November 2015 Tax Snacks

snacks

Tax Snacks: Bite-size tax news and information on the fly

Date to Remember

December 15: Fourth quarter corporate estimated tax payments are due for calendar year entities.
December 31: Any and all year-end tax planning must be implemented!

A creative fix for handling amended 1099s


One thing that taxpayers and their accountants find really annoying is opening the mail to find that a previously-issued 1099 from a broker has been corrected after the taxpayer’s 1040 was already filed using the original 1099!  It is bad enough that 1099’s filing deadlines have been extended (they now are due by 2/15, when in prior years that deadline was 1/31), which causes delays in finalizing 1040s.  But some large brokerage houses routinely appear to meet that more liberal deadline only by issuing forms that must soon be corrected, which means that any 1040s based on them must be corrected by filing an amended return.  At that point, the return is incorrect, and the IRS electronically matches 1099s to the related 1040 income, so a letter from the IRS could be forthcoming if the return is not amended.

Some U.S. legislators are working with the American Institute of Certified Public Accountants (AICPA) to rectify this.  Specifically, they are working on a bill that would establish a materiality threshold for brokers, such that small errors do not have to be corrected.  They also are considering a separate materiality threshold that would allow taxpayers who receive corrected 1099s to simply report the impact of the change on their following year’s return, rather than amending the current one.  Finally, they are contemplating a bill that would require the IRS to share information from 1099s in its possession, so taxpayers can be certain they are working with the most recent 1099 on record. 

All of these ideas seem like good ones, assuming of course, that it is too much to ask that we receive correct 1099s the first time!

For only $300 million, the IRS will answer your phone call


These Tax Snacks often include little updates on how the executive (IRS) and legislative branches of our government struggle to “play nice.”  Admittedly, this is a somewhat twisted form of infotainment, but it does impact our readers’ pocketbooks, so updates like this one seem to be appropriate. 

Congress often chides the IRS for its abysmal service record, supported most recently by the news that many taxpayers were left on hold with the IRS for as long as two hours, before undergoing what the IRS interestingly describes as a “courtesy disconnect.”  The IRS points out, though, that long wait times are a predictable result when budget cuts result in staffing reductions.  Fair enough. 

In a recent speech to the American Institute of Certified Public Accountants (AICPA), IRS Commissioner John Koskinen noted that 60% of callers were not able to get through to the IRS during the 2015 filing season (and those who did endured, on average, a 30 minute wait).  To reduce that level to 30%, the IRS would need another $300 million in its budget.  (You read that right - $10 million per percentage point.)  As shared in our January Tax Snacks, Congress recently cut the IRS budget significantly, and directed the IRS to focus on service, rather than enforcement. 

Obviously there is some cost/benefit analysis to undertake on that front, but most readers would certainly agree with Mr. Koskinen’s remarks on upcoming legislation.  He pointed out that some expired provisions in recent years have been renewed at the last minute, often retroactively to the beginning of the year.  Plenty of noise points to the same thing happening this year.  This creates a very formidable scramble on the IRS’ part to update numerous tax forms to accommodate the latest twists and turns in Congress’ mind.  In turn, it creates the risk that the 2015 filing season will be delayed somewhat.  (And it robs taxpayers and their advisors of the ability to accomplish meaningful planning.)

Your author agrees with the Commissioner that these all-too-familiar 11th hour law changes are ridiculous, and should be avoided.  There is no doubt there is room for significant improvement at the IRS.  But it also is true that those who are running it often are dealt a pretty lousy hand by our lawmakers.  I certainly would not want to play it!

Identity theft victims can now obtain copies of fraudulent returns


In an about-face from previous policy, the IRS will now allow victims of identity theft that involved the filing of a fraudulent return to obtain a copy of that fraudulent return. The IRS has not allowed this in the past, but now recognizes that access to this information may help victims better understand exactly what information was compromised. Generally, only taxpayers, parents or guardians of minor children, or authorized parties who have been assigned a “CAF” number (primarily accountants) can obtain the returns. Even then, they will be provided only in partially redacted form and only once any identification theft investigation is complete.  More information may be found on the IRS website here.