MORE “IRS” SCAMS ! Beware!


IRS Warns of Latest Scam Variation Involving Bogus “Federal Student Tax”

WASHINGTON — The Internal Revenue Service today issued a warning to taxpayers about bogus phone calls from IRS impersonators demanding payment for a non-existent tax, the “Federal Student Tax.”

Even though the tax deadline has come and gone, scammers continue to use varied strategies to trick people, in this case students. In this newest twist, they try to convince people to wire money immediately to the scammer. If the victim does not fall quickly enough for this fake “federal student tax”, the scammer threatens to report the student to the police.

“These scams and schemes continue to evolve nationwide, and now they’re trying to trick students,” said IRS Commissioner John Koskinen. “Taxpayers should remain vigilant and not fall prey to these aggressive calls demanding immediate payment of a tax supposedly owed.”

Scam artists frequently masquerade as being from the IRS, a tax company and sometimes even a state revenue department. Many scammers use threats to intimidate and bully people into paying a tax bill. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Some examples of the varied tactics seen this year are:
•Demanding immediate tax payment for taxes owed on an iTunes gift card.
•Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
•“Verifying” tax return information over the phone–IR-2016-40
•Pretending to be from the tax preparation industry–IR-2016-28

The IRS urges taxpayers to stay vigilant against these calls and to know the telltale signs of a scam demanding payment.

The IRS Will Never:
•Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
•Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
•Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
•Require you to use a specific payment method for your taxes, such as a prepaid debit card.
•Ask for credit or debit card numbers over the phone.

If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:
•Do not give out any information. Hang up immediately.
•Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.
•Report it to the Federal Trade Commission by visiting and clicking on “File a Consumer Complaint.” Please add “IRS Telephone Scam” in the notes.
•If you think you might owe taxes, call the IRS directly at 1-800-829-1040.

s179 Changes


Dear Client,

In what is easily the most positive tax legislative action taken for small business in the past several years, Congress recently made permanent the $500,000 Section 179 expensing limit, thus enabling a small business to elect to expense up to $500,000 of investment in new equipment and other qualifying property instead of having to depreciate the cost over a number of years.

In recent years, the $500,000 limit and some other favorable aspects of the election have been extended for a year or two at a time, but sometimes these provisions weren’t extended until December, leaving many taxpayers uncertain for most of a tax year as to whether the higher expensing limit and other favorable provisions would be extended. What’s worse, the $500,000 limit and other favorable provisions expired again at the end of 2014. Most dramatically, on Jan. 1, 2015, the limit reverted to its old level of $25,000 and the other favorable provisions also lapsed, once again plunging taxpayers into uncertainty.

I am happy to report that the uncertainty is over. The recently enacted “Protecting Americans from Tax Hikes Act of 2015” (i.e., the 2015 PATH Act) makes the higher expensing limit and other favorable provisions permanent.

To provide a bit more detail, the new law, retroactive so as to not leave out tax years beginning in calendar year 2015:

  • . . . makes permanent the expensing of up to $500,000 annually of the cost of qualifying property; as was true for earlier years for which the $500,000 limit was in place, the amount of expensing allowed is subject to gradual reduction (down to zero) once the total qualifying property placed in service during the year exceeds $2 million;
  • . . . makes permanent the eligibility for expensing of most computer software;
  • . . . makes permanent the eligibility for expensing of qualified real property (certain leasehold building improvements, retail building improvements and restaurant property); and
  • . . . makes permanent the ability to revoke an election, or change its specifics, without IRS consent.

And, for tax years beginning after calendar year 2015 (post-2016 years), the new law:

  • . . . indexes both the $500,000 and $2 million limits for inflation;
  • . . . ends the exclusion from expensing of air conditioning and heating units; and
  • . . . removes the $250,000 cap on qualified real property expensing; the capped expensing nevertheless also had to be applied against the $500,000 limit.

I hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call.

Very truly yours,

Henry C Kulik, Jr. CPA

November/December, 2015 Newsletter


November/December, 2015 Newsletter

Dear Client:

Yes, we are into the Holiday Season already! So a very Merry Christmas, Happy Chanukah, and Happy New Year to everyone!

Before I get into the details and tax savings available, there some office updates I am delighted to share with everyone:

  1. If you have not booked an appointment for 2015 tax analysis review, there is still time to book that now. An alternative is to mail in the basic information, or inform us ahead of time if you expect any unexpected things (i.e. winning the lottery, collecting on BINGO, or just having a really good year for more income). Just CALL the office and we will take care of the rest.
  2. We have added another convenient payment option on our website. ( You may now pay invoices via e-check (electronic debit—not immediate ACH) or via debit or credit card. We now accept Discover, MC/Visa, American Express and even Diner’s Club.
  3. Corporate and LLC/S-Corp clients: If at all possible, please get us as much information as possible in early January! QuickBooks files, source documents (loans and bank statements, etc.) so we can get an early start. That avoids your corporate work being pushed into the February/March individual tax return rush!! Use our convenient online web-portal that only active clients of this firm have access to. (Virtually anything can be uploaded to us using this method- electronic files (QuickBooks, Peachtree) and zipped and unzipped documents. Even if everything is similar to the prior year, please let us know that too!
  4. Electronic individual tax organizer will be released to the web portal (along with an email announcement) the week before the last week of the year.

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the challenge include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. (My other research materials claim that all or most of these tax breaks will be reinstated again!- but no guarantees) Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later).

These breaks include, for individuals:

  1. the option to deduct state and local sales and use taxes instead of state and local income taxes;
  2. the above-the-line-deduction for qualified higher education expenses;
  3. tax-free IRA distributions for charitable purposes by those age 70-1/2 or older;
  4. and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.


For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include:

  1. 50% bonus first-year depreciation for most new machinery, equipment and software
  2. the $500,000 annual expensing limitation (Section 179)
  3. the research tax credit
  4. the 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case).


Henry’s Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later.
  • Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2015. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2016 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2015.
  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by recharacterizing the conversion—that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
  • It may be advantageous to try to arrange with your employer to defer, until 2016, a bonus that may be coming your way.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2015 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the alternative minimum tax (AMT) in 2015.
  • *We can also prepare extra vouchers for you if you really expect to owe and do not want a balance due April 15!
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2015 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2015. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2015, but the withheld tax will be applied pro rata over the full 2015 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the AMT for 2015, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2015, or suspect you might be, these types of deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70-1/2. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70-1/2 in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016—the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016, as bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you can make yourself eligible to make health savings account (HSA) contributions by Dec. 1, 2015, you can make a full year’s worth of deductible HSA contributions for 2015.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Henry’s Year-End Tax-Planning Moves for Businesses & Business Owners

  • Businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions in 2015.
  • Although the business property expensing option is greatly reduced in 2015 (unless retroactively changed by legislation), making expenditures that qualify for this option can still get you thousands of dollars of current deductions that you wouldn’t otherwise get. For tax years beginning in 2015, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
  • *The depreciation issues above are the same as last year. Then, at the last minute everything worked out!
  • A corporation should consider accelerating income from 2016 to 2015 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2016 if it will be in a higher bracket this year.
  • (For C Corporations only)—A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation AMT exemption for 2015. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2015 (and substantial net income in 2016) may find it worthwhile to accelerate just enough of its 2016 income (or to defer just enough of its 2015 deductions) to create a small amount of net income for 2015. This will permit the corporation to base its 2016 estimated tax installments on the relatively small amount of income shown on its 2015 return, rather than having to pay estimated taxes based on 100% of its much larger 2016 taxable income.
  • If your business qualifies for the domestic production activities deduction (DPAD) for its 2015 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2015 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2015, even if the business has a fiscal year.
  • To reduce 2015 taxable income, if you are a debtor, consider deferring a debt-cancellation event until 2016.
  • To reduce 2015 taxable income, consider disposing of a passive activity in 2015 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event that Congress revives expired tax breaks to assure that you don’t miss out on any resuscitated tax-saving opportunities!

Other Miscellaneous Tax Items

  1. Firms that reimburse workers directly for health insurance or Medicare bought separately are in for a surprise The IRS will fine you $100 per day, per employee you reimburse. Wow! That can add up quickly…
  2. NO increase in social security wage base. It will remain at $118,500 subject to FICA tax. After that, only the Medicare tax is charged.
  3. IRS will stop seizing Social Security disability payments for unpaid taxes. Other Social Security income can be grabbed up to 15% of the amount paid.
  4. If you self-insure your employees, the “special tax” increases to $2.17 x the number of employees, dependents, and spouses (all lives)
  5. Right here in MA, a court ruled the IRS had to use a CPA’s calculations for basis on 200 old stocks and securities sold. You can’t beat a good CPA!!
  6. States are considering a tax on electronic cigarettes to raise revenue. Watch those E-Cigs!
  7. IRS is going after (auditing) entertainers, including songwriters, musicians, and producers. *AUDIT ALERT* IRS is also closely looking at TIP income re: hotels, restaurants, hair salons, etc. Be sure to report every $ earned by wages, tips, or cash- just like you do now.
  8. IRS did fewer personal (individual) audits during 2014. In 2010 the rate was 1.11%; now its .86% But the “red flags” still can trigger a review/exam, even if a correspondence exam. But the IRS has 22% less revenue agents than 5 years ago.
  9. ACA/HEALTH INS: The penalty has again increased if you refuse insurance. In 2016 the amounts are $695 per adult and $348 per child. Family ceiling is $2,085. The other fine is 2% to 2.5% of gross family income; whichever is larger of the 2 methods is due.
  10. RMD- If you turn 70-1.2 this year you can delay your 2015 payment until April 1, 2016.
  11. President Obama’s MY-IRA plan is expanded- now nationwide. They work similar to a Roth, but the principal is Government insured, like a bank. There are income limits and other restrictions. Check out
  12. If you owe more than $50,000 in federal taxes, your passport could be seized! Taxpayers who are compliant with a payment plan are OK..for now.


Very truly yours,

Henry C Kulik, Jr. CPA LLC


Employees and Managers Losing out on $10.7 Billion in Unclaimed Expenses


Employees and Managers Losing out on $10.7 Billion in Unclaimed Expenses

December 3, 2015
North American employees and managers are missing out on more than $10.7 billion of unclaimed expenses every year, according to new estimates.

Enterprise resource planning software provider Unit4 surveyed senior and middle-management professionals in the U.S. and Canada and found that 17 percent of them regularly don’t expense all they could, while the percentage is even higher in Canada, at 23 percent.

Unit4 estimates that U.S. employees lose out on an average of $390 per year, while Canadian employees miss out on $284 per year, both in U.S. dollars.


Unit4 surveyed senior and middle management professionals who are employed full and part-time, and who submit expense claims in the U.S., Canada, as well as the United Kingdom, Spain, France, Netherlands, Germany, Belgium and Sweden. The findings are based on responses from almost 2,000 employees with at least 200 responses from each country.

Survey respondents gave a number of reasons for failing to claim expenses, including low value, forgetting to ask for receipts, losing receipts or simply forgetting to submit the expense claim. One out of three employees said they refrain from submitting expense claims because the process is too frustrating and time consuming. The same amount have to wait for more than one month for their expenses to be paid after making a claim, though overall most expenses are paid within a month.

Corporate expense claim processes do not support employee engagement initiatives to the extent that companies are leaving employees short of money. Two out of five (37 percent) U.S. professionals who regularly claim expenses say this is the case, with those in France (24 percent), Spain (23 percent), the U.K. (23 percent) and Canada (20 percent) reporting they find themselves short of money.

Many North American professionals feel they are being financially taken advantage of by their employers. When asked if they feel their employer is gaining a financial advantage over them through the expense claim process, 42 percent of U.S. respondents said yes. In Spain (29 percent) and Sweden (26 percent), the UK (25 percent), France (23 percent), Canada (21 percent) and Belgium (20 percent) agreed, compared to only 10 percent in Germany and the Netherlands.

IRS audit rates at more than decade-long low


f you took liberties on your 2014 federal tax return, you picked a good year to do it.

The odds of a U.S. taxpayer facing an IRS audit fell to the lowest level in more than a decade during the 2015 federal fiscal year, according to preliminary data the nation’s tax agency released Tuesday.

The audit coverage rate, the percentage of federal tax returns the IRS examined either in person or by mail correspondence, dropped to 0.84%, the IRS said. The rate was the lowest since 2004, and the decline marked the third consecutive year with audit coverage below 1%.

IRS personnel audited just over 1.2 million individuals during the fiscal year, the preliminary data shows. That marked a 1.1% decline from 2014, and a nearly 22.3% drop from fiscal year 2010.

As a result, audit collections so far this year dropped to $7.32 billion, the lowest level since 2002. Audit-generated revenue averaged $14.7 billion annually between 2005 and 2010, but the average dropped to $10.5 billion per year since 2010, the IRS said.

The declines came amid cuts in IRS budget funding and employee headcount, as well as a rise in the number of individual federal returns filed for three of the last four years.

Staffing reductions contributed to the worst level of IRS taxpayer services in years, as phone calls dropped by the tax agency’s switchboard soared past 8 million, and rates of calls answered fell sharply.

Repeating his previous calls for increased funding, IRS Commissioner John Koskinen said fewer audits and reductions in IRS service could lead to increased tax cheating and other problems.

“If people think they’re not going to get caught if they cheat, or they’re just fed up because they can’t get the help they need from us to file their taxes, the system will be put at risk, and voluntary compliance is likely to suffer,” Koskinen said during a speech at the American Institute of Certified Public Accountants’ national conference in Washington, D.C.




Tax Penalty Increases on the way…..


Projected 2016 Tax Rates and Brackets – Tax Penalties To Rise

Isaac M. O’Bannon, Managing Editor On Sep 16, 2015

Taxpayers are getting a little bit of a warning that changes in tax brackets and higher IRS penalties are coming soon. Bloomberg BNA released Projected 2016 Tax Rates, a detailed and comprehensive projection of inflation-adjusted tax items.

People whose income is the same compared to last year may enjoy a lower effective tax rate – and a lower tax bill – because of the inflation adjustments. At the same time, taxpayers that fail to comply with return filing and tax payment requirements will face larger penalties in 2016 because of a combination of legislative changes and upward inflation adjustments.

“Higher penalties encourage compliance and increase revenue, and taxpayers should expect the trend toward higher penalties to continue,” said George Farrah, Bloomberg BNA Tax & Accounting Editorial Director.

With projections for the income tax brackets, personal exemption, standard deduction, penalties, and many other amounts, the report delivers information taxpayers and tax planners need to save tax dollars in 2016. The report is available online here and includes more than 320 figures contained in over 55 Internal Revenue Code sections. The Internal Revenue Service is expected to publish its official statement of 2016 inflation adjusted amounts in a revenue procedure later this year. These amounts are based on Bureau of Labor Statistics inflation adjustments that were published today.

Increased Penalties

The Internal Revenue Code imposes a host of penalties for failure to file returns, failure to furnish information returns, and failure to pay tax. These penalties affect individuals, companies, trusts, and estates. Congress recently tied several of the penalties to annual inflation adjustments and dramatically increased a few, raising the specter of increasing costs for noncompliance in future years.

Tax return preparers also are subject to a number of penalties that are adjusted for inflation. These 2016 projected penalty amounts are shown below. Projected amounts for other penalties are included in the full report.

Scenario Penalty Per Violation Calendar Year Max Penalty
Failure to Furnish Copy to Taxpayer $50 $25,500
Failure to Sign Return $50 $25,500
Failure to Furnish Identifying Number $50 $25,500
Failure to Retain Copy or List $50 $25,500
Failure to File Correct Information Returns $50 $25,500
Negotiation of Check $510 No Limit
Failure to be Diligent in Determining
Eligibility for EIC
$510 No Limit

Individual Income Tax Brackets

Because a higher Consumer Price Index (CPI) pushes the definition of the brackets upward and also increases the standard deduction and exemption amounts, the taxes due on the same income decrease from year to year. For example, suppose married taxpayers filing jointly figure tax on $231,000. In 2015, they were in the 33% bracket and paid $51,759 in tax. In 2016, the brackets are adjusted for inflation, and they are now in the lower 28% bracket and will pay $51,665.50 in tax, “saving” $93.50 compared to 2015.

High-income taxpayers will enjoy a measure of relief in 2016 as well, because the top 39.6% tax bracket is projected to begin at $466,950 for married taxpayers filing joint returns and at $415,050 for unmarried individuals. This represents an increase from $464,850 and $413,200, respectively in 2015.

Bloomberg BNA has projected the 2016 income tax rate tables, shown below. The tables for other filing situations are included in Bloomberg BNA’s full report.

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Married Filing Jointly and Surviving Spouses

If Taxable Income Is: The Tax Is:
Not Over $18,550 10% of the taxable income
Over $18,550 but not over $75,300 $1,855 plus 15% of excess over $18,550
Over $75,300 but not over $151,900 $10,367.50 plus 25% of excess over $75,300
Over $151,900 but not over $231,450 $29,517.50 plus 28% of excess over $151,900
Over $231,450 but not over $413,350 $51,791.50 plus 33% of excess over $231,450
Over $413,350 but not over $466,950 $111,818.50 plus 35% of excess over $413,350
Over $466,950 $130,578.50 plus 39.6% of excess over $466,950

Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is: The Tax Is:
Not Over $9,275 10% of the taxable income
Over $9,275 but not over $37,650 $927.50 plus 15% of excess over $9,275
Over $37,650 but not over $91,150 $5,183.75 plus 25% of excess over $37,650
Over $91,150 but not over $190,150 $18,558.75 plus 28% of excess over $91,150
Over $190,150 but not over $413,350  $46,278.75 plus 33% of excess over $190,150
Over $413,350 but not over $415,050 $119,934.75 plus 35% of excess over $413,350
Over $415,050 $120,529.75 plus 39.6% of excess over $415,050

Personal Exemption and Standard Deduction

Most taxpayers are entitled to claim a personal exemption deduction for each member of their household. For 2016, the personal exemption amount is projected to be $4,050, up from $4,000 in 2015. The personal exemption deduction is phased out for high-income taxpayers. The projected phase-out levels are available in the full report.

When calculating their deductions, taxpayers may choose to take the higher of their itemized deductions or the standard deduction. The standard deduction amount varies depending on filing status. The projected standard deduction amounts for 2016 are shown below.

Filing Status — Standard Deduction
Married Filing Jointly/Surviving Spouses — $12,600
Heads of Household — $9,300
All Other Taxpayers — $6,300

Alternative Minimum Tax (AMT)

For some taxpayers, inflation adjustments make the difference between having to pay AMT or not. The AMT exemptions were adjusted for inflation for the first time in 2013, and are projected for 2016 as shown below.

Filing Status – Exemption Amount
Married Filing Jointly/Surviving Spouses – $83,800
Heads of Household – $53,900
Unmarried Individuals (other than Surviving Spouses and Heads of Household) – $41,900
Estates and Trusts – $23,900

Estate and Gift Tax Exclusions

Bloomberg BNA projects that the estate tax basic exclusion for decedents dying in 2016 will be $5.45 million. The exclusion amount, which has been adjusted for inflation since 2012, was $5.43 million in 2015. The annual gift tax exclusion remains $14,000 in 2016.

The 2016 tax inflation projections are just one of the value-added features Bloomberg BNA provides taxpayers and the professionals who serve them. The full report is available online here.






Online Travel Companies Must Pay Sales Tax, D.C. Appeals Court Rules

Updated at 4:59 p.m.

Online travel companies such as Expedia and Travelocity are on the hook for more than $60 million in back sales taxes after a Washington appeals court ruled Thursday that the companies are liable for sales tax on hotel rooms they sell through their websites.

The three-judge panel of the D.C. Court of Appeals rejected the travel companies’ argument that the only taxable transaction was between the customer and the hotel. The court said that the D.C. government can tax the difference between the actual cost of the room, which the hotel receives, and the higher rate the travel companies charge the customer in order to make a profit.

“[T]he meaning of the statute is clear: by imposing tax on the ‘sale or charge . . . for any room . . . furnished to transients by any hotel,’ the sales tax statute is taxing the sales transaction by which a customer purchases a hotel room in the District of Columbia,” Judge Corinne Beckwith wrote for the court. “The OTCs’ retail margins are a part of that sale.”

Last year, the travel companies—Expedia Inc., LP, Hotwire Inc., Orbitz LLC,, and LP—and the city reached an agreement on how much money in back sales taxes the companies would owe if they lost on appeal. According to that agreement, the companies will owe more than $60 million for hotel room sales between 1998 and 2011.

In announcing the agreement last year, the Office of the Attorney General said that if the city prevailed, the monetary recovery would be largest ever for the District through a case that was litigated.

“This is a huge victory for the District’s taxpayers, and it ensures that online travel companies have to follow the same rules as everyone else,”  D.C. Attorney General Karl Racine said in a statement.

Darrel Hieber, a partner at Skadden, Arps, Slate, Meagher & Flom, argued for the online travel companies. He also could not immediately be reached for comment.

The District charges a sales tax of 14.5 percent on the gross receipts of hotel room sales. The online travel companies argued that the hotel, which furnished the room, was the only taxable vendor when it came to sales taxes. The city countered that the tax should apply to the sale or charge for any room furnished by a hotel, even if the seller—in this case, the online travel companies—did not actually furnish the room.

The court found that the city’s interpretation of local tax law was reasonable. Beckwith wrote that “an examination of the District’s sales tax provisions as a whole lends support to the District’s contention—and the well-reasoned conclusion of the trial court—that the tax is levied on the ‘sale or charge’ for the service, rather than on the provision of the service itself.”

The court also rejected the online travel companies’ argument that it would be unfair to force them to pay back taxes, given the city’s delay in pursuing legal action.

“It is clear from looking at the OTCs’ statements to investors and to the SEC that the OTCs understood, since at least 2002, that they might owe sales tax on the full amount of their merchant model sales,” Beckwith wrote.

The ruling was not a total loss for the online travel companies. The appeals court upheld the trial judge’s ruling that the companies could not be taxed on the “sales tax reimbursement” they charged to customers, which covered the sales tax that the hotel owed for the amount of money it received from the sale of the room.

Judge Theodore Newman joined Beckwith’s opinion. Judge Roy McLeese III agreed that the travel companies were subject to the sales tax, but he wrote in a separate opinion that he would hold the travel companies liable for tax on the full amount of the sale to the customer, including the “sales tax reimbursement.”

Updated with comments from Attorney General Karl Racine.

Senate Accuses IRS of Mismanagement in Tax-Exempt Scandal


Senate Committee Report Accuses IRS of Mismanagement in Tax-Exempt Scandal

Washington, D.C. (August 5, 2015)

Leaders of the Senate Finance Committee have released a bipartisan investigative report on the scandal involving the extra scrutiny the Internal Revenue Service’s gave to applications for tax-exempt status from political groups, finding evidence of mismanagement at the agency.

Lois Lerner
(Photo: Pete Marovich/

Members of the committee were briefed by staff with authority to review private taxpayer information in a number of closed-door briefings on the findings and recommendations of the report before a vote to release the long-anticipated report.

The report found that from 2010 to 2013, IRS management failed to provide effective control, guidance and direction over the processing of applications for tax-exempt status. Top IRS managers did not stay informed about the applications involving possible political advocacy, thereby forfeiting the opportunity to provide the leadership that the IRS needed to respond to the legal and policy issues presented by these applications.

Lois Lerner, who was then the director of the Exempt Organizations unit, became aware of the Tea Party applications in early 2010, but failed to inform her superiors about their existence, according to the report. While under Lerner’s leadership, the Exempt Organizations unit undertook seven botched initiatives to make a decision on the escalating number of applications from Tea Party and other groups for tax-exempt status.  Every one of those initiatives ended in failure, resulting in months and years of delay for the organizations awaiting decisions from the IRS on their applications for tax-exempt status.

The committee also found that the workplace culture in the Exempt Organizations Division placed little emphasis or value on providing customer service.  Few of the managers appeared to be concerned about the delays in processing the applications, delays that possibly harmed the organizations ability to function for their stated purposes.

“This bipartisan investigation shows gross mismanagement at the highest levels of the IRS and confirms an unacceptable truth: that the IRS is prone to abuse,” said Senate Finance Committee chairman Orrin Hatch, R-Utah, in a statement Wednesday.  “The committee found evidence that the administration’s political agenda guided the IRS’s actions with respect to their treatment of conservative groups. Personal politics of IRS employees, such as Lois Lerner, also impacted how the IRS conducted its business. American taxpayers should expect more from the IRS and deserve an IRS that lives up to its mission statement of administering the tax laws fairly and impartially—regardless of political affiliation. Moving forward, it is my hope we can use this bipartisan report as a foundation to work towards substantial reforms at the agency so that this never happens again. ”

Sen. Ron Wyden, R-Ore., the ranking Democrat on the committee, disagreed with Hatch that the report found evidence of the administration’s political agenda influencing the IRS’s actions. “The results of this in-depth, bipartisan investigation showcase pure bureaucratic mismanagement without any evidence of political interference,” said Wyden. “Groups on both sides of the political spectrum were treated equally in their efforts to secure tax-exempt status. Now is the time to pursue bipartisan staff recommendations to ensure this doesn’t happen again.”

The report describes how the Exempt Organizations unit used not only terms associated with conservative groups such as “Tea Party” and “Patriots” to screen applications, but also terms associated with liberal groups such as “Progressive,” “Occupy” and “ACORN.”

The committee made a number of recommendations to address IRS management deficiencies. It said the Hatch Act should be revised to designate all IRS, Treasury and Chief Counsel employees who handle exempt organization matters as “further restricted.”  “Further restricted” employees are precluded from active participation in political management or partisan campaigns, even while off-duty.

The report also said the IRS should track the age and cycle times of applications for tax-exempt status to detect backlogs early in the process and allow management to take steps to address those backlogs.  In addition, the Exempt Organizations Division should track requests for assistance from both the Technical Branch and the Chief Counsel’s office to ensure the timely receipt of that assistance.

A list of overage applications should be sent to the IRS Commissioner on a quarterly basis, the report recommended. Internal IRS guidance should also require that employees reach a decision applications no later than 270 days after the IRS receives that application.  Employees and managers who fail to comply with these standards should be disciplined. Minimum training standards should be established for all managers within the EO Division to ensure that they have adequate technical ability to perform their jobs, the report suggested.

The IRS responded to the report Wednesday, saying it planned to make improvements in response to the recommendations. “We appreciate the work of the Senate Finance Committee on this extensive report, and we look forward to reviewing it along with the recommendations,” said a statement emailed by an IRS spokesperson. “The IRS is fully committed to making further improvements, and we want to do everything we can to help taxpayers have confidence in the fairness and integrity of the tax system. We have already taken many steps to  make improvements in our processes and procedures, and we are pleased to have other suggestions from the committee to help us in our continuing effort. Throughout this, the IRS has cooperated with Congress and other investigators. The agency has produced more than 1.3 million pages of documents in support of the investigations, provided 52 current and former employees for interviews and participated in more than 30 Congressional hearings on these issues.”

Issuance of the report was delayed for more than a year after the IRS belatedly informed the committee that it had not been able to recover a large number of potentially responsive documents that were lost when Lois Lerner’s hard drive crashed in 2011, the committee noted.

The report acknowledged that the IRS functioned in a politicized atmosphere following the Supreme Court’s Citizens United decision in 2010, which put pressure on the IRS to monitor political spending. Employees in the Tax Exempt and Government Entities Division, including Lerner, were aware that the IRS had received an increasing number of applications from organizations that planned to engage in some level of political advocacy. “Yet senior IRS executives, including Lerner, failed to properly manage political advocacy cases with the sensitivity and promptness that the applicants deserved,” said the report. “Other employees in the IRS failed to handle the cases with a proper level of urgency, which was symptomatic of the overall culture within the IRS where customer service was not prioritized.”

As a result of these failings, a number of Tea Party and other political advocacy groups waited as
long as five years to receive a decision from the IRS, according to the report. These delays negatively affected applicants in many ways, including inability to gain tax-exempt status within their state until the IRS issued a determination letter; significant time and financial cost to respond to lengthy and burdensome IRS questions; ineligibility for grants and other financial support that require IRS documentation of tax-exempt status; decreased donations; and financial uncertainty about whether the organization would owe a tax liability if the IRS determined that it did not meet the criteria for tax-exemption.

After experiencing these problems, numerous organizations withdrew their applications for tax-exempt status, while some organizations ceased to exist altogether.

“The consequences of the IRS’s actions in singling out organizations based on their name and subjecting them to heightened scrutiny, substantial delays, and to burdensome and sometimes intrusive questions are far reaching and troubling,” said the report. “Undoubtedly, these events will erode public confidence and sow doubt about the impartiality of the IRS. The lack of candor by IRS management about the circumstances surrounding Lois Lerner’s missing emails may only serve to reinforce those doubts.”

If you thought 2015 tax season was bad, IRS says 2016 to be worse!


It’s always nice to get encouraging news about how swell everything at IRS!

© CPA Trendlines 2015

If You Thought Tax Season 2015 Was Bad…

…The IRS says 2016 could be even worse.

IRS projects even worse taxpayer service for the 2016 filing season (FY 2015).

By CPA Trendlines

The 2015 filing season was akin to a Tale of Two Cities, according to the IRS’s own watchdog.

“For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful,” according to the report issued to Congress by the national taxpayer advocate’s office headed by Nina Olson. “For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”

Meanwhile, Olson urges Congress to undertake “fundamental tax reform,” pass a “Taxpayer’s Bill of Rights” law, and boost IRS funding.

“Everyone is in collective denial about what inadequate funding for the IRS means to taxpayers,” Olson says.

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“This denial must stop. We have to face up to the fact that we have an incredibly complex tax system that, by virtue of its complexity, creates burden, confusion, and unfairness. It is a challenge for any tax agency to properly administer a system such as the one we have. But it is impossible for an underfunded tax agency to do so. The victims of this underfunding are not the IRS and its employees—the victims are U.S. taxpayers.”

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Olson urges Congress to:

1. Repeal the Alternative Minimum Tax – Require returns of partnerships made on the basis of the calendar year to be filed on or before March 15th following the close of the calendar year, and returns made on the basis of a fiscal year to be filed on or before the 15th day of the third month following the close of the fiscal year.

2. Permit a qualifying, newly incorporated small business to elect to be treated as an S corporation for any taxable year if the business makes such an election on a timely filed Form 1120S, U.S. Income Tax Return for an S Corporation.

3. Suspend the period to file a petition with the U.S. Tax Court for judicial review of determination of spousal relief while a person is prohibited by a bankruptcy stay from filing such a petition, and for 60 days thereafter..

4. Permit organizations that unsuccessfully seek recognition of IRC § 501(c)(4) exempt status to seek declaratory judgments.

5. Provide a safe harbor for de minimis errors on information returns and payee statements.

6. Develop an Internet platform for Form 1099 filings.

7. Require that electronically prepared paper returns include scannable codes.

8. Grant the IRS the authority to regulate federal income tax return preparers.

9. Assign victims of identity theft a single point of contact.

10. Accelerate the due dates for filing Forms W-2, Wage and Tax Statement, W-3,Transmittal of Wage and Tax Statements, and 1099 with the IRS and Social Security Administration.

The 2015 filing season presented the IRS with extraordinary challenges and considerable risks, the report says.

Highlights and Lowlights

Following are excerpts from the report.

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The IRS’s budget has been declining since fiscal year (FY) 2010 and now stands about 17 percent below its FY 2010 peak in inflation-adjusted terms. 1 At the same time, the IRS this year was charged by law with implementing the most challenging portions of the Patient Protection and Affordable Care Act (ACA)2 as well as the Foreign Account Tax Compliance Act (FATCA)3 and “tax extenders” legislation passed last fall. 4 The IRS received the same appropriation for its Taxpayer Services account in FY 2015 as it had received in FY 2014. However, it did not receive any additional funding to implement the ACA and FATCA. To enable it to implement those laws, the IRS reallocated about $133 million in user fees from Taxpayer Services to its Operations Support account, primarily to complete required systems programming. 5 That decision left less funding for taxpayer services

Overview of the Filing Season

The report says the IRS ran a generally successful filing season under difficult circumstances.  “With funding down about 17 percent on an inflation-adjusted basis since FY 2010, and with the IRS having had to implement large portions of the [ACA] and the Foreign Account Tax Compliance Act (FATCA) this year without any supplemental funding, sharp declines in taxpayer service were inevitable,” Olson says. However, the report says,  “For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful.  For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”

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The report notes:

During the filing season, the IRS processed 126.1 million individual tax returns (compared with 125.6 million last year) and issued 91.8 million refunds (compared with 94.8 million last year).  The average refund amount was $2,711 (compared with $2,686 last year).

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    The IRS answered only 37 percent of taxpayer calls routed to customer service representatives overall, and the hold time for taxpayers who got through averaged 23 minutes.  This level of service represents a sharp drop-off from the 2014 filing season, when the IRS answered 71 percent of its calls and hold times averaged about 14 minutes.

  • The IRS answered only 39 percent of calls from taxpayers seeking assistance from TAS on the National Taxpayer Advocate (NTA) Toll-Free hotline, and hold times averaged 19 minutes.  TAS serves as the IRS’s “safety net” for taxpayers who are experiencing a financial or systemic hardship as a result of IRS action or inaction.
  • The IRS answered only 17 percent of calls from taxpayers who called after being notified that their tax returns had been blocked by the Taxpayer Protection Program (TPP) on suspicion of identity theft, and the hold times averaged about 28 minutes.  In three consecutive weeks during the filing season, the IRS answered fewer than 10 percent of these calls.
  • The IRS answered only 45 percent of calls from practitioners who called the IRS on the Practitioner Priority Service line, and hold times averaged 45 minutes.
  • The number of “courtesy disconnects” received by taxpayers calling the IRS skyrocketed from about 544,000 in 2014 to about 8.8 million this filing season, an increase of more than 1,500 percent.  The term “courtesy disconnect” is used when the IRS essentially hangs up on a taxpayer because its switchboard is overloaded and cannot handle additional calls.
  • The decline in telephone performance can be attributed largely to three factors: The number of taxpayer calls routed to telephone assistors increased by 41 percent, the number of calls answered by telephone assistors decreased by 26 percent, and the average call duration increased by 10 percent.
  • The IRS sharply restricted the availability of paper copies of forms and publications, imposing burden on taxpayers without Internet access or online literacy.  The IRS’s own Taxpayer Assistance Centers (TACs) and its Tax Form Outlet Partners such as libraries and post offices did not receive forms until February 28, almost halfway through the filing season.  Once a TAC ran out of forms or publications, it could not order more.

Olson says that the decline in taxpayer service imposes increased compliance burdens on taxpayers and may lead to erosion in taxpayer trust.

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“For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well,” she says.  “In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.”

Long-Term IRS Strategic Planning

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The report attributes the decline in taxpayer service levels to the reduction in IRS funding and reiterates the Advocate’s longstanding view that the IRS requires additional funding to meet taxpayer service needs.  However, Olson says, “temporary periods of limited funding can have the salutary effect of causing an organization to rethink its mission and allocate its resources more effectively.”

OIson commends the IRS for undertaking development of a new concept of operations (CONOPS) that aims to establish a vision for where the IRS should be in five years.  However, she says the foundational principles on which the CONOPs are based are critical to success and expresses concern about two aspects of those principles.

First, Olson expresses concern that the IRS continues to view itself primarily as an enforcement agency, with taxpayer service receiving less emphasis.  For example, the IRS Enforcement budget is more than double the Taxpayer Services budget, and even that comparison understates the disparity because much of the Taxpayer Services budget is allocated to tax return processing, which most taxpayers would not view as a service.

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“It should be emphasized that more than 98 percent of all tax revenue collected by the IRS is paid voluntarily and timely.  Less than two percent is collected through enforcement action,” the report says.  “Thus, increasing enforced collection would be a hollow victory if voluntary compliance declines because of decreasing taxpayer service and the attendant loss of good will.”

The report says the IRS develops its policies largely around the relatively small portion of the taxpayer population that is unwilling to comply with the tax laws.  “This focus has all sorts of consequences for the vast majority of taxpayers who are willing to comply, not the least of which is that they bear an increased burden in navigating processes designed for evaders,” Olson wrote.  “That is unwise, counterproductive, and expensive.”  She urges the IRS in developing its long-term plans to place primary emphasis on “meet[ing] the needs of the overwhelming majority of taxpayers who are trying to comply with the tax laws.”

Second, Olson expresses concern that the IRS is contemplating plans that would replace traditional IRS employee-to-taxpayer interaction with online services and expanded use of third parties such as preparers, tax professionals, and even software packages, to serve as the taxpayers’ interface with the IRS.  She says that expanded availability of online services will provide significant benefits in many areas, but “it is wishful thinking, if not foolhardy, to expect taxpayers to rely on computer-driven systems for resolution of tax problems that, if not resolved fully, could lead to devastating financial consequences.”

She continues: “Taxpayers, and their representatives, need the ability to talk with IRS employees, explain their circumstances, and make sure that the IRS understands their position.  The IRS shouldwant to talk with these taxpayers, because each conversation provides an opportunity for it to understand the taxpayer’s facts and circumstances, recognize a situation that presents a different issue, educate the taxpayer about what is required for full compliance, and provide a full resolution to the taxpayer’s problem.”

The report cites the recent unauthorized access to tax information through the IRS’s “Get Transcript” application as an example of the risks of automation.  While TAS itself has recommended the IRS accelerate efforts to give taxpayers online access to their accounts, Olson says “The ‘Get Transcript’ incident serves as an important reminder that where data security must be balanced against convenience and budget savings, data security must be paramount.”  She said that “all existing plans must be double-checked and triple-checked before implementation to ensure that every reasonable data security precaution has been considered.”

Olson views the IRS’s attempt to define its vision through the CONOPS as potentially transformative for taxpayers.  For that reason, she recommends that after the IRS completes a draft of the CONOPS, it make the draft CONOPS public and solicit taxpayer comments before finalizing them.  “This is the taxpayers’ tax system, after all, and taxpayers have the right to know what the IRS is planning for them,” she says.

Filing Season Statistics Comparing Weeks Ending April 18, 2014, and April 17, 2015.

Assisting Victims of Identity Theft-Related Refund Fraud

In recent years, taxpayers (and the IRS) have been victimized by identity thieves who use stolen identity information to file fraudulent returns to try to obtain refunds.  As the problem has grown worse and the IRS has understandably implemented more filters to identify questionable returns, an increasing number of taxpayers have been affected and have faced significant delays in receiving their refunds.

There are two circumstances under which taxpayers may be affected.  First, if an identity thief has filed a false return on which the IRS has paid a refund, the IRS will automatically freeze the return later filed by the legitimate taxpayer.  A recent TAS study showed that the IRS takes about six months to resolve these cases and pay out the legitimate taxpayer’s refund.  The IRS and TAS continue to see large numbers of these cases.  In each of calendar years 2013 and 2014, the IRS received about 730,000 identity theft cases with taxpayer impact, and over the last three fiscal years, TAS has received an average of about 52,000 identity theft cases a year.

Second, the IRS runs most returns claiming a refund through certain filters to identify suspicious returns.  When it identifies a return as suspicious, the IRS suspends the processing of the return and issues a notice requiring the taxpayer to authenticate his or her identity.  During the 2015 filing season, the IRS’s Taxpayer Protection Program (TPP) filters stopped more than twice as many questionable returns as in the prior year.  Specifically, as of April 23, 2015, the TPP stopped 1,558,874 returns as compared with 764,439 at a similar point in 2014, an increase of 104 percent.  About one-third of the returns stopped by the TPP turned out to come from legitimate filers, and at least for the largest segment of the TPP inventory, this false positive rate is up substantially from the 2014 filing season.  Thus, more than 600,000 taxpayers who filed legitimate returns had their returns frozen as suspicious and had to take additional steps to receive their refunds.

During the filing season alone, the IRS received about 1.6 million taxpayer calls on its Identity Protection Specialized Unit (IPSU) telephone line.  The level of service was about 54 percent and the average hold time was about 25 minutes.  It also received about 2.9 million taxpayer calls on its TPP telephone line.  As noted above, the level of service was 17 percent for the TPP line, and the average hold time was about 28 minutes.

The report expresses concern that the IRS is not doing enough to assist identity theft victims and reiterates the National Taxpayer Advocate’s longstanding recommendation that the IRS assign a single employee to coordinate complex identity theft cases.  “Without a single employee with whom to work, identity theft victims often have to call the IRS multiple times and talk with multiple employees about different aspects of their case,” the report says.  “Equally important, no one employee is held accountable for the resolution of the case.  Thus, affected taxpayers often feel like they are victimized a second time by the IRS’s processes.”

The report says a primary focus for TAS during the upcoming year will be to recommend improvements and alternative approaches to reduce the time it takes to achieve complete and accurate resolution of identity theft cases from the victim’s perspective.

Affordable Care Act

The report says the most significant new challenge the IRS faced during the 2015 filing season was the processing of tax returns reflecting two central provisions of the ACA – the Premium Tax Credit (PTC) and the Individual Shared Responsibility Payment (ISRP).  Overall, the report credits the IRS with doing a commendable job implementing those provisions, including by developing or updating information technology systems, issuing guidance, and working with other federal agencies.

On tax returns processed through the end of April, taxpayers filed about 2.6 million returns with Form 8962, Premium Tax Credit (PTC), which reflected either the receipt of the Advanced PTC or new PTC claims for 2014.  The average amount of PTC claimed per return was about $3,000.  In addition, taxpayers filed about 6.6 million returns reporting the ISRP, and the average amount reported was about $190.  About 10.7 million taxpayers filed Form 8965, Health Coverage Exemptions, claiming exemptions from the health-insurance coverage requirements.  The IRS cautions that this data is preliminary and subject to change as it reviews the data, processes additional tax year 2014 returns, and conducts compliance activities.

The report says there were some significant glitches that occurred during the filing season, but most were not attributable to IRS error.  The most significant was the Center for Medicare and Medicaid Services’ issuance of erroneous Forms 1095-A, Health Insurance Marketplace Statement, to about 800,000 individuals who had purchased health insurance from the federal Exchange.  The Treasury Department addressed the mistake by issuing taxpayer-favorable guidance informing taxpayers who had already filed returns based on the incorrect information that they did not need to file amended returns and pledging that the IRS would not pursue the collection of any additional tax based on the updated information in the corrected forms.  The IRS answered about 68 percent of taxpayer telephone calls on ACA issues that were routed to telephone assistors, which far exceeded the overall average on its customer service lines of about 37 percent.

As a result of IRS data sampling and additional analysis conducted by TAS Research, it was discovered that more than 300,000 taxpayers overpaid the ISRP on tax returns processed through the end of April, the report says.  Most of those taxpayers did not owe the ISRP because they were eligible for an exemption due to their low incomes.  The report says the average ISRP overpayment was a little over $110 per return.  The National Taxpayer Advocate has recommended that the IRS issue refunds to the affected taxpayers without requiring them to file amended returns.  Since the majority of taxpayers use paid tax return preparers, most would probably spend more than the roughly $110 average overpayment amount in preparer fees if amended returns are required.  At the time the report was finalized, the IRS had not made a decision.

The report says a primary ACA focus for TAS during the upcoming year will be to train its Case Advocates to better assist taxpayers requiring assistance, notably on ACA collection activities and the Employer Shared Responsibility Payment provision.




Budget cuts to the IRS are hampering the agency’s efforts to uncover tax cheats, an agency watchdog said last week and more trims are on the way under legislation approved by a GOP-controlled House panel.

IRS budget cuts are hurting tax collections because there are fewer agents chasing delinquent taxpayers, according to a report released Wednesday by the Treasury Inspector General for Tax Administration. The IRS budget has been cut by $1.2 billion since 2010.

The House Appropriations Committee approved IRS cuts of $900 million more on Wednesday on a party-line vote.

Republicans controlling Congress have targeted the much-maligned agency, particularly in the wake of revelations that IRS agents inappropriately singled out tea party groups for additional scrutiny when they sought tax-exempt status.

Enforcement revenue collected by the officers dropped from a high of $3.3 billion in 2012 to $3.0 billion last year, even as the economy improved.

During that time, the number of revenue officers has been cut by nearly a third, to less than 3,000.

“This report dramatically illustrates the long-term effect of IRS budget cuts on the nation’s tax system and revenue stream,” the IRS said in a statement. “Cutting our resources in these areas means hundreds of millions of taxes go uncollected.”

The IRS’ overloaded phone system also hung up on more than 8 million taxpayers this filing season and forced millions more to wait on hold for 30 minutes or longer to get help on their returns. The staffing shortages meant that the IRS was able to answer fewer than 40 percent of taxpayer calls and led to long waits and lines out the door for taxpayers at walk-in centers.