Welcome to another edition of our ONESOURCE Tax Information Reporting Bulletin. With another successful tax season behind us, we now go forward in our quest to make the next one even better! We recognize the difficulty in keeping up with numerous current developments, announcements, and regulations especially as they occur during the heat of tax season. As such, this issue summarizes some tax information reporting developments through the first of half of 2013.
- Regulations, Announcements
- Forms and Instructions
- FAT CA and Foreign Developments
- FAT CA Final Regulations
- FAT CA – IRS Newsletters
- Forms W-8
- Miscellaneous and Special Report Section
- National Taxpayer Advocate Report
- Senate Finance Committee – Tax Reform
- The President’s Budget
- Affordable Healthcare Act
We hope you find the information in this Bulletin to be helpful and informative. As always, we welcome your comments.
Dale G Pettit
ONESOURCE Tax Information Reporting Services
Another favorite tax quote:
"The United States has a system of taxation by confession."
– Supreme Court Justice Hugo Black
Recent Announcements and Regulations
- Truncated TINs on Form 1099 Payee Statements
On January 2, proposed regulations REG-148873-09 were issued for Truncated Taxpayer Identification Numbers (TTINs). The use of truncated TINs has been allowed under an IRS pilot program since 2009 and authorized in IRS Notices 2009-93 and 2011-38. Some of the main points outlined in the new regulations are:
- Use of a TTIN is not mandatory
- Allowed use of TTINs apply to 1099, 1098, and 5498 statements
- Can only be used on Recipient (Payee) Statements
- Applies to both paper and electronic statements
- Cannot be used on IRS filings
- Filers cannot truncate their own identifying number on the Recipient Statement
- Filers cannot truncate recipient EINs
- Filers can truncate SSNs, ATINs, or ITINs
TTINs consist of the last four digits of a SSN or other identifying number and are presented as:
Comments to the proposed regulations were open until February 20. The only comment received was subsequently withdrawn. The public hearing on the proposed TTIN regulation, scheduled to be held on March 12, 2013, was cancelled. The proposed regulations take effect upon publication in the Federal Register as final regulations. However, in the meantime the proposed regulations may be relied upon. View the proposed TTIN regulations here.
FATCA Final Regulations
The final regulations for sections 1471 through 1474 of the Internal Revenue Code – the final rules for the Foreign Account Tax Compliance Act (FATCA) – were released on January 17. Click here to view the regulations. Per the IRS press release, the final regulations:
- Build on intergovernmental agreements that foster international cooperation
- Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements
- Expand and clarify the scope of payments not subject to withholding
- Refine and clarify the treatment of investment entities
- Clarify the compliance and verification obligations of FFIs
Forms and Instructions Updates
Form 1099-K Items (Payment Card and Third Party Network Transactions)
Form 1099-K Notices
In January, the IRS issued a Q&A on its website related to letters being sent out to taxpayers concerning Form 1099-K. Among other things, the Q&A page explains why a taxpayer may receive a 1099-K, what to do with the form, and how the IRS uses the information on the Form 1099-K. Finally, tips are given on what steps may need to be taken to address the letters being sent out. Click here to view the website.
Form 1099-K, 2013 Form Published
- Box 4 of the 2013 Form 1099-K is for reporting “Federal income tax withheld.” This is due to federal backup withholding becoming effective January 1, 2013.
- Boxes 6, 7 and 8 of the 2013 Form 1099-K are for reporting state backup withholding applied from the gross amount reported in box 1.
In addition to the changes above, it should be noted that neither the 2013 instructions nor the 2013 form make any mention of “optional” reporting for Box 3 (Number of payment transactions). Note also, that in 2012, Box 3 was titled “Number of purchase transactions.”
Forms 1099-K and 1099-B (CFS Filing Program)
With Announcement 2013-3 on January 7, the IRS announced that Form 1099-B was added to the Combined Federal/State filing program. Publication 1220 was updated accordingly. The early fall, 2012 Publication 1220 had noted that the Form 1099-K was added to the CFS filing program at that time and also effective for 2012 electronic filing.
Form 1099-B – 2013
In response to practitioner to comments, the IRS will use the same format for the 2013 1099-B form as was used on the 2012 form. Though acknowledging the complexities and burdens involved in complying with the IRC 6045(g) requirements, be aware that the IRS has still not issued a final version of the 2013 form.
Note: See also the CFS Filing Program item above pertaining to both Form 1099-K and 1099-B.
Form W-9 2013 May Draft (Request for Taxpayer Identification Number and Certification)
The much anticipated new Form W-9 was issued in draft form along with the form instructions and is available for review here. Instead of just checking a box to claim exempt status, the new form requires the payee to enter one of several different codes available to indicate exempt status. The form makes reference to the instructions where there are 13 codes (with descriptions) to choose from in claiming exempt status.
There is also a new set of codes to enter (A thru M) when claiming the exemption from FATCA reporting. These codes also have descriptions and are explained in the instructions on page 3. These FATCA exemption codes appear to be intended to apply only to accounts maintained outside the U.S.
Form 941 for 2013
In March, the IRS finalized the 2013 version of Form 941, Employer’s Quarterly Federal Tax Return, which reflects the expiration of the payroll tax cut and the start of the new 0.9% Medicare surtax imposed on high-wage earners.
Form 1098 – 2014 Draft Form Released
In late May, the IRS released a draft of 2014 Form 1098, Mortgage Interest Statement, for tax year 2014 reporting. The new draft form eliminates the old line 4 entry for “Mortgage Insurance Premium” as that provision is set to expire at 2013 year end.
Form 1042-S – 2014 Draft
Although the draft instructions have not yet been issued, the draft of the 2014 Form 1042-S gives us a glimpse into what lies ahead in 1042-S reporting. Remember, this is the form you will use in calendar year 2015, for tax year 2014 reporting. Many changes on the form address the requirements relative to both the new Chapter 4 FATCA changes and Chapter 3 withholding. Among the changes evident on the draft form are new income codes, new exemption codes and over 70 new status codes.
You can submit comments on the forms for IRS consideration by following the instructions in the link provided to view the draft form above.
Form 1099 General Instructions – 2013
The IRS General Instructions for Forms 1097, 1098, 1099, 3921, 3922, 5498 and W-2G for 2013 tax information reporting were released in late March and are available on the IRS website. View them now by clicking here.
These instructions list the “who, when, and where” filing information. The “What’s New” section discusses truncating TINs on recipient (payee) statements discussed elsewhere in this bulletin.
Form 1099-R – 2014 Draft
Drafts of 2014 Form 1099-R for reporting 2014 distributions were posted on the IRS website in late June. There is a new Distribution Code (K) to indicate distribution of assets other than cash and/or assets having no readily determinable fair market value. Click here to view the 2014 draft Form 1099-R
Form 1099-R and Form 5498 – 2014 Draft instructions
Detailed instructions for 2014 Forms 1099-R and 5498 are available in the draft 2014 Instructions for Forms 1099-R and 5498.
New box 15a of Form 5498 will be used to report fair market value of investments in the IRA specified by category code(s) in box 15b, which indicate the type of investment. Code types A through G are available for box 15b, with a maximum of two code types. If more than two codes need to be entered, code H must be used. Click here to view the draft instructions.
Foreign Reporting Developments
FATCA Final Regulations
The final regulations for sections 1471 through 1474 of the Internal Revenue Code – the final rules for the Foreign Account Tax Compliance Act (FATCA) – were released on January 17.
Background on FATCA
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
- Identify U.S. accounts,
- Report certain information to the IRS regarding U.S. accounts, and
- Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.
Registration will take place through an online system. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments. Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page at Treasury.gov or IRS.gov.
2013 IRS FATCA Newsletters
In 2012, the IRS began publishing a free newsletter dedicated to FATCA developments and announcements. The first four issues of 2013 have been condensed and reproduced below. To subscribe to the FATCA newsletter, you can register by clicking here.
- Issue Number: 2013-1 (January 17)
Treasury and IRS Issue Final Regulations (FACTA)
Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act. Click to read the IRS Press Release.
TD 9610 Final Regulations
TD 9610 Final Regulations (Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities) are now live on the Federal Register website.
- Issue Number: 2013-2 (February 14)
- Issue Number: 2013-3 (April 5)
Draft Form 8957, FATCA Registration Released
The draft form is released for public review and comment and should not be printed and submitted by a financial institution in an attempt to register for FATCA. FATCA registration can be accomplished most efficiently and effectively through an electronic online process that will avoid the need to print, complete, and mail paper forms. The online registration portal will be available in July 2013.
- Issue Number: 2013-4 (April 9)
FFI List Schema and Test Files Released
Today, the FFI list schema and test files were released. Under FATCA, withholding agents must withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information about their U.S. accounts or accounts of certain foreign entities with substantial U.S. owners.
An FFI may agree to report certain information about its account holders by registering to be FATCA compliant. An FFI that has registered to be FATCA compliant and that has been issued a global intermediary identification number (GIIN) will appear on a published FFI List. Withholding agents may rely on an FFI’s claim of FATCA status based on checking the payee’s GIIN against the published FFI List. This list is scheduled to be published monthly beginning December 2013.
The FFI List schema contains information about the FFI List that will be published and the test files contains dummy data records to illustrate the format and data that will be included in the FFI List.
Recent drafts of Forms W-8BEN, W-8BEN-E, and W-8EXP were released by the IRS in late May. Links to each of the three draft forms and a brief description are given below. The functions of the prior form W-8BEN are being split into two forms, the redesigned Forms W-8BEN (for use by foreign individuals), and Form W-8BEN-E (for use by entities).
Form W-8BEN Draft: Used only by foreign individuals, this form remains just one page. Language and portions of the form pertaining to entities has been removed from this form. Part II of the form can be used by the foreign individual to claim tax treaty benefits.
Form W-8BEN-E Draft: Used by entities to indicate Chapter 3 or Chapter 4 status (Part I) and by certain foreign financial institutions. Parts IV through XXV of the form pertain to certifications of various status possibilities for entities under FATCA regulations.
Form W-8EXP: IRS form for certification of foreign status of a foreign government, or certain foreign organizations, owning U.S. income.
Special Reports and Miscellaneous Items
National Taxpayer Advocate Delivers Annual Report to Congress
In early January 2013, National Taxpayer Advocate Nina E. Olson released her 2012 annual report to Congress, identifying the need for tax reform as a top priority.
The Advocate report also stressed that the IRS is not adequately funded to serve taxpayers and identified ways that the current underfunding harms the public it is intended to serve. It will be interesting to see how this all plays out in light of recent IRS scandal allegations and threats from Congress to defund parts of its operations, which obviously would be going in the opposite direction of the Advocate report recommendations below.
Tax Reform Recommendations:
The Advocate report recommended that Members of Congress take several steps, including:
- 1. Lay the groundwork for tax reform by holding meetings with constituents to discuss the complexity of the existing tax code and the trade-offs between tax rates and tax breaks that tax reform will require.
- 2. Eliminate the Alternative Minimum tax due to the fact that it has failed its stated objective of eliminating tax dodges for the wealthy and that it further adds to the overall complexity of the income tax.
- 3. Apply a “zero-based budgeting” approach to comprehensive tax reform that starts out with the assumption that all tax benefits will be eliminated and then adds a benefit back only if Members conclude that, on balance, the public policy benefits of providing that benefit through the tax code outweigh the complexity it imposes on taxpayers.
IRS Funding Recommendations:
- 1. Consider revising the budget rules so that the IRS is “fenced off” from otherwise applicable spending ceilings and is funded at a level designed to maximize tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden. (Note: Voluntary compliance is addressed in the second part of the Advocate’s report to Congress.)
- 2. Keep in mind that in allocating IRS resources that tax compliance requires an appropriate balance between high quality taxpayer service and effective tax-law enforcement, and funding should be provided in a manner that allows the IRS to maintain such a balance.
Click here for more information about this report, including videos of the National Taxpayer Advocate discussing key issues.
Senate Finance Committee – Tax Reform Option Papers
On March 23, The Senate Finance Committee issued the first of several papers forthcoming on the need for federal tax reform. Most of the discussion points raised in this first installment report were raised by expert witnesses during the Finance Committee’s hearings on tax reform, prior proposed legislation, or from bipartisan commissions. The paper is titled, “Simplifying the Tax System for Families and Businesses.” Click here to read the entire report.
Some key relevant reform proposals from the first paper are summarized below.
- Require information reporting (Forms 1099-MISC) by federal, state and local governments on non-wage payments for property or services.
- Eliminate the $10 threshold for 1099-INT reporting,
- Expand information reporting on Form 1098 for home mortgage interest, by adding:
– the unpaid balance amount,
– the address of the property securing the mortgage,
– and indicate refinance status.
- Require e-filing of information returns to the IRS at an earlier time, in order to facilitate IRS matching during processing of income tax returns.
- Require Schedule C of the Form 1040 to include lines relevant to the number of Forms 1099 received by the taxpayer and the gross receipts included therein.
Other important tax reform proposals described in the paper include the repeal of provisions requiring recalculation of a tax return multiple times. Items mentioned include:
- Repeal of the Alternative Minimum Tax (AMT)
- Repeal of the personal exemption phase out
- Repeal of the itemized deduction phase out
- Repeal of the corporate AMT
Click here for much additional information on the Finance Committee’s Tax Reform Option Papers, including all the subsequent papers released to date.
Affordable Care Act
- The Treasury Inspector General for Tax Administration (TIGTA) issued an audit report on March 29 assessing IRS effectiveness on implementation of the many tax provisions and information reporting requirements of the Affordable Care Act. Included in the full report is an IRS management response section that addresses the points and recommendations of the report. The report gives a flavor for the enormous complexity of the Act. Immediately below is TIGTA’s summary and link to the full report.
…IRS has been making steady progress in implementing the information reporting requirements of various provisions of the Affordable Care Act (ACA), the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on April 25. (Audit Report No. 2013-43-033) However, the implementation plan for §9002 that requires the inclusion of employer health coverage on Form W-2, Wage and Tax Statement, has significant shortcomings, the audit said. Specifically, the plan fails to address “how the IRS will use the information and how the IRS will ensure employer compliance with this information reporting provision,” TIGTA said. For purposes of the audit, the ACA encompassed the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010. The ACA involved more than 40 changes to the Code. The audit noted that many of the ACA’s tax provisions are interrelated and proper planning requires identifying the relationships between the tax and information reporting provisions. It is incumbent upon IRS to obtain all essential information from employers, insurers, and taxpayers, the audit stressed. “By doing so, the IRS can significantly improve its ability to manage the burden placed on employers, insurers, and taxpayers who must comply with the various Affordable Care Act requirements, as well as improve its ability to accurately administer Affordable Care Act fees, penalties, and tax credits,” TIGTA said. TIGTA suggested that IRS “should consider collecting additional third-party information that could expand its ability to ensure taxpayer compliance” with the ACA. The audit is available at http://www.treasury.gov/tigta/auditreports/2013reports/201343033fr.pdf.
- Affordable Care Act FAQs: For more information on Affordable Care Act provisions related to tax information reporting, a series of FAQs issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), and prepared jointly with IRS and the Department of Health and Human Services is also available and can viewed by clicking here.