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IRS NEWS FOR TAX PROFESSIONALS

April 2019

►UPCOMING WEBINARS

Filing is the thing to do, even if you have a balance due

Check Webinars for Tax Practitioners for upcoming webinars.

►HOT OFF THE PRESS

IRS expands penalty waiver for those whose tax withholding and estimated tax payments fell short in 2018; key threshold lowered to 80 percent

  • The IRS provided additional expanded penalty relief to taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
  • The IRS is lowering to 80 percent the threshold required to qualify for this relief. Under the relief originally announced Jan. 16, the threshold was 85 percent. The usual percentage threshold is 90 percent to avoid a penalty.
  • “We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
  • This means that the IRS is now waiving the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.

IRS revises EIN application process; seeks to enhance security

  • As part of its ongoing security review, the IRS announced that starting May 13, only individuals with tax identification numbers may request an Employer Identification Number (EIN) as the “responsible party” on the application.
  • The change will prohibit entities from using their own EINs to obtain additional EINs. The requirement will apply to both the paper Form SS-4, Application for Employer Identification Number (PDF), and online EIN application.
  • Individuals named as responsible party must have either a Social Security number (SSN) or an individual taxpayer identification number (ITIN). By making the announcement weeks in advance, entities and their representatives will have time to identify the proper responsible official and comply with the new policy.
  • The Form SS-4 Instructions provide a detailed explanation of who should be the responsible party for various types of entities.

►NEWS

IRS Offers Options to Help Taxpayers Who Can’t Pay

  • The IRS reminds taxpayers who can’t pay the full amount of federal taxes they owe that they should file their tax return on time and pay as much as possible. This will help reduce penalties and interest. If they can’t pay it all, they have some other options.

ABLE Accounts – Tax Benefit for People with Disabilities

  • The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities (designated beneficiaries). Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses.

IRS has resources to help military personnel and veterans understand taxes

  • The IRS provides Tax Information for Members of the Military to help them meet their unique tax obligations. Here are some topics that affect current and former military personnel, along with resources where they can go to find more information.

Notice 2019-20 – Form 1065 or Form 8865, Schedule K-1

  • Notice 2019-20 provides a waiver of penalties under sections 6722 and 6698 to certain partnerships that file Schedules K-1 that fail to report information about partners’ negative tax basis capital accounts for the partnerships’ 2018 tax year

EMPLOYERS AND BUSINESS OWNERS

Business taxpayers should take another look at their estimated tax payments

  • Taxpayers who pay quarterly estimated tax payments may want to revisit the amount they pay. The Tax Cuts and Jobs Act changed the way most taxpayers calculate their tax. These taxpayers include those with substantial income not subject to withholding, such as small business owners and self-employed individuals.
  • Alternatively, many taxpayers who receive income not subject to withholding, but who also receive income as an employee, may be able to avoid the requirement to make estimated tax payments by having more tax taken out of their pay. These taxpayers can use the Withholding Calculator on IRS.gov to perform a Paycheck Checkup. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty in the future.

►THE BEST OF IRS.GOV

Interactive Tax Assistant (ITA) (A helpful tool even if you’re a tax professional)

  • The Interactive Tax Assistant (ITA) is a tool that provides answers to a number of tax law questions. It can determine if a type of income is taxable, if you’re eligible to claim certain credits, and if you can deduct expenses on your tax return. It also provides answers for general questions, such as determining your filing status, if you can claim dependents, if you have to file a tax return, etc.

IDENTITY THEFT / DATA THEFT / SCAM ALERTS

IRS warns of new phone scam using Taxpayer Advocate Service numbers

  • The IRS is warning the public about a new twist on the IRS impersonation phone scam whereby criminals fake calls from the Taxpayer Advocate Service (TAS), an independent organization within the IRS.
  • Similar to other IRS impersonation scams, thieves make unsolicited phone calls to their intended victims fraudulently claiming to be from the IRS. In this most recent scam variation, callers “spoof” the telephone number of the IRS Taxpayer Advocate Service office in Houston or Brooklyn. Calls may be ‘robo-calls’ that request a call back. Once the taxpayer returns the call, the con artist requests personal information, including Social Security number or individual taxpayer identification number (ITIN).

IRS announces arrests and indictments after two-week campaign to fight refund fraud and identity theft

  • The IRS announced the results of a national two-week enforcement and education campaign to combat refund crimes and identity theft that resulted in numerous legal actions against suspected criminals and businesses committing these crimes.
  • Working with the Department of Justice Tax Division and U.S. Attorneys around the nation, IRS Criminal Investigation (CI) made 11 arrests, indicted 15 individuals and saw five other individuals or businesses sentenced who perpetrated some type of refund fraud or identity theft scheme.

The Dirty Dozen represents the worst of the worst tax scams

  • Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.

TAX EXEMPT ORGANIZATIONS

Annual Reporting & Filing

  • In general, exempt organizations are required to file annual returns, although there are exceptions. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.

►YOUR PRACTICE

Tax Professionals – Protect Client Data, Learn Signs of Data Theft

  • Learn to recognize phishing emails, especially those pretending to be from the IRS, e-Services, a tax software provider or cloud storage provider. Never open a link or any attachment from a suspicious email. Remember: The IRS never initiates initial contact with a tax pro via email.
  • You or your firm may be a victim and not even know it.
  • Tax professionals who suffer a data theft or loss can assist their clients by immediately reporting the loss to the Internal Revenue Service.

►SUBSCRIPTIONS

Subscribe to e-News for Tax Professionals

  • Preparers can register to get this electronic newsletter. It’s one of the best ways for tax professionals to get the latest national and local IRS news. (Editor’s note: most of the articles in this monthly newsletter come from e-News for Tax Professionals.)

Subscribe to e-News for Small Businesses

Subscribe to e-News for Payroll Professionals

►NEWS FROM OTHER AGENCIES

From the SBA:

Marketing 101: A Guide to Winning Customers

  • Need help with market research? Take SBA’s FREE self-paced training course to learn how to reach a broader customer base and expand your market. It provides an overview of marketing for small business owners who are looking to reach a broader customer base and expand their markets.

5 Myths About Payroll Taxes

  • If you want to grow your business, you probably need to hire employees to help you. Becoming an employer and expanding your staff entails many responsibilities, one of which is seeing to payroll taxes. Unfortunately, there are many myths about these taxes. Here is the reality.

IRS Large Business and International to hire hundreds in March 2019

In service of the IRS’ strategic goal to cultivate a well-equipped, diverse, flexible and engaged workforce, LB&I is seeking qualified candidates for a hiring wave in March 2019. Nearly 300 positions will be open from March 11 through March 22. These openings include positions for the following job titles: revenue agent, computer audit specialist, tax law specialist, competent authority analyst, appraiser, management and program analyst, information technology specialists, and senior budget analyst. LB&I is asking that your organization help spread the word on these professional opportunities so that it can select from the broadest, most diverse group of qualified candidates possible. The IRS is committed to having a workforce that reflects the diversity of the public we serve, and we appreciate your help in spreading the word.

All announcements were posted to USAJOBS on March 11. It may be helpful for applicants to familiarize themselves with the process and set up their account as soon as possible. To sort for the LB&I jobs, go to the IRS welcome page on USAJOBS and enter “Large Business and International” as keywords. Information on how to apply for jobs on USAJOBS is available on the site’s Help Center, and potential candidates can learn more about IRS job descriptions and career paths on the IRS Careers website.

The Dirty Dozen represents the worst of the worst tax scams

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.
For a detailed description of each scam, please refer to the list below:

  • IRS cautions taxpayers on scams involving disasters, charitable causes — 2019 “Dirty Dozen” list continues – See IR-2019-39
  • IRS’ 2019 “Dirty Dozen” tax scams list highlights inflating deductions, credits – See IR-2019-36
  • Schemes involving falsifying income, creating bogus documents make IRS’ “Dirty Dozen” list for 2019 – See IR-2019-35
  • IRS: Be on the lookout for promises of inflated tax refunds — 2019 IRS “Dirty Dozen” list continues – See IR-2019-33
  • IRS: Choose tax preparers carefully; Tax return preparer fraud makes IRS’ 2019 “Dirty Dozen” list of tax scams – See IR-2019-32
  • Identity theft remains on IRS’ “Dirty Dozen” list despite progress – See IR-2019-30
  • IRS: Be vigilant against phone scams; Annual “Dirty Dozen” list continues – See IR-2019-28
  • IRS kicks off annual list of most prevalent tax scams: Agency warns taxpayers of pervasive phishing schemes in its “Dirty Dozen” campaign – See IR-2019-26

Prior year information on the IRS Dirty Dozen:

2018 – IRS Wraps up Dirty Dozen list of Tax Scams for 2018; Encourages taxpayers to remain vigilant
2017 – IRS Summarizes “Dirty Dozen” List of Tax Scams for 2017
2016 – IRS Wraps Up the “Dirty Dozen” List of Tax Scams for 2016
2015 – IRS Completes the “Dirty Dozen” Tax Scams for 2015
2014 – IRS Releases the “Dirty Dozen” Tax Scams for 2014

IRS waives estimated tax penalty for farmers, fishermen


02 | 24 | 19

IRS waives estimated tax penalty for farmers, fishermen who file returns and pay tax by April 15

IR-2019-28

WASHINGTON — The Internal Revenue Service will waive the estimated tax penalty for any qualifying farmer or fisherman who files his or her 2018 federal income tax return and pays any tax due by Monday, April 15, 2019. The deadline is Wednesday, April 17, 2019, for taxpayers residing in Maine or Massachusetts.

The IRS is providing this relief because, due to certain rule changes, many farmers and fishermen may have difficulty accurately determining their tax liability by the March 1 deadline that usually applies to them. For tax year 2018, an individual who received at least two-thirds of his or her total gross income from farming or fishing during either 2017 or 2018 qualifies as a farmer or fisherman.

To be eligible for the waiver, qualifying taxpayers must attach Form 2210-F, available on IRS.gov, to their 2018 income tax return. This form can be submitted either electronically or on paper. The taxpayer’s name and identifying number, usually a Social Security number, must be entered at the top of the form. The waiver box—Part I, Box A—should be checked. The rest of the form should be left blank.

Further details can be found in Notice 2019-17, posted today on IRS.gov.

Relief from Penalty for Underpayment of Estimates by Individual Farmer

Part III – Administrative, Procedural, and Miscellaneous

Relief from Addition to Tax for Underpayment of Estimated Income Tax by Individual Farmers and Fishermen

Notice 2019-17

SECTION 1. PURPOSE

This notice provides a waiver of the addition to tax under section 6654 of the Internal Revenue Code (Code) for underpayment of estimated income tax by qualifying individual farmers and fishermen.

SECTION 2. BACKGROUND

Generally, the Code requires taxpayers to pay federal income taxes as they earn income. To the extent these taxes are not withheld from wages, a taxpayer must pay estimated income tax on a quarterly basis.

Section 6654 provides that, in the case of an individual, estimated income tax is required to be paid in four installments each 25 percent of the required annual payment. Individual taxpayers who fail to make a sufficient and timely payment of estimated income tax are liable for an addition to tax under section 6654(a).

Qualifying farmers and fishermen are subject to special rules requiring them to make only one installment payment due on January 15 of the year following the taxable year. I.R.C. § 6654(i)(1)(A) & (B). A taxpayer qualifies as a farmer or fisherman for the 2018 tax year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either 2017 or 2018. See I.R.C. § 6654(i)(2). Qualifying farmers and fishermen who did not make the required estimated tax installment payment by January 15, 2019, are not subject to an addition to tax for failing to pay estimated income tax if they file their returns and pay the full amount of tax reported on the return as payable by March 1, 2019. See I.R.C. § 6654(i)(1)(D).

The Secretary is authorized to waive the section 6654 addition to tax for an underpayment of estimated tax in unusual circumstances to the extent its imposition would be against equity and good conscience. I.R.C. § 6654(e)(3)(A).

Due to certain changes in the rules that affect farmers and fishermen, the Treasury Department and IRS anticipate that farmers and fishermen may have difficulty accurately determining and paying their tax liability for the 2018 taxable year by March 1, 2019. Accordingly, the IRS is providing relief to individual taxpayers who are farmers or fishermen by waiving certain penalties if the requirements set forth in section 3 of this notice are satisfied.

SECTION 3. WAIVER OF UNDERPAYMENT OF ESTIMATED INCOME TAX

Under the authority granted by section 6654(e)(3)(A), the addition to tax under section 6654 for failure to make an estimated tax payment for the 2018 tax year is waived for any qualifying farmer or fisherman who files his or her 2018 income tax return and pays in full any tax due by April 15, 2019, or by April 17, 2019, for those taxpayers who live in Maine or Massachusetts. Farmers and fishermen requesting this waiver of the addition to tax must attach Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to their 2018 tax return. The form can be submitted electronically or on paper. The taxpayer’s name and identifying number should be entered at the top of the form, and the waiver box (Part I, Box A) should be checked. The rest of the form should be left blank. Forms, instructions, and other tax assistance are available on IRS.gov. The IRS toll-free number for general tax questions is 1-800-829-1040.

SECTION 4. CONTACT INFORMATION

The principal author of this notice is Alexander Wu of the Office of the Associate Chief Counsel (Procedure and Administration). For further information, please contact Mr. Wu at (202) 317-6845 (not a toll-free number).

IRS NEWS FOR TAX PROFESSIONALS – March 2019

IRS NEWS FOR TAX PROFESSIONALS

March 2019

►UPCOMING WEB CONFERENCES

Check Webinars for Tax Practitioners for upcoming webinars. (None scheduled at this time.)

►Recently added to the IRS Video Portal https://www.irsvideos.gov/

Tax Reform Due Diligence Requirements

  • This webinar gives tax professionals updates and guidance on how the Tax Cuts and Jobs Act (TCJA) provisions will affect their due diligence requirements. It also addresses common errors, how to avoid them and applicable penalties if requirements are not met.

►HOT OFF THE PRESS

IRS waives estimated tax penalty for farmers, fishermen who file returns and pay tax by April 15

  • The IRS will waive the estimated tax penalty for any qualifying farmer or fisherman who files his or her 2018 federal income tax return and pays any tax due by Monday, April 15, 2019. The deadline is Wednesday, April 17, 2019, for taxpayers residing in Maine or Massachusetts.

►OTHER NEWS

IRS provides various payment options for taxpayers who owe but can’t pay in full

  • The IRS anticipates that most taxpayers will be affected by major tax law changes. While most will get a tax refund, others may find that they owe taxes, many of whom may qualify for a waiver of the estimated tax penalty that normally applies.
  • The IRS urges people with a filing requirement and a balance due to file by the April 15 deadline even if they cannot pay in full. Taxpayers in this situation should pay what they can and consider a payment plan for the remaining balance.

Pay taxes owed online or set up a payment plan

  • The IRS reminds taxpayers who may unexpectedly owe additional tax that there are many online options for payment as well as online options for applying for a payment plan for those who cannot pay in full.
  • A Paycheck Checkup can help taxpayers see if they are withholding the right amount of tax from their paychecks. Taxpayers who unexpectedly had a tax bill may want to use this feature to ensure that additional taxes are withheld for the 2019 tax year.
  • The IRS Withholding Calculator helps taxpayers figure out if they should submit a new Form W-4 to their employer. Taxpayers will need their most recent pay stub and their most recent federal tax return to complete the process.

National Taxpayer Advocate delivers annual report to Congress: Addresses impact of shutdown; urges more funding for IT modernization

  • National Taxpayer Advocate Nina E. Olson released her 2018 Annual Report to Congress, describing challenges the IRS is facing as a result of the recent government shutdown and recommending that Congress provide the IRS with additional multi-year funding to replace its core 1960s-era information technology (IT) systems. The release of the National Taxpayer Advocate’s report was delayed by a month because of the government shutdown.
  • Olson also released the second edition of the National Taxpayer Advocate’s “Purple Book,” which presents 58 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.

Individuals who need passports for imminent travel should contact IRS promptly to resolve tax debt

  • The IRS reiterated its warning that taxpayers may not be able to renew a current passport or obtain a new passport if they owe federal taxes. To avoid delays in travel plans, taxpayers need to take prompt action to resolve their tax issues.
  • In January of last year, the IRS began implementing new procedures affecting individuals with “seriously delinquent tax debts.” The law requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt, which is $52,000 or more. The law also requires State to deny their passport application or renewal. If a taxpayer currently has a valid passport, the State Department may revoke the passport or limit ability to travel outside the United States.

►TAX REFORM – Individuals

Here’s how tax reform affects taxpayers who claim the child tax credit

  • Many people claim the child tax credit to help offset the cost of raising children. Tax reform legislation made changes to that credit for 2018 and later. Here are some important things for taxpayers to know.

►TAX REFORM – Business

Tax Reform Resources

IRS provides a safe harbor method of accounting for passenger automobiles that qualify for the 100-percent additional first year depreciation

  • The IRS issued guidance that provides a safe harbor method for determining depreciation deductions for passenger automobiles that qualify for the 100-percent additional first year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles.
  • Under the Tax Cuts and Jobs Act (TCJA), the additional first year depreciation deduction applies to qualified property, including passenger automobiles, acquired and placed in service after September 27, 2017, and before January 1, 2027.

Opportunity Zones Frequently Asked Questions

EMPLOYERS AND BUSINESS OWNERS

Cash payment report helps government combat money laundering

  • Federal law requires a person to report cash transactions of more than $10,000 by filing IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. The information on the form helps law enforcement combat money laundering, tax evasion, drug dealing, terrorist financing and other criminal activities.
  • Who is covered? By law, a “person” is an individual, company, corporation, partnership, association, trust or estate. For example, dealers in jewelry, furniture, boats, aircraft or automobiles; pawnbrokers; attorneys; real estate brokers; insurance companies and travel agencies are among those who typically need to file Form 8300.
  • What’s cash? For Form 8300 reporting, cash includes coins and currency of the United States or any foreign country. It’s also a cashier’s check (sometimes called a treasurer’s check or bank check), bank draft, traveler’s check or money order with a face amount of $10,000 or less that a person receives.

IRS urges businesses to e-file cash transaction reports; It’s fast, easy and free

  • The IRS urges businesses required to file reports of large cash transactions to take advantage of the speed and convenience of filing these reports electronically.
  • Although businesses have the option of filing Form 8300, Report of Cash Payments Over $10,000, on paper, many have already found that e-filing is a faster, more convenient and cost-effective way to meet the reporting deadline. The form is due 15 days after a transaction and there’s no charge for the e-file option.

►THE BEST OF IRS.GOV

Here’s how taxpayers can pay their taxes

IDENTITY THEFT / DATA THEFT / SCAM ALERTS

Here’s what taxpayers should do to protect private data

  • Taxpayers should protect their personal and financial data from criminals who continue to steal large amounts of information. Thieves use the data to file bogus tax returns and commit crimes while impersonating the victim.

►YOUR PRACTICE

Preparer Compliance – Focused and Tiered

  • One tier in our outreach and educational efforts is sending letters to specific preparers. We look at the number of returns with a high likelihood of refundable credit and HOH filing status errors completed by the same preparer. And, we send letters to preparers who have a high number of these returns. We send letters based on the previous filing season before the next filing season starts and we send letters during the filing season for the current year.

TAX EXEMPT ORGANIZATIONS

Tax Exempt Organization Search

  • Tax Exempt Organization Search helps users find information about a tax-exempt organization’s federal tax status and filings. You can find:
    • Organizations eligible to receive tax-deductible charitable contributions
    • Automatically revoked organizations
    • IRS determination letters dated on or after January 1, 2014
    • Form 990-series returns
    • Organizations that have filed a Form 990-N (e-Postcard)

►SUBSCRIPTIONS

Subscribe to e-News for Tax Professionals

  • Tax professionals can register to get this electronic newsletter. It’s one of the best ways for you to get the latest national and local IRS news. (Editor’s note: most of the articles in this monthly newsletter come from e-News for Tax Professionals.)

Subscribe to e-News for Small Businesses

Subscribe to e-News for Payroll Professionals

►NEWS FROM OTHER AGENCIES

From the SBA: Do You Have a Savings Plan for Your Small Business?

  • Webinar: This self-paced training exercise will give you an overview of savings plans and strategies for your small business. Learn about the contingency and long-term savings, tax breaks, retirement savings and much more. Duration: 30 minutes.

IRS resources on retirement plans

First Thursday Minutes February 7, 2019

Attendees:

Tax Professionals: Theresa Abel, Laura Dawson, Jessica Gatzke, Jacen Gondringer, Cindy Hockenberry, James Hockenberry, Carrie Houchins-Witt, Terry Johnson, Tricia Knight, Todd Koch, Rick Kollauf, Ken Larsen, Ruth Ann Michnay, Shania Murphy, Jodee Paape, Darian Panasuk, Kendra Privratsky, Jo Ann Schoen, Portia Vogt, Will Wallace, Doug Wendlandt

Stakeholder Liaisons: Karen Brehmer, Kathleen Fox, Alan Gregerson, Mike Mudroncik

Stakeholder Liaison Managers: Kristen Hoiby, Area 6 manager; Shane Ferguson, Director

Departments of Revenue: Lorie Bowker – ND; Vicki Gibbons – WI; Mark Krause – MN

Webinars – No upcoming webinars. Check out the webinars on Tax Reform on the IRS Video Portal.

Discussion items

  • Follow up on previous issue: Can the IRS include state tax withheld on transcripts?

We raised this issue in IMRS. The answer we got was:

Unfortunately, we do not currently have the capability to integrate state withholding data (which would come from the Forms W-2 filed with the Social Security Administration) into IRS Wage and Income Transcripts. We appreciate your interest as we continue to consider ways to improve the transcript process and contents.

  • Follow up on previous issue: Tax pros said that the IRS should waive estimated tax penalties for everyone in 2018.

Response – it was not waived for everyone, but the threshold was reduced to 85% instead of 90%: IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018

  • EITC and Other Refundable Credits
  • Formerly called EITC Central. Now it includes information about other refundable credits, so the new title is “EITC and Other Refundable Credits”
  • Follow up on previous request: How to get unredacted transcripts
  • Steps for tax professionals to obtain wage and income transcripts needed for tax preparation
  • The IRS, in partnership with the tax preparation community, has devised a new process that will allow tax practitioners to access employer information needed for return preparation and electronic filing while also protecting taxpayer data.
  • The article above states that the IRS will stop faxing transcripts on February 4. We are going to extend the transcript faxing service beyond that date. The IRS is reviewing options for a new timeframe. We are committed to providing you with advance notice of the new date.
  • Insurers and employers have until March 4, 2019 to provide Form 1095-B and Form 1095-C.
  • The IRS has not been able to update IRS.gov. Even so, the information on this page is helpful to filers for the 2019 filing season:
  • See “3. Must I wait to file until I receive these forms?”

Your issues and questions:

  • Question: At what point does the IRS lock someone out of filing EITC? The client’s ex-husband files with children. We have to paper file, or file as early as possible.

Answer: Here are a variety of resources:

  • IRM 20.1.5.2.5 Two and Ten-Year Bans on Claiming the Earned Income Tax Credit

If you ordered W-2’s and 1099’s using this system, they are delayed until mid to late February. You can buy the forms at office supply stores. One tax pro commented that the forms were back-ordered at office supply stores.

A suggestion for 2019: Order the 1099’s and W-2’s for 2019 now. You will get them in July 2019. Then you will have them when you need them in January 2020.

State Departments of Revenue

Lorie Bowker – ND

  • North Dakota is not seeing any filing issues so far this season.
  • We ask that practitioners verify client’s direct deposit information as well as their current address.
  • It appears that the stillborn child deduction that was available in 2017 may pass and will be retroactive to 2018. Once signed into law our we will update the Schedule ND-1SA Statutory Adjustments and that is where you will take the deduction.

Vicki Gibbons – WI

  • Tax return processing is proceeding as expected.
  • We have had complaints from some taxpayers and practitioners who were told they couldn’t e-file because DOR was holding up their software. DOR requires that software providers pass various test files before we can accept returns. We respond to those submissions in one to two business days or sooner.
  • Wisconsin did extend its 1/31/19 filing deadline to 2/4/19 for all business tax filings. While we got notice out timely, it takes a little longer to get our systems to recognize that new date. If you see a balance on MTA even though filed timely and paid timely, please ignore until Friday. We are having issues moving the new code to our production system that will reprocess the submissions with the new due date.

Mark Krause – MN

  • We’ve had very few reports of software errors so far this filing season. Continue to review returns with extra due diligence and report any errors to your software provider and our e-file coordinators at 651-556-4818, option 4. If you want to verify if something is working correctly or not, contact me.
  • Your client may receive a return verification letter to verify their identity. Have the taxpayer follow the instructions on the letter to verify their identity which will allow us to continue processing their return. If they don’t have web access, have them call 651-296-3781 and we can verify the return with the information that they provide from the letter.
  • New this filing season. We are issuing 1099-MISC forms when a taxpayer claimed a refundable credit on form M1RCR – Credit for tax paid to Wisconsin and that credit amount exceeded Minnesota tax liability. If the amount was less than $600, a 1099-MISC form will not be issued but the amount may still be taxable. If you would like more information, please contact me.
  • Our new beta website is up and running. Please check it out and complete a survey before the end of February. We want your feedback!
  • Due to a much lower state standard deduction amount, we expect many more Minnesotans to itemize on the state return only. Make sure that your clients are saving receipts and documents as they were in the past.

Next Call

The next call will be on March 7, 2019. We’ll send out the WebEx link closer to that date.

Meetings are one hour long. Come when you can, leave when you must.

Thank you to everyone who attended. We appreciate your time and input!

Tax reform law makes changes to employee achievement award rules

Tax Reform Tax Tip 2018-190

December 10, 2018

The IRS reminds employers that last year’s Tax Cuts and Jobs Act made changes to several programs that can affect an employer’s bottom line and its employees’ deductions. This includes employee achievement awards.

Here are some facts about these changes:

Under previous law:

  • Employers could deduct the cost of certain employee achievement awards. Deductible awards were excludible from employee income.

Under the Tax Cuts and Jobs Act:

  • There is now a prohibition on cash, gift cards and other non-tangible personal property as employee achievement awards.
  • Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property.
  • The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items.

More information:

Tax Cuts and Jobs Act: A Comparison for businesses

Employer Update

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Tax reform brings changes to qualified moving expenses

Tax Tip 2018-192

December 12, 2018

For businesses that have employees, there are changes to fringe benefits that can affect a business’s bottom line and their employee’s tax liabilities. One of these changes is to qualified moving expenses.

Under previous law, payment or reimbursement of an employee’s qualified moving expenses were not subject to income or employment taxes.

Under last year’s tax reform legislation, employers must include all moving expenses, in employees’ wages, subject to income and employment taxes.

Exception

Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if:

  • They are on active duty
  • They move pursuant to a military order and incident to a permanent change of station
  • The moving expenses would qualify as a deduction if the employee didn’t get a reimbursement

Transition rule

There is a transition rule under the new law. Under this rule, certain payments or reimbursements aren’t subject to federal income or employment taxes. This includes amounts that:

  • An employer pays a third party in 2018 for qualified moving services provided to an employee prior to 2018.
  • An employer reimburses an employee in 2018 for qualified moving expenses incurred prior to 2018.

To qualify for the transition rule, the payments or reimbursements must be for qualified expenses which would have been deductible by the employee if the employee had directly paid them before Jan. 1, 2018. The employee must not have deducted them in 2017.

Corrections

Employers who have included amounts covered by the exception or the transition rule in individuals’ wages or compensation can take steps to correct taxable wages and employment taxes.

More information:

Circular E: Employer’s Tax Guide

Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund

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New Opportunity Zone tax incentive benefits investors

Tax Reform Tax Tip 2018-191

December 11, 2018

Qualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities throughout the country and U.S. possessions by providing tax benefits to investors who invest eligible capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.

In the case of an eligible capital gain realized by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and its shareholders, as well as estates and trusts and its beneficiaries.

To qualify for deferral:

  • Capital gains must be invested in a QOF within 180 days.
  • Taxpayer elects deferral on Form 8949 and files with its tax return.
  • Investment in the QOF must be an equity interest, not a debt interest.

If a taxpayer holds its QOF investment at least five years, the taxpayer may exclude 10 percent of the original deferred gain. If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain. The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026. If the taxpayer holds the investment in the QOF for at least 10 years, the taxpayer may elect to increase its basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. This may eliminate all or a substantial amount of gain due to appreciation on the QOF investment.

More information:

Opportunity Zones

Frequently asked questions

Tax Reform

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