Spring Update

The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
2016 inflation adjustments announced for two tax breaks. The “Protecting Americans from Tax Hikes Act of 2015” (the PATH Act) made permanent the annual election to expense under Sec. 179 up to $500,000 of assets placed in service during the year; this dollar limitation begins to phase down when the amount of expensing-eligible assets placed in service during the year exceeds $2 million (the investment ceiling). The PATH Act also provided for post-2015 inflation adjustments to these dollar amounts. The IRS has announced that for tax years beginning in 2016, the $500,000 dollar limitation remains unchanged but that the investment ceiling increases to $2,010,000.

The IRS also announced that for 2016, the inflation-adjusted excludible amount for transit passes and commuter transportation in a commuter highway vehicle is $255 (up from $250).
IRS explained how employers should handle retroactive increase in 2015 excludible transit benefits. Late last year, the PATH Act retroactively increased the 2015 monthly exclusion for employer-provided transit and vanpooling benefits from $130 to $250. The IRS issued follow-up guidance clarifying that any “transit benefits” (i.e., total of vanpooling and transit pass benefits) provided by an employer to an employee in excess of $130 (the former maximum monthly excludable amount) up to $250 (the amended maximum monthly excludable amount) are excluded from the employee's gross income and wages. The exclusion applies to these excess transit benefits whether the employer provided the transit benefits out of its own funds or whether the transit benefits were provided through compensation reduction arrangements. The IRS guidance also explained how to handle the increased exclusion on employees' W-2s, and provided a special administrative procedure for employers to use in filing Form 941 (Employer's Quarterly Federal Tax Return).

Relief for employers that want to claim retroactively revived WOTC. The work opportunity tax credit (WOTC) allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages. The PATH Act retroactively revived the WOTC for 2015 and extended it through Dec. 31, 2019. Also, effective as of Jan. 1, 2016, the list of WOTC-eligible “targeted groups” includes qualified long-term unemployment recipients. IRS announced transitional relief for (1) employers hiring a member of a targeted group, other than qualified long-term unemployment recipients, and who began or begins work for the employer on or after Jan. 1, 2015, and on or before May 31, 2016; and (2) employers hiring an individual who is a long-term unemployment recipient and who began or begins work for that employer on or after Jan. 1, 2016, and on or before May 31, 2016. These employers have until June 29, 2016, to file Form 8850, a key certification form needed to claim the credit.

Cuba off the list of sanctioned countries. Taxpayers can't claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period during which the country is on the sanctioned list—i.e., the U.S. has designated the country as one that supports international terrorism, or has severed or does not conduct diplomatic relations with the country. Additionally, income derived from any controlled foreign corporation (CFC) from any foreign country while that country is on the sanctioned list is “subpart F income” (meaning that the CFC's U.S. shareholders are taxed on such income even if it's not actually distributed to them). Cuba used to be on the list of sanctioned countries, but effective after Dec. 21, 2015, it has been removed from this list.

Cents-per-mile valuation of personal use updated. An employee's personal use of an employer-provided auto must be treated as fringe benefit income and valued using one of several methods. One of the acceptable methods allows employers to value personal use at the mileage allowance rate (54¢ per mile for 2016). However, the cents-per-mile method may be used only if the auto's fair market value does not exceed $12,800, as adjusted for inflation. The IRS has announced that the inflation-adjusted figures for vehicles first made available to employees for personal use in 2016 are $15,900 for autos (down from $16,000 for 2015) and $17,700 (up from $17,500 for 2015) for trucks and vans—i.e., passenger autos built on a truck chassis, including minivans and SUVs built on a truck chassis.

Controversial charitable contribution substantiation regulations withdrawn. The IRS has withdrawn proposed regulations issued last September that would have put in place an optional donee reporting procedure for substantiating charitable contributions of $250 or more. The regulations caused controversy because, even though the procedures contained in them were optional, donee organizations that elected to use those procedures would have had to obtain, store, and send to the IRS donor social security numbers, causing a potential identity theft problem.

Widened exclusion for identity protection services. Businesses, government agencies, and other organizations make significant efforts to secure the personal information of their customers and employees, but data breaches nonetheless occur. In response to such data breaches, organizations often provide identity protection services—credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other similar services—to the customers, employees, or other individuals whose personal information may have been compromised as a result of the data breach. In 2015, the IRS announced that it would treat as nontaxable the cost of identity protection services provided at no cost to customers, employees, or other individuals whose personal information may have been compromised in a data breach. Now, the IRS has announced that it also won't tax identity protection services provided free to employees or other individuals before a data breach occurs.

Please contact us should you have any questions or require additional information.

Beware of New Phishing Scheme Involving W-2s

The IRS is warning payroll and human resource professionals of phishing emails that purport to be from company executives and request personal information about employees. This phishing variation typically is an email directed to a payroll employee designed to look as though it's coming from the company CEO with a request for a list of employees and information, including social security numbers, birthdates, home addresses, salaries, information related to refunds, filing status, and PIN verification. IR-2016-34 .

Who Can Represent You Before the IRS?

Many people use a tax professional to prepare their taxes. Tax professionals with an IRS Preparer Tax Identification Number (PTIN) can prepare a return for a fee. If you choose a tax pro, you should know who can represent you before the IRS. There are new rules this year, so the IRS wants you to know who can represent you and when they can represent you. Choose a tax return preparer wisely.

Representation rights, also known as practice rights, fall into two categories:

• Unlimited Representation
• Limited Representation

Unlimited representation rights allow a credentialed tax practitioner to represent you before the IRS on any tax matter. This is true no matter who prepared your return. Credentialed tax professionals who have unlimited representation rights include:

• Enrolled agents
• Certified Public Accountants
• Attorneys

Limited representation rights authorize the tax professional to represent you if, and only if, they prepared and signed the return. They can do this only before IRS revenue agents, customer service representatives and similar IRS employees. They cannot represent clients whose returns they did not prepare. They cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. For returns filed after Dec. 31, 2015, the only tax return preparers with limited representation rights are Annual Filing Season Program Participants.

The Annual Filing Season Program is a voluntary program. Non-credentialed tax return preparers who aim for a higher level of professionalism are encouraged to participate.

Other tax return preparers have limited representation rights, but only for returns filed before Jan. 1, 2016. Keep these changes in mind and choose wisely when you select a tax return preparer.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Great story from NPR! Could it be true?

NPR STORY HERE

2016 Standard Mileage Rates

Beginning on 1/1/2016, the standard mileage rates for cars, vans, pickups, and panel trucks will be 54 cents per mile for business miles, 19 cents per mile for medical or moving purposes, and 14 cents per mile for charitable purposes. The business expense rate is down 3.5 cents per mile from 2015, and the medical and moving expense rates are down four cents per mile from the 2015 rates. The charitable rate is set by law and remains unchanged from last year's rate. The portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2012 and 2013, 22 cents per mile for 2014, and 24 cents per mile for 2015 and 2016. When computing the allowance under a Fixed and Variable Rate (FAVR) plan, the standard vehicle cost cannot exceed $28,000 for autos or $31,000 for trucks and vans. Notice 2016-1, 2016-2 IRB .

ACA Information Reporting Deadlines Extended

Applicable large employers have until 3/31/16, to provide Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) to each full-time employee. Form 1095-C is used to report information on health insurance coverage offered (or not offered) to employees. Additionally, the forms do not have to be filed with the IRS until 5/31/16, if filing on paper, or 6/30/16, if filing electronically. Similar extensions are provided for entities that must report information on Form 1095-B (Health Coverage). Individuals who file their personal income tax returns before receiving the applicable reporting forms and rely on other available information will not need to amend their returns once they receive Form 1095-B or Form 1095-C if the information is different. Notice 2016-4, 2016-3 IRB .

IRS Sent IP PIN Letters Erroneously Listing the Incorrect Year

The IRS announced that, due to an error, it sent out CP01A notices, dated 1/4/16, that incorrectly indicate the Identity Protection Personal Identification Number (IP PIN) issued is to be used for filing the 2014 tax return when the IP PIN is actually to be used for the 2015 tax return. [ Note:  The IRS issues IP PINs to victims of tax-related identity theft to help them verify the taxpayer's identity. A return filed without the required IP PIN will be rejected.] The IRS emphasizes the IP PIN listed on the CP01A notice, dated 1/4/16, is valid for the 2015 returns. Taxpayers and their tax professionals should use this IP PIN number for 2015 tax returns. The announcement is available at www.irs.gov/Individuals/The-Identity-Protection-PIN-IP-PIN .