Tag Archives: irs

Tax Issues for Newlyweds

Hopefully you’ve seen our recent blog posts related to the tax aspects of divorce. As a bit of a break this summer, I thought I would share thoughts from the IRS on How a Summer Wedding Can Affect Your Taxes, from their website.

The article touches on some of the basic changes that affect a taxpayer’s return. If the article applies to you, congratulations and best wishes for a lifetime together.

For more information regarding Aronson’s Financial Advisory Services Practice, and the forensic accounting and litigation support services we provide, click here or call Sal Ambrosino at 301.231.6272.

ACA Reporting Requirements – Due Date Extended

ACA Deadline Changed

Few things have caused as much handwriting for employers as the new healthcare coverage reporting that was originally due to employees by February 1, 2016. Employers and advisors alike can breathe a temporary sigh of relief given the Internal Revenue Service (IRS)’s recent extension of the due date for Affordable Care Act (ACA) reporting.

IRS Notice 2016-4 provides a two-month extension for employers and insurance companies that are required to report under ACA. New form filing deadlines are as follows:

• Form 1095-B and 1095-C to employees – March 31, 2016
• Electronic transmittal of Forms 1094-B, 1094-C, 1095-B and 1095-C to the IRS – June 30, 2016
• Paper transmittal of Forms 1094-B, 1094-C, 1095-B and 1095-C to the IRS – May 31, 2016

The IRS has indicated that employees do not need to delay filing their 1040 or file an amended 1040 once forms have been received. Copies of the forms should be kept on file with other tax records if needed in the future.

For more information or to discuss the impact of this reporting relief, please contact Aronson Compensation and Benefits Practice Director Mark Flanagan at 301-231-6257.

Gift Tax Returns and Adequate Disclosure

Filing a gift tax return may seem like a costly hassle, but it’s important to do it right. A properly prepared gift tax return gets the three-year statute of limitations period running, the significance of which is discussed below.

Statutes of limitations are laws that establish time limits within which the government must act. Until the statute of limitations period expires, the value of a gift that is disclosed on a gift tax return may be challenged by the IRS, and a gift tax return assessed.

However, that statute of limitations period won’t run if a gift is not “adequately disclosed on a gift tax return.”  Additionally, if a gift is not adequately disclosed, the IRS can revalue it at any time, even upon the death of the donor.  Since estate and gift tax is imposed on cumulative lifetime gift and estate transfers, failure to trigger the statute of limitations by inadequately disclosing a gift on a gift tax return can have a compound transfer tax effect.  It might turn a non-taxable estate (under the federal exemption amount, currently $5.43 million) into a taxable estate, because of a revaluation of prior lifetime gifts.

A transfer is deemed to be adequately disclosed on a gift tax return if it is reported in a manner adequate to apprise the IRS of the nature of the gift and the basis for the value as reported.  Adequate disclosure includes:

  • Description of the property
  • Identity of, and relationship between, the donor and donee
  • The trust’s tax ID number (if a trust is involved)
  • Detailed explanation of the method used to value to property

In a recent pronouncement (FFA 20152201F), the IRS indicated that gifts of two partnership interests were not adequately disclosed.  The partnerships consisted primarily of farmland that had been appraised by a certified appraiser.  Even though the appraisal was good to have, it was not adequate by itself: the names of the partnerships on the gift tax return were incorrect; the taxpayer identification number for one of the partnerships was incorrect; and the methodology used to value to the partnership interests was not described.

Since the gifts were not adequately disclosed, the statute of limitations was not triggered, and IRS could assess gift tax based on the reported gifts at any time.

Taxpayers are forewarned to adequately disclose gifts on a gift tax return.

For further information, please contact a member of Aronson’s estate, gift and trust practice: Richard Lee, Michael Yuen, or Emily Nathlich at 301.231.6200.

By Richard Lee and Michael Yuen

Lack of Documentation Still an Issue During 401(k) Audit Season

The employee benefit plan audit season, which lasts from April through the extended Form 5500 filing deadline of October 15th, is well underway and we are finding that lack of proper documentation for plan transactions – typically hardship distributions, participant loans, and rollovers into the plan – is still an issue for many plan sponsors.

Earlier this year the Internal Revenue Service (IRS) posted clear guidance on its website reminding plan sponsors that obtaining and retaining records related to hardships and loans is their responsibility, even when recordkeeping for the plan is outsourced to a third party administrator. Specifically, with respect to hardship distributions, the following documentation should be kept:

  • Documentation of the request, review and approval;
  • Documentation supporting the employee’s immediate and heavy financial need;
  • Documentation supporting the distribution was made in accordance with plan provisions and the Internal Revenue Code; and
  • Proof of the actual distribution made and related Forms 1099-R.

While the plan sponsor can accept a participant’s self-certification regarding his or her immediate and heavy financial need, the other support should be collected by the plan sponsor and retained in either paper or electronic format.

With respect to participant loans, the IRS website indicates the following records should be kept:

  • Evidence of the loan application, review and approval process;
  • Executed plan loan note;
  • If applicable, documentation verifying that the loan proceeds were used to purchase or construct a primary residence;
  • Evidence of loan repayments; and
  • Evidence of collection activities associated with loans in default at the related Forms 2099-R, if applicable.

With respect to loans with terms in excess of five years to be used for the purchase or construction of a primary residence, the website is very clear that self-certification of the eligibility for these loans is not acceptable.  Failure to start the repayments is a common finding in our audits, so be sure to have procedures in place to initiate these repayments as soon as the loan is issued.

The audit of rollover contributions is another area where we often cannot see evidence that anyone considered whether the incoming funds were from a qualified plan.  In 2014, the IRS issued Revenue Ruling 2014-9 to provide some safe harbor procedures for a plan sponsor to follow to ensure a rollover contribution is from a qualified plan, including the employee’s certification of the source of the funds, verification of the source of the payment (i.e. the name of the former plan or IRA), and, if a former plan, looking up the most recent Form 5500 filing on the Department of Labor’s EFAST2 database.

If you are the party responsible for approving these transactions, be sure to follow the guidance!

For more information on employee benefit plan documentation requirements, please contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.

Phone Scams: IRS Impersonator Sent to Jail

Millions of Americans have been on the receiving end of telephone callers falsely claiming to be from the IRS. Enough people have fallen for this scam over time to make this a lucrative business for the scammers.

At last, one such scammer, Sahil Patel, was sent to prison for 175 months and forced to disgorge $1 million of ill-gotten gains since his arrest back in December 2013. Patel was arrested for his participation in organizing the U.S. side of a fraud ring that used call centers in India to contact American citizens. The calling tactics were fairly sophisticated, even misusing calling services to make the Caller ID display phone numbers coming from the FBI or other federal agencies.

Unfortunately, Patel is but one of many scammers and his arrest barely makes a dent in the rampant and brazen criminal activity we are seeing. The callers are doing their homework – they know enough about the person to make the story believable. TIGTA, the agency overseeing IRS activities, still receives up to 12,000 complaints per week about these calls.

If you receive a phone call claiming you owe money to the IRS, do not answer any of the caller’s questions under any circumstances, no matter how convincing they sound. Instead, ask for the person’s name, ID, and their contact number. If the person immediately hangs up, you can be sure it is as scam. If unsure, contact your tax advisor or call the IRS at 800.829.1040, so your account can be reviewed to be sure there are no issues.

For further information or to discuss your specific situation, please contact Larry Rubin, CPA, Aronson’s tax controversy practice lead, at 301.222.8212.

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