The IRS issued guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine.

The IRS issued guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine. Employer leave-based donation payments made by an employer before January 1, 2023, to Code Sec. 170(c) organizations to aid said victims (qualified payments) will not be treated as gross income, wages or compensation of the employees of the employer.

Similarly, employees electing or with an opportunity to elect to forgo leave that funds said qualified payments will not be treated as having constructively received gross income, wages, or compensation. Further, electing employees are not eligible to claim a charitable contribution deduction under Code Sec. 170 for the value of the forgone leave that funds said qualified payments.

During the National Small Business Week, May 1 to 7, the IRS highlighted tax benefits and resources tied to the theme for this year’s celebration: " Building a Better America through Entrepreneurship.".The IRS urged business taxpayers to take advantage of tax benefits for 2022, make estimated tax payments electronically, e-file payroll tax returns, and check out the Work Opportunity Credit.

During the National Small Business Week, May 1 to 7, the IRS highlighted tax benefits and resources tied to the theme for this year’s celebration: " Building a Better America through Entrepreneurship.".The IRS urged business taxpayers to take advantage of tax benefits for 2022, make estimated tax payments electronically, e-file payroll tax returns, and check out the Work Opportunity Credit.

The IRS urged business taxpayers to begin planning now to take advantage of the enhanced 100 percent deduction for business meals and other tax benefits available to them when filing their 2022 income tax return. For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Further, more information about this provision is provided in IRS Publication 463, Travel, Gift, and Car Expenses.

Additionally, many business owners may qualify for the home office deduction, also known as the deduction for business use of a home. Usually, a business owner must use a room or other identifiable portion of the home exclusively for business on a regular basis. Those eligible can figure the deduction using either the regular method or the simplified method. To choose the regular method, taxpayers can fill out and attach Form 8829, Expenses for Business Use of Your Home. Alternatively, business owners can choose the simplified method, based on a six-line worksheet found in the instructions to Schedule C, Profit or Loss from Business. Under both the regular and simplified methods, business expenses in excess of the gross income limitation are not deductible.

Further, the IRS informed taxpayers about a variety of other tax benefits often available to business owners. This includes business start-up expenses, qualified business income deduction and the health-insurance deduction for self-employed individuals. Finally, more information about these and other tax benefits is provided in Publication 535, Business Expenses.

Making Estimated Tax Payments Electronically

The IRS reminded all businesses to make estimated tax payments quarterly and that making them electronically is fast, easy and safe. Estimated tax is used to pay income tax and other taxes including self-employment tax and alternative minimum tax. If a taxpayer doesn’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty. However, generally, paying quarterly estimated taxes will lessen or even eliminate any penalties.

Further, the IRS informed that individuals, including sole proprietors, partners and S corporation shareholders, generally must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. For corporations, the threshold is $500 or more. Self-employed individuals and gig workers who also receive salaries and wages from an employer can avoid paying estimated tax by asking their employer to withhold more tax from their paycheck. They can check the Tax Withholding Estimator on the IRS website for more help. Individuals generally use Form 1040-ES to figure estimated tax while corporations generally use Form 1120-W.

Additionally, for estimated tax purposes, the year is divided into four payment periods. However, alternative payment periods are allowed if enough tax is paid in by the end of the quarter. Further, taxpayers can use the Electronic Federal Tax Payment System for all their federal tax payments. Individual Taxpayers can also create an IRS Online Account or use Direct Pay, a debit, credit card or digital wallet to make their estimated tax payments. The 2022 Form 1040-ES can help taxpayers estimate their first quarterly tax payment. Moreover, taxpayers may also send estimated tax payments with Form 1040-ES by mail. Finally, the IRS also provided a list of resources available to taxpayers, including the Small Business Tax Workshop and E-News for Small Businesses among others.

E-File Payroll Tax Returns

The IRS has urged small businesses to take advantage of filing their payroll tax returns and making tax payments electronically. Further, the IRS announced that payroll taxes include federal income tax withheld from employee wages, as well as both the employer and employee portions of Social Security and Medicare taxes. Payroll taxes also include the Federal Unemployment Tax.

Additionally, the IRS informed taxpayers that taxpayers who file on paper miss out on all the advantages of e-filing. E-filing saves time and is secure and accurate. The IRS acknowledges receipt of an electronically filed return within 24 hours. With electronic filing, any mistake is often discovered and fixed quickly. Additionally, employers choosing to e-file themselves will need to purchase IRS-approved software. Alternatively, the Authorized IRS e-file Providers Locator Service can help employers find a suitable tax professional.

Finally, the IRS informed that though some employers can choose to pay their taxes when they file their payroll tax returns, most need to deposit them regularly with the Treasury Department instead. Federal tax deposits must be made by electronic funds transfer (EFT). A fast, easy and free way to do that is through the Electronic Federal Tax Payments System (EFTPS). Payments can be made either online or by phone. To enroll or for more information, taxpayers can visit EFTPS.gov or call 800-555-4477.

Work Opportunity Tax Credit

The IRS reminded employers to check out the Work Opportunity Tax Credit (WOTC) for hiring long-term unemployment recipients and other group of workers facing significant barriers to employment. The WOTC encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. Further, the IRS also provided a list of the ten groups mentioned above.

Additionally, the IRS announced that to qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). It must be submitted to the SWA within 28 days after the eligible worker begins work. Further, employers can help new hires by making sure they have the right amount of tax taken out of their pay and encourage them to use the Tax Withholding Estimator. This tool will also help them correctly fill out Form W-4, Employee’s Withholding Certificate.

The Financial Crimes Enforcement Network is behind but making progress on implementing the Anti-Money Laundering Act of 2020 (which includes the Corporate Transparency Act), FinCEN Acting Director Himamauli Das told Congress.

The Financial Crimes Enforcement Network is behind but making progress on implementing the Anti-Money Laundering Act of 2020 (which includes the Corporate Transparency Act), FinCEN Acting Director Himamauli Das told Congress.

According to written testimony provided to the House Committee on Financial Services prior to an April 28, 2022, hearing, Das noted that "timely and effective implementation of the AML Act, which includes the CTA, is a top priority," but he also acknowledged that "we are missing deadlines, and we will likely continue to do so" due to lack of funding from the government forcing the agency to make prioritization decisions, promoting Dim to advocate for Congress to accept the White House budget request of $210.3 million for fiscal year 2023.

That being said, Das highlighted the implementation progress to date.

"The AML Act has helped put FinCEN in the position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system, including through American shell companies and real estate."

Combating the latter is a key focus of the activity surrounding the Corporate Transparency Act that the agency is undertaking. The CTA "will establish a beneficial ownership reporting regime to assist law enforcement in unmasking shell companies used to hide illicit activities," Das said, adding that beneficial ownership information "can add valuable context to financial analysis in support of law enforcement and tax investigations" in addition to providing information to the intelligence and national security professionals protecting the nation.

FinCEN has three regulations planned to implement the CTA, the first of which was published in the Federal Register in December 2021 as a notice of proposed rulemaking and is focused on the reporting requirements of beneficial ownership. The agency is currently reviewing the more than 240 comments received on this NPRM. Das said the timing of when the rule would be finalized "is not clear yet. It is a complex rulemaking that we need to get right—both for law enforcement and because of the effect that it will have on stakeholders such as small businesses and financial institutions."

The second NPRM under development will rules around access to beneficial ownership information by law enforcement, national security agencies, financial institutions, and other relevant stakeholders. That proposed rule is expected to be issued this year.

Finally, FinCEN also is working on a revision to the Customer Due Diligence regulation, which must be issued one year after the reporting requirement rule goes into effect. Dim did not provide a timeframe for when that proposal would be available for comment.

The agency also is developing a beneficial ownership database, known as the Beneficial Ownership Secure System.

"These beneficial ownership reporting obligations will make our economy—and the global economy—stronger and safer from criminals and national security threats," Das said.

FinCEN also is looking at the real estate market to close gaps in the nation’s anti-money laundering framework. Din referenced an advanced notice of proposed rulemaking that was issued in December 2021 to solicit comments on developing a rule to address money-laundering vulnerabilities in the real estate market. The ANPRM generated 150 comments and will ultimately lead to a proposed rule, although he said that "it is still too early to identify the scope of any NPRM or final rule."

The agency also is examining how to use its information collection authorities to enhance transparency and understand money laundering and terrorism financing through investment advisers.

"Even though investment advisers in the United States are not expressly subject to AML/CFT requirements under BSA [Bank Secrecy Act] regulations, investment advisers may fulfill some AML/CFT obligations in certain circumstances," Das said. "For example, investment advisers may perform certain AML/CFT functions because they are a part of a bank holding company, are affiliated with a dually-registered broker-dealer, or share joint custody with a BSA-regulated entity such as a mutual fund."

The testimony outlines a number of other AML Act requirements that the agency is working on, including understanding minimum standards for AML/CFT programs, certain information sharing requirements, technology, and training requirements and other modernization efforts.

"The FinCEN team is working diligently with law enforcement and regulatory stakeholders to promulgate rules and take other steps under the legislation that will further the national security of the United States and promote a more transparent financial system," Das concluded.

The IRS has reminded taxpayers to create or review emergency preparedness plans for surviving natural disasters. The Service has designated the month of May to include National Hurricane Preparedness Week and National Wildfire Awareness Month.

The IRS has reminded taxpayers to create or review emergency preparedness plans for surviving natural disasters. The Service has designated the month of May to include National Hurricane Preparedness Week and National Wildfire Awareness Month. Further, the IRS has advised taxpayers to:

• secure key documents such as tax returns, birth certificates, deeds, titles and insurance policies inside waterproof containers in a secure space, make their copies and scanning them for backup storage on electronic media such as a flash drive;
• record all property, especially expensive and high value items. The IRS disaster-loss workbooks in Publication 584 can help individuals and businesses compile lists of belongings or business equipment;
• employers who use payroll service providers should check fiduciary bonds as they could protect the employer in the event of default by the payroll service provider; and
• reconstruct records after a disaster for tax purposes, getting federal assistance or insurance reimbursement. Further, taxpayers who have lost some or all their records during a disaster can visit IRS’s Reconstructing Records webpage as one of their first steps.

Additionally, the Service has urged taxpayers to not call the IRS to request disaster relief because it automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. Taxpayers impacted by a disaster with tax-related questions can contact the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Taxpayers who do not reside in a covered disaster area, but suffered impact from a disaster should call 866-562-5227 to find out if they qualify for disaster tax relief and to discuss other available options. Moreover, taxpayers can find complete disaster assistance and emergency relief details for both individuals and businesses on the Service’s Around the Nation webpage. Lastly, the taxpayers can also visit the FEMA Prepare for Disasters web page to Build a Kit of emergency supplies.

Treasury Secretary Janet Yellen is calling on the United States and the European Union to get the global corporate minimum tax into law in their respective territories.

Treasury Secretary Janet Yellen is calling on the United States and the European Union to get the global corporate minimum tax into law in their respective territories.

The "EU and the United States must show leadership by expeditiously implementing the global minimum tax in our domestic laws," Yellen told attendees May 17, 2022, at the Brussels Economic Forum, according to her prepared remarks distributed by the Department of the Treasury.

Yellen’s remarks promoted the Organisation for Economic Co-operation and Development agreement signed by 137 countries that would, among other things, set the global corporate minimum tax at 15 percent.

"Once implemented, we can put the revenues produced by this deal toward funding investments to make our economies more sustainable and fairer—not just in the United States and the EU, but also in emerging and developing countries," she said. "And by moving together we will raise these revenues in a way that levels the playing field. Businesses will be able to compete on economic fundamentals, rather than on tax incentives, thereby contributing to our collective prosperity."

According to the Department of the Treasury, Yellen met with European Commission President Ursula von der Leyen, European Commission Executive Vice President Valdis Dombrovskis and European Commissioner for the Economy Paolo Gentiloni and identified ways to move forward on the international tax reform agreement, although those specific details were not made public. Her remarks also noted that in addition to addressing the global corporate minimum tax issues, known as Pillar 2 of the agreement, "[w]e must resolve the open issues in Pillar 1 so that the multilateral treaty can be ready for signature," although the specific issues that need resolution were not identified in the speech.

"Pillar 1 of this deal, focused on the taxation of digital services, puts an end to trade tensions between the EU and the United States that threaten our companies with multiple layers of taxation and our consumers with rising costs from tariffs."Yellen said. "That dynamic isn’t good for anyone."

She continued: "Pillar 1 will also update and stabilize the international tax architecture, providing a fairer allocation of revenues than the status quo and tax certainty that is good for business and investment. Rather than facing harmful unilateral measures, companies will be able to plan and thus invest their capital efficiently."

The Internal Revenue Service continues to struggle with issues related to staff shortages, the Treasury Inspector General for Tax Administration said.

The Internal Revenue Service continues to struggle with issues related to staff shortages, the Treasury Inspector General for Tax Administration said.

In a May 2, 2022, interim report on the 2022 filing season, the IG stated that "significant staffing shortages continue to hamper the IRS’s efforts to address backlog inventories and continue to affect the IRS’s ability to ensure that current year tax returns are processed timely."

The data in the report comes from March and predates a number of appearances of IRS Commissioner Charles Rettig before Congress where he has pledged that barring another significant spike in the pandemic or some other unforeseen issue, the backlogged inventories will be back to "healthy" by the end of the year.

The report highlights the agency’s overall "IRS Get Healthy Initiatives" and states the IG will be performing separate reviews on how the agency is addressing the backlog as well as hiring shortfalls.

The IG reported that as of March 15, 2022, the IRS onboarded 521 submission processing employees, or 9.5 percent of the hiring goal of 5,437, although Rettig has testified before Congress that in-person and virtual job fairs have yielded higher numbers since then and those hired should be onboarded and complete their training in June. The IG also reported that as of March 17, 2022, the agency onboarded 3,827 accounts management employees, or 76.5 percent of the hiring goal of 5,000 for the 2022 tax season.

Five staffing concerns were highlighted by the report, including:

• The use of a seasonal workforce that does not provide permanent employment or desirable schedules and shifts;
• Entry-level salaries that are lower than what can be obtained in private industry;
• Applicants who apply for multiple jobs, reducing the true number of candidates available to fill vacancies;
• Applicants who fail to respond to or pass pre-screnning or do not show up to work after they have been hired; and
• Long onboarding times.

IG estimates that as of the week ending March 12, 2022, there are nearly 5 million paper tax returns that still need to be processed. Through March 4, for the 2022 filing season, the IRS received nearly 55 million returns, including 1.5 million paper returns, which is 15 percent lower than the paper returns received in roughly the same window (March 5, 2021) during the previous year’s tax filing season.

As of March 4, the IRS has issued about 38 million refunds totaling $129.2 billion. Both represent increases from the same time in the previous tax filing season through March 5 that had about 36 million refunds issued totaling $107.8 billion.

Rettig Defends Budget Request Before Senate Appropriations Committee

Internal Revenue Service Commissioner Charles Rettig appeared May 3 before the Financial Services and General Government Subcommittee of the Senate Appropriations Committee to defend the White House budget request for fiscal year 2023.

During the hearing, Commissioner Rettig testified on a number of the usual topics, noting the backlog of unprocessed returns and other written correspondence should be at a "healthy" level by the end of the year, assuming no other spikes in the pandemic or other unanticipated issues, as well as improvements to the workforce due to direct hiring authority granted by Congress, and the need for more funding to update and improve the IT infrastructure. He also touched on the need for more enforcement personnel to help close the tax gap, reiterating that enforcement will be targeted toward the wealthy who are avoiding paying taxes and not the low and middle income taxpayers.

A recent report by the Treasury Inspector General for Tax Administration primarily focused on the need for the Internal Revenue Service to expand its electronic filing capabilities also noted that the agency has destroyed some 30 million paper-filed documents in 2021.

A recent report by the Treasury Inspector General for Tax Administration primarily focused on the need for the Internal Revenue Service to expand its electronic filing capabilities also noted that the agency has destroyed some 30 million paper-filed documents in 2021.

"The continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021," the report, dated May 4, 2022, states. "The IRS uses these documents to conduct post-processing compliance matches such as the IRS’s Automated Underreporter Program to identify taxpayers not accurately reporting their income."

IRS said in a May 13 statement that the documents destroyed were document "submitted to the IRS by third-party payors, not taxpayers. 99 percent of the information returns we used were matched to corresponding tax returns and processed. The remaining 1 percent of those documents were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season."

The agency added that there were "no negative taxpayer consequences as a result of this action. Taxpayers or payers have not been and will not be subject to penalties resulting from this action."

The IG report adds that agency management "advised us that once the tax year concludes, the information returns, e.g. Forms 1099-Miscellaneous Information, can no longer be processed due to system limitations. This is because the system used to process these information returns is taken offline for programming updates in preparation for the next filing season."

More E-Filing Needed

The revelation comes as the IG calls for more documents to be able to electronically filed.

Indeed, the first recommendation of the report was that IRS "develop a Service-wide strategy to prioritize and incorporate all forms for e-filing," a recommendation the IRS agreed with.

To put the need in context, the IG report highlights the cost of processing a paper return compared to an electronically filed return in 2020. For example, an individual Form 1040 costs 36 cents to process if the form that was filed electronically, but increases to $15.21 if the Form 1040 was filed in paper form. A Form 1041 costs 37 cents to process electronically and $14.02 to process a paper return.

E-filed returns also allow for "a number of upfront validations that check for more than 1,000 possible errors before the IRS accepts an e-filed tax return for processing" giving e-filed returns a greater degree of accuracy, compared to a paper return that requires an individual to keypunch all the details, a key contributor to the backlog of processing during the COVID-19 pandemic.

And while the agency has been relatively successful in getting individuals to electronically file their returns (a 93.4 percent e-file rate in 2020), it is not having the same success in getting businesses to do the same (63.3 percent e-file rate in 2020). That number goes down to 49 percent when looking at employment tax returns.

IG noted that the agency has not taking previously recommended actions, including:

• Developing a business tax return e-filing Service-wide strategy;
• Developing a less burdensome electronic signature process for employment tax returns; and
• Working with the Department of the Treasury to consider revising current requirements and/or creating new requirements for e-filing business returns.

IG also called upon the IRS to be more active in identifying business who are non-compliant with e-filing mandates and assessing the noncompliance penalties. The report noted that in 2018, there were 897 corporate taxpayers that were mandated to e-file but still filed paper returns. The agency could have assessed more than $2.4 million in penalties that were not assessed on these corporate filers.

The report notes that IRS did not take actions to assess penalties "because of potential implementation issues," an excuse the IG Office of Audit called "insufficient. The IRS could develop processes and procedures to identify these filers post-filing. In view of the paper backlogs of paper tax returns, the IRS should take additional steps in an effort to continue to reduce paper filings."

WASHINGTON–The Internal Revenue Service’s Independent Office Of Appeals has seen its cycle times for handling appeals cases stretch to more than year during the COVID-19 pandemic, but the office is working to get it back to pre-pandemic levels.

WASHINGTON–The Internal Revenue Service’s Independent Office Of Appeals has seen its cycle times for handling appeals cases stretch to more than year during the COVID-19 pandemic, but the office is working to get it back to pre-pandemic levels.

Speaking May 13, 2022, at the American Bar Association’s May Tax Meeting, office Chief Andy Keyso provided an update on where the agency stands as it, and the IRS as a whole, prepare for all offices to open for employees, as the end of June.

The cycle time for closed cases in fiscal year 2021 reached 372 days, up from 194 days in fiscal year 2018. Keyso noted that the upward trend started from there into FY 2019, where it increased to 229 days due to the government shutdown during that time, and then increased again in FY 2020 to 289 days during the first year of the pandemic that including a temporary shutdown as all employees were sent home and began working remotely.

Despite the increase, Keyso is optimistic that change can happen.

"I’m troubled by the increase in cycle time but I am not defeated by it," Keyso said. "I believe that it is reversible, and we will reverse it as we get people back in the office."

His optimism stems from the fact that while cycle times have gone up, it is not because more time is being spent on cases by appeals officers. That time hasn’t changed, he said. The problems are more a function of issues that are plaguing the agency as a whole since the start of the pandemic, including the backlog of processing written correspondence.

Getting that cycle time back down is one of the office’s priorities once people are back in their offices full time, Keyso said.

Cycle times went up despite declines in new case receipts by the office. In FY 2018, the office received 92,430 cases. That number dropped in the following two years to 85,286 in FY 2019 and then to 57,573 in FY 2020 before rebounding to 72,216 cases in the last fiscal year. As expected, total case closures follows a similar trend, with 94,832 cases getting closed in FY 2018, dropping down to 73,207 in FY 2019, and falling again to 62,997 in FY 2020. In the last fiscal year, 66,522 cases were closed.

Collection due process cases make up the most cases handled by the Independent Office of Appeals in FY 2021 (27,420), followed by examination cases (25,247) and then offers in compromise cases (6,858).

The Internal Revenue Service is not providing taxpayers with sufficient tools to manage their accounts online, National Taxpayer Advocate Erin Collins said.

The Internal Revenue Service is not providing taxpayers with sufficient tools to manage their accounts online, National Taxpayer Advocate Erin Collins said.

In an April 28, 2022, blog post, Collins stated that despite progress in the development of its online account application, "the IRS has yet to develop and adopt a one-stop solution for online and digital offerings that combine communications and interaction with individual and business taxpayers as well as with tax professionals."

Collins offered a number of solutions the IRS should be working on to help improve its virtual offerings, including:

• providing taxpayers with the ability to navigate to all IRS online information and services;
• making it simple for taxpayers to access various online tools;
• conditioning taxpayers to use Online Account application as the starting and ending point with their online interactions with the agency; and
• providing the option for those who are married and jointly file their tax returns to link their individual accounts.

Additionally, the IRS needs to offer a business version of the Online Account application to increase digital support for businesses that “at minimum” offers the same support features for individual taxpayers, Collins added.

For tax professionals, Collins said there is a need for better access by those professionals to their clients’ Online Account application from within the Tax Pro Account application.

"This one improvement would be significant for tax professionals in assisting taxpayers to meet their filing and payment obligations and provide much-needed assistance and guidance to them," she stated.

Collins also called for the IRS to integrate the "Where’s My Refund" tool into the Online Account application as well as prioritize improving its functionality to help decrease the call volume customer service representatives are dealing with.

The agency "needs to have robust online accounts available for all taxpayers and tax professionals that provide information, guidance, and the capability to work and resolve issues online," she stated.

The upcoming filing season is expected to be challenging for taxpayers and the IRS as new requirements under the Patient Protection and Affordable Care Act kick-in. Taxpayers, for the first time, must make a shared responsibility payment if they fail to carry minimum essential health care coverage or qualify for an exemption. At the same time, there is growing uncertainty over one of the key elements of the Affordable Care Act: the Code Sec. 36B premium assistance tax credit as litigation makes its way to the U.S. Supreme Court.

The upcoming filing season is expected to be challenging for taxpayers and the IRS as new requirements under the Patient Protection and Affordable Care Act kick-in. Taxpayers, for the first time, must make a shared responsibility payment if they fail to carry minimum essential health care coverage or qualify for an exemption. At the same time, there is growing uncertainty over one of the key elements of the Affordable Care Act: the Code Sec. 36B premium assistance tax credit as litigation makes its way to the U.S. Supreme Court.

Individual shared responsibility payment

Individuals who are not exempt from the individual mandate and who do not carry minimum essential coverage in 2014 must make a shared responsibility payment. The payment is due when the individual files his or her 2014 tax return in 2015. In November, the IRS’s national ACA coordinator said that the agency will work with individuals who owe a shared responsibility payment and may not have the resources to make the payment when they file their return. Keep in mind that the IRS will apply any refund to a taxpayer’s unpaid shared responsibility payment. The IRS cannot, however, use its lien and levy power to collect an unpaid shared responsibility payment.

Note. For 2014, the shared responsibility payment amount generally is the greater of: One percent of the person's household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment, however, does not stay at this level after 2014. By 2016, the payment grows significantly.

In November, the IRS clarified when Medicaid coverage qualifies as minimum essential coverage and when it may not. The IRS also clarified how employer contributions to a cafeteria plan impact minimum essential coverage. Final regulations exclude employer contributions to a cafeteria plan from an employee’s household income for purposes of determining minimum essential coverage,

Exemptions

The IRS reminded individuals in November that they may be exempt from the requirement to carry minimum essential coverage. There are nine main exemptions: religious conscience; health care sharing ministries; members of federally recognized Native American nations; individuals whose income is below the minimum return filing threshold; individuals with a short coverage gap; hardship cases; affordability cases; incarcerated individuals; and individuals not lawfully present in the U.S.

Some exemptions are obtained through the Marketplaces, some through the filing process, and some either way. The exemptions for members of federally recognized Native American nations, members of health care sharing ministries and individuals who are incarcerated are available either from the Marketplace or claiming the exemption as part of filing a federal income tax return. The exemptions for lack of affordable coverage, a short coverage gap, and household income below the filing threshold and individuals who are not lawfully present in the U.S. may be claimed only as part of filing a federal income tax return. In November, the IRS removed references to specific hardships and streamlined the process for obtaining an exemption because of a hardship.

Code Sec. 36B litigation

The Code Sec. 36B premium assistance tax credit helps offset the cost of health insurance obtained through the ACA Marketplace. According to the U.S. Department of Health and Human Services (HHS), more than two-thirds of enrollees in Marketplace coverage were eligible for the credit in 2014. IRS regulations for the credit, however, have come under fire for being contrary to the ACA. The regulations allow enrollees in state-run Marketplaces and federal-facilitated Marketplaces to claim the credit. 

In July, the U.S. Court of Appeals for the District of Columbia Circuit struck down the IRS regulations in Halbig, 2014-2 USTC ¶50,366. The D.C. Circuit found that the plain language of the Affordable Care Act limits the credit to enrollees in state-run Marketplaces. In contrast, the Court of Appeals for the Fourth Circuit upheld the regulations in King, 2014-2 USTC ¶50,367. The Fourth Circuit found that it could not say definitively that Congress intended to limit the Code Sec. 36B credit to individuals who obtain insurance through state-run Marketplaces.

The U.S. Supreme Court announced in November that it will hear an appeal of King. The Supreme Court is expected to hear oral arguments about the IRS regulations in early 2015. A decision will likely be announced in June 2015. Our office will keep you posted of developments.

Open enrollment

The ACA Marketplace opened for enrollment for 2015 coverage on November 15 and runs through February 15, 2015. HHS explained that it has streamlined application procedures for individuals who are renewing coverage and who are applying for coverage for the first time. The Small Business Health Option Program (SHOP) also opened on November 15. Small employers (employers with 50 or fewer full-time equivalent employees) may enroll qualified employees in health coverage through SHOP.

Please contact our office if you have any questions about the Affordable Care Act and the new requirements.

As most people know, a taxpayer can take a distribution from an IRA without being taxed if the taxpayer rolls over (contributes) the amount received into an IRA within 60 days. This tax-free treatment does not apply if the individual rolled over another distribution from an IRA within the one-year period ending on the day of the second distribution.

As most people know, a taxpayer can take a distribution from an IRA without being taxed if the taxpayer rolls over (contributes) the amount received into an IRA within 60 days. This tax-free treatment does not apply if the individual rolled over another distribution from an IRA within the one-year period ending on the day of the second distribution.

Taxpayers and the IRS both believed that this one-rollover-per-year limit was applied separately to each IRA owned by the individual. If an individual owned two IRAs, for example, the taxpayer could do two rollovers in the appropriate period - one from each IRA. The IRS applied this interpretation in proposed regulations and in Publication 590, IRAs.

One rollover per taxpayer

In Bobrow, TC Memo. 2014-21, CCH Dec. 59,823(M), issued in January 2014, the Tax Court concluded that a taxpayer could make only one nontaxable rollover between IRAs within a one-year period, regardless of how many IRAs the taxpayer maintained. Thus, the one-per-year limit applied to the taxpayer, not to each separate IRA owned by the taxpayer.

In Notice 2014-15 and Announcement 2014-32, the IRS indicated that it would follow the Bobrow interpretation. It withdrew the proposed regulations, and will issue a new Publication 590-A, Contributions to IRAs, that applies the Bobrow interpretation.

Transition rule

In the notice and the announcement, the IRS provided a transition rule that it will not apply the new interpretation of the limit on permissible IRA rollovers until January 1, 2015. A distribution from an IRA in 2014 that is rolled over to another IRA will be disregarded in applying the new rule to 2015 distributions, provided that the 2015 distribution is from a different IRA that was included in the 2014 rollover.

Exceptions

The IRS noted that there are several types of rollovers that that are not subject to the Bobrow rule: a rollover from a traditional IRA to a Roth IRA; a rollover to or from a qualified plan; and trustee-to-trustee transfers. The IRS stated that trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly between IRAs, or by providing the IRA owner with a check made payable to the trustee of the receiving IRA.

However, a rollover between Roth IRAs would preclude a separate rollover within the one-year period between the individual's traditional IRAs; similarly, a rollover between traditional IRAs would preclude a rollover between Roth IRAs with the one-year period.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

Individual mandate

Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the "individual mandate."

Employer reporting

Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.

Marketplace coverage

Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).

Medicare, Medicaid and other government coverage

Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.

Exemptions

Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:

• Short coverage gap
• Religious conscience
• Federally-recognized Native American nation
• Income below income tax return filing requirement

The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.

The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.

Shared responsibility payment

All other individuals - individuals without minimum essential coverage and who are not exempt - must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.

The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.

Code Sec. 36B credit

Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.

All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.

A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.

IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.

Businesses generally want to write off costs more quickly, to reduce their taxable income and their tax burden. One mechanism for accomplishing this is to deduct the costs of depreciable property rather than capitalizing them. Under Code Sec. 179, taxpayers can expense a prescribed amount of their costs for tangible depreciable property, even if the ordinary accounting treatment would be to capitalize the costs.

Businesses generally want to write off costs more quickly, to reduce their taxable income and their tax burden. One mechanism for accomplishing this is to deduct the costs of depreciable property rather than capitalizing them. Under Code Sec. 179, taxpayers can expense a prescribed amount of their costs for tangible depreciable property, even if the ordinary accounting treatment would be to capitalize the costs.

Code Sec. 179 applies primarily to personal property, but can apply to some real property. In recent years (through 2013), the expensing limit has been as high as $500,000 a year. However, for 2014, the expensing deduction limit is $25,000. (Congress could raise the limit for 2014 but has not done so.)

Because of the dramatic reduction in the Code Sec. 179 expensing limits, taxpayers may want to consider using the de minimis safe harbor in the final "repair" regulations as an alternative means of deducting costs that they would otherwise have to capitalize. The IRS issued final repair regulations in 2013 on the treatment of costs incurred with respect to depreciable property. The regulations are effective for tax years beginning on or after January 1, 2014 and provide guidance on whether to expense or capitalize relevant costs.

The safe harbor

The de minimis safe harbor applies to smaller priced items used in the business. The safe harbor can apply in the following situation: a taxpayer with a $500 per item expensing policy buys 1,000 calculators for $100 each. If the taxpayer elects the safe harbor, the taxpayer can deduct the entire cost of the calculators in the year paid or incurred. The total deduction is $100,000, much greater than the $25,000 limit under Code Sec. 179 for 2014.

The safe harbor is an election, not an accounting method. It can be applied for any year (or not) as determined by the taxpayer. The taxpayer can make an election for 2014, for example. The deadline is the extended due date of the taxpayer’s original income tax return. An election statement must be attached to the return. The election is irrevocable.

Two alternatives

There are two alternative de minimis safe harbors. The primary safe harbor, for use by any taxpayer but primarily for larger entities, allows taxpayers to deduct items that cost $5,000 or less (per item or invoice). The items must be deductible under the taxpayer’s financial accounting procedures and in accordance with the company’s applicable financial statement (AFS). An AFS is a financial statement filed with the Securities and Exchange Commission or another government agency, or a certified audited financial statement. The taxpayer must also have a written accounting policy, put into effect at the beginning of the year, to treat the cost of the items as an expense.

Similar requirements apply to smaller business taxpayers who do not have an AFS, with the following two differences: the accounting policy does not have to be in writing; and the amount paid for the property may not exceed $500 per invoice or per item. If the cost of the items exceeds $500 per item, the taxpayer must capitalize the cost. The taxpayer cannot avoid the $500 (or $5,000) threshold by breaking an item into components whose separate cost is below the limit. For example, the taxpayer could not split the cost of a truck into separate components such as the engine, cab, and chassis.