2017 First Quarter Federal Tax Developments

During the first quarter of 2017, there were many important federal tax developments. This letter highlights some of the more significant developments for you. As always, contact our office if you have any questions.

Tax reform: Tax reform discussions continue in Washington, D.C. House Republicans have detailed their tax reform plans in their Blueprint for Tax Reform. The White House is expected to release more details about its tax proposals before Memorial Day. GOP leaders in the Senate have indicated that they are crafting tax reform proposals. Tax reform proposals are expected to impact taxpayers of all types. President Trump has discussed consolidating and reducing the tax rates for individuals, lowering the corporate tax rate, abolishing the federal estate tax, and eliminating the alternative minimum tax (AMT). Democrats have proposed some small business tax incentives. Both Democrats and Republicans have discussed making tax incentives part of an infrastructure package. At the same time, various House and Senate committees have looked at agriculture tax policy, small business tax policy, and more.

Health care: In February, the IRS announced that it will continue to process individual returns that do not report the taxpayer’s health coverage status under the Affordable Care Act (ACA). The agency will accept returns that fail to indicate coverage, an exemption or a shared responsibility payment. The IRS had planned to reject these returns (known as “silent returns”) this filing season after having accepted them in past years. Taxpayers may, however, be contacted later, the IRS added.

Vehicles: The IRS has released the inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2017. All limitations are inflation-adjusted based upon October 2016 CPI amounts, with rounding conventions that account for almost all 2016 limits remaining the same for 2017 (only the third -year limitation for light trucks and vans rose, from $3,350 to $3,450 in 2017).

Corporations: The IRS confirmed in February that a new revision of the Instructions for Form 7004 correctly reflects that calendar year C corporations are eligible for an automatic six-month extension. The six-month extension is granted under Code Sec. 6081(a), the IRS explained.

The Tax Court declined in March to expand the economic hardship relief rules to challenge a proposed levy on a corporation’s assets (Lindsay Manor Nursing Home, Inc., 148 TC No. 9, TC Memo. 2017-50). The court rejected the taxpayer’s argument that corporations as well as individuals should be able to claim economic hardship relief from levy.

Information returns: The IRS described the de minimis safe harbor for information return penalties created by the Protecting Americans from Tax Hikes Act of 2015 (PATH). The IRS also clarified that the safe harbor does not apply to intentional errors and in cases where the payor fails to file an information return or furnish a payee statement. Generally, a de minimis error need not be corrected if the error for any single amount does not exceed $100. The PATH Act provides for a lower threshold for errors with respect to the reporting of an amount of withholding or backup withholding.

FATCA:  The IRS issued final and temporary Foreign Account Tax Compliance Act (FATCA) regulations governing information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts that is reinforced by 30 percent withholding on certain payments when certain information reporting regimes are not followed. The final regulations adopt 2014 temporary regulation with modifications. Final and temporary regulations also correct and make modifications to 2013 guidance.

Filing season: In March, an IRS official told Congress that the filing season has not experienced any significant delays or hurdles. Measurements, such as customer/telephone service and the agency’s efforts to curb tax-related identity theft, show improvement, the official reported. The IRS also reminded taxpayers that a law passed in 2015 slowed the processing of some refunds this filing season. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) law generally requires that no refund will be made to a taxpayer before the 15th day of the second month following the close of that tax year, if the taxpayer claimed the earned income tax credit (EITC) or the advance child tax credit (ACTC) on his or her return. As a result, many early filers this year experienced delayed refunds.

Offers-in-compromise: The IRS reminded taxpayers and tax professionals about its updated policy covering Offer in Compromise (OIC) applications. OIC applications received on or after March 27, 2017, will now be returned without further consideration in instances where the taxpayer has not filed all required tax returns, the agency explained. The application fee will be returned and any required initial payment submitted with the OIC will be applied to outstanding tax debt. This new policy, however, does not apply to current year tax returns if there is a valid extension on file.

Students: The IRS Data Retrieval Tool (DRT) is offline, the agency announced in March. The DRT provides tax data that automatically fills in information for part of the Free Application for Federal Student Aid (FAFSA) as well as the Income-Driven Repayment (IDR) plan application. The IRS reminded applicants filling out the FAFSA or applying for an IDR plan that they can manually provide the requested financial information from copies of their tax returns.

Audit coverage Audit coverage rates are at low levels, the IRS has reported. According to the IRS, the audit coverage rate for individuals fell 16 percent from FY 2015 to FY 2016. The 0.7 percent audit coverage rate for individuals was the lowest coverage rate in more than a decade.

Retirement plans: The U.S. Department of Labor (DOL) has proposed a 60-day delay to the applicability date of guidance defining who is a “fiduciary,” as well as related provisions that tighten disclosure and conflict-of-interest rules. In related news, the IRS announced a temporary excise tax nonapplicability policy. The IRS explained that it will not apply Code Sec. 4975 and related reporting obligations with respect to any transactions or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.

Reversing the Tax Court, the Sixth Circuit Court of Appeals held that a DISC-Roth IRA arrangement that allowed a Roth IRA to sidestep annual Roth contribution limits must be respected (Summa Holding, Inc., CA-6, February 16, 2017). Congress created both a Domestic International Sales Corporation (DISC) and Roth Individual Retirement Accounts (Roth IRAs) to lower taxes, reasoned the court; any unintended text-driven consequence was up to Congress to remedy rather than through the application of the substance -over-form doctrine.

Small business In February, the IRS announced that small employers will have more time to inform eligible employees about qualified small employer health reimbursement arrangements (QSEHRAs). The agency has extended the initial written notice requirement.

Interim guidance describes the new payroll tax credit election for increasing research expenses. The PATH Act enhanced the credit for qualified small businesses.

IRS budget: In March, President Trump unveiled an outline of his proposals for the fiscal year (FY) 2018 federal government budget. The president proposed to reduce the IRS’s budget by some $239 million.

If you have any questions about these or other federal tax developments, please contact one of our Professional Tax Advisors.

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595

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The Tax Benefits of Showing a Loss

Tax Benefits  pic

Tax Benefits
Image: thebalance.com

As head of the team of professionals at ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms, Frank L. Zerjav Sr., CPA, guides a respected St. Louis County, Missouri, with clients nationwide that for over 40 years of trust offers a broad spectrum of professional accounting, compliance, tax & advisory services to Individuals, Investors, professionals, business and real estate owners. In their complimentary monthly electronic newsletter to subscribers the TAX TIPS NEWSLINE which provides comprehensive and timely insight on a wide range of taxation issues including federal and state incentives and current issues, Frank Zerjav, CPA, and the team recently highlighted strategies for Individuals or businesses that show a loss.

Business or Investment losses, in which income is exceeded by deductions, present a number of tax benefits that can also improve cash flow dynamics. This has to do with the way in which a Net Operating Loss (NOL) within a tax year results in a deduction that is carried back two years and carried forward 20 years. The carry-back element typically results in an instant refund of federal and state income taxes paid during the two years prior.

In certain cases where the NOL carry-back would not generate a significant tax refund, or the money is not immediately needed, it may be advantageous to waive the two-year carry-back and carry the NOL forward. Given the complexity of the subject, it makes sense to seek out the guidance of a knowledgeable tax advisor. The ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms offer an initial complimentary consultation to help identify proven tax-smart strategies, options and solutions that deliver real value for the professional services needed based upon the particular situation of any taxpayer.

For more information, answers to questions or concerns, do not hesitate to contact a Professional Tax Advisor by calling toll free (888) 809-9595 or visit their recently launched website: www.advisorygroupassociates.com

Small Business Succession Planning

Taxes

 

A graduate of St Louis University, Frank L. Zerjav, CPA, holds Masters of Business Administration (MBA) with a concentration in finance and a bachelor’s degree in commerce. Now leading the ADVISORY GROUP ASSOCIATES’ Tax and Advisory firms. Frank Zerjav Sr., CPA, with his team of Professional Tax Advisors and Tax Resolution Experts helps clients with business and tax planning, tax preparation, tax problem resolution, retirement and estate planning, and the creation of business succession plans.

Business owners should start their succession plans early to avoid rushing as the deadline for their exits looms. Succession plans should be in place approximately a decade prior to the leaving date, as succession often involves working out complex emotional decisions, as well as those related to the business. For example, leaders may need to make difficult choices about whether or not to hand the reins of their companies to family members and may need to consider how to approach the situation if they decide the business should go in a different direction.

Keeping clients informed about plans also helps to give structure to the company at a time when many may be wary about how business operations may change under new leadership. Be transparent about plans when communicating with clients and provide them with information about who is set to take over the company and what that person brings to the table once you depart. Also, apprise clients of any potential changes in business processes that may affect them.

Visit our website: advisorygroupassociates.com

Businesses Should Not Mistake Profit for Cash Flow

 

Profit, Cash Flow pic

Profit, Cash Flow
Image: investopedia.com

The recipient of an MBA from St. Louis University, Frank L. Zerjav Sr., CPA, is the founder and CEO of Advisory Group Associates’ Tax & Advisory firms. From his CPA office in the Westport area of St. Louis County, Mo. Frank Zerjav advises clients on the management of income and cash flow.

The two terms are common in financial discussions, but they do not mean the same thing, and substituting one term for the other can cause a great deal of confusion. The reason is the accrual system of accounting.

The accrual system requires income and expenses to be accounted for when they are incurred, and that is not necessarily when the cash was actually received or paid. For example, on an income statement, credit sales are used to calculate profit, even when no cash has been received for the sales. For an item such as prepaid rent, when a business pays rent in advance, it does not include the prepaid rent in the income statement. In this case, the expense has not yet been incurred, even though the cash has left the business.

Because of these types of differences, a business can post huge profits while struggling with the necessary cash flow to pay for daily operation. Cash flow management focuses purely on actual cash moving in and out of the business and is necessary to avoid problems. Businesses must always distinguish between reported profits and actual cash in hand.