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Note: NAEA's office will close early on Wednesday, December 18, 2018, at 11:00 a.m. EST. Staff will be unavailable attending a holiday luncheon.
Capital One Account Holders
For our members who bank with Capital One: We have been experiencing an issue where membership charges made through NAEA on a Capital One credit or debit card are displaying as a different association name on bank statements.
We want to assure you that the funds are being deposited in the correct NAEA account, and would like you to please contact us if you have a questionable charge on your statement that matches the date and amount of your NAEA membership renewal. We apologize for any inconvenience surrounding this issue. Please reach out to firstname.lastname@example.org with any questions.
The NAEA Education Foundation (NAEA-EF), established in 1972, is a 501 (c) 3 charitable organization, dedicated to helping aspiring enrolled agents reach their goal by providing scholarships to prepare for the Special Enrollment Examination. Beyond that, we have a mission to assist enrolled agents and other Circular 230 licensed tax practitioners maintain their high quality professional standing. That is why our scholarship applications are peer reviewed and awarded to those who attend NAEA's premiere national continuing education (CE) program - the National Tax Practice Institute™ (NTPI™).
The NAEA-EF works collaboratively with NAEA in order to offer scholarships making it more convenient for independent practitioners to take the CE credits required by the IRS and maintain the license governed by Circular 230.
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| || LEGISLATIVE & TAX ADMINISTRATION NEWS|
NAEA protects, promotes, and provides for the enrolled agent profession. One of our first jobs in that realm is not only to remind IRS that enrolled agents are America's Tax Experts® but also to remind the agency it is the sole governmental agency tasked with promoting this to the public. Two weeks ago, our eagle-eyed membership spotted a disturbing omission in an agency tax tip release. While citing one of our brethren Circular 230 competitors and IRS Free File as means to avoid errors in filing, the IRS had unfortunately omitted enrolled agents.
After our government relations team pointed out this omission to IRS, the Service not only acknowledged its omission but also moved expeditiously to remedy the oversight (and, as a bonus, both dropped a reference to IRS Free File and added a hyperlink to the IRS web page promoting EAs).
We thank our members for the catch and thank IRS for responding quickly to our contact.
End-of-Year Tax Changes Become Less and Less Likely
While last-minute agreements are always possible, time is running out for 2019 tax law changes. The House Ways and Means Committee (or at least W&M Dems) is pushing for a markup of a SALT package as early as next week. We do not see any solutions on how pay for/offset any changes or how to draft language so changes do not disproportionately help wealthier taxpayers (which would be awkward for the Dems). Piling on to those troubles, the Senate has shown little inclination toward moving the legislation, which makes sense given the GOP-controlled Senate not-too-long ago supported the TCJA that included the provision.
Three other areas of interest continue to be tax extenders, tax law technical corrections, and the retirement security bill. All three have strong supporters on both sides of the Capitol; unfortunately for them, there does not seem to be the political will to compromise. Hope is a wonderful thing and the final Congressional Record — the, well, official record of the Congress — of the legislative year is usually stuffed full of lost hopes and dreams. Should the prevailing winds change, we will let you know.
Interestingly, E@lert chatted with a Finance Committee member earlier in the week, and the senator suggested, privately, pure politics is preventing the SECURE Act from passage, and laid low odds on any extenders or technical corrections action.
Speaking of Offsets...
The Democratically-controlled House brought back the rule that all legislation passing the chamber be paid for. As a result, we are likely to start seeing a return of tax compliance changes that are, on one hand, politically palatable revenue enhancements yet on the other, are tax administration nightmares. Along those lines, a Senate committee earlier this week passed a higher education funding bill, including an offset that would allow IRS to share tax information with the Department of Education (scored to save $3 billion over 10 years).
As a general rule, sharing tax information outside of IRS at the very least erodes trust in the tax system and at the extreme, erodes tax compliance. We, of course, attempt to stay on top of these tax compliance offsets, they are often done late at night behind closed doors with little or no vetting before being enacted.
Well Begun Is Half Done
With apologies to P.L. Travers, two EA housekeeping issues:
Your EA card may state your license to practice expires March 31, 2020, but that is NOT your deadline for renewal.
- EAs with Social Security numbers terminating in 4, 5, or 6 are in cycle for renewal. The renewal window closes on January 31, 2020. If you are in cycle and have not yet renewed, please drop everything and do it now. Please start by visiting www.naea.org/renewyourEAlicense (which will forward you to IRS' online Form 8554)
- Every EA is required to renew his/her PTIN. Please do so by the end of the year. Here are step-by-step instructions.
Some renewal tips:
Publication 5186 outlines minimum CE requirements and is particularly useful for EAs in their first renewal cycle. Generally speaking, an EA needs to earn 2 hours of CE for each calendar month in which (s)he holds a valid license to practice. EAs are required to obtain 72 hours of CE over three years (2017, 2018, and 2019). You must obtain at least two hours of ethics each year, with a minimum of 16 hours of CE per year.
- Before you submit your renewal, use the "PDF preview" function to save it. File this until you receive your new EA card. It will serve as proof of timely application. You will be unable to save the renewal form after you click "submit."
- You will then be directed to the payment screen where you will finish the renewal process by making payment through ACH or by credit or debit card. Please save your pay.gov payment receipt for your records.
The End (of the Year) Is Near...
Last year at this time, GAO issued a report in which the watchdog estimated that nearly 30 million taxpayers were underwithholding in 2018. That is roughly 20 percent of all taxpayers. How that looks this year is anyone's guess, but given last year's refund (or lack thereof) surprises, your clients still have time to adjust withholding. A recent IRS presser (Tax Tip 2019-169, "Get ready to take the guesswork out of paycheck withholding"), provides some nifty pointers.
We are well advised to remember RMDs, particularly for those who turned 70 ½ in 2019. The Motley Fool suggests that even though one technically has until April 1, 2019, to take his/her first RMD, it may not be advisable to wait. And for those who have what E@lert calls "rich people problems," Barron's offers advice on how to manage RMDs when one does not need the money.
The Treasury Department and IRS released final regulations (TD 9884) confirming individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018-25 will not be adversely affected after 2025 when the exclusion is scheduled to revert to pre-2018 levels.
In Rev. Proc. 2019-42, IRS updates Rev. Proc. 2019-09 and identifies circumstances under which the disclosure on a taxpayer's return with respect to an item or position is adequate for the purpose of reducing the § 6662(d) understatement of income tax penalty.
In Rev. Proc. 2019-48, IRS updates rules regarding the use of per diem rates to substantiate (under § 274(d)) the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Ed Zollars at Current Federal Tax Developments, unpacks the rule update.
In Rev. Proc. 2019-46, IRS provides rules for using optional standard mileage rates to compute the deductible costs of operating a vehicle for business, charitable, medical, or moving expense purposes.
U.S. Tax Court
After some time away, we are back to at least an occasional peek at the U.S. Tax Court. Judge Holmes (some will remember his excellent keynote address at NAEA's 2017 National Conference) says grace over this week's case, McMillan v. Commissioner (T.C. Memo. 2019-108). E@lert brewed a cup of hot chocolate and settled in for the ride. Judge Holmes opens with this, "This is Denise McMillan's sixth Tax Court case in which the Commissioner challenges deductions she claimed for a horse business..." At this point, we have the right elements—pro se taxpayer, frequent Tax Court flyer, and the combination of "horse" and "business." Judge Holmes follows with, "Her last horse died in 2008 and she has not replaced him. But being horseless hasn't stopped her from claiming deductions for a horse business...[which] she conducts...from the living room of her one-bedroom apartment." We are hooked.
At issue in this glorious mess of a case is the following: On her 2010 return, petitioner reported two businesses: one for "horse breeding/showing," which produced only expenses; and one for "IT and database management services," which produced income. Commissioner disallowed all the horse business deductions, deductions for legal fees and her home office, and argues petitioner should have reported a $70k HOA settlement as taxable income, notwithstanding her assertion the settlement was for pain and suffering and her horse activity is in fact a trade or business.
Cutting to the chase (though, including this pro se gem — Ms. McMillan's litigation experience also includes five previous cases in the Tax Court — it is a fantastic ride), the Tax Court needed to determine five things: the HOA settlement; the Schedule C deductions for horse breeding/showing; the home office deduction for half of her apartment; a Schedule C deduction for attorney's fees; and liability for a § 6662(a) penalty.
We will not spoil the ending, but direct readers’ attentions to the discussion on pp. 46-50 on the substantial understatement penalty...let's just say Commissioner Rettig would not be amused.
| || EVERYTHING BUT THE KITCHEN SINK|
E@lert is baaaack (with apologies Independence Day), if only temporarily, so hang tight. While most of us are focused on the upcoming filing season (aren't we?), here is a friendly reminder that Christmas is in 19 days. Else, tomorrow is the 78th anniversary of the Day that will Live in Infamy and yesterday was the 85th anniversary of the end of Prohibition.
For those of us who are armchair athletes, here is a harrowing tale on Mount Everest; the odds on the Big 10 Championship (go Buckeyes!); and what you need to know about the #2020olympics. On a more practical level, here is how to fix your dysfunctional relationship with your phone and how to make a great cup (or four) of hot chocolate (the E@lerts prefer theirs with a mix of milk and cream or half-and-half and a splash of amaretto, though some believe this excessive).
Otherwise, we offer a slew of tax-related items, pulled especially for America's Tax Experts®:
- Keith Fogg, whom E@lert had the pleasure of meeting IRL this week, writes in Procedurally Taxing on IRS collections and, particularly, misclassifying CDP requests. We also appreciate that Keith conceded, "Since TIGTA's job involves identifying problems, it misclassifying CDP requests.
- IRS explains factors affecting amount and timing of refunds, and updates §199A rental FAQs (numbers 48, 50, 52, 54, and 57 — and please note the final sentence on the page, which NAEA past president Frank Degen, EA, USTCP, among others, will appreciate).
- Kelly Phillips Erb, of Forbes (and NAEA NatCon19), unpacks a recent settlement between USDoJ and Liberty Tax, which if approved by the court, would resolve a complaint filed with the US District Court in Norfolk, Virginia.
- A federal judge denied a Washington state resident's petition to quash an IRS summons related to bitcoin holdings. While the judge ordered IRS to narrow the scope of its summons, he also ordered IRS to narrow the scope of its Bitstamp summons and rejected two common bitcoin arguments.
- Said IRS never: We should each know this, but a friendly reminder, IRS *never* demands payment in gift cards.
- The Irrelevant Investor suggests business books are better than books about business (E@lert is not convinced, but the article provides a list of both, and we are a serious sucker for a list of books).
- Here is the online, multistate free search for unclaimed property.
- Seriously delinquent taxpayers run the risk of passport revocation or denial. Those who are caught in this program (unpaid, legally enforceable federal tax debt in excess of $51K) can find themselves in a world of hurt. Here is a not very well known secret: IRS has a dedicated telephone number for international callers (1-867-941-1004). More details here.
- AtLeastYouCanPolishTheFenders: Security Summit Partners are providing password guidance; and come to the not surprising conclusion, "people may be willing to use strong, longer passwords if it's a phrase rather than random characters."
- File under "Regrets, I've had a few": Kiplinger features a readable article on past 401(k) mistakes and future 401(k) corrections.
- NAEA's own Phyllis Jo Kubey, EA, makes her debut in the Wall Street Journal (subscription required). Brava!
- Kanye West (you may remember him as half of the infamous feud with Taylor Swift) suggests his $68 million tax refund is an act of God. Billboard (of all publications) consults tax pros, who have their doubts.
"The progress of rivers to the ocean is not so rapid as that of man to error."
— Voltaire (1694-1778), French writer
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NAEA E@lert | Volume 1: Issue 51
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