Implementation of Financial Accounting Standards Board Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) is required for fiscal years beginning after December 15, 2019

Client letter FASB ASU 2016-2

FASB lease template

Implementation of Governmental Accounting Standards Board Statement No. 87, “Leases” (“GASB 87") is required for fiscal years beginning after December 15, 2019.

Client letter GASB 87

GASB lease template

Financial Reporting for Pension Plans - an amendment of GASB 25 

Click here for GASB 67

Accounting and Financial Reporting for Pensions - an amendment of GASB 27

Click here for GASB 68

The Regional CPA Firm: Your Trusted Business Adviser

Regional CPA firms are great business advisers to the companies in their communities.  CPAs have long been the trusted business advisers for their clients, providing services to meet a wide range of business needs. Their services might include not only audit, accounting and tax, but also information technology, strategic planning and business valuation, as well as personal financial planning, estate planning and general business consulting. For those reasons, companies have long turned to CPA firms to help them understand and address their most pressing business questions.  And regional CPA firms don't simply deliver services, they provide the kinds of customized, hands-on advice and insights that their clients need to achieve their business goals.

Would you would like to learn more about all a regional CPA firm has to offer?  If so, please contact:

McMahan and Associates, LLC

Committed A committed component of fund balance would have most likely been previously reported within unreserved, designated fund balance. They are resources whose use is constrained by a limitation that a government imposes upon itself at its highest decision making level (i.e., council/commissioners) and remains binding unless the constraint is removed in the same manner in which it was placed.  For these items, please have the ordinance/ resolution/ approval available during fieldwork to determine the proper amount.   As an example, previous unreserved designated fund balances that we feel would meet this category are “designated for housing loan programs”, “designated for encumbrances” (if governing approval required).

Assigned An assigned component of fund balance would have most likely been previously reported within unreserved, undesignated fund balance.  This amount would reflect a government’s “intended use of the resource”.  Therefore, remaining fund balances for capital projects and special revenue funds not constrained by the previous fund balance components would be reported here.

Unassigned If an amount does not fit any other component listed above, these amounts would be reported within this category but, usually only for the General Fund. This component may be reported in another governmental fund only if the fund is in a deficit situation.

We are asking each of our clients to review their current chart of accounts in order to update accounts used to currently track this information. Certain accounts may not be currently maintained within the chart of accounts (non-spendable); if this is the case, this data may only be captured within the drafted financial statements. For those instances, we will discuss during fieldwork whether it is necessary to add to the current chart of accounts or not.

As information, if any, arises that affects implementation, we will notify you as soon as possible.  Please feel free to contact us with any questions or concerns. During fieldwork, we will be spending some time to go over the specific needs of each of our clients.

Condominium associations, which may include property owner associations, and time-share or interval ownership associations, are responsible for maintaining and preserving the association’s common property.

Condominium associations, which may include property owner associations, and time-share or interval ownership associations, are responsible for maintaining and preserving the association’s common property.

Typically, associations are incorporated under state non-profit statutes, since these entities do not issue capital stock or have shareholders.  That is, the net income or losses of the association do not flow to the owner/members.  However, incorporation as a non-profit does not equate to exemption from income taxes, and all associations must file annual tax returns.  Most associations will be required to file either Form 1120 (U.S. Corporation Income Tax Return) or Form 1120-H (U.S. Income Tax Return for Homeowner Associations).

An association filing Form 1120 would be subject to regular graduated corporate tax rates (beginning at 15% of the first $50,000 of taxable income) on its net taxable income.  Taxable income is comprised of revenues earned from sources other than common assessments or from the provision of services for members/owners of the association (e.g., investment income, rentals, vending, or fees earned from parties other than the owner/members) reduced by expenses incurred in generating these revenues (e.g., investment account fees, management fees, professional fees, rental expenses, vending supplies, etc.).

Generally, time-share associations and associations which are considered “substantially residential” (based on IRS criteria) would file Form 1120-H.  Note that the IRS’ definition of “substantially residential” incorporates an evaluation of the percentage of units participating in short-term rentals.  Form 1120-H imposes a flat tax rate of 30% (32% for time-shares) on the association’s net taxable income, which is largely similar to the concept of taxable income discussed above.

Common misconceptions frequently encountered when discussing association income taxes include the following:

• “Our association reported a net income (loss) on our financial statements; therefore we will report the same amount as taxable income (loss) for the year.”  Taxable income for an association is calculated differently than net income for financial statement purposes.
• “Income earned from investments held in the Replacement Fund isn’t taxable”.  All interest income is considered taxable regardless of the fund in which it is reported.
• “Transferring Operating Fund net income to the Replacement Fund will minimize our association’s taxable liability.”  Transfers between funds do not have a direct impact on the amount of income taxes paid by the association.

Recent IRS scrutiny of association income tax returns has resulted in numerous court rulings, revenue procedures, and amendments to the Internal Revenue Code.  The tax professionals at McMahan and Associates work to ensure that your association’s tax return complies with applicable tax guidance, while minimizing your tax liability.  If you have questions regarding your association’s specific tax situation, please don’t hesitate to contact us.

The gap between taxes owed and taxes collected by the Internal Revenue Service could be approaching $1 trillion, IRS Commissioner Charles Rettig told members of the House Committee on Oversight and Reform’s Government Operations Subcommittee as he advocated for more funding for the agency.

The gap between taxes owed and taxes collected by the Internal Revenue Service could be approaching $1 trillion, IRS Commissioner Charles Rettig told members of the House Committee on Oversight and Reform’s Government Operations Subcommittee as he advocated for more funding for the agency.

During an April 21, 2022, hearing of the subcommittee, Rettig noted updated tax gap figures for the three-year period of 2012-2014, along with projections through 2019, will be released this summer. However, those projections do not account for the growth in cryptocurrency, which could be widening the tax gap beyond the current calculations and projections.

"What is not in those estimates is virtual currencies, and there is over a $2 trillion market cap for virtual currencies," Rettig testified before the committee. "Last year, there was over $14 trillion in transactions in virtual currencies and the United States, if you view relative GDP, is somewhere between 35 and 43 percent of that $14 trillion."

He said that knowledge generated from John Doe summons activity in these space reveals "that the compliance issues in the virtual currency space are significantly low."

"The tax gap estimates that the IRS prepares are based on information that the IRS is able to determine, not information that we know is out there but we are not able to determine," Rettig said, adding that the agency is trying to get more information about virtual currencies through adding questions on the Form 1040, first on Schedule L and then moving it to page one of the Form 1040 last year "to try to enhance compliance."

He added that the agency is looking to get more into that area.

The comments on the tax gap and the need to be able to tackle compliance in the cryptocurrency space underscores the agency’s need for more funding as requested in the White House budget request for fiscal year 2023.

In his written testimony submitted to the committee, Rettig noted that the agency "can no longer audit a respectable percentage of large corporations, and we are often limited in the issues reviewed among those we do audit. These corporations can afford to spend large amounts on legal counsel, drag out proceedings and bury the government in paper. We are, quite simply, ‘outgunned’ in our efforts to assure a high degree of compliance for these taxpayers."

He wrote that it is "unacceptable" that corporations and the wealthiest individuals have such an advantage to push back on the nation’s tax administrator.

"We must receive the resources to hire and train more specialists across a wide range of complex areas to assist with audits of entities (taxable, pass-through and tax-exempt) and individuals (financial products; engineering; digital assets; cross-border activities; estate and gift planning; family offices; foundations; and many others)," his written testimony states.

Rettig wrote that the agency current has fewer than 2,000 revenue officers, "the lowest number of field collection personnel since the 1970s," to handle more than 100,000 collection cases in active inventory.

He continued: "In addition to our active inventory, we have over 1.5 million cases (more than 500,000 of which are considered high priority) awaiting assignment to these same 2,000 revenue officers. We have classified roughly 85 percent of those cases as high priority, many of which involve delinquent business employment taxes."

The lack of funding is also hampering criminal investigations.

"Much like other operating divisions in the IRS, CI is close to its lowest staffing level in the past 30 years. With fewer agents, we have fewer cases and fewer successful convictions," he stated in the written testimony.

Much of this also is compounded by the ancient IT infrastructure at the agency, another reason Rettig advocated during the hearing for more funding.

"Limited IT resources preclude us from building adequate solutions for efficiently matching or reconciling data from multiple sources," he wrote. "As a result, we are often left with manual processes to analyze reporting information we receive."

Retting specifically highlighted the Foreign Account Tax Compliance Act, which Congress enacted in 2010 but, according to Retting, has yet to appropriate the funding necessary for its implementation.

"This situation is compounded by the fact that when we do detect potential non-compliance or fraudulent behavior through manually generated FATCA reports, we seldom have sufficient funding to pursue the information and ensure proper compliance," he wrote. "We have an acute need for additional personnel with specialized training to follow cross-border money flows. They will help ensure tax compliance by improving our capacity to detect unreported accounts and income generated by those accounts, as well as the sources of assets in offshore accounts."

Internal Revenue Service Commissioner Charles Rettig remained positive that the agency will be able to return to a normal backlog of unprocessed returns and other mail correspondence by the end of the year and noted progress on hiring more people to help clear the backlog.

Internal Revenue Service Commissioner Charles Rettig remained positive that the agency will be able to return to a normal backlog of unprocessed returns and other mail correspondence by the end of the year and noted progress on hiring more people to help clear the backlog.

"With respect to our current 2022 filing season, we are off to a healthy start in terms of tax processing and the operation of our IT systems," Rettig told members of the Senate Finance Committee during an April 7 hearing to discuss the White House budget request and update the panel on the current tax filing season. "Through April 1, we have processed more than 89 million returns and issued more than 63 million refunds totaling more than $204 billion."

Getting that backlog cleared has been bolstered in part by a direct hiring authority given to the agency in the recent passage of the fiscal year 2022 omnibus budget, Rettig told the committee.

The effectiveness of that hiring authority was highlighted in his written testimony submitted prior to the hearing, where Rettig stated that in-person and virtual job fairs near processing facilities in Austin, Kansas City, and Ogden, Utah, attracted eligible applicants for more than 5,000 vacancies and "we have been able to make more than 2,500 conditional offers at the conclusion of the interviews."

Rettig said the direct hiring authority is only related to those lower paygrade processing/customer service positions and the agency is going to ask Congress to expand that authority, although he did not specify what types of positions would be hired as part of that expansion.

The IRS addressed the following common myths about tax refunds:

The IRS addressed the following common myths about tax refunds:

• Myth 1: Calling the IRS or visiting an IRS office speeds up a refund. The best way to check the status of a refund is online through the “Where’s My Refund?” tool. Taxpayers can also call the automated refund hotline at 800-829-1954.

• Myth 2: Taxpayers need to wait for their 2020 return to be processed before filing their 2021 return. Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns. They should file when they are ready. Individuals with unprocessed 2020 tax returns, should enter zero dollars for last year's Adjusted Gross Income (AGI) on their 2021 tax return when filing electronically.

• Myth 3: Taxpayers can get a refund date by ordering a tax transcript. Ordering a tax transcript will not inform taxpayers of the timing of their tax refund, nor will it speed up a refund being processed. Taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

• Myth 4: "Where’s My Refund?" must be wrong because there is no deposit date yet. While the IRS issues most refunds in less than 21 days, it is possible a refund may take longer for a variety of reasons. Delays can be caused by simple errors including an incomplete return, transposed numbers, or when a tax return is affected by identity theft or fraud.

• Myth 5: "Where’s My Refund?" must be wrong because a refund amount is less than expected. Different factors can cause a tax refund to be larger or smaller than expected. The IRS will mail the taxpayer a letter of explanation if these adjustments are made.

• Myth 6: Calling a tax professional will provide a better refund date. Contacting a tax professional will not speed up a refund. Tax professionals cannot move up a refund date nor do they have access to any special information that will provide a more accurate refund date.

• Myth 7: Getting a refund this year means there is no need to adjust tax withholding for 2022. Taxpayers should continually check their withholding and adjust accordingly. Adjusting tax withholding with an employer is easy and using the Tax Withholding Estimator tool can help taxpayers determine if they are withholding the right amount from their paycheck.

As of the week ending April 1, the IRS has sent out more than 63 million refunds worth over $204 billion. The IRS reminded taxpayers the easiest way to check on a refund is the "Where’s My Refund?" tool. This tool can be used to check the status of a tax return within 24 hours after a taxpayer receives their e-file acceptance notification. Taxpayers should only call the IRS tax help hotline to talk to a representative if it has been more than 21 days since their tax return was e-filed, or more than six weeks since mailing their return.

The IRS has informed taxpayers that the agency issues most refunds in less than 21 days for taxpayers who filed electronically and chose direct deposit. However, some refunds may take longer. The IRS listed several factors that can affect the timing of a refund after the agency receives a return.

The IRS has informed taxpayers that the agency issues most refunds in less than 21 days for taxpayers who filed electronically and chose direct deposit. However, some refunds may take longer. The IRS listed several factors that can affect the timing of a refund after the agency receives a return. A manual review may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud. Other returns can also take longer to process, including when a return needs a correction to the Child Tax Credit amount or includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process. The fastest way to get a tax refund is by filing electronically and choosing direct deposit. Taxpayers who don’t have a bank account can find out more on how to open an account at an FDIC-Insured bank or the National Credit Union Locator Tool.

Further, the IRS cautioned taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Taxpayers should also take into consideration the time it takes for a financial institution to post the refund to an account or to receive it by mail. Before filing, taxpayers should make IRS.gov their first stop to find online tools to help get the information they need to file. To check the status of a refund, taxpayers should use the Where’s My Refund? tool on IRS.gov. The IRS will contact taxpayers by mail when more information is needed to process a return. IRS representatives can only research the status of a refund if it has been: 21 days or more since it was filed electronically; six weeks or more since a return was mailed; or when the Where's My Refund? tool tells the taxpayer to contact the IRS.

Additionally, taxpayers whose tax returns from 2020 have not yet been processed should still file their 2021 tax returns by the April due date or request an extension to file. Those filing electronically in this group need their Adjusted Gross Income (AGI) from their most recent tax return. Those waiting on their 2020 tax return to be processed should enter zero dollars for last year's AGI on the 2021 tax return. When self-preparing a tax return and filing electronically, taxpayers must sign and validate the electronic tax return by entering their prior-year AGI or prior-year Self-Select PIN (SSP). Those who electronically filed last year may have created a five-digit SSP. Generally, tax software automatically enters the information for returning customers. Taxpayers who are using a software product for the first time may have to enter this information.

The IRS reminded educators that they will be able to deduct up to $300 of out-of-pocket classroom expenses when they file their federal income tax return for tax year 2022. This is the first time the annual limit has increased since 2002.

The IRS reminded educators that they will be able to deduct up to $300 of out-of-pocket classroom expenses when they file their federal income tax return for tax year 2022. This is the first time the annual limit has increased since 2002. For tax years 2002 through 2021, the limit was $250 per year. The limit will rise in $50 increments in future years based on inflation adjustments. For 2022, if an eligible educator is married and files a joint return with another eligible educator, the limit rises to $600 but not more than $300 for each spouse.

Educators can claim this deduction even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during the school year. Both public- and private-school educators qualify. Educators can deduct the unreimbursed cost of:

• books, supplies, and other materials used in the classroom;
• equipment, including computer equipment, software, and services;
• COVID-19 protective items to stop the spread of the disease in the classroom; and
• professional development courses related to the curriculum they teach or the students they teach.

Qualified expenses do not include expenses for homeschooling or nonathletic supplies for courses in health or physical education. The IRS also reminded educators that for tax year 2021, the deduction limit is $250. If they are married and file a joint return with another eligible educator, the limit rises to $500 but not more than $250 for each spouse.

Taxpayers who may need to take additional actions related to Qualified Opportunity Funds (QOFs) should begin receiving letters from the IRS in April. Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may receive Letter 6501, Qualified Opportunity Fund (QOF) Investment Standard. This letter lets them know that information needed to support the annual certification of investment standard is missing, invalid or the calculation isn’t supported by the amounts reported. If they intend to maintain their certification as a QOF, they may need to take additional action to meet the annual self-certification of the investment standard requirement.

Taxpayers who may need to take additional actions related to Qualified Opportunity Funds (QOFs) should begin receiving letters from the IRS in April. Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may receive Letter 6501, Qualified Opportunity Fund (QOF) Investment Standard. This letter lets them know that information needed to support the annual certification of investment standard is missing, invalid or the calculation isn’t supported by the amounts reported. If they intend to maintain their certification as a QOF, they may need to take additional action to meet the annual self-certification of the investment standard requirement.

To correct the annual maintenance certification of the investment standard, taxpayers should file an amended return or an administrative adjustment request (AAR). If an entity that receives the letter fails to act, the IRS may refer its tax account for examination. Additionally, taxpayers may receive Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments, or Letter 6503, Annual Reporting Of Qualified Opportunity Fund (QOF) Investments. These letters notify them that they may not have properly followed the instructions for Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments. This may happen if it appears that they may not have properly followed the requirements to maintain their qualifying investment in a QOF with the filing of the form.

Finally, if these taxpayers intend to maintain a qualifying investment in a QOF, they can file an amended return or an AAR with a properly completed Form 8997 attached. Failure to act will mean those who received the letter may not have a qualifying investment in a QOF and the IRS may refer their tax accounts for examination.

The IRS informed taxpayers that it will send Notices CP2100 and CP2100A notices to financial institutions, businesses, or payers who filed certain types of information returns that do not match IRS records, beginning mid-April 2022.

The IRS informed taxpayers that it will send Notices CP2100 and CP2100A notices to financial institutions, businesses, or payers who filed certain types of information returns that do not match IRS records, beginning mid-April 2022. These information returns include:

• Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
• Form 1099-DIV, Dividends and Distributions
• Form 1099-G, Certain Government Payments
• Form 1099-INT, Interest Income
• Form 1099-K, Payment Card and Third-Party Network Transactions
• Form 1099-MISC, Miscellaneous Income
• Form 1099-NEC, Nonemployee Compensation
• Form 1099-OID, Original Issue Discount
• Form 1099-PATR, Taxable Distributions Received from Cooperatives
• Form W-2G, Certain Gambling Winnings

These notices inform payers that the information return is missing a Taxpayer Identification Number (TIN), has an incorrect name or a combination of both. Each notice has a list of payees or the persons receiving certain types of income payments with identified TIN issues. Taxpayers need to compare the accounts listed on the notice with their account records and correct or update their records, if necessary. This can also include correcting backup withholding on payments made to payees. The notices also inform payers that they are responsible for backup withholding. Payments reported on these information returns are subject to backup withholding if:

• The payer does not have the payee’s TIN when making the reportable payments.
• The payee does not certify their TIN as required for reportable interest, dividend, broker and barter exchange accounts.
• The IRS notifies the payer that the payee furnished an incorrect TIN and the payee does not certify its TIN as required.
• The IRS notifies the payer to begin backup withholding because the payee did not report all of its interest and dividends on its tax return.

The IRS has issued a guidance stating that government employees who receive returns or return information pursuant to disclosures under Code Sect. 6103(c), are subject to the disclosure restrictions, like all designees who receive returns or return information pursuant to taxpayer consent. Further, government employees who receive returns or return information pursuant to disclosures under Code Sec. 6103(k)(6) or (e), other than Code Sec. 6103(e)(1)(D)(iii) (relating to certain shareholders), are not subject to the disclosure restrictions with regard to the returns or return information received.

The IRS has issued a guidance stating that government employees who receive returns or return information pursuant to disclosures under Code Sect. 6103(c), are subject to the disclosure restrictions, like all designees who receive returns or return information pursuant to taxpayer consent. Further, government employees who receive returns or return information pursuant to disclosures under Code Sec. 6103(k)(6) or (e), other than Code Sec. 6103(e)(1)(D)(iii) (relating to certain shareholders), are not subject to the disclosure restrictions with regard to the returns or return information received.

Background

Section 2202 of the Taxpayer First Act (TFA), P.L. 116-25, amended Code Sec. 6103(a)(3) and (c) to limit redisclosures and uses of return information received pursuant to the staxpayer consent exception. Code Sec. 6103(c), as amended by the TFA, explicitly prohibits designees from using return information for any reason other than the express purpose for which the taxpayer grants consent and from redisclosing return information without the taxpayer’s express permission or request. Further, Code Sec. 6103(a)(3), as amended by the TFA, imposes disclosure restrictions on all recipients of return information under Code Sec. 6103(c). The TFA did not amend Code Sec. 6103(e) or (k)(6), or Code Sec. 6103(a) with respect to disclosures under Code Sec. 6103(e) or (k)(6).

Disclosure Restrictions

The IRS cited seven situations where disclosure restrictions of Code Sec. 6103(a) would or would not be applicable with regard to returns or return information received as a result of disclosure under:

• Code Sec. 6103(c) with the consent of the taxpayer (taxpayer consent exception),
• Code Sec. 6103(e) as a person having a material interest, but not under Code Sec. 6103(e)(1)(D)(iii) relating to disclosures to certain shareholders (material interest exception), or
• Code Sec. 6103(k)(6) for investigative purposes (investigative disclosure exception).

Effect on Other Documents

Rev. Rul. 2004-53, I.R.B. 2004-23, has been modified and superseded.

The IRS has provided a waiver for any individual who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in a foreign country precluded the individual from meeting the requirements for the 2021 tax year. Qualified individuals may exempt from taxation their foreign earned income and housing cost amounts.

The IRS has provided a waiver for any individual who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in a foreign country precluded the individual from meeting the requirements for the 2021 tax year. Qualified individuals may exempt from taxation their foreign earned income and housing cost amounts.

Relief Provided

The countries for which the eligibility requirements have been waived for 2021 are Iraq, Burma, Chad, Afghanistan and Ethiopia. Accordingly, an individual who left the following countries beginning on the specified date will be treated as a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of the country: (1) Iraq on or after January 19, 2021; (2) Burma on or after March 30, 2021; Chad on or after April 17, 2021; (4) Afghanistan on or after April 27, 2021, and; (5) Ethiopia on or after November 5, 2021. Individuals who left the above mentioned countries must establish a reasonable expectation that he or she would have met the requirements of Code Sec. 911(d)(1) but for those adverse conditions. Further, individuals who established residency, or were first physically present in Iraq, after January 19, 2021, are not eligible for the waiver. Taxpayers who need assistance on how to claim the exclusion, or how to file an amended return, should consult the section under the heading "Foreign Earned Income Exclusion" at https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad; consult the section under the heading How to Get Tax Help at the same web address; or contact a local IRS office.

The Supreme Court reversed and remanded a Court of Appeals decision and held that Code Sec. 6330(d)(1)’s 30-day time limit to file a petition for review of a collection due process (CDP) determination is an ordinary, nonjurisdictional deadline subject to equitable tolling in appropriate cases. The taxpayer had requested and received a CDP hearing before the IRS’s Independent Office of Appeals pursuant to Code Sec. 6330(b), but the Office sustained the proposed levy. Under Code Sec. 6330(d)(1), the taxpayer had 30 days to petition the Tax Court for review. However, the taxpayer filed its petition one day late. The Tax Court dismissed the petition for lack of jurisdiction and the Court of Appeals for the Eighth Circuit affirmed, agreeing that Code Sec. 6330(d)(1)’s 30- day filing deadline is jurisdictional and thus cannot be equitably tolled.

The Supreme Court reversed and remanded a Court of Appeals decision and held that Code Sec. 6330(d)(1)’s 30-day time limit to file a petition for review of a collection due process (CDP) determination is an ordinary, nonjurisdictional deadline subject to equitable tolling in appropriate cases. The taxpayer had requested and received a CDP hearing before the IRS’s Independent Office of Appeals pursuant to Code Sec. 6330(b), but the Office sustained the proposed levy. Under Code Sec. 6330(d)(1), the taxpayer had 30 days to petition the Tax Court for review. However, the taxpayer filed its petition one day late. The Tax Court dismissed the petition for lack of jurisdiction and the Court of Appeals for the Eighth Circuit affirmed, agreeing that Code Sec. 6330(d)(1)’s 30- day filing deadline is jurisdictional and thus cannot be equitably tolled.

Nonjurisdictional Nature of Filing Deadline

The Supreme Court analyzed the text of Code Sec. 6330(d)(1) and stated that the only contention is whether the provision limits the Tax Court’s jurisdiction to petitions filed within the 30-day timeframe. The taxpayer contended that it referred only to the immediately preceding phrase of the provision: a "petition [to] the Tax Court for review of such determination." and so the filing deadline was independent of the jurisdictional grant. The IRS, on the contrary, argued that "such matter" referred to the entire first clause of the sentence, which includes the deadline and granting jurisdiction only over petitions filed within that time. However, the Supreme Court held the nature of the filing deadline to be nonjurisdictional because the IRS failed to satisfy the clear-statement rule of the jurisdictional condition. It also stated that where multiple plausible interpretations exist, it is difficult to make the case that the jurisdictional reading is clear. Moreover, Code Sec. 6330(e)(1)’s clear statement—that "[t]he Tax Court shall have no jurisdiction . . . to enjoin any action or proceeding unless a timely appeal has been filed"—highlighted the lack of such jurisdictional clarity in Code Sec. 6330(d)(1).

Equitable Tolling of Filing Deadline

The Supreme Court remanded the case to the Court of Appeals for the Eighth Circuit to decide whether the taxpayer was entitled to equitable tolling of the filing deadline. However, the Supreme Court did emphasize that Code Sec. 6330(d)(1) did not expressly prohibit equitable tolling, and its 30-day time limit was directed at the taxpayer, not the court. Further, the deadline mentioned in the provision was not written in an emphatic form or with detailed and technical language, nor was it reiterated multiple times. The IRS’ argument that tolling the Code Sec. 6330(d)(1) deadline would create much more uncertainty, was rejected. The Supreme Court concluded that the possibility of equitable tolling for relatively small number of petitions would not appreciably add to the uncertainty already present in the process.

The Government Accountability Office (GAO) has issued a report on IRS’ performance during the 2021 tax filing season. The report assessed IRS’ performance during the 2021 filing season on: (1) processing individual and business income tax returns; and (2) providing customer service to taxpayers. GAO analyzed IRS documents and data on filing season performance, refund interest payments, hiring and employee overtime. GAO also interviewed cognizant officials.

The Government Accountability Office (GAO) has issued a report on IRS’ performance during the 2021 tax filing season. The report assessed IRS’ performance during the 2021 filing season on: (1) processing individual and business income tax returns; and (2) providing customer service to taxpayers. GAO analyzed IRS documents and data on filing season performance, refund interest payments, hiring and employee overtime. GAO also interviewed cognizant officials.

Report Findings

GAO found that the IRS faced multiple challenges and struggled to respond to an unprecedented workload that included delivering COVID-19 relief. The IRS began the 2021 filing season with a backlog of 8 million individual and business returns from the prior year. The IRS reduced the backlog of prior year returns, but in December 2021, had about 10.5 million returns to process from 2021. The IRS suspended and reviewed 35 million returns with errors primarily due to new or modified tax credits. GAO found that some categories of errors occur each year, however, the IRS does not assess the underlying causes of taxpayer errors on returns. Additionally, the IRS paid nearly $14 billion in refund interest in the last 7 fiscal years, with $3.3 billion paid in fiscal year 2021. However, the IRS does not identify, monitor, and mitigate issues contributing to refund interest payments.

Recommendations

GAO made six recommendations, including that the IRS should assess reasons for tax return errors and refund interest payments and take action to reduce them; modernize its “Where's My Refund” application; address its backlog of correspondence; and assess its in-person service model. The IRS agreed with four recommendations and disagreed with two. The IRS said its process for analyzing errors is robust and that the amount of interest paid is not a meaningful business measure.

Despite the 16-day government shutdown in October, a number of important developments took place impacting the Patient Protection and Affordable Care Act, especially for individuals and businesses. The Small Business Health Option Program (SHOP) was temporarily delayed, Congress took a closer look at income verification for the Code Sec. 36B premium assistance tax credit, and held a hearing on the Affordable Care Act's employer mandate. Individuals trying to enroll in coverage through HealthCare.gov also experienced some technical problems in October.

Despite the 16-day government shutdown in October, a number of important developments took place impacting the Patient Protection and Affordable Care Act, especially for individuals and businesses. The Small Business Health Option Program (SHOP) was temporarily delayed, Congress took a closer look at income verification for the Code Sec. 36B premium assistance tax credit, and held a hearing on the Affordable Care Act's employer mandate. Individuals trying to enroll in coverage through HealthCare.gov also experienced some technical problems in October.

SHOP

The Affordable Care Act created two vehicles to deliver health insurance: Marketplaces for individuals and the SHOP for small businesses. Marketplaces launched as scheduled on October 1 in every state and the District of Columbia. Qualified individuals can enroll in a Marketplace to obtain health insurance. Coverage through a Marketplace will begin January 1, 2014.

The October 1 start of SHOP, however, was delayed. Small employers may start the application process on October 1, 2013 but all functions of SHOP will not be available until November, the U.S. Department of Health and Human Services (HHS) reported. If employers and employees enroll by December 15, 2013, coverage will begin January 1, 2014, HHS explained.

SHOP is closely related to the Code Sec. 45R small employer health insurance tax credit. This tax credit is designed to help small employers offset the cost of providing health insurance to their employees. After 2013, small employers must participate in SHOP to take advantage of the Code Sec. 45R tax credit. For tax years beginning during or after 2014, the maximum Code Sec. 45R credit for an eligible small employer (other than a tax-exempt employer) is 50 percent of the employer's premium payments made on behalf of its employees under a qualifying arrangement for QHPs offered through a SHOP Marketplace. The maximum credit for tax-exempt employers for those years is 35 percent. Maximum and minimum credits are based upon the level of employee wages. If you have any questions about SHOP and the Code Sec. 45R credit, please contact our office.

Code Sec. 36B tax credit

Effective January 1, 2014, qualified individuals may be eligible for the Code Sec. 36B premium assistance tax credit to help pay for health coverage through a Marketplace. The credit is linked to household income in relation to the federal poverty line (FPL). Generally, taxpayers whose household income for the year is between 100 percent and 400 percent of the federal poverty line for their family size may be eligible for the credit.

When taxpayers apply for coverage in a Marketplace, the Marketplace will estimate the amount of the Code Sec. 36B credit that the taxpayer may be able to claim for the tax year. Based upon the estimate made by the Marketplace, the individual can decide if he or she wants to have all, some, or none of the estimated credit paid in advance directly to the insurance company to be applied to monthly premiums. Taxpayers who do not opt for advance payment may claim the credit when they file their federal income tax return for the year.

The October 16 agreement to reopen the federal government directed HHS to certify to Congress that Marketplaces verify eligibility for the Code Sec. 36B credit. HHS must submit a report to Congress by January 1, 2014 on the procedures for verifying eligibility for the credit and follow-up with a report by July 1, 2014 on the effectiveness of its income verification procedures.

Employer mandate

The Affordable Care Act generally requires an applicable large employer to make an assessable payment (a penalty) if the employer fails to offer minimum essential health coverage and a number of other requirements are not met. The employer mandate was scheduled to take effect January 1, 2014. However, the Obama administration delayed it for an additional year, to 2015.

In October, the House Small Business Committee heard testimony on the definition of full-time employee status for purposes of the employer mandate. An applicable large employer for purposes of the employer mandate is an employer that employs at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50. A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week.

Employers testifying before the GOP-chaired committee urged an increase in the 30-hour threshold. "Many small businesses simply cannot afford to provide coverage to employees who average 30 hours per week," the owner of a supermarket told the committee. "Business owners will have to make tough choices and many part-time employees will face reduced hours," he added. "Many franchise businesses are being turned upside down by the new costs, complexities and requirements of the law," another business owner told the committee.

Legislation (HR 2575) has been introduced in the House to repeal the 30-hour threshold for classification as a full-time equivalent employee for purposes of the employer mandate and to replace it with 40 hours. The bill has been referred to the House Ways and Means Committee.

HealthCare.gov

As has been widely reported, the individuals seeking to enroll in Marketplace coverage through HealthCare.gov experienced some online problems in October. The U.S. Department of Health and Human Services (HHS) has undertaken a comprehensive review of HealthCare.gov. In the meantime, HHS reminded individuals that in-person assistance centers are open as are customer call centers.

Enrollment

The Affordable Care Act generally requires individuals to carry health insurance after 2013 or make a shared responsibility payment (also known as a penalty). For 2014, the penalty is $95 or the flat fee of one percent of taxable income, $325 in 2015 or the flat fee of two percent of taxable income, $695 in 2016 or 2.5 percent of taxable income (the $695 amount is indexed for inflation after 2016).

Open enrollment in the Affordable Care Act's Marketplaces began October 1, 2013 and runs through March 31, 2014. The enrollment period overlaps with the January 1, 2014 requirement to carry health insurance or make a shared responsibility payment. On social media, the Obama administration clarified that individuals who enroll in coverage through a Marketplace at anytime during the enrollment period will not be responsible for a penalty.

If you have any questions about these developments or the Affordable Care Act in general, please contact our office.

No, taxpayers may destroy the original hardcopy of books and records and the original computerized records detailing the expenses of a business if they use an electronic storage system.

Business often maintain their books and records by scanning hardcopies of their documents onto a computer hard drive, burning them onto compact disc, or saving them to a portable storage device. The IRS classifies records stored in this manner as an "electronic storage system." Businesses using an electronic storage system are considered to have fulfilled IRS records requirements for all taxpayers, should they meet certain requirements. And, they have the freedom to reduce the amount of paperwork their enterprise must manage.

Record-keeping requirements

Code Sec. 6001 requires all persons liable for tax to keep records as the IRS requires. In addition to persons liable for tax, those who file informational returns must file such returns and make use of their records to prove their gross income, deductions, credits, and other matters. For example, businesses must substantiate deductions for business expenses with appropriate records and they must file informational returns showing salaries and benefits paid to employees.

It is possible for businesses using an electronic storage system to satisfy these requirements under Code Sec. 6001. However, they must fulfill certain obligations.

Paperwork reduction

In addition, using an electronic storage system may allow businesses to destroy the original hardcopy of their books and records, as well as the original computerized records used to fulfill the record-keeping requirements of code Sec. 6001. To take advantage of this option, taxpayers must:

(1) Test their electronic storage system to establish that hardcopy and computerized books and records are being reproduced according to certain requirements, and

(2) Implement procedures to assure that its electronic storage system is compliant with IRS requirements into the future.

Our firm would be glad to work with you to meet the IRS's specifications, should you want to establish a computerized recordkeeping system for your business. The time spent now can be worth considerable time and money saved by a streamlined and organized system of receipts and records.

Q. I use my computer for both business and pleasure and I am confused about how much I can deduct. Also, how are PDAs such as Palm Pilots, etc. deducted for tax purposes?

A. Because computers and peripheral equipment are viewed as more susceptible than other business property to unwarranted deductions for personal use, they are subject to special scrutiny under the tax law. This scrutiny comes from their classification as "listed property," which limits the amount that may be deducted each year.

A computer as listed property only becomes an issue if it is not used exclusively in business. If a computer is used exclusively at the taxpayer's regular business establishment or in the taxpayer's principal trade or business, the listed property limitations don't apply at all.

Any computer that you use predominately for pleasure may not be written-off over its life nearly as quickly as exclusive-use computers. If your business usage does not meet the predominant use test, you are relegated to using a much slower depreciation method (the ADS, straight-line method) over the longer-ADS recovery period.

Your computer will meet the predominant use test for any tax year if its qualified business use is more than 50% of its total use. You must review your computer's usage and determine the percentage usage for each of its various uses (business, investment, and personal). When computing the predominant use test, any investment use of your computer cannot be considered as part of the percentage of qualified business use. However, you do use the combined total of business and investment use to figure your depreciation deduction for the property. It's up to you to prove business use to the IRS; the IRS does not need to prove personal use to reject your deductions.

In order to claim your computer expenses, you must meet the adequate records requirements by maintaining a "log" or other documentary evidence that sufficiently establishes the business/investment percentage claimed. The log should be similar to a log you would keep to track your auto expenses, indicating date, time of usage, business or nonbusiness, and business reason. Good documentation is always the key to success if your return is ever audited.

Finally, what about application of these rules to PDA's? The shorter the designated "life" of the property, the faster you can write-off its cost. Cell phones are generally considered 7-year property (the cost is depreciated over seven years). Computers are generally considered 5-year property, and computer-software normally is 3-year property. PDA's are generally classified as 5-year property, being considered wireless computers. If a PDA includes a cell phone feature, as long as that feature is not predominant and removable, it continues to fall under the 5-year property rule. Software that you may download to your PDA is 3-year property. Software that you buy already loaded into the PDA, however, is 5-year property. Monthly charges for a wireless service provider are deductible as paid each month, just as your business would deduct any phone or internet service bill.