Thursday, August 16, 2018

What does the Supreme Court ruling on online sales tax mean for small business owners?

The Supreme Court ruled in June that states have the authority to require businesses to collect online sales tax on purchases even if the business does not have a physical presence in the state. Previously, businesses were only required to collect sales tax in states where they operate physically. Though some major online retailers like Amazon were already collecting sales tax nationwide, the decision has implications for small to midsized businesses that must adapt to remain compliant.

It’s not all bad news for business owners. While small businesses with an e-commerce presence may now be looking at a significant incremental compliance obligation, smaller brick-and-mortar operations who have always been required to collect sales tax are hailing the decision as providing long-overdue competitive equity. There are also some upsides for online retailers:
• You have some time. It takes time for states to react to such rulings and make the necessary changes to enable the collection of a new tax. While some states have been readying their processes in anticipation of the ruling, most will have work to do before enacting any major changes. In the meantime, it’s wise to get in front of this by locating the tools you need going forward.
• Some states already have enacted, or will likely enact, thresholds above which the tax will be triggered. Thus, if your activity in a particular locale is below an ordained dollar or transaction level, you may be exempt.
• The Streamlined Sales and Use Tax Agreement. Twenty-four states currently participate in this agreement, which in addition to standardizing some of the supporting tax calculation and submission protocols also provides for free sales tax compliance software for retailers under certain circumstances.Though the Supreme Court’s decision has been made, there are areas that small online retailers will still need to keep an eye on:
• Retroactivity: Some states may be tempted to look to collect these taxes not only going forward, but retroactively.
• Federal standardization: Policy makers grasp how challenging it will be to stay on top of the multitude of state and local sales tax rules. As such, the Supreme Court ruling may prompt Congress to finally enact a standardized federal policy — though this may be politically unlikely for now.
• Potential impact on general business taxes: Some states don’t levy income taxes on businesses without a brick-and-mortar location within their borders. This decision may spur these states to reconsider that stance given the opportunity for incremental revenue.
Though some effects of this ruling are unknown at this time, business owners can take steps to prepare. Assess the impact, evaluating where your main out-of-state sales come from. This will give you a sense of where you may want to focus your compliance attention.
Source, Written by: M. Trabold

Wednesday, August 8, 2018

Tech will lead the way with new lease accounting guidance

Accounting professionals, as the stewards of financial information, have a unique opportunity to take the lead in adopting the new lease guidance and implementing lease accounting software. Approaching the adoption methodically, which includes collecting data, making policy decisions, and applying operational realities, accountants play a distinct role in developing the processes and implementing the systems that guide an organization into the future. In doing so, accountants can help companies capture the benefits of enhanced, centralized processes, improved lease management and increased data visibility that ultimately lead to cost savings and more accurate financial data and disclosures.
One of the keys to realizing these benefits is for accountants to embrace technology as part of the implementation process. Unlike cumbersome and error-prone spreadsheets, lease accounting software that is effectively implemented will allow accountants to efficiently analyze vast amounts of asset data and make informed decisions. Empowered by the centralized data from the lease accounting software, accounting professionals are positioned to add valuable insights on lease spend, advise on both operational and financial decisions and provide more in-depth and accurate financial analysis.
Selecting and implementing lease accounting software
Lease accounting software, when judiciously selected, enables accountants to help their organizations capitalize on streamlined data. At the highest level, the most appropriate solution will come from a financially stable vendor with lease experience and be SOC 1 compliant. When evaluating software options, understanding your company’s business requirements is critical. Specific items to consider include the lease portfolio characteristics, international reporting requirements and foreign currency translation needs. To cement the selection process, users need to be able to easily input data, navigate the modules, and produce disclosure reporting.
Beyond ensuring that a solution meets your company’s requirements, a system should be easy to implement. Employing a lease accounting system requires organizations, specifically accountants, to coordinate cross-departmental teams that will assess the current state and inform the development of future state processes around procurement, month-end close journal entries and asset management. Leading the implementation presents a strong opportunity for accountants to move beyond the numbers and partner with upstream functions that often do not understand how their processes impact financial information.

Enhanced, centralized processes
Creating more efficient, centralized processes to not only collect information but to accurately input data into a system will pay dividends. On the front end, by working with procurement and operations, accounting can implement processes that ensure compliance with the new standard. This approach paves the way for accountants to be the Center of Excellence and subject matter experts for advising both operational and financial decisions. For example, as part of a monthly or quarterly process, accountants can utilize a lease system to provide more timely and accurate analysis of lease spend, ultimately leading to cost savings and an improved bottom line.
Additionally, the new guidance has a significant impact to the financial statements and disclosures, requiring accountants to thoughtfully strengthen internal controls and improve reporting processes. For instance, lease information that previously resided only in the footnotes is now presented as a liability that will be subject to increased scrutiny from internal and external stakeholders. Through heightened attention and robust processes around lease terms and details of lease transactions, accountants can make certain the financial statements under the new guidance are accurate.
Improved lease management
Lease accounting software and centralized lease management allows accountants to monitor and make educated decisions on lease events. Typical events include amendments to add or remove assets, altering length of term and middle- or end-of-term options such as terminations or renewals. Specifically, with lease accounting software, companies can produce standardized and customized reports to assist in presenting actionable information. A common benefit to these operational reports are their assistance to inform decisions on whether to renew or end a lease agreement prior to the lease end date, ultimately reducing unwanted month-to-month lease expenses which may have previously gone unnoticed.
More complete and accessible lease data will position accountants to assist their companies with proactively managing assets. To illustrate, lease versus buy decisions may oftentimes be uninformed because of the lack of data and decentralized lease management, resulting in inefficiencies and overspending. The centralized monitoring of lease events will help inform lease versus buy strategies that produce efficiencies and cost savings related to common challenges like evergreen leases, vendor management for similar leases and end-of-term options such as lease extensions.
Increased data visibility
Cross-departmental collaboration and an effective lease accounting software implementation will lead to a more cohesive and efficient data flow. This improved workflow creates on-demand access into lease data and knowledge sharing between previously disconnected areas of an organization like purchasing, real estate, IT and accounting. Currently, accountants are often delayed in receiving information that could impact timely journal entries. In the case of leases, communication about a new contract may not occur until after the month closes, resulting in catch-up entries and the risk of misstatements in financial reporting. With a new lease accounting solution and efficient workflow, accounting groups will have visibility into upcoming and recently transacted agreements to influence management with concrete financial analysis on lease spend.
As accountants take leadership roles in the adoption of the new guidance and the system selection and implementation processes, companies will realize value from enhanced, centralized processes, more robust management of leases and more in-depth visibility to lease data. These improvements provide accountants with the opportunity to provide their companies with analysis and insights on critical capital-asset procurement and spending. Ultimately, successful adoption of the lease guidance will yield cross-departmental collaboration and efficiencies, more cost-effective lease decisions, and increased accuracy in financial reporting.
Source: Written by: Bill Maloney

Wednesday, August 1, 2018

Blockchain: A 'significant evolution' accountants can't afford to ignore

Blockchain might be the most buzzworthy word in accounting today, if its prominence at the Accounting and Finance Show L.A. last week is any indication.
Multiple sessions covered the emerging technology, with one keynote speaker, Robert Massey, a partner at Deloitte, giving a primer on the hot topic.
“Blockchain is one of the most significant evolutions we’ve seen,” said Massey, who leads the Big Four firm’s cryptocurrency and blockchain practice globally. “Blockchain is to value as the internet is to information. It’s an exponential change, to share information between decentralized parties, in real time. It decentralizes the ability to record information, and enable transactions. It’s the next step in the evolution of commerce.”
Massey finds it helpful to think of blockchain as a “big shared ledger” -- more specifically, “a distributed ledger which allows digital assets to be transacted in real time, in an immutable manner.”

Smarter agreements
Members of another panel on blockchain focused more on how accountants should plan to harness the technology within their practices.
Practitioners should start with educating themselves on the blockchain, all panelists agreed. David Cieslak, chief cloud officer and executive vice president at business consulting firm RKL eSolutions, suggested that firms add a blockchain leader, while Ron Quaranta, chairman of the Wall Street Blockchain Alliance, recommended seeking resources on the topic from the American Institute of CPAs.
“Technology has disrupted the profession previously — this is not a new conversation,” said Danetha Doe, founder of financial mentorship program Money and Mimosas. “It’s the speed of the change. The next generation is adopting quickly, and you’re going to start to see a shift in the profession … how blockchain can be applied to different use cases outside the box.”
“All of us need to be thinking a lot more about value, and a lot less about tasks, [which] are often much more transactional,” said Cieslak. “Blockchain is really going to accelerate that. How can we leverage the technology to bring that greater value?”
It was a question asked frequently throughout the two days of the Accounting and Finance Show, with speakers attempting to provide guidance on a bold, and still mysterious, new frontier. But the technology’s novelty and unrealized potential only energized both panelists and attendees.
The conference’s thought leaders were most enthusiastic about blockchain as it related to new ways of conducting business, such as its use in smart contracts.
Smart contracts take “key terms in a legal agreement, and embed [them] in software, creating link dependencies in the agreements,” Massey explained in his keynote session. He offered the example of a farmer buying crop insurance, which will pay him if it doesn’t rain for 100 days.
Smart contracts utilize blockchain to connect to outside, trusted “sources of truth” to facilitate, enforce and verify terms of an agreement, thus removing the need for third parties or middlemen. In Massey’s farmer example, one of those sources of truth would be regional weather data.
“Blockchain is very effective connective tissue,” Massey explained. “We see, in all industries, the use of smart contracts enabling better relationships.”
Smart contracts “are happening organically anyway,” he continued. “It’s not just the systems, but the organizations that are decentralized. It’s likely now that transactions are validated somewhere other than where management is sitting.”
“There’s a real variety of use cases, and those are what are super-exciting,” said Cieslak during the panel discussion. “Some of what is going to be done with blockchain, has never been done before.”
The implications are especially exciting for certain industries, like the recording industry, an example many speakers cited when describing how intellectual property, like songwriting credits, can be coded into blockchain-enabled smart contracts. Speakers and panelists urged attendees to educate themselves on the technology and assess how it can apply to their clients and industry verticals.
“Every company innovation in this space is putting forth solutions,” said Massey. “In L.A., in entertainment, in media, [you can] lock down intangibles like the rights of a song or movie. What if you lock that down in a blockchain solution, before you had to pay for it? It’s a significant evolution in song and movie rights. It’s hitting every industry. It’s relevant to every single one of them. Think about your clients, and what’s relevant to them.”

Crypto, currently
Many people are familiar with blockchain as the technology behind cryptocurrencies like bitcoin and ethereum, and Deloitte's Massey dedicated a portion of his session to addressing those virtual currencies, as did other panelists at the conference.
All panelists stressed the status of cryptocurrency as property, based on guidance issued by the Internal Revenue Service in 2014.
Stephen Turanchik, an attorney in the tax practice at law firm Paul Hastings, spoke about the perplexing nature of cryptocurrency taxation during another conference session. He explained that virtual-currency exchanges are not required to report to the IRS, so “a lack of detection, and the ability to hide it, still exists.” But, he continued, “if you think that gives you the license to commit tax fraud, think again.”
On July 2 of this year, the IRS announced its virtual currency compliance campaign, and it will be conducting more audits on virtual currencies, Turanchik warned the audience.
The IRS is also stepping up outreach and education efforts, and soliciting taxpayer and practitioner feedback for these campaigns. The service is urging taxpayers with unreported virtual currency transactions to “correct their returns as soon as practical,” Turanchik reported, though the IRS is not contemplating voluntary disclosure programs.
“The IRS simply doesn’t have the technical expertise to give guidance in this area,” Turanchik said. He cited a “John Doe” summons the IRS served to virtual-currency exchange Coinbase in November 2016, seeking customer data. Before the petition was granted, the IRS had to narrow the scope of the summons, to Coinbase users with accounts of at least $20,000 in any one transaction type, in any single year between 2013-15.
Overall, Turanchik explained, there is a “significant lack of transparency” in the cryptocurrency space, which he said keeps him busy, and provides big opportunities for tax preparers.
Source: Written by: Danielle Lee

Thursday, July 26, 2018

House passes repeal of medical device tax

The House approved a repeal of the Affordable Care Act’s medical device tax, along with a bill that prohibits the IRS from rehiring any employee who was fired for misconduct.
Implementation of the 2.3 percent excise tax has repeatedly been delayed by Congress ever since the passage of the ACA in 2010, in part thanks to lobbying by medical device manufacturers. The Senate isn’t expected to take up the bill before the end of the year, according to The Wall Street Journal. However, the latest moratorium on the tax means it won’t take effect until at least January 2020.

Repeal of the tax was supported across party lines, with a vote Tuesday of 283 to 132. Joining those in favor of repealing the tax were 57 Democrats.
“Minnesota’s innovators can breathe easier since we’re one step closer to ending the medical device tax for good,” said Rep. Erik Paulsen, R-Minn., who sponsored the bill, in a statement Tuesday. “Today’s vote shows strong bipartisan support for lifting this burden on innovators in an industry so important to Minnesota. I’m more optimistic than ever we’ll be successful in giving these job creators the certainty and predictability they need to thrive.”
Another bill passed by the House on Tuesday, the Ensuring Integrity in the IRS Workforce Act, would prohibit the IRS from rehiring any employee who was “involuntarily separated” from the agency for misconduct. The bill was passed unanimously by the House. It was sponsored by Rep. Kristi Noem, R-S.D. “South Dakota taxpayers shouldn’t have to worry that someone who has already been fired for mismanaging their hard-earned dollars will be hired again,” Noem said in a statement Tuesday. “We need to know there is integrity in the IRS, and when they rehire people who have already mishandled our most sensitive data, that integrity is broken. This bill puts commonsense oversight provisions on the agency handling our personal information and makes sure people who don’t respect taxpayer resources don’t work at the IRS. I am hopeful the Senate will move quickly to put these practical protections in place.”
The House is also expected to take up legislation this week allowing taxpayers to pay for gym memberships, fitness classes, nonprescription over-the-counter drugs and menstrual care products with their health savings accounts and flexible spending accounts, as well as roll over money from an FSA from one year to another.

Source: Written by: M. Cohn

Thursday, July 19, 2018

In new round of tax cuts, retirement changes seen as most likely to pass

Republicans are promising a comprehensive second round of tax cuts — but tax changes affecting retirement savings may be the only measures with enough political support to make it through Congress this year.
House Ways and Means Chairman Kevin Brady said Wednesday that he plans on releasing an outline of “Tax Reform 2.0” legislation next week to his committee members, which would include making the rate cuts for individuals permanent. Extending those cuts faces slim chances in the Senate, where it would need the support of at least nine Democrats to pass. The 2017 tax law passed without any Democratic votes.
Tweaks to retirement plans, however, are likely to garner bipartisan support, especially those related to small businesses. Brady told reporters he’s including a retirement-related bill in his draft that has the backing of Senators Orrin Hatch and Ron Wyden, the top Republican and Democrat on the Senate Finance Committee.

The bill, called the Retirement Enhancement and Savings Act, has “tremendous” support in the Senate, Wyden said. Still, he added that’s the only part of the tax cut plan Democrats would likely support, so its best chance of passing would be by carving it out from the broader legislation.
RESA is a bundle of small tax changes that seeks to increase options for workers to voluntarily save. The bill would make it easier for small businesses to join multiple employer plans, which would be a boon for gig workers. The bill also would give employers that sponsor traditional pension plans some relief from tax requirements that have led to the shuttering of those plans.
The 2017 tax law largely left retirement savings untouched despite talk about pushing savers to pay taxes up front and put their money in after-tax Roth retirement vehicles.
An extension of the tax cuts has been viewed as a House effort to score political points ahead of the November election. House Speaker Paul Ryan has pledged to vote on the legislation, while Senate Majority Leader Mitch McConnell has only said he’ll consider it.
“You have to recognize the reality of the political timeline that we’re under. We’re going into midterm elections,” Representative Tom Reed, a New York Republican, told reporters Wednesday. “We are being the rabble-rousers that we typically are in the House trying to lead on these issues and drag the Senate along.”
Republicans had hoped to make all the tax cuts in their 2017 law permanent, but budget constraints meant the reductions for individuals and pass-through businesses, companies where the owners pay the taxes directly, will expire in 2026. The long runway means that Republicans could have several more opportunities to extend the bill ahead of the sunset date.
Source: via Bloomberg News

Wednesday, July 11, 2018

Growth benefits of U.S. tax cuts may be overestimated: Fed study

U.S. growth expectations may be too rosy as analysts overestimate how much tax cuts will boost the economy, according to an economic letter from the Federal Reserve Bank of San Francisco.
Analysts have forecast large increases in economic growth over the next two to three years following $1.5 trillion in corporate and personal tax cuts over the next decade. But recent research finds that such fiscal stimulus is less effective when the economy is expanding compared with its benefits when enacted during a recession.
“This suggests these forecasts may be overly optimistic,” economists Tim Mahedy and Daniel Wilson wrote in their note published Monday on the San Francisco Fed’s website. “The predominant research finding is that the fiscal multiplier is smaller during expansions than during recessions.” Wilson is vice president in the economic research department of the San Francisco Fed. Mahedy is a former associate economist in the department who recently joined Bloomberg Economics.

The authors ran down several recent papers that support this point:
• Spending multipliers were much smaller in expansions than recessions in a panel of Organisation for Economic Co-operation and Development nations.
• Microeconomic studies show that consumers spend more out of each extra dollar they earn during recessions.
• Marginal propensity to consume was 20 to 30 percent higher in the Great Recession than in other recent years, one paper found.
Source: Bloomberg News

Friday, July 6, 2018

The opportunities and challenges facing your entrepreneur clients

American entrepreneurship is on the rise. Based on a historical analysis of a subset of Paychex clients, in the first quarter of 2018, small business entrepreneurship was near its best pace since the recession. Odds are you’re seeing more entrepreneurs walk through your doors looking for financial guidance as they start and run their business, but are you aware of the current state of entrepreneurship, as well as the opportunities and barriers your clients face?
A new report by Paychex analyzes American entrepreneurship during the past decade and the state of small business today, including today’s business owners’ attitudes and perceptions of the current business environment.
Overall, the majority of business owners feel positively about the state of business as a whole. More than three quarters of small business owners (79 percent) would recommend starting a business today, and 71 percent of business owners describe today’s business environment as either better or the same compared to when they started their business. Most business owners (74 percent) cited the satisfaction of working for themselves as a reason they’d recommend starting a business today. However, the age and size of the business impacts business owners’ outlook:
• Business owners who started their company during or closely following the recession (four to nine years ago) were more likely (57 percent) to say the business environment is better today than when they started, compared to only 32 percent of those who started their companies 20 or more years ago.
• Eighty-one percent of business owners with 100 to 500 employees say the business environment is better today than when they started, compared to 46 percent of owners with one to 19 employees.
• Owners of larger businesses were also more likely to recommend starting a business today. Ninety-four percent of owners with 100 to 500 employees and 91 percent with 20 to 99 employees would recommend starting a business today compared to 78 percent of owners with one to 19 employees.
From an individual standpoint, business owners today also have a positive outlook on their future. Nearly two-thirds (64 percent) are optimistic or very optimistic about their ability to make a profit, and 58 percent are optimistic or very optimistic about their prospects for growth. Half of business owners are optimistic or very optimistic about the U.S. economy, but they face some barriers to starting and running a business too:
• Ninety percent of business owners are at least slightly concerned about rising costs and 84 percent of business owners are at least slightly concerned about taxes.
• In today’s tightening labor market, 67 percent of business owners are at least slightly concerned with finding quality employees (30 percent are very concerned).
• Additionally, approximately 25 percent of business owners are at least somewhat pessimistic about their ability to hire and raise wages.
Each business owner seeks different outcomes from their entrepreneurial endeavors. Only 11 percent of business owners say rapid growth is their top priority at this time. The majority are happy to remain comfortably profitable or grow at a moderate rate.
• Remaining “comfortably profitable” was the top choice for male owners, owners in business 10 or more years, and owners age 50 or older.
• Growing at a “manageable rate” was the top response from female business owners, owners in business nine or fewer years, and owners 18 to 34 years old.
Knowing how today’s business owners are feeling and what they’re facing can help you as you advise them in starting and growing their business. Though business owners know that rising costs and taxes are impacting their business success, your expertise can guide them to best manage and plan for the expected and unexpected barriers they face. 
Source:, Written by: F. Fiorille

Wednesday, June 27, 2018

Uncertainties continue in tax planning for 2018

While the Tax Cuts and Jobs Act, enacted at the end of 2017, promises on the whole good news for taxpayers for 2018, tax planning to take maximum advantage of those provisions has been difficult due to continuing uncertainties as to how to interpret various provisions of the tax reform legislation.
The Internal Revenue Service has yet to issue any proposed regulations on the subject, instead issuing a series of notices, information releases and frequently asked questions telegraphing what that guidance is likely to say on certain key points when it is eventually issued. Congress has also not been quick to follow up on the enacted legislation with technical corrections or with its promised Tax Reform II effort.
Adding to the uncertainty is that, like in 2017, we are going through 2018 without knowing whether Congress will extend the more than 30 tax breaks that expired at the end of 2017.
Many are cautioning taxpayers not to do anything too drastic in anticipation of the provisions of the TCJA until that guidance is released, but it is looking like that guidance may not be rapidly forthcoming. Acting IRS Commissioner Dave Kautter has indicated that TCJA guidance may take a couple of years and that, in some cases, the best guidance to taxpayers may come from the instructions to forms for 2018 tax returns. In the meantime, here is a little of what we have been told so far.

Individual tax issues
  • The pass-through deduction. The principal issue of concern to individual taxpayers is how to prepare for and handle the new 20 percent deduction from qualified business income for pass-through businesses. The issues involve how “qualified business income” will be defined, what constitutes a “specified service business” that will have more limited access to the deduction, and how “W-2 wages” and “qualified property” will be defined. Taxpayers have been considering changing their business entity or splitting their businesses into more than one entity to maximize the availability of the deduction. The IRS has indicated informally that, in evaluating the reasonable compensation exception to what constitutes qualified business income, it will consider “reasonable compensation” to only be applied in the S corporation context and will not try to come up with a new definition of reasonable compensation for partnerships or sole proprietorships. That is generally good news for taxpayers and tends to indicate that owners of many sole proprietorships and partnerships with income under the $157,500 limit ($315,000 for joint filers) will likely be entitled to the full 20 percent deduction. The one technical correction that Congress has enacted so far corrected the so-called “grain glitch” that penalized farmers unless they sold their crops to a cooperative. There has been some hope expressed that proposed regulations might be issued by the end of July 2018.
  • The SALT deduction. The TCJA placed a $10,000 annual limit on the state and local tax deduction. While the legislation restricted the prepayment of 2018 income taxes in 2017, it did not address prepayment of property taxes. Many taxpayers prepaid property taxes normally due in 2018 before the end of 2017 to avoid the new limit. In Information Release 2017-210, the IRS stated that 2018 property taxes can only be prepaid if they were assessed by the local jurisdiction in 2017. Some tax professionals are questioning the IRS position on a matter on which the drafters of the legislation chose to be silent. Several states have also enacted or are proposing alternatives to preserve a federal deduction, such as contributions to state charities or payroll tax deductions. In Information Release 2018-122, the Treasury and the IRS indicated that they intend to issue proposed regulations addressing the deductibility of such payments, indicating a likely attempt to restrict or prohibit such deductions. A number of states had historically allowed charitable deductions which were also allowed for federal tax purposes. Any change in the IRS position on this issue could also endanger those historic deductions.
  • Interest on home equity loans. The TCJA prohibits the deduction of interest on home equity loans after Jan. 1, 2018, both for pre-existing and new home equity loans. In Information Release 2018-32, the IRS clarified that taxpayers may still be able to deduct interest paid on home equity loans where the funds were used to buy, construct or improve the home, subject to the overall limit on mortgage loan indebtedness.
  • Withholding. With the new tax rates under the TCJA, the IRS issued new withholding tables, reducing withholding. The tables were not issued until January 2018 and were not required to be put into effect until March, likely leaving many employees somewhat overwithheld at the start of the year. The IRS, at the end of February 2018, released an updated Withholding Calculator and Form W-4 to help update 2018 withholding. Since then, the IRS has issued a number of reminders to do a “paycheck checkup” on the accuracy of 2018 withholding: Information Releases 2018-73, 2018-118, 2018-120, and 2018-124. Information Release 2018-93 also addresses revised estimated tax payments for 2018 due from many self-employed individuals, retirees and investors. Employees should be encouraged to take the time to check their withholding for 2018 to ensure it still accurately reflects their tax situation under the new tax law.
Business tax issues
  • Deduction of business interest. The TCJA put new limits on the deduction of business interest, in particular a limit of 30 percent of adjusted gross income. This has resulted in a number of questions related to what constitutes investment interest rather than business interest, and how the limit is applied to pass-through entities and consolidated groups. Notice 2018-28 clarified that all corporate debt is considered to be business interest rather than investment interest. It also clarified that interest payments on debt of members of a consolidated group would be allocated at the consolidated group level. IRS representatives have expressed the hope that proposed regulations might be issued as soon as the end of June 2018.
    • Expensing of business assets. The TCJA provided for 100-percent bonus depreciation on both new and used qualified property and an expanded Code Sec. 179 deduction for smaller businesses. While on the whole good news, there has been concern that a legislative oversight unintentionally limited the deduction of qualified leasehold property. There has also been confusion as to how the expensing provisions apply in a partnership context. Notice 2018-30 provides some guidance as to how to address built-in gains and losses, and FS-2018-9 addresses some depreciation deductions. Some states are also looking at decoupling from this federal provision and not allowing full expensing for state income tax purposes.
    • Moving, mileage and travel expenses. The TCJA made changes to the treatment of moving expenses and unreimbursed employee business expenses. Information Release 2018-127 provides some guidance on the handling of these issues.
    • Financial statement and tax conformity. The TCJA requires greater conformity under the tax laws as to when items are recognized for financial accounting purposes and the handling of advance payments. Notice 2018-35 indicates that the IRS intends to provide additional guidance with respect to advance payments and that taxpayers may rely on pre-TCJA law until that guidance is issued.
    • Blended corporate tax rate. The TCJA provides that a corporation with a fiscal year that includes Jan. 1, 2018, will pay a blended corporate tax rate, not just the new 21 percent corporate tax rate. Notice 2018-38 provides guidance on how to calculate corporate taxes using the two rate regimes.

    Other pass-through tax issues
    • Carried interest holding period. The TCJA imposed a new three-year holding period for long-term capital gain treatment for carried interest but provides an exception for “corporations.” A number of hedge funds, seeking to take advantage of this exception, had been setting up Delaware limited liability companies and electing S corp status. Information Release 2018-37 and Notice 2018-28 state that the IRS intends to issue regulations to the effect that “corporation” for this purpose does not include S corporations. Some commentators feel that this interpretation is contrary to the express language of the statute and that only Congress can change the statutory language.
    • Withholding of transfers of partnership interests. The TCJA, in conjunction with a new withholding tax on transfers of a partnership interest involving a foreign entity, requires that any transfer of a partnership interest without withholding must have a certification to the IRS that the transfer does not involve a foreign entity. Many practitioners have pointed out the significant administrative burden this could create for the many transfers not involving foreign entities. Information Release 2018-81 and Notice 2018-29 indicate that the IRS intends to issue regulations that provide for a number of exemptions from the withholding and certification requirements, and suspend secondary partnership-level withholding requirements.

    International tax provisions
    • The transition tax. Multinational corporations have already had to deal with the obligation to pay a tax on unrepatriated foreign earnings under the TCJA. The tax is calculated for the 2017 tax year but can be spread over an eight-year period. The IRS released a set of frequently asked questions to help those taxpayers deal with calculating and reporting this tax obligation. In early June 2018, the IRS added some additional frequently asked questions providing some additional penalty and filing relief. The IRS also issued Notice 2018-26 addressing some anti-avoidance issues, such as electing a November end to the fiscal year to try to defer the transition tax for an additional 11 months. It also addressed reduced deferred earnings and profits, reduced foreign cash and increased deemed paid foreign tax credits. The notice also provided some relief with respect to stock attributions rules and penalties with respect to estimated tax requirements. Further guidance has been released in Notices 2018-07 and 2018-13 and Information Releases 2017-212, 2018-09, 2018-25, 2018-53, and 2018-79. Proposed regulations are expected in 2018.
    • Other international provisions. The TCJA, as part of the transition to what has been called a “quasi-territorial” tax system, has also proposed a new GILTI tax, a new BEAT tax, and a new FDII deduction. Many concerns have been raised as to the scope and unintended reach of these provisions. Proposed regulations are also expected in each of these areas as well.
    Tax administration
    • Fines and penalties. The TCJA expanded the categories of fines and penalties that do not qualify as a business deduction. The Treasury has indicated that proposed regulations will also be issued in this area. The Treasury has also indicated that these will be the first proposed regulations to qualify for review under a new agreement with the Office of Management and Budget calling for review of tax regulations with a sufficient non-revenue economic impact.
    • IRS levy. The TCJA provided additional time to file an administrative claim or to bring a civil suit for a wrongful levy or seizure. Information Release 2018-126 provides some guidance on these issues.
    • Inflation adjustments. The TCJA requires a change in the calculation of many inflation-adjusted items in the Tax Code to use of chained CPI. The IRS, before enactment of the TCJA, had issued inflation-adjusted numbers for 2018. In Information Release 2018-94, the IRS provided revised inflation-adjusted figures. One of the changes lowered the limitation on deductions for contributions to health savings accounts. To address problems that had been identified with lowering the limit after the start of the year, Information Release 2018-107 and Rev. Proc. 2018-27 modified the annual limitation and deductions for contributions to health savings accounts to return to the previous higher limit. Information Release 2018-19 also clarified that the TCJA does not affect the previously announced dollar limitations for retirement plans.

    Tax extenders
    After enactment of the TCJA, Congress retroactively extended more than 30 tax breaks that had expired at the end of 2016 for 2017 only. Congress is currently reviewing the merits of extending each of these tax breaks for 2018. The uncertainty of their fate for 2018 only adds to the current uncertainty for tax planning.

    It is not unusual that a major piece of tax legislation would be accompanied by a lot of uncertainty. What is somewhat unusual is the relative secrecy with which it went through the legislative process and that it was enacted less than a month before it went into effect.
    The IRS also has still not been provided with the complete resources that it has requested to address the significant tax law changes in a timely manner. Also, Congress has not addressed many technical correction issues or the many tax breaks that had expired at the end of 2017.
    While taxpayers have generally been advised to wait for additional guidance before taking action to take full advantage of TCJA, that guidance has been slow in coming. The IRS seems to be trying to provide some indications of guidance to come on some of the more important issues facing taxpayers, but for many taxpayers and their tax advisors 2018 is likely to be a difficult planning year with uncertainties hanging over important issues throughout the year.
    Source: Written by: M. Luscombe

Wednesday, June 20, 2018

IRS plans to further delay foreign currency tax rules

The Internal Revenue Service and the Treasury Department have issued a notice saying they intend to amend the Section 987 regulations on foreign currency gains and losses, delaying the applicability date by one more year.
Last October, the IRS and the Treasury issued Notice 2017-57, which previously delayed the applicability date by one year, and in Notice 2018-57, which came out Wednesday they said they were delaying the regulations by another year.
The final regulations were originally issued in December 2016, in the waning days of the Obama administration, changing how a U.S. company can measure the taxable income of a foreign business unit where the currency differs from its U.S. owner. The regulations were supposed to take effect Dec. 7, 2016, but they were among eight tax regulations that were identified in a July 2017 notice as ones that would be re-evaluated in accordance with an executive order signed by President Trump in the early days of his administration aimed at reducing burdensome federal regulations.
As part of that review, the Treasury Department and the IRS said they are considering changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and alternative rules for determining a section 987 gain or loss.
The Treasury Department and the IRS intend to amend the tax code so the final regulations and the related temporary regulations will apply to taxable years beginning on or after the date that is three years after the first day of the first taxable year following Dec. 7, 2016.
Source: Written by: M Cohn

Tuesday, June 12, 2018

IRS plans regulations to ease taxes on college endowments

The Internal Revenue Service said Friday it plans to issue regulations to limit the impact of a new excise tax on the endowments of private colleges and universities under the new tax law.
Under the new guidance, a private college or university that is subject to the new 1.4 percent excise tax in the Tax Cuts and Jobs Act on net investment income, and that sells property at a gain, generally can use the property’s fair market value at the end of 2017 as its basis for calculating the tax on any resulting gain. In many instances, the new stepped-up basis rule will reduce the amount of gain subject to the new tax, the IRS pointed out. The normal basis rules will still apply for calculating any loss.
In a new Notice 2018-55 that was issued Friday, the Treasury Department and the IRS said they plan to issue proposed regulations to address this along with other matters pertaining to the new excise tax. Meanwhile, affected taxpayers such as private colleges and universities can rely on the special basis step-up rule discussed in the notice. The notice also asks for public comment on other issues that should be addressed in future guidance.
The excise tax was included in the tax overhaul legislation that Congress passed in December. The tax applies to any private college or university with at least 500 full-time tuition-paying students, more than half of whom are located in the U.S., that has an endowment of at least $500,000 per student. An estimated 40 or fewer institutions are affected, but the new tax has prompted considerable concern in the academic world. In April, a pair of lawmakers, Rep. John Delaney, D-Md., and Bradley Byrne, R-Ala., introduced bipartisan legislation, the Don’t Tax Higher Education Act, that would repeal the excise tax.
According to the notice issued Friday, the basis of property held on Dec. 31, 2017, that is later sold at a gain will be not less than its fair market value on Dec. 31, 2017, plus or minus subsequent normal basis adjustments. Similarly, the Treasury Department and the IRS said they intend to propose regulations under which losses can offset gains to the extent of gains, but no capital loss carryovers or carrybacks will be allowed.
Proposed regulations also could allow losses from property sales by related organizations to offset gains realized by other related organizations. Updates on the implementation of this and other provisions of the Tax Cuts and Jobs Act can be found on the IRS’s Tax Reform page.

Source: Written by: M Cohn

Wednesday, June 6, 2018

IRS budgets $291M on technology for tax reform

The Internal Revenue Service plans to spend close to $300 million to implement the new tax law, including approximately $20 million for an estimated 450 new forms, instructions and publications.
According to a spending plan posted by The Wall Street Journal, the IRS intends to update 140 of its computer systems to handle the Tax Cuts and Jobs Act. The agency is estimating it will require 542 additional hours of employee effort to modify its existing tax-processing systems to incorporate the many changes to tax credits, deductions and brackets, as well as establish new system functionality and workflows, manage programs and integrate services, and facilitate tax reform human capital planning, acquisitions, and financial planning.
Congress set aside $320 million of the IRS's budget of $11.4 billion this year in order to handle the new tax law. The IRS is estimating that its customer service assistors will need to answer 4 million additional phone calls to maintain their current level of service, representing a 17 percent increase over fiscal year 2017.
Training and familiarizing employees to answer questions about the tax overhaul will be key. For taxpayer-facing employees who answer the phones and handle walk-in appointments at Taxpayer Assistance Centers, the IRS expects to conduct approximately 40,000 hours of training on the various provisions and changes at a cost of about $1.8 million. The estimate also includes costs for the IRS Chief Counsel to review the training materials and provide interpretative advice, the IRS noted.
The IRS also plans to conduct extensive outreach to help prepare small businesses and tax preparers, in addition to training its employees about the new tax rules. The IRS typically holds more than 1,000 outreach events a year to educate thousands of taxpayers and tax professionals. “We expect the number of events and participants to significantly increase as a result of tax reform,” said the IRS.
The IRS intends to do outreach through both traditional media and social media. The agency anticipates increased interest and participation at its main events this year. It noted that early registration at this summer’s IRS Nationwide Tax Forums is already running 10 to 15 percent ahead of last year. “We anticipate requests for face-to-face events will increase 25 to 30 percent, particularly after more published legal guidance comes out in the weeks and months ahead,” said the IRS.
In the meantime, the IRS is continuing to consolidate its processing centers in response to continued increases in electronic filing. According to a new report from the Treasury Inspector General for Tax Administration that was released Monday, IRS management announced plans in 2016 to further consolidate Tax Processing Centers from five to two by the end of fiscal year 2024 as a result of the continued decreases in paper-filed tax returns. The IRS anticipates using the projected five-year cost savings of about $266 million to focus on taxpayer service, tax enforcement and information technology.

Source: Written by: M. Cohn

Thursday, May 31, 2018

IRS provides info on tax reform changes to moving, mileage and travel expenses

The Internal Revenue Service offered information Friday about changes from the Tax Cuts and Jobs Act on the rules for moving expenses, vehicle expenses and unreimbursed employee expenses, along with higher depreciation limits for some vehicles.
The TCJA, the tax overhaul that Congress passed last December, suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, until Jan. 1, 2026. During that suspension period, the IRS won’t allow deductions for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. However, the suspension doesn’t apply to members of the armed forces on active duty who move because of a military order related to a permanent change of station.
Unreimbursed employee expense deduction
The new tax law also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. The change has an impact on expenses such as uniforms, union dues and the deduction for business-related meals, travel and entertainment that the employer isn’t reimbursing.
That means the business standard mileage rate listed in Notice 2018-03, which was issued before the tax overhaul passed, can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in taxable years starting after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance on the matter Friday in Notice 2018-42. It supersedes the earlier notice and includes info about the update to the standard mileage rates, along with details about the suspension of the deduction for operating a vehicle for moving purposes.

2018 standard mileage rates
In Notice 2018-03, which the IRS issued earlier this year, the standard mileage rates for use of a car, van, pickup or panel truck for 2018 remain:
• 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
• 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
• 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
The standard mileage rate for business comes from a yearly study of fixed and variable costs of operating an automobile, while the rate for medical purposes depends on variable costs.
Taxpayers can opt to calculate the actual costs of using their vehicle instead of using the standard mileage rates.
A taxpayer can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle, however. On top of that, the business standard mileage rate can’t be used for more than four vehicles simultaneously.
Increased depreciation limits
The new tax law ups the depreciation limitations for passenger automobiles that have been placed in service after Dec. 31, 2017, for purposes of calculating the allowance under a fixed and variable rate plan. The maximum standard automobile cost can’t exceed $50,000 for passenger automobiles, trucks and vans that have been placed in service after Dec. 31, 2017. Prior to the change, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

Wednesday, May 23, 2018

Thomson Reuters reports on state taxes on e-commerce

Thomson Reuters released a report Tuesday examining how states are imposing corporate income taxes on out-of-state e-commerce sites.
The report comes amid speculation over a high-profile case that the Supreme Court is expected to decide by June that could change the way states collect taxes from e-commerce merchants, potentially overturning the landmark Quill decision from 1992 that imposed a physical presence test on state sales taxes.
Thomson Reuters’ Checkpoint Catalyst editorial team sent a detailed survey to state tax authorities asking for information about how they approach various e-commerce technologies, including cloud computing, digital products, and others. The second annual Checkpoint Catalyst special report, State Corporate Income Tax: E-Commerce Study 2018, examined whether a state can levy taxes on a seller whose only contact with the state is engaging in purely digital transactions and, if so, how the state obtains the receipts.
“This year’s results continue to reflect a broad range of state responses to questions involving corporate income tax nexus and apportionment for pure e-commerce,” said Salim Sunderji, managing director, Checkpoint, with the Thomson Reuters Tax & Accounting business, in a statement Tuesday. “Tax and accounting professionals whose clients engage in these types of transactions will benefit from the high-level overview.”
Thomson Reuters released a separate Checkpoint special report Monday on the impact of the Tax Cuts and Jobs Act on disclosures of public companies’ financial reporting and disclosure obligations. The report, Effects of the Tax Cuts and Jobs Act on Public Company Disclosures, discusses recent SEC staff guidance, including the accounting obligations of SEC registrants when conducting an assessment for some of the tax effects of the TCJA and the disclosures that registrants are expected to offer about the material financial reporting impacts of the new tax law for which the accounting is incomplete.
For another report released this week, Thomson Reuters commissioned Celent to conduct independent market research on integrated governance, risk and compliance. The findings appear in the report, Achieving Integrated GRC in an Interconnected Digital Age, which examines technologies such as big data, artificial intelligence, machine learning and blockchain. The report indicates risk operations continue to be held back by inflexible technology.

Source: Written by: M. Cohn

Wednesday, May 16, 2018

IRS adjusts health savings account limits for 2019

The Internal Revenue Service has issued a revenue procedure providing the 2019 inflation-adjusted amounts for health savings accounts.

In Revenue Procedure 2018-30, the IRS said the annual limitation on deductions for an individual with self -only coverage under a high deductible health plan is $3,500 for calendar year 2019. Also for next year, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.

A “high deductible health plan” is defined as a health plan with an annual deductible of no less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co- payments, and other amounts, but not premiums) don’t exceed $6,750 for self-only coverage or $13,500 for family coverage for 2019.
Earlier this year, the IRS changed the family coverage contribution limit for 2018 for HSAs from $6,900 to $6,850 in response to the Tax Cuts and Jobs Act, but then reversed course and raised it again to $6,900.
Source: by: M. Cohn