Sosin & Kriegel, LLP

07/18/2023

Best reason to use CPA firms....protecting your personal infomration!!!

Attention FAE Customers: Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits. Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

03/10/2022

Real IRS Problems

Here is an interesting post from TSCPA Federal Taxpolicy Blog -
The deadlines for filing 2021 information returns (Form 1099's) by paper have just passed. Hopefully, everyone made the cutoffs. But if not, taxpayers are likely better off filing electronically anyway.

The U.S. Treasury Inspector General for Tax Administration (TIGTA) released a report recently with new details highlighting the pandemic’s effect on the IRS’ ability to process 2020 business tax returns. Unsurprisingly, the IRS has issues. The number of unprocessed paper returns swelled from just over 200,000 in 2019 to nearly 8 million in 2020. While a staggering 3,230% year-over-year increase in unprocessed returns is shocking, the gross number of returns unprocessed was actually significantly higher. According to TIGTA, there were an additional 30 million paper returns that the IRS simply destroyed rather than process.

Now I understand that these are unprecedented times. And I think we can all appreciate that the IRS is underfunded and working against staffing challenges. But how exactly did this happen? And why did the IRS choose to destroy the returns rather than store them and process them at some later date?

The details in the TIGTA report are limited to just a few paragraphs and sometimes require a bit of reading between the lines. As best I can tell, a group of auditors was performing “on-site walkthroughs” at the Ogden processing center when they happened to learn that the IRS destroyed paper-filed information returns (which TIGTA defines as any “statement, return, form, or schedule that shows a payment of rent, salaries, wages, dividends, interest, or royalties made to another person.”). These seem to be solely information returns (i.e., Forms W-2, 1099, etc.) that are generally filed for computer matching purposes and have no corresponding tax due.
But after learning that the IRS was destroying unprocessed returns, TIGTA understandably pressed for additional details after which IRS management “estimated that approximately 30 million documents were destroyed on or around March 19, 2021.”

The second-most interesting detail here is the date. Given that the filing deadline for most of those paper-filed information returns is Feb. 28, the IRS must have made the decision early in the year, or at least very quickly after the filing deadline, that those returns would not be processed. The report confirms as much by stating that its computer system for processing those types of returns is only good for a single tax year and needs to be updated for each new filing season.

IRS management made the decision to prioritize Forms 941 over other information returns and determined that saving the paper returns would do no good because retrieving them would be difficult. (Anyone who has been involved in an exam recently will know that the first document request is invariably a copy of the taxpayer’s original return--the one item that should already be in the government’s possession.)

Now, I know what you are thinking. Why does the IRS bother requiring taxpayers to go through the time, effort and expense to file returns if the IRS knows it will not be able to process them? Here, I have to cut them some slack. I suspect the answer is that most of those returns are required to be filed by statute and are not merely an exercise of the IRS’ discretionary authority. See Sections 6041 through 6050Y. Thus, even if the IRS acknowledged to taxpayers that it would not be able to process the returns, the Code mandates they be filed nonetheless.

The more concerning aspect to taxpayers, practitioners and the IRS is what will happen over the next few years as the IRS computer system begins to propose failure-to-file information return penalties. Because the IRS prioritized filing Forms 941 above all else, the computer system should know that wages were paid to employees, thus presenting a mismatch when there are no corresponding Forms W-2 in the file. Presumably, the IRS computer will start issuing notices and proposing penalties.

We have increasingly seen this type of issue come up and the Combined Annual Wage Reporting (CAWR) unit, often charged with considering responses and requests for penalty abatement in this area, is so understaffed that correspondence is unanswered for months, if not years, and very strong requests for abatement are denied without explanation. More often than not, penalties are assessed and revenue officers proceed with aggressive collection actions before the issue can be resolved and the penalties abated.
While this issue portends a huge mess, SBSE management apparently developed a “risk assessment” to evaluate the impact. TIGTA and the IRS shared no further details regarding this investigation, but I suspect that because most large taxpayers are required to file information returns electronically, the impact will be limited to the “small” taxpayers who file by paper and thus have a relatively small potential penalty exposure. Unfortunately, these are the taxpayers who most often spend disproportionate time and resources resolving minor issues with the IRS.

Perhaps the best we can do is remember this issue in several years and raise it in a penalty abatement letter or in response to criminal charges for failing to file returns. Maybe we can also urge clients to file information returns electronically rather than by paper. But it is certainly an open question whether the IRS has sufficiently prepared for this issue in the current filing season.

Given the current state of affairs, I am sure there are some who hear the IRS sharpening the shredder blades.

01/20/2022

Not looking promising....again...

We’re running out of steam,” one official said.

08/18/2021

It reads like "The Onion" and is unfortunately true. A little crazy, and nonetheless true.

In a tremendously unpleasant surprise for owners of S-corporations and C-Corporations and their tax advisors, the IRS issued Notice 2021-49 on August 4th which states that the Employee Retention Credit (ERC), made available for businesses suffering from the COVID-19 crisis, will not be available ...

05/29/2020

Be aware and look for this....

Millions of taxpayers are getting their stimulus payment on a debit card. But many think it's a scam or junk mail.

04/14/2020

April 13, 2020


From the AICPA Journal of Accountancy:
The IRS has launched an online portal for taxpayers who are eligible to receive an economic impact payment (at https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here) but who are not normally required to file an income tax return because their income is too low ($12,200 for individuals or $24,400 for married couples filing jointly for 2019). The online portal allows people to enter their required information, which the IRS will use to confirm their eligibility and then calculate and send them a payment.
Under the Coronavirus Aid, Relief and Economic Security (CARES) Act. P.L.116-136, eligible individuals will receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child. The payments phase out for individuals with adjusted gross income over $150,000 for married taxpayers filing jointly, $112,500 for taxpayers who file as head of household, and $75,000 for other individuals.
The IRS is providing these payments automatically for most people, including those who filed returns in 2018 or 2019 (and announced that those payments would begin next week) and Social Security (including Social Security disability recipients) or Railroad Retirement beneficiaries (who will receive their payments in the near future). All other taxpayers must register with the IRS to receive their payments.
To use the portal, taxpayers must have the following information available:
• Full name, current mailing address, and an email address;
• Date of birth and valid Social Security number;
• Bank account number, type of account (checking or savings), and bank routing number, if the taxpayer has one;
• Identity Protection Personal Identification Number (IP PIN) received from the IRS, if the taxpayer has one;
• Driver's license or state-issued ID, if the taxpayer has one;
• For each qualifying child who will receive the $500 payment: name, Social Security number or Adoption Taxpayer Identification Number, and the child's relationship to the taxpayer or the taxpayer's spouse.
Once the taxpayer clicks on "Non-filers: Enter Payment Info Here" button, the website will direct him or her to a Free File Fillable Forms portal, an IRS partner. This is what will happen on that site:
• The taxpayer will create an account by providing an email address and phone number and establishing a user ID and password.
• The taxpayer will be directed to a screen to input filing status and personal information.
• The taxpayer should be sure he or she has a valid Social Security number (and for the spouse if the taxpayer was married at the end of 2019) unless the taxpayer is filing "married filing jointly" with a 2019 member of the military. Taxpayers should also be sure they have a valid Social Security number or Adoption Taxpayer Identification Number for each dependent they want to claim for the $500 economic impact payment.
• Check the "box" if someone can claim the taxpayer or the taxpayer's spouse as a dependent.
• Complete the bank information noted above or the IRS will send a check.
• The last step is a screen to enter personal information to verify the taxpayer's identity. Taxpayers are directed to simply follow the instructions. Taxpayers should enter driver's license (or state-issued ID) information, but they can leave it blank if they do not have either one.
After the taxpayer completes those steps, he or she will receive an email from customer service at Free File Fillable Forms that either acknowledges the taxpayer has successfully submitted the information or that there is a problem and how to correct it. Free File Fillable Forms will use the information entered to automatically complete a Form 1040, U.S. Individual Income Tax Return, and transmit it to the IRS to compute and send the taxpayer a payment.
The IRS says it is still reviewing automatic payment options to figure out how to get the economic impact payments to everyone who qualifies for them, including Supplemental Security Income recipients.

Steps to receive the Economic Impact Payment if you haven't filed a tax return for 2018 or 2019, and aren't receiving Social Security, SS Disability Income or Railroad Retirement benefits. This payment is also referred to as "stimulus checks" or "coronavirus relief."

04/01/2020

https://tax.thomsonreuters.com/blog/small-business-loans-we-finally-have-some-answers/

CPA Tim Sundstrom provides insight on the Paycheck Protection Program for small businesses during the COVID-19 pandemic.

03/19/2020

https://www.sba.gov/funding-programs/disaster-assistance

The SBA provides low-interest disaster loans to help businesses and homeowners recover from declared disasters.

01/13/2020

January 13, 2020

Recent Writings regarding the SECURE Act
From FedSmith.Com
6 Key Retirement Changes of the SECURE Act
1. Eliminates the age limit for making traditional IRA contributions.
Under the old law, IRA contributions could no longer be made starting the year an individual turned age 70 ½.
Opportunities:
 Back-Door Roth IRA benefit – This is a way for people with income that is too high to qualify for a Roth IRA contribution – to contribute to an IRA and then convert IRA to a Roth IRA. Prior to this law change, the year an IRA owner turned age 70 ½, they were not eligible to contribute to an IRA. Beginning January 1, 2020 people over age 70 ½ with income too high to qualify for a Roth IRA contribution can now contribute to an IRA, and then convert to a Roth IRA.
 Expands the ability to do a spousal IRA contribution (for a non-working spouse) for spouses who are over age 70 ½, doubling the contribution for a couple.
Notes:
 While the age limit for making traditional IRA contributions is eliminated, earned income is still required to make an IRA, Roth IRA or spousal IRA contribution.
 IRAs are prorated to determine the taxable amount of the conversion. Example: John is 71 and wants to take advantage of the Back-Door Roth IRA. He contributes $7,000 to an IRA and then converts it to a new Roth IRA. Meanwhile, John has $500,000 in a pre-tax IRA. The pro-rata rules apply, so John's IRA balance is $507,000 ($500,000 + $7,000 = $507,000), making 1.4% of the $7,000 conversion tax-free and 98.6% taxable.
2. Increases the RMD age from age 70 ½ to age 72 for all retirement accounts subject to Required Minimum Distributions (RMDs).
This applies to individuals that have not attained age 70 ½ by December 31, 2019.
Opportunities:
 Allows more time to do Roth conversions before RMDs begin. This can be very compelling for those who want to shift some of their taxable assets to tax-advantaged assets.
 For Americans living longer, this may help their savings last throughout their retirement years. "A theoretical $500,000 portfolio, earning 5 percent annually, would have $33,500 more at age 89 if the RMDs started at age 72," CNBC reported.
 This provision does not change the age at which an individual can make a Qualified Charitable Distribution (QCD) from their IRA, which remains at age 70 ½. This creates a 1-2 year window where IRA distributions may qualify as charitable distribution, but not as RMDs, therefore reducing your income by the amount of your donation up to $100,000 per year.
Notes:
 Participants no longer employed by the federal government will continue to be required to take RMDs from a Roth TSP. RMDs are not required from Roth individual retirement accounts (IRAs), which may be an incentive for some older plan participants to roll over Roth 401(k) funds into a Roth IRA.
 Once RMDs begin, those RMDs cannot be converted to a Roth IRA.
3. Allows penalty-free withdrawals for birth or adoption, but the distribution is still taxable.
Under the old law, there was no exception from the 10% early withdrawal if under age 59 ½.
Opportunities:
 This applies to all contributory retirement plans (not defined benefit plans like your FERS or CSRS annuity).
 This exception applies to any distribution from the retirement account within one year from the date of birth or adoption.
 Repayments to the plan are allowed and can be repaid (re-contributed back to the retirement account). The repayment will be treated as an eligible rollover.
Notes:
 The limit is $5,000 lifetime distribution, not per year.
 Applies only to children age 18, or physically or mentally disabled and incapable of self-support
 My personal note is that retirement accounts should be used for your retirement and should only be touched as a last resort for any use, except for your retirement.
4. Eliminates the "Stretch IRA" by mandating inherited IRAs, for non-spouse beneficiaries, be withdrawn and taxes paid within 10 years.
Exceptions are made for (1) surviving spouse, (2) minor children (not grandchildren) up to age of majority or age 26 if student, (3) disabled individuals, subject to IRS tax code, and (4) chronically ill, based on the tax rules for Long-Term Care Services, and beneficiaries not more than 10 years younger than the IRA owner, for example a sibling close in age will be able to stretch the IRA.
Notes:
 This provision is not retroactive, so will not affect those who have inherited an IRA in 2019 or prior years. It applies to those who inherit on January 1, 2020 and after.
 There are many people that name a trust the beneficiary of their retirement accounts. As long as the trust qualifies as a "see through trust," the inherited IRA could be stretched over the oldest beneficiary's lifetime, possibly for decades. The SECURE Act no longer allows that since the only minimum distribution is the end of tenth year – 100% of the account would come out and be taxed at that point. All inherited funds would be release to the beneficiaries, abolishing what the account owner wanted.
Critical Action Item:
 If you have named a trust as your retirement account (IRA, TSP, 401k, etc.) as your beneficiary, you should review immediately and probably revise the trust or get rid of it altogether.
5. Encourages employer-based plans to offer annuities in their plan by providing liability protection for offering annuities.
The provision provides a safe harbor for employer liability protection. The employer is still required to do due diligence as a fiduciary when selecting the insurance company and the annuity option. The employer is not required to select the lowest cost contract.
Note:
 TSP currently provides an immediate annuity through MetLife. This annuity provides lifetime income for an individual or joint life with a spouse. The disadvantages of this, especially if you choose to transfer your entire TSP balance to the annuity, are: (1) You are locking in today's low interest rate for life. When interest rates rise, your annuity payment will not be any larger. (2) You are making an irrevocable decision. If you choose the annuity with the largest monthly payout (single life annuity) and you pass away the next day, MetLife keeps the entire balance. (3) If you have an emergency and need a lump sum amount, you are out of luck. Again, this is an irrevocable decision, so no other payment to you is possible.
 There are many annuities that offer lifetime benefits and still allow you the flexibility to take additional withdrawals if needed, as well as pass any remaining balance to your loved ones. Will TSP look at other types of annuities?
6. Allows Taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA or Roth IRA contribution.
Here are 5 Solutions and Opportunities to Consider:
1. Re-Evaluate Beneficiaries
 Spousal rollovers can be more valuable for tax deferral
 If you listed a trust as a beneficiary, review immediately
1. Tax Bracket Management
 Maximize low tax brackets
 Qualified Charitable Distributions if you are charity inclined
2. Examine Roth Conversions
 Current lower rates under the Tax Cuts and Jobs Act are scheduled to sunset after 2025
 Is paying the tax worth it if the Roth can only last for 10 years after death?
3. Life Insurance as an estate and tax planning vehicle
 Can replace all of the benefits of a stretch IRA and IRA trusts
 Less tax for beneficiaries
4. Avoid Trust Tax Rates by All Means
Highest trust tax rate at present is 37% for income over $12,950