President Barack Obama recently asked Congress to increase funding for Internal Revenue Service cybersecurity. Trying to get in front of future hacking, the president asked for an extra $242 million, reflecting a more than 70 percent increase over fiscal 2015. According to the White House release, “the IRS would take especially aggressive steps to fight identity theft and Stolen Identity Refund fraud. These include systems improvements and new information sharing with states and industry to help detect and prevent identity theft before refunds are paid.” It should be noted the IRS portion is but one piece of a $14 billion request for the total administration’s cyber security strategy which also includes the departments of Homeland Security, Justice, Defense, Health and Human Services, Commerce and Veterans Affairs.
Court of Appeals reverses Tax Court on mortgage interest deduction limits
Mortgage interest deductibility is limited on a personal tax return to $1 million of acquisition indebtedness plus $100,000 of home equity debt per year. The U.S. Court of Appeals for the Ninth Circuit recently reversed the Tax Court ruling that in cases of multiple unmarried taxpayers co-owning a qualified residence, the limitations apply at the taxpayer level and not at the residence level. The taxpayers, registered domestic partners, attempted to aggregate and deduct the interest on acquisition debt and a home equity line of credit which was denied by the Court of Appeals. For married couples filing a separate return, the debt limits are reduced to $500,000 of acquisition indebtedness and $50,000 of home equity indebtedness. It should be noted here that in making its computations, the court followed the definition of a qualified residence as the taxpayer’s principal residence and one other residence of the taxpayer, which is selected by the taxpayer for the tax year and which is used by the taxpayer as a residence.
Tax returns due dates somewhat changed
In an attempt to alleviate practitioner workplace compression and to realign tax return due dates with reality, on July 31 the president signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41). Among other changes, the act indicates that the due date for calendar year partnerships to file Form 1065, U.S. Return of Partnership Income and Schedule K-1’s, will now be March 15 of the following tax year as opposed to April 15, which it historically has been. In theory, this should allow tax return preparers from March 15 to April 15 to obtain a completed K-1 for the partnership and then include it in the individual tax return due April 15. Previously, K-1’s were being issued right up to the April 15 deadline, making filing individual tax returns on time very difficult if not impossible.
Another change included in the act, which affects a much smaller number of taxpayers (but many larger corporate taxpayers), revises the due dates for C Corporation tax returns. For tax years beginning after Dec. 31, 2015, the due date will now be April 15 (or the 15th day of the fourth month after the end of a tax year) as opposed to March 15 (or the 15th day of the third month after the end of its tax year). Special rules apply to June 30 year end C Corporations.
For filing an FBAR report (Report of Foreign Bank and Financial Accounts) the act moves the existing June 30 date up to April 15 following the tax year. There is a maximum extension period to Oct. 15.
Finally, for exempt organizations required to file Form 990, the maximum extension now is an automatic six-month extension, which replaces the previous three-month automatic extension followed by a non-automatic request for an additional three months.
The new due dates apply to taxable years beginning after Dec. 31, 2015.
Proposed regulations eliminate need to file Code Sec. 83(b) election with return
In an effort to allow more returns to be e-filed, the IRS has proposed regulations to eliminate the requirement that a taxpayer making a Code Sec. 83(b) election file a copy of the election with the taxpayer’s return. An 83(b) election is often made by a taxpayer interested in having subsequent appreciation on property be treated as capital gain. Up until these regulations, it was extremely hard to include the 83(b) election and still file a taxpayer’s return in an e-file fashion. While easing the individual tax return filing requirements, the proposed regs still retained the statutory requirement to file the election with the IRS within 30 days after the transfer. his still provides the IRS with the original Code Sec 83(b) election.
IRS Applicable Federal Rates and Adjusted AFRs issued for September 2015
In Rev. Rul. 2015-19, the IRS issued its annual, semiannual, quarterly and monthly rates for September 2015. Below is a summary of the monthly rates.
Short Mid Long
Term Term Term
Applicable Federal Rates 0.54% 1.75% 2.61%
Adjusted AFR 0.45% 1.51% 2.61%
Following Obergefell, Social Security encourages same-sex couples to apply for benefits
In light of the June 2015 Supreme Court’s decision in Obergefell, 2015-2 USTC 50,357, the Social Security Administration is encouraging spouses, divorced spouses and surviving spouses of a same-sex marriage to apply for benefits. Previous to the decision, the Social Security Administration used a domicile approach to determine whether SSA could recognize the marriage. The IRS had adopted the place of celebration approach. The Obergefell ruling thus allowed more same-sex couples to be recognized as married for purposes of determining entitlement to Social Security benefits or eligibility for Supplemental Security Income payments.
Nonqualified Deferred Compensation audit guide updated
Acknowledging the impact of Code Sec. 409A, the IRS has released an updated Audit Techniques Guide (ATG) Nonqualified Deferred Compensation for tax examiners to use when reviewing nonqualified deferred compensation plans. In general, the ATG notes that a nonqualified deferred compensation (NQDC) plan examination should focus on when the deferred amounts are includible in the employee’s gross income. At the same time, examiners must determine when those amounts are deductible by the employer. The guide includes audit strategies, including questions to ask during an audit.
Estate tax closing letters now only upon request
In the frequently asked questions section of irs.gov dealing with estate taxes, the IRS indicated that it will no longer routinely issue estate tax closing letters. These letters are typically issued following the submission of an estate tax return (Form 706, U.S. Estate and Generation-Skipping Transfer Tax Returns). For all returns filed on or after June 1, 2015, the IRS will only issue a closing letter if requested by the estate. Such request should be made no sooner than four months after filing. For estate tax returns filed before June 1, 2015, the IRS will generally follow the closing letter procedures although the letter may take longer in instances of audit or the return being reviewed for statistical purposes.
Over and underpayment interest rates for third quarter 2015
The IRS has announced in IR-2015-84 that interest rates on overpayments and underpayments of tax for the calendar quarterly beginning July 1, 2015 will remain unchanged. For overpayments, the rate will be 3 percent for all overpayments other than corporations. For corporations, the rate will be 2 percent except that it will decrease to 0.5 percent for the portion of corporate overpayments exceeding $10,000. For underpayments, the rate will be 3 percent except that it will be 5 percent for large corporate underpayments.
James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at email@example.com.