After requests from tax preparers, the IRS, in conjunction with the Security Summit, released new tools to aid tax professionals in establishing a written information security plan.

This Aug. 9 guidance was long-awaited since the IRS released information in 2020 stating, “Anyone who prepares or substantially helps prepare any federal tax return or claim for refund for compensation must have a valid PTIN from the IRS. During the renewal process, you’ll be asked to attest to your data security responsibility, and whether you are aware of your obligation to have a data security plan in place to provide data and security system protections for all taxpayer information.”

Personal data is extremely valuable in the world of cybersecurity, and tax preparers hold a substantial amount of sensitive client information in their systems, making them prime targets for cyberattacks.

NATP recently discussed the template’s release with data security expert and NATP instructor Brad Messner, who has been teaching a workshop about the importance of data security plans for years.

NATP is hosting a data security online workshop taught by Messner in September, where attendees will learn what information is necessary to complete a plan, including how to implement and manage it for in-person and virtual offices. Attendees will leave with a plan that meets IRS and insurance requirements.

The Inflation Reduction Act (IRA) has just passed both houses of Congress and is expected to receive the president’s signature this weekend without issue. The act includes provisions that will have both long- and short-term tax impacts on taxpayers. In this blog post, we break down the six items in the IRA that every tax preparer needs to be aware of.

Short-term impact

The IRA provides short-term benefits to taxpayers, including a new credit and the extension of two existing credits.

• New for the 2023 tax season (to be applied on 2022 returns) is an updated energy credit for both new and used electric vehicles. Taxpayers can receive up to a $7,500 credit for new vehicles through 2032. Additionally, a $4,000 credit is available for the purchase of used electric vehicles. Price caps will apply to the new vehicle credit and both credits are subject to income and other limitations.
• Extension of American Rescue Plan Act (ARPA) provisions for health insurance purchased through the Health Insurance Marketplace. For tax years 2021 and 2022, the ARPA removed the 400% federal poverty line limitation for premium assistance and replaced it with a standard that Marketplace-purchased insurance costs should not exceed 8.5% of household income. The IRA extends the 8.5% limitation through 2025.
• Extension of credits for homeowners who install solar-powered projects and other energy-saving products. There are also several other provisions in the legislation that benefit the clean-energy industry.
• Excess business loss (EBL) provisions which were extended through 2025 by ARPA are extended for an additional year by the IRA.
• A corporate 15% minimum tax on “book income” publicly reported on financial statements to shareholders (think Form 1120, Page 3, balance sheet, Schedule M-1, Line 1) for businesses with greater than $1 billion in revenue.

Long-term impact

The IRA provides for a large allocation of money to increase the IRS’s funding over the next 10 years.

• The act designates $80 billion to update technology and outdated systems and hire additional agents to decrease the backlog. $15 million of the $80 billion will also provide funding for the IRS to conduct a study on the feasibility of expanding access to the IRS Free File system, with taxpayer’s being given access to data already on file with the IRS, such as the W-2 series, 1099s, etc.

For tax preparers, this increased funding could mean an increase in IRS audits and information requests. Preparers should start advising their clients on the need to retain supporting documentation to prepare for the increased IRS scrutiny. Preparation could also include earning a designation which will give preparers additional rights to respond to IRS correspondence and represent their client before the IRS.

For a complete discussion on the tax implications of the IRA, visit our Facebook page for NATP’s Facebook Live chat with NATP Director of Tax Content and Government Relations Tom O’Saben, EA.

Question: Heather and Charlie, a married couple who are both U.S. citizens residing in a non-community property state, want to gift their daughter $100,000 in 2022 toward the purchase of a condo on Maui. Can they file a joint gift tax return so they can claim their combined total $32,000 annual exclusion?

Answer: No. Heather and Charlie must each file a separate Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, to claim their own $16,000 exclusion ($32,000 combined total). If the gift was made by either Heather or Charlie alone, under §2513, they may still elect to treat a gift made by one spouse as two equal gifts totaling the amount of the single gift with half being given by each spouse. This gift-splitting makes the annual exclusion available to each spouse to offset the total gift. Each spouse consents to the gift-splitting by checking the box on Form 709, Line 12, providing details on Lines 13 through 17 and having the consenting spouse sign the consent on Line 18 of the other spouse’s return. Instructions for Form 709 state that the couple should file both gift tax returns together in the same envelope to avoid IRS correspondence.

Each spouse reports the entire value of each gift made during the year on Form 709, Schedule A (Part 1, 2 or 3), separately listing gifts made by each spouse. Half the gift to be split is entered on Part 1, 2 or 3, Column G, to represent the consenting spouse’s share of the total gifts made by both spouses. The donor’s share of the total gifts, the sum of the values in Column H, is entered on Part 4 (Taxable Gift Reconciliation), Line 1.

Check out NATP’s recent webinar Preparing Form 709 for Gifts now available on-demand.