenue proposed “Requirements for Certain Out-of-State Sellers Making Significant Sales into Alabama,” which would require out-of-state sellers to collect use tax from Alabama customers if they have substantial economic presence within the state.
Nexus is the minimum amount of contact between a taxpayer and a state, allowing the state to tax the business on its activities. It arises from two clauses in the Constitution. The Commerce Clause prohibits a state from unduly burdening interstate commerce, and the Due Process Clause requires a minimum connection between a state the entity it wishes to tax.
Indications are that the rule will be promulgated and go into effect on Jan. 1, 2016, according to Clark Calhoun, partner in Alston & Bird’s State and Local Tax Practice.
“From the comments of the governor on Twitter, it sounds like they’re proceeding with the rules,” he said. “He indicated that despite potential Constitutional problems, they were going to proceed with the rule and wait for someone to sue the state.”
“It’s certainly an interesting stance by both the governor and the Department of Revenue,” said Calhoun. “It’s in direct contravention of existing Supreme Court precedent. Following the hearing, the commissioner said the same thing over Twitter, so it looks like it will pass.”
“It is inevitable that taxpayers will be faced with state action that seeks to manipulate current law, but when thinking about altering an existing Supreme Court precedent, we might want to tread carefully,” he cautioned. “We wouldn’t think this is appropriate in a country that respects the rule of law.”
“The state shouldn’t take it into its own hands to overturn old Supreme Court law,” agreed Matthew Hedstrom, senior associate at Alston & Bird. “They’re basically saying that Quill has a shelf life, and it’s expired. This would be troubling even outside the tax context.”
Presumably, the state’s stance is based on Justice Kennedy’s concurrence in the Supreme Court’s recent Direct Marketing decision, in which he suggested that given the changes in technology since 1992, it is time to revisitQuill.
The proposed regulation would apply to businesses that make at least $250,000 in annual sales and conduct one or more specified activities that indicate substantial economic presence in the state.
“It’s being pitched as the states versus the big retailers, but the way the regulation is drafted it would capture many other companies,” said Calhoun. “We don’t view the threshold as so high that it would only capture large, sophisticated businesses; not that it would be Constitutionally sound if it did.”
The hearing was strictly administrative, according to Calhoun, without any action by the legislature. “By rule, they have to accept comments on the proposal, but they can proceed to pass the regs as they see fit,” he said.
The hope to create new law by contravening old law and waiting to be sued is a strange method, which some might say is beneath the dignity of the state. Whether it is successful or not will depend on the future of the litigation that Alabama is waiting for.
The Health Care Law and You: Nine Facts about Letters Sent by the IRS
The IRS sent letters to taxpayers this summer who were issued a Form 1095-A, Health Insurance Marketplace Statement, showing that advance payments of the premium tax credit were paid on the taxpayer’s behalf in 2014. At the time, the IRS had no record that the taxpayer filed a 2014 tax return.
Here are nine facts about these letters and the actions you should take:
In addition to these letters from the IRS, your health insurance company may contact you to remind you to file your 2014 federal tax return along with Form 8962. In some cases, they may contact you even if you did not receive advance credit payments in 2014. If you are not otherwise required to file a tax return, you do not have to file a return if you or anyone on your return did not receive advance credit payments in 2014.
For more information, see the Affordable Care Act Tax Provisions for Individuals and Families page on IRS.gov/aca.
Questions and Answers to Help Your Organization Understand ACA Reporting Requirements
The IRS has a series of Questions and Answers that helps employers understand the Affordable Care Act reporting requirements that apply to them.
The health care law requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. An applicable large employer is an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year.
Here are three questions and answers that address specific situations that might apply to your organization.
Is an ALE member that sponsors a self-insured health plan required to file Form 1094-C and Form 1095-C if the ALE member has no full-time employees?
Generally, yes. An ALE member that sponsors a self-insured health plan in which any employee or employee’s spouse or dependent has enrolled is required to file Form 1094-C and Form 1095-C, whether or not that employer has any full-time employees and whether or not that individual is a current employee or a full-time employee. For an individual who enrolled in coverage who was not an employee in any month of the year, the employer may file Forms 1094-B and 1095-B for that individual.
Is an employer that is not an ALE member required to file under the Affordable Care Act if the employer sponsors a self-insured health plan that provides minimum essential coverage?
No; however, such an employer is subject to the reporting obligations under the Affordable Care Act. An employer that is not an ALE member that sponsors a self-insured health plan in which any individual has enrolled is not subject to the reporting requirements of ACA. Such an employer will generally satisfy its reporting obligations by filing Form 1094-B and Form 1095-B.
Is an ALE member required to report under the Affordable Care Act with respect to a full-time employee who is not offered coverage during the year?
Yes. An ALE member is required to report information about the health coverage, if any, offered to each of its full-time employees, including whether an offer of health coverage was – or was not – made. This requirement applies to all ALE members, regardless of whether they offered health coverage to all, none, or some of their full-time employees. For each of its full-time employees, the ALE member is required to file Form 1095-C with the IRS and furnish a copy of Form 1095-C to the employee, regardless of whether or not health coverage was or was not offered to the employee. Therefore, even if an ALE member does not offer coverage to any of its full-time employees, it must file returns with the IRS and furnish statements to each of its full-time employees to report information specifying that coverage was not offered.
For the full list of questions and answers about reporting requirements for employers, see our Reporting Offers of Health Insurance Coverage by Employers page on IRS.gov/aca. The IRS website is also the place to find questions and answers for a wide range of ACA topics for individuals, employers and other organizations.
Hunt for Tax Cheats Leads U.S. Government to Banks in Belize
BY JESSE DRUCKER
In its hunt for tax cheats, the U.S. Internal Revenue Service is headed to Belize.
On Wednesday, a federal judge in Miami authorized the IRS to serve a so-called “John Doe” summons on two U.S. banks for correspondent account information related to Belize Bank International Ltd. and Belize Bank Ltd., both subsidiaries of BCB Holdings Ltd. Such summons are used by the IRS to get information about possible tax evasion when they don’t know the identities of the taxpayers, but suspect a group of Americans may be using such accounts to dodge taxes.
The move is a further expansion of the government’s investigation into wealthy Americans using undeclared offshore bank accounts to dodge taxes.
The IRS is serving the summons on Bank of America NA, a subsidiary of Bank of America Corp., and Citibank, a subsidiary of Citigroup Inc., seeking information about their correspondent accounts with the two Belize banks. Judge Ursula Ungaro also gave the IRS permission to seek records on the banks’ accounts at a corporate services provider called Belize Corporate Services, also a subsidiary of BCB.
Lyndon Guiseppi, chief executive officer of BCB, didn’t immediately respond to a phone message or e-mail request for comment. Mark Costiglio, a Citigroup spokesman, and Lawrence Grayson, a spokesman for Bank of America, declined to comment.
A court filing by the Justice Department says U.S. taxpayers used Belize entities to avoid disclosing foreign accounts.
The IRS and Justice Department have used such summonses to get information on account holders at several Swiss banks, including UBS Group AG, as part of a broad probe into tax evasion and offshore accounts. More than 50,000 Americans have avoided prosecution by disclosing undeclared accounts, paying more than $7 billion. Offshore banks, meanwhile, have agreed to pay more than $4 billion in U.S. fines, penalties and restitution.
As part of those disclosures, U.S. taxpayers have revealed at least 23 previously undisclosed accounts at the two Belize banks, according to an IRS agent’s declaration filed in the Miami court proceeding.
—With assistance from David Voreacos in federal court in Newark, New Jersey.
Labor Department Driving Changes Accountants Need to Know About
BY MIKE TRABOLD
Between legislative changes and proposed rules and guidance issued by government agencies at the federal, state, and local levels, business owners have a lot of red tape to navigate and understand.
That’s where accountants come in—accountants play a critical role in helping clients navigate these complex issues. President Obama is advancing his employment law agenda by using the U.S. Department of Labor to enact change. Among the most impactful changes coming out of the DOL are four key employment issues: the newly proposed overtime rule, increased enforcement around worker classification, mandatory paid leave, and retirement savings.
Proposed Overtime Rule
The DOL’s proposed expansion of overtime protections is expected to impact millions of American workers and their employers. The DOL’s proposed rule updates the overtime regulations under the Fair Labor Standards Act and is specifically intended to address the executive, administrative and professional (white collar) and highly compensated exemptions from minimum wage and overtime pay protections.
With this proposed rule, the DOL is seeking to revise the minimum salary level required for these exemptions. In order to prevent the salary levels from becoming outdated, the DOL is also proposing for the first time ever to include a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of earnings for full-time salaried workers or the Consumer Price Index.
The DOL last updated these regulations in 2004 with a minimum salary threshold of $455 per week ($23,660 per year) for the white collar exemptions. Under the proposed rule, the DOL is suggesting the minimum salary level for these exemptions be set at the 40th percentile of earnings for full-time salaried workers, estimating a 2016 level to be about $970 a week, or $50,440 a year. A new minimum annual compensation needed to qualify for the highly compensated exemption is proposed to be set at the 90th percentile.
The new rule is officially in a public comment period until Sept. 4, 2015. When the comment period closes, the DOL will review all responses and issue a final rule. That is expected to occur sometime in 2016.
Increased Enforcement of Worker Classification
Last month, the DOL issued Administrator’s Interpretation 2015-1: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors. In the document, the DOL concludes that most workers are employees under the Fair Labor Standards Act.
The DOL is concerned with the intentional misclassification of employees as independent contractors as a means to reduce costs and avoid compliance with employment laws and regulations. Misclassified employees are often denied access to critical benefits and protections to which they are entitled, such as minimum wage, overtime compensation, family and medical leave, unemployment insurance and safe workplaces. The Administrator’s Interpretation discusses how the FLSA’s definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. It discusses the breadth of the FLSA’s definition of “employ” and provides guidance on the “economic realities” factors applied by courts in determining if a worker is an employee.
Accountants and their clients should know that while the DOL’s interpretation does clarify their position on the issue, it is neither regulation nor legislation. However, employers should evaluate their independent contractor relationships under the guidance.
During his State of the Union Address earlier this year, President Obama spoke about his desire to expand paid family leave, describing it as a “national economic priority.” When discussing the need for paid leave, the DOL states that only 12 percent of private sector employees have access to paid family leave through their employer and that too many workers can’t afford the loss of income that comes with taking unpaid leave.
Days prior to his address, the President announced that he would call on Congress, states and cities to pass legislation that allows workers to earn up to seven days of paid sick time each year; propose more than $2 billion to encourage states to develop paid family and medical leave programs; direct the DOL to use more than $1 million in existing funds to help states and municipalities conduct feasibility studies; sign a Presidential Memorandum that directs agencies to advance up to six weeks of paid sick leave for parents with a new child; and call on Congress to pass legislation that gives federal employees an additional six weeks of paid parental leave.
Anticipating the needs of clients and prospects, accountants should follow each of these activities closely and be prepared to provide the necessary updates to help clients navigate potential changes related to this policy.
State-Based Retirement Savings Initiatives
At last month’s White House Conference on Aging, President Obama announced his plan to help states implement retirement savings programs for workers. The President directed the DOL to issue a rule, which is expected later this year, to help states carry out this plan and clarify the path forward.
The initiative is primarily intended to address American workers who don’t currently have access to a 401(k) plan through their employer and could include provisions related to coverage requirements and automatic enrollment. This initiative is expected to accelerate the workplace savings programs that states such as Illinois, California and Oregon already have in their pipelines, and prompt other states to more actively pursue the development of such programs.
According to U.S. Secretary of Labor Tom Perez, one-third of American workers lack access to a retirement plan at work. While workers without access to a workplace plan can save on their own using an IRA, only a tiny fraction do so. Secretary Perez also indicated that the forthcoming guidance would safeguard worker retirement savings and offer pathways for states to adopt retirement savings programs that are consistent with federal law.
Government agencies play a significant role in implementing legislation and enforcing regulations and rules that affect how businesses operate. Tracking the activities of an agency such as the DOL and helping clients understand what they mean is a great way for accountants to provide added value.
Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of integrated solutions for payroll, HR, retirement, and insurance services.
IRS Updates Per Diem Rates for Lodging and Meals
BY MICHAEL COHN
The Internal Revenue Service has set the special per diem rates starting Oct. 1, 2015, which taxpayers can use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.
Notice 2015-63 includes the special transportation industry meal and incidental expenses, or MI&E, rates, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. The rate for any locality of travel inside or outside the continental United States for the incidental expenses only deduction is $5 per day.
The special M&IE rates for taxpayers in the transportation industry are $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States.
For purposes of the high-low substantiation method, the per diem rates in lieu of the rates described in Notice 2014-57 (the per diem substantiation method) are $275 for travel to any high-cost locality and $185 for travel to any other locality within the continental U.S. The amount of the $275 high rate and $185 low rate that is treated as paid for meals for purposes of Section 274(n) is $68 for travel to any high-cost locality and $57 for travel to any other locality within the continental U.S.
Tax Fraud Blotter: Inside a Major Scam
BY JEFF STIMPSON
Some of our favorite recent tax fraud cases.
Dayton, Ohio: Fesum Ogbazion, of Beavercreek, Ohio, and Kyle Wade, formerly of West Chester, Ohio, have been arrested after being indicted for impeding the administration of the Internal Revenue Code, conspiracy to commit wire fraud, and wire fraud. Ogbazion is also charged with six counts of money laundering, one of evasion of payment of employment taxes, eight counts of failure to collect and pay over employment taxes and one count of bank fraud.
According to the indictment, Ogbazion owned and controlled ITS Financial LLC, the national franchisor of Instant Tax Service, which Ogbazion founded and which claimed to have more than 1,100 franchise locations throughout the U.S. in 2009. Wade was the vice president of financing for ITS and owned multiple ITS franchises.
From about January 2004 through November 2012, Ogbazion and Wade schemed to obstruct the IRS, with numerous ITS franchises filing false federal income tax returns without valid W-2s and without the permission of taxpayer clients. The returns included false and inflated Schedule C income in an attempt to increase the EITC.
Over several years, Ogbazion also instructed an ITS employee to e-file large volumes of unsigned returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations. ITS also maintained and filed false documents with the IRS, including fabricated W-2s created by ITS employees using tax prep software, and forged client signatures on various false IRS forms.
From about December 2009 through November 2012, Ogbazion and Wade also conspired to generate loan and prep fees for ITS and its franchises by luring low-income and unsophisticated taxpayers into ITS franchises through a nationwide advertising campaign that offered customers RALs. Despite ITS having no independent lender to fund the promised loans, ITS collected loan application and prep fees from its customers.
For the 2011 tax filing season, Ogbazion and Wade represented to ITS staff, franchises and customers that RALs were obtained through an independent lender even though Ogbazion owned the purported lender, which had limited lending capabilities. Ogbazion knew that the overwhelming majority of loan applications would be denied.
The indictment alleges that ITS generated more than $12.5 million in fees in 2010 and more than $3.1 million in fees in 2011 from this loan scheme.
The indictment also alleges that Ogbazion was responsible for ITS’s and TaxMate LLC’s federal employment payroll taxes and that he failed to pay over approximately $1.26 million in payroll taxes due from these businesses during four tax quarters in 2009 and 2010. He also evaded IRS attempts to collect ITS and TaxMate federal payroll taxes by directing business revenue to nominee accounts, placing assets in the names of nominee entities and making false statements to an IRS revenue officer during the course of collection activity, among other acts of concealment.
If convicted of impeding the administration of the IRS, the defendants face a maximum of three years in prison and a fine of up to $250,000. If convicted of conspiracy to commit wire fraud and wire fraud, they face a maximum of 30 years in prison and a fine of up to $1 million for each count.
If Ogbazion is convicted of money laundering, he faces a maximum of 20 years in prison and a fine of up to $500,000. If convicted of tax evasion and failure to pay over employment taxes, he faces a maximum of five years in prison and up to a $250,000 fine for each count.
Finally, Ogbazion faces a maximum of 30 years in prison and up to a $1 million fine if he is convicted of bank fraud.
Schroders' Swiss Bank Pays $10.4 Million in Deal with U.S.
BY DAVID VOREACOS
Schroders Plc’s Swiss bank will pay a $10.4 million penalty to avoid prosecution under a U.S. program that requires participating firms in Switzerland to say how they helped American clients avoid taxes.
Schroder & Co. Bank AG’s penalty is the fourth highest among 33 banks that have settled with the Justice Department this year after disclosing they may have committed tax-related crimes related to U.S. accounts. The banks have paid a combined $308.9 million to receive non-prosecution agreements.
The bank had 243 U.S.-related accounts totaling $506 million in 2008, according to the Justice Department.
“Swiss banks continue to lift the veil of secrecy surrounding bank accounts opened and maintained for U.S. individuals in the names of sham structures such as trusts, foundations and foreign corporations,” Larry J. Wszalek, acting deputy assistant attorney general in the Justice Department’s tax division, said in a statement Thursday.
London-based Schroders is the U.K.’s largest publicly traded asset manager by market value and has about 309.9 billion pounds ($473 billion) in funds under management. The Swiss bank is part of the firm’s wealth management business, which oversees 32 billion pounds in assets. The firm set aside 15 million pounds in March 2014 for a possible penalty.
“We have invested and will continue to invest considerable resources in systems to support the increasing demands of enhanced international tax reporting,” according to a bank spokeswoman.
Four bank employees traveled to the U.S. between 2004 and 2008 in connection with U.S. accounts, a practice that the firm banned after March 2009, according to a deal under which the firm won’t be prosecuted for disclosing past practices. The bank also handled large cash withdrawals on U.S. accounts, and in 26 instances account holders got cash or checks of $100,000 or more. In three cases, the amount exceeded $1 million.
More than 100 banks signed up for the disclosure program at the end of 2013, although some have dropped out. Justice Department officials say they expect to complete all the agreements by the end of the year.
In the program, banks must tell the Internal Revenue Service and Justice Department about accounts held by U.S. taxpayers, detail where money went when secret accounts were closed, and cooperate in treaty requests for information by the U.S. Authorities are using that information to build new cases.
“A significant element of the program is the highly detailed account and transactional data that has been provided to IRS specifically for law enforcement purposes,” Richard Weber, chief of the IRS criminal investigation division, said in a statement.
“We will continue to use this information to vigorously pursue U.S. taxpayers who may still be trying to illegally conceal offshore accounts,” he said.
—With assistance from Jeffrey Vögeli in Zurich and Sarah Jones in London.
Senator Worries IRS Budget Cuts Could Fuel Cyberattacks and Tax Fraud
BY MICHAEL COHN
One of the leaders of the Senate’s main tax committee is sounding the alarm about proposed budget cuts at the Internal Revenue Service and warning that it could encourage identity theft, tax evasion and tax fraud by crime syndicates.
Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, sent a letter Wednesday to Internal Revenue Service commissioner John Koskinen asking how deep cuts made by Congress to the IRS resources over the past several years could hamper the agency’s ability to crack down on tax evasion and fuel cyberattacks against taxpayer data.
“Cutting enforcement spending, such as by performing fewer audits, will embolden tax cheats and increase deficits, heaping a new burden onto the backs of honest taxpayers,” Wyden wrote. “Furthermore, cutting funding intended to modernize the agency’s 1960s-era IT systems makes it easier for fraudsters to steal taxpayers’ identities or hack into IRS computers. Congress ought to increase resources to the IRS if it expects the agency to bring its antiquated computer systems into the 21st century to prevent these criminal attacks going forward. Cutting resources to the IRS and similarly affected government agencies could essentially hand tax cheats and foreign crime syndicates the financial keys to the country.”
According to the National Taxpayer Advocate indicating the IRS budget was reduced by 17 percent, after adjusting for inflation, between FY 2010 and FY 2015. A further cut of $346 million passed in December 2014. An appropriations bill for fiscal year 2016 proposes an additional budget cut of $470 million, while increasing the portion of the agency’s budget dedicated to taxpayer services by $90 million, meaning the IRS must absorb $560 million in cuts in other areas. Wyden pointed to the recent data breach of the IRS’s Get Transcript application, believed to be committed by organized criminals abroad, which could have exposed the identities of up to 390,000 taxpayers and their family members (see Extra 220,000 Hit by IRS ‘Get Transcript’ Breach).
“Cutting enforcement spending, such as by performing fewer audits, will embolden tax cheats and increase deficits, heaping a new burden onto the backs of honest taxpayers,” Wyden wrote. “Furthermore, cutting funding intended to modernize the agency’s 1960s-era IT systems makes it easier for fraudsters to steal taxpayers’ identities or hack into IRS computers. We should therefore expect a surge in both the number of fraudulent tax returns filed using stolen taxpayer identities and the frequency of cyberattacks launched by foreign crime syndicates on the IRS. This will likely fuel a dangerous cycle that leads to even more refund fraud in the future. Shouldn’t the American public view diminished enforcement and reduced IT spending for what they really are: tax cuts for tax cheats and kickbacks to crime syndicates?”
Republican presidential candidate Donald Trump gives a national security speech aboard the World War II Battleship USS Iowa, September 15, 2015, in San Pedro, California. AFP PHOTO /ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
Sen. Rand Paul wasn’t the only presidential candidate hoping to generate some publicity in the run up to the GOP presidential debate. On Tuesday, presidential candidate and businessman Donald Trump made a policy speech in advance of the debates aboard the retired battleship USS Iowa.
The USS Iowa, now a museum, was built 75 years ago. Due to its size and firing capacity, it was once called the “World’s Greatest Naval Ship.” According to the USS Iowa web site, no other battleship in our nation’s history has been host to more U.S. Presidents than the USS Iowa. Presidents who have visited the battleship include President Franklin Delano Roosevelt, President Ronald Reagan and President George H.W. Bush. The USS Iowa’s illustrious history made it a perfect backdrop for Trump to deliver his foreign policy speech (disclaimer: as the sister of both former and career Navy sailors, I might be a little biased).
Now, Trump just needed an audience. Enter Veterans for a Strong America(VSA). The group, founded in 2010, describes itself as “a grassroots action organization committed to ensuring that America remains a strong nation by advancing liberty, safeguarding freedom and opposing tyranny.” The group adds that it “is a non-partisan action organization dedicated to educating the public, members of Congress and the Executive Branch about a strong national defense, robust foreign policy and building a military that is second to none.” The group claims to have 500,000 vocal supporters.
Sounds pretty great, right?
VSA took the lead in hosting Trump’s speech, calling it the “Make America’s Military Great Again” event. Tickets to the event were available online for a donation. Approximately 850 tickets were delivered in exchange for those donations. VSA noted that “[a]ll proceeds from this event go towards helping Veterans for a Strong America supporting our warriors on and off the battlefield and not to any candidate or candidate’s committee” and further touted that “Your donation to Veterans for a Strong America will help us accomplish our mission of defending America’s Warriors on and off the battlefield.”
Donations to VSA are, according to the organization, not tax deductible. VSA claims, on its website, that:
Veterans for a Strong America is a non-profit, non-partisan organization formed under Section 501(c)(4) of the U.S. Internal Revenue Code. Donations to Veterans for a Strong America are not tax-deductible as charitable contributions for US federal income tax purposes. There are no donation limits or restrictions on contributions to Veterans for a Strong America.
There’s just one problem: the Internal Revenue Service (IRS) doesn’t recognize a tax exempt organization by the name of Veterans for a Strong America. A check on the EO Select Check page shows that the organization is no longer listed as an active tax exempt.
The organization’s name does appear on another IRS list: Automatic Revocation of Exemption Information. The IRS revocation list indicates that VSA lost its tax exempt status on May 15, 2015, for failure to file. The page notes: “The federal tax exemption of this organization was automatically revoked for its failure to file a Form 990-series return or notice for three consecutive years.” The organization was notified of the loss of status prior to making the loss public on August 15, 2015.
Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.
15427 Vivian - Taylor, Michigan 48180 – voice (734) 946-7576 fax (734) 946-8166