To our business clients:

In an effort to get accurate and timely filed 1099 forms, the date that 1099s are due continues to be January 31st. The penalty for each instance of failing to file a correct 1099 form by the due date with the IRS is as follows:

• $50 per form if correctly filed within 30 days of the due date;
• $100 per form if correctly filed after 30 days of the due date but by August 1;
• $260 per form if filed after August 1 or not filed (assuming there was no intentional disregard)
• At least $530 per form with no maximum penalty if due to intentional disregard of the requirements.

A similar additional penalty framework applies if the payee isn’t provided their copy by these deadlines.

California may impose its own penalties when conducting an audit, the most severe of which is for failure to file 1099-MISC forms* to independent contractors. In those cases, California can effectively negate the deduction for those expenses by imposition of its penalties.

Federal business tax returns currently contain two questions regarding the filing of 1099 forms. We'll be checking with you about your fulfilment of the 1099 form filing requirements in order to answer those questions correctly.

WHAT IS A 1099 FORM?

A 1099 form is an informational return on which businesses report various sorts of payments they've made to partnerships, sole proprietorships, individuals and certain types of corporations during the calendar year. Some of the most common types of 1099 forms are:

WHO SHOULD WE SEND A 1099 FORM TO?

They should be sent to partnerships, sole proprietorships, limited liability companies (LLC), limited liability partnerships (LLP), and individuals you made payments to in the course of your business. A 1099 should also be sent to any attorney, physician, or a supplier of medical services even if they are a corporation. Any payment on which you take backup withholding for Federal income taxes must be reported on the appropriate Form 1099, regardless of the amount of the payment. This means:

1. Only send 1099s for payments you made related to the operation of your business.                
2. You don't need to send 1099s for materials or products you purchased.
3. You don't need to send 1099s to corporations (unless it is for medical or legal services). However, the burden to find out if it's a corporation is on you. If the name has "Incorporated", "Inc.", "Corporation", or "Corp." in it, you can assume it's a corporation. Otherwise, you need to ask.
4. You don't need to send 1099s to exempt organizations, retirement trusts, or IRA accounts.

FILING RETURNS WITH THE IRS

If you must file any Form 1098 or 1099 with the IRS and you are filing paper forms, you must send a Form 1096 with each type of form as the transmittal document.

For businesses located in California the government copies need to be mailed to:

Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999

Businesses who file 250 or more informational returns are required to file electronically through the IRS' FIRE System (Filing Information Returns Electronically). We can help you with this.

CALIFORNIA REPORTING REQUIREMENTS

If you file IRS Forms 1099 series, Forms 5498, 1098 and W-2G with the IRS on paper, you are not required to file a paper copy of the same form with the Franchise Tax Board. The IRS will forward the information to them. When the Federal and State payment amounts differ, you may file information returns directly with the Franchise Tax Board.

WHAT INFORMATION DO YOU NEED FOR THE 1099 FORM?

1. Name and address of whom you paid.
2. The amount you paid them during 2017.
3. Their identification number. For an individual this would be their social security number. For a proprietorship, LLC, partnership, or corporation this would be their employer identification number which is a nine-digit number, usually beginning with "94-" or "77-".

IMPORTANT:   It is extremely important that the name recorded on the 1099 agrees with the name listed on the Social Security Administration's records for the specified identification number. Therefore, in the case where an individual is self-employed, care must be taken to make sure that the proper name is listed on the 1099. Any "dba" name should be listed on the 1099 underneath the individual's legal name which agrees with the Social Security Administration's records.

WHAT IF SOMEONE WON'T GIVE US THEIR IDENTIFICATION NUMBER?

If someone won't give you their identification number, you're not sure they're giving you the correct number, or you're not sure they're incorporated as they say, then you should send them a W-9 form (available at the IRS website) by certified mail, return receipt requested. The receipt will document your request for their number and help you avoid the penalty for filing a 1099 form without an identification number. If the W-9 form is completed and returned to you, it will take you off the hook for both the accuracy of the identification number used and as to whether they're really a corporation.

WHAT CAN SEEBA & ASSOCIATES DO TO HELP?

Please give us a call if you would like us to help in the preparation of these 1099 forms. We can:

1.  Answer your questions regarding the issues discussed above,
2.  Prepare 1099 forms for you from information you've gathered, consisting of name, address, identification number, and amount paid in 2017, or
3. Figure the amount you've paid for 2017 from your books and records. Along with the address and identification number supplied by you, we'll prepare the 1099 forms.
4. eFile your 1099 forms via the IRS system.

*         *         *         *         *

IMPORTANT

Please let us know as soon as possible if we can assist you since the 1099s are now due by January 31st. ^st.

You should be getting an identification number or completed W-9 form from anyone you pay for services, even if less than $600, before you pay them. Otherwise, you are obligated to withhold 28% of their payment and remit it to the IRS. Please call us if you run into problems where the 28% "backup withholding" may come into effect.

You should also keep in mind that you will need to maintain records of amounts paid to independent contractors as payments are made or contracts are signed in order to comply with the 2018 Employment Development Department reporting requirement for independent contractors.

If you have any questions regarding 1099 filings, feel free to contact us.

To our business clients:

SEEBA & ASSOCIATES, INC

2018 FEDERAL PAYROLL DEPOSIT REQUIREMENTS:

Standard Mileage Rates for 2018

For 2018, the standard rate for business mileage will be 54.5 cents per mile. The previous rate was 53.5 cents per mile.

The standard rate for the use of a car when providing services to a charitable organization remains at 14 cents per mile.

The 2018 standard mileage rate for the use of your car for medical expenses or deductible moving expenses is at 18 cents per mile. The previous rate was 17 cents per mile.

BONUSES - Just a reminder - holiday bonuses are subject to all payroll taxes.

This is true whether the bonus is paid in cash, by check or by a gift card. For income tax withholding, the rates are 25% federal and 10.23% state. If you have a net figure in mind, the gross amount can be calculated as follows:

1. If the employee has not passed the wage limits for SDI ($110,902) or FICA ($127,200), divide the desired net by .5622 to arrive at the gross.
2. If the employee has exceeded the SDI limit only, divide the desired net by .5712 to arrive at the gross.
3. If the employee has exceeded both the SDI and FICA limits, divide the desired net by .6332 to arrive at the gross.

Example: You wish to pay Employee A a net bonus of $100.00 -

Employee A has earned $4,000.00 for 2017. He is subject to all taxes. Dividing $100.00 by .5622 (See #1 above) yields a gross of $177.87. Deductions would be:  Federal income tax $44.47 (25%); Social Security $11.03 (6.2%); Medicare $2.58 (1.45%); State income tax $18.19 (10.23%); SDI $1.60 (.9%).

The percentages and example shown above pertain to checks dated prior to January 1, 2018. For checks dated after December 31, 2017, you must use the 2018 withholding rates and limits.

AWARDS - - As part of a meaningful presentation, employers can give employees awards for length of service or safety achievements of up to $400 per year. In order to be deductible to the employer and non-taxable to the employee, the awards must be made with noncash items. Awards of cash or items readily convertible into cash, such as gift certificates, are subject to payroll taxes, no matter the amount. Length of Service Awards are deductible to the employer if employees have more than five years of service and have not received such an award in the last four years. Safety Achievement Awards aren't deductible if given to a manager, administrator, clerical employee, or professional, nor if given to more than 10% of the other employees. We recommend that any prizes awarded be documented by corporations in their corporate minutes, although the law doesn't require this.

GIFTS - Business gifts are still limited to $25 to any individual per year. They can be made on a discriminatory basis and can be in cash. These gifts are deductible to the business and non-taxable to the recipient.

Items clearly of an advertising nature that cost $4 or less, such as promotional items, aren’t considered gifts and therefore, aren’t included in calculating the $25 limit for an individual.

In addition, gifts that are considered “de minimis” fringe benefits aren’t restricted by the $25 per recipient limit, and are considered to be made tax-free to the employee. For a gift to be considered as a de minimis fringe benefit the value must be nominal, the accounting for such a gift would be administrative nitpicking, it’s only an occasional gift, and it’s given for the purpose of promoting the health, goodwill, contentment or efficiency of the employees. Some examples of such gifts are holiday turkeys, a Christmas luncheon or party, or a company outing to a theater or sports event.

There is no limit on gifts made to corporations or partnerships.

What did CA do?

Effective January 1, 2012, California has a new law, Senate Bill 459 (SB 459), which significantly increases the penalties that can be assessed against employers who willfully misclassify as independent contractors individuals who should be treated as employees. If your business utilizes independent contractors, it is extremely important that you take the time now to understand the impact of this new law to your company and to take the necessary steps to ensure appropriate compliance with this law. The highlights of the law are summarized below for your reference, although they are not meant to be all-inclusive.

SB 459 makes it unlawful for any person or employer to engage in “willful misclassification” of an individual as an independent contractor. The law also prohibits charging individuals who have been misclassified as independent contractors a fee or making deductions (e.g., for space rental, goods, equipment maintenance) from compensation if those acts would have violated the law had the individuals not been misclassified.

This new law comes on the tail of the IRS’s recent announcement regarding its new settlement initiative, the Voluntary Classification Settlement Program (VCSP), allowing employers to: 1) come forward if they are not under audit, 2) reclassify independent contractors as employees, and 3) pay a significantly reduced employment tax.

Who has authority to assess compliance and penalties?

SB 459 authorizes the Labor and Workforce Development Agency, specifically the Labor Commissioner or a court, to assess specified civil penalties on persons or employers violating the law. SB 459 also requires the agency to take other specified disciplinary actions against these individuals.

What happens if I am found to have violated the law?

The law requires employers who are found to have engaged in a misclassification “to display prominently” for one year on their websites a notice to employees and the general public announcing, among other things, that the employer “has committed a serious violation of law by engaging in willful misclassification of employees.” The notice must be signed by a corporate officer.

What are the fines and penalties?

Violation of the new statute carries exposure for a civil penalty of between $5,000 and $15,000 for each violation. If the employer is found to have engaged “in a pattern or practice of violations,” the civil penalty is increased to $10,000 and $25,000 per violation. The law does not define the term “pattern or practice.”

Is there a “Safe Harbor” position?

Yes, treating the worker as an employee will cause you to avoid any of these potential penalties for misclassification.

Where should I go for assistance and additional information if I have independent contractors?

The IRS has a very helpful website addressing this issue http://www.irs.gov/businesses/small/article/0,,id=99921,00.html Since the Employee/Independent Contractor issue is decided based upon the preponderance of evidence, look carefully at all the factors being considered by the IRS.

Because the stakes are so high on this issue, we strongly encourage you to consult with legal counsel experienced in employment practice matters to review your independent contractor relationships, to determine the appropriateness of these classifications, and to assist you if re-classifications may be required to mitigate potential legal exposures to your business. We can point you to the pertinent IRS Guidelines, but we will not be responsible for advising you with respect to independent contractor status as part of our services.

Please call us if you have questions or would like a referral to a labor law attorney to discuss this matter further.

So that the reporting for this fringe benefit is not so burdensome, the IRS allows employers to include the personal use of business-owned cars during November and December in the following year's W-2s. This means that W-2s for 2017 need to include the value of the personal use of the vehicles from
November 1, 2016 to October 31, 2017 and that this value can be calculated now. Those clients using computerized payroll systems which prepare W-2s will have to inform the system of this fringe benefit value which needs to be included in payroll before the end of December.

The following information should serve to remind you of how to calculate the value of the personal use of business-owned cars for W-2 purposes and how to withhold taxes on it:

1. For non-office/shareholders: 1.If commuting is the only personal use of a business-owned car allowed by an employer, then the employer would need to include $3 a day in the employee's wages to recognize the value of the commute, plus 5.5 cents/mile for the fuel provided by the employer.

2. For officers and shareholders: The personal use of a business-owned vehicle must be included in their W-2. The formula for computing the value of their personal use is as follows:
    

   1. Annual lease value based on the IRS table (see attached table) prorated for the number of months the vehicle was used from November 2016-October 2017.
   2. Times this value by the personal use percentage determined from mileage records maintained throughout the year which list business and personal miles driven.
   3. Then add the lesser of the actual cost, or 5.5 cents/mile, for gasoline provided by employer that was used for personal travel.
   4. Next subtract any reimbursement that the employer receives from employee.
   5. The result is the value of the personal use of the business-owned vehicle to be included in employee's W-2 compensation

                                                                                   or                                      
                                                                 (A x B) + (C - D) = E

3. It is possible to avoid income tax withholding on the value of the personal use of an employer-provided vehicle. However, early action was required in order to avoid withholding income tax for 2017. The employer must have notified the employee in writing by January 31, 2017 or within 30 days after receiving the vehicle during the year, in order to avoid income tax withholding on this fringe benefit. If the employee is not notified of the withholding election by the specified dates, the employer must withhold income taxes on the value included in the W-2. For 2018, the employee must be notified in writing by January 31, 2018 or within 30 days of receiving the vehicle, in order to avoid 2018 withholding on this fringe benefit.

4. Even though an employer can avoid withholding income tax on the value of the personal use of a vehicle (as described in item 3 above), the Social Security tax (FICA), the Medicare tax, and State Disability Insurance (SDI) must be withheld on the value included in the W-2. However, there are some choices available on the timing of these withholdings. The employer is given the option of calculating and withholding these taxes on a pay period, quarterly, semi-annual, or annual basis. As stated previously, the annual period would run from November through October, which means that the employer could wait until the end of October to figure the taxes to be withheld. If the employee will reach the maximum Social Security wages for the year by that time, without considering the fringe benefit, only Medicare tax withholding would be necessary.

Please feel free to contact us if you need help in calculating the value of the personal usage of business-owned cars, but remember it must be done soon and included on the 2016 W-2 forms.                                            

Please click here to view the Business Car Table

Under the new law compensatory time off in lieu of payment for hours worked by non-exempt employees in excess of the normal workday and workweek (as described above) is no longer permissible

Exceptions

Employees, who on July 1, 1999, were voluntarily working an alternate workweek schedule (adopted without an employee election), may continue to work that schedule, of not more than 10 hours work a day, and continue to be exempt from the overtime rules if the employer approves a written request by the employee to continue to work that schedule. In addition, employees affected by the new laws may elect, by two-thirds vote, to work an alternative workweek of up to 10-hour work days within a 40-hour workweek without being subject to the overtime rules.

Personal Time Off

Employees may make up lost time due to a personal obligation by giving a signed, written request to an employer to make up the work. Please note however that, if an employer approves an employee's written request to make up work time that is lost as a result of a personal obligation, the hours of that makeup work time, if performed in the same workweek in which the time was lost, should not be counted toward computing the total number of hours worked in a day for purposes of the overtime pay requirements. The only exception would be in the case of an employee who works more than 11 hours in one day or 40 hours in one workweek.

Only individuals working as independent contractors are to be reported. Thus, you don't need to report corporations or partnerships which you pay for services provided to your business. However, you must report all independent contractors you hire for $600 or more, regardless of whether the independent contractor lives or works in California or another state. You only need to report an independent contractor one time per each calendar year that you contract or pay the contractor $600 or more.

The completed DE 542 forms can be either mailed or faxed to the Employment Development Department. The mailing address is:Employment Development Department PO Box 997350 MIC 99 Sacramento, CA 95899-7350 And the fax number is: (916) 255-3211

The EDD may assess a $24 penalty for each failure to comply with the reporting requirements within the required time frame. Also, a penalty of $490 may be assessed for the failure to report the required information due to an agreement between you and the independent contractor to disregard the filing requirements.

Money that participants (parents, grandparents, businesses, etc.) contribute to the Scholarshare Trust will grow while in the participant's account and be tax free for federal and California purposes upon disbursement to the beneficiary's school of choice. The funds disbursed can cover room and board, as well as tuition fees, books, supplies and equipment required for enrollment or attendance at a "qualified institution" (defined below). The participant retains ownership of his/her deposits in the trust until disbursement, at which time ownership is transferred to the beneficiary (student). Interest earnings disbursed from the trust are not included in the beneficiary's gross income (while attending college).

Qualified Institutions

Neither the beneficiary nor the participant will have to choose a college when opening a Scholarshare account. However, the type of college the beneficiary plans to attend will affect the maximum contribution allowed, i.e., community college, state university, private institution, etc. The student may use the funds to attend any qualified institution. A qualified institution is one that offers credit toward:

A bachelor's degree; An associate's degree; A graduate level or professional degree; and Another recognized post-secondary credential. Certain proprietary and post-secondary vocational schools are also eligible institutions.

At the time the beneficiary enrolls in college, the Scholarshare Program will transfer payments from the participant's Scholarshare account directly to the college to pay the beneficiary's qualified expenses.

Transferability

If the beneficiary dies or does not attend college, the contributor has the option of canceling the account or changing the beneficiary. Cancellation results in a refund equal to the then-current market value less a penalty of no less than 10 percent of the earnings. The penalty is waived in the event of the beneficiary's death.

Without cause and before the beneficiary's admission to college, the contributor may change the beneficiary designation to relatives of the original beneficiary or relatives of the beneficiary's spouse, including the contributor if the contributor is a relative of the original beneficiary or a relative of the original beneficiary's spouse.

Income Tax Issues

There are no income tax deductions to the contributor for placing funds into a Scholarshare program. Taxation is avoided on the earnings. Amounts paid for tuition will also be eligible for both the HOPE credit and Lifetime Learning credit, subject to the rules that regularly apply to each of those credits.

Gift Tax Issues

For gift tax purposes, deposits are completed gifts of present interests to the designated beneficiary and therefore qualify for the annual gift tax and generation-skipping transfer tax exclusion of $13,000 per year per donee as indexed. They do not qualify as excludable education expenses under the gift tax rules which allow education expenses to be paid in addition to the $13,000 annual exclusion. If the deposit exceeds the annual exclusion amount, the contributor may elect to take the balance into account ratably over a five-year period on their gift tax return.

Just hours before government funding was set to expire, President Trump on March 23 signed the bipartisan Consolidated Appropriations Act, 2018, averting a government shutdown. The $1.3 trillion fiscal year 2018 omnibus spending package, which provides funding for the government and federal agencies through September 30, contains several tax provisions and increased IRS funding.

Just hours before government funding was set to expire, President Trump on March 23 signed the bipartisan Consolidated Appropriations Act, 2018, averting a government shutdown. The $1.3 trillion fiscal year 2018 omnibus spending package, which provides funding for the government and federal agencies through September 30, contains several tax provisions and increased IRS funding.

The House approved the spending bill by a 256-to-167 vote on March 22. The Senate cleared the measure by a 65-to-32 vote.

Grain Glitch
The so-called "grain glitch" addressed within the omnibus package aims to fix an unintended consequence in the "pass-through" income deduction. The deduction is provided in new Code Sec. 199A, which was enacted last December as part of the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).

Before the fix, grain and other agricultural products sold to cooperatives received a tax advantage because those sales were deductible from a farmer’s gross sales. Sales to companies other than cooperatives were deductible only from net business income. The inadvertent advantage had been given to cooperatives as part of a drafting error, according to several Republican lawmakers.

The appropriations bill repeals the provision in Code Sec. 199A that allowed farmers to deduct 20 percent of their gross sales to cooperatives. As modified, the deduction is now limited to 20 percent of farmers’ net income, excluding capital gains. "This legislation restores the competitive balance in the agricultural marketplace by leveling the tax burden on independent and cooperative farming businesses," Sen. Jerry Moran, R-Kan., said in a March 22 statement. The bill also modifies the deduction that is allowed to agricultural or horticultural cooperatives.

Low-Income Housing Tax Credit
Although Democrats have previously expressed an unwillingness to help Republicans correct issues within the new tax law, the parties agreed to the grain glitch fix in exchange for an expansion of the low-income house tax credit. The expansion is also included in the spending bill.

"This is the first increase in over a decade," Sen. Maria Cantwell, D-Wa., said on March 22. "Nearly $3 billion is a good start towards tackling the housing crisis in our cities and rural communities," she added. Cantwell spearheaded the efforts among Democrats for the credit’s expansion.

Technical Corrections
Numerous other technical corrections to previous tax bills spanning from 2004-2016 were included in the spending bill, none of which specifically address the TCJA. Included among the fixes are technical corrections to the partnership audit rules.

IRS Funding
The legislation provides the IRS with $11.43 billion in funding, close to $196 million more than currently enacted levels. $320 million is allocated specifically for implementation of the TCJA. The Trump administration had requested $397 million for implementation of the new tax law. According to Treasury Secretary Steven Mnuchin, the increased resources would provide an update to antiquated telephone systems and technology.

White House
President Trump rattled Capitol Hill on March 23 when he announced just hours before government funding was set to expire that he may not sign the government spending bill. Although Mick Mulvaney, Director of the Office of Management and Budget (OMB) said on March 22 that the President would sign the omnibus package, President Trump took to Twitter on March 23 to suggest otherwise. "I am considering a veto of the omnibus spending bill…," Trump said in a tweet.

While Trump did, in fact, wind up signing the spending bill, which tops 2,200 pages, he told reporters at the White House that he was "unhappy" to do so. Trump criticized the $1.3 trillion omnibus package for being the second largest in history. "I say to Congress, I will never sign another bill like this again. I’m not going to do it again. Nobody read it. It’s only hours old," Trump said.

The American Institute of CPAs (AICPA) has renewed its call for immediate guidance on new Code Sec. 199A. The AICPA highlighted questions about qualified business income (QBI) of pass-through income under the Tax Cuts and Jobs Act ( P.L. 115-97). "Taxpayers and practitioners need clarity regarding QBI in order to comply with their 2018 tax obligations," the AICPA said in a February 21 letter to the Service.

The American Institute of CPAs (AICPA) has renewed its call for immediate guidance on new Code Sec. 199A. The AICPA highlighted questions about qualified business income (QBI) of pass-through income under the Tax Cuts and Jobs Act ( P.L. 115-97). "Taxpayers and practitioners need clarity regarding QBI in order to comply with their 2018 tax obligations," the AICPA said in a February 21 letter to the Service.

New Deduction
The Tax Cuts and Jobs Act created Code Sec. 199A. The deduction is temporary and begins this year.

Generally, qualified taxpayers may deduct up to 20 percent of domestic QBI from a partnership, S corporation or sole proprietorship. Congress put in place a limitation based on wages paid, or on wages paid plus a capital element, among other requirements. Certain service trades or businesses generally may not take advantage of the deduction but there are exceptions.

Almost immediately after passage of the new tax law, the AICPA and other tax professional groups urged on the IRS to move quickly on guidance. Recently, the National Society of Accountants (NSA) reported that the IRS would issue guidance on Code Sec. 199A this summer.

Immediate Concern
The AICPA identified several areas of immediate concern. They are:

• Definition of Code Sec. 199A qualified business income.
• Aggregation method for calculation of QBI of pass-through businesses.
• Deductible amount of QBI for a pass-through entity with business in net loss.
• Qualification of wages paid by an employee leasing company.
• Application of Code Sec. 199A to an owner of a fiscal year pass-through entity ending in 2018.
• Availability of deduction for Electing Small Business Trusts (ESBTs).

Services
The AICPA asked the IRS to describe what activities are included in the definition of a services trade or business. "The guidance should clarify that the definition of the term ‘accounting services’ includes any services associated with the determination of tax liabilities including preparation, tax planning, cost segregation services, services rendered with respect to tax credits and deductions, and similar consultative services,"the AICPA told the Service.

A top House tax writer has confirmed that House Republicans and the Trump administration are working on a second phase of tax reform this year. House Ways and Means Committee Chairman Kevin Brady, R-Tex., said in an interview that the Trump administration and House Republicans "think more can be done."

A top House tax writer has confirmed that House Republicans and the Trump administration are working on a second phase of tax reform this year. House Ways and Means Committee Chairman Kevin Brady, R-Tex., said in an interview that the Trump administration and House Republicans "think more can be done."

A Ways and Means spokesperson told Wolters Kluwer on March 15 that "there are opportunities in making individual tax cuts permanent, increasing innovation, [and] encouraging household savings."Confirmation that House GOP tax writers are mulling additional tax changes to the tax code comes just days after President Trump announced that he and House Republicans are very serious about working on a “phase-two” of tax reform. Trump quipped that Brady is the "king of tax cuts."

Individual Tax Cuts
Among expected changes, in particular, the temporary individual tax cuts enacted under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) could be made permanent, a Ways and Means spokesperson told Wolters Kluwer. For budgetary reasons, the cuts to individual tax rates and benefits were not made permanent under the new law. "While the tax cuts for families were long-term, they are not yet permanent, so we’re going to address issues like that," Brady said.

Criticism
Democratic lawmakers remain largely united in their criticisms of the TCJA. House Minority Leader Nancy Pelosi, D-Calif., criticized the new tax law in a March 15 news conference for "giving 83 percent of the benefits to the top 1 percent, ultimately raising taxes for 86 million middle-class families while contending that it's a middle-class tax cut."

To that end, across the U.S. Capitol, Senate Minority Leader Charles E. Schumer has said Democrats would be reluctant to work with Republicans in making any fixes to the new tax law unless Republicans would be willing to address Democrats’ concerns with the law, as well. "We don't have much of an inclination, unless they want to open up other parts of the tax bill that we think need changes, to just help them clean up the mess they made," Schumer said.

Looking Forward
"Mainstream optimism is at record levels, our economy is really gaining momentum and booming in a big way," Brady said. "We’re always looking to improve the tax code," he said, adding that lawmakers are currently considering new ideas for tax reform. "We think there are some good ones." Lawmakers will not combine additional tax reform measures with technical corrections to the existing TCJA, according to Brady, emphasizing that any significant changes to come will be new ideas.

The House Ways and Means Tax Policy Subcommittee held a March 14 hearing in which lawmakers and stakeholders examined the future of various temporary tax extenders post-tax reform. Over 30 tax breaks, which included energy and fuel credits, among others, were retroactively extended for the 2017 tax year in the Bipartisan Budget Act ( P.L. 115-123) enacted in February.

The House Ways and Means Tax Policy Subcommittee held a March 14 hearing in which lawmakers and stakeholders examined the future of various temporary tax extenders post-tax reform. Over 30 tax breaks, which included energy and fuel credits, among others, were retroactively extended for the 2017 tax year in the Bipartisan Budget Act ( P.L. 115-123) enacted in February.

Both Republican and Democratic lawmakers have varying views on specific temporary tax provisions, but in general, seem to have largely been in agreement that year-end tax extenders are not good policy. New to the discussion, however, is whether such provisions are worthwhile now that business tax rates have been lowered along with full and immediate expensing under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).

New Path Forward
The Ways and Means Committee is "charting a new path forward on temporary tax provisions,"Chairman Kevin Brady, R-Tex., said in his opening statement. "Temporary measures are rarely good tax policy."

According to Brady, numerous tax extenders only exist because of the previously outdated tax code and high tax rates. But now that tax reform has been enacted, these temporary tax breaks may serve less of a purpose. "Starting now, we’re going to apply a rigorous test to these temporary provisions,"Brady said.

To that end, Tax Policy Subcommittee Chairman Vern Buchanan, R-Fla., said that any temporary tax provision determined as no longer necessary post-tax reform should be eliminated. And, as for those that continue to serve an important role and enhance tax reform, permanence should be considered.

Tax Policy Subcommittee ranking member Lloyd Doggett, D-Tex., also weighing in on the issue, said that any temporary tax provisions that will remain need to be paid for moving forward. Additionally, Doggett criticized Republicans for not holding enough hearings on the TCJA, as well as the specific tax extenders currently under review. Doing so, he added, would enable needed discussion on relevancy as well as pay-fors.

Panels
Witnesses at the hearing were grouped into four panels, three of which consisted of several representatives from various industries including fuel, energy, and real estate. The other included witnesses from several think tanks and research organizations.

Generally, industry stakeholders argued that many of these temporary tax breaks remain important, even after tax reform. Buchanan, however, repeatedly asked witnesses why additional incentives were needed after tax cuts and full expensing were provided through tax reform under the TCJA. Several Republican lawmakers, including Buchanan, stated that tax provisions only add to the uncertainty of the tax system.

Several industry witnesses argued, in essence, that not all tax extenders are created equally and should thus be evaluated individually. Barry Grooms, testifying on behalf of the National Association of Realtors, told lawmakers that the tax exclusion for forgiven mortgage debt is unique and should be made a permanent part of our tax law. "Since it was first added to the Internal Revenue Code in 2007, this provision has provided much-needed financial relief for millions of distressed households,"Grooms testified. This exclusion makes the tax system fairer, Grooms added, stating that it provides assistance to families experiencing hardships.

Policy
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told lawmakers that tax extenders are generally poor policy and that most should be allowed to sunset. According to MacGuineas, not only do tax extenders add to the federal deficit, the temporary nature of tax extenders makes it difficult for businesses and individuals to plan and invest. "To be sure, there are sometimes legitimate reasons for temporary tax policy – to respond to a natural disaster or economic downturn, to test effectiveness, or to provide transition relief – but most of the tax extenders are temporary simply to hide their budgetary cost," MacGuineas testifed.

Likewise, David Burton, senior fellow in economic policy at The Heritage Foundation, spoke to the costliness of tax extenders. Burton testified that 13 energy tax extenders are unwarranted. "At roughly $53 billion over ten years, the revenue lost from these provisions is substantial," Burton included in his written testimony. Additionally, Burton told lawmakers that tax extenders make the tax system less fair.

Seth Hanlon, senior fellow at the Center for American Progress, criticized Congress for not addressing tax extenders in the TCJA. Furthermore, Hanlon told lawmakers that tax extenders not only make the tax code more unstable and add to the federal deficit, but also complicate the IRS’s job during filing season.

"Congress should have ended the gimmicky routine on tax extenders long ago, and certainly should have done so in legislation that was billed as a once-in-a-generation tax reform," Hanlon testified. "But, better late than never."

The IRS has released Frequently Asked Questions (FAQs) to address a taxpayer’s filing obligations and payment requirements with respect to the Code Sec. 965 transition tax, enacted as part of the Tax Cuts and Jobs Creation Act ( P.L. 115-97). The instructions in the FAQs are for filing 2017 returns with an amount of Code Sec. 965 tax. Failure to follow the FAQs could result in difficulties in processing the returns. Taxpayers who are required to file electronically are asked to wait until April 2, 2018, to file returns so that the IRS can make system changes.

The IRS has released Frequently Asked Questions (FAQs) to address a taxpayer’s filing obligations and payment requirements with respect to the Code Sec. 965 transition tax, enacted as part of the Tax Cuts and Jobs Creation Act ( P.L. 115-97). The instructions in the FAQs are for filing 2017 returns with an amount of Code Sec. 965 tax. Failure to follow the FAQs could result in difficulties in processing the returns. Taxpayers who are required to file electronically are asked to wait until April 2, 2018, to file returns so that the IRS can make system changes.

In general, Code Sec. 965 imposes a one-time tax on the untaxed post-1986 foreign earnings of foreign subsidiaries of U.S. shareholders by deeming the earnings to be repatriated. The foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and remaining earnings are taxed at an 8 percent rate. The taxpayer may elect to pay the tax in installments over eight years.

Amounts must be reported by a U.S. shareholders of deferred foreign income corporation (DFIC) or by a direct or indirect partner in a domestic partnership, a shareholder in an S corporation, or a beneficiary of another passthrough entity that is a U.S. shareholder of a DFIC.

The Appendix to Q&A 2 contains a table that describes, separately for individuals and entities, how items should be reported on the 2017 tax return. For example, an individual reports the Code Sec. 965(a) amount on Form 1040, Line 21, with the notation SEC 965 on the dotted line to the left of the Line.

A person with income under Code Sec. 965 is required to include with its return an IRC 965 Transition Tax Statement, signed under penalties of perjury, and in the case of an electronically filed return, in pdf format with the filename 965 tax. A Model statement is provided. Adequate records must be kept supporting the Code Sec. 965 inclusion amount, the deduction under Code Sec. 965(c), the net tax liability under Code Sec. 965, and any other underlying calculations of these amounts.

The FAQs provide details on how to make the multiple Code Sec. 965 elections, including the election to pay the tax in installments over eight years. For each election, a statement must be attached to the return and signed under the penalties of perjury, and in the case of an electronically filed return, in pdf format.

Form 5471 must also be filed with the 2017 return of a U.S. shareholder of a specified foreign corporation, regardless of whether the specified foreign corporation is a controlled foreign corporation. A statement containing information about the Code Sec. 965(a) inclusion must be attached to the Schedule K-1s of domestic partnerships, S corporations, or other passthrough entities.

Tax must be paid in two separate payments. One payment will reflect the tax owed, without Code Sec. 965. The second payment is the Code Sec. 965 payment. Both payments must be made by the due date of the applicable return (without extensions). Additional details for paying the tax are provided in the FAQs.

Persons who have already filed a 2017 tax return should consider filing an amended return based on the information in these FAQs and Appendices.

The U.S. Supreme Court reversed an individual’s conviction for obstructing tax law administration. The government failed to show that the individual knew that a "proceeding" was pending when he engaged in the obstructive conduct.

The U.S. Supreme Court reversed an individual’s conviction for obstructing tax law administration. The government failed to show that the individual knew that a "proceeding" was pending when he engaged in the obstructive conduct.

Background
The individual owned and operated a freight service that transported items to and from the United States and Canada. The government charged the individual with violating the "omnibus clause" of Code Sec. 7212(a), which imposes criminal liability on anyone who "in any other way corruptly … obstructs or impedes, or endeavors to obstruct or impede, the due administration of" the Internal Revenue Code (Title 26).

The government alleged that the individual obstructed tax administration because he: (1) failed to maintain corporate books and records; (2) failed to provide his accountant with complete and accurate tax information; (3) destroyed business records; (4) was hiding income; and (5) was paying employees with cash. At trial, the jury was instructed that it must unanimously find that he corruptly engaged in one of the practices listed. However, the jury was not instructed that it had to find that the individual knew he was under investigation and intended to interfere with that investigation. Subsequently, the jury convicted the individual on all counts. Then, the Second Circuit Court of Appeals affirmed his conviction.

Tax Law Administration
The Supreme Court reversed and remanded. According to the Court, the verbs "obstruct" and "impede" require an object. Therefore, the taxpayer must hinder a particular person or thing. Moreover, the omnibus clause serves as a "catchall" for the obstructive conduct, not as a catchall for every violation that interferes with tax law administration.

Nothing in the statute’s history suggested that Congress intended the omnibus clause to apply to the entire Internal Revenue Code, including the routine processing of tax returns, tax payments and tax refunds. Further, if the omnibus clause applied to all tax law administration, many tax misdemeanors might turn into felonies and make specific criminal provisions in the Code redundant. Accordingly, the phrase "due administration of" the tax code referred only to some acts, not everything the IRS does.

Overly Broad Interpretation
A broad interpretation of the omnibus clause would also risk the lack of fair warning. Interpreted broadly, the provision could apply to a person who paid a babysitter in cash without withholding taxes, left a large cash tip in a restaurant, failed to keep donation receipts, or failed to provide every record to their accountant. Such individuals may know they are violating an IRS rule. However, they would not think they could be prosecuted for obstruction. Further, if Congress intended that outcome, it should have made that clear in the statute.

Government’s Argument
Further, the Court rejected the government’s argument that the need to show the obstructive conduct was corrupt cured any overbreath problem. However, a taxpayer who "willfully" violates the tax code intends someone to obtain an unlawful advantage. Moreover, relying upon prosecutorial discretion to narrow an otherwise overbroad statute puts too much power in the hands of the prosecutor, and risks undermining public confidence in the criminal justice system. Therefore, to secure a conviction under the omnibus clause, the government was required to show that there was a nexus between the individual’s conduct and an investigation, audit or other targeted administrative action.

Reversing and remanding a CA-2 decision 2016-2 ustc ¶50,453.

Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. The new Pension Protection Act cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."

Good used or better condition

The new law does not define good or better condition. For guidance, you can look to the standards that many charities already have in place. Many charities will not accept your donations of clothing or household items unless they are in good or better condition.

Clothing cannot be torn, soiled or stained. It must be clean and wearable. Many charities will reject a shirt with a torn collar or a jacket with a large tear in a sleeve. As one charity spokesperson summed it up, "Don't donate anything you wouldn't want to wear yourself." 

Household items include furniture, furnishings, electronics, appliances, and linens, and similar items.  Food, paintings, antiques, art, jewelry and collectibles are not household items. Household items must be in working condition. For example, a DVD player that does not work is not in good used or better condition. You can still donate it (if the charity will accept it) but you cannot claim a tax deduction. Household items, particularly furnishings and linens, must be clean and useable. 

The new law authorizes the IRS to deny a deduction for the contribution of a clothing or household item that has minimal monetary value. At the top of this list you can expect to find socks and undergarments, which have had inflated values for years.

Fair market value

You generally can deduct the fair market value of your donation. Unless your donation is new - for example, a blouse that has never been worn - its fair market value is not what you paid for it. Just like when you drive a new car off the dealer's lot, a new item loses value once you wear or use it.  Therefore, its value is less than what you paid for it.  

If you're not sure about an item's value, a reputable charity can help you determine its fair market value. Our office can also help you value your donations of used clothing and household items.

Get a receipt

Generally, you must obtain a receipt for your gift. If obtaining a receipt is impracticable, for example, you drop off clothing at a self-service donation center, you must maintain reliable written information about the contribution, such as the type and value of the property.

Charitable contributions of property of $250 or more must be substantiated by obtaining a contemporaneous written acknowledgement from the charity including an estimate of the value of the items. If your deduction for noncash contributions is greater than $500, you must attach Form 8283 to your tax return. Special rules apply if you are claiming a deduction of more than $5,000.

Exception

In some cases, the new rules about good used or better condition do not apply. The restrictions do not apply if a deduction of more than $500 is claimed for the single clothing or household item and the taxpayer includes an appraisal with his or her return.

If you have any questions about the new charitable contribution rules for donations of clothing and household items, give our office a call. The new rules apply to contributions made after August 17, 2006.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.

Buying

Advantages.

• You own the car at the end of the loan term.
• Lower insurance premiums.
• No mileage limitations.

Disadvantages.

• Higher upfront costs.
• Higher monthly payments.
• Buyer bears risk of future value decrease.

Leasing

Advantages.

• Lower upfront costs.
• Lower monthly payments.
• Lessor assumes risk of future value decrease.
• Greater purchasing power.
• Potential additional income tax benefits.
• Ease of disposition.

Disadvantages.

• You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
• Higher insurance premiums.
• Potential early lease termination charges.
• Possible additional costs for abnormal wear & tear (determined by lessor).
• Extra charges for mileage in excess of mileage specified in your lease contract.

Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:

How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.

How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.

How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.

If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.