Tax Professionals Should Review Their Safeguards

TXCPA's Federal Tax Policy Committee supports the IRS and the Summit partners in urging tax professionals to review the Taxes-Security-Together Checklist, including:

  • Deploy basic security measures.
  • Create a written data security plan as required by law.
  • Know about phishing and phone scams.
  • Recognize the signs of client data theft.
  • Create a data theft recovery plan.

Taxes-Security-Together Checklist Video: https://www.youtube.com/watch?v=mCOJbsQ0b88

 


Bonus Depreciation for Passenger Automobiles

The Tax Cuts and Jobs Act (TCJA) increased the first-year deduction for luxury automobiles (nearly all automobiles) used primarily for business rather than personal use and placed in service after Sept. 27, 2017, from $10,000 to $18,000. However, if the depreciable basis exceeds $18,000, Rev. Proc. 2018-25 requires that the remainder begins to be deductible only after the end of the recovery period, generally five years.

 

Rev. Proc. 2019-13 provides relief from the “delayed” depreciation deduction. The initial year deduction is also $18,000, but rather than delaying any additional deductions for five years, the Rev. Proc. allows the remaining depreciable basis to be deducted beginning the year after the initial year.

 

The amount that can be deducted in the subsequent years is the lesser of the percentages provided in Rev. Proc. 2019-13 Example 1 (below) or the limitations under IRC Section 280F(a)(1)(A). The 280F limitations would generally only apply to very expensive automobiles.

 

Taxable year

Depreciation limitations under Table 2 of Rev. Proc. 2018-25

Depreciation deduction under the safe harbor

2018

$18,000

$18,000

2019

$16,000

$13,440 ($42,000 x .32)

2020

$9,600

$8,064 ($42,000 x .1920)

2021

$5,760

$4,838 ($42,000 x .1152)

2022

$5,760

$4,838 ($42,000 x .1152)

2023

$5,760

$2,419 ($42,000 x .0576)

TOTAL

 

$51,599

The remainder is deductible in the seventh and subsequent years but cannot exceed $5,760 for any year in accordance with Section 280F.

 

To qualify for this significant acceleration of the depreciation deduction, it is important that the taxpayer not elect IRC Section 179 to apply to the automobile and not elect out of bonus depreciation for any assets in the same property class as the automobile.

 

https://www.irs.gov/pub/irs-drop/rp-19-13.pdf

 

 


Recognize Clues of Identity Theft

TXCPA's Federal Tax Policy Committee supports the IRS and Security Summit initiative to remind individuals to take these basic steps to protect personal data:

A business taxpayer may be an identity theft victim if:

  • An efiled return is rejected because a duplicate is already on file with the IRS.
  • Routine extensions to file requests are rejected.
  • An unexpected receipt of a tax transcript or an IRS notice is received.
  • Failure to receive expected and routine correspondence from the IRS, which can be an indicator an identity thief has changed the address.

Create Strong Passwords to Protect Online Accounts

TXCPA's Federal Tax Policy Committee supports the IRS and Security Summit initiative to remind individuals to take these basic steps to protect personal data:

The password standards have changed. Here are some simple guidelines:

  • Use long phrases combined with characters and numbers; for example: SomethingOneCanRemember@30.
  • Use a different password for each account; do not use an email address if that is an option and use a password manager.
  • Use two-factor authentication whenever it is offered; for example on email accounts, financial accounts and social media accounts.

Practice Unit for Partial Disposition Election

On Nov. 8, 2019, the IRS issued a Large Business & International “Practice Unit” for partial asset dispositions (PADs). The treatment of PADs under IRC Section 263(a) is a taxpayer-beneficial aspect of the so-called “repair regs.” The PAD rules allow a taxpayer, under certain circumstances, to deduct the remaining basis of that part of a building which has been replaced, such as a roof replacement. If the original cost of the replaced property is not known, the rules allow for a producer price index (PPI) rollback to determine the original cost of the replaced item. The Practice Unit is a guideline for the IRS to use in the examination of PADs and includes a discussion of the appropriate methodology to calculate the PAD.  

https://www.irs.gov/pub/irs-utl/dce_p_252_04_03.pdf

 


Learn to Recognize Phishing Emails and Phone Scams

TXCPA's Federal Tax Policy Committee supports the IRS and Security Summit initiative to remind individuals to take these basic steps to protect personal data:

Know that email scams often:

  • Pose as companies people know and trust, and
  • Tell an urgent story to trick victims into opening a link or attachment.

Watch out for scam phone calls, too. Remember:

  • The IRS does not call demanding payment with threats of jail or lawsuit.
  • The IRS does not demand payment via gift or debit cards; the IRS does not accept tax payments by iTunes cards.
  • The IRS does not send unsolicited emails about refunds or payments, or requesting login credentials, Social Security numbers or other sensitive information.

IRS Announces Program of Face-to-Face Meetings with Taxpayers to Ensure Compliance

Last month, the IRS issued Fact Sheet (FS) 2019-15 to announce a program in which revenue officers will visit taxpayers with ongoing tax issues to gather financial information and to potentially request payment.

The FS states: “The IRS routinely conducts these face-to-face visits. The primary factors of these visits are to make contact with taxpayers who have a previously known tax issue that wasn't resolved through mail contact. The first face-to-face contact from a revenue officer is almost always unannounced.”

CPAs with clients who have filing and payment issues should ensure that the taxpayers have current Powers of Attorney (POAs) on file to include all forms and years that might be of concern. These clients should be notified of the possibility that they may be visited unannounced by IRS personnel. If they are contacted by the IRS, the taxpayers should inform the IRS officer that they do have a POA on file and the officer must contact the taxpayer’s representative.

https://www.irs.gov/newsroom/special-irs-efforts-to-focus-on-tax-compliance-education-begin

 

 


Protect Personal and Financial Information Online

TXCPA's Federal Tax Policy Committee supports the IRS and Security Summit initiative to remind individuals to take these basic steps to protect personal data:

  • Use security software for computers and mobile phones – and keep it updated.
  • Protect personal information; don’t hand it out to just anyone.
  • Use strong and unique passwords for all accounts.
  • Use two-factor authentication whenever possible.
  • Shop only secure websites; look for the “https” in web addresses; avoid shopping on unsecured and public Wi-Fi in places like shopping malls.
  • Routinely back up files on computers and mobile phones.

Expect Greater IRS Focus on Alimony Deduction

By William Stromsem, CPA, J.D., Assistant Professor, George Washington University School of Business

 

With millions more taxpayers using the higher standard deduction instead of itemizing, IRS auditors may focus more on the reporting of income and deductions going towards adjusted gross income (AGI), particularly alimony. While many “above the line” items are supported by 1099 reporting, there is no 1099 reporting requirement for alimony payments and IRS procedures have been weak in identifying income reporting discrepancies by checking on reported payee taxpayer identification numbers (TINs) provided in the return.


In August, the Treasury Inspector General for Tax Administration (TIGTA) revealed a $3.2 billion tax gap in alimony reporting that has grown since the Tax Cuts and Jobs Act of 2017 (TCJA) changed the law regarding alimony. TIGTA recommends that the IRS modify its compliance strategies to include specific actions, including verifying recipient TINs and assessing penalties when necessary.


Prior to the TCJA, alimony could be deducted by the payor and had to be included in the income of the recipient. The act eliminated both the deduction and the inclusion for divorce or separation decrees executed after 2018 or executed before 2019, but later modified if the modification expressly states that the new law applies. Taxpayer confusion over the prior law may be compounded by this change and even in the past, any confusion seems to have been resolved by taxpayers overwhelmingly on the side of overstating deductions and underreporting income.


As the IRS focuses more on alimony, we need to do so as well to avoid possible taxpayer and return preparer penalties. Taxpayer organizers may have to be beefed up in this area. The organizer should include questions about the recipient, recipient’s Social Security number (SSN) and the amount; the date the divorce or separation instrument was executed; and whether there have been any changes since 2018.


This may take some follow-up questions and education of taxpayers, but the law has changed and taxpayers must comply or risk penalties.


https://www.treasury.gov/tigta/auditreports/2019reports/201940048fr.pdf 
https://www.irs.gov/taxtopics/tc452 


Late Bonus Depreciation Elections

The Tax Cuts and Jobs Act (TCJA) increased the bonus depreciation deduction for qualified property, now including used property, from the previous 50% to 100% of the cost of the eligible property placed in service in a tax year that included Sept. 28, 2017. This provision begins phasing out after 2022.

The proposed regulations REG-104397-18 implementing this provision were not published until August 2018 after many taxpayers eligible for the additional depreciation had already filed their 2017 returns. Rev. Proc. 2019-33 clarifies that taxpayers can file amended returns to make a late election or file a Form 3115, Application for Change in Accounting Method, for the years the additional deduction was not claimed.

https://www.irs.gov/pub/irs-drop/rp-19-33.pdf