Table of Contents
TIMING OF INCOME RECOGNITION UNDER THE TCJA: PROPOSED REGULATIONS PROVIDE MUCH-NEEDED GUIDANCE
As part of the Tax Cuts and Jobs Act (TCJA), Congress enacted two new sections that address when revenue is recognized—§§ 451(b) and 451(c). These sections do not determine whether income is realized; instead, they determine the timing of income recognition under the taxpayer’s method of accounting. Revised § 451(b) changes the rules for the timing of income recognition under the all events test, and new § 451(c) generally codifies Revenue Procedure 2004-34 to allow certain taxpayers to defer income recognition for advance payments. Proposed reliance regulations implementing these two sections were issued in September 2019 and provide much-needed guidance to accrual method taxpayers. Part I of this article presents Proposed Regulation § 1.451-3, which addresses the timing of gross income recognition under § 451(b), and Part II describes the rules for reporting advance payments as income under § 451(c) in Proposed Regulation § 1.451-8. The article concludes by applauding the increased clarity the proposed regulations provide, while recognizing that a significant issue regarding cost offsets remains that should be addressed in final regulations.
SELF-EMPLOYED HEALTH INSURANCE DEDUCTION: NICE TAX BREAK OR GROSS INEQUITY?
Equity, one of the basic principles of public finance, is often a consideration in discussions of tax policy or tax reform. Otherwise largely ignored, this paper considers the horizontal equity position of the self-employed health insurance deduction. Enacted by the Tax Reform Act of 1986, lawmakers intended for this deduction to bring more parity to the self-employed taxpayer and the employed taxpayer. However, an illustration comparing a self-employed taxpayer to an employed taxpayer in similar situations demonstrates that the two are taxed inequitably. This paper also illustrates a simple solution to bring more fairness to this deduction.
Joshua L. Simer & Andrew D. Almand
THE IRS CONTINUING EDUCATION PROVIDER SYSTEM: RELEVANT OR REDUNDANT?
Once a professional in any field has completed his basic educational requirements for qualification and obtained his professional credential, he is faced with the prospect of lifelong continuing education (CE). Enrolled Agents (EAs) and certain unenrolled tax return preparers must obtain CE from a provider listed in the Internal Revenue Service’s (IRS’s) CE Provider System. This article explores the history of the EA designation, the development of CE requirements for Certified Public Accountants and EAs, and the competing listings for CE providers of the IRS and the National Association of State Boards of Accountancy (NASBA). The redundancy of the two sets of CE providers is discussed, concluding that the NASBA listing is superior to the IRS’s listing and the CE Provider System should be eliminated.
Angela M. Storrs
THE IRS'S EFFORTS TO IMPROVE REPORTING OF TIP INCOME
The Treasury Inspector General for Tax Administration (TIGTA) concluded in a 2018 report that the Internal Revenue Service (IRS) is not fully addressing billions of dollars in tip income reporting noncompliance and is generally not enforcing the tip agreements it has in place. The IRS has limited resources and is having great difficulty in keeping up with the size and rapid growth in tipping industries, particularly the food and beverage industry. The IRS relies primarily on voluntary tip reporting agreements with businesses, rather than on employer tip audits, to combat nonreporting of tips. Despite a higher risk of noncompliance where no tip agreement exists, there is little incentive for businesses to enter into tip agreements with the IRS because the risk of a tip examination is very low. Following recommendations in the 2018 TIGTA report, the IRS agreed to focus more of its revenue agent resources on conducting audits instead of revising terms of low-risk tip agreements.
This article provides a historical perspective of the steps taken by the IRS and Congress to increase tip reporting compliance and the IRS’s efforts to quantify underreported tip income, an explanation of the current tip reporting rules, and a discussion of the adequacy of the current rules to address tip income reporting noncompliance.