Capital Tax Update

April 25, 2016

While practitioners were waist-deep in returns, there were a few developments in the tax policy area that are worth noting, and at least one that will require action for some. Identity theft, state withholding rules, estate basis reporting and IRS service all received attention during filing season.

Identity Theft Relief Measures Gain Momentum
The Senate Finance Committee passed an identity theft prevention bill without an earlier provision that authorized the Treasury Department and the IRS to regulate all paid tax return preparers. The revised legislation increases penalties on ID theft thieves, and calls on the IRS to develop guidelines for ID theft refund fraud cases to speed up the process, as well as provide a single point of contact for ID theft victims. The AICPA has consistently recommended creating a single contact so that taxpayers are not bounced from person to person when they call the IRS.

Ranking member Ron Wyden (D-Ore.) proposed an amendment that would have, among other things, authorized the IRS to revoke a preparer identification number from preparers who are disciplined under Circular 230 or assessed preparer penalties. It also exempted non-signers from needing a PTIN if they are supervised by certain tax professionals (e.g., CPAs, attorneys) in preparing returns.

The committee did not adopt the amendment, but the provisions, which are expected to resurface, signify that Congress may consider a targeted approach favored by the AICPA. Edward Karl, AICPA’s Vice President of Taxation, praised the amendment as a practical approach to elevate ethical conduct and competency among preparers, and commended the committee for its action on identity theft mitigation.  

Cleanup of State Withholding Rules
A new bill to simplify the patchwork of state withholding rules that affects those who work outside their state borders garnered praise from the AICPA at a recent congressional hearing. The current system is bewildering to small businesses and taxpayers, said Troy K. Lewis, CPA, chair of the AICPA’s Tax Executive Committee.

Estate Basis Reporting Due in June
In response to comments from the AICPA and others that it would be difficult to comply with the March 31 reporting due date, the IRS extended the due date to June 30 for reporting the value of an estate's assets to the IRS and beneficiaries. Use this free, easy-to-use flowchart provided to the AICPA by the Lackner Group to determine if your clients need to file Form 8971 and how to determine the basis. (Note, this tool works best in Chrome or Safari browsers.)

Where Does the IRS Go from Here? 
IRS service moderately improved this season, according to what members have told us (IRS Commissioner John Koskinen was recently quoted as saying that 70% of callers got through), but many improvements are still needed. The IRS has released a draft vision of its “future state” to transform its operations to be more modern and taxpayer friendly. The National Taxpayer Advocate is holding a public meeting on this plan May 17; the AICPA will be speaking on behalf of the profession and monitoring this project closely to ensure the CPA’s voice is heard. 

Dealing with the IRS – How Did It Go? Your feedback is critical – can you take 2-3 minutes to fill out this survey to share your experiences with the IRS from this past tax season? The results will help us inform lawmakers and regulators on what the profession is facing. The survey will be available until May 3.