1. 2016 Federal Tax Updates October 27, 2016 Main Line Association for Continuing Education Richard Furlong, Jr. Senior Stakeholder Liaison

2. Permanent Extensions Tax Relief for Families and Individuals Child tax credit (IRC § 24) American Opportunity tax credit (IRC § 25A) Earned Income Tax Credit (IRC § 32) 2

3. Permanent Extensions Tax Relief for Families and Individuals Deduction for certain expenses of elementary and secondary school teachers (IRC § 222) – Indexed for inflation Deduction of State and local general sales taxes (IRC § 164(b)) 3

4. Permanent Extensions Incentives for Charitable Giving Special rule for contributions of capital gain real property made for conservation purposes. (IRC § 170) Tax-free distributions from individual retirement plans for charitable purposes. (IRC § 170) Basis adjustment to stock of S corporations making charitable contributions of property. (IRC § 1367 (a)) 4

5. Other Permanent Extensions Research credit. (IRC § 41) Employee wage credit for employees who are active duty members of the uniformed services. (IRC § 45P) Exclusion of 100 percent of gain on certain small business stock (IRC § 1202) Military housing allowance exclusion for determining whether a tenant in certain counties is low-income. 5

6. IRC Section 179 Expensing $500,000 limit and $2 million reduction threshold made permanent and indexed for inflation Allowance for depreciable software made permanent Now allowed for air conditioning and heating units Election can be revoked (but once revoked, it becomes irrevocable) 6

7. Temporary Extensions Extended through 2019 New Markets Tax Credit Work Opportunity Tax Credit IRC 45, 51 & 53 7

8. Temporary Extensions Extended through 2016 Discharge of principal residence debt Mortgage insurance premiums deductible Tuition and fees deduction Alternative fuel and energy efficiency IRC 108,163, 222, 30C 8

9. Temporary Extensions Bonus depreciation provisions extended 5 years 50% through 2017 40% 2018 30% 2019 Expansion of election to accelerate AMT credits in lieu of Bonus Depreciation extended through 2019 IRC 156(k) 9

10. W-2 and 1099 Filing Dates The due date for filing 2016 Forms W-2, with the SSA is now January 31, 2017, whether you file using paper forms or electronically. Form 1099-MISC to be filed on or before January 31, 2017, when you are reporting nonemployee compensation payments in box 7. IRC 6701(c) 10

11. Return Filing Due Dates For tax years beginning after 2015, the due date for a domestic partnership to file its Form 1065 has changed to the 15th day of the 3rd month following the date its tax year ended. IRC 6072 11

12. Return Filing Due Dates For tax years beginning after 2015, the due date for a domestic corporation to file its Form 1120 has changed to the 15th day of the 4th month following the date its tax year ended. IRC 6072 12

13. ITIN is a 9-digit number used for federal tax reporting purposes. Who needs an ITIN? Nonresidents needing an ITIN to claim a tax treaty benefit or a reduced withholding rate A Nonresident alien not eligible for an SSN who is required to file a U.S. tax return or is filing a tax return to claim a refund A dependent or spouse of a nonresident alien visa holder who is not eligible for an SSN ITIN Certification Process 13

14. Changes require some taxpayers to renew their ITINs beginning October 2016 IRS putting in place a rolling renewal schedule No action needed by ITIN holders if they don’t need to file a tax return in 2017 Taxpayers with expired ITINs not renewed before the 2017 filing season could face refund delays and be ineligible for certain tax credits such as Child Tax Credit and AOTC PATH Act changes ITIN program 14

15. Application: Form W-7 To apply for an ITIN, applicant must file Form W-7, original tax return(s) and original (or certified copies) of supporting documents. 15

16. New ITIN Rules -– Form W-7 ITINs that have not been used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return unless renewed by the taxpayer. ITINs issued prior to 2013 that have been used on a federal tax return in the last three years will need to be renewed starting in 2016. 16

17. New ITIN Rules -– Form W-7 Families can choose to renew the ITINs of all their family members at the same time rather than doing them separately over several years. Pub 5259 IRS will no longer accept passports of dependents as stand-alone documents that lack a date of entry into the United States. W-7 instructions 17

18. Persons claiming the benefits of a tax treaty who are exempt from withholding or eligible for a reduced rate of withholding Persons with income, payments, or transactions subject to third party reporting or withholding Form W-7 Instructions contain a detailed list of exceptions Exceptions to Filing with a Return 18

19. Tuition Reporting Form 8863 - “No Hope Scholarship Credit shall be allowed… unless the taxpayer includes the employer identification number…” IRC 25A In 2017 Form 1098T will report the “aggregate amount of payments received for qualified tuition and related expenses…” IRC 6050S In 2017 Form 1098T will report the “employer identification number of the institution” IRC 6050S IRC 19

20. Waiver of 60 Day Rollover Requirement - Rev Proc 2016-47 Provides guidance concerning waivers of the 60-day rollover requirement Provides for a self-certification procedure that may be used by a taxpayer claiming eligibility for a waiver Provides a self-certification model letter in the appendix of Rev Proc 2016-47 Taxpayers will submit the self-certification to a plan administrator or an IRA trustee ( Do NOT send self self-certification waiver to the IRS.) 20

21. EITC, CTC, and AOTC Expanded Due Diligence -CTC, ACTC, AOTC Retroactive claims Taxpayers with improper claims in prior years - 2 Year limitation – reckless or intentional disregard - 10 Year limitation - fraud IRC §6695, §32 and §25 21

22. Delayed EITC and ACTC Credits / Refunds No credit or refund for an overpayment … shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return. IRC § 6402 22

23. The Health Care Law and Taxes for Individuals and Families

24. Individual Shared Responsibility Report Health Care Coverage Claim Exemption from Coverage Make Shared Responsibility Payment 24

25. ACA Update Individual Shared Responsibility Payment Larger of $695 (1/2 under 18) or 2.5% of income Capped at Bronze level Individual $233 per month ($2,796 annual cap) Family of 5 or more $1555 per month ($18,660 annual cap) IRC 5000(A) Rev. Proc. 2016-43 25

26. Minimum Essential Coverage Offered by an employer, COBRA and retiree coverage Purchased through private insurance or Health Insurance Marketplace Provided by government-sponsored programs, including veteran’s coverage, CHIP and most Medicare and Medicaid 26

27. Reporting Coverage Check box and leave entry space blank if everyone on the return had coverage for the full year 27

28. Information Statements Marketplace - Form 1095-A, Health Insurance Marketplace Statement Insurers - Form 1095-B, Health Coverage Large Employers – Form 1095-C, Employer- Provided Health Insurance Coverage and Offer 28

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32. PTC Common Errors Did not reconcile APTC Claimed PTC but failed to attach Form 8962 Form 1095-A data not correctly reported Transposed digits Miscalculated Monthly PTC Allowed Miscalculated Repayment Amount of Excess APTC 32

33. Best Practices Use Form 1095-A, B or C to verify – coverage months and – who is covered Determine eligibility for exemption – Marketplace ECN – Income below return filing threshold or – IRS coverage exemptions 33

34. Best Practices Did your client receive Form 1095-A from Marketplace? – APTC – Verify coverage months and who is covered – Multiple policies issued Were there changes in circumstances during the year? – Married/divorced – Eligible for government or employer sponsored coverage – Months without coverage 34

35. Sharing Economy Resources IRS worked in conjunction with the National Taxpayer Advocate Created the Sharing Economy Resource Center on IRS.gov Web page designed to help taxpayers involved in sharing economy meet tax obligations 35

36. TAC Appointments IRS Taxpayer Assistance Centers now require appointments Check IRS.gov for: – Services offered at a specific Taxpayer Assistance Center – Check IRS.gov Days/Hours of Service Call 844-545-5640 to schedule a Taxpayer Assistance Center appointment. 36

37. Warning Signs: More than one return filed using clients SSN Client has a balance due, refund offset or a collection action taken for year return not filed IRS records indicate client received wages from unknown employer Business client receives IRS letter about an amended tax return, fictitious employees or about a defunct, closed or dormant business Identity Theft 37

38. Taxpayer Protection Program generates: Letter 4883C for prior-year suspicious returns Letter 5071C for current-year suspicious returns –Most common correspondence –Taxpayer self-verifies at Idverify.IRS.gov Letter 5447C for suspicious returns with foreign addresses Tax-Related Identity Theft 38

39. Security Summit Actions for 2016 Agreed on new “trusted customer” standards for use of tax software –New password standards –Lockout features –Out-of-band features Identified more than 20 new data elements for submission Improved information sharing IRS Response to Identity Theft 39

40. Six-digit number that adds an additional layer of protection along with the SSN or ITIN Victims notified once tax-related IDT case resolved Taxpayer will receive a CP01A notice containing a new IP PIN each year Some taxpayers have the option of getting an IP PIN from IRS.gov Enter numbers for all IP PIN holders About the Identity Protection PIN (IP PIN) 40

41. Steps for Tax-Related IDT Victims Respond immediately to IRS notices File IRS Form 14039, Identity Theft Affidavit Continue to pay and file return, even if by paper Place “fraud alert” on credit records by contacting one of three major bureaus File complaint with FTC 41

42. Taxpayers enter verification codes on their e- filed federal tax returns When processing returns, IRS recalculates codes Matching codes = genuine W-2s Verification codes not included in W-2 data submitted to SSA, states or local departments of revenue Won’t affect state or local tax returns (Page 260) W-2 Verification Code Pilot 42

43. Agreed on three new working groups: –Financial Services Work Group will focus on tax-time products such as debit cards –Communications Work Group will work to increase security awareness among taxpayers –Tax Preparers Work Group to bring industry into the dialogue Summit partners reviewing additional steps for 2017 Security Summit Additional Actions 43

44. Get Transcript Secure Access Authentication Email confirmation code –Same as before; code sent to email address; taxpayer re-enters in order to continue to next step Identity proofing –Similar as before Two new steps: –Financial Verification –Activation code text sent to mobile phone 44

45. Early Interaction Initiative is an effort to: –Proactively address payroll tax compliance –Raise awareness –Provide better service Results: –FTD Alert cases quadrupled –Compliance results improved (Page A41) Early Interaction Initiative for Employers 45

46. Revised Power of Attorney Form 2848 (Rev. December 2015) Updated description and representation requirements for unenrolled return preparers Removed registered tax return preparers (designation i) Prior version forms remain in effect until –Revoked by taxpayer, or –Withdrawn by representative 46

47. Updated Preparer Groups Unenrolled Return Preparers must: Possess valid and active PTIN Eligible to sign return or claim For returns prepared/signed after 12/31/15, must possess valid AFSP Record of Completion for calendar year in which -Tax return or claim prepared/signed -Representation occurs 47

48. Audit Trends (Data Book) SOI Tax Stats – IRS Data Book Published annually Contains statistical tables and organizational information on a fiscal year basis Provides data on…. –Collecting the revenue –Issuing refunds –Enforcing the law –Assisting the taxpayer –Budget and workforce 48

49. Avoid IRS impersonators; IRS will not: Call demanding tax payment without mailing a notice Threaten to call police Demand payment without opportunity to question or appeal Require a specific payment method Ask for credit or debit card numbers over phone Beware IRS Impersonation Scams 49

50. Resources www.irs.gov/draftforms for early drafts of forms and instructions www.irs.gov/taxmap for tax research of forms, instructions, publications, articles, and pages on IRS.gov, all at once www.irs.gov/irc for the Internal Revenue Code and other guidance 50

51. Richard Furlong, Jr. Senior Stakeholder Liaison 267-941-6343 richard.g.furlong@irs.gov Contact Information 51