E-Services Sign-in to Migrate to ID.Me

By Kathy Ploch, CPA-Houston

The IRS sent an alert to tax professionals on May 4, 2022, stating its plans to migrate a set of online services to ID.me this summer despite the objections raised by Congress, AICPA, TXCPA and other tax professional organizations.

Some of the products and applications that will be impacted are the e-File Application, Transcript Delivery System (TDS) and the Secure Object Repository (SOR). The IRS is asking practitioners to prepare for this migration by setting up an ID.me account now using the Tax Pro Account. The IRS will no longer authenticate identity or establish accounts by phone effective June 15. If you are unable to register an account online after the cutoff, you must wait for the new e-Services’ ID.me to open this summer.

Commissioner Charles Rettig discussed at a Senate oversight hearing about the IRS’ plans to transition from ID.me to the federal government’s own Login.gov service. He stated that it does not yet have the capacity to handle all their online services’ activity, but the IRS is working to improve the range.

On an IRS Online Services webcast May 19, presenters mentioned the migration very briefly. They also wanted to remind practitioners that the e-Services and the Tax Pro Account are two separate online services, although you can utilize the same log-in information for both. Your clients can also sign up for their own online account. IRS Product Manager Kirk Crawford said that the IRS is continuing to add new features to the account such as certain notices and viewing payment history.

 

IRS e-Services migration 5-4-22 data

 

IRS to Stop Using ID.me Facial Recognition on IRS.gov After Complaints (businessinsider.com)

TXCPA Committee Asks the IRS to Engage with Tax Professionals on Third-Party Online Authentication Concern - TXCPA Federal Tax Policy Blog (typepad.com)

FAQs about e-Services and Secure Access | Internal Revenue Service (irs.gov)


IRS Averaging One Year on ID Theft Case Resolution

In a recent meeting with the IRS and other stakeholder liaisons, TXCPA received news that the IRS’ identity theft claims can take up to one year to resolve. Generally, responses to Form 14039 (or 14039-B), Identity Theft Affidavit, were at 120 days. However, the IRS Mission-critical Functions webpage indicates that due to inventory and pandemic-related delays, response time to taxpayers who filed affidavits is taking up to 350 days on average. The IRS asks that taxpayers not submit a duplicate form.


Proposed Regulations Would Accelerate Required Distributions of Inherited IRAs

By Tom Ochsenschlager, J.D., CPA

The IRS’ recently issued proposed regulations REG-105954-20 would accelerate the required distributions from an inherited IRA.

Generally, before the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), an individual who inherited an IRA could extend the IRA distributions over their lifetime with each distribution based on their life expectancy. Accordingly, this would delay the taxation of the IRA, often referred to as the “stretch rule.” After the SECURE Act, the stretch rule (with certain exceptions described below) only applies to IRAs inherited prior to 2020. For IRAs acquired after 2019, the SECURE Act generally requires that the entire value of an inherited IRA be distributed within 10 years, although the individual inheriting the IRA has the right to choose how much is distributed (taxed) in each of those years (or so we thought).  

However, the proposed regulations would impose an even more restrictive rule where an individual inherits a “regular” IRA from a decedent who passed away after Dec. 31, 2019, and who had reached their required beginning date (RBD) before passing away. In that circumstance, the proposed regulation would require the inheritor of the IRA to begin taking annual distributions in each of the first nine years after the death of the decedent and distribute the remainder in year 10. In effect, the proposed regulations would reduce the ability to defer income tax for those who inherit an IRA from a decedent who was 72 or older at the date of death. (The SECURE Act increased the age for required RMDs from 70-1/2 to 72 after 2019.) However, this more restrictive rule would not apply for eligible beneficiaries described as those with disabilities, beneficiaries not more than 10 years younger than the decedent, the decedent’s spouse, or a minor child of the decedent.

Regarding inherited Roth IRAs, there is no requirement that distributions be made during the first nine years, but the entire amount must be distributed by Dec. 31 of the 10th year following the account owner’s date of death.

It is important to note that a failure to make the required distributions can result in a 50% penalty on the amount that should have been withdrawn.

Hopefully, the IRS will provide some relief for taxpayers who failed in 2021 to make the payments required under the proposed regulations that were released February 2022.

Hopefully, the IRS, in its final regulations, will provide some relief measures.


2022 Tax Season Postmortem

Kathy Ploch, CPA-Houston

Well, it is that time of year again when practitioners do a self-assessment on how the tax filing season went. Hopefully, many of you are taking off this week or will be (like me) vacationing shortly. I have decided that I need a vacation just trying to get to and from my destination with all the crazy COVID-19 rules.

So, let’s list some of the good, the bad and the ugly that occurred so far this tax season.

The Good

  • After the July 15, 2020 due date change because of COVID and the June 15, 2021 due date change because of the Texas winter storm, it was nice to have the April 15 due date back. Oh wait. April 15 wasn’t the due date; it was April 18 because of Washington D.C.’s Emancipation Day holiday. So, we had the weekend for the last of the extensions and returns. However, that was a holiday weekend, so the timing may not have been the best for some people.

The Bad

  • There are still issues with contacting the IRS Practitioner Priority Service, although if you do get through and can get a callback, this works very well.
  • Although our software did not have the new Form 7203, S Corporation Shareholder and Debt Basis Limitations available for the March 15 deadline, at least we have it now. I am assuming many practitioners extended the returns anyway.

The Ugly

  • Schedules K-2 and K-3, need I say more? Forms that are 19 and 20 pages long, respectively, are nothing short of insane. I guess this will be on our summer reading list while we are at the pool, beach or lake.
  • I heard yesterday on a call that there are 71 trailers with unopened mail in Ogden. The IRS is also having difficulty trying to find people for the positions and then the additional problems with getting them cleared to be hired.

Although I have not had time to connect with other practitioners to see how their tax season went, I did hear of one funny story. A firm is located at an office complex where four to six offices are grouped together per building. Next door to them is a learning center that has a fingerprinting place inside their office. (I remember that is how the place was where I went to get my fingerprints last year.) Anyway, about four times a day someone would come into their office wanting to get their fingerprints done. Kudos for the front desk person keeping their cool!

I have also heard that many taxpayers were used to having the delays over the past two years and then woke up around April 1 realizing that they only had until April 18. We had over 33% of our total 1040s come in after March 18 and still have about 18% that have not brought their information in at all.

AICPA would like to hear about your experience with the IRS this filing season. Below is a link to a very short survey. Your participation will help AICPA’s Tax Policy & Advocacy team understand what issues the members encountered. Please take five minutes of your time to fill out the survey. I have been on this committee and it is so helpful to hear what other practitioners are experiencing.

https://aicpa.qualtrics.com/jfe/form/SV_0JaiGwmh6LzlrBs?utm_medium=email&utm_source=SFMC_RAVE&utm_campaign=&utm_content=435068&AdditionalEmailAttribute2=&AdditionalEmailAttribute3=&AdditionalEmailAttribute4=&AdditionalEmailAttribute5=


IRS Rejecting Some Electronic Returns

To file individual returns electronically, the IRS requires the taxpayer to verify their adjusted gross income (AGI) from the prior year’s return. The electronic filing will be rejected if the AGI does not match IRS records. This rejection may be a fairly common issue given that as of April 1, the IRS has an inventory of more than 7 million unprocessed individual returns – they are likely missing a lot of taxpayers’ prior year AGI in their system.

The IRS website indicates that this problem can be resolved by entering a zero when posting the taxpayer’s prior year AGI. Apparently, the IRS does not try to reconcile the AGIs if a taxpayer indicates they did not have AGI in the prior year.

If your 2020 return has not been processed... | Internal Revenue Service (irs.gov)

IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service


TAC Special Saturday – No Appointment Necessary April 9

Do you have a client who could benefit from an in-person discussion with the IRS?

The IRS has announced that Taxpayer Assistance Centers in Austin, Dallas, Houston, San Antonio and select locations in other states will be open this Saturday, April 9, 9 a.m. to 4 p.m., for face-to-face help.

“We are inviting anyone who wants or needs some assistance to stop by,” said IRS Wage & Investment Division Commissioner and Taxpayer Experience Officer Ken Corbin. “We designed these extra weekend hours to make it easier for taxpayers to resolve an issue, inquire about their account or work with the IRS if they have an obligation they cannot meet. Whatever the case, face-to-face help will be available on this special day without an appointment.”

Taxpayers can ask about reconciling advance Child Tax Credit or third round Economic Impact Payments or inquire about various other services available while at an IRS office. If assistance from IRS employees specializing in these services is not available, the individual will receive a referral for these services. IRS staff will schedule appointments for a later date for deaf or hard of hearing individuals who need sign language interpreter services. Foreign language interpreters will be available.

Taxpayers can also make payments by check or money order at this time. The IRS will not accept cash.

The IRS urges individuals to bring the following information:

  • Current government-issued photo identification
  • Social Security cards and/or ITINs for members of their household, including spouse and dependents (if applicable)
  • Any IRS letters or notices received and related tax and financial documents

During the visit, IRS staff may also request the following information:

  • A current mailing address, and
  • Bank account information, to receive payments or refunds by Direct Deposit.

Face masks and social distancing are required.


President Biden’s Proposed Tax Increases

By Tom Ochsenschlager, J.D., CPA

President Joe Biden submitted his 2023 budget to Congress on March 28. The proposed budget includes several significant tax increases with the stated intent of reducing the federal deficit by $1 trillion over 10 years.

It does not appear likely that this ambitious budget proposal will pass in the Senate. It is not expected that any Republicans will support the proposal and Senator Joe Manchin, a pivotal Democrat from West Virginia, has announced that he will not vote in favor of the budget. Given that the Senate is evenly split, efforts to pass the president’s fiscal wish list will face challenges to gain traction. However, that said, it is often the case that one or more of the specific proposals in an unpopular bill are introduced in the future to pay for more popular legislation.

The documents supporting the proposed legislation are several hundred pages long. The following are some of the more important proposals.

Individual Tax Matters

The budget would impose a 20% minimum tax on taxpayers with a net wealth of more than $100 million total income. For this purpose, net wealth would include unrealized appreciation on capital assets held by the taxpayer. The portion of the minimum tax paid on the unrealized appreciation of capital assets would be available as a tax credit when the capital asset gain is realized. Critics say implementation would be complex and raise concerns about the proposed provision, including legal challenges and an overburdened IRS to enforce such a law.

The top rate for individuals would be increased to 39.6% for those married filing a joint return with more than $450,000 in income and singles with income more than $400,000.

Limitations on Capital Gains

Capital gains would be taxed at ordinary rates for individuals filing joint returns with income more than $1 million and $500,000 for individuals filing single.

The proposal would also limit the ability to avoid recognizing gain in like-kind exchanges. 

Where depreciable property is sold, the portion of the gain recognized as capital gain is reduced by the depreciation taken on the property, which would be reported as ordinary income. 

Carried interest profits would be taxed as ordinary income.

Corporate Tax Issues

The corporate income tax rate, currently 21%, would be increased to 28%, a partial rollback of the corporate tax cut in the 2017 law.

For corporations shifting profits to low tax countries, the budget proposal would implement an “under taxed profit rule” (UTPR) that would impose an incremental tax on the domestic U.S. operations of multinational businesses where the “parent” operation is located in a low tax country. The UTPR provision would only apply to multinational businesses with total revenues of $850 million or more for two of the last four years. 

Measures to Increase Taxation of Oil and Gas Industries

The budget proposal would repeal the current ability to expense intangible drilling costs. It would also repeal the percentage depletion currently available to oil and gas wells.

The proposal would also increase the geological and geophysical amortization period for independent producers.

Changes to Taxation of Estates and Trusts

The proposal would:

  • modify income, estate and gift tax rules for grantor trusts,
  • improve the tax administration for trusts and decedents’ estates,
  • limit the duration of generation-skipping transfer tax exemption, and
  • expand the disallowance of deductions for business-owned life insurance.

How much of the president’s priorities can Congress fully vet? There is not much time before the focus shifts to midterm election campaigns.

President Biden FY2023 budget calls for new billionaire minimum tax: PwC

Budget of the United States Government, Fiscal Year 2023 (whitehouse.gov)


Tax Professional Phishing Scam Alert

The IRS is reporting a 50% increase in preparer data breaches compared to last year’s tax filing season. The most common spear-phishing scams are as follows.

New Client Scam

This one is the most prevalent in 2022 because fraudsters are seeing great success with it. The purpose is to deliver malware in a subsequent contact. The email may appear very unremarkable with no attachments and no link “lure” and may even include a potential client’s telephone number. It may indicate that the sender was referred by an individual (even someone you may know). It could also indicate that the sender’s CPA retired and they are in search of a new preparer. When the target replies, they receive an email with a dropbox that purports to give access to the new client's tax documents, but the link is malicious.

  • If you recognize a referral name, call that individual to confirm.
  • If the email appears legitimate, and you want to be interested, ask for an in-person or virtual meeting.

Account Locked

This is the second most common scam of the season. The email may say, “Action Required: Your Account is on Hold.” It uses the IRS banner. It may take the receiver to a website that appears legitimate. You may think no practitioner would fall for this spear-phishing … think again. Watch for the typo squatting (as in a URL that has one or two letters wrong).

PTIN-themed Malware

This scam is still around. The email indicates “PTIN Suspended.” If the receiver opens the email, it may show a blurry image attachment as the bait. Do not click on it.

What Do You Do?

  • Stay vigilant in guarding yours and your clients’ data.
  • Interest in random electronic referrals is discouraged.
  • If you haven’t done so already, train your staff to identify fake emails.
  • Report any breaches to your tax software vendor and to your local IRS stakeholder liaison.

Latest spearphishing scams target tax professionals | Internal Revenue Service (irs.gov)

Professional responsibilities in data security for tax professionals | Resources | AICPA

Publication 5199 (Rev. 8-2017) (irs.gov) Tax Preparer Guide to Identity Theft

Publication 5293 (5-2018) (irs.gov) Protect Your Clients; Protect Yourself


IRS Stops Delinquent Return Notices for Government Entities, Charities and Retirement Plans

The IRS announced that it is suspending the issuance of several notices generally mailed to tax-exempt or governmental entities in case of a delinquent return. Due to the historic pandemic, the IRS has not yet processed several million returns filed by individuals and entities. The suspension of these notices will help avoid confusion when a filing is still in process.

The IRS will continue to assess the inventory of pending returns to determine the appropriate time to resume mailing these notices. Some taxpayers and tax professionals may still receive the notices during the next few weeks. Generally, there is no need to call or respond to the notices if the return was filed timely.

The suspended notices are:

Number

Name

CP214

Reminder Notice About Your Form 5500-EZ or 5500-SF Filing Requirement

CP217

Form 940 Not Required – Federal, State, and Local Government Agencies

CP259A

First Taxpayer Delinquency Investigation Notice – Form 990/990EZ/990N

CP259B

First Taxpayer Delinquency Investigation Notice – Form 990PF

CP259D

First Taxpayer Delinquency Investigation Notice – Form 990T

CP259F

First Taxpayer Delinquency Investigation Notice – Form 5227

CP259G

First Taxpayer Delinquency Investigation Notice – Form 1120-POL

CP259H

First Taxpayer Delinquency Investigation Notice – Form 990/990EZ

CP403

First Delinquency Notice – Form 5500 or 5500-SF

CP406

Second Delinquency Notice – Form 5500

Various exempt organization notices paused - Journal of Accountancy

News for Federal, State, and Local Governments | Internal Revenue Service (irs.gov)


Returns Rejected for Missing Premium Tax Credit Form

On March 22, 2022, the IRS posted an update on its filing season alerts page that addresses rejected e-filed returns that are missing Form 8962, Premium Tax Credit. Form 8962 is used to reconcile advance payments of the premium tax credit (APTC).

New IRS policy

Before 2021, the IRS did not reject tax returns that were filed without a required Form 8962. Instead, after receiving the return, the IRS would write to the filer to request the form or a written explanation of why the form was not attached to the return.

However, for the 2021 tax year, the IRS is rejecting e-filed returns when a taxpayer is required to reconcile APTC payments on Form 8962 but does not attach that form to their tax return.

Note. The IRS will follow its pre-2021 policy for paper filed returns. After the IRS receives a paper return that is missing a required Form 8962, it will write to the filer to request the missing form or an explanation for its absence.

Who needs to file Form 8962?

Generally, taxpayers who get their health insurance coverage from a "Marketplace" or an "Exchange" and get help to pay their insurance premiums via APTC must reconcile the amount of that APTC they received with the amount they were entitled to. If the taxpayer's e-filed return is rejected because Form 8962 is not attached, the taxpayer should review their health insurance records, including Form 1095-A, Health Insurance Marketplace Statement. A taxpayer who was covered by Marketplace health insurance during 2021, even if only for part of the year, and those who terminated coverage at the end of 2021, still must reconcile their APTC on Form 8962.

How to correct the rejection and resubmit the return electronically

The rejected return may be resubmitted electronically once the missing Form 8962 is completed and included in the return or a written explanation of why Form 8962 is absent is attached to the return. For more information, see How to correct an electronically filed return rejected for a missing Form 8962.

Note. According to the IRS, resolving the missing Form 8962 issue at the time of filing, instead of through correspondence, will avoid processing delays that occur when the IRS needs to correspond with the taxpayer regarding the missing form.