July 22, 2016

Quick References

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2016 MTAP Seminars

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Seminar Descriptions and Fees

Downloadable Brochure & Form

GEAR UP Federal Tax Update
and Planning Seminar - Bath

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Monday, September 19, 2016
Eagle Eye Golf Club, Bath, Michigan
GEAR UP Federal Tax Update
and Planning Seminar - Novi

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Tuesday, September 20, 2016
Sheraton Hotel, Novi, Michigan

GEAR UP Business Entities
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Tuesday, October 18, 2016
Eagle Eye Golf Club, Bath, Michigan

MTAP Michigan Treasury Update
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Wednesday, October 19, 2016
Eagle Eye Golf Club, Bath, Michigan

GEAR UP 1040 Seminar - Novi
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November 7-8, 2016
Sheraton Hotel, Novi, Michigan
GEAR UP 1040 Seminar - Bath
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November 21-22, 2016
Eagle Eye Golf Club, Bath, Michigan

Bookmark These Important
Tax Agency Contacts:

Michigan Treasury
State of Michigan Agencies
Internal Revenue Service
Social Security Administration

IRS Quick Reference #'s:
PTIN Information 877-613-7846
Disaster Hotline 866-562-5227
Practitioner Priority Service 866-860-4259
Business Specialty Tax 800-829-4933
Forms and Pubs 800-829-3676
Refund Hotline 800-829-1954
100 Tax Topics 800-829-4477
E-Help Desk 866-255-0654
Tax Exempt Orgs 877-829-5500
Health Coverage Tax Credit 866-628-4282
Report Tax Schemes 866-775-7474
EFTPS Customer Service 800-555-4477
Taxpayer Advocate 877-777-4778
Automated Substitute for Return (ASFR) 866-681-4271
Identity Protection Specialized Unit 800-908-4490
Additional Telephone Assistance Numbers

Tax Teaser

Tax Representation Done Right

This Week's Question . . .

My client works at a car dealership as a car salesman.  He received a 1099-MISC for the bonuses he made last year.  He earns these funds throughout the year and they are paid out to him by a car manufacturer.  Am I required to report this as income on his tax return?

And the Answer is . . .

Yes, incentive payments paid by an automotive manufacturer are taxable income and therefore must be reported on your client’s individual income tax return. Regardless of whether they are paid directly or through the dealer, they are to be included in income. The bonuses received from a car manufacturer are to be reported on Page 1 of Form 1040 under “Other Income.”
Incentive payments made to a salesman who works for a dealership are not to be included on Schedule C because the taxpayer is not engaged in a trade or business and is merely an employee. Therefore no expenses should be taken on Schedule C to offset the incentive payment income.

However, if the taxpayer has incurred expenses in order to receive the incentive payments, they may be taken on Schedule A under Job Expenses and Most Other Miscellaneous Deductions on the line labeled “Other Expenses.”  Just as with all other miscellaneous deductions, these expenses are limited to 2% of adjusted gross income.

Please refer to IRS Publication 3204 - Automotive Manufacturers' Incentive Program to Vehicle Salespersons and IRS Publication 525 - Taxable and Nontaxable Income for more information.


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On Guard Since 1946 . . .

IRS Relaunches 'Get IP PIN'
Adds Back a Valuable Tool for ID Thieved Taxpayers

from the Internal Revenue Service

July 20, 2016 -- The Internal Revenue Service announced that the “Get an IP PIN” tool has returned to IRS.gov with a stronger authentication process to help protect taxpayers.

The Identity Protection Personal Identification Number (IP PIN) is given to taxpayers who are confirmed identity theft victims and to certain taxpayers who opt into the program. The six-digit IP PIN adds an additional layer of protection for the Social Security number.

The re-launched tool uses a multi-factor authentication process that will help prevent automated attacks.

Taxpayers must verify their identities using a more rigorous Secure Access process that requires them to have immediate access to an email address, account information from a credit card or other loan types and a text-enabled mobile phone. New and returning users must follow the Secure Access steps outlined in Fact Sheet 2016-20, How to Register for Get Transcript Online Using New Authentication Process.

The Get Transcript Online tool was the first to use the Secure Access process, and the IRS continues to review its other online applications to determine which ones warrant the stronger verification process.

Use of the IP PIN tool is limited to pre-selected taxpayers. Approximately 2.7 million IP PIN holders receive their number through the mail late in the calendar year in advance of the 2017 filing season. Those taxpayers who lose their IP PIN may use the tool to retrieve their number.

Taxpayers who may be victims of non-tax related identity theft and who submitted an affidavit to the IRS may opt into the IP PIN program and obtain an IP PIN through the tool. Taxpayers from Florida, Georgia and the District of Columbia also may obtain an IP PIN through the tool as part of a pilot project. 

REMINDER: IRS To Start Audit Process
By Mail . . . Not by Phone

IRS Deputy Commissioner for Services and Enforcement John Dalrymple is reminding taxpayers and tax preparers that the IRS will notify taxpayers of an audit by mail, not by phone as it used to do. The change in policy comes "in response to the continuing threat of phone scams, phishing, and identity theft."

Preventing identity theft has been a priority for the Internal Revenue Service, which regularly updates taxpayers about potential scams or threats. Accordingly,  IRS employees will use an "initial contact letter" to notify a taxpayer that the agency will examine a return. After giving the taxpayer two weeks to respond, employees may then contact the taxpayer by phone.

"We are evaluating our other contacts with taxpayers, outside of the examination context, to determine whether they present risks with respect to phone scams and other such threats," Dalrymple wrote.  The memo was sent to the commissioners of the Large Business and International, Small Business and Self-Employed, Tax-Exempt and Governmental Entities, and Wage and Investment divisions, and asked them to share the guidance with "all affected employees."

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News That Keeps You Updated . . .

Tax News 

Michigan Treasury Update

Elimination of Michigan Flow Through Withholding Requirement

The Michigan Department of Treasury has announced that taxpayers who have been subject to the Michigan Flow-Through Withholding requirements under the new corporate income tax laws will no longer be required to file that annual return.

Effective for tax years beginning after July 1, 2016, the withholding requirements and annual return reconciliation filing have been eliminated. The Department noted that the requirement still applies for tax years beginning up through June 30, 2016, so calendar year ends will still need to comply for 2016, and they will still need to file the annual reconciliation return that is due at the end of February 2017. 
Read More

New State Developments for Tax Year 2015
Michigan Treasury Warns of Fraudulent Phone Calls

IRS Releases More Draft Forms

The IRS has released the following draft forms for viewing and comment:

Form 8867, Paid Preparer's Due Diligence Checklist
Form 8889, Health Savings Accounts (HSAs)
Instructions for Form 1095-A

Click here to submit your comments.

Application of Advance Premium Tax Credit
from Purchase of Healthcare Through HIM

The IRS is reminding practitioners that if a client purchased 2016 health care coverage through the Health Insurance Marketplace, he or she may have chosen to have advance payments of the premium tax credit paid to the insurance company to lower the monthly premiums.

If this is the case, it is important to let the Marketplace know about significant life events (often called "changes in circumstances"). These changes may affect the premium tax credit. Reporting the changes will help avoid getting too much or too little advance payment of the premium tax credit.

Changes in circumstances that should be reported to the Marketplace include:

-- An increase or decrease in income.
-- Marriage or divorce.
-- The birth or adoption of a child.
-- Starting a job with health insurance.
-- Gaining or losing eligibility for other health care coverage.
-- Change of residence.

Click Here to learn more.

Proposed Section 385 Regulations
Sub S Corporations Could Be Impacted

from the National Society of Accountants

July 15, 2016 -- In two Notices issues in 2014 and 2015, the Treasury Department served notice that it would issue guidance that would "address strategies that avoid U.S. Tax on U.S. operations by shifting or stripping U.S.-source earnings to lower-tax jurisdictions, including through intercompany debt." Fair enough – address the avoidance of U.S. taxes through earnings stripping and corporate inversions.

Enter the proposed section 385 regulations, which were issued on April 4.  However, instead of focusing on shifting earning overseas, the regulations would give the IRS the authority to re-characterize debt as equity in a number of situations involving related entities, whether or not there is any tax avoidance motive and whether or not there is any foreign aspect to the intercompany debt.  Further, the proposed regulations would require any company to company debt to be documented within thirty days.

The proposed regulations apply only to expanded corporate groups with total assets greater than $100 million or revenues greater than $50 million.

Because the proposed regulations apply to any corporation, they would also apply to Sub S corporations that exceed the asset/revenue threshold above.  One common example: a family-owned company owning a number of shopping centers and other real estate in the U.S.  Each property is operated through an S corporation.

Every time a new shopping center or office building is constructed, a new S corporation is formed and money is borrowed from the existing companies for the start-up.  If the combined assets of all the companies is greater than $100 million or the revenues exceed $50 million, the borrowed funds could be deemed "preferred equity" rather than debt.  In that event, the S corporation election could be invalidated - even though the company has no overseas components and the S corporation election has no tax avoidance purpose – because a S corporation can have only one class of stock.

Comments on the proposed regulations have asked that the proposed regulations be amended to, among other things:

-- Ensure that S corporations, a critical component of America's small business community, do not lose their S corporation tax status by virtue of having their debt re-characterized as equity and are not penalized for their domestic-to-domestic transactions;

-- Ensure that non-tax motivated cash management techniques, such as cash pooling or revolving credit arrangements, are exempted;

-- Address the "cascading effect" of the currently drafted regulations, where a single tainted transaction funded with intercompany debt can create a multitude of additional tainted transactions;

-- Extend the 30-day deadline for meeting the documentation requirements;

-- Expand the $50 million intercompany debt threshold so that more small businesses will be exempt from these rules.

NSA has received informal word that Treasury is willing to amend the proposed regulations to ensure that S corporations would not be forced to be recast as C corporations.

House Bill Reduces IRS Budget Again

The House passed legislation cutting the IRS budget by $236 million for fiscal year 2017.

The budget funds were included in the appropriations bill for the next fiscal year (H.R. 5485).  The bill, which allocated $10.9 billion to the IRS, includes several restrictions, including one barring the agency from implementing the individual insurance mandate under the Affordable Care Act.  It also stipulates that $290 million must be spent on improving customer service, fraud prevention and cybersecurity.   

An amendment, offered by Rep. Paul Gosar (R-Ariz.) to prohibit the use of funds to pay bonuses to senior IRS employees, passed by voice vote.

The Senate Appropriations Committee on June 16 unanimously advanced its appropriations bill, which would hold IRS funding steady at $11.2 billion. A floor vote on that bill hasn't yet been announced.

The House and Senate versions of the appropriations bill will have to be reconciled after the Senate passes its version of the bill after Labor Day.  The Administration has already announced it opposes the House version of the bill.  

Reminder:  New 501(c)(4) Groups Must Notify IRS

On July 8, the IRS issued new IRS rules requiring new social welfare organizations to notify the agency of their  intent to operate as a Section 501(c)(4) entity.   

The final and temporary rules (T.D. 9775, RIN:1545-BN26) and proposed rules (REG-101689-16, RIN:1545-BN25) essentially codify the requirement added by the Protecting Americans from Tax Hikes Act of 2015 that groups intending to operate as tax code Section 501(c)(4) social welfare groups notify the tax agency no later than 60 days after the date the organization is established.

When submitting the notification, groups must file a new electronic form, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), the IRS said.

While the new guidance provides important information on deadlines and forms, "it still leaves open the big questions about (c)(4)—how much political work they can do, what's political work? It takes care of this one tiny little issue but it leaves open the huge questions that are still out there," said James Joseph, a partner at Arnold & Porter LLP.

Douglas Varley, an attorney at Caplin & Drysdale, said the rules don't provide any new details on what it takes to actually be exempt under 501(c)(4). "That's the 800-pound gorilla of a question," he said.
The IRS also issued Revenue Procedure 2016-41 July 8, which elaborated and provided examples for the requirements under the final, temporary and proposed regulations. The revenue procedure will be in Internal Revenue Bulletin 2016-30, dated July 25.

Recent IRS Releases and Updates

IRS Updates Form 990-N User Guide

The IRS has announced that Publication 5248, IRS Form 990-N Electronic Filing System (e-Postcard) User Guide, has been updated. To help make filing the form easier, the guide features the step-by-step process of filing the e-Postcard, including graphical depictions.

Tools for Estimating ACA-related

The Taxpayer Advocate Service is reminding taxpayers that it provides several tools to assist individuals and employers in estimating their ACA-related credits and payments.

-- The Premium Tax Credit Change Estimator predicts how the premium tax credit will change if income or family size changes during the year. This estimation tool does not report changes in circumstances to the Marketplace.

-- The Individual Shared Responsibility Payment Estimator predicts the amount that might have to be paid if minimum essential coverage is not met during the year.

-- The Small Business Health Care Tax Credit Estimator can help determine if a company might be eligible for the credit and how much might be received.

Reminder on Submitting Form 8976

The IRS reminds businesses that legislation enacted at the end of 2015 added §506, which requires an organization to notify the IRS of its intent to operate as a section 501(c)(4) organization. The IRS has developed the new Form 8976, which can only be filed electronically, to provide this notification.

Form 8976 Electronic Registration System allows organizations to complete the notification process, keeps account information current and enables organizations to receive secure, digital communications from the IRS. A user fee of $50 must be submitted to Pay.gov to complete your organization’s notification. You do not need special software to submit a notification.

Update on Employer Mandate Penalties

In Info Notice 2016-0030, the IRS gives an explanation on the employer mandate penalties that can still apply to a company that restricts its employees from working more than 29 hours a week.

The IRS acknowledges that if an employee who is restricted from working more than 29 hours in actuality works an average of 30 hours per week can potentially trigger penalties for that month the employee works those hours.

Reminder About Truckers Who E-file

The IRS reminds taxpayers that anyone who registers a heavy highway motor vehicle in their name with a gross weight of 55,000 pounds or more must file Form 2290 and pay the tax.

The IRS has recently updated and provided an extensive FAQs for Truckers Who e-file.

Tax Preparer Regulation

How to Sign the Circular 230 Form

AFSP Program for
Non-Credentialed Preparers

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MTAP News Template - July 22, 2016