The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.
The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.
During a May 6, 2025, oversight hearing of the House Appropriations Financial Services and General Government Subcommittee, Bessent framed the current employment level at the IRS as “bloated” and is using the workforce reduction as a means to partially justify the smaller budget the agency is looking for.
“We are just taking the IRS back to where it was before the IRA [Inflation Reduction Act] bill substantially bloated the personnel and the infrastructure,” he testified before the committee, adding that “a large number of employees” took the option for early retirement.
When pressed about how this could impact revenue collection activities, Bessent noted that the agency will be looking to use AI to help automate the process and maintain collection activities.
“I believe, through smarter IT, through this AI boom, that we can use that to enhance collections,” he said. “And I would expect that collections would continue to be very robust as they were this year.”
He also suggested that those hired from the supplemental funding from the IRA to enhance enforcement has not been effective as he pushed for more reliance on AI and other information technology resources.
There “is nothing that shows historically that by bringing in unseasoned collections agents … results in more collections or high-end collections,” Bessent said. “It would be like sending in a junior high school student to try to a college-level class.”
Another area he highlighted where automation will cover workforce reductions is in the processing of paper returns and other correspondence.
“Last year, the IRS spent approximately $450 million on paper processing, with nearly 6,500 full-time staff dedicated to the task,” he said. “Through policy changes and automation, Treasury aims to reduce this expense to under $20 million by the end of President Trump’s second term.”
Bessent’s testimony before the committee comes in the wake of a May 2, 2025, report from the Treasury Inspector General for Tax Administration that highlighted an 11-percent reduction in the IRS workforce as of February 2025. Of those who were separated from federal employment, 31 percent of revenue agents were separated, while 5 percent of information technology management are no longer with the agency.
When questioned about what the IRS will do to ensure an equitable distribution of enforcement action, Bessent stated that the agency is “reviewing the process of who is audited at the IRS. There’s a great deal of politicization of that, so we are trying to stop that, and we are also going to look at distribution of who is audited and why they are audited.”
Bessent also reiterated during the hearing his support of making the expiring provisions of the Tax Cuts and Jobs Act permanent.
By Gregory Twachtman, Washington News Editor
A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.
A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.
The IRS certified the taxpayer's tax liabilities as "seriously delinquent" in 2022. For a tax liability to be considered seriously delinquent, it must be legally enforceable under Code Sec. 7345(b).
The taxpayer's tax liabilities related to tax years 2005 through 2008 and were assessed between 2007 and 2010. The standard collection period for tax liabilities is ten years after assessment, meaning that the taxpayer's liabilities were uncollectible before 2022, unless an exception to the statute of limitations applied. The IRS asserted that the taxpayer's tax liabilities were reduced to judgment in a district court case in 2014, extending the collections period for 20 years from the date of the district court default judgment. The taxpayer maintained that he was never served in the district court case and the judgment in that suit was void.
The Tax Court held that its review of the IRS's certification of the taxpayer's tax debt is de novo, allowing for new evidence beyond the administrative record. A genuine issue of material fact existed whether the taxpayer was served in the district court suit. If not, his tax debts were not legally enforceable as of the 2022 certification, and the Tax Court would find the IRS's certification erroneous. The Tax Court therefore denied the IRS's motion for summary judgment and ordered a trial.
A. Garcia Jr., 164 TC No. 8, Dec. 62,658
The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial.
The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial. In 2025, FEMA declared 12 major disasters across nine states due to storms, floods, and wildfires. Following are tips from the IRS to taxpayers to help ensure record protection:
- Store original documents like tax returns and birth certificates in a waterproof container;
- keep copies in a separate location or with someone trustworthy. Use flash drives for portable digital backups; and
- use a phone or other devices to record valuable items through photos or videos. This aids insurance or tax claims. IRS Publications 584 and 584-B help list personal or business property.
Further, reconstructing records after a disaster may be necessary for tax purposes, insurance or federal aid. Employers should ensure payroll providers have fiduciary bonds to protect against defaults, as disasters can affect timely federal tax deposits.
IR-2025-55
A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.
A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.
A prenuptial agreement between the decedent and his surviving spouse provided for, among other things, $3 million paid to the spouse's adult children in exchange for the spouse relinquishing other rights. Because the decedent did not amend his will to include the terms provided for in the agreement, the stepchildren sued the estate for payment. The tax court concluded that the payments to the stepchildren were not deductible claims against the estate because they were not "contracted bona fide" or "for an adequate and full consideration in money or money's worth" (R. Spizzirri Est., Dec. 62,171(M), TC Memo 2023-25).
The bona fide requirement prohibits the deduction of transfers that are testamentary in nature. The stepchildren were lineal descendants of the decedent's spouse and were considered family members. The payments were not contracted bona fide because the agreement did not occur in the ordinary course of business and was not free from donative intent. The decedent agreed to the payments to reduce the risk of a costly divorce. In addition, the decedent regularly gave money to at least one of his stepchildren during his life, which indicated his donative intent. The payments were related to the spouse's expectation of inheritance because they were contracted in exchange for her giving up her rights as a surviving spouse. As a results, the payments were not contracted bona fide under Reg. §20.2053-1(b)(2)(ii) and were not deductible as claims against the estate.
R.D. Spizzirri Est., CA-11
The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.
The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.
Background
In 2021, the Treasury and Service established a $67 user fee for issuing said estate tax closing letter. This figure was based on a 2019 cost model.
In 2023, the IRS conducted a biennial review on the same issue and determined the cost to be $56. The IRS calculates the overhead rate annually based on cost elements underlying the statement of net cost included in the IRS Annual Financial Statements, which are audited by the Government Accountability Office.
Current Rate
For this fee review, the fiscal year (FY) 2023 overhead rate, based on FY 2022 costs, 62.50 percent was used. The IRS determined that processing requests for estate tax closing letters required 9,250 staff hours annually. The average salary and benefits for both IR paybands conducting quality assurance reviews was multiplied by that IR payband’s percentage of processing time to arrive at the $95,460 total cost per FTE.
The Service stated that the $56 fee was not substantial enough to have a significant economic impact on any entities. This guidance does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.
T.D. 10031
NPRM REG-107459-24
The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.
The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.
Additionally, the Tax Court correctly dismissed the taxpayer’s challenge to the notices of deficiency as untimely. The taxpayer filed his petition after the 90-day limitation under Code Sec. 6213(a) had passed. Finally, the taxpayer was liable for penalty under Code Sec. 6673(a)(1). The Tax Court did not abuse its discretion in concluding that the taxpayer presented classic tax protester rhetoric and submitted frivolous filings primarily for purposes of delay.
Affirming, per curiam, an unreported Tax Court opinion.
Z.H. Shaikh, CA-3
Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.
Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.
First, the law actually requires taxpayers to retain certain records for a specified number of years, for example tax returns or employment tax records (for employers).
Second, good recordkeeping is essential for taxpayers while preparing their tax returns. The Tax Code frequently requires taxpayers to substantiate their income and claims for deductions and credits by providing records of various profits, expenses and transactions.
Third, if a taxpayer is ever audited by the IRS, good recordkeeping can facilitate what could be a long and invasive process, and it can often mean the difference between a no change and a hefty adjustment.
Finally, business taxpayers should maintain good records that will enable them to track the trajectory of their success over the years.
Here you will find a sample list of various types of records it would be wise to retain for tax and other purposes (not an exhaustive list; see this office for further customization to your particular situation):
Individuals
Filing status:
Marriage licenses or divorce decrees – Among other things, such records are important for determining filing status.
Determining/Substantiating income:
State and federal income tax returns – Tax records should be retained for at least three years, the length of the statute of limitations for audits and amending returns. However, in cases where the IRS determines a substantial understatement of tax or fraud, the statute of limitations is longer or can remain open indefinitely.
Paystubs, Forms W-2 and 1099, Pension Statements, Social Security Statements – These statements are essential for taxpayers determining their earned income on their tax returns. Taxpayers should also cross reference their wage and income reports with their final pay stubs to verify that their employer has reported the correct amount of income to the IRS.
Tip diary or other daily tip record – Taxpayers that receive some of their income from tips should keep a daily record of their tip income. Under the best circumstances, taxpayers would have already accurately reported their tip income to their employers, who would then report that amount to the IRS. However, mistakes can occur, and good recordkeeping can eliminate confusion when tax season arrives.
Military records – Some members of the military are exempt from state and/or federal tax; combat pay is exempt from taxation, as are veteran’s benefits. (In many cases, a record of military service is necessary to obtain veteran’s benefits in the first place.)
Copies of real estate purchase documents – Up to $500,000 of gain from the sale of a personal residence may be excludable from income (generally up to $250,000 if you are single). But if you own a home that sold for an amount that produces a greater amount of gain, or if you own real estate that is not used as your personal residence, you will need these records to prove your tax basis in your home; the greater your basis, the lower the amount of gain that must be recognized.
Individual Retirement Account (IRA) records – Funds contributed to Roth IRAs and traditional IRAs and the earnings thereon receive different tax treatments upon distribution, depending in part on when the distribution was made, what amount of the contributions were tax deferred when made, and other factors that make good recordkeeping desirable.
Investment purchase confirmation records – Long-term capital gains receive more favorable tax treatment than short-term capital gains. In addition, basis (generally the cost of certain investments when purchased) can be subtracted from gain from any sale. For these reasons, taxpayers should keep records of their investment purchase confirmations.
Substantiating deductions:
Acknowledgments of charitable donations – Cash contributions to charity cannot be deducted without a bank record, receipt, or other means. Charitable contributions of $250 or more must be substantiated by a contemporaneous written acknowledgment from the qualified organization that also meets the IRS requirements.
Cash payments of alimony – Payments of alimony may be deductible from the gross income of the paying spouse . . . if the spouse can substantiate the payments and certain other criteria are met.
Medical records – Disabled taxpayers under the age of 65 should keep a written statement from a qualified physician certifying they were totally disabled on the date of retirement.
Records of medical expenses – Certain unreimbursed medical expenses in excess of 10 percent of adjusted gross income may be deductible. Caution: a pending tax-reform proposal may change the deductibility of these expenses.
Mortgage statements and mortgage insurance – Mortgage interest and real estate taxes have generally deductible for taxpayers who itemize rather than claim the standard deduction. Caution: a pending tax-reform proposal may change the deductibility of these expenses.
Receipts for any improvements to real estate – Part or all of the expense of certain energy efficient real estate improvements can qualify taxpayers for one or more tax credits.
Keeping so many records can be tedious, but come tax-filing season it can result in large tax savings. And in the case of an audit, evidence of good recordkeeping can get you off to a good start with the IRS examiner handling the case, can save time, and can also save money. For more information on recordkeeping for individuals, please contact our offices.
Businesses
Taxpayers are required by law to keep permanent books of account or records that sufficiently substantiate the amount of gross income, deductions, credits and other amounts reported and claimed on any their tax returns and information returns.
Although, neither the Tax Code nor its regulations specify exactly what kinds of records satisfy the record-keeping requirements, here are a few suggestions:
State and federal income tax returns – These and any supporting documents should be kept for at least the period of limitations for each return. As with individual taxpayers, the limitations period for business tax returns may be extended in the event of a substantial understatement or fraud.
Employment taxes – The Tax Code requires employers to keep all records of employment taxes for at least four years after filing for the 4th quarter for the year. Generally these records would include wage payments and other payroll-related records, the amount of employment taxes withheld, reported tip income, identification information for employees and other payees; employees’ dates of employment; income tax withholding allowance certificates (Forms W-4, for example), fringe benefit payments, and more.
Business income – These would go toward substantiating income, and could include cash register tapes, bank deposit slips, a cash receipts journal, annual financial statements, Forms 1099, and more.
Inventory costs – Businesses should keep records of inventory purchases. For example, if an electronics company purchases a certain number of widgets for resale or a manufacturer purchases a certain number of ball bearings for use in the production of industrial equipment that it manufactures and sells. The costs of these goods, parts, or other materials can be deducted from sales income to significantly reduce tax liability.
Business expenses – Ordinary and necessary expenses for carrying on business, such as the cost of rental office space, are also generally deductible from business income. Such expenses can be substantiated through bank statements, canceled checks, credit card receipts or other such records. The cost of making certain improvements to a business, such as through buying equipment or renovating property, can also be deductible.
Electronic back-up
Paper records can take up a great deal of storage space, and they are also vulnerable to destruction in fires, floods, earthquakes, or other natural phenomena. Because records are required to substantiate most income, deductions, property values and more—even when they no longer exist—taxpayers (and especially business taxpayers) should digitize their records on an electronic storage system and keep a back-up copy in a secure location.
Business taxation can be extremely complicated, and the requirements for recordkeeping vary greatly depending on the size of the business, the form of organization chosen, and the type of industry in which the business operates. For more details on your specific situation, please call our offices.
Taxpayers who use their automobiles for business or the production of income can deduct their actual expenses for use of an automobile (including the use of vans, pickups, and panel trucks) that the taxpayer owns or leases. Deductible expenses include parking fees, tolls, taxes, depreciation, repairs and maintenance, tires, gas, oil, insurance and registration.
Taxpayers who use their automobiles for business or the production of income can deduct their actual expenses for use of an automobile (including the use of vans, pickups, and panel trucks) that the taxpayer owns or leases. Deductible expenses include parking fees, tolls, taxes, depreciation, repairs and maintenance, tires, gas, oil, insurance and registration.
Standard rate for business
Employees and self-employed individuals can use the optional business standard mileage rate, instead of tracking actual costs for depreciation, repairs and maintenance, tires, gas, insurance, oil and registration. Vehicle costs based on the standard rate are determined by multiplying the number of business miles traveled during the year by the rate. In addition to taking the standard rate, a taxpayer can deduct certain other costs as separate items, including as parking, tolls, interest on the purchase of the automobile, and state and local personal property taxes.
For 2014, the standard mileage rate for business travel is 56 cents per mile, a slight drop from the 2013 rate of 56.5 cents per mile. This allowance includes depreciation of 22 cents per mile for 2014. A taxpayer using the standard mileage rate must reduce the basis of the vehicle by the depreciation expenses included in the mileage rate.
(While the use of actual expenses may result in a greater deduction than using the standard rate, this must be balanced against the added recordkeeping and substantiation burdens.)
Substantiation and limitations
A taxpayer using the standard mileage rate does not have to substantiate the expense amounts covered by the rate. However, the taxpayer must properly substantiate other travel elements, such as time, place and purpose of the trip. Travel expenses must be substantiated either by adequate records or by sufficient evidence corroborating the taxpayer's own statement. To meet the adequate records requirement, a taxpayer should maintain an account book, diary or similar statement and documentary evidence to establish each element of the expense.
A taxpayer cannot use the standard mileage rate if it operates five or more vehicles at the same time, if it claimed a Code Sec. 179 expensing deduction for the vehicle, or if it claimed depreciation other than straight-line depreciation.
Other standard mileage rates
The IRS also provides standard mileage rates for medical and moving expenses. For 2014, the rate is 23.5 cents per mile (down from 24 cents for 2013). The standard rate for charitable expenses is set by statute and remains at 14 cents per mile. The various standard mileage rates for 2014 apply to miles driven on or after January 1, 2014.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of January 2014.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of January 2014.
January 2
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates December 25–27.
January 3
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates December 28–31.
January 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 1–3.
January 10
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 4–7.
Employees who work for tips. Employees who received $20 or more in tips during December must report them to their employer using Form 4070.
January 15
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 8–10.
Individuals. Individuals that did not pay their income tax for the year through withholding (or did not pay in enough tax through withholding) may make a final payment of estimated tax for 2013, using Form 1040-ES, Estimated Tax for Individuals.
January 17
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 11–14.
January 23
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 15–17.
January 24
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 18–21.
January 29
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 22–24.
January 31
Filing Season. The 2014 filing season officially begins.
Employers. Semi-weekly depositors must deposit employment taxes for payroll date January 25–28.
Information reporting. All employers must provide their employees with their copies of Form W-2 for 2013.
Payers of gambling winnings. Payers of reportable gambling winnings or withheld income tax from gambling winnings for 2013, must provide the winners with their copies of Form W-2G.
Nonpayroll items. Those who withheld income tax withheld for 2013 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members, file Form 945 and deposit or pay any undeposited tax under the accuracy of deposit rules.
Social Security/Medicare taxes. Employers who withheld Social Security and Medicare taxes report the withholding for the fourth quarter of 2013 on Form 941. Small employers may report withholding for the entire year using Form 944.
February 5
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 29–31.
Tax season is scheduled to begin shortly and, as in past years, there are some possible glitches to be mindful of. Already, the IRS has alerted taxpayers that the start of filing season will be delayed. Late tax legislation, although unlikely, could result in a further delay. Some new requirements under the Patient Protection and Affordable Care Act have been waived for 2014, but others have not. The IRS also is facing the prospect of another government shutdown in January.
Tax season is scheduled to begin shortly and, as in past years, there are some possible glitches to be mindful of. Already, the IRS has alerted taxpayers that the start of filing season will be delayed. Late tax legislation, although unlikely, could result in a further delay. Some new requirements under the Patient Protection and Affordable Care Act have been waived for 2014, but others have not. The IRS also is facing the prospect of another government shutdown in January.
Filing season
In recent years, the IRS has had to delay the start of the filing season to reprogram its return processing systems for changes in the tax laws. The 2014 filing season will also be delayed but not, as of today, because of new tax laws. The IRS operated with minimal staffing during the 16-day government shutdown in October and fell behind in its scheduled maintenance and programming of its return processing systems because employees were furloughed. At this time, the IRS expects the 2014 filing season to be delayed for possibly two weeks.
Before the shutdown, the IRS had anticipated opening the 2014 filing season on January 21, 2014. With a one- to two-week delay, the IRS would start accepting and processing returns no earlier than January 28, 2014 and no later than February 4, 2014. Individuals who file early in anticipation of receiving a refund will likely see their refunds delayed. The IRS is expected to make a final determination on the start date of the 2014 filing season in mid-December. Our office will keep you posted of developments.
Taxpayers are also waiting on some important final forms for the 2014 filing season, including Form 8960, Net Investment Income Tax. The Affordable Care Act created the new 3.8 tax on qualified net investment income, effective January 1, 2013. Additionally, the IRS has indicated that more guidance will be available for married same-sex couples. Since publication of the IRS's initial guidance, questions have surfaced concerning employee benefits, return filing and other issues affecting married same-sex couples and domestic partners (whom the IRS does not treat as married). Late-year guidance on either the 3.8 percent net investment income tax or same-sex tax issues may require last-minute changes in year-end tax strategies.
Another shutdown possible
The IRS is currently operating under a stop-gap funding measure, which ended the government shutdown in October. Funding under the stop-gap measure is scheduled to lapse after January 15, 2014. A House-Senate budget conference committee is attempting to reconcile competing fiscal year (FY) 2014 budget bills. So far, lawmakers appear to have made little progress.
A mid-January shutdown could further delay the start of the filing season. In a November 18 letter to IRS Acting Commissioner Daniel Werfel, the American Institute of Certified Public Accountants (AICPA) expressed concern that another government shutdown would result in a huge strain on taxpayers and tax professionals trying to timely file and report their income taxes by April 15. "The IRS keeping more essential positions working during January would help make the already delayed filing season operate as smoothly as possible," the AICPA told Werfel. The AICPA also recommended that the Taxpayer Advocate Service, which closed during the October shutdown, remain open in the event of another lapse in appropriations.
Tax legislation
Although many tax bills have been introduced in Congress, 2013 is likely to end without lawmakers tackling comprehensive tax reform. The House Ways and Means Committee and the Senate Finance Committee have both prepared discussion drafts on tax reform, covering a host of tax issues. One possible reason for the lack of movement of tax reform appears to be lukewarm interest, at best, from the House and Senate leaders. This could change in 2014 but it is too early to make any predictions.
One path for tax reform could be the House-Senate budget conference committee. However, as mentioned, the committee has not yet produced any concrete proposals. Several lawmakers have recommended that the committee strike a deal to lower corporate tax rates in exchange for businesses giving up unspecified tax breaks. Many Republicans want to keep scheduled across-the-board spending cuts in place for 2014 and beyond; many Democrats want to replace the spending cuts with new revenue raisers. The conference committee has a mid-December deadline to reach an agreement.
A package of so-called tax extenders-popular but temporary tax incentives-could move before year-end but more likely will be taken up by Congress early next year. Unlike last year, the expiring incentives do not affect 2013 returns filed in 2014. Eligible taxpayers will be able to claim the state and local sales tax deduction, the higher education tuition deduction, the teachers' classroom expense deduction, home energy tax breaks, and many others on their 2013 returns. If you have any questions about the expiring incentives, please contact our office.
Affordable Care Act
Starting January 1, 2014, the Affordable Care Act requires individuals to carry minimum essential health insurance (unless they are exempt) or make a shared responsibility payment. Tax credits and cost-sharing also kick-in next year. At this time, it appears unlikely that the Obama administration will delay the individual mandate. The employer mandate, however, is delayed. Employer reporting (and reporting by some insurers) will not apply until 2015, but is optional for 2014. Generally, employer reporting applies to employers with at least 50 full-time employees on business days during the preceding calendar year.
November was dominated by news of technical troubles for the online Affordable Care Act Marketplaces and the cancellation of some individual insurance policies that did not meet new standards. The White House has made getting the online Marketplaces running at 100 percent a priority and also gave states the option of allowing individuals to re-enroll in coverage that would otherwise be terminated. The fix is temporary and individuals will need to find alternative coverage for 2015 and beyond. Small businesses also may have received cancellation notices and should be exploring alternative coverage.
If you have any questions about year-end tax developments, please contact our office.
Code Sec. 179 allows taxpayers to expense the cost of qualified property instead of capitalizing the cost and recovering it over a period of years. The provision is designed to help small business. For the period 2010-2013, taxpayers can write off up to $500,000 of the costs of qualified property placed in service during the year. The $500,000 cap is reduced dollar-for-dollar to the extent that the cost of qualified property placed in service during the year exceeds $2 million. The amount claimed cannot exceed the income from the taxpayer's trade or business for the year. Any amount disallowed can be carried over to a future year.
Code Sec. 179 allows taxpayers to expense the cost of qualified property instead of capitalizing the cost and recovering it over a period of years. The provision is designed to help small business. For the period 2010-2013, taxpayers can write off up to $500,000 of the costs of qualified property placed in service during the year. The $500,000 cap is reduced dollar-for-dollar to the extent that the cost of qualified property placed in service during the year exceeds $2 million. The amount claimed cannot exceed the income from the taxpayer's trade or business for the year. Any amount disallowed can be carried over to a future year.
The enhanced Code Sec. 179 expensing will expire at the end of 2013 unless Congress extends it. The $500,000 cap decreases to $25,000 for property placed in service in tax years beginning after 2013. The $2 million phase-out limitation is scheduled to decrease to $200,000 for tax years beginning after 2013.
Although there is an overall cap on the amount that a taxpayer can write off under Code Sec. 179, there is no cap on the amount that can be written off on a particular piece of property. Thus, if property placed in service in 2013 cost $100,000, a taxpayer can take bonus depreciation for 50 percent of the cost (or $50,000), but can expense the entire $100,000 under Code Sec. 179. There is a $25,000 cap on write-offs for sport utility vehicles.
Qualifying property
Qualifying property is tangible property that is depreciable under Code Sec. 168 (the Modified Accelerated Cost Recovery System, or MACRS), or off-the-shelf computer software placed in service before 2014. The property must be Code Sec. 1245 property. This includes tangible personal property and property used in manufacturing, extraction and production activities. The property must be acquired for use in the active conduct of a trade or business. The property can be new or used.
For tax years 2010-2013, qualifying property also includes "qualified real property." This encompasses qualified leasehold improvements, qualified retail improvement property, and qualified restaurant improvement property.
Election
Taxpayers must make the election to claim the Code Sec. 179 deduction on Form 4562, Depreciation and Amortization. Taxpayers must make a new election each year. Property can be expensed in the year it is placed in service, not the year it is obtained. The election must provide the total amount of the deduction and the portion of the deduction allocable to each item of property.
Ordinarily, the election must be made by the due date of the return filed for the year in which the property is placed in service. The election is irrevocable unless the IRS consents to revocation. However, for property placed in service in 2003-2013, the taxpayer may make an election (or a revocation) on an amended return filed within the limitations period for an amended return. A revocation, once made on an amended return, is irrevocable.
