THE ESSENTIAL 1040

As mentioned in this week’s BUZZ installment, I attended the National Association of Tax Professionals’ annual year-end tax update “The Essential 1040” on Monday at Bally’s on the Boardwalk in Atlantic City.  I attend this one-day seminar every year, and have done so for over 30 years, and also occasionally attend the second day, “Beyond the 1040” (although not this year) depending on the topics being discussed.

Bally’s is a good location.  I have no complaints about the classroom facility or my room, which, as a member of the Total Rewards program, was extremely reasonable – certainly cheaper than that at any other location this class is offered.  This year the seminar included, as it does every year, a relatively skimpy, and definitely not diabetic-friendly, continental breakfast buffet, and an afternoon dessert break.  And, for the first time in 30+ years, the cost of the event included a box lunch (also not diabetic-friendly), paid for by a sponsor who gave a presentation for those who wanted to listen.

As a “stand-alone” offering the seminar was, as usual, excellent, and covered just about everything tax preparers need to know to prepare 2018 Form 1040s.  But, as I said to my business banker on the phone on Monday morning, I was listening to what I had already been told 3 times this year.  Because the only real new development for 2018 was the GOP Tax Act, and I had already attended 2 full-day sessions exclusively on the Act and one 2 hour review of it as part of the NATP Forum, almost everything covered at this seminar was truly redundant for me.  I did, however, learn a couple of new things, which I discuss later in this post.

One saving grace – because there was so much to cover with the new Act this year’s seminar did not include the usual 2 hours of redundant and unnecessary (for me) ethics preaching.  So, one paid for eight 50-minute hours of real education and one actually got eight 50-minute hours of real education.

I had signed up for classes that I knew would cover the GOP Tax Act scheduled later in the year, like this one, because I had hoped that the IRS would be releasing new regulations, interpretations, clarifications and information about the tax law changes.  Unfortunately, very little new details have been released.

Three things continue to be reinforced by GOP Tax Act seminars and discussions –

(1) There is still a lot we don’t know yet about how many of the provisions of the Act will be interpreted and implemented.

(2) Because the Act was basically written overnight, the wording of the law is often defective, confusing and unclear.  “Technical corrections” legislation is clearly needed.

(3) It is very obvious that those who actually write tax law and the idiots in Congress who vote on it have absolutely no concept of the practical implementation of the tax legislation they write and pass, or of the actual preparation of tax returns.

Of this I am certain - by the time we tax professionals fully learn and understand the ins and outs of the new law, the IRS has released all the appropriate regulations, and the Tax Court has clarified the issues of confusion, the Act will expire and we will be back to the Tax Code as it was for 2017.

And the more I review the new “postcard” Form 1040 and its 6 supplemental schedules the more I come to believe that this is probably the stupidest thing ever in my 45+ years in the tax preparation business.

So, here is what I learned at the seminar -

* It appears that the Form 1098-T will no longer be as useful as “tits on a bull”. 

The PATH Act of 2015 correctly required educational institutions to report the total amount of payments received for qualifying tuition and fees from a student during the year.  Previously, in most cases, only the amount billed was reported.  The institutions cried that they needed more time to rewrite their software to be able to generate this information (if you ask me a total load of malarkey) and the IRS granted them delays in complying with this new requirement.

Some good news.  It looks like all educational institutions must comply with this requirement for all 2018 Form 1098-T forms.  The draft of the 2018 form shows Item #2, the section previously used to report amounts billed, blocked out with no description and the instructions say this line is “reserved for future use”.

* Sub-chapter S corporation shareholders who have

·         reported a loss from Form K-1, or

·         received a distribution of profits (other than a salary or expense reimbursement), or

·         disposed of shares of stock in the corporation, or

·         received a loan repayment from the corporation

must now attach a computation of their S-corporation stock and loan basis to their Form 1040.  The draft copy of the 2018 Schedule E includes a new column on Page 2 for entries on Line 28 which states “Check if basis computation is required”.  This is not the result of the GOP Tax Act or any tax legislation, but a new requirement established by the IRS.   

* Computers and peripheral equipment are no longer considered to be “listed property”.

Listed property was first created in the Tax Reform Act of 1984.  This act restricted the depreciation deduction for business use of items “lending themselves easily to personal use” and established requirements, such as keeping a log, for substantiating personal and business use.  Computers and peripheral equipment – except for such equipment used 100% for business at a “regular business establishment”, which could include a qualified home office – had been on the “list” of “listed” property.  I explained listed property in a 2008 post here at TWTP – click here.

The GOP Tax Act removed this equipment from the “list”.  Now computers and peripherals can be depreciated or expenses like any other business property and are no longer subject to the additional substantiation requirements.

* The ridiculous excessive “due diligence” requirements for tax preparers, causing us to become social workers, will now apply to returns for taxpayers claiming the new Other Dependent Credit (ODC), as well as the Earned Income Credit, the American Opportunity Credit, the Child Tax Credit, and, also new for 2018, Head of Household status.  The draft copy of the 2018 Form 8867 includes the ODC in one of the columns.

This nonsense is getting out of hand.  Originally the excessive due diligence was only to be required for returns claiming refundable tax credits like the Earned Income Credit or the Additional Child Tax Credit.  As I have said in other venues, soon tax preparers will be required to make random bed checks of taxpayer homes during the year to check on where a claimed dependent is sleeping.

* Veterans who received disability severance payments, that were originally reported as taxable income, from January 18, 1991 through 2016 can file amended returns (IRS Form 1040-X) for all applicable years (not limited to “open” tax years) to claim a refund for the tax paid on this income.  This is a result of the “Combat-Injured Veterans Tax Fairness Act of 2016”.

There is an IRS established “safe harbor” amount or refund claim based on the year of payment –

1991 – 2005 = $1,750

2006 – 2010 = $2,400

2011 – 2016 = $3,200

Qualified veterans do not have to complete the entire Form 1040-X to calculate the refund due.  They can elect to submit a shell Form 1040-X with the personal information (name, SS#, address, year) and enter the applicable safe harbor amount on Lines 15 and 22.  As with anything else related to taxes, claiming the safe harbor refund or calculating the actual refund based on the original return depends on the specific facts and circumstances.  If you quality consult your, or a, tax preparer. 

NATP continues to erroneously, in my opinion based on my research and what I have been told by experts, teach that casual gamblers can now also deduct on Schedule A travel expenses to casinos, racetracks, etc. if losses do not equal or exceed gains.    

The IRS draft instructions for the 2018 Schedule A does not mention this alleged change – it specifically identifies deductible gambling losses as non-winning tickets under the discussion of “Other itemized deductions” and makes no mention of any change in the “What’s New” section.  I have seen nothing “official” from the IRS that says what NATP is teaching.  

I have no more federal tax CPE scheduled between now and the beginning of the 2019 tax filing season.  So, I will have to rely on finalized IRS forms, instructions and publications, and future online and print articles, for further guidance on the implementation of the tax law changes.  As I learn new “stuff” I will tell you about it here at TWTP.

TTFN