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November 2014
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December 2014

ACA Complexities of Low-Income Returns

By William R. Stromsem, CPA, JD

Almost all of our members' clients have the health care insurance required by the Affordable Care Act (ACA) and will just check the box next to line 61 on Form 1040. In rare situations, you may prepare a return for a client's family member who has health insurance issues, such as an older child who is a student or disabled.    

However, members who serve the low-income community will have to deal with new complexities. The ACA provides a credit to help low-income and other eligible individuals pay for the required insurance. To claim the credit, the taxpayer must complete Form 8962, which has 15 pages of complex instructions and worksheets to calculate several numbers for the two-page form. Some taxpayers may have difficulty providing the detailed monthly insurance information required by the form. If the taxpayer has taken an advance payment of the premium tax credit during the year (generally paid to their insurance company to lower monthly premiums), the form reconciles the advance payment with the actual credit.

Some taxpayers either won’t understand or won’t want to pay the "shared responsibility payment" (penalty) for not having insurance and may just say that they are covered. While the preparer doesn't have to see proof of insurance and can generally accept the client's representation, the preparer can’t ignore information to the contrary. This contrary information might come up, for example, if a preparer knows that the taxpayer wasn’t employed to have insurance benefits and the taxpayer doesn’t want to give insurance information for claiming the premium tax credit. If the taxpayer doesn’t have coverage for the full 12 months for everyone in the household, Form 8965 and worksheets must be completed to calculate the extra tax to be reported on line 61. Individuals who did not have coverage at the beginning of 2014, but purchased coverage during the year, may need to file both forms. Taxpayers who fail to reconcile their tax credits for 2014 cannot claim tax credits for subsequent years.

Unfortunately, some preparers may not provide pro-bono return services because of these added complexities and issues. Those who provide paid services to qualifying taxpayers may have to increase their fees.   

For future tax planning, advisers may wish to provide information to help low-income taxpayers get insurance and claim the premium tax credit next year.

IRS Representative Indicates Tax Identity Theft Issues Are “Under Control”

By Mark Nash, CPA

Speaking at a national AICPA conference on November 5, 2014, Jim Clifford, a director in the Accounts Management, Wage & Investment Division of the IRS, indicated that the IRS has made enormous progress in dealing with identity theft cases. Clifford said the challenge was that the issue became too large for the IRS to deal with, spiraling from 40,000 cases to 400,000 cases in just 12 months. The IRS repositioned resources from other groups to work the caseload, but the number of cases and number of people working on them overwhelmed the infrastructure in terms of setting policy and developing best practices. With the caseload now down to 50,000, Clifford said the IRS is taking steps to put this infrastructure in place to provide policy and operational oversight. The average time to resolve a case is currently 120 days. 

The steps being taken include starting up a “full-scale centralization” of the victim assistance network. The centralized unit will pick best practices from the specialty units. Case workers will have access not only to accounts management records, but to all of the taxpayer’s account documents. Clifford indicates the centralized department will be operational by next summer. 

The reduced caseload is a result of several initiatives. First, Clifford believes the IRS is better at filtering fraudulent filings by using data analytics. Many fraudulent returns are filed very early in the filing season, before the IRS receives taxpayer wage data from W-2s filed with the Social Security Administration. Although it is impossible to know the genesis of tax identity theft, Clifford indicated the number of cases would suggest tax identity theft may be linked to some of the larger data breaches. Secondly, Clifford indicates caseload is down since the IRS has more and better trained resources to deal with cases today. Finally, the IRS believes the use of the identity theft PIN, or IPPIN, which is required for confirmed victims to file returns in the next three years, has curbed recurring instances of abuse. The IRS tested an “opt in” for use of the IPPIN on a volunteer basis in areas with the highest instances of identity theft; however, due to cost constraints, there are no plans to expand this program at this time. 

Clifford reiterated that if a client is the victim of identity theft, the preparer should alert the client that their personal information could be used for other fraudulent purposes. Therefore, it is important that victims promptly file a police report and continue to monitor their credit reports for unauthorized activity.