TSCPAs’ Federal Tax Policy Committee issued a letter to the IRS Office of Associate Chief Counsel addressing concerns with broker reporting requirements under the new IRS bond premium amortization rules. The committee expressed that the 2014 Form 1099-INT instructions and temporary regulations Section 1.6049-9T require brokers to make inconsistent assumptions for “covered” and “noncovered” bonds, which may result in inadvertent noncompliance. In the past, few taxpayers elected to amortize taxable bond premiums under IRC Section 171 because the information for making the election was not readily available. New rules generally require brokers to report taxable bond interest and the basis on covered taxable bonds as if the election had been made. While the election is generally advantageous to taxpayers, it must apply to all taxable bonds, including any noncovered bonds in the taxpayer’s portfolio. This inconsistent 1099 treatment can cause a possible invalid election and mismatching of both interest income and basis reported on tax returns versus Forms 1099. In its letter, the TSCPA committee asked the IRS to consider implementing seven recommendations.
By David P. Donnelly, CPA
The IRS has granted relief in Rev. Proc. 2015-20 for small business taxpayers for the new tangible property regulations. Small business taxpayers, defined as having less than $10 million in total assets or less than $10 million in gross receipts for the prior three years, have been granted relief in two areas:
- Form 3115 requirement is not required in order to adopt the new accounting methods; and
- A cut-off method, effective for transactions in tax years starting on or after Jan. 1, 2014, can be applied to the new accounting methods.
The relief is for filing the Form 3115; all taxpayers must still adopt the new accounting methods applicable to their business. Taxpayers adopt these new methods by using them in their tax and financial reporting for years starting on or after Jan. 1, 2014. Failure to adopt the new methods will result in taxpayers using impermissible accounting method(s) and require permission to change in subsequent years.
Small business owners taking advantage of this relief cannot deduct prior year’s partial asset dispositions, or reclassify prior year’s capitalized amounts as expenses. In order to deduct these prior-year dispositions or reclassifications, taxpayers must file the appropriate Form 3115(s). Taxpayers who have previously filed their tax returns under the rules prior to the 2015-20 release may withdraw their Form 3115 by filing an amended return.
The IRS also invites comments on the $500 de minimis safe harbor capitalization threshold.
In November, AICPA, TSCPA and other state CPA societies urged IRS Commissioner Koskinen to consider alleviating unnecessary burden that small businesses face with regard to these repair regulations. TSCPA’s Federal Tax Policy Committee also issued comments letters to the IRS in 2012 and 2013 on the onerous regulations. The profession’s diligence in raising the profile of this issue to the IRS is a great testament to the value of advocacy.
By S. Miguel Reyna, CPA
The IRS uses Notice CP2100 and CP2100A to inform a payer that there are problems with taxpayer information numbers on Forms 1099 that have been filed and that the payer may be responsible for backup withholding. The payer needs to know how to respond to these notices because failure to follow the rules can result in penalties for filing incorrect information returns and in possible liability for uncollected taxes.
Large volume filers with 250 or more erroneous Forms 1099 receive the CP2100 Notices electronically; those with 50-249 receive the CP2100 Notices on paper, and those with less than 50 receive paper Notice CP2100A. These notices include lists of errors such as missing TINs, those that don’t match the taxpayer and those in an incorrect format; e.g., a letter instead of a number or too many digits.
When the first Notice CP2100 is received, the payer should send the first B-Notice (backup withholding notice) and a Form W-9, Request for Taxpayer Identification Number, to a payee within 15 business days from the “basis date” of the CP2100 (date on notice or date the payer received the notice in the mail, whichever is later). The payee needs to fill out the W-9 and return it to the payer.
If a second Notice CP2100 is received within three calendar years, the payer needs to send the second B-Notice within 15 business days from the basis date and clearly mark "IMPORTANT TAX INFORMATION ENCLOSED" on the outside of the mailing envelope. The second B-Notice tells the payee to contact the IRS or the Social Security Administration to obtain the correct name/TIN combination.
If a payee does not respond within 30 days of the first or second B-Notice, the payer must begin backup withholding at a rate of 28 percent. The withholding continues until no later than 30 days after the payee submits a TIN that is able to be validated.
There are additional steps to be taken by the payer, and further information is available in IRS Pub 1281 (http://www.irs.gov/pub/irs-pdf/p1281.pdf) and on the IRS website at http://www.irs.gov/Government-Entities/Federal,-State-%26-Local-Governments/Backup-Withholding.
Have you had experience with this? Have any of your clients been required to backup withhold?