A CPA's Shirt Pocket Notes - Tax News & Commentary

Year-end Section 179 Deduction Trap: The current $500,000 Section 179 deduction limit applies to tax years beginning in 2013. Under current law, the limit will be a much lower $25,000 for tax years beginning in 2014. This presents a tax trap for fiscal year pass-through entities (e.g., partnerships and S corporations) with calendar tax year owners. Assets acquired and placed in service during the year beginning in 2013 and ending in 2014 will qualify for the larger limit, but the amount passed through to the owners will be reported on their 2014 tax return, when the much lower limit applies. In this scenario the excess amount will be wasted—it cannot be deducted nor can it be carried over. Although Congress may increase the Section 179 deduction limit for tax years beginning in 2014, there's no guarantee that it will equal (or even come close to) the current $500,000 deduction limit.

2014 Filing Season Delayed: The IRS has announced that the start of the 2014 tax season will be delayed by approximately one to two weeks to allow for adequate time needed to program and test tax processing systems following the 16-day government closure. The original tax season start date was set for 1/21/14, but the IRS now plans to start accepting and processing 2013 tax returns no earlier than 1/28/14 and no later than 2/4/14. Acting IRS Commissioner Werfel said the agency is exploring options to shorten the delay and will announce the final decision on the start of the 2014 filing season in December. However, the 4/15/14 tax deadline will not be affected (i.e., extended) by the delay. 

Speaking of Social Security (See yesterday's post), a new report from the Congressional Research Service ("CRS") projects exhaustion of Social Security trust funds in 2033. At that time, it is projected the program would have enough income from taxes to pay 77% of scheduled benefits until 2087, when that number would fall to 72% of benefits. The CRS reports that the Social Security Act does not stipulate what would happen to benefit payments when the funds run out, but anticipates that either full benefit payments would be delayed or reduced benefits would be paid on time. See www.fas.org/sgp/crs/misc/RL33514.pdf for the full report.

IRS Contractors Owe Millions: Employees of the IRS are required to file tax returns on time and pay any federal income tax owed. A recent report from the Treasury Inspector General for Tax Administration ("TIGTA") points out that contract employees are not being held to the same standard. TIGTA found that as of 6/14/12, 691 (5%) of the 13,591 IRS contract employees reviewed had $5.4 million in Federal tax debt. Of these, 319 still had staff-like access to IRS facilities even though they were not on a payment plan. Weaknesses in the IRS's existing practices were cited as allowing occurrences of noncompliance to go undetected after access was initially granted. The IRS only reviews contractor compliance every five years, whereas employees are continuously monitored. Recommendations in the report include further evaluation of contractor employees that TIGTA identifies as potentially noncompliant and bringing those individuals into compliance or removing their IRS contracts. 

IRS Paying Fraudulent Tax Refunds: In 2012, TIGTA reported that its analysis of Tax Year 2010 returns identified almost 1.5 million tax returns that were not detected by the IRS as potentially fraudulent. These tax returns were not detected despite having the same characteristics as identity theft fraudulent tax returns, and represented the payment of potentially fraudulent tax refunds totaling more than $5.2 billion. The common characteristic of these tax returns was that the income and withholding reported on the tax returns were false. A new TIGTA report concludes that the current income and withholding verification process "is not always effective in stopping the issuance of fraudulent refunds." However, the IRS is developing a new system, the Return Review Program, which is scheduled to be phased in beginning in 2015.

IRS Paying Improper Earned Income Credits: TIGTA also reports that the IRS is NOT in compliance with an executive order requiring a reduction in the number of improper Earned Income Tax Credit (EITC) payments. The TIGTA reported that an estimated 21%–25% of the EITC payments made in fiscal year 2012 were paid in error and that, between fiscal years 2003–2012, over $110.8 billion in improper EITC payments have been made. Main factors cited in the report for the number of incorrect payments are the "complexity of the EITC program as well as the need to balance the reduction in improper payments while still encouraging individuals to use the credit." The report recommends that the IRS develop processes to identify improper payments of high-dollar amounts and report that information quarterly to the TIGTA.