News and miscellaneous legal topics – 2016
Collection Financial Standards are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family's) health and welfare and/or production of income.
Beginning with Offer applications, the IRS will return any newly filed Offer in Compromise application received on or after March 27, 2017 if the applicant has not filed all required tax returns. Any application fee included with the OIC will also be returned. Any initial payment required with the returned application will be applied to reduce your balance due. This policy does not apply to current year tax returns if there is a valid extension on file.
In Keller Tank Services II, Inc., CA-10, February 21, 2017, the Tenth Circuit held that the Tax Court properly decided that a taxpayer was not entitled to challenge a penalty in a collection due process (CDP) hearing assessed against it after previously challenging the penalty with IRS appeals. In so doing, the appeals court affirmed that it was reasonable to interpret the applicable statute as only offering one chance to challenge an assessment.
The Tax Court granted summary judgment in the IRS's favor after determining that the taxpayer was precluded from challenging the liability because it was provided with the prior opportunity to do so in its hearing before the appeals office. The Tax Court found that the IRS had reasonably interpreted Reg. §301.6320-1(e)(3) as allowing a taxpayer only one opportunity, whether in court or before the appeals office, to challenge a tax liability.
The Tenth Circuit affirmed the Tax Court’s decision. The Tenth Circuit found that Reg. §301.6330-1does not impermissibly limits the jurisdiction of the Tax Court, and does not address the Tax Court, but merely limits the scope of what may be heard at the agency’s administrative CDP proceedings. Additionally, the regulation has no impact on the taxpayer’s ability to file a refund suit in federal district court. As the taxpayer failed to establish that the regulation was arbitrary, capricious or manifestly contrary to the statute, the regulation was entitled to Chevron deference.
One commenter noted that an IRS Appeals Conference on the substantive issue of whether a taxpayer is subject to liability is not an administrative hearing in the customary sense, and is not a formal adjudication. There is no administrative law judge or finder of fact; no transcript of the proceedings; no witnesses so no opportunity to examine or cross-examine; neither discovery nor evidentiary rules; statements made during the process are generally inadmissible under the Federal Rules of Evidence; and there are there is no final decision on the merits. There is no potential argument that the IRS Appeals Officer abused his or her discretion in arriving at the settlement offer as it is merely a nonbinding, relatively informal, conciliation conference with an employee of the adversary, in this case an IRS employee, whose job is to attempt to, but is not required to settle the case.
It was noted that the Trump administration and GOP are attempting to limit the scope of the"Chevron" doctrine in an attempt to stop judges from deferring to agency interpretation in legal challenges. The premise is that the code and regulations should be written with clarity to avoid discrepancies in interpretations across different cases.
The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs help people every year. Through these IRS-sponsored programs, millions of lower-to-moderate income individuals and families get their taxes done free.
The IRS works with local community groups to train and certify VITA and TCE volunteers to offer this service. Eligible taxpayers, including those with disabilities or limited English, should take advantage of these free programs.
Here are several important details about VITA and TCE:
- VITA offers free tax return preparation to eligible taxpayers who generally earn $54,000 or less.
- TCE is mainly for people age 60 or older but offers service to all taxpayers. The program focuses on tax issues unique to seniors. AARP participates in the TCE program through AARP Tax-Aide.
- Local Sites. The IRS works with community organizations to offer free tax services at thousands of sites nationwide. These sites usually open in late January and early February.
- Free Electronic Filing. VITA and TCE provide free electronic filing. E-filing is the safest, most accurate way to file a tax return. Combine e-file with direct deposit for quicker refunds.
- Tax Benefits. VITA and TCE volunteers help people to get all the tax benefits for which they are eligible. These include the Earned Income Tax Credit, American Opportunity Tax Credit, the Child Tax Credit or the Credit for the Elderly.
- Bilingual Help. Some VITA and TCE sites provide bilingual help.
- Help for Military. Many military bases have VITA sites that offer free tax assistance to members of the military and their families. Volunteers can help with military tax topics. Some of these include special rules and tax benefits that apply to those serving in combat zones.
- Self-Preparation Option. At many VITA sites, people who earn $64,000 or less may be able to prepare their own tax returns using free web-based software. This option is for those who do not have a home computer or do not need much help.
- Site Information. Taxpayers can find the nearest VITA site by using the VITA Locator Tool at IRS.gov or by downloading the IRS2Go app. Site information is also available by calling the IRS at 800-906-9887. Find more on AARP Tax-Aide locations at by using the AARP Tax-Aide Locator or by calling 888-227-7669.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
The toolkit brings you tools and resources for other refundable credits along with the Additional Child Tax Credit refundable portions. But, we also provide resources for Lifetime Learning Credit and the Child Tax Credit.
information on Understanding Who is a Qualifying Child
To be a qualifying child for any of the child related tax benefits:
- Dependency Exemption
- Child Tax Credit
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Head of Household Filing Status
The child must meet the basic tests under the Uniform Definition of a Qualifying Child and then each credit has additional rules the child and the person claiming the child must meet. Uniform Definition of a Qualifying Child The Working Families Tax Relief Act of 2004 amended in 2008 to add the joint return test set a standard definition of a qualifying child for these five child related tax benefits. In general, to be your client's qualifying child, a person must satisfy these tests:
- Relationship: Client's son, daughter, stepson, stepdaughter, adopted child, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendent of any of them
- Residency: Same principal residence as your client for more than half the tax year
- Age: Under age 19 at the end of the year; Under age 24 if a full-time student for at least five months of the year; or Permanently and totally disabled during the year
- Support: Did not provide more than one-half of own support
- Joint Return: Did not file a joint return (other than only to claim a refund of withheld taxes) with the child's spouse
The law also defined exceptions and special rules for dependents with a disability, divorced parents, adopted children and missing or kidnapped children. The exceptions and special rules for dependents with a disability and divorced parents are different for each of the child-related benefits; see the Child-related Tax Benefits Comparison chart for more information.
Adopted Child: An adopted child is always treated as your own child and includes a child lawfully placed with you for legal adoption.
Missing or Kidnapped Children: You may be able to claim a child who was kidnapped by a non-family member. IRS treats a kidnapped child as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping.
Here's what you need to know about the CTC, Child Tax Credit, and the refundable portion, the ACTC, Additional Child Tax Credit.
- Know that the CTC is up to $1,000 per qualifying child. If you claim the nonrefundable child tax credit but do not qualify for the full amount, you may also be able to take the refundable ACTC. You must meet various criteria regarding the qualifying child.
- Know that you can’t take the refundable portion of the Child Tax Credit if you or your spouse (if filing a joint return) file a Form 2555 or Form 2555EZ (related to excluding foreign earned income)
- Know who is a qualifying child. The child must:
- Be under 17 at the end of the tax year
- Meet the relationship and residency tests for uniform definition of a qualifying child, see Understanding What is a Qualifying Child
- Not provide more than half of his or her own support for the tax year
- Have lived with you for more than half the tax year (see Publication 972, Child Tax Credit, for exceptions for birth or death during the year, temporary absences, kidnapped or missing or children of divorced or separated parents)
- Be claimed as a dependent on your return Not file a joint return for the year (or filed the joint return only to claim a refund of taxes withheld or estimated taxes)
- Be U.S. citizen, U.S. National or a U.S. resident alien (To be treated as resident of the U.S., a child generally needs to meet the requirements of the substantial presence test see Publication 519, U.S. Tax Guide for Aliens, for more information)
- Know the limits on the credit
- You can't take the part of the CTC left after it reduces your tax to zero unless you qualify for the ACTC
- The CTC is reduced if your MAGI, modified adjusted gross income is above the amount listed below by filing status:
- Married filing jointly - $110,000
- Single, head of household or qualifying widow or widower--$75,000
- Married filing separately - $55,000
- Many people who qualify for the Earned Income Tax Credit also qualify for CTC and ACTC but know the important differences
- For CTC, the qualifying child must be under age 17; the age limits for EITC are higher and there is no age limit for a child who is totally and permanently disabled
- For EITC, the child must have a Social Security number that is valid for employment but a child with an ITIN may qualify for CTC but must meet the substantial presence test, Be admitted for lawful permanent residence or make a first year election (see Instructions for Schedule 8812 for more information)
- To claim the CTC for a child with an ITIN, you must complete Part I of the Schedule 8812 and complete Part II to IV to claim the ACTC
Child-Related Tax Benefits Comparison (download a pdf version of the chart)
A handy chart shows some of the basic eligibility requirements for tax benefits available to those with a qualifying child. This chart compares the Earned Income Tax Credit (EITC), the Dependency Exemption, the Child Tax Credit and the refundable part of the CTC, the Additional Child Tax Credit (CTC/ACTC), the Head of Household filing status and the Child and Dependent Care Credit.
The chart is for quick comparison only. Each listed benefit has other requirements. This at-a-glance guide also directs you to more information to make sure the child is a qualifying child for the tax benefit.
The Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break for 40 plus years. Yet, 1 out of every 5 eligible workers fails to claim it. Here are some things taxpayers should know about the EITC:
- Review Your Eligibility. Taxpayers who worked and earned under $53,505 may qualify for EITC. Filers should review EITC eligibility rules if their household income or family situation has changed. They may qualify for EITC this year, even if they did not in the past. To qualify, a taxpayer must file a federal income tax return claiming the Earned Income Tax Credit. This is true even if a taxpayer is not otherwise required to file a tax return. Use the EITC Assistant tool to find out about eligibility rules and amounts.
- Know the Rules. Taxpayers need to understand the rules before they claim the EITC. It is important to get this right. Here are some factors to consider:
- Taxpayers who are married and file a separate return do not qualify for the EITC.
- Filers must have a Social Security number valid for employment for themselves, their spouse (if married), and any qualifying child listed on their filed tax return.
- Taxpayers must have earned income. This may include earnings from working for someone else as an employee or being self-employed.
- Filers may be married or single, with or without children to qualify. Those who do not have children must also meet the age, residency and dependency rules. For a child to qualify, they must have lived with the taxpayer for more than six months in 2016. In addition, the child must meet the age, residency, relationship and joint return rules to qualify.
- U.S. Armed Forces members serving in a combat zone have special rules that apply.
- Lower Your Tax or Get a Refund. Filers who qualify for EITC could pay less federal tax, no tax or even get a refund. The EITC could be worth up to $6,269. The average credit was $2,482 last year.
- Use Free Services. For those who do their own taxes, the best way to file a return to claim EITC is to use IRS Free File. Free brand name software will figure out taxes and the EITC automatically. Combining e-file with direct deposit is the fastest and safest way to get a refund. Free File is only available on IRS.gov/freefile.
Taxpayers can also get free help preparing and e-filing their return to claim the EITC. The IRS Volunteer Income Tax Assistance, or VITA program, offers free help at thousands of sites around the country. Get help with health care law tax provisions with Free File or VITA. Refunds Held Until Feb 15. Beginning in 2017, if taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit on their tax return, the IRS must hold their refund until at least February 15. This applies to the entire refund, even the portion not associated with these credits. However, the IRS will begin accepting and processing tax returns once the filing season begins. Taxpayers should file as usual. There is no need to wait until February 15. For more on EITC, see IRS Publication 596, Earned Income Credit. It’s available in English and Spanish on IRS.gov.
- Refunds Held Until February 15. Beginning in 2017, if taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit on their tax return, the IRS must hold their refund until at least February 15. This applies to the entire refund, even the portion not associated with these credits. However, the IRS will begin accepting and processing tax returns once the filing season begins. Taxpayers should file as usual. There is no need to wait until February 15.
The IRS is sending Letter 5025-H to tax preparers who completed returns claiming the Earned Income Tax Credit 1/27/17
The IRS is sending Letter 5025-H to tax preparers who completed returns claiming the Earned Income Tax Credit for taxpayers reporting income they received as household employees but without a Form W-2 to substantiate the income. These preparers may not have met their EITC due diligence requirements. Learn more about this letter and other due diligence information by visiting the EITC Central page on IRS.gov.
Work as a household employee is done in the home of an individual or family. The homeowner provides the necessary supplies, determines the type of work done, and how to complete it. Examples of household employees are babysitters, caretakers, house cleaning workers, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses, and yard workers.
An employer is required to report income paid to a household employee on Form W-2 or Form 1099 if that employee earned $2,000 or more in 2016. If a household employee earned less than $2,000 from each individual household in 2016, the household employee will not receive any Forms W-2 or 1099. However, household employees may be considered self-employed, and may be required to file a Schedule C, Profit or Loss from Business (Sole Proprietorship). All household employees must keep records of who they worked for, how often, how much they were paid, and when. The records must show the employers’ names, telephone numbers, addresses where they worked, and payment receipts. Your clients will need to provide this information in case of an audit.
A paid preparer must take extra steps to ensure returns they prepare claiming the EITC are complete and correct.
Cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns for tax refunds.
This phishing variation is known as a “spoofing” e-mail. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office or human resource employee and requests a list of employees and information including SSNs. The following are some of the details that may be contained in the emails:
- Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
- Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
- I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.
IRS web page lets you find out how much you owe 1/9/17
If you're an individual taxpayer, you can use this tool to find out:
- Your payoff amount, updated for the current calendar day, and
- the balance for each tax year for which you owe. Your balance will update no more than once every 24 hours, usually overnight.
Once you view your balance, you can immediately choose a payment option. The IRS recommends that you make a note of the amount before doing so.
To register for this service, you need:
- Your Social Security Number;
- date of birth;
- filing status;
- mailing address from latest tax return;
- access to your email account;
- your personal account number from a credit card, mortgage, home equity loan, home equity line of credit or car loan; and
- a mobile phone with your name on the account.
Use Publication 2043 to Set Refund Expectations for 2017 1/6/17
IRS Publication 2043, IRS Refund Information Guidelines for the Tax Preparation Community, was updated for 2017. The publication provides the latest refund information and guidelines to advise clients who are expecting refunds. This year's update includes information about a new law that requires the IRS to hold refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit. The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, these refunds likely will not reach taxpayers until the week of Feb. 27.