Mesquite Tax

WASHINGTON, D.C. (MAY 6, 2013) BY MICHAEL COHN

The Internal Revenue Service has issued final regulations requiring any person who has been assigned an Employer Identification Number to provide updated information to the IRS.

The regulations affect people and businesses with EINs and are aimed at enhancing the IRS’s ability to maintain accurate information about persons who have been assigned EINs. The regulations are expected to take effect in 2014.

The final regulations require any person assigned an EIN to provide updated information to the IRS in the manner and frequency prescribed by forms, instructions or other appropriate guidance.

The IRS noted in the regulations that the collection of this information is necessary to allow the IRS to gather correct application information with respect to persons who have EINs. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

“Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law,” said the regulations. Generally, tax returns and tax return information are confidential, as required by Section 6103 of the Tax Code.

The Treasury Department and the IRS originally published a notice of proposed rulemaking in the Federal Register, on March 14, 2012, requiring persons issued EINs to provide updated application information to the IRS. The IRS did not receive any requests for a public hearing, but several written comments were received. After considering all the comments, the proposed regulations were adopted without amendment.

Two commentators objected to the increased burden on entities resulting from the updating requirement and questioned the necessity of the requirement, and two suggested that the estimated annual average burden of 15 minutes provided in the Paperwork Reduction Act section of the proposed regulations underestimated the actual burden to entities and their agents. One commentator also argued that this rule is “material” because the related costs could reach over $100,000,000.

The Treasury and the IRS considered the objections, but concluded that updating the application information was necessary for effective tax administration. They noted that some EIN applicants continue to list individuals temporarily authorized to act on behalf of EIN applicants (sometimes referred to as “nominees”) as principal officers, general partners, grantors, owners, and trustors on EIN applications. “The listing of nominees or other individuals who are no longer associated with the entity prevents the IRS from gathering and maintaining correct and current information with respect to the responsible party for the EIN applicant,” said the IRS and the Treasury. “The requirement in the final regulations to provide updated application information will allow the IRS to ascertain the true responsible party for persons who have an EIN. This knowledge will prevent unnecessary delays by allowing the IRS to contact the correct persons when resolving a tax matter related to a business with an EIN. In addition, this information will help the IRS combat schemes that abuse the tax system through the use of nominees, which results in the concealing of the true responsible party for entities that hide assets and income.”

The Treasury and the IRS also concluded that the costs related to this rule are not “material,” any associated burden on entities resulting from this requirement would be minimal, and the costs and burden would be outweighed by the benefits to tax administration. They argued that an entity with an EIN would always know the identity of its appropriate responsible party, which is generally defined as the individual with the authority to control, manage or direct the entity and the disposition of its funds and assets. The updating requirement in the final regulations requires entities to keep the IRS informed of the identity of the responsible party.

WASHINGTON, D.C. (FEBRUARY 5, 2013)

The Internal Revenue Service is telling taxpayers to check the qualifications of tax preparers and their history in the aftermath of a stinging defeat in the court.

Last month, the Judge James E. Boasberg of the U.S. District Court for the District of Columbia ruled that the IRS has overstepped its statutory authority in requiring tax preparers to take mandatory competency exams and continuing education programs (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). He re-affirmed his earlier ruling last Friday, while making some clarifications allowing the IRS to re-open its Preparer Tax Identification Number registration system and allow preparers to take competency tests and continuing education on a voluntary basis (see Court Modifies Ruling Invalidating Tax Preparer Regulations).

On Tuesday, the IRS issued a Tax Tips email urging taxpayers to choose their preparers carefully. “Even if someone else prepares your return, you are legally responsible for what is on it,” the IRS warned.

The IRS then offered 10 tips to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications. All paid tax return preparers are required to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer belongs to a professional organization and attends continuing education classes.

2. Check on the preparer’s history.  Check with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses. For certified public accountants, check with the state boards of accountancy. For attorneys, check with the state bar associations. For enrolled agents, check with the IRS Office of Enrollment.

3. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers can. Also, always make sure any refund due is sent to you or deposited into an account in your name. Taxpayers should not deposit their refund into a preparer’s bank account.

4. Ask to e-file your return. Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. IRS has safely and securely processed more than one billion individual tax returns since the debut of electronic filing in 1990.

5. Make sure the preparer is accessible. Make sure you will be able to contact the tax preparer after you file your return, even after the April 15 due date. This may be helpful in the event questions arise about your tax return.

6. Provide records and receipts. Reputable preparers will request to see your records and receipts. They will ask you questions to determine your total income and your qualifications for deductions, credits and other items. Do not use a preparer who is willing to e-file your return by using your last pay stub before you receive your Form W-2. This is against IRS e-file rules.

7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

8. Review the entire return before signing. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or altered a return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Download the forms on the IRS.gov website or order them by mail at 800-TAX-FORM (800-829-3676).

SAN DIEGO (JANUARY 23, 2013)

BY MICHAEL COHN

Champion golfer Phil Mickelson is backing away from some recent comments in which he suggested he may need to move out of California to avoid the increasingly heavy tax burden in the state.

Mickelson, who has won four major PGA championships, said he will need to make some “drastic changes,” but admitted that he is not sure what to do yet.

“There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and it doesn’t work for me right now,” he said at a press conference Sunday, according to USA Today.

Last November, California voters approved a ballot measure raising taxes on wealthy residents, increasing the top tax rate to 12.3 percent for single taxpayers who earn $500,000 or more, and couples who earn over $1 million a year. Federal income taxes also increased this month to 39.6 percent for single taxpayers who earn over $400,000 a year and couples who make over $450,000 as a result of the fiscal cliff deal.

Mickelson cited high tax rates as one reason why he backed away from joining a group of investors in buying the San Diego Padres baseball team. He noted that he already pays high taxes.

“If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate’s 62, 63 percent,” he said. “So I’ve got to make some decisions on what I’m going to do.”

Mickelson took some criticism over his tax stance, which has been compared to French actor Gerard Depardieu’s move from France to Belgium because of a recent tax hike on the wealthy (see Gerard Depardieu Leaves France Because of Tax Hikes).

Mickelson released a statement Monday night apologizing for his comments. “Finances and taxes are a personal matter, and I should not have made my opinions on them public,” Mickelson said in a statement quoted by ESPN. “I apologize to those I have upset or insulted, and assure you I intend to not let it happen again.”

Besides his earnings from golf, Mickelson also earns endorsement money from several major corporate sponsors, as well as Big Four firm KPMG, whose logo he wears on his cap.

Another championship golfer, Tiger Woods, weighed in on the controversy Tuesday, claiming that taxes were one reason why he moved from California to Florida, which has no state income tax. “I moved out of here [California] back in ’96 for that reason,” Woods said, according to The Daily Caller. “I enjoy Florida, but also I understand what he [Mickelson] was, I think, trying to say.”

MIAMI (JANUARY 15, 2013)

O.J. Simpson is continuing to confront tax liens from the Internal Revenue Service, even though he is serving time in prison.

O.J. Simpson 
(photo by Gerald Johnson)

He was later convicted in 2008 of robbing a sports memorabilia dealer at a Las Vegas hotel room with a group of associates and sentenced to 33 years in prison in Nevada.

WASHINGTON, D.C. (JANUARY 8, 2013)

BY MICHAEL COHN

The Internal Revenue Service said Tuesday that it plans to open the 2013 tax filing season and begin processing individual income tax returns on Jan. 30, more than a week after the initially planned start date of Jan. 22, but some returns cannot be processed until late February or March.

The reason is the late passage of the fiscal cliff legislation, the American Taxpayer Relief Act, by Congress on New Year’s Day. The IRS said it would begin accepting individual tax returns on Jan. 30 after updating its forms and completing the programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers—more than 120 million households—should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension. The IRS has already begun processing some business tax returns (see IRS Begins Accepting Business Tax Returns).

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said in a statement. “This date ensures we have the time we need to update and test our processing systems.”

Miller had previously warned Congress about a delayed tax season until lawmakers decided what to do about the expiring tax rates and the alternative minimum tax (see IRS Warns Congress Tax Season Might Be Delayed until March or Later without AMT Patch).

The IRS said it would not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.

The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.

The IRS said it anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late AMT patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.