2014 Sets Stage For Tax Planning In 2015
Calendar
year 2014 saw the resolution of a number of important federal tax
issues from prior years as well as the emerygence of new tax issues.
Treasury and the IRS issued final regulations in key areas of the
Patient Protection and Affordable Care Act (PPACA), along with final
regulations and a myriad of guidance affecting individuals, business
entities and more. At the same time, the unfolding of new requirements,
especially under the PPACA, generated new compliance and enforcement
questions. The courts, all the way to the U.S. Supreme Court, weighed in
on significant tax issues. Not to be left out, Congress, in a
last-minute push, extended a host of temporary tax breaks. The
developments did not take place in isolation but in many ways were
interrelated, particularly for taxpayers with complex tax strategies.
IMPACT.
Taxpayers
and tax professionals looking for certainty in the federal tax laws
were generally disappointed in 2014. The year began with expectations
high that Congress would finally take up tax reform and simplification.
As the months passecZ those expectations faded. The 114th Congress,
which convened on January 6, 2015, is likely to start the tax reform
process anew. Whether the White House and the Congressional Republicans
will reach any agreement is still speculative at this time.
INDIVIDUALS
Although
2014 did not begin with significant changes in the individual income
tax laws (as 2013 began after passage of ATRA), the year did bring some
important developments for individuals from the IRS and the courts.
These developments impacted among other things, the still fledging net
investment income tax, tax collection and enforcement, and the credits
and deductions that individuals may claim. In addition, the Tax Increase
Prevention Act of 2014, signed into law in December 2014, provided
relief in the form of a one-year extension of certain tax benefits. It
also contained the ABLE Act, which will provide a new tax-favored
savings vehicle for many disabled individuals.
Tax Extenders
The Tax Increase Prevention Act renewed the so-called individual extenders. The tax breaks were renewed through 2014.
Net Investment Income (NII) Tax
Many
higher-income individuals were surprised to learn the full impact of
the net investment income (NII) tax on their overall tax liability only
during the 2014 filing season when their total 2013 tax liability was
computed. The 2015 filing season may be shaping up to be as equally
surprising for many taxpayers.
IMPACT.
Recent
run ups in the financial markets, combined with the fact that the NII
thresholds are not adjusted for inflation, have increased the need to
implement strategies that can avoid or minimize the NII tax. Issues
persist that reduce certainty surrounding NII tax liability in
particular determining how a taxpayer “materially participates” in an
activity to the extent it is exempt from the NII tax.
Inflation Adjustments
The
IRS announced cost of living adjustments (COLAs) for various Tax Code
provisions affecting individuals in 2015 (IR-2014-104, Rev. Proc.
2014-61). Some provisions increase for 2015; others are unchanged
because of rounding conventions.
AMT
For
2015, the alternative minimum tax (AMT) exemption for married joint
filers and surviving spouses will be $83,400 (up from $82,100 for 2014).
For heads of household and unmarried single filers, the exemption will
be $53,600 (up from $52,800 for 2014). For married separate filers, the
amount will be $41,700 (up from $41,050 for 2014).
Mortgage Interest Deduction
A
married couple failed to persuade the Tax Court that they were entitled
to deduct unpaid mortgage interest after a loan modification (Copeland,
TC Memo. 2014-226). The past-due interest on the mortgage loan was
added to the principal and no money changed hands, the court found. The
couple did not pay this interest in cash or its equivalent and could not
claim a deduction.
Fiduciary Bundled Fees
In
July 2014, the IRS announced a postponed effective date for 2014 final
regulations (TD 9664), issued in May 2014, on the portion of a
fiduciary's bundled fee attributable to the two-percent floor. Rather
than being immediately effective for tax years that begin on or after
May 9, 2014, the final regulations are now effective for tax years
beginning after January 1, 2015.
COMMENT
The
IRS decided to delay the effective date to give fiduciaries additional
time to design and implement program changes to determine the portion of
a bundled fie attributable to costs that are subject to the two-percent
floor versus costs that are not subject to the two-percent floor.
Individual Income
In
Shankar, 143 TC No. 5, the Tax Court found that the value of an airline
ticket obtained through the redemption of “thank you points” was
includable in the taxpayers’ income. The airline ticket was not redeemed
with frequent flyer miles earned by travel but rather with points
apparently earned by opening a bank account.
IMPACT.
The
IRS has provided limited guidance on frequentfiyer miles. In Ann.
2002-18, the IRS announced that it will not assert that any taxpayer has
understated his/her federal tax liability by reason of the receipt or
personal use of frequent flyer miles. Additional guidelines have been
“under study” since 2002.
Foreign Disaster Payments/Contributions
The
IRS designated the Ebola Virus outbreak in Guinea, Liberia, and Sierra
Leone as a qualified disaster under Code Sec. 139 for federal tax
purposes and issued guidance on leave-based donation programs for
employers and employees (Notice 2014-65; Notice 2014-68).
Same-Sex Marriages
The IRS issued guidance on the application of Windsor, SCt., 2013-2 USTC 00,400
to qualified retirement plans (Notice 201419). The notice provided that
qualified retirement plan operations must reflect the outcome of Windsor
as of June 26, 2013. Q&A-8 of the Notice stated that the deadline
for adopting the amendments was December 31, 2014, for most plans. The
IRS also provided guidance to safe harbor 401(k) and 401(m) plans on
plan amendments reflecting Windsor (Notice 2014-37). A mid-year
plan amendment to comply with Windsor would not affect a plan's safe
harbor status, the IRS explained.
RETIREMENT
Retirement issues moved front and center during 2014 as never before.
LongevityAnnuities
Treasury
and the IRS issued final regulations that enable taxpayers to use up to
a quarter (or $125,000 maximum) of their balance in a 401(k) or IRA
plan to purchase a longevity annuity that will begin payments when the
plan participant reaches advanced old age (85 at the latest) (TD 9673).
Target Date Funds/Deferred Annuities
Treasury and the IRS created a special rule for target date funds (TDFs) that indude deferred income annuities (Notice 2014-66).
myRA
President
Obama instructed Treasury to create a new retirement savings vehicle
(myRA), similar to a Roth IRA, for workers without access to an employer
provided retirement plan. Treasury issued its final rule setting forth
the details of the myRA bond program in December 2014 (RIN 1530-AA08).
IMPACT.
The
principal will be invested in Treasury securities through the
government “G” funny which previously was available only to federal
employees with investments in a Thrift Savings Plan (TSP).
One IRA Rollover Per Year Limit
The
Tax Court found that a taxpayer could make only one nontaxable rollover
contribution within each one-year period regardless of how many IRAs
the taxpayer maintained (Bobrow, TC Memo. 201421). In response, the IRS
withdrew proposed regulations (NPRM REG-209459-78) allowing one rollover
per IRA and revised Publication 590, Individual Retirement Arrangements
(IRAs), whose original language appeared to indicate that a taxpayer
could make more than one tax-free rollover. The IRS will issue new
proposed regulations reflecting the Bobrow decision.
IMPACT.
The
IRS provided transition relief taxpayers could continue to claim more
than one rollover per IRA with respect to distributions occurring before
January 1, 2015 (Announcement 2014-32).
IMPACT.
This
new rollover limitation does not apply to trustee-to-trustee transfers
(also loosely called “rollovers). Trustee-to-trustee transfie3 also
avoid the 60-day rule under which a rollover must take place.
Inherited IRAs
The
U.S. Supreme Court ruled that funds from an inherited IRA are not
“retirement funds” for the purpose of qualifying for an exemption from a
debtor's bankruptcy estate (Clark v. Rameker, SCt., June 12, 2014).
Funds held in inherited IRAs, unlike those held in participant-owned
IRAs, are not objectively set aside for the purpose of retirement, the
Court reasoned.
Multiple Allocations Of Distributions
Notice
2014-54 now permits a distribution from a 401(k), 403(b) or 457(b)
account to have the taxable and non-taxable portions of the distribution
directed to separate accounts. These new rules (including NPRM
REG-105739-11) allow retirement plan participants to allocate pretax and
after-tax amounts among plan distributions made to multiple
destinations, such as eligible retirement plans, IRAs, Roth IRAs, and
the participant.
IMPACT.
Prior rules generally required that pretax and after-amounts be allocated pro rata to each distribution.
COLA Limits
The
IRS announced the 2015 cost-of-living adjustments (COLAs) for qualified
plans in October (IR-2014-99). Many retirement plan contribution and
benefit limits increase slightly in 2015.
TOP 10 TAX DEVELOPMENTS WITH IMPACT ON 2015
The
start of a New Year presents a time to reflect on the past 12 months
and, based on that history, predict what may happen next. Here is a list
of the top 10 developments from 2014 that may prove particularly
important as we move forward into the New Year:
#1 Passage of the extenders package (PubLaw 113-295, 12/19/14 saves 2015 filing season)
#2 Affordable Care Act (individual mandate, employer transition rules, pending Supreme Court challenge)
#3 International tax compliance (FATCA foreign asset reporting)
#4 Repair regulations (MACRS dispositions, accounting method change follow up)
#5 IRS operations (IRS budget cuts)
#6 Net investment income (NII) tax (lack of more detailed guidance on passive loss-es/activities, other aspects)
#7 Retirement planning (longevity/ target-date annuities, one rollover-per-year rule)
#8 Identity theft (IP PINs and other IRS reaction to over 5.7 million suspicious returns)
#9 Same-sex marriage (post-Windsor benefits, balancing state rules)
#10.Tax reform (groundwork laid by 2014 hearings (and HR 1), momentum builds)
AFFORDABLE CARE ACT
One
of the most far-reaching requirements, the individual shared
responsibility provision, took effect on January 1, 2014. However,
another key provision –the employer shared responsibility requirement–
was delayed to 2015; as was applicable large employer reporting. The IRS
also issued guidance on the Code Sec. 36B premium assistance tax credit
and other provisions of the Affordable Care Act.
IMPACT.
Small
employers, ones with fewer than 50 full-time employees or a combination
of full-time and part-time employees that is equivalent to fewer than
50 full-time employees, are permanently exempted by the Affordable Care
Act from the employer mandate.
Transition Relief
For
2015, employers with at least 50 but fewer than 100 full-time
employees, including full-time equivalent employees, may be eligible for
transition relief (TD 9655). The IRS imposed a number of requirements
that employers must satisfy before they may be eligible for the
transition relief.
COMMENT
Under
the transition relief employers with 100 or more full-time employees,
including full-time equivalent employees, may only be required to
provide coverage to 70 percent, instead of 95 percent, of qualified
employees in 2015.
Measurement Methods.
In Notice 2014-49, the IRS described two methods for determining whether a worker is a full-time employee:
(1) |
the monthly measurement method; and
|
(2) |
the lookback measurement method.
|
Employer/Insurer Reporting
Employer
reporting under Code Sec. 6056 (and insurer reporting under Code Sec.
6055) is needed for the administration of Code Sec. 4980H and the Code
Sec. 36B premium assistance tax credit. The IRS issued final regulations
in 2014 in TD 9661.
IMPACT.
Mandatory reporting begins in 2016 for 2015.
Individual Shared Responsibility
On
2014 individual income tax returns, individuals will report if they had
minimum essential health coverage for all or part of the year, unless
exempt. Individuals who are not covered by minimum essential coverage
and who are not exempt are liable for an individual shared
responsibility payment.
Exemptions.
A
number of exemptions from the individual shared responsibility
provision are available to qualified individuals. In 2014, the IRS
developed Form 8965, Health Coverage Exemptions. Individuals claiming an
exemption from the requirement to carry minimum essential health
coverage will file Form 8965 with their federal income tax return.
Code Sec. 368 Credit
Individuals
who obtain health insurance coverage through the PPACA Marketplace may
be eligible for the Code Sec. 36B credit. In November, the Supreme Court
announced it would review a decision by the Fourth Circuit Court of
Appeals upholding IRS regulations on the Code Sec. 36B premium
assistance tax credit (King v Burwell, 20142 USTC 750,367). The Supreme
Court has scheduled oral arguments for March 2015.
Advance payments.
Individuals
will need to refer to the information on Form 1095-A to complete Form
8962. Individuals will calculate the amount of their credit and subtract
the total amount of advance payments received.
Small Employer Tax Credit
The
IRS finalized regulations on the Code Sec. 45R small employer health
insurance credit (TD 9672). Generally, a qualified employer must have no
more than 25 full-time equivalent employees (FTEs) for the tax year;
pay average annual wages of no more than $50,000 per FTE (indexed for
inflation after 2013); and maintain a qualifying health care insurance
arrangement.
IMPACT.
For
tax years 2010 through 2013, the maximum credit is 35 percent of health
insurance premiums paid by qualified employers (25 percent fir small
tax-exempt employers). The credit is 50 percent for qualified employers
(35 percent fir small tax-exempt employers) after 2013. In tax years
that begin after 2013, an employer claiming the Code Sec, 45R credit
must obtain coverage through the Small Business Health Options Program
(SHOP) Marketplace or be eligible for an exception.
Excepted Benefits
The
IRS, HHS and DOL adopted final regulations that describe the
requirement for dental and vision benefits and employee assistance
programs (EAPs) to be treated as excepted benefits under the PPACA (TD
9697).
90-Day Waiting Period
The
IRS, HHS and DOL issued final regulations implementing the 90-day
waiting period limitation under the PPACA for employer health insurance
coverage (TD 9656).
Health Savings Accounts
The
IRS announced in Rev. Proc. 201430 that for calendar year 2015 the
annual limitation on deductions under Code Sec. 223(b)(2) for an
individual with self-only coverage under a high-deductible plan (HDHP)
is $3,350 (up from $3,300 in 2014) and $6,650 for an individual with
family coverage (up from $6,550 for 2014).
BUSINESSES
In
2014 attention was directed to areas such as business income,
deductions and credits that may be common to all types of businesses.
Tax Extenders
The
Tax Increase Prevention Act renewed many so-called “business extenders”
retroactively through 2014. Now in place to be claimed on 2014 tax
returns are bonus depreciation, enhanced Section 179 expensing and the
research tax credit, among over 50 other provisions.
Standard Mileage Rates
The
optional business standard mileage rate for 2015 is 57.5
cents-per-mile, the IRS announced in December (IR-2014-114, Notice
2014-79). This reflects an increase from the 2014 rate of 56
cents-per-mile.
COMMENT
The
optional standard mileage rate for qualified medical and moving
expenses is 23 cents-per-mile for 2015. The 14 cents-per-mile rate for
charitable miles driven is set by statute and it remains unchanged for
2015.
For
2015, the depreciation component of the business standard mileage rate
is 24 cents-per mile. This represents a two-cent increase from the
depreciation component for the 2014 business standard mileage rate.
2014 AND 2015 RETIREMENT DOLLAR LIMITS
| ||
---|---|---|
IRAs
|
2014
|
2015
|
IRA Contribution Limit
|
$ 5,500
|
$ 5,500
|
IRA Catch-Up Contributions
|
1,000
|
1,000
|
Traditional IRA AGI Deduction Phase-out Starting at
| ||
Joint Return
|
$ 96,000
|
$ 98,000
|
Single or Head of Household
|
60,000
|
61,000
|
401(k), 403(b), Profit-Sharing Plans, etc.
| ||
Annual Compensation - 401(a)(17)/404(l)
|
$ 260,000
|
$ 265,000
|
Elective Deferrals - 402(g)(1)
|
17,500
|
18,000
|
Defined Contribution Limits - 415(c)(1)(A)
|
52,000
|
53,000
|
Social Security Taxable Wage Base
|
117,000
|
118,500
|
Vehicle Depreciation Dollar Limits
The
IRS released inflation-adjustments on depreciation deductions for
business-use passenger automobiles, light trucks, and vans first placed
in service during calendar year 2014 (Rev. Proc. 2014-21).
IMPACT.
The
maximum depreciation limits under Code Sec. 280F for passenger
automobiles first placed in service during calendar year 2014 are
$11,160 for the first tax year (because Congress extended bonus
depreciation for 2014); $5,100 for the second tax year; $3,050 for the
third tax year; and $1,875 for each succeeding tax year.
Per Diem Rates
The
IRS announced the simplified per diem rates that taxpayers can use to
reimburse employees for expenses incurred during travel after September
30, 2014 (Notice 2014-57). The high-cost area per diem increases to $259
($194 for lodging and $65 for meals and incidental expenses). The
low-cost area per diem increases to $172 ($120 for lodging and $52 for
meals and incidental expenses).
Local Lodging Expenses
The
IRS issued final regulations that allow certain employees who meet a
facts and circumstances test to deduct their expenses for local lodging
under Code Sec. 162 if the expenses were required in their trade or
business (TD 9696).
Research & Experimentation Deduction
The
IRS has issued final regulations under Code Sec. 174-effective for tax
years ending after July 21, 2014-on the deduction for research and
experimental (R&E) expenditures incurred in the taxpayer's trade or
business (TD 9680).
IMPACT.
The
regulations generally track proposed regulations issued in 2013 and
focus on the treatment of amounts incurred in the development of
products, induding inventions, pilot models, and patents.
Simplified Research Credit
The
IRS issued final and temporary regulations that simplify the election
to compute the Code Sec. 41 research tax credit using the alternative
simplified credit (ASC) (TD 9666, NPRM REG-133495-13).
TAX ACCOUNTING
Tax
accounting can be complex and can raise difficult compliance issues. As
a result, in some cases, the IRS will allow taxpayers to conform their
tax accounting treatment to the financial accounting treatment; this can
provide significant simplification. A good example of this
simplification is the “repair” regulations adopted in 2013 and 2014.
Repair Regulations
In
2013, the IRS issued final “repair” regulations on accounting for costs
to acquire, repair and improve tangible property (TD 9636). In 2014,
the IRS finished issuing the necessary guidance on the treatment of
costs for tangible property. The most important development was the
issuance of final regulations on the treatment of dispositions of
tangible property under MACRS and under Code Sec. 168, induding the
identification of assets, the treatment of dispositions, and the
computation of gain and loss, particularly in the context of general
asset accounts (GAAs) (TD 9689).
The
IRS also issued several revenue procedures that granted automatic
consent for taxpayers to change to the accounting methods allowed by the
final regulations. These included Rev. Proc. 2014-54 (superseding Rev.
Proc. 2014-17), for taxpayers to change to the methods allowed by TD
9689; and Rev. Proc. 2014-16, to change to the methods allowed by TD
9636.
IMPACT.
With
the issuance of the final regulations on dispositions of tangible
property, the IRS completed a major reworking of the accounting rules
for costs incurred with respect to tangible property.
Severance Pay
Reversing
the Sixth Circuit Court of Appeals, the Supreme Court held 8-0 that
supplemental unemployment benefits (SUB) payments to terminated
employees that are not tied to the receipt of state unemployment
benefits are wages subject to FICA taxes (U.S. v. Quality Stores, Inc., 2014-1 USTC 00,228).
Cancellation of Debt
The
IRS issued proposed regulations that would eliminate the use of a
36-month testing period as an identifiable event that triggers
cancellation of debt (COD) income (NPRM REG-136676-13). The existing
rule created a rebuttable presumption that the lender had a reporting
obligation and that the debtor had COD income after 36 months of
nonpay-ments and noncollection efforts.
IMPACT.
The existing rule created confis-sion and did not increase tax compliance, the IRS stated
InventoryAccounting
The
IRS issued final regulations on the retail inventory accounting method
and provided procedures for taxpayers to obtain consent to change their
retail inventory accounting to comply with the final regulations (TD
9688; Rev. Proc. 201448). The method may be applied to a department, a
class of goods, or a stock-keeping unit
Sales-Based Royalties
The
IRS issued final regulations that provided some relief to taxpayers
regarding the treatment of sales-based royalties (TD 9652).
IMPACT.
The
IRS nonacquiesced in Robinson Knife Manufacturing Company (CA-2, 2010-1
USTC 00,300), which allowed taxpayers to deduct the royalties, but then
provided partial relief in the regulations by al-lowingthe allocation
of costs to property sold
CORPORATIONS
A number of developments impacted corporations.
“Killer B” Regulations
The
IRS amended final regulations issued in 2011 under Code Sec. 367
(so-called “Killer B” regulations) to deter transactions that the agency
indicated are inconsistent with the regulations (Notice 2014-32). The
IRS determined that taxpayers were exploiting the 2011 regulations to
avoid U.S. taxes and the recognition of gain.
Repatriated Dividends
The
Second Circuit applied the step-transaction doctrine to series of
transactions designed to masquerade a dividend payment to a U.S. parent
from its foreign subsidiary (Barnes Group, CA-2, 2014-2 USTC 00,498). The court also upheld the 20-percent penalty accuracy-related penalty.
D Reorganizations
The
IRS issued final regulations to prevent taxpayers engaging in all cash D
reorganizations from using the basis from a nominal share of stock to
claim inappropriate losses (TD 9702). The regulations are designed to
prevent taxpayers from claiming a built-in loss that normally is
eliminated.
Earnings and Profits
The
IRS has issued final regulations providing that, in a corporate
reorganization, the earnings and profits (E&P) of the target or
acquired corporation will become E&P of the acquiring corporation
(TD 9700). The final regulations provide certainty that all of the
E&P will remain with the acquiring corporation and that none of the
E&P would be acquired by a subsidiary.
IMPACT.
The
rules thus clarify how E&P carries over in a Code Sec. 381
transaction. The issue arises in the international context where the
parent may want to avoid dividend treatment by parking E&P with its
subsidiary.
2014 TAX DEVELOPMENTS—BY THE NUMBERS
| |
---|---|
The number of tax developments in 2014 was much greater than can
be highlighted in this Tax Briefing. Developments here were selected
based upon their impact on a broad cross-section of taxpayers, but
this selection is not comprehensive. The following chart lists the
number of 2014 tax developments reported by Wolters Kluwer, CCH over
the past year in each of the following categories:
| |
Tax Court Regular, Memo & Summary Decisions
|
417
|
District and Appellate Court Decisions
|
505
|
Treasury Regulations (Proposed & Final)
|
94
|
IRS Notices, Revenue Rulings & Procedures
|
175
|
IRS Letter Rulings, TAMs, CCAs
|
1,696
|
IRS Announcements & News Releases
|
156
|
REITs
The
IRS modified the asset test safe harbor for real estate investment
trusts (REITs) to ensure that an increase in the value of the REIT's
real property does not inadvertently reduce compliance with the 75
Percent Asset Test (Rev. Proc. 2014-51). The IRS also issued proposed
regulations that would “clarify” the definition of real estate assets
that may be owned by a real estate investment trust (REIT) (NPRM
REG-150760-13). The proposed regulations include solar energy facilities
as qualified investments.
S Corporation Basis
Final
regulations clarified when a shareholder of an S corporation can
increase basis in the S corporation because of the S corporation's
indebtedness to the shareholder (TD 9682). For a shareholder loan, the
debt must be bona fide; for a guarantee of S corporation debt, there
must be an actual outlay by the shareholder.
COMMENT
However,
a court of appeals affirmed that shareholders of an S corporation could
not increase their basis in their S corporation stock when the S
corporation's subsidiary converted to a qualified subchapter S
subsidiary (Ball, CA-3, 2014-1 USTC 750,176). Since the conversion was
tax-free, it did not generate an item of income that increased
shareholder basis.
PARTNERSHIPS
The IRS and the courts issued rulings and decisions affecting partnerships.
Hot Assets
The
IRS issued proposed regulations, with partial reliance, describing how a
partner should measure its interest in hot assets (unrealized
receivables and inventory items) (NPRM REG-151416-06). The regulations
also describe how to determine the tax consequences of a partnership
distribution that reduces the partner's interest in hot assets.
Historic Rehabilitation Tax Credits
The
IRS provided a safe harbor for partnerships that allocate historic
rehabilitation tax credits (HRTCs) to an investor in the partnership
(Rev. Proc. 2014-12). The IRS will not challenge the partnership's
allocation of credits to an investor if the safe harbor is satisfied.
Employment Taxes
The
IRS concluded that a disregarded entity (DE) that had been a
partnership should pay and report its employment tax obligations using
the partnership's tax identification number, not that of its sole owner
(CCA 201351018). Thus, the IRS had to deal with the DE in determining
who was liable for employment tax obligations.
INTERNATIONAL COMPLIANCE
The Foreign Account Tax Compliance Act (FATCA) dominated international news in 2014.
FATCA
FATCA
took effect July 1, 2014. In May 2014, the IRS provided transition
relief for calendar years 2014 and 2015 by announcing that it would not
take any enforcement action against withholding agents, foreign
financial institutions (FFIs) and others making a good-faith effort to
comply with FATCA, especially the regulations issued in February 2014.
The IRS also gave additional time to withholding agents and FFIs to
treat obligations held by entities (but not by individuals) as
preexisting obligations that would not be subject to due diligence and
withholding requirements until January 1, 2015.
OVDP
The
IRS also refined its Offshore Voluntary Disclosure Program (OVDP) for
U.S. taxpayers that have failed to report foreign assets and/or foreign
income. The IRS increased the penalties for willful violations to 50
percent in certain circumstances and tightened the requirements for
participating in the program. At the same time, the IRS expanded its
“streamlined procedures” for qualified taxpayers.
EXEMPT ORGANIZATIONS
Among other developments, the IRS issued new forms and final regulations affecting exempt organizations.
New Form 1023-EZ
The
IRS developed new Form 1023-EZ, Streamlined Application for Recognition
of Exemption Under �501(c)(3) of the Internal Revenue Code, which is a
simplified version of Form 1023 (IR-2014-77). Form 1023-EZ is meant for
smaller tax-exempt organizations with gross receipts of $50,000 or less
and assets of $250,000 or less.
COMMENT
The
IRS discontinued its polity set forth in Rev. Proc. 79-6, of allowing
taxpayers to use certain DOL forms as a substitute for the income
statement and balance sheet portions of Form 990, Return of Organization
Exempt From Income Tax (Rev. Proc. 2014-22).
Charitable Hospital Organizations
Final
“Code Sec. 501(r)” regulations elaborate on the additional requirements
imposed before a hospital can qualify for Section 501(c)(3) exempt
status (TD 9708). The final regulations provide that a hospital facility
failing to meet the community health needs assessment (CHNA)
requirements will be subject to an excise tax, notwithstanding its
correction and disclosure of the failure.
TAX ADMINISTRATION
Refunds
The
IRS announced that, to curtail refund fraud, it will limit the number
of refunds directly deposited into one financial account (www.irs.gov).
Starting in January 2015 direct deposit will be limited to three
refunds into one account. Any subsequent refund will automatically be
converted to a paper check and mailed to the address on the tax return.
ITINs
The
IRS announced that individual taxpayer identification numbers (ITINs)
will only expire if not used on a federal income tax return for five
consecutive years (IR-201476). The IRS will not begin deactivating
unused ITINs until 2016 to give taxpayers who have a valid ITIN time to
file a return during the 2015 filing season.
Whistleblowers
The
IRS issued comprehensive regulations on whistleblower awards, including
the filing of claims, eligibility for awards, collected proceeds,
disclosure, and IRS determinations (TD 9867). The IRS also released its
review of the Whisdeblower Office (Whistleblower Memorandum, August 20,
2014).
Summons Standard
The
U.S. Supreme Court held that a taxpayer has a right to conduct an
examination of IRS officials regarding their reasons for issuing a
summons when the taxpayer points to specific facts or circumstances
plausibly raising an inference of bad faith (Clarke, SCt., 2014-1
USTC 750,326). The Supreme Court held the taxpayer cannot offer just
naked allegations, but must offer some credible evidence to support the
claim of improper motive.
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