Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

March 2017: Client Alert

March 2017: Client Alert

 

It's tax season and we are hard at work preparing returns and answering tax questions.   If you have tax questions or concerns, please do not hesitate to contact us.     You also may enjoy Frequently Asked Questions with Chip Franklin on KGO radio.

Sincerely,

Steve Moskowitz, Esq.
Founding Partner

 

Tax Calendar

Tax return filing season has arrived, which means it's time to mark your calendar for these 2017 tax deadlines.

March 2

  • Large employers and others must furnish Form 1095-B or Form 1095-C to employees.

March 15

  • 2016 calendar-year S corporation Form 1120S income tax returns are due.
  • 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

  • Forms 1095-B and 1095-C due to the IRS, if filing electronically. Employers who have 250 or more employees are required to file electronically.

What's Inside

Hot Topics

Can the IRS revoke your passport?
The IRS is revoking anbd denying passports in certian cases of tax delinquency

Common misconceptions of reporting foreign income
Taxability of foreign income & financial accounts, signature of liability and more..

 

Reminder: Partnership Tax Returns Due One Month Earlier

Remember, partnership tax returns are now due on March 15. This is a month earlier than last year. The change is important to note, as filing the tax return late could result in unexpected penalties. The new due date now aligns filing Form 1065 with other flow-through entities like S corporation Form 1120S. If you get caught by surprise with this earlier filing date, contact Moskowitz LLP immediately.


2016 Proof of Health Insurance: the Form 1095 Wrinkle

Under the current Affordable Care Act (ACA), all Americans must have health insurance. If you receive your health insurance through the ACA marketplace or from your employer, you will receive a Form 1095. This form is used as documentation that you have adequate insurance and is used for other ACA reporting and potential tax benefits.

What’s happening now

Prior to filing your tax return you should receive your Form 1095 and review it for accuracy. If you receive your health insurance through a state or federal marketplace you will receive Form 1095-A. Otherwise your version of the form will be either Form 1095-B or Form 1095-C. Unfortunately, some providers of the “B and C” versions of Form 1095 are still having trouble issuing the forms on time. Because of this, the IRS has issued a notice backing off on this “receive the form before you file” requirement. While you will still need to prove you have adaquate health insurance, the suppliers of the Form 1095-B and Form 1095-C were given until as late as March 2 to get the form out to you.

What to do

  •  If you have health insurance through a state or federal marketplace, you will receive a Form 1095-A. You should have already received this form, and you must have it prior to filing your tax return.
  •  If you receive health insurance through your employer, or another program that generates Form 1095-B or 1095-C, for 2016 only, you can still file a tax return without receiving the form. Just make sure you can prove health insurance coverage for you, your spouse, and your dependents for the year.
  •  Place Form 1095 in your tax files. Even though some Forms 1095-B and Forms 1095-C will be received later, you must still retain the form in your files.
  •  If you file your tax return and then discover an error in your reporting based on a Form 1095-B or Form 1095-C received after February 1, there is penalty relief from the IRS if you need to amend your tax return.

Remember, this applies to the 2016 tax year only. For the 2017 tax year, unless changed, you will be required to use a Form 1095 as proof of health insurance prior to filing your tax return.

 

Current Tax Law Requires Health Insurance

During his first week in office, President Trump signed an executive order asking federal agencies to reduce the economic burden the Patient Protection and Affordable Care Act (ACA) puts on American citizens.

Unfortunately, this executive order is causing confusion. Many people are left wondering if fines will no longer be imposed or rules no longer need to be followed. Until the agencies impacted by this executive order publish their intent, act as though current laws are still in play. This includes:

  •  The requirement to have health insurance.
  •  The requirement to pay a shared responsibility tax if you do not have continuous health insurance coverage.
  •  The ability to receive a health insurance premium credit, if you qualify.
  •  Possible health insurance credits for qualifying small businesses.

It’s important to realize that unless tax laws actually change, you are expected to follow the laws as they are currently written.

 

More Credits Require Questions

Common errors have helped to make the Earned Income Tax Credit (EIC) a major source of what the IRS calls “improper payments.” The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t qualify to receive them. To help combat this problem, the IRS now requires additional confirmation of information regarding the EIC and three new credits beginning in 2016.

Now, if you claim the EIC, the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), or the American Opportunity Tax Credit (AOTC), additional information may be requested of you.

For the CTC and ACTC, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives, or other guardian.

If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.

You may also be asked to double-check your social security numbers and dates of birth for the dependents on your return, as these are two common sources of errors.

If you get more questions than usual or are asked for additional documents, be aware that this is just a new IRS reporting requirement.

 

Getting Into Compliance with Your Foreign Account Reporting, Part I

With the 2015 release of the “Panama Papers,” roughly 11.5 million documents detailing personal financial information of wealthy individuals and identifying nearly 215,000 offshore entities are now available to government authorities. That and other leaks, as well as the overall step-up in global efforts to curb tax avoidance, means that the heat is on for people with foreign investments to get their filings in order before it’s too late.

The Consequences of Doing Nothing

Coming into compliance is not an easy task, but the consequences of not doing so are far worse than the penalties for coming clean with the IRS. Following is what you face by keeping your assets hidden:

  • The penalty for non-willful FBAR noncompliance is $10,000 per account, per year
  • The penalty for willful FBAR noncompliance is the greater of $100,000 or 50% of the account balance each year, plus criminal penalties
  • The penalties for failure to file Form 8938, Statement of Specified Foreign Financial Assets, are up to $10,000 for failure to disclose, plus $10,000 for each 30 days of non-filing following receipt of an IRS notice (up to $60,000), plus criminal penalties
  • Civil penalties for tax fraud can be as much as 75% of the tax underpayment, in addition to the taxes that are owed
  • Criminal penaltiesinclude fines of up to $250,000 for individuals ($500,000 for corporations), and up to 5 years’ imprisonment

That said, here are some options for coming into compliance with your foreign reporting:

The Offshore Voluntary Disclosure Program (OVDP)

The Offshore Voluntary Disclosure Program (OVDP) provides an opportunity for taxpayers who have willfully failed to report and pay tax to voluntarily come forward with previously undisclosed foreign assets and accounts. Note that you cannot take advantage of this program if you are already under investigation.

If you go into the OVDP, you should expect to pay a penalty of up to 50% of the account at its highest value. For example, let’s say someone opened a bank account in Switzerland in 2009 with a deposit of $500,000. The account has earned $25,000 annually. From 2009 through 2016, the highest account balance was $700,000. The total that person should expect to pay would be $276,500 plus interest, calculated as follows:

  • Eight years of taxes, for a total of $70,000 ($8,750 x 8 years) plus interest
  • A 20% accuracy-related penalty of $14,000 ($70,000 x 20% penalty)
  • An offshore penalty of $192,500 ($700,000 x 27.5% penalty)

If you have unreported offshore income, moving quickly with the OVDP may be your best option. Although the penalties are harsh, they are still lower than doing nothing and they can protect you from criminal prosecution. (Under certain circumstances, it may be prudent to choose to “Opt-Out” of the OVDP, and allow a revenue agent to determine an appropriate penalty based on your specific facts and circumstances.)

Keep in mind that the IRS is currently targeting OVDP declines and withdrawals in a new audit campaign, so prompt resolution of your compliance issues is as important as ever. The tax team at Moskowitz, LLP can help you make an informed decision on how to proceed.

Our next post will continue with Streamlined Filing Compliance procedures for non-willful failure to file and "Quiet Disclosures."