2014-07-26TaxEalert: Fate of Premium Tax Credit Unclear; Affordable Care Act (ACA) Implications: Mid-Year Premium Tax Credit Checkup 


     
           
      AICPA
    July 25, 2014
    Tax Section News
     
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    In This Issue
      TOP NEWS
    Fate of Premium Tax Credit Unclear as Courts Diverge
    Affordable Care Act (ACA) Implications: Mid-Year Premium Tax Credit Checkup
    Priority Areas and Challenges in Mid-Year Report to Congress
    ITIN Deactivation Plan Pros and Cons
    Small Businesses Need Cash Method of Accounting, AICPA Tells Congress
      TOOLS & RESOURCES
    Model Tax Curriculum
    Build a Practice Culture that Clearly Captures Your Value
    Tax Website Improvements are Coming Soon
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    Top News
    Fate of Premium Tax Credit Unclear as Courts Diverge

    In what seems like the perfect storm headed toward the Supreme Court, two federal appellate courts issued conflicting decisions about the premium tax credit for taxpayers who purchase health insurance on exchanges set up by the Affordable Care Act (ACA). The credit is considered a critical piece of the law to serve as a subsidy to encourage individuals to buy insurance. The D.C. Circuit held that taxpayers on federal exchanges cannot claim the credit, but hours later the Fourth Circuit held that they can.

    The U.S. Court of Appeals for the District of Columbia Circuit ruled that the regulation to implement the credit was invalid because it permitted individuals to claim the credit whether they bought coverage from the federal government or a state exchange. "Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State,' we reverse the district court and vacate the IRS’ regulation," the court said in its ruling

    Meanwhile, the 4th Circuit in Richmond concluded that the regulation was consistent with overall congressional intent: “If Congress wanted to limit the availability of premium tax credits to consumers who purchase health coverage on state-run Exchanges, it would have said so rather than tinkering with the formula in a subprovision governing how to calculate the amount of the credit.” Due to the mixed opinions, the tax credit will remain in effect pending a final resolution.

    Affordable Care Act (ACA) Implications: Mid-Year Premium Tax Credit Checkup

    Starting in 2014, if your clients get health insurance coverage through the Health Insurance Marketplace, they may be eligible for the premium tax credit. This credit can make purchasing health insurance coverage more affordable for people with lower to moderate incomes. For example, for a family of four, if household income is between $23,550 and $94,200, they may qualify for the premium tax credit. 

    If a taxpayer is eligible for the credit, he or she may choose to have some or all of the estimated credit paid in advance directly to their insurance company to lower what they pay out-of-pocket each month. Or, they may choose to get the entire credit later when they file their federal tax return. Either way, taxpayers must file a federal tax return to claim the credit. If they received advanced payments, those payments reduce the credit amount. The taxpayer could be entitled to a refund (if the estimated payments were less than the total credit), or the taxpayer could owe additional taxes. Therefore, it’s important to evaluate changes in circumstances throughout the year to avoid any surprises during tax time.

    Now is the time to talk to your clients about any circumstantial changes that may affect their taxes and the premium tax credit. Changes in circumstances include an increase or decrease in income, marriage or divorce, birth or adoption of a child, starting a new job that offers health insurance, gaining or losing eligibility for other health care coverage, or changing a residence. For additional information on the premium tax credit and other tax-related provisions of the health care law, visit irs.gov/aca and our designated Health Care Reform Resources Center.

    Priority Areas and Challenges in Mid-Year Report to Congress

    National Taxpayer Advocate Nina E. Olson released her mid-year report to Congress, identifying the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year. The report praises the IRS for implementing the Advocate’s longstanding recommendation to adopt a Taxpayer Bill of Rights, running a “generally successful” 2014 filing season, and taking other recent actions. For more information visit the IRS Taxpayer Advocate Service.

    ITIN Deactivation Plan Offers Pros and Cons

    The IRS announced that, starting in 2016, it will begin deactivating Individual Taxpayer Identification Numbers (ITINs) that have not been used in five years. The IRS explained in its announcement that the goal is to help prevent fraud. The cleanup may also help expedite tax administration. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns, according to the Service.

    The change primarily affects ITINs issued before Jan. 1, 2013; those issued after that date will automatically expire after five years, even if used regularly under a change made in 2012. Some practitioners commented to BNA Tax Report that it could be a problem for some foreigners who need a current ITIN even if they don’t need it to file a return, such as those who work periodically in the United States or receive stock dividends and claim a tax treaty benefit.
    Small Businesses Need Cash Method of Accounting, AICPA Tells Congress
    The AICPA called on a House small business panel to expand the cash method of accounting to small businesses. “The cash method of accounting is simpler in application, has fewer compliance costs, and does not require taxpayers to pay tax before receiving the income being taxed,” the AICPA said in its written testimony. The AICPA also noted the impact on professional service firms that are subject to state regulations limiting ownership to individuals who actively participate in the business — for them, the hardship “would increase significantly." Many states prohibit public accounting firms from allowing any passive (investor) ownership and a majority of the owners must hold active CPA licenses.
    Other Tax News from the Journal of Accountancy
    Federal courts disagree on health care credits for federal exchanges (07/22/2014)
    Final rules issued on bona fide indebtedness and terminating partnerships' startup expenses (07/22/2014)
    New rules on covered asset acquisitions will shut down transactions to avoid Sec. 901(m) (07/21/2014)
    Definitions of R&E expenditures are amended under final rules(07/18/2014)
    Court halts IRS regulation of contingent fees for refund claims (07/17/2014)
    Partnership interest expense allocation rules are finalized (07/16/2014)
    AICPA sues IRS to stop return preparer program (07/15/2014)
    Fighting identity theft, IRS issues final rules on truncated identification numbers (07/14/2014)
     
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    The AICPA, in partnership with the American Taxation Association, has updated the Model Tax Curriculum. This resource is for use by accounting educators seeking to develop or modify accounting programs or course offerings to best prepare students to enter the accounting profession. Download today.

    Build a Practice Culture that Clearly Captures Your Value

    To help you and your practice better understand and articulate the value of your tax services to clients, prospective clients and referral sources, use the 6-Step Implementation Checklist from the Tax Practitioner’s Toolkit. Building a culture that delivers on your firm’s value is even easier with checklists containing links to the resources you need, tailored by firm size: Small, Medium, Large.

    Tax Website Improvements are Coming Soon

    In mid-August, the AICPA Tax Section will launch a new website structure and layout to help our members find resources and guidance more easily. We’ve received member suggestions on website navigation and requests for new guidance and resources and we’ve listened. Below are some of the improvements and new features you will notice:

    • Member Connect — A one-stop shop for social media to connect with your peers and the Tax Section
    • Updated Structure — Resources and guidance sorted by category so you can find them faster; the new categories are Practice Management, Compliance, Representation & Examinations, IRS Practice & Administration, Specialized Guidance & Resources, and Ethics & Professional Standards
    • Careers & Tax Education — A new page that provides resources and information about careers in tax
    • Resources and Guidance — We are adding many new practice management and technical resources such as quick reference guides, sample worksheets, issue pages and more! 

    We will notify you when the updates are complete and would love to hear your feedback so we can meet your needs.

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