The IRS has again cautioned tax professional to take steps to protect taxpayer date in News Release IR-2018-147, Tax Security 101 – IRS, Security Summit partners launch new awareness campaign; Urge tax professionals to step up protections for client data.  The release cautions that “[d]ata thefts at tax practitioners’ offices continue to rise and result in fraudulent tax returns that can be especially difficult for the IRS and states to detect.”  As well, the IRS modifies its guidance to take into some of the latest thinking in the technology security world.

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Many CPAs are aware of the “backdoor” Roth IRA technique.  But many have also wondered about whether the IRS might challenge this technique given that it, first, has gained a name that sounds like a “cheat” and, second, it is clearly trying to work around the contribution limits Congress has left in the law even after removing the income limits on converting a regular IRA to a Roth IRA.  But now we have at least an unofficial blessing of the technique from an IRS employee on an IRS sponsored broadcast.

Tax Analysts reported in the July 11, 2018 edition of Tax Notes Today that Donald Kieffer Jr., tax law specialist (employee plans rulings and agreements), IRS Tax-Exempt and Government Entities Division made favorable comments about the technique in a Tax Talk Today webcast broadcast on June 10.

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A state with a relatively complicated sales tax system, Louisiana, has announced that it plans to come up with a mechanism that it feels meets the “suggestions” laid out in the majority opinion in South Dakota v. Wayfair.  The Advocate and various other sources reported that Louisiana Department of Revenue Secretary Kimberly Robinson has set a January 1, 2019 date to have the program in place and begin requiring out of state sellers to collect taxes.[1]

The story on The Advocate website noted that although Louisiana already has a simplified flat rate program in place for catalog sellers (using a flat 9% rate), the state plans to require internet vendors to collect a variable amount based on the many and varied local tax rates charged in the state, using the delivery zip code to determine the tax to be imposed.

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The announcements keep coming from the states following the Wayfair decision. Not surprisingly, the Alabama Department of Revenue has announced that it will begin enforcing its economic nexus rule for collection of sales taxes on October 1. (ADOR Announces Sales and Use Tax Guidance for Online Sellers, Alabama Department of Revenue Website, July 3, 2018)

Alabama’s economic nexus rule is a bit different from South Dakota’s, being based solely on total revenue from sales into Alabama and not having a transaction-based trigger as well. The Alabama sales level is $250,000 annually to triggera tax collection requirement.  As well, Alabama is not a full member of the Streamlined Sales and Use Tax Agreement (SSUTA).  Instead, Alabama has implemented its own Simplified Seller’s Use Tax Program (SSUT).

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In Chief Counsel Email 201825028 the document addresses the question of how far afield the IRS may go in asserting a preparer penalty under IRC §6694(b).  In this case, the employee was asking whether an individual who is a shareholder of an S corporation that was involved in the preparation of a return could be assessed the penalty personally.

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Another state has been heard from in the aftermath of the Supreme Court’s decision in Wayfair v. North Dakota.  Wisconsin’s Legislative Fiscal Bureau has published a memorandum issued to the members of the Wisconsin Legislature (Memorandum: South Dakota v. Wayfair, Inc. - Sales and Use Tax Collections on Remote Sales) that implies that Wisconsin’s Department of Revenue is aiming for an October 1, 2018 start date for collecting sales tax from remote sellers.

Tax Analysts, in their story in State Tax Today covering this memorandum, reported that Wisconsin Governor Scott Walker’s press secretary, Amy Hasenberg, confirmed the October 1 beginning date for the state to start requiring out of state sellers to collect and remit the tax.

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The IRS Large Business & International Division announced on July 2, 2018 five compliance campaigns (IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns, IRS Website).  The campaigns announced are in the areas of:

• Restoration of the Sequestered AMT Credit Carryforward
  

• S Corporation Distributions
  

• Virtual Currency
  

• Repatriation via Foreign Triangular Reorganizations
  

• Section 965 Transition Tax

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If the bill is signed into law by the governor, New Jersey’s legislature will become the first to have passed a modified law (NJ A4261) following the Supreme Court’s decision in South Dakota v. Wayfair.  The New Jersey law is drafted to follow the provisions of South Dakota’s statute which were commented upon favorably in the majority opinion, suggesting such a statute would likely not face a successful challenge on other Commerce Clause grounds.

New Jersey has been a full member of the Streamlined Sales Tax Agreement since October 1, 2005[1], so bringing the economic nexus provisions into line with South Dakota’s would serve to bring the state under the implied “safe harbor” found in the majority opinion’s discussion of South Dakota’s protections against running afoul of the Commerce Clause.

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The new “simplified” postcard Form 1040 was issued in draft form by the IRS with only minor changes from the internal version leaked a few days earlier.  Unfortunately, simplification means that Treasury has managed to take a 2 page form and convert it into eight pages (or maybe six pages and two half-pages).  However, most taxpayers won’t need to complete all six attachments.

With the issuance of the new “postcard” 1040, the IRS will retire the Forms 1040A and 1040EZ.  However, the Congressionally mandated Form 1040-SR would appear to still be showing up for 2019 returns, at least unless Treasury can convince Congress that the new postcard form eliminates the need for the Form 1040-SR and it is removed from the law.

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At first glance, the case would not have appeared promising for the taxpayer in Val Lanes Recreation Center Corp. v. Commissioner, TC Memo 2018-92.  The IRS had revoked the exempt status of the ESOP of the taxpayer and had done so partially based on the agency’s position that the CPA who performed the appraisal was not an “independent appraiser” as required by IRC §401(a)(28)(C).

The reason for the grim outlook was that the taxpayer had used the same appraiser as had been used in the case of Churchill, Ltd. Emp. Stock Ownership Plan & Tr. v. Commissioner, TC Memo 2012-300 where the Court had agreed with the IRS that the appraiser, who also handled many other duties for the plan, failed both as to his qualifications and his independence under this test, resulting in the loss of tax exempt status of the employee trust.  Another client of the same appraiser had ended up with a similar result in case of Hollen v. Commissioner, TC Memo 2011-2.

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The IRS has released the list of designated qualified opportunity zones under IRC §1400Z-1 in Notice 2018-48.  The 383 page list defines areas for investment that can be used for qualified investments under IRC §1400Z-2 added by the Tax Cuts and Jobs Act.

The purpose of IRC §§1400Z-1 and 1400Z-2 was to offer significant tax incentives to encourage investment in certain disadvantaged areas identified by state and local officials.  The designated areas are submitted to the IRS for listing.

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In a 5-4 decision, the United States Supreme Court eliminated the physical presence test that determined if a state can force a seller to collect its sales and/or use tax  In the case of South Dakota v. Wayfair, USSC Case No. 17-494 all of the Justices agreed that the physical presence test applied previously in the cases of National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, and Quill Corp. v. North Dakota, 504 U. S. 298 was inappropriate.  However, the four Justices making up the minority in the dissenting opinion argued that the physical presence rule should have remained in place due to the fact that entities have acted for years in reliance on that standard.

The Court had limited states to imposing sales and use tax collection responsibilities only on sellers that had a physical presence in the state in the National Bella Hess case.  Twenty five years after that case, the Court again agreed that physical presence was necessary in the Quill case.  Now, 26 years later, the Court, visiting the issue for the third time has reversed that position –and two of the five Justices in the majority had previously ruled for the opposite result in the Quill case.

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Sometimes individuals want to take shortcuts to get around certain non-tax rules and regulations.  In the case of Gaunt v. Commissioner, TC Memo 2018-78, the couple ran into tax issues when attempting to assist their son who lacked a general contractor’s license.

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