Issue Number: 2019-35
Early Reporting Replaces Form W-2 Verification Code
IRS Releases New Tax Gap Estimates
Data Security Message from the IRS Return Preparer
IRS Finalizes Safe Harbor to Allow Rental Real Estate to
Qualify as a Business for QBI
E-File Requirement for Form 4419
Tax Relief for Mississippi Storm Victims
News from the Justice Departmentís Tax Division
1. Early Reporting Replaces Form W-2 Verification
The IRS is discontinuing the Form W-2
Verification Code pilot for the 2019 tax year. The verification
code was introduced as a means of reducing fraudulent filings of Form W-2.
Federal law now requires employers to submit Forms W-2 by Jan. 31 each
year, which helps the IRS combat identity theft and refund fraud and
supersedes the need for the verification code.
2. IRS Releases New Tax Gap Estimates
A new set of tax gap estimates
on tax years 2011, 2012 and 2013 show the nation's tax compliance rate was
substantially unchanged from previous years. The average gross tax gap was
estimated at $441 billion per year based on data from tax years 2011, 2012
and 2013. After late payments and enforcement efforts were factored in, the
net tax gap was estimated at $381 billion.
compliance is the bedrock of our tax system, and it's important it is
holding steady," IRS Commissioner Chuck Rettig said. "Tax gap
estimates help policy makers and the IRS in identifying where noncompliance
is most prevalent. The results also underscore that both solid taxpayer
service and effective enforcement are needed for the best possible tax
3. Data Security Message from the IRS Return
The IRS Return
Preparer Office sent the following message this week to all registered
holders of PTINs (Preparer Tax Identification Numbers):
Dear Tax Professional,
Summer is over, and it wonít be long until youíre sitting down at your
computer to renew your preparer tax identification number (PTIN) for 2020.
In mid-October when renewal season begins, you will notice a data security
responsibilities statement has been added to the PTIN renewal process. It
serves as a reminder of your legal responsibility to have a data security
plan and to provide data and system security protections for all taxpayer
information. When completing your PTIN renewal, a checkbox will be
available to confirm your awareness of these data security
Data security continues to be a hot topic. Thatís because tax professionals
remain a top target of identity thieves and data breaches continue to
affect tax professionals at an alarming rate. Cybercriminals use
sophisticated and ever evolving techniques to gain access to your systems.
These criminals steal sensitive taxpayer data to file fraudulent tax
returns and create financial havoc for your clients. There are simple steps
you can incorporate in your daily operations to minimize your vulnerability
and protect client data, including:
- Protect email accounts with strong passwords and
two-factor authentication if available.
- Install an anti-phishing tool bar to help identify
known phishing sites.
- Use anti-phishing tools that are included in
security software products.
- Use security software to help protect systems from
malware and scan emails for viruses.
- Never open or download attachments from unknown
senders, including potential clients. They should instead make contact
first by phone.
- Send only password-protected and encrypted
documents when files must be shared with clients over email.
- Never respond to suspicious or unknown emails.
- Back up sensitive data to a safe and secure
- Properly dispose of old computer hard drives that
contain sensitive data.
You should also make
sure to have a written data security plan in accordance with the Federal
Trade Commissionís Safeguard Rule. Remember, protecting your clients is not
only good for business, itís also the law. While the hope is that youíre
never the victim of a data breach, preparation and education will go a long
way in helping to protect your clients and yourself.
Publication 4557, Safeguarding
Publication 5293, Data
Security Resource Guide for Tax Professionals
Identity Theft Information for Tax
4. IRS Finalizes Safe Harbor to Allow Rental Real
Estate to Qualify as a Business for QBI
The IRS this week issued Revenue Procedure 2019-38,
which establishes a safe harbor allowing certain interests in rental real
estate, including interests in mixed-use property, to be treated as a trade
or business for purposes of the qualified business income deduction under
section 199A of the Internal Revenue Code.
The safe harbor is
available for individuals who claim the section 199A deduction with respect
to a "rental real estate enterprise." To review the qualification
requirements, visit IRS.gov/taxreform.
5. E-File Requirement for Form 4419
Effective Oct. 1,
Form 4419, Application for Filing Information Returns Electronically
(FIRE), must be electronically filed. The form is used to request an
original Transmitter Control Code (TCC) to transmit information returns
through the FIRE System. To electronically file Form 4419, submit an online
Fill-in Form 4419 located within the FIRE System at https://fire.irs.gov/.
Submit a paper Form 4419 (Rev. 9-2019)
when you have an existing TCC to:
- Revise current TCC information
- Request an additional TCC for a form type listed on
Form 4419, Block 8
The IRS will process
paper versions of Form 4419 received prior to Oct. 1 accordingly. Form 4419
is not applicable when requesting an Affordable Care Act (ACA) TCC. For
more information, visit About Form 4419.
6. Tax Relief for Mississippi Storm Victims
Victims of severe
storms, straight-line winds, tornadoes and flooding that took place from
Feb. 22 to March 29 in the Mississippi counties of Clay, Humphreys,
Issaquena, Lowndes, Monroe, Sharkey, Warren and Yazoo may now qualify for amended tax relief from
the Internal Revenue Service.
Visit the IRS disaster relief page
for all updates on tax relief for disaster victims.
7. News from the Justice Departmentís Tax Division
The U.S. Department
of Justice Tax Division this week reported:
Two Utah tax return
preparers, Alma Barlow and Denver Barlow, formerly of Hildale,
Utah, were each sentenced in federal court
to 24 months in prison for conspiracy to file false claims. According to
court documents, from 2009 to 2014, the defendants held themselves out to
the public as legitimate tax return preparers, though they filed over 700
false tax returns for themselves and for hundreds of unknowing clients,
ultimately claiming over $9.7 million in false refunds. The defendants also
added false entries to tax returns to trigger the Earned Income Tax Credit
or added false figures for federal income tax withholdings, Form 1099-OID
income tax withholdings, or Schedule C business expenses to fraudulently
increase the amount of the claimed refunds. The District Court judge
ordered the defendants to each serve three years of supervised release and
to pay over $5.3 million in restitution to the United States.
8. Technical Guidance
Notice 2019-51 provides
guidance on the corporate bond monthly yield curve, the corresponding spot
segment rates used under section 417(e)(3), and the 24-month average
segment rates under section 430(h)(2) of the Internal Revenue Code.
announces the special per diem rates effective Oct. 1, which taxpayers may
use to substantiate the amount of expenses for lodging, meals, and
incidental expenses when traveling away from home.