Issue Number: 2019-35
Inside This Issue
- Early Reporting Replaces Form W-2 Verification Code
- IRS Releases New Tax Gap Estimates
- Data Security Message from the IRS Return Preparer Office
- IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for QBI
- E-File Requirement for Form 4419
- Tax Relief for Mississippi Storm Victims
- News from the Justice Department’s Tax Division
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Technical Guidance
1. Early Reporting Replaces Form W-2 Verification Code
The IRS is discontinuing the Form W-2 Verification Code pilot for the 2019 tax year. The verification code was introduced as a means of reducing fraudulent filings of Form W-2. Federal law now requires employers to submit Forms W-2 by Jan. 31 each year, which helps the IRS combat identity theft and refund fraud and supersedes the need for the verification code.
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2. IRS Releases New Tax Gap Estimates
A new set of tax gap estimates on tax years 2011, 2012 and 2013 show the nation's tax compliance rate was substantially unchanged from previous years. The average gross tax gap was estimated at $441 billion per year based on data from tax years 2011, 2012 and 2013. After late payments and enforcement efforts were factored in, the net tax gap was estimated at $381 billion.
"Voluntary compliance is the bedrock of our tax system, and it's important it is holding steady," IRS Commissioner Chuck Rettig said. "Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration."
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3. Data Security Message from the IRS Return Preparer Office
The IRS Return Preparer Office sent the following message this week to all registered holders of PTINs (Preparer Tax Identification Numbers):
Dear Tax Professional,
Summer is over, and it won’t be long until you’re sitting down at your computer to renew your preparer tax identification number (PTIN) for 2020. In mid-October when renewal season begins, you will notice a data security responsibilities statement has been added to the PTIN renewal process. It serves as a reminder of your legal responsibility to have a data security plan and to provide data and system security protections for all taxpayer information. When completing your PTIN renewal, a checkbox will be available to confirm your awareness of these data security responsibilities.
Data security continues to be a hot topic. That’s because tax professionals remain a top target of identity thieves and data breaches continue to affect tax professionals at an alarming rate. Cybercriminals use sophisticated and ever evolving techniques to gain access to your systems. These criminals steal sensitive taxpayer data to file fraudulent tax returns and create financial havoc for your clients. There are simple steps you can incorporate in your daily operations to minimize your vulnerability and protect client data, including:
- Protect email accounts with strong passwords and two-factor authentication if available.
- Install an anti-phishing tool bar to help identify known phishing sites.
- Use anti-phishing tools that are included in security software products.
- Use security software to help protect systems from malware and scan emails for viruses.
- Never open or download attachments from unknown senders, including potential clients. They should instead make contact first by phone.
- Send only password-protected and encrypted documents when files must be shared with clients over email.
- Never respond to suspicious or unknown emails.
- Back up sensitive data to a safe and secure external source.
- Properly dispose of old computer hard drives that contain sensitive data.
You should also make sure to have a written data security plan in accordance with the Federal Trade Commission’s Safeguard Rule. Remember, protecting your clients is not only good for business, it’s also the law. While the hope is that you’re never the victim of a data breach, preparation and education will go a long way in helping to protect your clients and yourself.
More information:
Publication 4557, Safeguarding Taxpayer Data
Publication 5293, Data Security Resource Guide for Tax Professionals
Identity Theft Information for Tax Professionals
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4. IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for QBI
The IRS this week issued Revenue Procedure 2019-38, which establishes a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code.
The safe harbor is available for individuals who claim the section 199A deduction with respect to a "rental real estate enterprise." To review the qualification requirements, visit IRS.gov/taxreform.
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5. E-File Requirement for Form 4419
Effective Oct. 1, Form 4419, Application for Filing Information Returns Electronically (FIRE), must be electronically filed. The form is used to request an original Transmitter Control Code (TCC) to transmit information returns through the FIRE System. To electronically file Form 4419, submit an online Fill-in Form 4419 located within the FIRE System at https://fire.irs.gov/.
Submit a paper Form 4419 (Rev. 9-2019) when you have an existing TCC to:
- Revise current TCC information
- Request an additional TCC for a form type listed on Form 4419, Block 8
The IRS will process paper versions of Form 4419 received prior to Oct. 1 accordingly. Form 4419 is not applicable when requesting an Affordable Care Act (ACA) TCC. For more information, visit About Form 4419.
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6. Tax Relief for Mississippi Storm Victims
Victims of severe storms, straight-line winds, tornadoes and flooding that took place from Feb. 22 to March 29 in the Mississippi counties of Clay, Humphreys, Issaquena, Lowndes, Monroe, Sharkey, Warren and Yazoo may now qualify for amended tax relief from the Internal Revenue Service.
Visit the IRS disaster relief page for all updates on tax relief for disaster victims.
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7. News from the Justice Department’s Tax Division
The U.S. Department of Justice Tax Division this week reported:
Two Utah tax return preparers, Alma Barlow and Denver Barlow, formerly of Hildale, Utah, were each sentenced in federal court to 24 months in prison for conspiracy to file false claims. According to court documents, from 2009 to 2014, the defendants held themselves out to the public as legitimate tax return preparers, though they filed over 700 false tax returns for themselves and for hundreds of unknowing clients, ultimately claiming over $9.7 million in false refunds. The defendants also added false entries to tax returns to trigger the Earned Income Tax Credit or added false figures for federal income tax withholdings, Form 1099-OID income tax withholdings, or Schedule C business expenses to fraudulently increase the amount of the claimed refunds. The District Court judge ordered the defendants to each serve three years of supervised release and to pay over $5.3 million in restitution to the United States.
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8. Technical Guidance
Notice 2019-51 provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under section 417(e)(3), and the 24-month average segment rates under section 430(h)(2) of the Internal Revenue Code.
Notice 2019-55 announces the special per diem rates effective Oct. 1, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.
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