TSCPA Federal Tax Policy Blog

TSCPA Asks Texas House Members to Support the Mobile Workforce State Income Tax Simplification Bill

TSCPA joins other state CPA societies in urging House of Representatives members to support H.R. 1129 the Mobile Workforce State Income Tax Simplification Act. The proposal would substantially simplify state income tax law by imposing standard for nonresident taxation and employer withholding. It would require employers to withhold state taxes on income only after a 30-day threshold has been met and to catch up all required withholding at that time. The bill contains a carve out for entertainers and professional athletes. AICPA, TSCPA and other state societies have pushed for this legislation since 2007.

See letter.

TSCPA Asks Texas Members of Congress to Cosponsor Tax Due Date Reform Bill

TSCPA joins other state CPA societies in urging lawmakers to cosponsor H.R. 901 (and companion S. 420) Tax Reform Due Date Simplification Act of 2013. The proposal creates a logical set of due dates focused on allowing a more timely flow of information from pass-through entities to their owners. It also would promote the early filing of more business and personal returns and relieve some of the workload compression surrounding the September 15 business return deadline. AICPA, TSCPA and other state societies have pushed for this legislation since 2008.

See the letter.

TSCPA Committee Issues Additional Comments to IRS on Proposed

TSCPA’s Federal Tax Policy Committee has issued a second letter to the Internal Revenue Service (IRS) expressing concerns regarding the temporary and proposed regulations for the deduction and capitalization of tangible property expenditures (repair regulations). The most recent letter responded to Notice 2012-73 guidance issued Nov. 20, 2012, which delayed the effective date of temporary proposed regulations until tax years beginning on or after Jan. 1, 2014, with the option for taxpayers to apply them to tax years beginning on or after Jan. 1, 2012. In its letter, the committee provided examples of how the administrative burden for small business compliance is disproportionate to any technical accuracy that the IRS is seeking to achieve.
Learn more

Read the letter

TSCPA Committee Responds to the IRS on Proposed Net Investment Income Rules

On Tuesday, TSCPA’s Federal Tax Policy Committee issued a comments letter to the IRS on proposed regulations (REG-130507-11) regarding the taxation of net investment income (NII) under Internal Revenue Code section 1411. This section imposes a 3.8 percent Medicare contribution tax on certain NII for individuals, estates and trusts with income above certain statutory threshold amounts. For many closely held businesses, the proposed regulations do not adequately distinguish income from an owner's capital investment in a business from income for work performed by the owner for the business. This can result in the owner having to pay an extra 3.8 percent tax on some regular business income.    

The committee expressed serious concerns with Treasury’s position that certain owners of LLPs and LLCs do not meet the material participation requirement for the purpose of calculating the NII tax. It also recommended that the regulations should provide de minimis exceptions for computing and reporting NII where portfolio assets are less than 10 percent of the fair market value of all assets; the fair market value of the portfolio assets is less than 110 percent of their tax basis; the partner/shareholder holds less than a 5-percent interest in the entity and the fair market value of such an interest is less than $50,000; the portfolio assets do not exceed a certain dollar amount (e.g., $50,000) of the value; or the taxpayer represents its MAGI will be less than the applicable threshold.  Read the Letter.

IRS Prohibited from Enforcing Registered Tax Return Preparer Requirements

By Thomas P. Ochsenschlager, CPA, J.D.

The District Court for the District of Columbia has held in Loving v. Internal Revenue Service that the IRS does not have the legal authority to impose its registration, fees, continuing education and competency testing requirements upon unlicensed tax return preparers. The decision does not affect the IRS’s authority over attorneys, CPAs, enrolled agents (EAs), enrolled retirement plan agents or enrolled actuaries.

The district court has now clarified that the plaintiffs in the Loving case did not challenge the IRS’ requirement that all tax preparers must obtain a preparer tax identification number (PTIN), but reiterated that the IRS cannot charge a fee for the PTIN.

The IRS ceased issuing PTINs for a short period, but reopened its registration website on Saturday, February 2^nd. The IRS has also announced that it will continue to offer education and testing for unlicensed preparers, but cannot mandate or charge for it. The IRS will appeal the court’s ruling shortly.

It should be noted that, in 2011, the Eleventh Circuit in the Brannen III case (cert denied by Supreme Court) affirmed a lower court’s decision that the IRS had the authority to charge an annual fee for a PTIN. Brannen III involved an individual who was an attorney and a CPA, but the language of the case broadly implied the IRS had such authority over all return preparers.

Stay tuned.

http://www.journalofaccountancy.com/News/20137297.htm

Committee Requests Your Input

TSCPA’s Federal Tax Policy Committee plans to issue comments to the IRS on proposed rules that provide guidance under IRC section 1411 on the 3.8 percent tax on net investment income. The tax is effective for taxable years beginning after Dec. 31, 2012. The IRS published proposed reliance regulation on Dec. 5, 2012 (NPRM REG-130507-11). TSCPA is seeking input from members and other tax professionals. On or before Feb. 15, please reply here in the comments section or e-mail a detailed response of your concerns to pwyatt@tscpa.net.  

For more information:

http://www.journalofaccountancy.com/news/20126946.htm

http://www.gpo.gov/fdsys/pkg/FR-2012-12-05/pdf/2012-29238.pdf

Office in Home—IRS Provides Simple Safe Harbor

By William R. Stromsem, CPA, J.D.

On January 15, 2013, the IRS announced an easier path for eligible taxpayers to claim the home-office deduction. Rev. Proc. 2013-13 (.PDF) will make the office-in-home deduction simpler and safer for many taxpayers, but it comes at a price for others. For 2013 returns (next filing season), an optional safe harbor will allow a deduction of $5 per square foot for up to 300 square feet.

The taxpayer can also deduct home mortgage interest, real estate taxes, and casualty losses on Schedule A without having to allocate a portion of these expenses to the office. Other office expenses unrelated to the home (like supplies but not like a portion of the utilities) will be fully deductible as business expenses. However, depreciation on the business portion of the home is not allowed.

The new optional method will avoid complexity and potential errors, including: depreciation and basis calculations; allocation of costs between business and personal use of home; limitation of the deduction to revenue in excess of expenses that would have occurred if there were no office in home; and carryover of unused losses.

The IRS will provide a new form for the simplified home-office deduction. Another advantage of using the simplified method is that it avoids possible controversy when the home is sold and the taxpayer claims the exclusion for a principal residence.

The main disadvantages of the new optional method are that depreciation or section 179 deductions are not allowed for the home, and the office-in-home deduction is capped at $1,500. In general, the simplified deduction will be less advantageous to those with larger offices and more expensive homes.

For those clients who claim the office-in-home deduction on 2012 returns, check if the amount is enough over the $1,500 maximum to warrant the greater complexity of collecting and providing the information required by the 43 lines of Form 8829 and the possibly greater audit nuisance risk (see next paragraph).

The revenue procedure allows taxpayers to choose annually between using the safe harbor and actual expenses, although depreciation calculations are a little complex when changing to actual expenses after using the simplified method. The deduction cannot exceed the amount of “net” income resulting from the home office (this calculation doesn’t include overall home expenses like utilities, insurance, and depreciation), and there is no carryover of the unused deduction.

Another big issue that is of concern to many taxpayers is the nuisance potential for audits of offices in homes. For those who use the simplified method, the tough requirements for qualifying for an office in home must still be met; e.g., regular and exclusive use and for employees, that it be for the convenience of the employer. However, there will be fewer issues and opportunities for errors in the computation, and there will be less incentive for the IRS to audit because of the limited amount of the deduction. Unfortunately, for those who don’t use the simplified method, the Form 8829 may trigger increased audit focus because its use identifies a larger home-office deduction with more complexity and opportunities for errors and issues.

TSCPA Committee Responds to Circular 230 Proposed Amendments

This week, TSCPA's Federal Tax Policy Committee issued comments to the Internal Revenue Service (IRS) on proposed regulations to Circular 230 governing written tax opinions and other ethical standards for practice before the IRS. The committee seeks clarification of the competence definition in section 10.35 and suggests that Circular 230 presume CPAs, attorneys, and enrolled agents to be competent to practice before the IRS, based upon qualification under their own professions' standards. The committee is concerned that section 10.37 changes remove many of the "bright line" tests that establish the certainty for evaluating professional conduct and shift the burden of proof to practitioners. It also anticipates that rather than eliminating the boilerplate disclaimer language, practitioners will likely increase disclaimers in order to protect themselves from the broadening, vague and subjective standards.

Read the letter here.

CPA Representation Grows in Congress with Reelections

After last week's election, the number of CPAs in Congress grows.  All eight of the CPAs in the House of Representatives won reelection, including Texas' Mike Conaway and Bill Flores. 

Take a look at this Journal of Accountancy article to learn more about the growing number of CPAs in Congress.

Appeals Court Affirms Estate Tax Refund of More than $115 Million to Texas Family

In one of the largest estate tax refund decisions in recent history, the Fifth Circuit Court of Appeals has ordered the IRS to pay more than $115 million to the estate of a south Texas family. The decision will also produce a refund of Texas inheritance tax and additional interest.  Read about it here.