TCJA Reminders/Tips for Practitioners and Their Clients

Otherwise known as the Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17)

Following is an excerpt from my February Note from the AICPA Tax Executive Committee Chair. For complete note (for AICPA Tax Section members) - click here.

Given the number of TCJA changes, incomplete guidance and many other issues, I offer the following suggestions to share with your clients to help them avoid surprises later.

1. The TCJA is comprised of over 100 changes with little time for the IRS to issue guidance on all of them before 2018 returns are due.
   
2. A good amount of guidance has been issued, but much of it is transitional or interim. That means the guidance might only apply for 2018; a rule could apply differently in 2019.
   
3. The Joint Committee on Taxation’s Bluebook, which explains the TCJA, states over 70 times that technical corrections may be needed to achieve what legislators intended. For example, footnote 209 of the Bluebook states that a technical correction may be needed to reflect the intent that wages are not considered when calculating an excess business loss under the new Sec. 461(l).  Form 461, Limitation on Business Losses, used for measuring an excess business loss, though,  includes wages (the form follows the statute, as required).
   
   Be sure clients know that if technical corrections are enacted, they are usually effective back to enactment date (Dec. 22, 2017 for the TCJA) and may require filing an amended return. Some corrections will result in less tax paid while others, such as the Sec. 461 correction, can result in more tax owed.
   
4. It’s also possible technical corrections won’t be enacted, or the changes won’t be retroactive to Dec. 22, 2017. The law is not clear as to how much time can pass between original enactment date and passage of technical corrections legislation where a retroactive amendment is viewed as permissible by the courts. That was an issue the U.S. Supreme Court addressed in Carlton in 1994 (512 U.S. 26), finding a span of just over one year permissible but not stating a permissible maximum time between legislative enactments.
   
5. There are likely new federal-state tax differences, and some states may still be considering conformity. Again, amended returns might be needed or the state tax rule might be different for 2019 than for 2018.
   
6. The effective date of regulations often needs further scrutiny. If a rule in a regulation is also in the statute or a reasonable interpretation of the statute, the effective date of the statute controls. This was covered by the Tax Court in Argo Sales Company Inc.(105 TC 86 (1995)). There, the court stated: “The absence of regulations does not relieve us of the duty of interpreting our tax laws. While it has been stated in the context of a regulation applied retroactively by the Commissioner that ‘if the interpretation of the statute embodied in the regulation is correct, one must conclude that the statute has meant the same thing all along, with or without the regulation,’ that does not mean that where a regulation is not applied retroactively that the statute has no meaning prior thereto without the regulation. It simply falls on us to interpret the statute without the aid of a regulation.”

Note that among many areas, this seems pertinent to a rule on measuring qualified business income (QBI) highlighted in the final Sec. 199A regulations (T.D. 9847). In the Form 1040 instructions and in Publication 535, Business Expenses (p. 51), the IRS summarizes this rule as follows: “[QBI] also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance, and contributions to qualified retirement plans.” In making this statement, the IRS makes no reference to a choice of following the proposed or final regulations, likely implying that the rule is in the statute (in addition to the final regulations at Regs. Sec. 1.199A-3(b)). The effective date of Sec. 199A is tax years beginning after Dec. 31, 2017.

Any other tips you have to share?

source http://21stcenturytaxation.blogspot.com/2019/02/tcja-reminderstips-for-practitioners.html

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IRS watchdog says federal tax agency needs to improve efforts to collect taxes on gig economy income

Screenshot from a look at some of the people who depend on the gig economy. Watch the full YouTube video here.

Everybody is looking for more money.

Taxpayers want more in their tax refunds, especially those surprised by smaller amounts this filing season.

Donald J. Trump wants more to build his campaigned-promised border wall.

People who are unhappy with their current earnings are side hustling to get more income.

It's that last group, says the Treasury Inspector General for Tax Administration (TIGTA), that the Internal Revenue Service should be focusing on as a way to get more money into the U.S. Treasury.

Tax potential of growing gig economy: We are still in the early stages of an emerging and evolving gig economy, according, according to the TIGTA report released Feb. 19.

TIGTA cites data showing alternative work arrangements, including gig workers, accounted for almost 16 percent of the U.S. workforce in 2015. That's an increase of almost 5 percent since 2005.

As this economic trend grows, it means thousands of new taxpayers each year become responsible for self‑employment taxes. A lot of them appear to be shirking those tax responsibilities.

"Due to the various reporting requirements in the law and the varying voluntary reporting of income within the different gig economy companies, the risk of taxpayers under reporting income earned in the gig economy is high," TIGTA said.

That then puts the onus on the IRS to ramp up its enforcement efforts in this area.

However, TIGTA says the IRS doesn't specifically track gig economy noncompliance. In addition, the tax agency doesn't have a strategic plan to deal with this type of unreported income and the related taxes that therefore go uncollected.

Tax gap closure via gig taxes: The IRS last estimated the self-employment portion of the annual Tax Gap — that's the amount of tax money Uncle Sam is owed, but which is not collected for various reasons — at $69 billion.

Some of that gap no doubt is from self-employed taxpayers who are underpaying or not paying taxes at all on their work.

Gig economy workers, says TIGTA, are likely prime offenders here, with tax evasion turning into a side hustle side effect way too often.

"If these taxpayers are used to traditional employment arrangements and are only participating in the gig economy because it is an easy way to earn extra income, they may be unaware of, or confused by, all of the tax requirements for self-employed individuals," the report said.

Solving gig worker under-reporting: In its aptly named "Expansion of the Gig Economy Warrants Focus on Improving Self-Employment Tax Compliance" study, TIGTA made 11 recommendations to the IRS.

The IRS agreed, in whole or part, of most of TIGTA's suggestions. Where the tax agency disagreed, it cited work priorities and costs as reasons for the not accepting the TIGTA recommendations.

The tax agency also noted its efforts with regard to gig economy taxpayers.

"In November 2018, the Small Business/Self-Employed (SBSE) Division initiated an effort to develop and implement such a compliance strategy. As part of this endeavor, we plan to establish a single definition for the gig economy, perform demographic research on the population, and use internal and external data to identify significant compliance risk associated with this expanding economic sector," wrote Mary Beth Murphy, SBSE commissioner, in response to (and included as part of) TIGTA's report.

Murphy said that the IRS' gig economy compliance strategy will address many of the issues identified in TIGTA's report, including, but not limited to, information return reporting, non-filing of income tax returns, self-employment taxes and worker classification issues.

"In addition, our communication plan and guidance plan will be assessed to determine what additional outreach is necessary," added Murphy.

Gig worker tax gap contributions: As noted many times here on the ol' blog (including earlier in this post), as well as by other tax experts and publications, self-employment income presents a great challenge not only to the workers, but also the IRS.

It's long been a given by the IRS that Schedule C filers — the sole proprietors who report self-employment income, either that they earn as a full-time endeavor or from various side hustles — are major contributors to the tax gap.

Freelancing offers, among other things, more flexibility, as well as new tax responsibilities. (Photo by Lulu Hoeller via Flickr)

The problem here is that the IRS must rely to a large degree on the unverified reports by self-employed workers on how much money they made and how many deductions they can claim.

Aside from the stray 1099 form, there are few third-party documents to confirm what a small business owner puts on his or her tax return regarding how well or not a business is doing for tax purposes.

So look for the IRS, especially in light of the recent TIGTA interest, to increase its efforts to get the taxes Uncle Sam is due from gig and other self-employment earnings.

Tax tips for gig workers: You can avoid the added IRS interest — and added interest and penalty charges if you're caught underpaying your tax bill — by making sure you know and follow the tax rules for freelance and gig workers.

My earlier post on this topic offers 5 tax matters these self-employed workers need to consider.

You also might find these other items on self-employment/contractor/freelance/gig work and taxes of interest:

• 5 things to consider if the new tax law has you thinking about becoming an independent contractor
• Report all your income even if you don't get a 1099 form
• Don't forget to figure SE taxes into your estimated tax payments
• The importance of good, and separate, business records 
• Uber ruling underscores contractor vs. employee conflict
• Business mileage records and other Schedule C considerations

Here's hoping these tips will help you keep both you and the IRS happy when it comes to your search for more money, either as full-time entrepreneur or as an occasional participant in the gig economy.

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source https://www.dontmesswithtaxes.com/2019/02/irs-watchdog-says-irs-needs-to-do-more-to-collect-taxes-on-gig-economy-income.html

What to do if you don't have your W-2

Contemplating Trump's taxes (again) on Presidents Day

Today technically is George Washington's Birthday, but we've come to call it Presidents Day in honor of all our commanders in chief, like these four greats on Mount Rushmore National Memorial. (Image courtesy Mount Rushmore Facebook page)

How are you celebrating George Washington's birthday?

Yep, that's what today officially is, despite all the Presidents Day sale signs in retailers' windows.

Technically, America's first president was born on Feb. 22, 1731. However, since 1971 we've celebrated his arrival day on the third Monday of his birth month thanks to a law that took effect that year mandating most federal holidays be observed on Mondays.

Then, being a culture that likes to expand things, the commemoration of the Father of our Country's birthday was unofficially broadened to recognize other commanders in chief.

Lincoln's legacy: At first, it was redubbed Washington and Lincoln's Birthday Day.

That sort of made sense. Abraham Lincoln was born on Feb. 12, 1809, and did serve during what is arguably the worst time in our country's history, the Civil War.

That's OK with me. Our 16th president also is, like Washington, a notable national father, in the case the father of our tax system.

OK, Lincoln didn't actually write the tax code. But he recognized the need for taxes to help finance the Union's fight against the Confederacy. In August 1861, he signed into law the legislation that created the United States' first federal income tax.

Soon, the rest of the residents of the Oval Office were invited to George's birthday party, giving us what we now call Presidents Day.

Some commanders in chief are more loved than others, so I leave you to your personal preference as to which U.S. presidents you honor today.

Presidential tax release tradition: Another area in which most modern-day presidents have participated is the release of their tax returns.

For almost 40 years, it was an election year ritual for candidates for the highest elected office in the United States to show at least some of their 1040 filings to the voters.

The table below, taken from written testimony submitted by Dr. Joseph J. Thorndike, Director of the Tax History Project, Tax Analysts, to the House Ways and Means Committee Oversight Subcommittee shows the history of recent presidential candidate tax filing openness.

That tradition ended in 2016. Donald J. Trump opted to keep his tax returns private, saying they were under Internal Revenue Service audit.

Audits no excuse: Tax experts have repeatedly noted that IRS examination of returns is not a reason for Trump or anyone to keep their filings secret. While the IRS is bound by privacy laws not to divulge, in most cases, a private citizen's tax data, that person can do so on their own if they wish.

Trump obviously wishes not to do so.

Despite some pre- and post-election feints about eventually — maybe, some day, perhaps, or not, because still audits — making his taxes public, 45 has essentially decided not to, apparently ever, release his taxes.

In addition to not showing us his taxes during the campaign, Trump also has never revealed the first return he filed after moving into the White House. (Neither has Vice President Mike Pence released his 2017 tax return, although he did reveal his 2015 tax year filing during the 2016 campaign.)

And Trump still can fall back on the specious under audit excuse since as a matter of course, the IRS routinely audits presidential tax returns every single year.

House throws first tax return review punch: Trump is likely to continue the rope-a-dope strategy now that Democrats are in charge of the House of Representatives and making serious noise about getting their hands on Trump's taxes.

Democratic leaders argue that his filings could produce information critical to Congressional oversight into Trump's global business operations and any possible public-private conflicts of interests.

The House Ways and Means Committee Subcommittee on Oversight convened a hearing on Feb. 7 to get expert testimony about proposed legislation and existing laws that could help them acquire Trump's tax returns.

H.R. 1, the first bill introduced by Democrats after taking control of the House in January, contains a provision that would require presidents and vice-presidents to disclose their tax returns.

As far as Trump's taxes, however, the Democrats are relying on a 1924 law that allows for the chair of the House Ways and Means Committee — that's now Massachusetts Democratic Rep. Richard Neal — to make a written request to the Secretary of the Treasury for the returns.

The ability to request returns under this law is not limited to those filed by the occupants of the Oval Office. The W&M chair can ask for any filer's taxes and the law says the Treasury chief "shall furnish" that information to members of the tax-writing committee for them to examine behind closed doors.

During the Oversight hearing, University of Virginia Law School professor George Yin testified that he doesn't see any "wiggle room" in the law for the Treasury secretary to refuse Neal's request for Trump's returns.

But if the Trump administration refuses the request, Yin said, "We would be in uncharted territory."

More tax and political fights ahead: When Republicans controlled Congress for most of the first half of Trump's tenure, they had the same tax return request ability, but chose not to use it.

In fact, the then GOP led Ways and Means Committee repeatedly shot down Democratic efforts to use the tax return request law.

Now, however, Neal said he plans to request Trump's tax returns.

Once the W&M members get the filings, the full committee could then vote to release the returns to the entire House or provide a summary of their review of the 1040s to their Capitol Hill colleagues.

Trump and his attorneys obviously will fight the request.

Also expect Treasury Secretary Steven Mnuchin to take as much time as he can before handing over Trump's taxes.

Perhaps by Presidents Day 2020, we'll have an idea of what Donald J. Trump has sent to the IRS in recent years.

Or not.

Realistically, Trump's filings could drag out well into the 2020 election year or even beyond his first term. But whatever the timetable, you can be sure that the debate over Trump's taxes is not going away.

You also might find these items of interest:

• Getting a glimpse of Trump's 2005 state tax return
• 'Taxation without representation is tyranny' & 12 other notable tax quotes
• 1st White House petition of Trump era seeks peek at 45th president's tax returns

Combo expanded Amazon and Google Adsense ad code block2 Amazon ads (multi) first here, followed by Google

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source https://www.dontmesswithtaxes.com/2019/02/presidents-day-2019-trump-tax-return-release-effort-heats-up.html

Blockchain, Cryptocurrency, Cannabis - and Taxes

"Since cryptocurrencies are decentralized and unregulated for the most part, they enable cannabis businesses to accept secure, cashless, and fast payments that can be converted into greenbacks or sent anywhere around the world at competitive speeds."*

I like to research and write about emerging technologies and trends in how we live and work. A long time ago, that is how I gov involved in tax policy and technical matters related to the Internet and e-commerce.  For almost ten years now, it has led me into interesting topics of marijuana (cannabis if that sounds better), virtual currency (or cryptocurrency), and the blockchain. And there is overlap in all of these topics.

Here is a *recent article from Made by Hemp - Utilizing Blockchain Technology in the Cannabis Industry by Alex Moskov, Editor-in-Chief of CoinCentral. He notes the benefit of greater transparency in connecting transactions and payments via blockchain technology. It can also help with payment processing.

Congress sometimes gets involved with these topics as well. Hearings usually either look at problems with marijuana and crytocurrency, but some look at the opportunities in these fields. On 2/13/19, the House Committee on Financial Services held a hearing - Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Legislation called The Secure and Fair Enforcement Banking Act of 2019 (SAFE banking) has been re-introduced in the 116th Congress. One of the witnesses was California State Treasurer Fiona Ma, also a CPA. She noted data on continued growth in the cannabis industry and challenges of businesses not being able have bank accounts. She also noted that she and her predecessor had engaged studies for solutions including a state-run bank. However, the conclusions reached was that "the only effective long-term solution that would produce acceptable results for the financial services sector was to change federal laws and regulations related to offering basic banking services to this growing industry."

Taxes - there are certainly many tax matters in these topics. For the cash in the cannabis industry, it makes non-reporting easier as there may not be a sufficient paper or digital trail. There are safety issues of having large piles of cash around and of taking it to the local, state and IRS offices to make tax payments.

What do you think?

source http://21stcenturytaxation.blogspot.com/2019/02/blockchain-cryptocurrency-cannabis-and.html

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January Tax News Recap: Tax Law Changes Here We Come!

If you thought there wouldn’t be much in the way of tax news in January during the government shutdown, you would be wrong. January was an exciting month, as the IRS clarified rules that were changed or introduced in the Tax Cuts and Jobs Act in December 2017. Here’s a quick rundown of some of the biggest news you need to know as you gear up for a busy tax season

Section 199A: 20 percent deduction for pass-throughs

If you thought you knew how to navigate the new rules Congress passed in section 199A, concerning a 20 percent deduction for pass-through entities, think again. The IRS just released the Final Regulations, plus two IRS Notices, about section 199A on January 18, 2019. We found two articles from Forbes that summarize the regs and go over questions some of your clients may be asking you.

The long and the short of it is: This section is one of the most confusing in the new tax bill. Now that the Final Regulations have come out, don’t rely on any previously published proposed regs. Don’t rely on the tax software, which probably hasn’t been updated yet. Make sure you know what’s in the regs themselves, now that the IRS has finalized them.

Further Reading:

IRS Publishes Final Guidance on 20% Pass-Through Deduction: Putting It All Together

What to Ask Your Tax Advisors About the New Section 199A Regulations

Study shows people distrust tax systems but trust accountants

An international study polled people around the world to find out how much they trust their tax systems. The results should be heartening to professional tax preparers. While people generally distrust their government tax systems and NGOs, citing concerns about a lack of transparency, corruption, complexity and inequality, they do trust their accountants and lawyers.

This news isn’t entirely surprising at The Income Tax School, since we train some of the best and brightest! Our courses set high standards for future tax pros. In fact, in the study, people cited the high ethical and professional standards that tax professionals and other financial professionals are held to as one of their reasons for their trust. However, it’s nice to see such good news about how people trust tax professionals.

IRS says it will show leniency for errors

Senators Chuck Grassley and Ron Wyden, top senators on the Senate Finance Committee, urged the Treasury Department to show leniency for underpayment and withholding issues as taxpayers get used to the changes brought about by the new tax law. Fortunately, officials listened. Treasury Department officials just announced they will waive some penalties for individuals if they meet certain criteria. Find out which tax penalties will be waived and how individuals and small business owners can qualify.

Big refunds for military spouses?

A law that took effect on December 31, 2018, and which is retroactive for the entire year, would allow military spouses to claim the same state of residence as their service member spouse – meaning some spouses could get sizeable refunds from their state income taxes, if they are living and working in a state that’s different from the one they claim as their residence. Get the details on how the new Veterans Benefits and Transition Act works and how military spouses can benefit.

AICPA stands up for “a fair and administrable tax system”

The American Institute of CPAs sent a letter to officials at the Department of the Treasury and the IRS. The letter outlined their concerns about the effect of the government shutdown on the IRS and on taxpayers nationwide. AICPA Tax Executive Committee chair Annette Nellen wrote in the letter, “The need for unhindered availability of a fair and administrable tax system is rising as we approach the opening of tax filing season.” Accounting Today published a good summary of the letter and of some of the effects of the government shutdown.

source https://www.theincometaxschool.com/blog/january-tax-news-recap-tax-law-changes-here-we-come/

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