On August 15 I wrote about the lawsuit Tax Analysts had just filed under the Freedom of Information Act against the IRS, seeking all documents used since 2009 to train IRS personnel in the exempt organizations determinations office in Cincinnati. We were trying to get to the bottom of what the agency did to get it to the point of being forced to admit last May that it had inappropriately targeted some conservative organizations that were seeking tax exemption under section 501(c)(4) of the tax law.

Well, earlier this week, the IRS released more than 1,500 pages of documents that it says provide the bulk of what we asked for. It’s still too early to ascertain exactly what these records say or what the meaning of “bulk” is, as we are still combing through the documents. However, it’s news in itself that the IRS actually released something. And maybe, just maybe, that’s a good sign. We’ll certainly let you know.

This “scandal” was not the IRS’s finest moment. By its own admission, it applied the law inappropriately – which means it applied the law unfairly. By the assessment of many, including me, at the very least it also performed stupidly – which means it performed incompetently. That brings me to the government’s implementation of the Affordable Care Act – or, as the president calls it, Obamacare. Its rollout has been nothing less than an embarrassment and a glaring example of government incompetence at its worst.

And what lies ahead? The perfect storm: The IRS and the ACA brought together by a hapless Congress that tasked the nation’s tax collector with administering portions of our new healthcare system.

The ACA contains 47 tax provisions with effective dates through 2018. These provisions cover things like the individual mandate and section 1441 of the tax law, which imposes a 3.8 percent tax on the net investment income of some taxpayers and estates and trusts. The IRS has already received more than 1 million requests from new health care exchanges to determine if taxpayers are eligible for the health insurance premium tax credit under section 36B of the tax law. Another ACA provision, not in the tax code but to be administered by the IRS, is a health insurance provider fee that a Treasury official describes as being “complicated” to administer – in this case, I’d bet complicated is a synonym for nightmare.

I can see a day coming when a taxpayer gets a letter from her insurance provider canceling her healthcare coverage and then a letter from the IRS informing her that she owes additional taxes under the ACA. Apparently our government thinks that two nightmare bureaucracies must be better for us than one.

By: Christopher Bergin

The IRS has finally announced an official start date for the 2014 filing season: It will start accepting returns on Jan. 31. This date is 10 days later than the originally planned starting date of Jan. 21. “The late January opening gives us enough time to get things right with our programming, testing, and systems validation,” said Acting IRS Commissioner Danny Werfel in a press release. This process involves programming, testing, and deploying the more than 50 IRS systems that are needed to handle nearly 150 million tax returns.     

In October, shortly after the federal government reopened following a 16-day partial shutdown, the IRS announced that the shutdown had slowed its preparations for the upcoming filing season and that it would start accepting returns no earlier than Jan. 28, but no later than Feb. 4. When the IRS announced the delay, it said it hoped to shorten it, but obviously was not successful.

So taxpayers can receive their refunds as quickly as possible, the IRS is encouraging the use of e-file or Free File with direct deposit. The IRS noted that it expects many software companies will begin accepting returns in January and hold them for filing later. It stated that filing a paper return early will not result in as fast a refund because the IRS will not be processing any returns before Jan. 31.

The IRS also explained that the April 15 tax return filing and payment deadline will not be changing because it is mandated by statute, and the Service cannot postpone it, but that six-month extensions to file can be obtained by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, electronically or on paper.

The State of South Carolina has partnered with CSID to provide eligible South Carolina taxpayers and businesses up to one year of CSID Identity Protection services for free beginning October 24, 2013. The deadline for enrollment is October 1, 2014.

Individual taxpayers, their dependents, and businesses who filed an electronic South Carolina tax returns between 1998 and 2012 may be eligible for CSID Identity Protection services.

There are two ways to enroll in CSID’s Identity Protection services:

Option One: Enroll online.

• Go to www.scidprotection.com. If you enroll online, all future notices from CSID will be sent to you by email.

Option Two: Call CSID’s call center.

• Call 855-880-2743 toll free to enroll with a CSID specialist. All future notices from CSID will be sent to you by postal mail.

Visit www.scidprotection.com or call 855-880-2743 for more information and to enroll now in CSID’s Identity Protection services.

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

WASHINGTON ― The Internal Revenue Service today issued a consumer alert about possible scams taking place in the wake of Typhoon Haiyan. On Nov. 8, 2013, Typhoon Haiyan – known as Yolanda in the Philippines – made landfall in the central Philippines, bringing strong winds and heavy rains that have resulted in flooding, landslides, and widespread damage.

Following major disasters, it is common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.

The IRS cautions people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature,Exempt Organizations Select Check, through which people may find legitimate, qualified charities; donations to these charities may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) website at fema.gov.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
• If you plan to make a contribution for which you would like to claim a deduction, see IRS Publication 526, Charitable Contributions, to read about the kinds of organizations that can receive deductible contributions.

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources.   Additionally, scammers often send e-mail that steers the recipient to bogus websites that appear to be affiliated with legitimate charitable causes.

Taxpayers suspecting disaster-related frauds should visit IRS.gov and search for the keywords “Report Phishing.” More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

The IRS announced on Tuesday a delay of one or two weeks in the start of the 2014 filing season as a result of the 16-day government shutdown to allow adequate time for the IRS to prepare and test systems. The return filing start date was originally going to be Jan. 21, 2014, but the IRS said it will now start accepting 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. The IRS says it hopes to shorten the delay and will announce the official start date in December.

The government shutdown came at an inopportune time of year. Most of the work the IRS does to program, test, and deploy its return processing systems is done in the fall. “The adjustment to the start of the filing season provides us the necessary time to program, test, and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers,” Danny Werfel, the acting IRS commissioner, said in a news release. “We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”

No paper returns will be processed before the IRS begins accepting electronic filings.

Despite the delay in the beginning of filing season, the IRS also reiterated that the April 15 tax return filing and payment deadline is statutory and cannot be changed by the IRS but that six-month extensions to file can be obtained by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, electronically or on paper.

The IRS is apparently struggling to catch up after the shutdown. It says it received 400,000 pieces of correspondence during the shutdown, on top of the 1 million items that were already being processed. The IRS is urging taxpayers who need to contact it to wait if it is not urgent or to try to use automated systems on its website.

The IRS announced on Oct. 17 that 2014 renewals of preparer tax identification numbers (PTINs) are also being delayed because of the government shutdown. The IRS will notify current PTIN holders when the renewal season will start.

This will be the second tax season in a row to have a delayed start. Last year’s filing season was significantly delayed because Congress passed the American Taxpayer Relief Act of 2012, P.L. 112-240, which contained many retroactive provisions, in January 2013 and the IRS needed time to update forms and program and test its processing systems.

October 15th Tax Deadline has Come and Gone!
The October 15th, 2012 deadline for 2012 tax extensions has come and gone.  What does this mean for you?  If you have not filed yet, you could be subject to penalties and fines from the IRS.  If you have any questions regarding potential penalties or you have not filed a tax return yet do not hesitate to call!

What’s Next?
As each year seems to become shorter and shorter, why not start planning for the 2013 tax season?  Get ahead of the game and start planning for the 2013 tax season. By doing this you will find the 2013 tax season relaxing .

Give us a call today to start planning ahead! (864) 375-1040

The Internal Revenue Service today reminded taxpayers that the Oct. 15 deadline remains in effect for people who requested a six-month extension to file their tax return.

The current lapse in federal appropriations does not affect the federal tax law, and all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as required by law.

Many of the more than 12 million individuals who requested an automatic six-month extension earlier this year have yet to file their Form 1040 for 2012.

Though Oct. 15 is the last day for most people to file, some groups still have more time, including members of the military and others serving in Afghanistan or othercombat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due. People with extensions in parts of Colorado affected by severe storms, flooding, landslides and mudslides also have more time, until Dec. 2, 2013, to file and pay.

The IRS offered several reminders for taxpayers during the current appropriations lapse:

Taxpayers are encouraged to file their returns electronically using IRS e-file or the Free File system to reduce the chance of errors.

Taxpayers can file their tax returns electronically or on paper.  Payments accompanying paper and e-filed tax returns will be accepted and processed as the IRS receives them.  Tax refunds will not be issued until normal government operations resume.

IRS operations are limited during the appropriations lapse, with live assistors on the phones and at Taxpayer Assistance Centers unavailable. However, IRS.gov and most automated toll-free telephone applications remain operational.

Tax software companies, tax practitioners and Free File remain available to assist with taxes during this period.

Check Out Tax Benefits

Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other often-overlooked credits and deductions:

Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.
Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).

American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.

Same-sex couples, legally married in jurisdictions that recognize their marriages, are now treated as married, regardless of where they live. This applies to any return, including 2012 returns, filed on or after Sept. 16, 2013. This means that they generally must file their returns using either the married filing jointly or married filing separately filing status. Further details are on IRS.gov.

E-file Now: It’s Fast, Easy and Often Free

The IRS urged taxpayers to choose the speed and convenience of electronic filing. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The tax agency verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too.

Everyone can use Free File, either the brand-name software, offered by IRS’ commercial partners to individuals and families with incomes of $57,000 or less, or online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. SeeForm 8888 for details.

Of the nearly 141.6 million returns received by the IRS so far this year, 83.5 percent or just over 118.2 million have been e-filed.

Payment Options

Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System (EFTPS), by electronic funds withdrawal or with acredit or debit card. There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors do charge a convenience fee. For those who itemize their deductions, these fees can be claimed on next year’sSchedule A Line 23. Those who choose to pay by check or money order should make the payment out to the “United States Treasury”.

Taxpayers with extensions should file their returns by Oct. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest, currently at the rate of 3 percent per year compounded daily, and late-payment penalties, normally 0.5 percent per month, will continue to accrue.

Fresh Start for Struggling Taxpayers

In many cases, those struggling to pay taxes qualify for one of several relief programs. Most people can set up a payment agreement with the IRS on line in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months or request a short-term extension to pay. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.

Taxpayers can also request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.

Alternatively, some struggling taxpayers qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

Details on all filing and payment options are on IRS.gov.

Don’t Take My Word For It…

Mid-summer is a good time to take a break and share what others are saying about Reasonable Compensation. This month I have assembled some of the most recent and poignant reports on Reasonable Compensation for Shareholder-Employees of S Corps from some big name publications, your peers and our government – Enjoy…

The IRS Targets Income Tricks (The Wall Street Journal)
‘Tom Ochsenschlager, former head of tax for the American Institute of CPAs, says pay and payroll tax issues are a frequent source of friction with clients: ‘Sometimes you have to take them to the woodshed and say, ‘You need to report more income as pay for personal services.’ Read the article…

S Corporation Shareholder Compensation: How Much Is Enough? (The Tax Advisor)
S corporation shareholder-employees and their tax advisers often find themselves with differing goals when setting the shareholder-employee’s compensation. Typically, the shareholder-employee prefers to minimize compensation in favor of distributions to reduce payroll taxes. Tax advisers, however, are faced with a body of governing authority providing that the shareholder-employee cannot avoid the imposition of payroll taxes by forgoing reasonable compensation. Read the Article…

Taxes from A to Z: U Is For Unreasonable Compensation (Forbes)
I don’t love S corporations. I know that my CPA friends love, love them but I don’t. While I agree that they have advantages in terms of flexibility, many shareholders struggle with compliance putting the S status at risk. And even more concerning? The IRS isn’t a fan. And by isn’t a fan, I mean that they’re looking at S corporation returns with increased scrutiny. Read the Article…

Reasonable salary for S corporation owners (Journal of Accountancy)
The U.S. Government Accountability Office reported in 2009 on employment tax noncompliance among S corporation shareholders. The IRS has been pursuing this perceived abuse of inadequate compensation in favor of dividend distributions to shareholder-employees and has won a number of cases. Read the Article…

Reasonable compensation for S corp shareholders (Accounting Today)
One of the continuing advantages of the S corporation format over taxation of partnerships and LLCs is the ability to treat a portion of payments from an S corporation as being return on invested capital not subject to employment taxes. Studies continue to indicate that many S corporations are fairly aggressive in the amount of S corporation earnings that are treated as shareholder distributions, rather than employee compensation. Read the Article…

The Recommended Adjustments From S Corporation Audits Are Substantial… (TIGTA)
IRS statistics show that in FYs 2007 through 2011, SB/SE Division examiners completed 53,544 audits of S corporation returns and recommended $5.7 billion in adjustments to items reported on those returns. This was a 54 percent increase over the number of S corporation returns the IRS audited in the previous five-year period (FYs 2002 through 2006). For each return audited in FYs 2007 through 2011, examiners generated about $105,534 in recommended adjustments… Read the Article…

The Top Ten Tax Cases Of 2012, #4: S Corporation Shareholder Reasonable Compensation (Forbes)
#4: Watson v. Commissioner, 668 F.3d 1008 (8th Cir., 2012). The courts offer a guide to determining an S corporation shareholder/employee’s “reasonable compensation.” Read the Article…

Wage Compensation for S Corporation Officers (IRS)
Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code. Read the Article…

Eight Small Business IRS Audit Areas to Watch Through 2013 #7 S Corps… (IRS Nationwide Tax Forum)
The IRS continually analyzes compliance levels for entities, issues and industries by conducting hundreds of compliance projects and initiatives each year. Leading up to the start of the government’s fiscal year on Oct. 1, the IRS has announced emerging or significant areas that it will prioritize for the coming year. When it comes to compliance, the IRS has increasingly focused on small business underreporting, which is responsible for 84% of the $450 billion tax gap. Read the Article…

New Requirement To Provide Notice

Starting January 1, 2014, individuals, families, and employees of small businesses will have access to affordable health care coverage through a new competitive private insurance market called the Health Insurance Marketplace.  The Affordable Care Act (ACA) requires many employers to provide written notice to their employees (by October 1, 2013) about the health insurance options available through the new Health Insurance Marketplace.
Companies covered by the Fair Labor Standards Act (FLSA) should provide this notice to their employees.  In general, the FLSA covers employers (with at least one employee) who are engaged in, or produce goods for, interstate commerce. For most companies, a test of not less than $500,000 in annual dollar volume of business applies.
Current employees must be provided with written notice no later than October 1, 2013. Employees hired after October 1, 2013, must be provided with notice at the time of hire. For 2014, notice is considered provided at the time of hire if it is provided to the employee within 14 days of the hire date.
The Department of Labor (DOL) has provided model notices to help employers comply.  The DOL specifically indicates on its website that there is no fine or penalty under the law for failing to provide the notice.