UNCERTAIN TAX POSITIONS DRAFT SCHEDULE RELEASED
The IRS released a draft of new Schedule UTP, Uncertain Tax Position Statement, (tinyurl.com/27jmhm7) and instructions (tinyurl.com/25uorpf) as part of its initiative to require certain business taxpayers to report uncertain tax positions on their returns (Announcement 2010-30). (For previous JofA coverage of the initiative, see “Tax Matters,” May 2010, page 73, and April 2010, page 51, and “AICPA Positions on Recent IRS Proposals,” May 2010, page 30).
According to the announcement, taxpayers with uncertain tax positions and assets of $10 million or more will be required to file Schedule UTP beginning with the 2010 tax year if they or a related entity filed audited financial statements. Affected taxpayers include corporations required to file Form 1120, U.S. Corporation Income Tax Return; insurance companies required to file Form 1120-L, U.S. Life Insurance Company Income Tax Return, or Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and foreign corporations required to file Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. For 2010 tax years, the IRS will not require Schedule UTP from taxpayers who file other forms in the 1120 series, or from pass-through entities or tax-exempt organizations.
Under the draft instructions, a taxpayer who properly files Schedule UTP will be treated as having filed Form 8275, Disclosure Statement, or 8275-R, Regulation Disclosure Statement. The IRS said it was considering other circumstances in which a tax position reported on Schedule UTP need not be reported elsewhere on the return or another disclosure statement.
The AICPA has some serious concerns with the proposal, particularly with the low level of the $10 million asset threshold that would exempt businesses from the proposal. An AICPA task force was developing comments to submit to the IRS.
IRS ISSUES PROP REGS ON USE OF PTINS
The IRS issued proposed regulations (REG-134235-08) that would require paid return preparers to use a preparer tax identification number (PTIN) on all tax returns after Dec. 31, 2010. The AICPA was among parties that submitted comments to the IRS in writing and at a hearing May 6 on the proposed regulations.
The proposed regulations are the first guidance issued by the IRS under its proposed plan to require registration of all paid return preparers. As part of that plan, all paid return preparers would be required to obtain a PTIN from the IRS. For prior JofA coverage, see “Tax Matters,” March 2010, page 58; also “Registration of CPAs, Other Paid Tax Preparers to Start in 2011,” May 2010, page 25, and “AICPA Positions on Recent IRS Proposals,” May 2010, page 30.
IRC § 6109(a)(4) authorizes the IRS to require tax return preparers to furnish identifying numbers on any returns or refund claims they prepare. Treas. Reg. § 1.6109-2(a)(1) currently requires preparers to use either their Social Security number or a PTIN. The proposed regulations would eliminate the Social Security number option, among other changes.
The proposed regulations provide a transition rule for returns due for tax periods that end before Jan. 1, 2011, where the return is not filed until after Dec. 31, 2010 (for example, Forms 1040 for calendar year 2010). On those returns, preparers should use the identifying number prescribed on the form being filed or its instructions.
The proposed regulations say that all tax return preparers must apply for a PTIN “at the time and in the manner” that will be prescribed in further IRS guidance or forms and instructions. (Current statutes and regulations require only that signing preparers include an identifying number with their signature on any return they prepare.) The proposed regulations authorize the IRS to charge a fee in connection with the issuance or renewal of a PTIN.
The preamble to the proposed regulations says that after Dec. 31, 2010, to obtain a PTIN an individual will have to be a CPA, attorney, enrolled agent or registered return preparer under the proposed return preparer registration plan. In other words, PTINs will be issued only to preparers who have demonstrated they otherwise meet the registration requirements. As the IRS revealed when it first proposed mandatory registration of return preparers, under the proposed regulations, applying for a PTIN may subject a return preparer to a tax-compliance check, which could include a review of whether the individual has timely filed his or her personal and business tax returns and paid all tax due.
Under the proposed regulations, failure to include a PTIN on a return could subject a return preparer to penalties under IRC § 6695(c). That penalty is $50 for each failure to furnish a required identifying number, up to $25,000 in each calendar year.
In the AICPA’s comments on the proposed regulations, developed by the Preparer Regulation Task Force and approved by the Tax Executive Committee, the AICPA recommended that the PTIN requirement, along with separately proposed testing and CPE requirements, not apply to “nonsigning preparer-employees of CPA firms.” Because CPAs and their firms are subject to oversight and discipline by the IRS through Circular 230 and by state boards of accountancy, the current requirement that signing preparers include their PTIN on tax returns “should give the IRS sufficient information to monitor the CPA’s practice without the need to extend the PTIN process to nonsigning preparers,” the AICPA said.
The AICPA also “strongly recommends” that the IRS in these proposed regulations, and elsewhere, refrain from referring to unenrolled preparers as “registered tax return preparers” because the term may imply to the public a greater degree of professional capability and expertise than would necessarily be the case. The AICPA suggested that the IRS instead refer to them as “authorized tax return preparers.” The AICPA also urged the IRS to set the PTIN application and renewal fees as low as possible.
In the May 6 hearing, Patricia Thompson, vice chair of the AICPA’s Tax Executive Committee, underscored these points. Notwithstanding the AICPA’s specific concerns, requiring a unique identifying number for each preparer, along with making all preparers subject to the Circular 230 and statutory civil penalties applicable to return preparers, should allow the Service to meet its goals of improving the competence and ethical standards of paid tax return preparers, both Thompson and the written comments stated. Accordingly, the Service should delay its plans for a new examination process, they said.
HEALTH CARE BUSINESS CREDIT EXPLAINED
The IRS issued guidance to small businesses on claiming the new tax credit for employee health insurance coverage. The credit under new IRC § 45R is a key provision of the Patient Protection and Affordable Care Act (PL 111-148) enacted in March. Generally, small businesses— defined as those with 25 or fewer employees and average annual wages of less than $50,000—are eligible. When fully phased in (after 2013), the credit amount is up to 50% of nonelective contributions the business makes on behalf of its employees for insurance premiums. A nonelective contribution is one an employer makes that is not pursuant to a salary reduction arrangement (section 45R(e)(3)). Tax-exempt organizations would get a 35% credit against payroll taxes.
Notice 2010-44, released in May, provides a procedure by which employers can determine their eligibility for the credit and instructions with examples of how to calculate and claim it (as a general business credit). The notice also provides transition relief for 2010 with respect to certain qualifying arrangements. The Service said it would issue further guidance later for tax-exempt employers on how to apply the credit against payroll taxes.
Earlier, the IRS provided on its website questions and answers (tinyurl.com/ybhjfmz) about the credit and issued average small group market premiums for use in determining it (Revenue Ruling 2010-13).
This credit is available for tax years beginning after Dec. 31, 2009, and is phased in during 2010–2013. In the phase-in years, the maximum credit is 35% of the employer’s eligible premium expense (25% for tax-exempt employers). Employers with 10 or fewer employees and average wages of less than $25,000 will receive 100% of the credit; for other eligible employers, the credit will be reduced based on the number of employees over 10 and the excess of the employees’ average wages over $25,000. The $25,000 average annual wages figure will be indexed for inflation after 2013.
The amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the tax year, and (2) the amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the state (or in an area in the state) in which the employer is offering health insurance coverage. For purposes of item (2), Revenue Ruling 2010-13 provides a table setting forth the average premium for the small group market in each state for the 2010 tax year, as determined by the secretary of Health and Human Services (HHS). The revenue ruling also notes that for the 2010 tax year, HHS may provide additional average premium rates for the small group market in certain areas within states. However, in no case will any such additional sub-state rates be lower than the applicable rate for each state that is set forth in the revenue ruling.
HIRE ACT FORMS AVAILABLE
The IRS issued new and revised forms for employers claiming tax benefits of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (PL 111-147). The HIRE Act, enacted on March 18, created a payroll tax exemption for employers who hire workers who have been unemployed for at least 60 days. For qualifying new employees hired after Feb. 3, 2010, and before Jan. 1, 2011, the employer can claim a credit equal to the employer’s share of Social Security taxes on wages paid in 2010 after the date of enactment. The bill also provides a credit of up to $1,000 for employers who retain such employees for at least 52 weeks.
In May, in time for second-quarter 2010 filings, the Service released a new version of Form 941, Employer’s QUARTERLY Federal Tax Return, and instructions. The instructions explain how to complete the revised form to reflect hiring of qualified individuals. Also, the Service earlier posted questions and answers on its website (tinyurl.com/y5fqj8d). The portion of wages paid in the portion of the first quarter (March 19 through March 31) for which the exemption could be claimed may be taken as a credit on the second-quarter return.
Earlier, the IRS released new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, for use by employers to confirm that new employees (or former employees rehired) are qualified employees under the act. The form requires the employee to declare, under penalties of perjury, that he or she is unemployed or has not worked for anyone for more than 40 hours during the 60-day period ending on the starting date of employment with the new employer.
The hiring may not be to replace another employee unless that employee separated from service voluntarily or for cause. In other words, employers may not lay off an employee specifically to hire a new one (or rehire the same one) qualifying for the credit, although an IRS official has indicated that a qualifying employee can be one hired to fill a vacancy from an earlier layoff (“Official Says New Workers Must Sign Affidavit Proving Eligibility for HIRE Act Tax Incentive,” Tax Notes, March 23, 2010).
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