The tax extenders bill includes a dozen new “program integrity” provisions affecting refundable tax credits. These program integrity provisions are projected to save roughly $7 billion over ten years by reducing fraud, abuse, and improper payments in refundable credit programs. Apart from the tax extenders that favored relief for taxpayers and their families, and in addition to the broad tax overhaul, they come with a price.
To reduce any improprieties, Congress included in the provisions stepped up compliance on taxpayers who are affected by the enhanced provisions provided by the PATH Act. Those provisions that significantly impact tax-favorable extenders include;
- Modification of the filing deadlines for W-2, W-3 and returns or statements to report non-employee compensation, e.g. Form 1099-MISC, on or before January 31 of the year following the year which such returns relate.
- For 2017, IRS gets additional time to review refund claims for the Earned Income Credit, EIC, the refundable portion of the Child Tax Credit, CTC and the American Opportunity Tax Credit, AOTC, in order to reduce fraud and improper payments.
- Safe Harbor for de minimis errors on information returns and payee statements. Incorrectly filed information returns with errors that are $100 or less ($25 in the case of tax withholding) the issuer is not required to file a corrected form and no penalty will be imposed, however, the recipient can still request a corrected form to file with the IRS. This provision becomes effective after the date of enactment.
- Requirements for the issuance of ITINs. This provision provides the IRS issue ITINs to applicants if such applicant provides documentation required by IRS either (1) in person, or (2) to an Certified Acceptance Agent, CAA, or (3) by mail. Recipients of ITINs prior to 2013 are now required to renew their ITINs on a staggered schedule between 2017 and 2020. If the recipient fails to file a tax return for three consecutive years, the ITIN will expire. The Treasury Department is looking into current procedures to have all ITIN applicants appear in person when applying for the ITIN.
- Taxpayers who did not obtain a Social Security number prior to the time of filing a tax return will be barred from filing an amended tax return in which the taxpayer or dependent did not have a valid Social Security number. This provision is effective to the date of the enactment.
- This provision prohibits a taxpayer from retroactively filing an amended tax return to claim the Child Tax Credit or file an original return that is past the due date for filing if the qualifying child did not have a valid Social Security number or ITIN. This provision becomes effective after the date of enactment.
- Prevention of retroactive claims for The American Opportunity Credit was provided by this provision that prohibits a taxpayer from claiming the AOTC by amending his/her tax return, (or file an original return past the due date for filing), for any prior year in which the taxpayer was a student for whom the credit is claimed and who did not have a valid Social Security number or ITIN. This provision is effective as of the date of enactment.
- The paid preparer due diligence requirements were expanded by the Act with respect to claiming the EIC, the CTC and the AOTC and the $500 penalty for failure to comply and to cover such returns. The purpose of this provision is to reduce improper claims for the above credits. IRS is now required to study the effectiveness of these requirements and whether such requirements should apply to the taxpayer who files online or by paper. This provision apply to tax years beginning after December 31, 2015.
- The Provision expands the rules under current law that bars a taxpayer from claiming the EIC for ten years, if found guilty of fraud and for two years if found to be reckless or intentionally disregarding the rules, to now apply to the CTC and the AOTC. Added were math errors authority to IRS to disallow improper credits without a formal audit. This provision applies to tax years beginning after December 31, 2015.
- This provision increases the penalty to paid preparers from the greater of $5000 or 50 percent of the preparer’s income with respect to the return, to 75 percent. This provision generally applies to returns filed after December 31, 2015.
- The provision now requires educational institutions to provide their EIN numbers on Form 1098-T, Tuition Statement, to taxpayers who made qualifying payments to the institution. Taxpayers must include this EIN number on their tax returns when claiming the AOTC.
- Higher education institutions are required to report only qualified tuition and related expenses actually paid , rather than choosing between amounts paid and amounts billed, as under current law. The provision applies to expenses paid after December 31, 2015, for education furnished in academic periods beginning after such date.