Yardley CPA

This article appeared in today's CPA Insider email. 15 things you need to know when clients owe taxes to the IRS Each year, about 1 out of every 6 individual clients files a tax return with a balance due. By Jim Buttonow, CPA/CITP There are more than 18 million individual and business taxpayers who owe money to the IRS. Each year, about one out of every six individual clients (that’s more than 26 million taxpayers) files a tax return with a balance due. Many of those people can’t pay. They need advice and potentially an alternative to paying the entire balance at once. If you’re advising these clients, here are 15 things they need to know about IRS collection that come into play before and after filing. 1. File the return before the due date. That a return should be filed may seem obvious to practitioners, but for many taxpayers who are going to owe, it’s tempting to ignore the problem and just not file. Remind them that not filing only makes matters worse because it can mean a very expensive failure-to-file penalty that can add up to 25% more to the balance. Also, clients who request filing extensions aren’t immune to penalties. Remember to inform your clients that if they don’t pay 90% of the ultimate balance they owe with the extension, they’ll incur a failure-to-pay penalty. 2. Get into an agreement with the IRS. Clients should also be made aware that, depending on their circumstances, if they owe money to the IRS and don’t pay, the IRS can file a tax lien or issue a levy to collect the taxes. The only way your client can avoid these enforced collection actions is to get into an agreement with the IRS. 3. Starting in 2015, no agreement may mean no passport. In late 2015, Congress passed a law that allows the U.S. State Department to revoke taxpayers’ passports or deny passports to those who owe more than $50,000 to the IRS and are not in an agreement to pay. 4. There are options. There are several types of IRS collection agreements. The installment agreement is the most common payment arrangement. There are several kinds of those available, depending on your client’s situation. Your client can also get an extension of up to 120 days to pay the IRS, just by asking for it. If your client is in a hardship situation (determined according to IRS standards), there are hardship agreements. These include deferring payment (called “currently not collectible” by the IRS), or the offer in compromise for extreme hardship situations, when the IRS will settle the tax debt for less than the taxpayer owes. For more, see “IRS Offers Collection Alternatives for Your Financially Distressed Clients.” All of these options are viable agreements with the IRS, and clients will avoid levies and potentially passport problems. Depending on your client’s circumstances and on the type of agreement your client may enter into, the IRS may file a tax lien. 5. Taxpayers can request and receive most agreements on irs.gov. In the past year, the IRS has made improvements to its online payment arrangement tool on irs.gov. In fact, in 2015, the tool was used four times more than in 2014. That’s largely because setting up the agreement with the tool was much quicker than waiting on IRS phone lines or waiting for a paper response from the IRS. 6. Some agreements come with a federal tax lien. Extensions to pay and streamlined installment agreements are surefire ways to avoid a tax lien filing if your client acts proactively. However, if your client owes more than $50,000 (which is rare) or owes more than $10,000 and can’t pay within six years, the IRS will usually file a tax lien. If your client does have a tax lien, once he or she pays off the balance, you can use lien-withdrawal procedures to help remove the tax lien from your client’s credit and public record. 7. The IRS has 10 years to collect. If your client can’t pay the IRS before the 10-year statute to collect expires, the IRS usually writes off the remaining tax, interest, and penalties. For this reason, any agreement that doesn’t pay off the balance before the statute of limitation expires always requires taxpayers to file detailed financial statements and other documents with the IRS to prove that they can’t pay the IRS with assets and income. 8. Don’t forget to request penalty abatement toward the end of the installment agreement. As clients finish paying in an installment agreement, many tax professionals forget to request penalty abatement for their clients for failure to pay penalties. These penalties accrue over the term of the installment agreement. If your client has a three-year clean compliance history before the year with the penalty, use first-time abatement to remove the penalties paid for one tax period. See “Know These Penalty Abatement Realities to Better Help Your Clients” for additional guidance on requesting penalty abatement. 9. Your client must file all required returns to get into an IRS agreement. If your client needs a collection alternative, it’s essential that your client file all required tax returns for the past six years. If your client hasn’t filed any of these returns, your client won’t be able to get into an agreement with the IRS (other than the extension to pay). If you’re not sure whether your client has filed returns for the past six years, research your client’s history using IRS transcripts. 10. An offer in compromise (OIC) may be a possible solution in desperate times. OICs are over-publicized, but they are a possible solution if your client can’t pay within the statute of limitation—based on IRS financial standards. The OIC pre-qualifier tool is a good resource to determine whether your client qualifies. You should completely evaluate your client’s circumstances to see if an OIC is a good option. 11. Your client should pay by direct debit to avoid default. Missed payments result in additional fees to reinstate an installment agreement—and unpleasant letters from the IRS. Taxpayers who pay by check are three times more likely to default on their agreement. Keep in mind that with direct debit installment agreements your clients won’t get a monthly letter reminder of how much they owe the IRS. Instead, the IRS will send only an annual statement of account activity, including the balance owed and accrued penalties and interest. Direct debit agreements also have a lower setup fee, $52, versus the $120 fee for payment by check. 12. Use the streamlined installment agreement to get the best terms. The streamlined installment agreement usually comes with the best payment terms. Your client can make equal monthly payments for up to 72 months, for balances of up to $50,000. If your client owes more than $50,000, advise your client to pay down the debt to below the $50,000 streamlined installment agreement threshold to get payment terms over 72 months. Otherwise, the IRS will determine the payment based on your client’s income and IRS-allowed expenses. That can yield a much higher payment than the streamlined agreement terms. 13. Avoid defaulting on the agreement. If your client owes again and can’t pay, his or her current agreement will default. Your client will have to reinstate the agreement and pay a $50 reinstatement fee to the IRS. Taxpayers often cause their agreements to default because they should have made estimated tax payments or need to increase their income withholding. Also, if any additional amounts become due from other IRS compliance activity, such as an audit or underreporter inquiry, your client should pay those in full or request that the IRS add them to the existing agreement to avoid default. 14. Your client won’t get any refunds until he or she has paid the entire balance. Clients often don’t understand this aspect of collection agreements, so be sure to give them a heads-up. Until your client pays the entire balance, the IRS will always take the refund. 15. The annual interest and penalty cost of an installment agreement is about 6%. The IRS currently charges a 3% interest rate on underpayments. If your client gets into an installment agreement, the failure to pay penalty is 0.25% per month, or 3% per year. In essence, in addition to the initial setup fee, the cost of an installment agreement is 6% of the total balance owed per year. Now, give your clients peace of mind It’s common for taxpayers to file and owe. If you have a client who owes the IRS and can’t pay, that client will look to you for reassurance and expertise. These 15 essential IRS collection knowledge points will help you advise your client on what to do next. Jim Buttonow, CPA/CITP, directs tax practice and procedure product development for H&R Block, and serves as chairman of the IRS Electronic Tax Administration Advisory Committee (ETAAC). He has more than 28 years of experience in IRS practice and procedure.

The return is on hold? Meaning you are not E-filing it until you hear from them? I think your approach is a good one. Any client can take a return and have a second opinion. You stood by your return and you offered them a refund should something turn up as incorrect. What more can you do? If they are a good client and someone you've enjoyed working with in the past, then don't give it much more thought (yea, easy for me to say, I know) and hopefully they return next year. If they do, great. If they don't, so be it. When I give my clients their packet of information, including an estimate for the following year, I always mention, if anything changes during the year...you win the lottery, you get a huge pay increase...etc, please contact me so we can determine if our tax planning remains on target. Terry...please let us know how this turns out.

My question is more theory based. I recognize the difference between the FIFO and ACM will not be significantly different.

Client purchased T Rowe Price Mid Cap Growth Fund through Ameritrade. 400 shares during 2014 @ $61/share. $24,400 Client purchased T Rowe Price Mid Cap Growth Fund Through Ameritrade. 34 Shares during 2015 @ $72/share. $2,448. 2015 1099-B shows sales as follows: Report on Form 8949, Part II with Box E Checked - Basis is Not Provided Long Term 69 Shares Report on Form 8949 Part 1with Box B Checked or Part II with Box E Checked - Basis is not Provided 360 Shares Under this scenario, can sales price be calculated using the Average Cost Method? Since the 69 shares sold are being reported as Long Term, I would think I would need to use the FIFO method, no?

Client works as a teacher at a school district in New Jersey. W2 reflects Medicare Wages of $53,943 with only $782 of Medicare Tax Withheld. Form 8959 was included with the return and added additional Medicare Tax. Just wondering if anyone knows why this would be? I plan on asking the client to find out but didn't know if there was something common here that I am unaware of?

Integrity. It all comes down to Integrity. You obviously showed you have it JB.

A good number of my clients are starting to send me their information electronically (secured scanned pdf's to my email.) Some still want an appointment, others drop off an envelope of information into my drop box. Regardless, when I complete their return, I send the vast majority (except for some older folks who don't have email) an email containing a copy of the return, the 8879's and an informational sheet that provides specifics (refund, amount due, anything else I may want to point out) on their return.) I may call the client if their tax situation is significantly different than a prior year to discuss it further. I also prepare an estimate for the current year so they are prepared to handle any withholding issues. If all looks good, I ask them to print off the 8879's, sign them and return them to me. I then E-file the returns. Once accepted, I prepare a packet of information and mail it out to them. With in the packet is my invoice. I have a few who are slow to pay and a couple who still have a balance due from last year. For the most part, everyone pays. I am considering changing my process and including my invoice in the email I send to the client. We'll see if that happens or not.

Thank you for the responses.

New Client. Last years return shows both her Son's as dependents. - One son is 19 and a full-time student, so he qualifies. - Other son is 22, not in school and has never been in school since graduating high school at 18. The 22 year old receives SSI for Asperger's Syndrome. He did work and made approximately $2,500 in W2 wages. He lived with his Mom, the new client, for the entire year. Does the 22 year old qualify as a dependent??

Client purchased new home in the first quarter of 2015. I believe the following items are deductible on their return: - HUD Line 801-803 - Loan Origination Fee. (Where to deduct this?) - Lines 100 - 600 - Real Estate Taxes (I assume in the Real Estate section of Schedule A) - Line 901 Interest (In the Interest you Paid section of Schedule A) Where would the Origination Fees be placed on Schedule A using the ATX program? Also, what can the seller deduct since we are on the topic. Real Estate Taxes they paid? Thank you.

May he rest in peace.

Client received 1099 Misc - Non-Employee Compensation in the amount of $800. Client informed me she was in a drug trial for a medical condition she has had for many years and the company paid her to participate. Should this be placed on Line 21, Other Income or Schedule C? I'm leaning toward Line 21 on this one. Thoughts?

I'm using Adobe and apply a password to the pdf. I attach that to my email and send it to my client. Is that not "safe" enough?

JKL...what you're saying is simply reflect the "new" address on the front page of the 1040? No need to file the form if you do that?

When I complete this form, the tax payers old address continues to populate Page 1 of the 1040. Is that correct? In some cases I've changed Page 1 to reflect the taxpayers new address, but I do not know if that should be done? Thank you.

Below is from the instructions of Form 8822. Based on that, it would seem a PO Box would be accepted? P.O. Box Enter your box number instead of your street address only if your post office does not deliver mail to your street address.

Client has a PO Box. Can he use that on his return and will it be accepted for E-File? He currently lives with family. If he had to, he could use their physical address but was wondering if PO Box is okay?

Client now informs me he had coverage from January 1 through November 14. I assume he qualifies for the short term gap exclusion? I would complete Part II and Part III of form 8965, placing an X in the December column of Part III and claiming exemption type B? Is that correct? Very much appreciate your input!

My one client, Single Male, had health insurance from January 1 through September 30. How will this effect his return? Can someone give me a basic understanding. This is the first client I am dealing with that has partial coverage. Thank you.

NAP 52 is free and worked well for me up until this year.

Can anyone suggest a decent scanning software? I am currently using NAP 52 with a Lexmark CX410 scanner, The program is not working well on my new computer. Windows 7 Pro is the OS. Thank you.

had to re-enter installation codes. Seems to be working now.

Hello, Fellow ATXer's. I've gotten a late start this year and rolled over my first 1040 return. It appears in my 2015 Return Manager as having successfully rolled over from 2014. The problem is trying to open the return. It says there are no PRS Funds Available and will not allow me to open the return until I add funds. I am not PRS, hever have been. My Credit Card info is up-to-date.. I am on with Chat now but was wondering if anyone else has experienced this and how it was rectified. Thank you.

An article from the Tax Adviser that speaks to changes Congress recently made. I tried to copy the actual article but I couldn't paste it correctly for some reason. http://www.thetaxadviser.com/newsletters/2016/jan/congress-makes-changes-to-popular-tax-credits.html?utm_campaign=insider&utm_source=tax

Here is the link to the below article: http://www.journalofaccountancy.com/newsletters/2016/jan/what-cpas-need-to-know-about-new-ppaca-forms.html What CPAs need to know about new PPACA forms By Kristin Esposito, CPA January 19, 2016 Since the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, became law in 2010, each year has seen the introduction of new tax compliance requirements for individuals, businesses, or both—and 2015 was no exception. This filing season, certain employers, as well as providers of minimum essential coverage, will have to meet significant information-reporting requirements to both the IRS as well as the insured. The reporting requirements are considered the glue that holds together two of the largest pieces of PPACA: the individual and employer mandates. Since 2014, the individual mandate has required most Americans to purchase minimum essential coverage, qualify for an exemption from this requirement, or pay a penalty on their tax return. Beginning in 2015, the employer mandate places a requirement on applicable large employers (ALEs)—which are businesses with 50 or more full-time plus full-time equivalent (FTE) employees—to provide health insurance to 95% or more of their employees and dependents up to age 26. Several new forms have been issued for both employers and insurance providers to file to comply with the new reporting rules. ALEs will file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. The type of information reported by an ALE on the forms is meant to help the IRS pinpoint those employers that are required to but do not offer minimum essential coverage to their employees and their employees’ spouses and dependents. If it fails to provide the appropriate insurance, the employer is subject to steep penalties. The information reported on the returns also lets the IRS know if an employee is eligible for the premium tax credit. Providers of minimum essential coverage will file Form 1095-B, Health Coverage, and Form 1094-B, Transmittal of Health Coverage Information Returns, to report information to the IRS and enrollees about individual coverage. Recipients of Form 1095-B can show they have minimum essential coverage and will not owe a penalty on their tax return associated with the individual mandate. Who is subject to the information-reporting requirements? ALEs are subject to the information-reporting requirements of Sec. 6056. Any provider, such as an insurance company that issues minimum essential coverage to an individual, is subject to the information-reporting requirements of Sec. 6055. Which form to file? What information is necessary to complete the forms? The type and sheer volume of data that an employer has to gather to file Forms 1095-C and 1094-C is overwhelming, especially since certain information must be tracked by month. Employers have found themselves in the difficult position of having to implement new systems to track reportable data such as the following: Whether the employer offered minimum essential coverage each month to the employee and the employee’s spouse and dependents; Whether the employee and the employee’s spouse and dependents were enrolled in the coverage; Whether the employee’s share of the lowest-cost monthly premium for self-only minimum essential coverage provides minimum value; Which affordability safe harbor was used for each employee; Whether the employee was full-time or part-time, on a monthly basis; The total number of employees, by month, and the total number of full-time employees, by month; Whether the employee was a new hire eligible for the coverage waiting period; Whether the employee was a new variable-hour, seasonal, or part-time employee in the initial measurement period; and Whether the employer was a member of a controlled group or affiliated service group. An insurer will have to report the following information on Forms 1095-B and 1094-B: Enrollee’s name, address, and Social Security number; Employer’s name, address, and federal employer identification number; Insurance provider’s name, address, and federal employer identification number; and Covered individual’s name, Social Security number, and months of coverage. What are the penalties for noncompliance? The information-reporting rules are a serious business. ALEs as well as providers of minimum essential coverage can be hit with penalties of $250 for each information return not filed and another $250 for not providing each employee/enrollee with an accurate return. The total amount of penalties is capped at $3 million annually—a staggering amount! As you can see, the penalties provide employers and insurers a significant incentive to file the forms correctly and on time. - See more at: http://www.journalofaccountancy.com/newsletters/2016/jan/what-cpas-need-to-know-about-new-ppaca-forms.html#sthash.WLmyVFFl.dpuf