Tax News & Views Penalties With More Bark Than Bite Roundup

June 16, 2020

Inspector General Report Shows IRS Assessed only 5% of ACA Penalties Initially Proposed - TIGTA Report. 

Penalties for "large" employers under the Affordable Care Act can grow quickly. But a report by the Treasury Inspector General for Tax Administration (TIGTA) shows that a big proposed penalty doesn't necessarily lead to a big assessment. From the report: 

Our review found that the amount the IRS ultimately assesses is substantially less than its initial calculation of the proposed Employer Shared Responsibility Payment. For Tax Years 2015 and 2016 cases closed or in process as of July 27, 2019, the IRS initially calculated proposed Employer Shared Responsibility Payments of nearly $17 billion. However, the IRS assessed only $749 million.

The good news: employers who face large ACA penalties for failing to properly provide health insurance often are assessed in error. The error may be on the IRS side, but frequently it is a result of mistakes made by the employer in reporting employee coverage.

The bad news: The penalties are big, and the IRS has been relatively lenient in assessing them so far. That soft touch may be coming to an end.

If you have concerns about your ACA compliance, contact Eide Bailly's ACA Compliance team.


Iowa decouples from business interest limits, C-Corp GILTI inclusion. The Iowa General Assembly has ended its session with another big new tax bill (HF 2641). Key items in the bill are an uncoupling from the federal Sec. 163(j) limits on business interest deduction and from inclusion of "Global Intangible Low-Taxed Income" in Iowa corporation taxable income. The interest rule is effective for years beginning in 2020, while the GILTI uncoupling is retroactive to 2019.

The bill, which awaits the Governor's signature, also includes important administrative changes. These include provisions for assessing partnership examination adjustments to the partnership, in ways similar to recently-effective federal rules. 

The bill also increases penalties for business non-filers and for "fraudulent practice" in taxes.


Taxpayers get more time to deal with COVID-delayed IRS notices - Kay Bell, Don't Mess With Taxes:

Now with some IRS operations restarting across the county, these notices will be delivered to taxpayers by the U.S. Postal Service in the next few weeks.

Original notices, old dates: These notices, however, won't be updated versions produced by staffers who now are back at their desks.

They will be the documents that were printed months ago. So if you get one, don't be surprised by its, say, March date...

New deadlines inserted: Don't panic. The IRS says each notice will include an insert confirming that the due dates printed on the original notices have been extended.

Pardon me for not having great faith that the IRS will get the "new" deadline right, given the high percentage of notices that are wrong to begin with. Be sure you refer any notice you receive to your tax pro. And whatever you do, don't ignore a notice, even if it's wrong. The IRS computers never forget, and the longer you wait, the harder it can be to fix an IRS mistake. 

IRS Offers Guidance On Employer-Sponsored Leave Donation Programs During COVID-19 - Kelly Phillips Erb, Forbes. "With its latest guidance, the IRS has now made clear that under leave donation programs, employees who elect to forgo vacation, sick, or personal leave for other employees to use during the COVID-19 pandemic will not be treated as having received the leave as income (and it will not be reported on a Form W-2)."

SBA Revises IFR Related to Disqualification for Felony Conviction and Issues New Loan Application Form - Ed Zollars, Current Federal Tax Developments. "Originally the IFR had held that a PPP loan could not be approved if any 20% or greater owner of the business had been convicted of a felony within the past five years.  Treasury has now decided to limit that prohibition to only a subset of felonies for that period, with a complete bar only for other felony convictions in the past year." 

Tax Deductions For Paycheck Protection Expenses Remain In Doubt - Robert W. Wood, Forbes:

On April 30, the IRS ruled out tax deductions for wages and rent paid with forgivable PPP loans. The IRS views it as a double dip. But some Senators and Congressmen pushed back, saying expenses funded with small business loans should be tax deductible after all. The IRS could backtrack, but the IRS has not, and Treasury Secretary Mnuchin seems to think the IRS is right.

There seems to be no big hurry to resolve it.

The Long Arm of State Tax Law Threatens Telecommuters - Laura Saunders, Wall Street Journal ($). "If your job is based in New York, you may be on the hook for taxes there—even if the pandemic has you seeking refuge across state lines. The same is true in five other states."

Injured Spouse and EIP: Continued and Increasingly Troublesome Issues - Caleb Smith, Procedurally Taxing. "As more and more people receive their Economic Impact Payments (EIPs) over the next few weeks, the number of previously unforeseen issues with EIPs will surely rise commensurately."


Lesson From The Tax Court: How To Pay A Deficiency And Still Get To Tax Court - Bryan Camp, TaxProf Blog. "The usual choices are (1) file a petition in Tax Court and get pre-payment review or (2) pay the proposed deficiency in full and follow the procedures to, eventually, sue for a refund in either federal district court or the U.S. Court of Federal Claims.  The downside of Tax Court is that interest keeps accruing so, if you lose, you lose more than if you had paid and gone the refund route."

Colorado Tobacco Tax Bill Includes Positive Change - Ulrik Boesen, Tax Policy Blog. "Importantly, and positively, HB1427 includes a provision that would decrease the statutory tax rate on tobacco and nicotine products by 50 percent if a product is designated a Modified Risk Tobacco Product (MRTP) by the Food and Drug Administration (FDA). Considering the rather steep increase proposed by HB1427, this provision is important. Five other states (Connecticut, Kentucky, North Carolina, Washington, and Utah) have MRTP provisions in their tax codes."


Nonfiler Preparers Earn Millions Filing Others’ Taxes, IG Finds - William Hoffman, Tax Notes ($). "The top 100 of 10,495 nonfiler preparers in 2016 earned between $189,000 and more than $1 million on more than 2 million returns, or between 1,000 and 6,000 taxpayers each, according to the Treasury Inspector General for Tax Administration." 

Free link to TIGTA report here.

It seems if you are making that much money doing returns, you could afford a good preparer to do your return.

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