July 6, 2018
New "Postcard-Sized" IRS Form 1040 is Smaller, but No Less Complicated
(CBS News) June 26, 2018 – The government has succeeded in shrinking Americans' most common tax form down to one page -- but it hasn't necessarily made the IRS Form 1040 less complicated.
A "postcard-sized" Form 1040 was a major selling point of the administration's divisive tax cuts. President Trump even kissed a version of a postcard at one meeting to show his approval.
But experts say that while the law does simplify the process for some Americans, many will still have to go through the same or similar hoops to complete their taxes with this new format.
"Don't confuse creating a postcard with simplifying a tax filing, it's not the same thing at all," said Howard Gleckman, a senior fellow at the Tax Policy Center.
The legwork to claim many popular deductions and provide other critical information has been moved off the tax form to one of six accompanying worksheets. Gleckman said that most taxpayers are going to have to fill out one, if not more, of the new accompanying forms. And the new structure makes some beneficial components of tax law, such as the ability to claim the earned income tax credit -- which is designed to help low- to moderate-income working people -- harder to find.
The new form is intended to replace the Form 1040, Form 1040A and Form 1040EZ (which already takes up a single page). About three-quarters of taxpayers currently use one of those three forms.
The tax law greatly increases the standard deduction, meaning that millions of Americans will simply claim the deduction and skip the time-consuming process of itemizing on their taxes. The Tax Policy Center estimates that about 27 million fewer taxpayers will itemize under the new law. But taxpayers may still need to crunch the numbers to see if they should itemize or not. And an estimated 19 million filers will continue to itemize, according to TPC, so they will still need to fill out one or more of the six additional forms.
The supplemental paperwork would be needed to make common tax moves, such as a reporting an educator expense or claiming a deduction for interest paid on a student loan, as well as reporting childcare expenses and retirement savings contribution credits.
It's likely that the bulk of taxpayers won't notice much of a difference, since more than 90 percent complete their taxes online. That means they still answer all the same questions regardless of how the paperwork is laid out.
"I am not sure this is going to make a whole lot of difference," Gleckman said.
The Treasury Department was expected to unveil the new form this week and did not immediately comment on the draft document to the AP. The IRS also did not comment.
How Tax Reform Impacts Worker Classification
(AccountingWEB) By January Colandrea, June 26, 2018 – For years, being an independent contractor meant paying more taxes, but with the 2017 tax reform changes the classification of independent contractor may be a much better choice.
Before your clients take the plunge into self-employment status or switch employees to independent contractors, here are some key points to help your clients understand their classification decisions, resulting tax effects and what happens if they make the wrong classification.
Defining the Classifications
Each year, the IRS updates Publication 15A, Employer’s Supplemental Tax Guide, with a section entitled “Who Are Employees?” A worker’s status is determined based on the degree of control in three categories:
- Behavioral Control – Facts that show whether the business has a right to direct and control how the worker does the tasks for which the worker is hired. If the business is telling you what to do, when to do it and how to do it, you are probably an employee.
- Financial Control – Facts that show whether the business has a right to control the business aspects of the worker’s job. If you are not experiencing the same business pressures an owner would feel, you are probably not running your own business and are, in reality, an employee.
- Type of Relationship – Facts that show the parties’ type of relationship. Independent contractors are free to work wherever and for whomever. If someone is dictating these facets to you, then you are probably an employee.
- Impact of Tax Reform
The TCJA includes a new 20 percent pass-through deduction, available for pass-through business owners such as S-Corporations, LLCs and partnerships, but is also available to independent contractors. The pass-through deduction is calculated as the lessor of:
- 20 percent of qualified business income, net of business expenses; or
- 20 percent of the difference between taxable income (prior to the pass-through deduction) and any capital gains
However, there are some income limitations. If your client has more than $157,500 filing individual or $315,000 married filing jointly in total taxable income, prior to the pass-through deduction, they will be subject to one or more income limitations, including the wage and property limit, and the service businesses limit.
Before helping clients make any switches, keep in mind there are consequences to making an incorrect classification. Making an incorrect classification of independent contractor when workers are employees can cause the worker to be held responsible for all back federal and state payroll taxes, unemployment taxes, and employment benefits.
To best assure a favorable outcome in the event of tax scrutiny, encourage clients to:
- Have written contracts or arrangements with independent contractors
- Have an attorney review all documents
- If need be, request assistance from the IRS in determining status by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Guiding your clients through tax reform is good for you and good for them; it positions you as a trusted advisor and could lower their tax liability!
U.S., U.K., Canada, Australia and Netherlands Form International Tax Enforcement Group
(Accounting Today) June 28, 2018 –Leaders of tax enforcement authorities from five countries, including the U.S., U.K., Canada, Australia and the Netherlands, have allied to create the Joint Chiefs of Global Tax Enforcement (or J5 for short), to collaborate in fighting international and transnational tax crimes and money laundering.
Membership of the J5 includes the heads of tax crime and senior officials from Internal Revenue Service Criminal Investigation (IRS CI), Her Majesty’s Revenue & Customs (HMRC) in the U.K., the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), and the Dutch Fiscal Information and Investigation Service (FIOD).
Leaders of the group met in Montreal to formulate their plans. The J5 plans to work together to gather and share information and intelligence, as well as conduct operations and build capacity for tax crime enforcement officials. Areas of focus include cybercrime and cryptocurrency, data analytics, and enablers and facilitators of tax crimes. The alliance will concentrate on building international enforcement capacity, as well as enhancing operational capability by piloting new approaches and conducting joint operations, to bring perpetrators who enable and facilitate offshore tax crime to justice.
“We’re continuing the fight against international offshore tax evasion and money laundering,” said IRS CI chief Don Fort during a conference call with reporters Thursday. He and his colleagues are interested in sharing assets in investigations, using the criminal statutes available to them, although he acknowledged that the laws and privacy protections vary from country to country.
The group formed in response to a call to action from the Organization for Economic Cooperation and Development for countries to do more to tackle the enablers of tax crime. They plan to share their successes, new approaches and findings from their joint efforts with the larger tax enforcement community.
At their initial meeting this week in Montreal, the J5 assembled some of the leading experts in tax and other financial crimes from each of the five member countries. “The countries seated at the table are working together, and we are leaders at the OECD,” said Fort.
Together they are developing tactical plans and have identified some opportunities to pursue cyber criminals and enablers of transnational tax crime. “We spent a lot of time trying to map out what success means to us,” said Fort. They plan to share data, tools and expertise to develop training and skills in cybersecurity within the J5 and with other partners.
Simon York, director of the Fraud Investigation Service at HM Revenue & Customs in the U.K., has seen an evolution in the technologies used by cybercriminals, including cryptocurrency. “What’s changed is them using virtual currencies and the dark web,” he said.
Johanne Charbonneau, director general of the Criminal Investigations Directorate at the Canada Revenue Agency, sees the J5 as a “demonstration of our commitment to cooperation in the fight against international crime.”
The J5 plans to further the effort through the sharing of data and technology, conducting operational activity and taking advantage of collective best practices. Further updates on ongoing J5 initiatives are expected in late 2018.
Growth Abounds but Strained Supply Chain and Tariff Worries: ISM Report
(Industry Week) July 2, 2018 –Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 110th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
“Demand remains robust, but the nation’s employment resources and supply chains continue to struggle,” said. Timothy R. Fiore, chair of the ISM Business Survey. “Committee respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.”.
The June PMI registered 60.2%, an increase of 1.5 percentage points from the May reading of 58.7%.
Other highlights from the report:
- The New Orders Index registered 63.5%, compared to the May reading of 63.7%.
- The Production Index registered 62.3%, compared to the May reading of 61.5%.
- The Employment Index registered 56%, compared to the May reading of 56.3%.
- The Supplier Deliveries Index registered 68.2%, compared to the May reading of 62%.
- The Inventories Index registered 50.8%, compared to the May reading of 50.2%.
- The Prices Index registered 76.8% in June, compared to the May reading of 79.5%, indicating higher raw materials prices for the 28th consecutive month.
With the good news, there are still some challenges. “Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue,” said Fiore.
Here are some comments selected from respondents’ responses:
-- “The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20% since March.” (Fabricated Metal Products)
-- “The uncertainty of U.S. tariffs and the Canada/Mexico/E.U. retaliatory tariffs continues to cloud strategic planning efforts. Contingency planning (for tariffs) is consuming large amounts of manpower that could be used for more productive projects. The tariffs are improving margins in our raw material businesses; however, our businesses which are further up the supply chain are seeing significant inflation.” (Miscellaneous Manufacturing)
--"The steel tariffs continue to drive uncertainty. Projects and services using steel have limited days that prices are good for. Trucking is tight, requiring advanced planning and increasing costs.” (Paper Products)
-- “Business is strong in all regions. Materials are tight. Trucking continues to be a major challenge.” (Chemical Products)
-- “Strong economic growth continues to put pressure/strain on capacity, lead time, availability and pricing across a broadening array of commodities and components.” (Computer & Electronic Products)
-- “U.S. tariff policy and lack of predictability, along with [the] threat of trade wars, [is a] causing general business instability and [is] drag on growth for investments.” (Electrical Equipment, Appliances & Components)
-- “Electronic component supply issues continue to disrupt production.” (Transportation Equipment)
-- “We export to more than 100 countries. We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues (for example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs). Within our company, there is a sense of uncertainty due to potential trade wars.” (Food, Beverage & Tobacco Products)
-- “The economy and product demand still continue to be strong. Having trouble finding people [to fill] blue collar positions. Lead times for parts and materials are moving out, and we are seeing commodity cost pressures increases with the threat of tariffs. Additionally, suppliers are asking for more price increases.” (Machinery)
Not So Fast! How Does Revoking Acceleration of a Note Impact the Statute of Limitations?
(JDSupra) By Benjamin Reeves, July 3, 2018 –
Lenders routinely accelerate notes after a default occurs, calling the entire loan due immediately. Less regularly, a lender may change its mind and unilaterally revoke the acceleration. Rarely, however, does a lender fail to foreclose on its real property collateral before the statute of limitations expires. In Andra R. Miller Designs, LLC v. U.S. Bank, N.A., 244 Ariz. 265, 418 P.3d 1038 (Ct. App. 2018), a unique set of facts involving these issues led the Arizona Court of Appeals to hold that proper revocation of acceleration resets the statute of limitations.
In Miller, a lender made a $1,940,000 loan evidenced by a promissory note and secured by a deed of trust against a home in Paradise Valley, Arizona. The borrower defaulted in September 2008. The default prompted the lender to notice a default, accelerate the note, and initiate a trustee’s sale of the home in 2009. After the lender accelerated the note, the six year statute of limitations began to run. See A.R.S. § 12-548(A)(1) and A.R.S. § 33-816.
Pretty standard facts so far, right? Don’t worry, it gets a bit more convoluted.
Rather than proceed with the sale, however, in 2009 the trustee recorded a notice of cancellation of sale that revoked the acceleration of the debt.
Four years after the trustee cancelled the first trustee’s sale, a homeowners’ association (“HOA”) obtained a judgment authorizing it to foreclose against the house by sheriff’s sale. The HOA, however, did not proceed with foreclosure at that time.
In 2013, the lender accelerated the debt - again - and initiated yet another trustee’s sale of the home. Again, the trustee’s sale did not occur. Instead, in 2014, the trustee recorded a second notice of cancellation of sale that - again - revoked the acceleration of the note.
In December 2014, the lender initiated yet another trustee’s sale. Before it could complete the sale, however, Miller purchased the junior HOA judgment and foreclosed. The day after Miller took ownership of the home, it sued the lender to stop the trustee’s sale from occurring.
Miller argued that the failure to complete a trustee’s sale within six years after the initial acceleration barred the lender from enforcing its lien. The trial court agreed, and entered judgment in favor of Miller. The Court of Appeals reversed, because by revoking the acceleration in 2014, the lender effectively reset the statute of limitations. As such, the lender was not time barred from completing its trustee’s sale when Miller filed suit in 2015.
There’s four points of interest to take from the Miller opinion.
First, the holding itself: although accelerating a note starts the statute of limitations running, revoking the acceleration resets the clock. Miller, 224 Ariz. at 270, 418 P.3d at 1043 (citing Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 495, 930 P.2d 1007, 1009 (Ct. App. 1996)). This is important to keep in mind if there is a potential for delay in enforcement.
Second, the opinion explains that “unilateral revocation of the debt’s acceleration [like acceleration itself] requires an affirmative act by the creditor that communicates to the debtor that the creditor has revoked the debt’s acceleration.” Id. at 271, 418 P.3d at 1044 (citing Fed. Nat. Mort. Ass’n v. Mebane, 208 A.D.2d 892, 618 N.Y.S.2d 88, 89 (1994)) (emphasis added). In Miller, the mere cancelling of the trustee’s sales - alone - would not have been sufficient to revoke the acceleration. Because the recorded cancellations, however, purported to revoke the acceleration, that provided sufficient notice to the borrower to constitute a valid revocation. Accordingly, notice is of paramount concern for accelerations and revocations alike.
Third, the Court somewhat surprisingly held that Miller - who was not a party to the note - had standing to assert a statute of limitations defense. The Court recognized that the statute of limitations defense is a “personal privilege” that only a contracting party may raise. Miller, 224 Ariz. at 269, 418 P.3d at 1042 (quoting Acad. Life Ins. Co. v. Odiorne, 165 Ariz. 188, 190, 797 P.2d 727, 719 (Ct. App. 1990)). However, because the sheriff’s sale statute provides that “the purchaser is substituted to and acquires all right, title, interest and claim of the judgment debtor thereto,” the Court of Appeals determined that Miller inherited standing by statute. Id. (quoting A.R.S. § 12-1626(A)). Absent this language in the statute, it is unclear whether Miller would have been able to assert the statute of limitations defense.
Fourth, in a footnote, the Court of Appeals noted that “[t]he revocation of an acceleration would not reset the statute of limitations for payments already in default.” Id. at n.2 (citing Wheel Estate Corp. v. Webb, 139 Ariz. 506, 508, 679 P.2d 529, 531 (Ct. App. 1983)). Thus, the lender could not collect for the months of missed payments that occurred more than six years before enforcement. Instead, the lender was limited to collecting the amount that became due within the six years of the trustee’s sale. In essence, this means that each missed monthly payment on an unaccelerated note constitutes a new default with its own six year statute of limitations period.
The unusual fact-pattern in Miller provided a unique opportunity to explore the effects of acceleration and deacceleration of a note. Usually, a lender quickly resorts to its remedies following a default such that the statute of limitations is of little concern. Going forward, however, lenders should keep in mind the requirement of an “affirmative act” necessary to revoke acceleration if there is any expected delay in enforcement.