Tax Filing Deadline is Changed in 2016

As you know, the usual tax filing deadline is usually April 15th. However, due to the fact that the District of Columbia will be observing Emancipation Day on April 15th, and April 16th and 17th fall on a weekend, the tax filing deadline is changed 2016 and will be April 18th.  The taxpayers in Maine and Massachusetts will have until April 19th because these states celebrate Patriot’s Day on April 18th.  Thus, we all have a slight reprieve in 2016!  If you have questions, please call Botz Deal & Co. P.C. at (636) 946-2800.

 

Supreme Court Upholds Key Provision of ACA

In a 6-3 decision on June 25, the U.S. Supreme  Court upheld a key provision of ACA  (Affordable Care Act) subsidies will remain available in the 34 states using health care exchanges run by the federal government.  Had the Court ruled otherwise, the subsidies would only have been permitted within the 16 states (and the District of Columbia) that established stand-alone exchanges or state-federal hybrids.

“Exchanges” are government-run Internet marketplaces established to facilitate comparisons between, and purchases of, health insurance plans.  The “subsidies” are federal income tax credits designed to make health insurance premiums affordable.  Without the subsidies, residents of the 34 states with federal marketplaces would have had to pay full price for health insurance.

The ACA requires most Americans to have health coverage or pay a tax penalty.  However, there’s an exemption from the coverage requirement for anyone who has to spend more than a certain percentage of annual income on health insurance.

Losing the subsidies would increase premiums and make them unaffordable (as defined by the exemption) to many.  Consequently, those affected would not have been required to buy insurance or pay the penalty.

The mandate for employers to provide health insurance to workers would also have been affected.

The Court’s ruling upheld the ACA in its present form.  That means the provisions in the law will continue to affect your tax and financial planning.  For further help in understanding how ACA will impact your tax and financial planning, call our office at (636) 946-2800.

Federal Budget Proposals

President Obama released his $3.99 trillion fiscal year (FY 2016) federal budget proposals on February 2, 2015, calling for expansion of tax incentives for families, consolidation of education tax breaks, creation of new retirement savings opportunities… and tax increases for higher-income taxpayers. The President’s proposals did not leave out businesses. As in past years, the President signaled his support for a reduction in the corporate tax rate but only if businesses agree to base broadening measures. The President also proposed a new tax regime on foreign earnings, a permanent research tax credit, repeal of the last-in, first-out (LIFO) method of accounting, permanently enhanced Code Sec. 179 expensing, and much more. The IRS, which has had its budget cut in recent years, would receive nearly $2 billion more in funding for FY 2016.

 

IMPACT. President Obama’s FY 2016 Budget immediately made headlines as containing some room for deal making and compromise. Both the White House and the Republican-controlled Congress have admitted over the last few months that the only way legislation will get approved and signed is through compromise. While the Administration’s Budget remains aimed at gaining populist support by calling for “middle-class relief” and higher-income taxpayers “paying their fair share,” it also looks to compromise with Republicans through using tax revenues for infrastructure and defense spending, as well as provisions that work toward corporate tax reform, a permanent research credit, and other businessfriendly measures.

 

TAX REFORM. Both the President and Congressional Republicans have been fairly tight-lipped about specifics of tax reform but both sides have indicated a willingness to engage in serious discussions this year. President Obama and other administration officials alluded to behind the scenes talks with Congressional Republicans about tax reform. In May, the Senate Finance Committee is expected to announce the results of a study of tax reform and the results could reflect a bipartisan path to tax reform. Many Capitol Hill observers predict that initial momentum for tax reform will come from the Senate. Senate Majority Leader Mitch McConnell, R-Ky., and Vice President Joe Biden have successfully brokered tax deals in the past.

 

COMMENT. Just like 2014, this year is again shaping up to be a battle over the tax extenders. The Tax Increase Prevention Act of 2014 only extended the extenders through 2014, leaving their fate to the 114th Congress. The extenders could be bargaining chips in negotiations over comprehensive tax reform.

Changes in Interest Rates on Overpayments and Underpayments

IRS over- and underpayment interest rates hold steady…again, for upcoming quarter

 

The IRS has announced that the interest rates on overpayments and underpayments of tax for the calendar quarter beginning July 1, 2015 will remain unchanged. The rates will be:

  • 3 percent for overpayments, in cases other than corporations;
  • 2 percent for overpayments in the case of a corporation (except 0.5 percent for the portion of a corporate overpayment exceeding $10,000); and
  • 3 percent for underpayments (except 5 percent for large corporate underpayments).

The underpayment rate applies to certain additions to tax including: interest on tax imposed on gain on property transferred to a trust at less than fair market value, additions to tax for failure by an individual to pay estimated tax, and additions to tax for failure by a corporation to pay estimated tax.

Similarly, the overpayment rate specifically applies to interest payable on a wrongful levy and interest on a judgment for wrongful levy not against taxpayer’s property. Interest on any court judgment concerning any internal revenue tax is payable at the applicable overpayment rate or underpayment rate. A liability must be classified as an overpayment for interest to accrue at any rate.

Determining the rate

The Tax Code provides that the rate of interest on over- and underpayments of tax is to be determined on a quarterly basis. The interest rates for the third quarter 2015 are computed by using the federal short-term rate based on daily compounding determined during April 2015, but with a minimum rate set by statute.  The rates have not changed since October 1, 2011. However, there have been recent rumblings that now that the U.S. economy appears to be stronger, the Federal Reserve will raise the short-term rate. If that should occur (and it is likely to happen at some point in the near future), these rates would also increase.

IRS Tax Breach

IRS Reports More Victims

Earlier this year, an IRS tax breach occurred in which thieves stole tax information from thousands of taxpayers is much bigger than the agency originally disclosed.  Reporting 114,000 victims initially whose tax information was stolen, an additional 220,000 potential victims had information stolen from an IRS website as part of a sophisticated scheme to use stolen identities to claim fraudulent tax refunds, the IRS said Monday.

The IRS first disclosed the breach in May after thieves accessed an online system called “Get Transcript,” where taxpayers can get tax returns and previous years’ filings.  The IRS reported that thieves accessed a security screen that required knowledge about the taxpayer, including Social Security number, date of birth, tax filing status and street address.  The IRS sources believe the personal information needed to access the system was stolen from other sources and that the information would help the thieves to gain access to future years’ tax refunds.

The IRS stated, “As it did in May, the IRS is moving aggressively to protect taxpayers whose account information may have been accessed.”  There will be more letters sent to the additional 220,000 taxpayers who suffered possible access to their taxpayer account information through the “Get Transcript” service.  Apparently, the thieves attempted to gain access to information for 610,000 taxpayers so that they could obtain information from old tax returns but were successful in accessing data in only about half of that total number.

What the IRS Recommends

Taxpayers whose accounts were accessed should remain vigilant.  Once accessed, there is some information that can’t be changed like an account password can.  Your Social Security Number and birth date stay with you throughout your life.  Therefore, you should seek free credit monitoring services to keep your eyes open for potential fraud.

Consumer advocates are advising that it is a smart move for taxpayers who were not affected by this breach to consider regularly reviewing their credit reports through one of the three major credit bureaus and to place a 90-day fraud alert placed on your file that requires potential lenders to jump through several extra hoops before being able to open new loans or lines of credit.  Even doing all of this, you need to keep your eyes open for any suspicious activity.

 

More than 100,000 tax transcripts stolen from IRS’s online “Get Transcript” application

More than 104,000 taxpayers are victims of a new identity theft scheme through which criminals used information previously stolen from outside sources to obtain unauthorized access to the IRS’s online “Get Transcript” application. After discovering the scheme in mid-May, the IRS disabled the online application and is taking steps to alert affected taxpayers and to further investigate the perpetrators. The IRS estimated in the meantime that these criminal downloads might result in only 15,000 false tax return filings.

The Get Transcript application enables taxpayers to obtain line-by-line tax return information going back five or more tax years. Criminals could use this specific tax return information to file false tax returns that appear similar to taxpayers’ legitimately filed past-year returns. The false returns could then bypass the IRS’s filters that flag suspicious returns by looking for anomalies in tax information.

According to recently released IRS FAQs, the Get Transcript application uses a multi-step process to check identities. First taxpayers must submit personal information including Social Security number, birth date, filing status and address. The second step poses certain “out of wallet” questions based on information that only the taxpayer should know.

The IRS detected the breach of the application in May while investigating a suspected denial-of-service attack on the application. After recognizing a large number of suspicious domains used to access an unexpectedly high volume of tax transcripts, the IRS determined that criminal organizations had attempted to access tax transcripts of approximately 200,000 taxpayers, and had been successful in an estimated 104,000 cases. The core tax filing system used by 150 million taxpayers was unaffected, the IRS said.

IRS actions

One of the IRS’s highest priorities is to inform the taxpayers whose transcripts were downloaded (or nearly downloaded) that identity theft criminals have uncovered a large volume of their personal information. In addition to sending letters to these taxpayers, the IRS will provide free credit monitoring services to the taxpayers whose accounts were actually accessed. In addition, on June 1, Sen. Kelly Ayotte, R-N.H., announced that the IRS has agreed to change its policy and will provide victims of identity theft with redacted copies of fraudulent returns filed in their names.

On June 2, IRS Commissioner John Koskinen appeared before the Senate Finance Committee to answer questions about the security breach of the IRS Get Transcript application. During the hearing Koskinen said that the IRS is continuing its in-depth analysis of what happened and stressed that for the time being, the Get Transcript program has been discontinued.

Tax Incentives for Families

President Obama released his $3.99 trillion fiscal year (FY 2016) federal budget proposals on February 2, 2015, calling for expansion of tax incentives for families, consolidation of education tax breaks, creation of new retirement savings opportunities… and tax increases for higher-income taxpayers. The President’s proposals did not leave out businesses. As in past years, the President signaled his support for a reduction in the corporate tax rate but only if businesses agree to base broadening measures. The President also proposed a new tax regime on foreign earnings, a permanent research tax credit, repeal of the last-in, first-out (LIFO) method of accounting, permanently enhanced Code Sec. 179 expensing, and much more. The IRS, which has had its budget cut in recent years, would receive nearly $2 billion more in funding for FY 2016.

IMPACT. President Obama’s FY 2016 Budget immediately made headlines as containing some room for deal making and compromise. Both the White House and the Republican-controlled Congress have admitted over the last few months that the only way legislation will get approved and signed is through compromise. While the Administration’s Budget remains aimed at gaining populist support by calling for “middle-class relief” and higher-income taxpayers “paying their fair share,” it also looks to compromise with Republicans through using tax revenues for infrastructure and defense spending, as well as provisions that work toward corporate tax reform, a permanent research credit, and other businessfriendly measures.

Tax Reform. Both the President and Congressional Republicans have been fairly tight-lipped about specifics of tax reform but both sides have indicated a willingness to engage in serious discussions this year. President Obama and other administration officials alluded to behind the scenes talks with Congressional Republicans about tax reform. In May, the Senate Finance Committee is expected to announce the results of a study of tax reform and the results could reflect a bipartisan path to tax reform. Many Capitol Hill observers predict that initial momentum for tax reform will come from the Senate. Senate Majority Leader Mitch McConnell, R-Ky., and Vice President Joe Biden have successfully brokered tax deals in the past.

COMMENT. Just like 2014, this year is again shaping up to be a battle over the tax extenders. The Tax Increase Prevention Act of 2014 only extended the extenders through 2014, leaving their fate to the 114th Congress. The extenders could be bargaining chips in negotiations over comprehensive tax reform.

IRS Over and Underpayment Interest Rates

IRS over and underpayment interest rates hold steady…again, for upcoming quarter

The IRS has announced that the interest rates on overpayments and underpayments of tax for the calendar quarter beginning July 1, 2015 will remain unchanged. The rates will be:

  • 3 percent for overpayments, in cases other than corporations;
  • 2 percent for overpayments in the case of a corporation (except 0.5 percent for the portion of a corporate overpayment exceeding $10,000); and
  • 3 percent for underpayments (except 5 percent for large corporate underpayments).

The underpayment rate applies to certain additions to tax including: interest on tax imposed on gain on property transferred to a trust at less than fair market value, additions to tax for failure by an individual to pay estimated tax, and additions to tax for failure by a corporation to pay estimated tax.

Similarly, the overpayment rate specifically applies to interest payable on a wrongful levy and interest on a judgment for wrongful levy not against taxpayer’s property. Interest on any court judgment concerning any internal revenue tax is payable at the applicable overpayment rate or underpayment rate. A liability must be classified as an overpayment for interest to accrue at any rate.

Determining the rate

The Tax Code provides that the rate of interest on over- and underpayments of tax is to be determined on a quarterly basis. The interest rates for the third quarter 2015 are computed by using the federal short-term rate based on daily compounding determined during April 2015, but with a minimum rate set by statute.  The rates have not changed since October 1, 2011. However, there have been recent rumblings that now that the U.S. economy appears to be stronger, the Federal Reserve will raise the short-term rate. If that should occur (and it is likely to happen at some point in the near future), these rates would also increase.

Missouri Sales And Use Tax

 

The Missouri Department of Revenue has ruled that a taxpayer’s purchases of general, in-transit, and transitional inventory are not subject to Missouri sales and use tax. Mo. Rev. Stat. § 144.011.1(2) and Mo. Rev. Stat. § 144.617.1(2) exclude the transfer of tangible personal property incident to the liquidation or cessation of a taxpayer’s trade or business, conducted in proprietorship, partnership or corporate form, except to the extent any transfer is made in the ordinary course of the taxpayer’s trade or business, from the sales and use tax.

The taxpayer in this instance purchased substantially all of the assets of a business, including, all of the seller’s inventory. The taxpayer operates its business as a dual operator and purchases all materials and supplies free of tax, accruing tax on items used in making real property improvements, and charging tax on the sale of items at retail.

Since the taxpayer is a dual operator and makes purchases both for consumption as a contractor and for retail sale as a retailer, it’s purchases of inventory are for resale and therefore, may be purchased free of sales and use tax.

The US Tax Court Rules on Hours Test

The US Tax Court rules on the Hours Test and determined that the hours traveling to and from rental properties qualify for the Hours Test even when the log didn’t originally contain all the time spent driving to and from rental properties.  The taxpayers lived approximate 26–30 miles from the city where their 12 rental properties were located. Trips to the city which took 42-55 minutes, depending on driving conditions, were regularly made by the wife as she tended to issues related to maintaining and operating their rental properties. She maintained a detailed log showing the activities related to the type of work done on each property during each trip.  The log that was originally submitted didn’t include both travel time to and from the properties.  Since the return home trip wasn’t included in the log, the couple logged only 632.5 hours, which was less than the required 750 hours that the IRS considers necessary to materially participate under IRC Sec. 469(c)(7)(B). In a re-examination of the couple’s 2010 tax return, they revised and resubmitted the log to show the 1.5 travel hours per trip. The IRS refused to accept the additional hours. Based on the petitioner’s revised log of 846 hours and her testimony, the Tax Court determined the couple’s return met the 750-hour test and was entitled to apply the rental losses against their nonpassive income. Richard S. Leyh and Ellen P. O’Neill, TC Summary Op. 2015-27 (Tax Ct.).  For details on this item, please see http://www.ustaxcourt.gov/InOpHistoric/LeyhSummary.Gerber.SUM.WPD.pdf.