Tag Archives: IRS operations

Partnership Audits Increase; Other Business Audits Drop In FY 2014

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

Just released IRS audit coverage statistics show a slight increase in audits of partnerships, but decreases in audits of large corporations and S corporations in fiscal year (FY) 2014. For all types of businesses, the FY 2014 audit coverage rate was 0.57%, representing a decline from 0.71% in FY 2012 and 0.61% in FY 2013.

Audits of large corporations experienced the steepest decline, according to the IRS, but must balance its audit work with available resources.

Partnerships

Unlike other categories, audits of partnerships increased in FY 2014. In FY 2013, the audit coverage rate for partnerships was 0.42%. The audit coverage rate for partnerships increased slightly to 0.43% in FY 2014.

Since FY 2007, the audit coverage rate for partnerships has been in the neighborhood of 0.40%, the IRS reported.

Large and small corporations

For large corporations (corporations with assets more than $10 million), the audit coverage rate in FY 2014 was 12.23%, compared to 15.84% in FY 2013 and 17.78% in FY 2012. The FY 2014 audit coverage rate was 0.95% for small corporations (corporations with assets less than $10 million). The rate was unchanged from FY 2013 but reflected a decline from FY 2012, when the audit coverage rate for small corporations was 1.12%.

IRS highlighted the decline in audits of large corporations. Audits for corporations with more than $10 million in assets fell by 20% between FY 2013 and FY 2014.  Audits for large corporations are at the lowest rates in a decade.

S corporations

The IRS also reported that audits of S corporations declined. The audit coverage rate for S corporations in FY 2014 was 0.36%, reflecting a decline from 0.42% in FY 2013, and a decline from 0.48% in FY 2012.

Impact of budget cuts

IRS Commissioner Koskinen attributed the decline in audit coverage to recent cuts in the agency’s budget. The IRS budget has fallen by more than $1.2 billion in the last five years. Like overall IRS staffing, the number of compliance employees who conduct audits has also fallen sharply during this period.

The Consolidated and Further Continuing Appropriations Act, 2015 reduced the agency’s FY 2015 budget by approximately $346 million. President Obama has proposed to fund the IRS at $12.9 billion for FY 2016, reflecting a $2 billion increase over FY 2015. This would help the IRS stop this decline in enforcement efforts and help improve critical taxpayer services, Koskinen predicted. Koskinen is scheduled to testify before House and Senate panels this week about the agency’s FY 2016 budget request.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for business owners and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

IRS Issues 2015 Inflation-Adjusted Vehicle Depreciation Dollar Limits

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

The IRS has released the inflation-adjusted limitations on depreciation deductions for business use passenger automobiles, light trucks, and vans first placed in service during calendar year 2015. The IRS also modified the 2014 limitations to reflect passage of the Tax Increase Prevention Act of 2014 late last year.

At the end of 2014, Congress extended bonus depreciation to the 2014 tax year in the case of passenger vehicles. Congress has not, however, done the same for passenger vehicles placed in service during 2015. This means that although several of the 2015 limits have been adjusted upward for inflation, the total amount a taxpayer may deduct for a vehicle placed in service during 2015 will be effectively $8,000 lower than for a vehicle placed in service during 2014, unless Congress again provides retroactive relief this year.

Depreciation limits

The Internal Revenue Code imposes dollar limitations on the depreciation deduction for the year the taxpayer places the vehicle in service in its business, and for each succeeding year.  The IRS adjusts for inflation the amounts allowable for depreciation deductions.

Passenger automobiles

The maximum depreciation limits for passenger automobiles first placed in service during the 2015 calendar year are:

  • $3,160 for the first tax year;
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  • $1,875 for each succeeding tax year.

Trucks and vans

The maximum depreciation limits under for trucks and vans first placed in service during the 2015 calendar year are:

  • $3,460 for the first tax year;
  • $5,600 for the second tax year;
  • $3,350 for the third tax year; and
  • $1,975 for each succeeding tax year.

Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempt from the luxury vehicle depreciation caps based on a loophole in the operative definition.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for business owners and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

Top Tax Developments of 2014 with Impact on 2015

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

2014 was a notable year for tax developments on a number of fronts. Selecting the top tax developments for 2014 requires judgment calls based upon uniqueness, taxpayers affected, and forward looking impact on 2015 and beyond. With respect to David Letterman, the following list of 2014 tax developments reflects this prioritization in no particular order.

Passage of the Extenders Package
2014 was not a year for major tax legislation in Congress. In fact, Congress even failed to pass its usual two-year extenders package, instead settling on a one-year retroactive extension to January 1, 2014. As one senator put it, “This tax bill doesn’t have the shelf life of a carton of eggs,” referring to the fact that the 50-plus extenders provisions expired again on January 1, 2015. Instead, it has been left to the 114th Congress to debate the extension of these tax breaks in 2015 and beyond, and for taxpayers to guess what expenses in 2015 will again be entitled to a tax break.

Affordable Care Act
In many ways, 2014 was a transition year for the Affordable Care Act. One of the most far reaching requirements, known as the “individual mandate”, took effect on January 1, 2014. Unless exempt, individuals who fail to carry minimum essential health coverage will make a shared responsibility payment in 2015. Another key provision, the “employer mandate”, was further delayed to 2015. Employer reporting for 2014 is voluntary. The IRS also developed new forms for reporting many new requirements.

Repair Regulations
In 2014, the IRS finished issuing the necessary guidance on the treatment of costs for tangible property under the sweeping “repair” regulations. The most important development was the issuance of final regulations on the treatment of dispositions of tangible property, including the identification of assets, the treatment of dispositions, and the computation of gain and loss. The complexity of the repair regulations has not gone unnoticed by many tax professionals, who have asked the IRS to simplify some of the provisions.

IRS Operations
IRS predicted a complex and challenging 2015 filing season due to cuts in the Service’s funding. This dictates the Service having to do more with less because of budget cuts. The IRS is funded $1.5 billion below the amount requested. IRS could face another round of budget cuts under the new Republican controlled Congress for 2016.

Net Investment Income Tax
Many higher income individuals were surprised to learn the full impact of the net investment income tax (“NII”) on their overall tax liability during the 2014 filing season when their 2013 returns were filed. Starting in 2013, taxpayers with qualifying income have been liable for the 3.8 percent net investment income tax. Recent run ups in the financial markets, combined with the fact that the thresholds are not adjusted for inflation, have increased the need to implement strategies that can avoid or minimize the NII tax.

Retirement Planning
A number of changes were made during 2014 affecting IRAs and other qualified plans, which cumulatively rise to the level of a “top tax development” for 2014:

  • Distributions from a qualified retirement plan account are now able to have the taxable and non-taxable portions of the distribution directed to separate accounts.
  • 401(k) plans can now offer deferred annuities through target date funds.
  • A Tax Court ruling held that a taxpayer is limited to one 60-day rollover per year for all IRA accounts rather than one 60-day rollover per year for each IRA account. The IRS stated that the new interpretation of the rollover rules would be applied to rollover distributions received on or after January 1, 2015.
  • A 2014 Supreme Court decision found that inherited IRA accounts were not retirement assets and therefore not subject to creditor protection under the Bankruptcy Code.
  • The IRS announced the 2015 cost-of-living adjustments for qualified plans. Many retirement plan contribution and benefit limits increase slightly in 2015.

Identity Theft
Although clearly not confined to the area of Federal tax, identity theft has been a major issue for both the IRS and taxpayers. In 2014, the IRS put new filters in place and took other measures to curb tax related identity theft. The agency also worked with software developers, financial institutions and the prepaid debit card industry to combat identity theft.

Tax Reform
Although 2014 was clearly not the year for tax reform, the foundations for serious tax reform discussions were laid in 2013 and 2014. Looking ahead to 2015 and beyond, it is possible that Congress will complete some form of tax reform in 2015 or 2016.  The major difference of opinion, however, surrounds whether or not the reform would only address corporate tax provisions or also include individual provisions. Many leaders have called for tackling comprehensive tax reform on both the business and individual side. The Senate Finance Committee expects to hold tax reform hearings in 2015.

Conclusion
So what does this all mean? To continue the theme from the last few years, the tax world is ever evolving with increased complexity. Both current and long term planning is as essential as ever. Other 2014 developments may prove more significant to your particular situation.  Be sure to seek advice from a dental specific tax accountant to discuss your unique circumstances.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com