Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
IRS changes Form 1065 and the Form 1065 K-1 for 2019 December 17, 2019
By: The IRS released revised drafts of the 2019 Form 1065 and the 2019 Form 1065, Schedule K-1 (updated with final form links below). There are lots of changes from the prior year. It will save you time in your busy tax season if you take a moment now to review the changes and decide what additional information you might need from your partnership client. The draft forms are linked for your convenience.What’s New on the Draft 2019 Form 1065? Updated Links to Final Form 1065 & InstructionsSCHEDULE BNew Question 27 has been added to Schedule B to enter the number of foreign partners that transferred all or …
IRS Revises the Required Minimum Distribution Tables December 10, 2019
IRS says that we are going to live a little longer–or at least the RMD tables say that.In newly released proposed regulations, the IRS updated the life expectancy tables used for calculating required minimum distributions (RMD) from qualified retirement plans, IRAs and annuities. The tables were last updated in 2002.A 70-year-old IRA owner who uses the Uniform Lifetime Table to calculate her RMD under the existing regulations must use a life expectancy of 27.4 years. Using the updated tables in the proposed regulations, the account owner would use 29.1 years to calculate her RMD. For an IRA valued at $1 million, …
2019 Year-End Planning – A Special eTax Alert December 9, 2019
2019 Year-End PlanningThe Tax Cuts and Jobs Act made more than 100 changes that routinely affect our client’s 2019 tax return. When talking to your clients before year-end, here are a few items to consider in that discussion.A personal casualty loss is not deductible for 2018 to 2025. Remind clients that they should review their insurance coverage with their agent to make sure it is adequate. Federally declared disaster losses remain deductible.The 529 College Savings Plan has been expanded. Qualified distributions now include a withdrawal of up to $10,000 per beneficiary for elementary or secondary public, private or religious school …
Qualified Opportunity Zones – Are They Really Effective? December 3, 2019
Qualified Opportunity ZonesQualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities by providing tax benefits to investors who invest eligible capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Zone Fund and meeting other requirements. For more information on the tax benefits of an Opportunity Zone Fund investment see the IRS FAQs.IRS RELEASES DRAFT FORM 8997 TO REPORT DEFERRAL OF GAINS INTO OPPORTUNITY ZONE FUNDSIf your client invests in a Qualified Opportunity Zone …
IRS Goes After Virtual Currency in a Big Way November 22, 2019
IRS GOES AFTER VIRTUAL CURRENCY IN A BIG WAYMoney can’t buy happiness, but Bitcoin can buy a Tesla and that may make you and the IRS happy!IRS has been talking about the taxation of virtual currency since 2014. Virtual currency (Bitcoin to some of us) is property. If I use property that I paid $10 for to buy something that is valued at $25, I have a taxable gain of $15. Since virtual currency is property, when I use my Bitcoin to buy something I’ll need to report the sale and its resulting gain or loss on my tax return …
Form 8332 – Don’t Claim the Same! November 13, 2019
What happens when parents claim the same dependent on their taxes?JASON DEMAR, THE NON CUSTODIAL PARENT, CLAIMED HIS SON BUT DIDN’T ATTACH A FORM 8332(Jason Demar v. Comm., TCM 2019-91)Both Jason Demar and his ex-wife claimed their son as a dependent. Jason Demar’s son did not live with him, but with Mr. Demar’s ex-wife. The IRS audited Mr. Demar’s 2015 tax return, and because he didn’t attach a Form 8332 to the return, disallowed the exemption, the child tax credit and the earned income credit.Note:The EIC is generally irrelevant in our practice because of our client base, but even for …
IRS Changes Form 990 Schedule B Reporting of Donor Information – Again and Again November 6, 2019
Judge says IRS Change to Donor Reporting is UnlawfulIn Rev. Proc. 2018-38, issued July 16, 2018, the IRS eliminated the donor disclosure requirement for all §501(c) organizations [other than 501(c)(3) organizations]. The U.S. District Court of Montana ruled on July 30, 2019 that the IRS decision to eliminate donor reporting requirements for certain tax-exempt organizations is unlawful. Specifically, the court held that the IRS did not follow the notice-and-comment requirements of the Administrative Procedure Act (APA) that would allow for public input prior to adopting the new rule. The court did not address the IRS’s ability to change reporting requirements.IRS REISSUES …
Change of Address – How to Notify the IRS and Why October 30, 2019
& Failure to Send Change of Address Form to the IRS Meant Taxpayers Missed the Deadline for Petitioning Tax CourtDeficiency Notice Went to Taxpayers “Last Known Address” (Damien and Shayla Gregory v. Comm., 152 TC No. 7 (Mar. 13, 2019))Damien and Shayla Gregory moved from Jersey City, New Jersey, to Rutherford, New Jersey. After they moved, they filed their joint 2014 Federal income tax return using their old address. While an IRS audit was ongoing, the Gregorys submitted Forms 2848 (POA) and 4868 (extension), showing their new address. The IRS mailed a notice of deficiency to the Gregory’s at their old …
Taxpayer Advocate Names Top 10 Most Litigated Issues October 23, 2019
According to The Taxpayer Advocate Service Report, here are the top 10 tax issues which generated court opinions from Jun. 1, 2017 through May 31, 2018 (the most recent data). These haven’t changed much from the prior year. The first nine were all the same, and only the trust fund recovery penalty was new, beating out last year’s “joint and several liability for spouses.” In descending order starting with the most litigated issue, they were:Accuracy-Related Penalty §6662(b)(1) and (2).Trade or Business Expenses §162(a) and related Code sectionsSummons Enforcement §§7602(a), 7604(a), and 7609(a).Gross Income §61 and related Code sections.Appeals From Collection Due …
5 Changes to Note on New Draft of 2019 Form 1065 K-1 October 11, 2019
The IRS has released a draft of the 2019 Form 1065 K-1. Whether you prepare partnership and LLC returns and their accompanying K-1s or whether you input your clients’ K-1 to their personal tax returns, the changes are important to note.5 Changes to Note on New Draft of 2019 Form 1065 K-1The partner’s capital account must be reported on a tax basis. In prior years, the partner’s basis could be reported as tax basis, GAAP, §704(b) book or other. Requiring tax basis reporting will help the IRS to target potential losses claimed in excess of basis.The partner’s beginning and ending §704(c) …
Is My Rental Property a Qualified Trade or Business? October 9, 2019
By: IRS PROVIDES A FEW MORE ANSWERS IN REV. PROC. 2019-38The 20% QBI deduction is only allowed for qualified trade or business income. The bothersome question since §199A was enacted was if and when a rental activity is a trade or business. The IRS issued Rev. Proc. 2019-38 that provides a safe harbor for determining if a rental activity is a trade or business for purposes of the §199A deduction.SAFE HARBORTo use the safe harbor the taxpayer is required to:Maintain separate books and records for each rental activity (or the combined enterprise if aggregated together),Demonstrate that 250 hours or more of “rental services” per …
Paying Wages to Minor Children Reaps Tax Benefits If Done Correctly October 2, 2019
Tax planning often includes a recommendation to the small business owner that he or she pay wages to their minor children. Wages to the kids may mean (1) using the child’s standard deduction to provide some tax free money, (2) shifting income from the parent’s high tax bracket to the child’s lower bracket, (3) saving FICA/SE tax on wages paid by a parent to the minor child, and (4) allowing the parent (or child) to fund a Roth IRA.The Tax Cuts and Jobs Act made paying kids a wage from the business even better when the new law doubled the …
Multiple Employer Pension Plan – The Rules Have Changed September 25, 2019
DOL Changes Who Can Participate in a Multiple Employer Pension Plan38 million US employees do not have pension plans. President Trump hoped to reduce those numbers with an August 31, 2018 executive order which directed the Department of Labor (DOL) to “expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt a multiple employer plan (MEP) as a workplace retirement option for their employees…”A multiple employer plan is a plan maintained by two or more unrelated employers who are not members of a controlled group. The MEP requires some form of commonality among the …
IRS Draft of 2020 Form W-4 – What You Need to Know September 18, 2019
Because of withholding problems in 2018, the IRS proposed a massive change to the 2019 Form W-4. The early draft of the 2019 Form W-4 had 11 pages of instructions. The expansive instructions resulted in a “projected 1040.”Draft of 2020 Form W-4While this method may have resulted in more accurate withholding, gathering the information and completing the calculation would have been burdensome for many taxpayers, and impossible for some. It also would have provided the employer with more income information than many employees wanted to give. After many complaints and criticisms, the IRS withdrew its 2019 draft and replaced it …
36 Years Later – New Non-Employee Compensation Reporting Form September 10, 2019
September 10, 2019Form 1099-NEC has been resurrected by the IRS after 36 years on the shelf. Non-employee compensation paid in 2020 will be reported on Form 1099-NEC instead of Form 1099-MISC.New Non-Employee Compensation Reporting Coming for 2020The 2020 Form 1099-NEC is due to the contractor and the IRS by January 31, 2021.As you can guess, this change will help the IRS better target misclassified workers. If you need a brief summary of the employee versus independent contractor rules to send to a client, see the IRS’s fact sheet here.If you think that your client has a problem with misclassified workers and …
Are You a One-Percenter? September 4, 2019
We constantly hear from the media about the “one-percenters,” those Americans who report the top 1% of income. Sometimes we hear about how good the “one-percenters” are for our economy and job creation and sometimes we hear about the harm they cause to our environment and society. What does it take to be in the top 1%?No matter your opinion on which is right, do you want to know if you are a “one-percenter?”Let’s see how rarified the air is for the “rich” and how much income you need to be in the 1% of income earners.1NATIONAL AVERAGESTo be in the …
IRS News – Fax No More August 27, 2019
The IRS ended its tax transcript faxing service June 28, 2019. Taxpayers can access Get Transcript Online at IRS.gov, and after identifying themselves, immediately download or print a transcript.This is an easy solution if the taxpayer is in your office. The taxpayer can get a transcript by mail (usually within ten days) if they go to Get Transcript by Mail at IRS.gov. If it’s easier for your client, they can submit Form 4506-T or 4506T-EZ for a transcript by mail.Tax Professionals can obtain tax transcripts as follows:Request that the IRS mail a transcript to the taxpayer’s address of record, orUse e-Services’ Transcript Delivery System online …
Taxpayer First Act – What’s New and Missing August 20, 2019
A bipartisan IRS reform bill, Taxpayer First Act (HR3151) was signed into law by President Trump on July 1, 2019. This is the first legislation in 20 years aimed at modernizing the IRS and strengthening taxpayer rights. The Taxpayer First Act:requires IRS to develop a plan to improve customer service;establishes an Independent Appeals Process and allows eligible taxpayers access to the IRS’s administrative file;includes provisions to improve IRS protections for ID theft;makes reductions to the threshold for e-filing;clarifies process is de novo (a new look at facts and law by the court) for innocent spouse relief from joint liability;bars collection of …
The Supreme Court Decides a Tax Case 9-0 August 15, 2019
By: It seems everything is an argument. Listen to the news. Watch C-SPAN televise speeches in the House or the Senate. It seems the Democrats can’t agree on much of anything in their Presidential debates. So when we see a unanimous decision from what we have been told is a politically divided Supreme Court, the decision is worth noting.A Unified CourtIn a 9-0 opinion, the US Supreme Court upheld lower court findings that taxation of undistributed income from The Kimberly Rice Kaestner 1992 Trust by North Carolina based solely on the residence of the trust’s beneficiaries in North Carolina violated the Due Process …
What You Need to Know about Qualified Business Income Deduction for 2019 August 8, 2019
Taxpayers claiming a Qualified Business Income deduction (QBI deduction) on their 2019 tax returns will be required to complete new Form 8995 or new Form 8995-A.No form was required for 2018 tax returns. The IRS instead provided worksheets in Publication 535 “to be retained for your records.”New Forms for 2019 – Qualified Business Income DeductionWe discussed in last year’s tax update classes that without a required form, the most the IRS could do in selecting returns for audit was (1) check that the deduction wasn’t more than 20% of the modified taxable income, or (2) simply audit based on the amount of …