2011 IRPAC Report Executive Summary Issues
A. Employer and Insurer Reporting Under the Patient Protection and Affordable Care Act for Years Commencing on or after 2013
With respect to the above Act and the reporting requirements for employers and insurers, IRPAC has recommendations concerning the use of the Form W-2, Wage and Investment Statement, separate electronic reporting mechanism, streamlining of information requirements, use of a separate form other than the Form W-2 for out year reporting requirements, Medicare tax reporting and more clarity concerning data reporting requirements. We look forward to working with the IRS in the coming year concerning this issue.
B. Health Care Valuation on Form W-2
IRPAC has previously submitted a comment letter concerning the reporting to employees of the cost of group health insurance coverage. IRPAC would like to highlight the need for relief in the area of sick pay reporting.
C. Premium Assistance Tax Credits
IRPAC recommends that the tax credits should be clearly explained in the Fact Sheet released with the proposed rule on August 12, 2011 and the IRS should look to the reporting requirements and how these may be used to assist tax credit applicants.
D. Shared Responsibility
IRPAC requests the IRS to address questions concerning penalty under IRC § 4980H(a) and makes additional recommendations concerning employer’s ability to self assess and pay estimated amounts.
E. Form 5500-EZ Registration
IRPAC recommends the development of a voluntary process where a sponsor of a plan that is currently exempt may file a registration statement to receive any informational filings that relates to their responsibility. This voluntary registration is to prevent IRS from issuing failure to file penalty notices when the plan sponsor is under the asset value threshold and has no filing requirement.
F. 5500-EZ Delinquent Filer Program
IRPAC recommends that a program be created to allow delinquent Form 5500-EZ filers to voluntarily disclose the failure to file the information return in a timely manner.
G. Employer Identification Numbers for Retirement Plans
With respect to the procedure to obtain employer identification numbers for qualified plans' trusts, IRPAC recommended in our 2010 report changes to the application process. Further, the instructions for obtaining an Employer Identification Number for the above should be clarified, as the current instructions are outdated and confusing. IRPAC also recommends that modifications to instructions and forms be cross-referenced from the Employee Plans website to the EIN landing page.
H. Automatic Extension of Filing Deadlines for TE/GE Issues
IRPAC recommends that the IRS set up a system and maintain a policy that allows for an automatic extension to the original filing date for any form published in final format within four months of its due date for any TE/GE related matter.
I. Clarification Needed on Form 1099-R Instructions
IRPAC recommends the Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., reporting issues relating to the following subjects be clarified: death benefits paid from the employer not reported on Form 1099-R, IRA distributions in box 2a, nonresident aliens, Puerto Rico citizens, and qualified charitable distributions.
J. Form 1099-R Reporting and Withholding Guidance for Certain Installment Payments
IRPAC recommends that the IRS issue reporting and withholding guidance concerning two payment streams from qualified plans, commercial annuities and IRAs covered by IRC § 3405, including lifetime guaranteed payments.
K. Erroneous Claims for Itemized Deductions for Unreimbursed Business Expenses
With respect to the issue of employee unreimbursed business expenses, IRPAC recommends that the Code L in box 12 of Form W-2 be used under certain circumstances to report those expenses reported under an accountable plan. IRPAC also recommends changes to certain publications to aid in the description and understanding of the reporting requirements.
L. Business Expenses Reporting: Fringe Benefit Information Contained in IRS Publications
IRPAC has provided certain suggested changes to various publications addressing fringe benefits to help clarify the reporting requirements for employees and employers and their obligations.
M. Fraudulent Forms W-2 Result in IRS Issuing Erroneous Tax Refunds
IRPAC has explored the issue and makes the following recommendations IRS should study the occurrence of fraudulent Forms W-2 or Forms 1099 that have resulted in erroneous tax refunds. IRS should team with various stakeholder groups, including SSA and IRPAC prior to implementing changes that will impact individual filers, payers, service bureaus, software vendors, and others affected by any proposed change to the timing, frequency, and/or nature of information reporting. IRS should not implement any change that would increase the frequency of information reporting related to Forms W-2 or Forms 1099. IRS should work with stakeholder groups to determine if shortening the timeframe for reporting payer information would be workable for payers, and, if so, if that change would improve the IRS’ ability to reduce the occurrence of erroneous refunds.
N. TIN Masking on Payee 1099s
IRPAC recommends that the optional TIN masking pilot program as referenced in Notice 2009-93 and extended in Notice 2011-38 be made permanent and extended to cover other statements.
A. Tax Credit Bonds
Since publication of IRS Notice 2010-28, IRPAC has provided recommendations on tax credit, interest and original issue discount information reporting requirements related to tax credit bonds and stripped tax credits. As this is an entirely new type of reporting, the Burden Reduction subgroup has also worked with the IRS to get a better understanding of the IRS vision for data matching from issuance of new obligations through the claim of tax credits on a taxpayer’s return. During 2011 attention has been focused mainly on the requirements of Form 1097-BTC (Bond Tax Credit), a quarterly report to beneficial owners of tax credit bonds. Dialog between IRPAC and the IRS has led to development of a potential data structure framework for filing Forms 1097-BTC using data elements that are routinely captured as part of standard processing by investment firms. If adopted, this should make implementation easier and limit data storage and transmission costs for both filers and the IRS.
B. Form 1099-B Modifications for Cost Basis Reporting
The regulations for cost basis reporting necessitate substantial modification to Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. IRPAC has provided consultation and recommendations throughout the year which have led to refinement of the language on the form, improved instructions for taxpayers and filers, provided greater flexibility in the design of substitute statements and improved awareness of the downstream implication of the new requirements. Together, these developments will result in better information for taxpayers.
C. Business Master File Address Change Procedures
Currently, the business address shown on the IRS BMF is changed every time a return is filed. This procedure creates major problems for both the IRS and businesses. The problem lies with IRS Revenue Procedure 2010-16. The IRS will release a new Form 8822-B, Change of Address – Business, in 2012. The new form will help, but will not fully solve the problem. IRPAC recommends that the BMF be changed only by specific written request. We also recommend that the BMF be changed to allow multiple addresses for one business.
A. IRC § 6050W and Form 1099-K Reporting
IRPAC recommends that reporting on Form 1099-K, Merchant Card and Third Party Payments, be made optional for transactions taking place in 2011. This is particularly important in the case of third party network transactions. The reporting rules related to third party network transactions are unclear and require additional clarification and explanation to be effective for many putative reporting organizations. In addition, many reporting organizations simply do not understand that they are potentially implicated by these rules while others understand that their arrangements may be implicated but are burdened by the lack of clear guidance and are, therefore, unable to establish the data processing systems necessary to comply. It has also recently become evident that additional changes to the Form 1099-K are being made, which creates additional burdens that cannot adequately be addressed by reporting organizations in advance of the filing deadlines. IRPAC believes that the IRS must take decisive action now to avert a situation where many currently compliant reporting organizations will be unable to reasonably comply with the new reporting rules as written. IRPAC believes that the IRS must promptly address these concerns in advance of the date on which reporting under IRC § 6050W becomes mandatory.
B. Information Regarding IRC § 3402(t) 3% Withholding
IRPAC recommends a public comment period for proposed regulations prior to issuance of guidance for payments made by payment card, clarification of exclusion from withholding for arrangements where service providers remit a payment net of fees to government entities and payments for medical services by third party administrators on behalf of self-funded insurance plans, a proportionate pass through of exemption to government and tax exempt entities that have an ownership interest in a service provider that fails to meet the 80% ownership test, and extension of the good faith exception until after calendar year 2015 along with waiver of the withholding requirement for government entities establishing inability to comply due to IT limitations.
C. Central Withholding Agreements: Addressing Needs of Venues and Foreign Artists Through a Mini-CWA Program and Problems Encountered by Foreign Artists when Applying for US Social Security Numbers (SSNs).
IRPAC began discussions with IRS LB&I regarding Central Withholding Agreements (CWA) in 2010. Issues include addressing the needs of smaller venues with foreign performing artists through the creation of a mini-CWA program and problems encountered by foreign artists when applying for U.S. social security numbers. In 2011, IRPAC has continued to work diligently with representatives of LB&I in their efforts to develop a mini- CWA process, and to address the missing SSN/ITIN concern. A structure for a new simplified CWA has been developed and will ultimately become part of a revenue procedure currently being revised.
D. Withholding and Reporting on Payments for Freight, Shipping, and Other Transportation Expenses under IRC § 1441 and 1442
Significant confusion has long existed regarding the proper withholding and reporting treatment of U.S. source payments for freight, shipping, and other transportation expenses. This confusion relates to the interplay between the 4% excise tax on U.S. source Gross Transportation Income (“USGTI”) under IRC § 887 and the 30% gross-basis withholding tax under IRC §§ 871 and 881 as well as the documentation necessary to establish the responsibilities of withholding agents for the latter. In its 2010 report, IRPAC provided a detailed discussion of this issue and other related issues, including recommendations for improvements to forms and instructions. See Appendix for 2010 IRPAC Report, pp. 12, 61-68. Although the IRS now understands the challenges regarding this issue, little has been done to address these concerns. IRPAC renews the recommendations it made in its 2010 report, recommends a specific change to Form W-8BEN, Beneficial Owner's Certificate of Foreign Status for U.S. Tax Withholding, and also recommends that the IRS promptly correct the discussion of this issue included in Publication 515 because the existing discussion is misleading to taxpayers and withholding agents.
E. Information Regarding Form 1098-T Reporting of VA/GI Bill Benefits
IRPAC supports IRS plans to revise the 2012 instructions for Form 1098-T, Tuition Statement, to clarify proper reporting of VA/GI bill benefits.
F. Information Regarding Non-Resident Alien Taxation and Tax Reporting
IRPAC initiated and has continued to support an ongoing effort by the IRS to publish taxpayer friendly web-based content on IRS.gov for non-resident alien taxation, withholding and reporting. So far the IRS has developed a new section titled “Taxation of Aliens by Visa Type and Immigration Status” now in review with Counsel. IRPAC is working with LB&I to develop a landing page that introduces withholding agents to their responsibilities regarding this immigration-based information.
G. Identity Theft and Information Reporting
IRPAC continues to be concerned about the challenges faced by payers in complying with the information reporting requirements where identity theft is involved. IRPAC requested that some clarification be provided to payers to assist their compliance when the payers do not know the identity of the person to whom reporting is required. IRPAC discussed two possible solutions with the IRS: (1) the IRS would add language to all Form 1099 instructions similar to that contained in the instructions to Form 1099-C, Cancellation of Debt, that the form is not required to be filed in cases of identity theft; or (2) the IRS would permit payers to file information returns showing the payee as “unknown payee,” similar to what is permitted under the IRC § 1441 regulations. The first solution was not considered technically feasible by the IRS and the second solution will continue to be pursued by IRPAC.
H. Changes to Pub. 3908, Gaming Tax Law and Bank Secrecy Act Issues for Indian Tribal Governments
IRPAC offered language to the Service (TEGE and LB&I) and to Indian Tribal Governments (ITG) to enhance Publication 3908 to assist gaming operations in correctly identifying nonresident alien (NRA) winners for tax withholding and reporting purposes. This IRS publication provides Indian gaming operations with the latest tax law applicable to gaming operations for gaming activities and is widely used by gaming operators across the country. It provides the documentation standards under the Bank Secrecy Act, but failed to address the tax standards for identifying NRA winners. IRPAC supplied the missing information.
A. Foreign Account Tax Compliance Act
IRPAC has worked closely with the IRS and Treasury regarding the implementation of the Foreign Account Tax Compliance provisions of Subtitle A of Title V of the Hiring Incentives to Restore Employment Act (commonly referred to as FATCA). The IRW Subgroup report summarizes the principal issues on which IRPAC has provided recommendations.
A-1. Short-term Debt
FATCA generally imposes withholding and reporting obligations with respect to “withholdable payments.” The definition of withholdable payment includes U.S. source interest (including original issue discount), but does not provide an explicit exception for interest or original issue discount on short-term debt. IRPAC recommends that interest (including original issue discount) on debt having a term of 183 days or less be excluded from the definitions of “withholdable payment” and “financial account” under FATCA, consistent with the terms and policies implemented by the exemption for such amounts under Chapter 3 of the Code.
A-2. Potential Conflicts with Foreign Laws
The obligations that FATCA imposes on foreign financial institutions (FFIs) potentially conflict with legal constraints imposed on such FFIs under foreign law in a number of respects. IRPAC recommends that the IRS take into account the existence of such restrictions in formulating guidance under FATCA.
A-3. Notice 2011-53 Transitional Relief
The IRS issued Notice 2011-53 to provide transitional relief with respect to the implementation of FATCA. The Notice may still leave too little time for financial institutions to build required systems and to perform required account due diligence. IRPAC recommends that the IRS issue further guidance that provides additional time for withholding agents to develop required systems and that provides rules for the identification of FFIs and procedures that withholding agents will be required to follow to verify an account holder is an FFI and its status as a participating FFI.
A-4. Due Diligence Requirements for Existing Accounts
IRPAC recommends that the account holder file searches provided for in Notices 2010-60, 2011-34 and 2011-53 be limited in scope to a reasonable number of calendar years prior to the date of the search.
A-5. Revisions of Form 1042-S for FATCA Reporting and Withholding
FATCA will require reporting of additional information concerning types of payments and recipients. IRPAC recommends that the current Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, be revised to include additional income and recipient codes applicable to FATCA reporting and withholding.
A-6. Revision of Form W-8BEN
The current version of the Form W-8BEN is frequently confusing to both foreign entities and nonresident alien individuals. IRPAC recommends that the current Form W-8BEN be split into separate forms for individuals and entities. The new Form W-8BEN for entities should include statements certifying entity classification and other items relevant under FATCA.
B. Chapter 3 Withholding Tax Issues
IRPAC met with the IRS to discuss various Chapter 3 withholding tax issues and offer recommendations. The IRW Subgroup Report summarizes the issues and recommendations. The IRS has indicated it intends to take into account the recommendations in guidance it intends to issue.
C. Clarification of Information Reporting Requirements Relating to Commercial Paper
The HIRE Act repealed IRC §163-(f)(2)(B) of the Code with respect to debt obligations issued after March 18, 2012. The repeal of this provision has created some uncertainty regarding the continued viability of the information reporting exception for commercial paper. IRPAC submitted a comment letter on September 15, 2011 recommending that the IRS clarify the applicability of the information reporting exception for commercial paper following the enactment of the HIRE Act.