The Fifth Circuit U.S. Court of Appeals ruled that the Patient Protection and Affordable Care Act’s (ACA) ( P.L. 111-148) individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power. However, the central question of whether the rest of the ACA remains valid after Congress removed the penalty for not having health insurance remained unanswered. Instead, the case was sent back to the district court to reconsider how much of the ACA could survive without the individual mandate penalty.

The Fifth Circuit U.S. Court of Appeals ruled that the Patient Protection and Affordable Care Act’s (ACA) ( P.L. 111-148) individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power. However, the central question of whether the rest of the ACA remains valid after Congress removed the penalty for not having health insurance remained unanswered. Instead, the case was sent back to the district court to reconsider how much of the ACA could survive without the individual mandate penalty.

District Court
According to the opinion, "the rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today." Therefore, the opinion directs the district court to carefully consider whether the mandate can be legally distinct from the rest of the law. The opinion instructs the district court to answer two questions: Which parts of the ACA "are indeed inseverable" now that the mandate is no longer enforced and whether a ruling in the case should apply only to the Republican-led states that sued to overturn the law, an issue raised by Trump administration lawyers.

Dissenting Opinion
A dissenting opinion discussed that Congress made it clear that it wanted the rest of the ACA to stand and sending the case back to the lower court was criticized. The opinion also highlighted that sending the case back to the lower court merely identifies serious flaws in the district court’s analysis and remands for a do-over, which will unnecessarily prolong this litigation and the concomitant uncertainty over the future of the health care sector.

The IRS has released new proposed rules related to charitable contributions made to get around the $10,000/$5,000 cap on state and local tax (SALT) deductions. The proposed regulations:

The IRS has released new proposed rules related to charitable contributions made to get around the $10,000/$5,000 cap on state and local tax (SALT) deductions. The proposed regulations:

• incorporate the safe harbor in Notice 2019-12 for individuals who have any portion of a charitable deduction disallowed to the receipt of SALT benefits;
• incorporate the safe harbor in Rev. Proc. 2019-12 for business entities to deduct certain payments made to a charitable organization in exchange for SALT benefits; and
• clarify the application of the quid pro quo principle under Code Sec. 170 to benefits received or expected to be received by the donor from a third party.

SALT Limit

An individual’s itemized deduction of SALT taxes is limited to $10,000 ($5,000 if married filing separately) for tax years beginning after 2017. Some states and local governments have adopted laws that allowed individuals to receive a state tax credit for contributions to certain charitable funds. These laws are aimed at getting around the SALT deduction limit by creating a charitable deduction for federal income tax purposes.

The IRS issued final regulations in June 2019 that provide that the receipt of a SALT credit for a charitable contribution is the receipt of a return benefit (quid pro quo benefit). Thus, the taxpayer must reduce any contribution deduction by the amount of any SALT credit received or expected to receive in return. The regulations contain a de minimis exception if the SALT credit does not exceed 15 percent of the taxpayer’s charitable payment.

A taxpayer is not required to reduce the charitable contribution deduction because of the receipt of SALT deductions. However, the taxpayer must reduce the charitable deduction if it receives or expects to receive SALT deductions in excess of the taxpayer’s payment or the fair market value of property transferred.

Payments by Individuals

A safe harbor was provided in Notice 2019-12 for individuals who have a portion of a charitable deduction disallowed due to the receipt of a SALT credit. Under the safe harbor, any disallowed portion of the charitable contribution deduction may be treated as the payment of SALT taxes for the purposes of deducting taxes under Code Sec. 164.

The new proposed regulations incorporate the safe harbor in Notice 2019-12. The safe harbor is allowed in the tax year the charitable payment is made, but only to the extent that the SALT credit is applied as provided under state or local law to offset the individual’s SALT liability for the current or preceding tax year. Any unused credit may be carried forward as provided under state and local law.

Payments by Business Entities

The IRS also provided a safe harbor in Rev. Proc. 2019-12 that business entities may continue to deduct charitable contributions in exchange a SALT credit. A business entity may deduct the payments as ordinary and necessary business expenses under Code Sec. 162 if made for a business purpose.

The new proposed regulations incorporate the safe harbor in Rev. Proc. 2019-12. If a C corporation or specified pass-through entity makes the charitable payment in exchange for a SALT credit, it may deduct the payment as a business expense to the extent of any SALT credit received or expected to be received. In addition, the new proposal provides that if the charitable payment bears a direct relationship to the taxpayer’s business then it may be deducted as a business expense rather than a charitable contribution regardless of whether the taxpayer receives or expects to receive a SALT credit.

Benefits Received from Third Party

If a taxpayer receives any goods, services, or other benefits from a charitable organization in consideration for a contribution, then the charitable deduction must be reduced by the value of those benefits. If the contribution exceeds the fair market value of the benefits received, then only the excess is a deductible as a charitable contribution.

The new proposed regulations clarify that this quid pro quo principal applies regardless of whether the party providing the goods, services, or other benefits is the charitable organization or not. A taxpayer will be treated under the proposal as receiving goods and services in consideration for the taxpayer’s charitable contribution if, at the time the taxpayer makes the payment or transfer, the taxpayer receives or expects to receive goods or services in return.

So, Rita's an EA... just what does that do for me? You can be assured Rita and other EA’s have your best interest ahead of personal gain. The Enrolled Agent license was created by Act of Congress due to fraudulent claims for property seized by the Government during The Civil War. EA’s, Attorneys and others representing claimants could fairly settle these claims for seized property. Today over 40,000 EAs nationwide provide tax preparation, representation, tax planning, and other financial services to millions of individual and business taxpayers. EAs adhere to a code of ethics and professional conduct and are required by IRS to take continuing professional education.

An enrolled agent (EA) is a federally licensed tax practitioner who has proven technical expertise in the field of taxation. Enrolled agents are empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS) for audits, collections, and appeals. Only EAs, attorneys, and certified public accountants (CPAs) may represent taxpayers before IRS.

How can an EA help me?

Enrolled agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. The expertise of EAs in the continuously changing field of taxation enables them to effectively represent taxpayers audited by the IRS.

Privilege and the Enrolled Agent

The IRS Restructuring and Reform Act of 1998 allow federally authorized practitioners (those bound by U.S. Department of the Treasury Circular 230 regulations) a limited client privilege. This privilege allows confidentiality between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege.

Are enrolled agents required to take continuing professional education?

In addition to the stringent testing and application process, the IRS requires enrolled agents to complete 72 hours of continuing professional education, reported every three years, to maintain their EA status. NAEA members are obligated to complete 90 hours per three-year reporting period. Because of the knowledge necessary to become an EA and the requirements to maintain the license, there are only about 40,000 practicing EAs.

What are the differences between enrolled agents and other tax professionals?

Only EAs are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in taxation. EAs are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by the states).

Are enrolled agents bound by standards?

Enrolled agents are required to abide by the provisions of U.S. Department of the Treasury Circular 230, which provides the regulations governing the practice of EAs before the IRS. National Association of Enrolled Agents (NAEA) members also are bound by the NAEA Code of Ethics and Rules of Professional Conduct.

Why should I choose an enrolled agent who is a member of the National Association of Enrolled Agents?

The principal mission of the National Association of Enrolled Agents and its members is qualified, accurate, and ethical representation of the financial positions of taxpayers before governmental agencies. Members of NAEA must fulfill continuing professional education requirements that exceed the IRS required minimum. NAEA members comprise a strong network of experienced, well-trained tax professionals who effectively represent their clients and work to make the tax code fair and reasonably enforced.

How can I hire an enrolled agent?

The fastest way to locate an enrolled agent in your area is to visit www.naea.org. The ‘Find an EA’ function located on the home page will allow you to search instantly by locality or specialty. You also can reference your local phone book under the ‘Tax Preparation’ category and look for the phrase ‘Enrolled Agent,’ ‘Enrolled to Represent Taxpayers before the IRS,’ or the ‘EA’ credential following the name of the tax professional.

Rita Lewis will highlight issues that have been of concern to her clients.  Rita's Blog:  2020 Update on tax laws...  

BREAKING NEWS:

They did it, again and again!! Read the separate articles to learn what the new 2020 laws mean for 2019 income tax returns, as well as learn what 2019's SECURE Act will mean to you over the next decade. Included in that law are EXTENDERS of previously expired laws, extenders that are retroactive to 1 January 2018. Yes, 2018. (Amendments.) That new tax law, the still-current-for-most-of-this-decade Tax Cuts & Jobs Act, and revised tax forms AGAIN, mean we are all waiting on final tax guidance from Congress and for the IRS to catch up on their backlog this year. So, we preparers can catch up on our backlog.

And, they did NOT do it. Expect more new "clarifications" this year as well as over the next few years, so check back here daily to see the latest news for 2020 and for planning for the next few years. 

The revised withholding tables mean more in your take-home pay. But, that means your balance due or refund for 2019 with your federal return filed in 2020 may be an unpleasant surprise. If you don't like your 2019 results, change your 2020 withholding ASAP. The IRS has a new Tax Withholding Estimator:

https://www.irs.gov/payments/tax-withholding

Refunds are much, much slower as the IRS battles tax return fraud. And, even slower if you take Education, Child Tax, Earned Income Credits, or use Head of Household filing status. And, slower still if you file an amended return.

Also, expect your tax preparer to ask a LOT more due diligence questions if you want to take the American Opportunity, Child Tax, &/or Earned Income Credits, or use Head of Household filing status. EXPANDED questionaires are part of your tax return if claiming any of those credits or HoH filing status.

You NEED your Form 1098-T as well as a transcript from the bursar's office AND what YOU PAID to qualify for any Educational Credits or Deductions.

If you receive a Form K-1 for 2019 or future years, it will have additional information due to the new tax laws. And, it will take your tax return preparer more time to complete your returns.

Looking ahead for 2020 partnerships and S-corporations filing in 2021, those businesses MUST report cost basis information to their partners and shareholder/employees. Make sure your businesses report your basis information, because you MUST include it with your Forms 1040.

Remember that the IRS and the Social Security Administration/Medicare and CT and most states contact you via US Mail and NOT electronically. There are a lot of very aggressive email and telephone scams out there, including some targeting Medicare recipients. Do NOT pay anyone who claims to be from the IRS or Medicare or any governmental unit without calling me first. Newer scams target employees in human resource departments and request W-2 information. And, a new official-looking MAILING targets LLCs in CT and other states. I'm starting to see fake "IRS" mailings now, too. Read carefully!

CONNECTICUT

Repeat: A new official-looking MAILING targets LLCs in CT and other states. CT did NOT change how you file and pay your annual report to the Secretary of the State for your business.

CT continues to reduce the value of the property tax credit, and made new 2019 tax law changes. Pensions from the Retired Teachers' Board remain with a 25% reduction for CT tax purposes. A new 14% tax reduction for pensions and annuities helps residents UNDER CERTAIN INCOME LEVELS.

If you are part of a partnership or S-corporation, new CT laws were retroactive to 1 January 2018. Partnerships and S-corporations must pay estimated taxes to CT. Partners and shareholder/employees can make correspondingly lower payments to CT; they will get credit for a percentage of payments made by their pass-through companies to CT.

The CT Forms K-1 will have additional information due to CT's new tax law. And, it will take your tax return preparer more time to complete your returns.

CT also jumped on the problem of fraudulent tax returns, so don't be surprised if CT contacts you to prove your identity. This also means slower refunds.

CT's Department of Labor is taking a hard look at Independent Contractor vs. Employee issues.

NEW TAX LAW

Expect Many, Many Interpretations of our New Tax Laws! Effective dates are 2018 and later. Sunset date is the end of 2025.

The new tax laws and the revised tax forms AGAIN and the lack of clarification from Congress and IRS and state employees working from home mean your tax preparer will spend more time on your tax returns this year and next year, too. And, ask you a lot of new questions.

As usual, Congress gives and it takes away. Before you rely on any new law to change your tax position, call Rita Lewis at 203-557-0909 to learn if the law was in the signed version, or was extended or modified or expired or clarified, or if income phase-outs reduce the law's application to your specific situation.

CAUTION: Laws are still changing during 2020 for 2019 (and even 2018) and future tax returns.