1. IRS Tax Updates Alan.J.Gregerson@irs.gov 651-726-1589 October 6, 2016 Northstar Payroll Association

2. Tax Updates I. Path Act/Tax Law/IRS Proc. /Payroll Issues II. Identity Theft/Data Loss III. Scams IV. Digital Demand V. Secure Access VI. IRS Future State VII. Early Interaction Initiative VIII. Information Return Penalties IX. W2 Verification Code Pilot

3. Tax Updates X. Electronic Filing Tax Payment System XI. Backup Withholding XII. IRS Resources XIII. ACA

4. I. Path Act/Tax Law/IRS Procedures/Payroll Issues Path Act Certified Professional Organizations Work Opportunity Tax Credit Wrongful Incarceration Deposit Notices Wellness Program Withholding Compliance Payroll Issues

5. The risk is real; preparers are prime targets for identity thieves Cybercriminal tactics constantly evolve Data loss can occur so many ways: – Burglar steals office computers – Cybercriminal breaches your systems using phishing and malware schemes – Disgruntled employees steals client info – Dispose of old devices without erasing data II. Identity Theft/Data Loss

6. Phishing emails, text or calls – Pose as trusted organizations – Embed links to fake websites – Use malware-infected attachments Risks of opening phishing scams – Account take-overs (Banks, IRS e-Services, Tax Software) – Computer breaches Educate employees on scams/risks Data Theft Tactics

7. Read Publication 4557, Safeguarding Taxpayer Data Review current security measures Create a security plan – Use top-notch software security – Educate all employees – Use strong passwords – Secure Wi-Fi – Encrypt PII emails – Backup files Steps to Protect Data

8. Create a reaction plan for data theft – Call IRS Stakeholder Liaison (found on IRS.gov) – Notify your State Tax Agency Review Federal Trade Commission’s “Business Center” to assist businesses with data losses – Notify police – Notify businesses – Notify clients Plan Ahead for Data Loss

9. III. Emerging Scams Phishing emails posing as IRS e-Services Phishing emails posing as new clients Spoofing emails to payroll personnel requesting all employee Forms W-2 Remote takeover of tax preparer computers Variations constantly emerge Know your clients; know your employees

10. IV.Looking Ahead – Digital Demand Secure Access provides foundation for future self-help tools Taxpayers demanding more digital options Cost of IRS personal service: $40/$60 per transaction Cost of IRS digital service: $1 per transaction IRS remains committed to providing services needed by taxpayers

11. V. Secure Access Process Secure Access Process – New authentication framework – More rigorous validation process – 2-Factor authentication: Password credentials Security code sent by text Get Transcript Online back online Other tools under review

12. New Authentication Steps 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

13. How to Successfully Authenticate A readily available email address that you can check immediately An SSN Account number information from either: – Credit card (last eight digits), or – Home mortgage, or – home equity mortgage or – home equity line of credit, or – Auto loan

14. How to Successfully Authenticate A mobile phone that is – Supported by a data plan that includes texts – Associated with your name and/or address – Not a business-owned phone – Not a virtual phone, i.e. Skype, or a pay-as- you-go phone Remove “credit freeze” if through Equifax

15. How to Successfully Authenticate Returning Users (registered via Secure Access) – Need their username and password – Need their mobile phone to receive security code Returning Users (registered via KBA process) – Password and user name still valid – Must provide financial verification – Must receive mobile phone text code

16. How to Successfully Authenticate 10 to 12 minute process for new users to register via Secure Access Process repeatedly explains what tools/information needed for success Repeatedly offers Get Transcript by Mail as an option Other self-help tools, including IP PIN, added as warranted Get Transcript Online for taxpayer use only

17. Higher Security/Lower Access Trade offs for higher security Fewer people able to authenticate – IRS monitoring pass rate; – Evaluate and adjust as necessary Get Transcript by Mail option Taxpayers always should retain copies of prior year tax returns

18. More Information See News Release 2016-85 See Fact Sheet 2016-20

19. VI. The Future State-Taxpayer Component A central concept of the Future State focuses on taxpayers and how to provide the services they need in a way that works for them.

20. The Taxpayer Component A more complete online experience Freeing up resources for those who need 1- on-1 assistance More up-front issue identification when the return is filed Improved authentication to prevent fraudulent returns using stolen identities

21. Example of Ongoing Initiatives Security Summit Group Taxpayer Assistance Centers Appointments- Based System Improved Online Services Compliance Realignment Identity Theft Victim Assistance Enterprise Records Management

22. Ongoing Initiatives Early Interaction Initiative Online Payment Agreements

23. VII. Early Interaction Initiative An effort to – – Proactively address payroll tax compliance – Raise awareness – Provide better service

24. Historical Perspective Federal Tax Deposit Alert (FTD) Program – Started in 1972 – Focuses on payroll tax deposits – Identifies changes in deposit history – Assigns an “Alert” to Field Collection

25. Why Emphasize Early Interaction 67.5% of 2014 revenue from withheld income & FICA tax 68.3% in 2013 – 70% in 2012 Big part of Field Collection inventory

26. Early Interaction Background Planning started in 2014 First phase launched Dec. 2014 Other phases launched 2015 More to come

27. Mechanics of Early Interaction How Does It Work The right treatment At the right time For the right employer

28. Effect on Stakeholders Employers, payroll services and tax reps should expect – – More contacts – Earlier contacts – Emphasis on – Precluding delinquencies and/or Addressing delinquencies early

29. Early Interaction Results FTD Alert cases quadrupled Compliance results improved

30. IRC 6721 Failure to Furnish Failure to Pay Abatement VIII. Information Return Penalties

31. One in a series of steps to combat ID theft and tax fraud Pilot will test capability to verify authenticity of W-2 data filed with federal tax returns in 2016 IRS will soon name Payroll Service Providers PSPs will reach out to some clients Algorithm generates alphanumeric codes from selected data fields of the W-2 Verification codes appear on employees’ W-2s IX. W-2 Verification Code Pilot

32. 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 W-2 Verification Code Pilot

33. We stress: – Omitting or using incorrect W-2 verification codes will not delay the processing of taxpayers federal tax returns “test-and-learn” review after pilot If integrity of W-2 information submitted by taxpayers increases, verification codes will remain an element of W-2s in the future W-2 Verification Code Pilot

34. X. Electronic Federal Tax Payment System The EFTPS is: Mandatory Secure, accurate and easy to use Available to be viewed online after enrollment Accessible by an Inquiry PIN The system: Provides immediate confirmation for each transaction Maintains a history for 16 months

35. Payroll Service Providers (PSPs) Many employers outsource their payroll and related tax duties, the 3 rd party payers will: Administer payroll and employment taxes Provide assistance in meeting filing deadlines and deposit requirements Streamline business operations

36. Common third party arrangements include: – Payroll Service Providers (PSPs) – Reporting Agents – Section 3504 Agents – Professional Employer Organizations (PEOs) Reminder: Employers are ultimately responsible for the payment of income tax withheld (employer and employee portions of social security and Medicare taxes). See Fact Sheet 2013-9 Tips for Employers Who Outsource Payroll Duties Types of Third Party Payers

37. XI. Backup W/H-Form 1099-Misc Filing Requirement Report payments of $600 or more paid to non-employees each year Provide required copies timely to: – non-employee by Jan. 31 – IRS by Feb. 28 Be aware of exceptions

38. TIN Matching Program Match payee name with W-9 Match TIN with IRS records Decrease backup withholding and penalty notices Reduce error rate in TIN validation Requires registration in e-Services – Free – Available 24/7

39. Form W-9 Request for Taxpayer Identification Number and Certification Use to obtain – Payee’s Correct Name – Payee’s Taxpayer Identification Number

40. Backup Withholding Requirements Withhold 28 percent of income if: – employee does not provide TIN – employee provides incorrect TIN – notified by IRS that TIN provided is incorrect

41. Backup Withholding Requirements Time frames – begin withholding with first payment – withhold until non-employee provides correct TIN Report on Form 945

42. XII. IRS Resources Employment Tax Pubs Online (15, 15A, 15B) Small Business Taxes – The Virtual W/S IRS Video Portal IRS Live Webinars/Archived Webinars IRS.gov IRS Subscription Service

43. The information contained in this presentation is current as of 03/09/2016. For the latest information about tax provisions of the Affordable Care Act, visit IRS.gov/aca. XIII. IRS Resources TopicDetailsSource ACA Tax Law IRS ACA Homepage irs.gov/aca 6055 Information Reporting Overview irs.gov/Affordable-Care-Act/Employers/Information-Reporting-by- Providers-of-Minimum-Essential-Coverage 6055 Information Reporting Q&As irs.gov/Affordable-Care-Act/Questions-and-Answers-on- Information-Reporting-by-Health-Coverage-Providers-Section-6055 6055 Final Regulations gpo.gov/fdsys/pkg/FR-2014-03-10/pdf/2014-05051.pdf Legal Guidance and Other Resources irs.gov/Affordable-Care-Act/Affordable-Care-Act-of-2010-News- Releases-Multimedia-and-Legal-Guidance Notice 2015-68 irs.gov/pub/irs-drop/n-15-68.pdf Notice 2016-4 irs.gov/pub/irs-drop/n-16-04.pdf Forms & Instructions Form 1094-Birs.gov/pub/irs-pdf/f1094b.pdf Form 1095-Birs.gov/pub/irs-pdf/f1095b.pdf Instructions 1094-B & 1095-Birs.gov/pub/irs-pdf/i109495b.pdf ACA Information Returns (AIR) AIR Homepage irs.gov/for-Tax-Pros/Software-Developers/Information- Returns/Affordable-Care-Act-Information-Return-AIR-Program Other Health Care Information HHS HealthCare.gov SBA SBA.gov/healthcare DOL DOL.gov/ebsa/healthreform 43

44. Forms Form 1094-C, Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns Transmittal of Employer Level Data Form 1095-C, Employer Provided Health Insurance Offer and Coverage Employee Statement Due Dates Furnished to Employee by January 31 Filed with the IRS by February 28 (March 31 if filed electronically) 2016 due dates extended – March 31 to employees and May 31 to the IRS (June 30 if filed electronically) 44

45. What information is reported? 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns): – Employer Name, Address, EIN, and contact information – # of 1095-Cs submitted – ALE Member Information 1095-C (Employer-Provided Health Insurance Offer and Coverage): – Employee Name, TIN, and contact information – Employer Name, EIN, and contact information – Offer of coverage (by month) – Covered Individuals 45

46. Questions The End