IRS Tax Updates Alan.J.Gregerson@irs651-726-1589

1. Northstar Payroll Association IRS Tax Updates Alan.J.Gregerson@irs.gov651-726-1589 October 6, 2016

2. Tax Updates • I. Path Act/Tax Law/IRS Proc. /Payroll Issues • II. Identity Theft/Data Loss • III. Scams • IV. Digital Demand • V. Secure Access • VI. IRS Future State • VII. Early Interaction Initiative • VIII. Information Return Penalties • IX. W2 Verification Code Pilot

3. Tax Updates • X. Electronic Filing Tax Payment System • XI. Backup Withholding • XII. IRS Resources • XIII. ACA

4. I. Path Act/Tax Law/IRS Procedures/Payroll Issues • Path Act • Certified Professional Organizations • Work Opportunity Tax Credit • Wrongful Incarceration • Deposit Notices • Wellness Program • Withholding Compliance • Payroll Issues

5. II. Identity Theft/Data Loss • The risk is real; preparers are prime targets for identity thieves • Cybercriminal tactics constantly evolve • Data loss can occur so many ways: • Burglar steals office computers • Cybercriminal breaches your systems using phishing and malware schemes • Disgruntled employees steals client info • Dispose of old devices without erasing data

6. Data Theft Tactics • Phishing emails, text or calls • Pose as trusted organizations • Embed links to fake websites • Use malware-infected attachments • Risks of opening phishing scams • Account take-overs (Banks, IRS e-Services, Tax Software) • Computer breaches • Educate employees on scams/risks

7. Steps to Protect Data • Read Publication 4557, Safeguarding Taxpayer Data • Review current security measures • Create a security plan • Use top-notch software security • Educate all employees • Use strong passwords • Secure Wi-Fi • Encrypt PII emails • Backup files

8. Plan Ahead for Data Loss • Create a reaction plan for data theft • Call IRS Stakeholder Liaison (found on IRS.gov) • Notify your State Tax Agency • Review Federal Trade Commission’s “Business Center” to assist businesses with data losses • Notify police • Notify businesses • Notify clients

9. III. Emerging Scams • Phishing emails posing as IRS e-Services • Phishing emails posing as new clients • Spoofing emails to payroll personnel requesting all employee Forms W-2 • Remote takeover of tax preparer computers • Variations constantly emerge • Know your clients; know your employees

10. IV.Looking Ahead – Digital Demand • Secure Access provides foundation for future self-help tools • Taxpayers demanding more digital options • Cost of IRS personal service: $40/$60 per transaction • Cost of IRS digital service: $1 per transaction • IRS remains committed to providing services needed by taxpayers

11. V. Secure Access Process • Secure Access Process • New authentication framework • More rigorous validation process • 2-Factor authentication: • Password credentials • Security code sent by text • Get Transcript Online back online • Other tools under review

12. New Authentication Steps • Email confirmation code • Same as before; code sent to email address; taxpayer re-enters in order to continue to next step • Identity proofing • Similar as before • Two new steps: • Financial Verification • Activation code text sent to mobile phone

13. How to Successfully Authenticate • A readily available email address that you can check immediately • An SSN • Account number information from either: • Credit card (last eight digits), or • Home mortgage, or • home equity mortgage or • home equity line of credit, or • Auto loan

14. How to Successfully Authenticate • A mobile phone that is • Supported by a data plan that includes texts • Associated with your name and/or address • Not a business-owned phone • Not a virtual phone, i.e. Skype, or a pay-as-you-go phone • Remove “credit freeze” if through Equifax

15. How to Successfully Authenticate • Returning Users (registered via Secure Access) • Need their username and password • Need their mobile phone to receive security code • Returning Users (registered via KBA process) • Password and user name still valid • Must provide financial verification • Must receive mobile phone text code

16. How to Successfully Authenticate • 10 to 12 minute process for new users to register via Secure Access • Process repeatedly explains what tools/information needed for success • Repeatedly offers Get Transcript by Mail as an option • Other self-help tools, including IP PIN, added as warranted • Get Transcript Online for taxpayer use only

17. Higher Security/Lower Access • Trade offs for higher security • Fewer people able to authenticate • IRS monitoring pass rate; • Evaluate and adjust as necessary • Get Transcript by Mail option • Taxpayers always should retain copies of prior year tax returns

18. More Information • See News Release 2016-85 • See Fact Sheet 2016-20

19. VI. The Future State-Taxpayer Component • A central concept of the Future State focuses on taxpayers and how to provide the services they need in a way that works for them.

20. The Taxpayer Component • A more complete online experience • Freeing up resources for those who need 1-on-1 assistance • More up-front issue identification when the return is filed • Improved authentication to prevent fraudulent returns using stolen identities

21. Example of Ongoing Initiatives • Security Summit Group • Taxpayer Assistance Centers Appointments-Based System • Improved Online Services • Compliance Realignment • Identity Theft Victim Assistance • Enterprise Records Management

22. Ongoing Initiatives • Early Interaction Initiative • Online Payment Agreements

23. VII. Early Interaction Initiative • An effort to – • Proactively address payroll tax compliance • Raise awareness • Provide better service

24. Historical Perspective • Federal Tax Deposit Alert (FTD) Program • Started in 1972 • Focuses on payroll tax deposits • Identifies changes in deposit history • Assigns an “Alert” to Field Collection

25. Why Emphasize Early Interaction • 67.5% of 2014 revenue from withheld income & FICA tax • 68.3% in 2013 – 70% in 2012 • Big part of Field Collection inventory

26. Early Interaction Background • Planning started in 2014 • First phase launched Dec. 2014 • Other phases launched 2015 • More to come

27. Mechanics of Early InteractionHow Does It Work • The right treatment • At the right time • For the right employer

28. Effect on Stakeholders • Employers, payroll services and tax reps should expect – • More contacts • Earlier contacts • Emphasis on – • Precluding delinquencies and/or • Addressing delinquencies early

29. Early Interaction Results • FTD Alert cases quadrupled • Compliance results improved

30. VIII. Information Return Penalties • IRC 6721 • Failure to Furnish • Failure to Pay • Abatement

31. IX. W-2 Verification Code Pilot • One in a series of steps to combat ID theft and tax fraud • Pilot will test capability to verify authenticity of W-2 data filed with federal tax returns in 2016 • IRS will soon name Payroll Service Providers • PSPs will reach out to some clients • Algorithm generates alphanumeric codes from selected data fields of the W-2 • Verification codes appear on employees’ W-2s

32. W-2 Verification Code Pilot • Taxpayers enter verification codes on their e-filed federal tax returns • When processing returns, IRS recalculates codes • Matching codes = genuine W-2s • Verification codes not included in W-2 data submitted to SSA, states or local departments of revenue • Won’t affect state or local tax returns

33. W-2 Verification Code Pilot • We stress: • Omitting or using incorrect W-2 verification codes will not delay the processing of taxpayers federal tax returns • “test-and-learn” review after pilot • If integrity of W-2 information submitted by taxpayers increases, verification codes will remain an element of W-2s in the future

34. X. Electronic Federal Tax Payment System The EFTPS is: • Mandatory • Secure, accurate and easy to use • Available to be viewed online after enrollment  • Accessible by an Inquiry PIN The system: • Provides immediate confirmation for each transaction   • Maintains a history for 16 months

35. Payroll Service Providers (PSPs) Many employers outsource their payroll and related tax duties, the 3rd party payers will: • Administer payroll and employment taxes • Provide assistance in meeting filing deadlines and deposit requirements • Streamline business operations

36. Types of Third Party Payers Common third party arrangements include: • Payroll Service Providers (PSPs) • Reporting Agents • Section 3504 Agents • Professional Employer Organizations (PEOs) Reminder: Employers are ultimately responsible for the payment of income tax withheld (employer and employee portions of social security and Medicare taxes). See Fact Sheet 2013-9 Tips for Employers Who Outsource Payroll Duties

37. XI. Backup W/H-Form 1099-Misc Filing Requirement • Report payments of $600 or more paid to non-employees each year • Provide required copies timely to: • non-employee by Jan. 31 • IRS by Feb. 28 • Be aware of exceptions

38. TIN Matching Program • Match payee name with W-9 • Match TIN with IRS records • Decrease backup withholding and penalty notices • Reduce error rate in TIN validation • Requires registration in e-Services • Free • Available 24/7

39. Form W-9 • Request for Taxpayer Identification Number and Certification • Use to obtain • Payee’s Correct Name • Payee’s Taxpayer Identification Number

40. Backup Withholding Requirements • Withhold 28 percent of income if: • employee does not provide TIN • employee provides incorrect TIN • notified by IRS that TIN provided is incorrect

41. Backup Withholding Requirements • Time frames • begin withholding with first payment • withhold until non-employee provides correct TIN • Report on Form 945

42. XII. IRS Resources • Employment Tax Pubs Online (15, 15A, 15B) • Small Business Taxes – The Virtual W/S • IRS Video Portal • IRS Live Webinars/Archived Webinars • IRS.gov • IRS Subscription Service

43. XIII. IRS Resources

44. Forms • Form 1094-C, Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns • Transmittal of Employer Level Data • Form 1095-C, Employer Provided Health Insurance Offer and Coverage • Employee Statement • Due Dates • Furnished to Employee by January 31 • Filed with the IRS by February 28 (March 31 if filed electronically) • 2016 due dates extended – March 31 to employees and May 31 to the IRS (June 30 if filed electronically)

45. What information is reported? • 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns): • Employer Name, Address, EIN, and contact information • # of 1095-Cs submitted • ALE Member Information • 1095-C (Employer-Provided Health Insurance Offer and Coverage): • Employee Name, TIN, and contact information • Employer Name, EIN, and contact information • Offer of coverage (by month) • Covered Individuals

46. Questions The End