Dean Clayton T. Woo, C.P.A., Inc.
Newsletters

What Entities Will the IRS Target for 2014 and 2015 Audits?  
The GAO says that since FY 2010, the IRS has lost 10,000 employees and had its budget cut by $900 million. More cuts are proposed for the 2015 IRS budget. Identity theft issues, foreign asset reporting, and Affordable Care Act (ACA) responsibilities will continue to absorb personnel and resources. This budget reality will hamper IRS audit goals, but there are still many audit targets that you will want to discuss with your business clients in the next few months.
 
The rich and their entities. High-income taxpayers will continue to receive audit attention (at about a 9% rate for those reporting income of $1 million to $5 million). Since these taxpayers often have complex tax returns with income and losses from many flow-through entities, the audit of the owner will often lead to an expansion of the IRS examination into the various entities.
 
Partnership returns. Partnerships are the fastest-growing segment of all tax returns filed. The IRS hopes to expand its audits of partnership and LLC returns. Flow-through losses from developers and real estate investors will get special attention. The audit rate of partnerships and LLCs was a dismal .42% for FY 2013. The IRS did special training this year to increase the number of auditors with a specialized knowledge in partnership law.
 
Employment taxes. Employment taxes are a focus this year, and this includes a continuing look by the IRS at:

  1. Employee versus independent contractor,
  2. Form 1099 compliance, and
  3. S corporation reasonable compensation issues.

Remember that when the ACA’s employer mandate takes effect in 2015 and 2016, the employee versus independent contractor determination will become more important. Employer ACA penalties can be up to $3,000 for each misclassified employee.
 
Cash businesses. The tax gap remains a hot item, so cash-intensive businesses will receive a little more attention from the IRS. The IRS is using Form 1099-K to help it select some of these businesses for audit.
 
One more item of news on business audits. Ninety-four percent of small businesses use QuickBooks software for their accounting records, but the IRS does not have the budget to update its QuickBooks software yearly. Thus, it is unable to accept electronic records from many of the small businesses it is auditing. Without access to electronic records, the audit will be less efficient. Is that good or bad news for the taxpayer and/or the tax practitioner? We will talk about this at our fall Federal & California Tax Update classes.

Tax Alerts
Tax Briefing(s)

The IRS expects to issue guidance on the Code Sec. 199A passthrough deduction in July, Acting IRS Commissioner David Kautter has said. Kautter outlined the timeline of various guidance proposals at the American Bar Association (ABA) Section of Taxation May Meeting in Washington, D.C.


Congressional lawmakers on Capitol Hill continue to focus on tax reform. Republicans and Democrats alike have been discussing the effects of tax reform, albeit reaching different conclusions.


The IRS’s "Achilles’ heel" is using outdated software originating from the 1960s, Acting IRS Commissioner David Kautter told Senate lawmakers. Kautter and Treasury Secretary Steven Mnuchin testified in a May 22 Senate Appropriations Financial Services and General Government Subcommittee hearing.


The Treasury Department and the IRS, along with the Department of Labor and the Department of Health and Human Services, issued a notice of clarification to more thoroughly explain their decision not to adopt recommendations made by the American College of Emergency Physicians (ACEP) and certain other commenters regarding T.D. 9744. The challenged regulations govern the coverage of emergency services by group health plans and health insurance issuers under the ACA’s copayment and coinsurance limitations.


The IRS has issued a new five-year strategic plan to guide its programs and operations and to help meet the changing needs of taxpayers and members of the tax community. "Providing service to taxpayers is a vital part of the IRS mission and the new Strategic Plan lays out a vision of ways to help improve our tax system," remarked IRS Acting Commissioner David Kautter.


The IRS Large Business and International (LB&I) Division has identified and selected six additional compliance campaigns. The IRS previously announced 13 campaigns on January 31, 2017, followed by an additional 11 on November 3, 2017, and five more on March 13, 2018. These campaigns help LB&I move in the direction of issue-based examinations. In addition, a compliance campaign process helps the organization decide which compliance issues present risks and the best way to respond to such risks.


The IRS intends to provide guidance on the new information reporting obligations for certain life insurance contract transactions under Code Sec. 6050Y. The proposed regulations will provide guidance on the modifications to the transfer for valuable consideration rules for life insurance contracts under Code Sec. 101(a). In addition, the IRS has delayed the reporting requirements under Code Sec. 6050Y until the final regulations are issued.