Obamacare Forms are Here

Or, more accurately, many of them which will be used in implementing the new law were announced recently in draft form. And as it develops, there are quite a few. Here’s a sampling:

Form 1094-B the form for Transmittal of Health Coverage Information Returns

Form 1094-C the form for Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns

Form 1095-A a form for the Health Insurance Marketplace Statement

Form 1095-B the Health Coverage Form

Form 1095-C a form for Employer-Provided Health Insurance Offer and Coverage

OK, enough already! This is a few of several forms which were issued along with several “Revenue Procedures” (an IRS official method of telling us how to properly do something to their liking) related to the Affordable Health Care Act.

Among these is Revenue Procedure 2014-37, which “provides the methodology to determine the applicable percentage table in Section 36(b)(3)(A) of the Internal Revenue Code used to calculate an individual’s premium assistance credit amount for taxable years beginning after calendar year 2014. It also provides the methodology to determine the required contribution percentage in Section 36(c)(2)(C)(i)(II) used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage for purposes of Section 36B for plan years beginning after calendar year 2014. In addition, Revenue Procedure 2014-37 reproduces the required contribution percentage, as determined under guidance issued by the Department of Health and Human Services, used to determine whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage under Section 5000A(1)(A) for plan years beginning after calendar year 2014. [i]

As you can see, or if you’ve been keeping up, already knew, we have a few more forms in our future.

Not to scare you, but we will be bringing you more fascinating news about the Affordable Care Act and its implications for you.





[i] Analysis from Jon A. Hayes, Executive Director, Independent Accountants Association of Michigan. 

A Great Trust to Place in an Agency of Government

The “TIGTA” or Treasury Inspector General for Tax Administration released on October 1, 2014 his Annual Report of IRS Compliance Trends, commenting that “Despite less funding and fewer employees, the Internal Revenue Service (IRS) increased the total dollars received and collected for the third straight year.”

However, the IRS conducted fewer examinations, and its Collection Function continued to receive more delinquent accounts than it closed. Budget reductions contributed to a decrease in the number of examinations and an increase in the number of delinquent taxes being placed in “inactive status,” according to J. Russell George, who currently holds the office of TIGTA. (We wrote about the role of TIGTA in an earlier PottscastWho Audits the IRS.)

In an IRS Audit, don't go it alone. We can help!

Don’t go it alone.

The IRS collected 13% more in fiscal year 2013 than in the previous fiscal year, bringing in a staggering $2.9 trillion (that’s $2,900,000,000,000 – I think!). As late Senator Everett Dirksen (R-Ill) is rumored to have quipped: “a billion here—a billion there—and pretty soon you’re talking real money.” Now the Senator might be tempted to update his joke.

“Enforcement revenue” (which is revenue collected as a result of IRS intervention—such as auditing tax returns) increased from $50.2 billion to $53.3 billion in the last fiscal year.

All of this money taken from the people and given to the government was accomplished by the IRS with a budget in fiscal 2013 which was 7.4% less than in the prior year. They spent only $11.2 billion, cut the number of full-time equivalents by 9% (to 86,310 at the end of fiscal 2013).

This is indeed a great trust to place in an agency of government. Ours is a self-assessing system with the IRS monitoring compliance. Its tactics can be irritating, its decisions and interpretations sometimes wrong, and even on rare occasion, the freedom of certain citizens can be threatened. But on the whole, one cannot argue much from a management standpoint about its efficiency.

Please keep in mind is that as professional tax accountants we are here to protect your interests, and while we abide entirely in accordance with the law, we do not work for the IRS. Should you fall into that number who are contacted about an audit (either in person or by correspondence) we want to know about it. In fact, let us see everything you get from the IRS as soon as you get it. Don’t go it alone: you won’t regret it.



Is It Worth Your Effort?

Leon and Margaret Daniels owned nine vehicles back in 2005 and 2006 and they used them in connection with their business, A1 Carpet Cleaning, an unincorporated business. A1 Carpet Cleaning, as the name suggests, cleaned carpet and upholstery. The nine vehicles consisted of a 1988 Jeep, a 1986 Cadillac, a 1975 Chevrolet Nova, a 1994 Lincoln Continental, four vans and a 1965 Ford pickup truck.

The IRS has strict rules regarding automobile deductions.

Are you protecting yourself from an automobile deduction disaster?

Most business owners understand that the Internal Revenue Code allows the deduction of automobile and truck expenses when incurred in connection with business. However the Daniels were audited by the Internal Revenue Service and the IRS disallowed the expenses incurred for use of four of the vehicles used in the business in 2005 and 2006. Apparently the Daniels felt the IRS was wrong so they exercised their right to take the matter to the U.S. Tax Court. They told their story to the U.S. Tax Court, but the Tax Court agreed with the IRS and upheld the disallowance of the deduction and told the Daniels to pay the $30,427 of additional taxes and penalties due the U.S. Treasury because of the IRS adjustment to their income taxes. So what went wrong for the Daniels?

In addition to business use, the Daniels used the Jeep, the Cadillac, the Nova and the Lincoln for some personal use. Their fatal mistake was they did not keep a mileage log to document the business use of the four vehicles nor did they keep receipts for the vehicle expenses.

There is a long standing rule, the Cohan Rule, which states that when a taxpayer establishes that he or she paid or incurred a deductible expense but does not establish the amount of the expense, an estimate of the expense can be used. However, there must be sufficient evidence in the record to permit the IRS or the court that the taxpayer incurred the expense in at least the amount allowed.

The problem with vehicle expenses is that there is a pesky Internal Revenue Code section, Section 274(d), which makes the Cohan Rule inapplicable for certain classes of expenses. Expenses falling under the rules of Section 274(d) have stricter requirements for documentation than other types of expense. The types of expense ruled by Section 274(d) are traveling, entertainment or recreation, gifts and listed property. Listed property includes passenger automobiles.

In the exact words of the Internal Revenue Code’s Section 274(d), “No deduction or credit shall be allowed…unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift, (C) the business purpose of the expense or other items, and (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift.”

The Tax Court wrote in their opinion, “Petitioners did not comply with the strict substantiation requirements of section 274(d). They [the Daniels] did not maintain a contemporaneous diary, calendar or mileage log of their business travel and have failed to prove that they otherwise made a record of the alleged business use of each vehicle at or near the time of the use. The did not retain receipts for the expense reported, did not otherwise produce documentary evidence of the expense reported, and did not establish the total business miles driven during the years at issue. Instead, petitioners [the Daniels] offered general and uncorroborated testimony, along with a handwritten summary sheet of expense and an estimate of the business use of each vehicle. Such evidence does not have the high degree of probative value necessary to elevate it to the credibility of a contemporaneous log. Accordingly, we conclude that petitioners have failed to substantiate their claimed vehicle expense deductions under section 274(d)….”

The Potts paraphrase of this code section and the lesson to be learned is that if you want to make sure you can deduct your business expenses for travel, entertainment, gifts and most passenger automobiles, then you had better document in some way the amount, time, place, business purpose and, if applicable, the business relationship of any person you spent money on in order to get your deduction. Documentation usually requires some form of ink and some type of paper or digital equivalent.

The other five vehicles? It doesn’t say, but they either did not fall under the definition of “listed property” and therefore did not have to meet as strict requirements as the four passenger vehicles of which the expenses were disallowed or they had records to substantiate their expenses.



Source: Daniels v Commissioner, U.S. Tax Court, 5828-12S, February 24, 2014, Unpublished, T.C. Summary Opinion 2014-16