NEWS from NSA

The IRS has conducted a comprehensive review of the correspondence exam process and is planning to make several changes, all of which are designed to make it easier for taxpayers and tax practitioners to communicate with the IRS.
 
In a meeting at IRS headquarters with NSA representatives and others, IRS officials revealed that pilot programs will be conducted to allow:

Virtual meetings between IRS examiners, taxpayers, and practitioners. Think Skype and similar video services. The IRS believes better use of video technology in this difficult budget environment will allow it to have better communication with the public and that the video interaction would also lead to a better understanding of the issues and more case closures.

Secure email communication with the IRS.  The procedure would require users to login to a secure web portal. Once logged in, practitioners could send emails and documents to IRS correspondence audit examiners.
 
In addition, we also learned that responders assigned to the practitioner priority service line in the correspondence exam area are now required to have at least three years of experience with the IRS.
 
In all, these are positive developments and we look forward to working with the IRS on the implementation of these and other enhancements that will make IRS communications a bit easier for tax practitioners. 

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) intended to improve the information provided in not-for-profit financial statements and notes to financial statements. FASB encourages stakeholders to review and comment on the proposed ASU, Presentation of Financial Statements of Not-for Profit Entities, by August 20, 2015.
 
According to FASB member Lawrence Smith, "The proposed ASU contains recommended enhancements to the fundamental reporting model for not-for-profit entities that has existed for more than 20 years."
 
The ASU sets out FASB's proposed improvements to current net asset classification requirements and information presented in financial statement and notes to financial statements about a not-for-profit entity's liquidity, financial performance, and cash flows. According to FASB, the improvements are intended to:

• Better reflect financial performance in the statement of activities by showing—in two measures of operating performance—available amounts that have been generated by or directed at carrying out the mission of the organization in the current period, both before and after any governing board actions affecting that availability;
• Simplify the existing net asset classification scheme along with enhanced note disclosures.
• Enhance information in the notes to help financial statement users better assess a not-for-profits' liquidity and how it is being managed;
• Make information about expenses more comparable and useful by requiring that all operating expenses be reported by both function and nature, and that investment return be reported net of related expenses; and
• Make the statement of cash flows more understandable by (a) presenting cash flows provided by operating activities using the direct method of reporting, rather than the indirect (reconciliation) method, and (b) classifying cash flows in ways that are more consistent with classification in the statement of activities.

In an effort to provide education about the ASU and the changes it would require, the FASB has announced an educational webcast on its proposed Accounting Standards Update, Presentation of Financial Statements of Not-for-Profit Entities. The areas covered will include:

1. Background, objectives, and scope of the project
2. Key improvements being proposed, and the underlying thinking behind them
3. The feedback that the FASB is seeking and the various means of providing it
4. A question and answer period.

Individuals may register for the free seminar at this link.

Participants will earn 2.0 hours of continuing education credits in accounting. FASB cautions that final CPE earned will be determined based on the length of participation in the program, polling questions as described in CPE Eligibility, and completion of a course survey. Credit is provided only to participants in the live broadcast of this course. Please note that credit is not provided for group viewing. Each participant must be registered separately and meet both polling and duration requirements as per NASBA.
 
Refund/Cancellation Policy: There is no cost for this course and there is no cancellation penalty.  Participants will be notified by email as soon as possible if the course is cancelled for any reason. 

IRS is getting more than it asked for in comments submitted on the de minimis threshold in the tangible property regulations. 
 
Readers will recall that the current rules limit businesses without an "Applicable Financial Statement" (AFS, also known as an audited financial statement) to a current deduction of $500.  Items with a cost in excess of that amount must be capitalized. By contrast, business with an AFS may deduct items with a cost of up to $5,000.
 
Perhaps sensing this is an incredibly discriminatory and unfair position with respect to small businesses, the IRS asked for comments about the de minimis threshold in February in Rev. Proc. 2015-20, which also granted some small businesses relief from filing a Form 3115, Application for Change in Accounting Method, for tax year 2014.
 
NSA and other commenters pointed out that a majority of small businesses do not have audited financial statements due to cost and because they simply do not need them. Even banks have come to accept compiled or reviewed financial statements from small businesses for loan purposes. Furthermore, capitalizing items above a $500 threshold brings in cell phones, printers, and other common, every day supplies, significantly increasing complexity and cost for the specific market segment—small businesses—least likely to have the manpower necessary to implement the capitalization rules. 
 
The AICPA commented that the de minimis threshold should be increased to $2,500 for companies without an AFS and the amount should be adjusted annually for inflation. H&R Block, meanwhile, said the de minimis threshold should be $5,000 for all businesses, whether or not they have an AFS.
 
The IRS is trying to balance the administrative reporting requirements and relief for businesses of various sizes under the tangible property rules and Section 179 with the clear reflection of income concept.  However, it is widely expected to amend the regulations to raise the threshold and amend the definition of AFS.  Stay tuned. 

The IRS issued rules for making one-time claims for payment of retroactively extended tax credits for biodiesel mixtures and alternative fuels under tax code Sections 6426 and 6427.

In January 16 guidance (Notice 2015-3), the Internal Revenue Service also provided instructions for how a claimant may offset its tax code Section 4081 liability with the Section 6426(e) alternative fuel mixture credit, and for making certain income tax claims for biodiesel, second-generation biofuel and alternative fuel.

The credits and payments expired for blenders of, and sales and uses of, biodiesel after Dec. 31, 2013 (Sept. 30, 2014, for sales and uses of liquefied hydrogen), but were reinstated retrospectively by Congress in the Tax Increase Prevention Act of 2014, the tax extenders law enacted in December.

The law required Treasury to provide guidance for one-time submission of claims for 2014, and required a 180-day period for submission of claims, beginning within 30 days of the guidance issuance.

The new notice also said that claimants that filed so-called protective or anticipatory claims during 2014 should refile the claims, as the IRS won't act on the previously filed claims.

The IRS said taxpayers claiming the 2014 nonrefundable income tax credit for second-generation biofuel producers should continue to submit those claims separately.

The notice will appear in Internal Revenue Bulletin 2015-6 dated Feb. 9 and is also available here

FASB said it would simplify current rules by requiring that deferred income tax liabilities and assets be presented as noncurrent in a classified statement of financial position.

Under current guidance, entities are required to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.

FASB's stakeholders said the current accounting requirements result in little or no benefit to users of financial statements because the classification doesn't generally align with the time period in which the recognized deferred tax amounts are expected to be recovered or settled, the proposal says.  In addition, there are costs for an entity to separate deferred income tax liabilities and assets into a current and noncurrent amount.
 
Public companies would be required to adopt the rules for annual periods, including interim periods within those annual periods, beginning after Dec. 15, 2016. Early adoption wouldn't be permitted.  For all other entities, the rules would be effective for annual periods beginning after Dec. 15, 2017, and interim periods in annual periods beginning after Dec. 15, 2018. Earlier adoption would be permitted, but not before the effective date for public entities.
 
FASB's proposal with respect to the Balance Sheet classification of deferred taxes is available here. 

The Internal Revenue Service has issued two revenue procedures on changes in accounting methods.  Rev. Proc. 2015-13, consolidates and updates the procedures for making automatic and non-automatic accounting method changes under tax code Section 446(e) and Treasury Regulations Section 1.446-1(e).  The second, Rev. Proc. 2015-14, provides an updated, consolidated list of the types of changes in methods of accounting for which taxpayers can get automatic consent. 

  

The IRS said Rev. Proc. 2015-13 updates and revises general procedures to obtain the IRS commissioner's consent to change a method of accounting for federal income tax purposes. If taxpayers must get this permission in advance, it is non-automatic. The guidance also offers procedures to get the commissioner's automatic consent to change an accounting method. 

  

Under the list of automatic changes in Rev. Proc. 2015-14, the IRS addressed a number of areas including gross income under Section 61, commodity credit loans under Section 77 and trade or business expenses under Section 162  In the area of trade or business expenses, the list included accounting for: 

• ?advances made by a lawyer on behalf of a client,
• ?materials and supplies,
• ?repair and maintenance costs, and
• ?wireline network asset maintenance allowances.

  

The revenue procedures are scheduled to be published Feb. 2 in Internal Revenue Bulletin 2015-5.  A copy of Rev. Proc. 2015-13 is available here.  A copy of Rev. Proc. 2015-14 is available here.  

The Internal Revenue Service said it will waive some penalties related to advance payments of the premium tax credit for health insurance purchased under the Affordable Care Act in 2014.
 
Under the ACA, taxpayers who get an advance payment of the credit are required to reconcile the credit with their actual income during 2014 and pay back part of the credit if their financial circumstances improved during the year and they didn't tell the government in time.

Notice 2015-9, issued by the IRS on January 26, provides "limited relief" for taxpayers with a balance due on their 2014 income tax return after they reconcile the credit. Taxpayers who qualify will get relief from the penalty for late payment of a balance due under tax code Section 6651(a)(2). They will also get relief from the penalty for underestimated tax under Section 6654(a).
 
To get both types of relief, taxpayers must be otherwise current with their filing and payment obligations and report the amount of excess advance credit payments on a timely filed 2014 tax return. To get the Section 6651(a)(2) relief, they also must have a balance due as a result of credit payments.
 
The IRS said the relief is only available for the 2014 taxable year. It doesn't cover underpayments of the individual shared responsibility payment—the amount taxpayers must pay the government if they don't have the level of insurance coverage required by the ACA. Those payments are required under Section 5000A.  According to the IRS, underpayments of these shared responsibility amounts don't qualify for relief under Sections 6654(a) or 6651(a). This is because they aren't subject to penalties under either of those code sections, the agency said.
 
The IRS said under Notice 2015-9, taxpayers will be treated as current with their filing and payment obligations if, as of the date they file their 2014 income tax returns, they:
  ·?have filed, or filed an extension for, all current required federal tax returns; and
  ·?have paid, or entered into, an installment agreement that isn't in default, an offer in compromise, or both to satisfy a federal tax liability.  If a taxpayer hasn't paid a tax because of a "genuine dispute" and the tax liability hasn't yet been determined, the amount of tax in dispute will be treated as current while the disagreement is resolved, the IRS said.
 
The IRS said when a taxpayer fails to pay tax, it automatically assesses the Section 6651(a)(2) penalty and sends a notice demanding payment. Taxpayers who receive the notice should send a letter to the address listed in the notice that contains the statement, "I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit."
 
Taxpayers who file their returns by April 15, 2015, will be entitled to relief under Notice 2015-9 even if they haven't fully paid the underlying liability by the time they request relief, the IRS said. Those who file after April 15, 2015, must fully pay the underlying liability by April 15, 2016, to be eligible for relief under the notice. Interest will accrue until the underlying liability is fully paid, the notice said.
 
In order to get relief from the estimated tax penalty, taxpayers must check box A in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, and complete page 1 of the form. Then taxpayers should include the form with their return, along with the statement, "Received excess advance payment of the premium tax credit."

The IRS said taxpayers don't need to attach documentation from a health insurance exchange, explain any circumstances under which they received an excess advance payment of the premium tax credit, or complete any page other than page 1 of the Form 2210.

Taxpayers also aren't required to calculate the amount of the penalty in order for it to be waived.
 
Notice 2015-9 is scheduled to be published Feb. 9 in Internal Revenue Bulletin 2015-6 and is also available here. 

The U.S. Senate on Tuesday passed a $42 billion package that would extend until December 31, 2014 dozens of temporary tax provisions that lapsed at the end of last year.  H.R. 5771, the "Tax Increase Prevention Act of 2014."

Below is a summary of the bill - full text and more information can be found here.  The House passed the measure last Wednesday, December 3. 

Tax Increase Prevention Act of 2014 - Title I: Certain Expiring Provisions - Amends the Internal Revenue Code to extend certain expiring tax provisions relating to individuals, businesses, and the energy sector.

Subtitle A: Individual Tax Extenders - Extends through 2014:

• the tax deduction of expenses of elementary and secondary school teachers;
• the tax exclusion of imputed income from the discharge of indebtedness for a principal residence;
• the equalization of the tax exclusion for employer-provided commuter transit and parking benefits;
• the tax deduction of mortgage insurance premiums;the tax deduction of state and local general sales taxes in lieu of state and local income taxes;
• the tax deduction of contributions of capital gain real property for conservation purposes;
• the tax deduction of qualified tuition and related expenses; and
• the tax exemption of distributions from individual retirement accounts for charitable purposes.

Subtitle B: Business Tax Extenders - Extends through 2014:

• the tax credit for increasing research activities;
• the low-income housing tax credit rate for newly constructed non-federally subsidized buildings;
• the Indian employment tax credit;
• the new markets tax credit;the tax credit for qualified railroad track maintenance expenditures;
• the tax credit for mine rescue team training expenses;
• the tax credit for differential wage payments to employees who are active duty members of the Uniformed Services;
• the work opportunity tax credit;
• authority for issuance of qualified zone academy bonds;
• the classification of race horses as three-year property for depreciation purposes;
• accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property, of motorsports entertainment complexes, and of business property on Indian reservations;
• accelerated depreciation of certain business property (bonus depreciation);
• the special rule allowing a tax deduction for charitable contributions of food inventory by taxpayers other than C corporations;
• the increased expensing allowance for business assets, computer software, and qualified real property (i.e., leasehold improvement, restaurant, and retail improvement property);
• the election to expense advanced mine safety equipment expenditures;
• the expensing allowance for film and television production costs and costs of live theatrical productions;
• the tax deduction for income attributable to domestic production activities in Puerto Rico;
• tax rules relating to payments between related foreign corporations and dividends of regulated investment companies;
• the treatment of regulated investment companies as qualified investment entities for purposes of the Foreign Investment in Real Property Tax Act (FIRPTA);
• the subpart F income exemption for income derived in the active conduct of a banking, financing, or insurance business;
• the tax rule exempting dividends, interest, rents, and royalties received or accrued from certain controlled foreign corporations by a related entity from treatment as foreign holding company income;
• the 100% exclusion from gross income of gain from the sale of small business stock;
• the basis adjustment rule for stock of an S corporation making charitable contributions of property;
• the reduction of the recognition period for the built-in gains of S corporations;
• tax incentives for investment in empowerment zones;
• the increased level of distilled spirit excise tax payments into the treasuries of Puerto Rico and the Virgin Islands; and
• the tax credit for American Samoa economic development expenditures.

Amends the Housing Assistance Tax Act of 2008 to extend through 2014 the exemption of the basic military housing allowance from the income test for programs financed by tax-exempt housing bonds.

Subtitle C: Energy Tax Extenders - Extends through 2014:

• the tax credit for residential energy efficiency improvements;
• the tax credit for second generation biofuel production;
• the income and excise tax credits for biodiesel and renewable diesel fuel mixtures;
• the tax credit for producing electricity using Indian coal facilities placed in service before 2009;
• the tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities;
• the tax credit for energy efficient new homes;
• the special depreciation allowance for second generation biofuel plant property;
• the tax deduction for energy efficient commercial buildings;
• tax deferral rules for sales or dispositions of qualified electric utilities; and
• the excise tax credit for alternative fuels and fuels involving liquefied hydrogen.

Subtitle D: Extenders Relating to Multiemployer Defined Benefit Pension Plans - Extends through 2015 the automatic extensions of amortization periods for multiemployer defined benefit pension plans and for multiemployer funding rules under the Pension Protection Act of 2006.

Title II: Technical Corrections - Tax Technical Corrections Act of 2014 - Makes technical and clerical amendments to:

• the American Taxpayer Relief Act of 2012;
• the Middle Class Tax Relief and Job Creation Act of 2012;
• the FAA Modernization and Reform Act of 2012;
• the Regulated Investment Company Modernization Act of 2010;
• the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
• the Creating Small Business Jobs Act of 2010;
• the Hiring Incentives to Restore Employment Act;
• the American Recovery and Reinvestment Tax Act of 2009;
• the Energy Improvement and Extension Act of 2008;
• the Tax Extenders and Alternative Minimum Tax Relief Act of 2008;
• the Housing Assistance Tax Act of 2008;
• the Heroes Earnings Assistance and Relief Tax Act of 2008;
• the Economic Stimulus Act of 2008;
• the Tax Technical Corrections Act of 2007;
• the Tax Relief and Health Care Act of 2006;
• the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005: A Legacy for Users;
• the Energy Tax Incentives Act of 2005; and
• the American Jobs Creation Act of 2004.

Eliminates provisions in the Internal Revenue Code that are not used in computing current tax liabilities (referred to as deadwood provisions).

The Internal Revenue Service issued its December telephone directory of Office of Chief Counsel attorneys.  The directory, released Dec. 4, lists the attorney responsible for specific subject matter by Internal Revenue Code section, subject area, office symbol, name, and telephone number.  The directory is available here.

The Internal Revenue Service is asking for comment on plans to conduct a one-month pilot test in preparation for a nationwide survey on consumer tipping practices, so it can ultimately develop updated estimates of consumer tipping revenue across services where tipping is prevalent.
 
In a Nov. 28 notice in the Federal Register, the Treasury Department said previous research has shown income from tips to be significantly underreported. "The IRS believes a new study of consumer tipping practices is needed in order to better understand current tip reporting behavior so tax administrators and policy makers can make the tax system fairer and more efficient," Treasury said.
 
Because there is a big difference in cost between a probability and a non-probability sample, the department said, it needs to do pilot tests "to determine the relative accuracy and selection bias of tipping data that are collected using these different sampling methodologies in order to determine if there is a tradeoff between accuracy and cost."
 
Pilot tests will be used to determine the sampling method for a nationwide survey, it said. The notice to the OMB was published in the Dec. 1 Federal Register.
 
Comments are due by Jan. 30, 2015, to Kim M. Bloomquist, Office of Research, Compliance Analysis and Modeling, 1111 Constitution Ave. N.W., K-3rd Floor/006, Washington, D.C. 20224, or by e-mail to kim.bloomquist@irs.gov.