IRS Notice Provides Penalty Relief to Certain Partnership Return Filing Taxpayers

by Monte L. Schatz

The IRS has issued Notice 2017-47 that provides penalty relief to partnerships that filed certain untimely returns or untimely requests for extension of time who filed those returns for the first taxable year that began after December 31, 2015.

Section 2006 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Surface Transportation Act), Public Law 114–41, 129 Stat. 443 (2015), amended section 6072 of the Internal Revenue Code (the Code) and changed the date by which a partnership must file its annual return. The due date for filing the annual return of a partnership changed from the fifteenth day of the fourth month following the close of the taxable year (April 15 for calendar-year -2- taxpayers) to the fifteenth day of the third month following the close of the taxable year (March 15 for calendar-year taxpayers). The new due date applies to the returns of partnerships for taxable years beginning after December 31, 2015.

Many partnerships failed to timely file their various partnership returns (1065, 1065-B, 8804, 8805 or 7004 Extension requests for any of the other various partnership returns).  The assumption of these taxpayers was that the normal deadlines for their 2016 Partnership returns applied (namely April 18, 2017 for the actual returns and September 15, 2017 for those that filed the Form 7004 extension for any of these returns).    Normally in these circumstances the taxpayer is subject to late filing penalties; however, the new filing deadlines shortening the return filing period by one month resulted in many taxpayers filing late returns and the IRS has provided relief for those late filed returns.

The IRS in Notice 2017-47 has announced relief will be granted automatically for penalties for failure to timely file Forms 1065, 1065-B, 8804, 8805, and any other returns, such as Form 5471, for which the due date is tied to the due date of Form 1065 or Form 1065-B. Partnerships that qualify for relief and have already been assessed penalties can expect to receive a letter within the next several months notifying them that the penalties have been abated.  For reconsideration of a penalty covered by this notice that has not been abated by February 28, 2018, contact the number listed in the letter that notified you of the penalty or call (800) 829-1040 and state that you are entitled to relief under Notice 2017-47.

SOURCE: IRS Guidewire Issue Number N-2017-47

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IRS’s Large Business & International Division to Implement Campaigns

The Internal Revenue Service (“IRS”) Large Business and International (“LB&I”) division recently announced the roll-out of thirteen campaigns as part of the IRS’s examination process.  A campaign is an issue-based compliance process that centers on focused examinations.  These campaigns cover a range of topics, including positions on related party transactions and S Corporation losses claimed in excess of basis.  Campaigns are a new approach to enforcement by the IRS that the IRS hopes will identify the most serious tax administration risks, create specific plans to move toward compliance, and effectively deploy IRS resources.  A taxpayer can be the subject of multiple campaigns during an examination.

The IRS will issue “soft letters” to some taxpayers, in which the IRS identifies the campaign issue and indicates the taxpayer’s return appears to include this position.  The letter will articulate the IRS’s legal position and ask whether the taxpayer agrees to change its position by amending the return.  Soft letters will not be released publicly.

The IRS recently informed taxpayers that the receipt of a soft letter does not mean the IRS has opened an examination.  Further, taxpayers are not required to respond to the letters.  However, failure to respond could lead to an examination.

Taxpayers should be aware that this new approach means businesses and high-net-worth individuals dealing with any of the identified issues may face increased IRS audit risk.  These taxpayers should work with their legal advisors to avoid or prepare for IRS challenges.

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IRS Shuts Down E-file PIN Tool

In response to recent cyber-attacks on the Electronic Filing PIN App (“e-file PIN”), the Internal Revenue Service (“IRS”) announced the e-file PIN capability is no longer available online or through the toll-free phone service.  Prior to the shutdown, taxpayers could use the e-file PIN tool as an alternative method for signature verification on individual tax returns.

In February, the IRS announced that criminals attacked the system and accessed more than 100,000 e-file PIN numbers, but did not steal taxpayer information.   The IRS did not close down the system at that time and instead elected to provide more security, noting the program’s application programming interface was embedded in most commercial return preparation software and a shutdown would cause a major disruption.  The IRS planned to shut down the program later this year, but additional attacks prompted an earlier shut down.

The IRS reports that only a small number of taxpayers used the e-file PIN tool, so the effect on taxpayers should be minimal.  Most taxpayers opted to use their adjusted gross income from their prior-year tax return to authenticate their returns.  Taxpayers who have not filed their tax returns this year and need a replacement e-file PIN will need assistance from their respective tax software providers.

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Small Business Health Care Tax Credit

As a result of the Affordable Care Act (ACA), qualified small employers may be eligible to receive a tax credit for a portion of the health insurance premiums paid on behalf of their employees. The Internal Revenue Service recently released a reminder regarding the credit.

There are several requirements for small businesses to qualify for the credit. The small business must have fewer than twenty-five (25) full time equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of the employee health insurance premiums. Additionally, the employers must be enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace, or meet certain exceptions to the requirement.

The maximum credit is 50% of the premiums paid. Portions of the credit are phased out for employers paying employees over $25,000 and employers with more than 10 full time employees. The credit may not be claimed for more than two consecutive years.

If your business might qualify for the Small Business Health Care Tax Credit, a calculator is available through Healthcare.gov to estimate your tax credit, see https://www.healthcare.gov/shop-calculators-taxcredit/

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As Small Business Week Ends, A Reminder of a Few Resources Available to Entrepreneurs

As small business week comes to a close, including special resources and webinars available at various federal government entities only during the week, a variety of different resources remain available for the entrepreneur from the federal government. For example, the resources at the Internal Revenue Service (IRS) include instructional publications, tax calculators, and informational videos on the varied tax requirements for small business. Further information can be found at the following link: https://www.irs.gov/uac/IRS-Marks-Small-Business-Week-2016-with-Four-Webinars

The Small Business Administration (SBA) also offers a variety of resources for a small business, including information ranging from securing a SBA loan to creating a business plan. During small business week, the SBA hosts informational webinars about issues facing entrepreneurs, most notably securing capital to operate and grow. Further information from the SBA can be found at the following link: https://www.sba.gov/nsbw/

For those entrepreneurs in Nebraska, the state offers resources through the Department of Economic Development. Information about local taxes, lenders, and business registration in Nebraska can be found at the following link: http://www.neded.org/business/start-a-business

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Initial Steps for Victims of Tax Related Identity Theft

As the 2016 tax season comes to a close, many taxpayers may have discovered they were victims of identity theft. Taxpayers often discover that they have been a victim of identity theft after they receive information that a tax return has already been filed using their social security number. If you are e-filing and a return has already been filed, your filing will likely be rejected. If the IRS suspects identity theft, you will receive Letter 5071C, which will request you verify your identity. Such verification can be completed online at https://idverify.irs.gov/IE/e-authenticate/welcome.do.

 After discovering that you have been a victim of identity theft, you should take multiple actions to protect your identity and correct any fraudulent returns with the IRS. It is recommended that you contact the FTC at identitytheft.gov and contact one of the major credit bureaus to place a fraud alert on your credit. If you have received a notice from the IRS or your attempt to e-file a return was denied, you should immediately contact the IRS. If your e-filing has been denied and you believe it is related to identity theft, you must complete Form 14039, Identity Theft Affidavit. Form 14039, a paper copy of your return, and any required payment of tax should be mailed to the IRS.

 If issues persist related to any fraudulently filed tax returns, additional information can be obtained from the IRS’s website, https://www.irs.gov/, or by contacting Vandenack Williams LLC.

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