NEWS from NSA

FASB Proposes Change For Contributions Accounting

The Financial Accounting Standards Board on August 3 issued a proposed Accounting Standard Update (ASU) intended to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profits. FASB requested comments on the proposed ASU by November 1, 2017.

According to FASB, the proposed ASU is intended to help organizations decide if transactions should be accounted for as a contribution or an exchange. Organizations would accomplish this by using clarifying guidance to evaluate whether a resource provider is receiving value in return for the resources transferred.  The proposed ASU also helps organizations evaluate such arrangements by using an improved framework to determine whether a contribution is conditional or unconditional, and better distinguish a donor-imposed condition from a donor-imposed restriction.

"Stakeholders indicated that there is difficulty and diversity in practice among not-for-profits with characterizing grants as exchanges or contributions, and in distinguishing between conditional and unconditional contributions" said FASB Chairman Russell G. Golden. "The proposed ASU provides not-for-profits with a more robust framework to evaluate and determine if a transaction should be accounted for as a contribution or an exchange."

Accounting for contributions is an issue primarily for not-for-profit organizations because contributions are a significant source of revenue. However, FASB stressed that the amendments in this proposed ASU would apply to all organizations that receive or make contributions of cash and other assets, including business enterprises.

The proposed standard follows the same effective dates as FASB's recent Revenue Recognition standard:

• A public company or a not-for-profit organization that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market would apply the new standard to annual reporting periods beginning after December 15, 2017, including interim periods within that annual period.
• Other organizations would apply the standard to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.

Early adoption of the amendments in this proposed ASU would be permitted irrespective of the early adoption of the amendments in the Revenue Recognition standard.

A copy of the proposed ASU is available here.

 

Republicans Aim For Fast Tax Deal This Fall

Even though many senators bemoaned the partisan nature of the health-care debate, Republicans plan to use the same reconciliation procedure to rewrite the tax code.  The plan was confirmed by Senate leader Mitch McConnell, who acknowledged this would also require all but two Republicans to vote for the plan or risk defeat.

White House Legislative Affairs Director, Marc Short said at a press conference that he expects the House to pass tax legislation in October and the Senate to do so in November. Short also said he expects the House and Senate to pass budget resolutions by October, which are likely to include instructions to use the reconciliation procedure.

The timing of a tax reform bill raises concerns about the time necessary for the IRS to prepare for filing season.  When asked if the legislation could pass by November, Sen. Charles E. Grassley (R-Iowa), the second-ranking Republican on the Finance Committee, responded, "It'd better be.  It's almost got to be signed by the president by that time because IRS has to have that much time so you can file taxes in January."  But Rep. Peter Roskam (R-Ill.), chairman of the House Ways and Means Tax Policy Subcommittee, said on the same day that tax reform could still happen even if it stretches into 2018.

Nevertheless, Rep. Kevin Brady, Chair of the Ways and Means Committee, discussed tax reform with NSA Executive Vice President John Ams on August 3 and stated that a tax reform proposal is under discussion and would likely be unveiled in September, with hearings and a House vote soon to follow.  Brady said any decision on tax rates, or the elimination of deductions or other details is still unclear because of the need to satisfy reconciliation rules, which require any tax proposal to be revenue neutral during the ten year budget window following enactment. 

 

Passwords Of Tax Professionals New Scam Target

 

The IRS Security Summit warns tax professionals to be alert to a new phishing email scam in which criminals impersonate tax software providers and attempt to steal usernames and passwords.

According to the IRS, this latest scam email variation comes with a subject line of "Software Support Update" and highlights an "Important Software System Upgrade." It thanks recipients for continuing to trust the software provider to serve their tax preparation needs and mimics the software providers' email templates.

The e-mail informs the recipients that due to a recent software upgrade, the preparer must revalidate their login credentials. It provides a link to a fictitious website that mirrors the software provider's actual login page.

Instead of upgrading software, however, the tax professionals are providing their information to cybercriminals who use the stolen credentials to access the preparers' accounts and to steal client information.

The Security Summit reminds tax professionals that software providers do not embed links into emails asking them to validate passwords. Also, tax professionals and taxpayers should never open a link or an attachment from a suspicious email. Tax professionals who receive emails purportedly from their tax software providers seeking login credentials should send those scam emails to their tax software provider. 

This new scam is yet another reason why tax professionals need to take strong security measures to protect their clients and protect their business.

 

IRS Planned E-Services Outage

There will be a planned outage of all e-Services tools from 6 p.m. Thursday, August 17 through 6 a.m. Monday, August 21. During this period, users will be unable to access the Transcript Delivery System (TDS) and Secure Object Repository (SOR), Registration and TIN Matching. All applications will also be offline until August 22.

Affordable Care Act Information Return (AIR) filers may resume submission of applications for Transmitter Control Codes starting on August 22. The application process for AIR users has been offline since July because of the e-Services platform transition.

Also on August 21, a redesigned landing page for e-Services will launch with a new look and feel.

The scheduled outage will complete the transition of e-Services to a new platform that will improve the look and feel of applications and complete a multi-year technological upgrade. The IRS will also perform testing during that four-day period.

 

 

Some ITINs Expire By End of 2017 – Renew Now

 

The IRS has begun mailing notices to more than 1 million taxpayers with expiring Individual Taxpayer ?Identification Numbers (ITINs) to inform them their ITIN is expiring, and urging them to renew as quickly as possible to avoid tax refund and processing delays.

 

ITINs with middle digits 70, 71, 72 or 80 are set to expire at the end of 2017. The notice being mailed explains the steps taxpayers need to take to renew their ITIN if it will be included on a U.S. tax return filed in 2018.

 

The IRS said notices will be issued over a five-week period beggining early August. Taxpayers who receive the notice but have already acted to renew their ITIN do not need to take further steps unless another family member is affected.

 

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2017, and as mentioned above, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. 

White House and Key Republicans Issue Tax Reform Guidelines; No Border Tax

Key lawmakers and Administration officials on July 27 issued a joint statement on tax reform that outlines several broad policy goals and specifically ends further consideration of the contentious border adjustment tax (BAT). As proposed in the House GOP tax reform blueprint, the BAT sought to impose a 20 percent tax on all imports and exempt all exports. 

"While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform," the statement says. It explains, "We are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base."

 Under Senate budget reconciliation rules, the vehicle the GOP leadership has said will drive home tax reform, legislation must be revenue neutral over a 10-year budget period. Eliminating the BAT means finding a new source of funding proposed tax cuts.  Those sources may include restrictions on, or the elimination of, a number of provisions that directly affect NSA members or their clients.

More broadly, the statement says that the policy goal remains, "a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas."

The statement was jointly issued by Treasury Secretary Steve Mnuchin, National Economic Policy Council Director Gary Cohn, Senate Majority Leader Mitch McConnell (R-KY), House Speaker Paul Ryan (R-WI), Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Kevin Brady (R-TX). All six have been working for months to negotiate an agreement on the parameters of a tax reform plan.

Although the talks between GOP leaders and White House officials will continue, the six officials say in today's statement that "the time has arrived for the two tax-writing committees to develop and draft legislation."

A more-detailed plan, if not draft legislative language, is expected to emerge in September, followed by action in the tax committees. The statement said that, "Our expectation is for this legislation to move through the committees this fall, under regular order, followed by consideration on the House and Senate floors. As the committees work toward this end, our hope is that our friends on the other side of the aisle will participate in this effort."
 

The full text of the statement is available here. 

 

ACA Payments Due Despite Executive Order, IRS Says

 

Taxpayers remain liable for Affordable Care Act shared responsibility payments regardless of President Donald Trump's Jan. 20 executive order directing agencies to reduce potential burdens created by the law, the IRS said in multiple information letters.

Letters released during the second quarter of 2017 responded to queries on taxation of employer-provided life insurance and nonqualified deferred compensation, retirement account rollovers when a financial institution fails, and other items.  Information letter INFO 2017-0010, furnished by the IRS national office, said that the Jan. 20 executive order to minimize economic burden of the Affordable Care Act doesn't change the law; it merely directs agencies to exercise their permitted authority to reduce potential burdens. The ACA legislative provisions, including imposition of the employer shared responsibility for failure to comply, remain in force until changed by Congress.

INFO 2017-0010 is available here.

 

IRS Updates Due Dates, Extensions for Tax and Information Returns

The IRS has issued regulations updating the due dates and time extensions for filing certain tax returns and information returns to reflect recent laws.

The changes are set out in final and temporary regulations (T.D. 9821) issued July 18 and will bring those dates into agreement with requirements in Section 2006 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 and Section 201 of the Protecting Americans from Tax Hikes Act of 2015.

The final and temporary rules:

• Amend Treasury regulations to account for the due dates for the income tax returns of C corporations specified by Section 2006(a) of the Surface Transportation Act.
• Amend Treasury regulations to implement Section 2006(b)(2) of the Surface Transportation Act and provide consistency for automatic extensions for non-bankruptcy estates and trusts filing Form 1041, U.S. Income Tax Return for Estates and Trusts.
• Amend Treasury regulations to implement Section 2006(b)(4) through (b)(8) of the Surface Transportation Act and provide consistency for automatic extensions for tax-exempt organizations filing specified returns.
• Make conforming amendments to reflect that the due date for forms—Form W-2, Wage and Tax Statement, and others in that series; Form W-3, Transmittal of Wage and Tax Statements; and Form 1099-MISC, Miscellaneous Income—that report non-employee compensation is Jan. 31 of the calendar year following the calendar year for which the information is being reported, as enacted by Section 201 of the PATH Act.

The IRS also issued proposed rules (REG-128483-15) that cross-reference the temporary regulations.

The final and temporary rules are available here.

 

 

IRS Finalizes Plan to Increase EA Exam Fee

 

The IRS will charge $81 for each part of the enrolled agent exam next year, after the agency finalized its proposal for the higher fee, which the IRS said covers its cost of providing the service. The IRS also said the third-party contractor that administers the exam would raise its service charge for each section of the three-part test called the special enrollment examination: $100.94 for the May 2017 to February 2019 testing periods and $103.97 for May 2019 to February 2020. The price was $98 for each part of the exam during the May 2016 to February 2017 period.

The new price is to take effect March 1, 2018.

The final rules are available from the Federal Register here. 

 

IRS Pilot Program Offering Virtual Appeals Conferences

Taxpayers and their representatives can use virtual technology to remotely attend IRS Appeals conferences beginning August 1. 

The IRS Office of Appeals announced the virtual conference pilot program in a July 24 news release (IR-2017-122). The agency said the program will use a secure, web-based screen-sharing platform to connect with taxpayers and provide an alternative to those who prefer face-to-face interaction over a phone call. "Taxpayers who choose the web-based option will be able to get face-to-face service remotely," IRS Chief of Appeals Donna Hansberry said in the July 24 news release. "In the future, the technology may give taxpayers greater options in engaging with Appeals and could allow us the flexibility to serve taxpayers virtually from any location using mobile devices or computers."

Readers may recall that the IRS last fall revised the Internal Revenue Manual to instruct Appeals officers to conduct all conferences by phone unless a taxpayer requests a face-to-face meeting and the case meets certain criteria.  Practitioners have complained that the revision has made it more difficult for taxpayers to get an in-person conference, even when requested.

The IRS told Bloomberg BNA in a July 24 email that the virtual conferencing pilot isn't a replacement for in-person conferences. "Appeals continues to make in-person conferences available in appropriate cases."

The IRS plans to assess the pilot program after it begins August 1. This assessment will evaluate taxpayer satisfaction with the technology, the agency said.  The Office of Appeals is testing the pilot with a limited number of employees. Only employees who are part of the pilot will have the ability to offer the web-based virtual conferencing option, the agency said.

The IRS News Release is available here.

 

IRS Asks Court To Allow PTIN Fee During Appeal of Case

The Department of Justice asked a federal district court July 24 to let the IRS resume charging a fee for tax preparer identification numbers as the agency decides whether to appeal an order that barred it from collecting payment.  The motion was filed regarding the decision in Steele v. United States, D.D.C., No. 1:14-cv-01523.

The court filing said that, if the IRS appeals and wins its case, the public "will be irreparably harmed" because the agency would not have collected the fee for any PTINs issued during the appeals process.  Unless the court granted restitution to the government, there would be "no after-the-fact recourse to recover the likely tens of millions of dollars of fees that would be uncollected from PTIN holders," the DOJ filing said.  Additionally, "funds appropriated for other programs would have to be re-directed and thus would be unavailable to provide other taxpayer services," the motion said.

NSAlert readers will recall that in the Steele case, the court decided the IRS did not have the authority to charge the PTIN fee and further directed that all such fees should be refunded. The motion came weeks after the IRS reopened the PTIN program without a mechanism to collect payment. The agency temporarily shut down the program to make the changes in response to the June 1 order.

 

IRS to Boost ID Security for Business, Trust, Estate Filers; Individual ID Thefts Down

IRS Commissioner John Koskinen announced on July 25 that, so far for 2017, individuals reporting identity theft have declined sharply compared to the same time in 2016 and 2015. In the first five months of 2017, about 107,000 taxpayers reported being victims of identity theft, compared to the same period in 2016, when 204,000 filed victim reports. That's about 97,000 fewer victims – representing a drop of 47 percent. For comparison, there were nearly 297,000 identity theft victims during the first five months of 2015. Koskinen attributed the drop to safeguards put in place due to the efforts of the IRS and its Security Summit partners. The information was also announced in an agency press release, IR-2017-123.

Koskinen cautioned that the IRS has seen an increase in identity theft involving business-related tax returns. So far for 2017, the IRS has identified approximately 10,000 business returns as potential identity theft through June 1, compared to about 4,000 for calendar year 2016, and 350 for calendar year 2015. As a result, the IRS is instituting additional measures designed to reduce business-related tax return fraud.

Payment history, parent company information, and tax filing history are among the new documentation materials the IRS may request from practitioners when they file business, trust, or estate returns for the 2018 tax season. The IRS will also ask for the name and Social Security number of the individual who signs the tax documents and additional information based on deductions claimed, the agency said in the news release.

The affected returns include: Form 1120, U.S. Corporation Income Tax Return; Form 1120S, U.S. Income Tax Return for an S Corporation; Form 1041, U.S. Income Tax Return for Estates and Trusts; and Schedule K-1, Partner's Share of Income, Deductions, Credits, etc., according to the release.

"This shows that identity thieves are constantly working to come up with new ways to get around the barriers we've put up. That's why we're working to put more taxpayer protections in place for the 2018 filing season coming up. We'll be sharing more of those details at a press conference later this fall," Koskinen said.

IR-2017-123 is available at here

Security Summit Launches Education Campaign Aimed at Tax Pros

The IRS has cautioned all tax professionals to increase their computer security and be aware of email scams that identify themselves as a friend, customer or company.

As part of the Security Summit effort, the IRS, state tax agencies and the tax industry have also launched another series in the Protect Your Clients, Protect Yourself campaign called "Don't Take the Bait." It's critical that tax professionals remember they have not just an obligation but a legal requirement under federal law to protect taxpayer information.

The IRS points out that the number one goal of phishing thieves is to monetize their stolen information. Even as the IRS, states and the tax industry have made their systems more secure against tax-related identity theft, the need for criminals to have even more information to better impersonate taxpayers has increased. This is why tax professionals, who hold sensitive financial data, are critical targets.

 "We continue to see new and evolving threats involving data breaches, intrusions and various takeovers that put people's personal information at risk," said John Koskinen, IRS Commissioner. "These efforts are increasingly targeting tax professionals and businesses with tax information. Too many still overlook basic security steps needed to protect their data. As part of this, we urge the tax professional community: Beware of your inbox. Don't take the bait from these phishing scams."

Phishing scams use bait or lures to trick preparers into opening an infected link or attachment, or disclosing usernames and passwords to critical accounts. Falling for the phishing bait means exposing taxpayer data to theft. Thieves also are interested in stealing preparers' e-Services passwords, Electronic Filing Identification Numbers (EFINs), Centralized Authorization File (CAF) numbers and Preparer Tax Identification Numbers (PTINs.)

From January through May, there were 177 tax professionals or firms who reported data thefts involving client information involving thousands of people. The IRS currently is receiving three to five data theft reports a week from tax practitioners.  "We've been warning tax professionals that they are increasingly the targets of national and international cybercriminal rings. These syndicates are well-funded, knowledgeable and creative. It's going to take all of us working together to combat these identity thieves," Koskinen said. "But doing nothing or making a minimal effort is no longer an option. Anyone who handles taxpayer information has a legal responsibility to protect it."

The Security Summit will focus the "Don't Take the Bait" series on security awareness, emphasizing the various types of phishing scams - a common and successful tactic used in data breaches. The 10-week series of news releases, which began earlier this week, also focuses on what steps tax professionals can take to protect their clients and their business from these attacks.

The new series follows up on a recommendation made to the IRS last month by the Electronic Tax Administration Advisory Committee to raise awareness about the steps a tax professional can take to better protect their confidential data.

FASB Discusses Accounting Clarity for Cloud Setup Fees

The Financial Accounting Standards Board has begun discussions about the propper accounting treatment for the implementation and set up fees associated with the use of cloud systems to store data.

Rapid technological changes have caused many companies to switch to cloud systems despite substantial set-up fees.  However, there have been substantial and noticeable differences in the accounting for those fees, according to July 11 discussions among the Financial Accounting Standards Board and its Private Company Council.  FASB members were told that a cloud arrangement allows more flexibility to adapt as new technology changes, whereas a purchased hardware/software system must be replaced if it cannot accommodate the implementation of a necessary technology advancement. 

Cloud computing can be costly. Some companies can incur millions of dollars in upfront fees to set up cloud computing services. These costs are generated from additional steps companies must take to ensure their system can communicate with a cloud arrangement. These upfront costs are separate and substantially higher than the hosting fee, which is a continuing charge paid to a cloud company for housing and maintaining data.

Currently there are no specific accounting rules for how to account for the upfront set up fees. Companies therefore differ in how to account for them. Some book them as an expense whereas others capitalize them.  FASB's Emerging Issues Task Force unit will address the topic at its meeting on July 20, with the intention of beginning the process of recommending a proposed accounting rule for FASB consideration.

Trump Tax Plan Could Reduce Federal Revenue By Trillions?

President Donald Trump's proposed tax cuts would lower federal revenue by $7.8 trillion over a decade and mostly benefit the highest earners, according to a new study released July 12 by the nonpartisan Tax Policy Center (the TPC).  A copy of the study is available here.

The study evaluated the one-page outline released by the White House on April 26.  Trump's outline would create a 15 percent tax rate for businesses of all stripes—down from current rates that can top 35 percent. It would also consolidate the existing seven individual tax rates to just three—cutting the top rate to 35 percent from the current 39.6 percent. The plan would also eliminate a 3.8 percent tax on investment income for high earners that was enacted as part of Obamacare.

The study provides a glimpse of the difficulties Congress will face in enacting meaningful tax reform.  It shows that even if it achieves all the revenue-raisers it calls for, it would still add trillions to the deficit—and face criticism as a gift to the top one percent of income earners.  About 40 percent of the tax cut would go to the top 1 percent of earners, who would see an average after-tax gain of 17.8 percent. By contrast, the middle one-fifth of Americans would see an average gain of 3.3 percent, the study said.

When accounting for suggested revenue-raisers like ending most itemized deductions and personal exemptions, the 10-year revenue loss under the Trump tax plan would be $3.5 trillion, the study found. And the top 1 percent's gains would be 11.5 percent, while middle-income gains would be 1.3 percent, the report said.

The TPC noted that the White House plan lacked sufficient detail for detailed revenue scoring, so the TPC analysis filled in some blanks using proposals from Trump's presidential campaign. At the same time, some proposals, such as repealing the alternative minimum tax and the estate tax, were relatively easy to score, according to TPC officials.

Trump administration officials have repeatedly promoted the President's tax plan as a benefit for middle-class taxpayers, but some elements in it would be of particular benefit for wealthier people, according to the TPC report, which cited the estate tax as an example.  The estate tax, which the plan would repeal, currently applies only to estates worth more than $5.49 million for individuals or $10.98 million married couples.  "If you're serious about not cutting taxes for higher income people you probably wouldn't repeal the estate tax," TPC Director Mark Mazur said.  Overall under the plan, "The benefits largely flow to the top."

The study also shows the procedural struggle awaiting the plan in Congress. Under the budget reconciliation plan legislative rules that Senate Republican leaders plan to use to avoid Democrats' opposition, any tax changes that add to the deficit after a decade must automatically expire. The cost of the tax cuts alone in the second decade would be $13.1 trillion.  "There's a fairly substantial revenue hole to fill," Mazur said.

When TPC applied a "dynamic" scoring method, which accounts for economic growth, the revenue cost of Trump's tax cuts decreased slightly to $7.7 trillion; when factoring in the revenue-raisers on a dynamic basis it is $3.4 trillion.  Dynamic scoring can vary depending on which model is applied, making it somewhat controversial among economists since it relies on assumed economic growth rates.  The rosier the assumptions, the less the budget shortfall.

Overall, the TPC study found if all the cuts and revenue raisers contemplated by Trump's one-page outline were applied, 70 percent of U.S. households would enjoy a tax cut, while 20 percent would see a net tax increase under the plan.

Congressional Tax Bills That May Affect You And Your Clients

It is anybody's guess whether Congress will be able to enact a tax reform bill or any tax-related bill this year. However, there are various measures percolating at various stages of the legislative process, so it is wise to keep informed.  Below is a chart that summarizes the status of key tax policy legislation currently pending in either the House or Senate.

 

Topic	Legislative Purpose	Bill Status	Outlook
Tax Reform	Corporate, Individual and International Taxation
	(To be introduced) Congressional tax-writers want a revamp of the tax code.	House: House GOP tax reform blueprint released in June 2016 calls for a 20 percent corporate tax rate; a shift to territorial taxes on overseas income under destination-based taxes; a border adjustability provision that would tax imported goods but exempt exports; three tax brackets at 12 percent, 25 percent, and 33 percent for individuals; a 25 percent tax rate for passthroughs; and a repeal of the estate tax and alternative minimum tax. Senate: Finance Committee Chairman Orrin G. Hatch (R-Utah) had been working on a dividends paid corporate integration idea as a way to eliminate double taxes on corporate income. However, he has not released the plan and has said he is now focused on a broader tax reform effort.	House: Ways and Means Committee Chairman Kevin Brady (R-Texas) and his staff are working on turning the blueprint into legislation and plans to hold hearings in the coming weeks. He has said he will wait to mark up a bill in his committee until seeing more details from the White House plan, which he says is about 80 percent in alignment with what the House wants. The border adjustment tax is facing opposition from big retailers and some members in the House and Senate over concerns it could raise costs for consumers. Senate: Republican tax counsels in the Senate are looking at previously introduced tax reform plans for ideas. Many of them include ideas to broaden the tax base to lower tax rates. Sen. Hatch has said that his staff is working on a tax plan, but that it was too early to get into details. White House: The administration released a one-page outline April 26 that would cut the corporate rate to 20 percent. The document doesn't mention the border adjustment provision of the House plan, a signal that the administration is still working through the issue. The administration is expected to release a more detailed document in June.
Health Care	Affordable Care Act
	(Better Care Reconciliation Act) Unlike the House-passed bill (H.R. 1628), the Senate's version retains the 3.8 percent net investment income tax and the 0.9 percent Medicare surtax on wages, railroad retirement compensation, and self-employment income above a certain threshold—both of which would apply to individuals earning more than $200,000 and couples filing jointly who earn more than $250,000. The Senate bill also would retain the ACA's $500,000 limit on how much of health insurance executives' pay is tax deductible and would allow individuals to pay premiums with money from tax-favorable health savings accounts.		Senate: The Senate version was released July 13. It's not clear if the measure has the support to pass.
	(American Health Care Act) House Republicans on March 6 released legislation that would replace the Affordable Care Act. H.R. 1628 would repeal many of the ACA's related taxes and retroactively roll back penalties for employers that fail to provide coverage and individuals who fail to obtain it. The bill also includes an advanceable, refundable, age-adjusted tax credit capped at individual income of $75,000 and for joint filers at $150,000.	House: House Republicans passed the bill 217-213 on May 4. Its passage was the end of a contentious few months, which included House leadership pulling the bill from the floor before a March 24 floor vote. Last-minute amendments, including $8 billion to help individuals with pre-existing conditions pay premiums, helped get reticent members' support for the bill.	Senate: Republican senators have split into two working groups to begin working through the bill, and some say they plan to craft new legislation entirely. Republicans plan to adjust the tax credits in the bill to make them more generous for individuals who are older or who are low-income. Sen. Rob Portman (R-Ohio) said he is considering creating a new tax credit for individuals who lose Medicaid coverage and need to purchase insurance on the marketplace. Republicans can only lose two votes and still pass the bill through the chamber. White House: The White House is expected to take a bit of a back seat now that the bill is in the Senate in order to give lawmakers the time needed to pass it. Trump celebrated with House members at the White House May 4 immediately following the bill's passage.
Health Care	Tax Credits
	(VETERAN Act) H.R. 2372, introduced May 4 by Rep. Sam Johnson (R-Texas), says a veteran isn't eligible for health coverage under a Department of Veterans Affairs program unless enrolled. The bill is in response to criticism from Democrats that the American Health Care Act could bar veterans from using tax credits to pay for health insurance if they are eligible but not enrolled in VA coverage.	House: The bill passed by voice vote on June 15.
	(Verify First Act) Rep. Lou Barletta (R-Pa.) on May 22 introduced H.R. 2581 to require a Social Security number before an individual can receive a health care tax credit. The bill is part of an effort to address concerns with the American Health Care Act.	House: The bill passed 238-184 on June 13.
	(Broader Options for Americans Act) H.R. 2579 would allow some individuals to qualify for premium tax credits if they continue group health plans under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Rep. Pat Tiberi (R-Ohio) introduced the measure May 19. The bill is part of an effort to address concerns with the American Health Care Act.	House: The bill passed 267-144 on June 15.
Corporate Inversions	Debt-Equity
	(H.J. Res. 54) The legislation disapproves of the final Section 385 debt-equity rules released in October 2016. It also would use the Congressional Review Act to revoke them.	House: The bill, introduced Jan. 31 by Rep. Todd Rokita (R-Ind.), has been referred to the Ways and Means Committee. A floor vote hasn't been scheduled.	House: Democrats released a letter Feb. 8 criticizing the bill. Senate: No companion legislation has been introduced.
Estate and Gift Taxes	Estate Tax Repeal
	(H.R. 451, H.R. 198, H.R. 30, H.R. 631, S. 205) Several bills have been introduced in both chambers to repeal the estate tax.	House, Senate: Senate Finance Committee member John Thune (R-S.D.) and House Ways and Means Committee member Kristi Noem (R-S.D.) are the lead sponsors on companion repeal legislation, H.R. 631 and S. 205.	House: The House GOP tax reform blueprint includes a repeal of the estate tax. White House: President Trump called for a repeal during his election campaign, replacing it with a capital gains tax for assets held until death.

NSA Opposes NASBA Draft Rules For CPE

NSA today filed a letter with NASBA opposing proposed rules that would allow the AICPA and state CPA societies to offer continuing education without registering as CPE program sponsors with the NASBA Registry of CPE Sponsors. A copy of the proposed rules is available here.

NSA's letter pointed out that, "NSA has long encouraged its members to earn professional credentials, including the CPA credential. Moreover, NSA requires all members to earn, at minimum, 72 hours of continuing professional education during each three year reporting cycle. We take education seriously."

Because of our emphasis on education, NSA's letter expressed particular concern that the AICPA and state CPA societies would be concerned qualified CPE program sponsors in the absence of any demonstration of having met any of the CPE education standards that all other program sponsors must meet. The letter stated that it is NSA's belief that any CPE recognized by a state Board of Accountancy should be judged on the quality of the education itself, not by the name of the program sponsor or whether the sponsor has "CPA" in its name.

NSA's letter concluded that all CPE program sponsors should have the opportunity to compete in the CPA education market on the same terms and conditions as others similarly situated and, if NASBA moved forward with the proposed rule, then NSA and its affiliated state societies should also be granted an exemption from registering with the NASBA Registry of CPE Sponsors.

A copy of NSA's letter is available here.

 

House Panel Approves Bill Slashing $149M From Current IRS Budget

A House panel on June 29 approved a bill calling for an additional $149 million cut to the IRS budget. The proposal would also limit the agency's oversight of conservation easements, tax-exempt organizations, and estate taxes.

The bill protects "the rights and privacy of taxpayers" and "ensures that the IRS is using its funds appropriately," Rep. Rodney Frelinghuysen (R-N.J.), chairman of the House Appropriations Committee, said at the Financial Services and General Government Subcommittee markup.

The subcommittee approved the bill by a voice vote. The full appropriations panel is expected to take up the legislation when Congress returns from its July 4th break

Under the bill, the Internal Revenue Service would receive $11.1 billion for fiscal year 2018, which is $111 million above the Trump administration's budget request, but still below current levels. It also calls for an increase in funds to strengthen cybersecurity and information technology, while requiring the agency to provide extensive reporting of its spending and information technology.

The spending bill would prohibit the use of funds to finalize, implement, or enforce amendments to the controversial estate tax rules under tax code Section 2704, "or any substantially similar amendments to such regulations." The rules (REG-163113-02), proposed last August, would change the valuation of interests in family-owned businesses for estate, gift, and generation-skipping transfer tax purposes. The regulation's opponents say the regulations are too broad and prevent family businesses from applying discounts to transferred assets for legitimate purposes such as lack of marketability and lack of control.

One new item in the appropriations bill would add specific restrictions on the ability of the IRS to curb political activity by churches. Any IRS action to enforce the longstanding legal prohibition against a church or other religious institution spending money to influence elections would have to be reviewed by the IRS commissioner and reported to congressional tax-writing committees under the bill.

The bill would continue to restrict the agency's rulemaking on 501(c)(4) organizations' political activities because such regulation "could jeopardize the tax-exempt status of many nonprofit organizations and inhibit citizens from exercising their right to freedom of speech," according to a committee statement.

 

Companies Urged To Begin Preparing For New Revenue Recognition Standard

FASB has urged companies to update their internal controls to prepare for potential risks caused by landmark changes to revenue recognition rules. The rules, Revenue from Contracts with Customers: Accounting Standards Codification 606, were adopted by the Financial Accounting Standards Board in 2014. They go into effect for public companies in Jan. 2018, and private companies a year later.

FASB noted that the SEC's staff accounting bulletin 74 requires a company to evaluate whether the change to the revenue rule will have a material impact on their financial statements.

The current guidance allows that if companies aren't yet able to deduce materiality, then they aren't required to estimate the rules' effect. This grace period is likely to end once the new revenue rule goes into effect for public companies in 2018.

 

Electronic Tax Administration Advisory Committee Issues 2017 Annual Report

The Electronic Tax Administration Advisory Committee (ETAAC) on June 28 issued its annual report to the IRS and the Congress, including numerous recommendations on improving electronic security in the tax system and fighting tax fraud related to identity theft.

The IRS said that the report marks the first year during which the ETAAC has turned its attention to efforts undertaken by the Security Summit -- an unprecedented undertaking by the IRS and its partners in state tax administration and the private sector.

NSA Executive Vice President John Ams, who served as chair of the ETAAC Outreach Subgroup, complimented the IRS on its efforts to quickly make tax professionals aware of phishing scams and other attempts by criminals to steal client information. He said, "These IRS actions served to alert tax professionals to the need for data protection. That effort should be supplemented with efforts to provide information about minimum security standards and how best to secure confidential data." Accordingly, the ETAAC report recommends that IRS review and update the key IRS publications for the IRS e-file Program and provide simple, clear and actionable guidance on how to implement a security program.

A copy of the report is available on the IRS website here.

 

FASB To Consider Consolidation Accounting Proposal

The FASB Board on June 21 voted to propose restructuring consolidation guidance—currently in ASC 810—to a new codification number, ASC 812.

FASB's proposal, though focused only on wording and structural changes, might cause some companies' consolidation conclusions to change, the board's discussions indicated. FASB will therefore provide transition requirements so that companies won't have a "correction of an error".

"We've been unsuccessful in some areas where we've tried to make things easier to follow and understand because they say 'you change a single word you change meaning'," said FASB Vice Chairman James Kroeker. "So if you change a word, you change the meaning, a conclusion could change and therefore there's been resistance to these types of efforts because we haven't provided transition," he said.

Consolidation accounting is generally known as one of the most complex areas in financial reporting and is used to combine the financial information of a parent company and its subsidiaries, when the parent holds more than 20 percent in the subsidiary. A company's consolidation analysis can affect its leverage ratios, results, and cash flows.

 

IRS Offers Early Taxpayer ID Renewal

Taxpayers with expiring individual taxpayer identification numbers can start renewing their information this month instead of in October, according to Ken Corbin, commissioner for the IRS Wage and Investment Division. Corbin said that, "We wanted to ensure ITIN holders were able to get the assistance they need, and we've taken measures to sufficiently increase the number of employees available to process these renewal applications,"

The IRS issues a nine-digit tax-processing number for individuals who are required to file a federal tax return but aren't eligible for a Social Security number. Such taxpayers include foreign nationals and resident aliens. The agency is in the second year of the renewal program after changes called for under the Protecting Americans from Tax Hikes (PATH) Act enacted by Congress in December 2015.

Corbin said the IRS will launch an information campaign about the changes for the benefit of the public, outreach groups, stakeholders, and partners in the tax community, updating material "about the renewal process on our special ITIN page on IRS.gov."

Taxpayers with middle digits 70, 71, 72, or 80 in their ITINs must renew their numbers and have the opportunity to renew their family members' information as well, according to an IRS news release (IR-2017-109). "For example: 9NN-70-NNNN; NNN-71-NNNN; 9NN-72-NNNN; 9NN-80-NNNN) need to be renewed," the release said.

Another group that will be affected includes taxpayers who haven't used their ITINs "on a federal tax return at least once in the last three consecutive years," the release said. Their numbers will expire Dec. 31.

The IRS also reminded taxpayers that ITINs with middle digits 78 and 79 already expired last year. Taxpayers with these numbers can renew at any time.

 

 

Former Tax Court Judge Sentenced to 34 Months for Conspiracy

Former U.S. Tax Court Judge Diane Kroupa was sentenced to 34 months in prison and ordered to pay $457,000 in restitution for conspiracy to defraud the U.S. government. The U.S. District Court for the District of Minnesota also sentenced Kroupa to three years of supervised release.

Kroupa and her husband, Robert Fackler—who took part in the criminal conduct—owe the restitution jointly (United States v. Kroupa, D. Minn., No. 0:16-cr-00084, sentencing 6/22/17). The government originally indicted Kroupa on six charges, including conspiracy to defraud the U.S. government, tax evasion, filing false tax returns, and obstruction of an IRS audit. Kroupa pleaded guilty to the conspiracy charge in a plea agreement, and the government dropped the remaining five charges. Fackler, a former political consultant who was indicted on the same six charges as Kroupa, was sentenced to 24 months in prison and one year of supervised release for obstruction of an IRS audit.

The couple, who began divorce proceedings shortly after their indictments, admitted to mischaracterizing their personal expenses as business deductions from 2004 to 2010, and understating their taxable income by approximately $1 million. Kroupa had proposed a 20-month sentence based on her mental health issues, the need for continuing treatment, and the unlikelihood of repeating the offense.

Treasury Close To Choosing New IRS Chief?

The Treasury Department is "very close" to reaching a decision on who will replace John Koskinen as head of the IRS, according to Treasury Secretary Steven Mnuchin. "We're looking forward to having a seamless transition. This is one of the most important positions we will be appointing. We're close to making a final decision on it, and the president and I have discussed it,"

 

Koskinen's term ends in November, and he has said on numerous occasions that Treasury and the White House should focus on picking a replacement sooner rather than later to ensure there's enough time to transition. Mnuchin did not address any timeline for the selection of a nominee for the IRS post or an announcement, so stay tuned. o resign before his term ends, or when a replacement would be announced.

 

 

IRS Technology Improvements And the IRS Budget

The House Ways and Means Oversight Subcommittee held an April 26 hearing to discuss the 2016 filing season, but the discussion at the hearing quickly turned to the technology gap at the IRS and what to do about it.

 

Deputy Commissioner for Services and Enforcement Kirsten Wielobob represented the agency at the hearing and confirmed that IRS's aging computer systems, some of which date back to former President John F. Kennedy's administration, often lag and don't interact with one another.

 

"If this happened in the private sector, heads would roll. You couldn't continue on this way," Rep. George Holding (R-N.C.), a subcommittee member, said during the hearing. It is too bade that no one informed Rep. Holding that the private sector does not require Congress to provide funding or that the Congress of which he is a member has significantly reduced IRS funding for the last five years.

 

 

IRS Rebuts AICPA Challenge To Annual Filing Season Program

Yes, the IRS and the AICPA are still in court, arguing about the agency's statutory authority to implement its Annual Filing Season Program.

 

The AICPA challenged the Internal Revenue Service program, several years ago. The IRS won at the District Court level and the matter is currently on appeal at the U.S. Court of Appeals for the District of Columbia. The IRS, in an April 26 brief, said the program helps return preparers obtain additional training and that the lower court correctly ruled that the AICPA has no cause of action.

 

As readers are aware, preparers in the voluntary Program must complete 15 hours of continuing education training annually and pass a written examination. The IRS lists those who pass the exam and receive a "Record of Completion" in its online "Directory of Federal Tax Law Return Preparers."

 

The AICPA position is that the Administrative Procedure Act prohibits the IRS from acting without statutory authority, and that the program would allow competitors to peddle misleading credentials to win business.

 

The IRS said in its brief that 31 U.S.C. Section 330 is a taxpayer-protection statute giving the Treasury secretary explicit authority to regulate the conditions under which persons may represent taxpayers before the IRS. "The competitive interest of the Institute's members are directly contrary to the purpose of the statute; their interest in reducing the qualified competition harms taxpayers," the IRS said. AICPA obviously disagrees.

 

Oral arguments have yet to be scheduled in the case.

 

 

IRS Funding At 2016 Levels In Continuing Budget Resolution

The congressional continuing budget resolution expected to be signed into law sometime today funds the IRS at its fiscal year 2016 level of $11.2 billion through September.

 

Agreement on the continuing resolution means lawmakers have avoided a government shutdown for the time being, but it sets up a fall budget battle when lawmakers will grapple with President Donald Trump's fiscal year 2018 budget proposal, which includes cuts to agencies and calls for funding to build a border wall. Under Trump's proposal, the Internal Revenue Service's budget would be cut by about 2 percent.

 

The bill maintains $2.1 billion in funding for taxpayer service, including the $290 million lawmakers allocated in 2016 for cybersecurity and fraud prevention. The bill includes several restrictions on the agency that have become common in recent years, including bans on issuing regulations related to tax code Section 501(c)(4) organizations and on giving bonuses to employees who are behind on tax payments, according to a bill summary.