Hartford Business Journal

8 Hartford Business Journal • March 2, 2015 www.HartfordBusiness.com Focus Tax SeaSon Tax preparers say they may help prevent fraud By Sheena Butler-Young sbutler@HartfordBusiness.com T ax preparers are always looking for an edge this time of year to win new customers and they might have found one in the recent Anthem data breach and the flood of bogus tax returns recently filed through TurboTax. Both incidents, said John Dubois, owner of Hartford- based tax-accounting firm D & D Enter- prises, reinforce the necessity of tax pre- parers as gatekeepers — professionals who are trained and up to speed on the latest tax laws and regula- tions — for the IRS. "Tax preparers are conduits," Dubois said. "The IRS trusts us to be informed and honest; Tur- boTax doesn't have preparers." While TurboTax's program — which was used by 29 mil- lion individuals and businesses last year to file returns — may display all of the relevant tax-relat- ed rules and disclaimers, individu- als may overlook or ignore certain pieces of information. That's were tax preparers like Dubois try to boast a competitive advantage. Dubois said that while Tur- boTax is not to blame for people who use its online tax filing pro- gram for fraud, tax preparers play an important role in ensur- ing that filers, who often "want as much money back as possible", submit accurate returns. As far as Anthem's cyber breach — which compromised data for 1.7 million Connecticut customers — Dubois said there isn't a lot businesses can do to prevent hackers from filing false returns based on stolen social security numbers. Brenden Healy, tax director for Hartford accounting firm Whittle- sey and Hadley, said he agrees. "Even though we're the tax gatekeeper, we can't stop the bad guys from filing fraudulent returns or hacking into business' systems," said Healy. Once a breach has occurred, Dubois said it's a waiting game to determine whether someone will be the victim of identity theft or income tax fraud. If any of his clients — many of whom he has retained for years — find them- selves fraud victims, Dubois said he encourages them to go through the steps of filing documents with the IRS and contacting local police. Healy says he thinks taxpayers should be proactive and file for an IRS Identity Protection PIN — a unique six-digit number assigned annually to victims of identity theft to use when filing their fed- eral tax return as proof of identity. "Filers have to provide additional documentation to the IRS — such as a pass- port — in order to receive the PIN, but they can sleep better knowing that the IRS will not release their refund without veri- fying it with the PIN," said Healy. A tax preparer's knowledge of identity protection steps rein- forces their impor- tant role in fraud pre- vention, Healy said. State Department of Revenue Services Commissioner Kevin Sullivan said the recent Anthem data breach and TurboTax incident have provid- ed a learning experi- ence for his depart- ment and other state tax offices across the country because "iden- tity thieves are getting smarter." Among DRS' strategies for miti- gating identity theft, Sullivan said the state has slowed down the pro- cess for filing returns to allow more time to detect bogus claims. He is also encouraging filers — particularly those with simple returns — to file taxes as soon as they can. "In recent years, we said 'if you e-file and choose direct deposit, we'll get you your refund in three to five days,'" said Sullivan. "Now, in order to slow things down, we're not allowing first time filers to receive direct deposit — they must receive a paper check." It's a lot harder, Sullivan said, to rectify a situation in which fraud has occurred after a direct deposit has been issued. "That money is already gone," said Sullivan. Forcing at least one group of filers — first timers — to receive their returns in the mail has already helped the state detect fraud cases, Sullivan said. "In some cases, people whose identities have been stolen will call us and say 'Hey, I just received a return in the mail and I haven't filed my taxes yet,'" Sullivan explained. Early filing is also a healthy strategy to prevent fraud, Sulli- van said. n John Dubois, owner, D & D Enterprises Kevin Sullivan, Commissioner, State Department of Revenue Services Q&a Employers brace for health reform tax changes Q&A talks with Murtha Cullina partner Rachel Faye Smith about the tax impact of the Affordable Care Act on employers. Q: As employers prep their tax returns ahead of the April 15 deadline, what are the most important tax implications from the Affordable Care Act? A: The tax implication most employers identify relates to the employer mandate. This is the component of the Affordable Care Act that requires applicable large employers (ALEs) to offer health insurance to their full- time employees, or face certain penalties. After a delayed start the employer mandate is in partial effect in 2015, and comes into full effect in 2016. In addition, there are certain types of employers, like medical device manufacturers, health insurers, and chari- table hospitals, that may have industry-specific tax consid- erations. On the tax credit side, small businesses may be eligible for tax credits for a percentage of the cost of pre- miums for health insurance they offer to their employees. While the tax implications are a hot-button issue, as employers prepare for the full effect of the Afford- able Care Act the biggest challenge to date has been the financial and administrative cost of preparedness. Employers are struggling to understand the rules and how they apply. This has resulted in new costs as employers engage third-party professionals to help navi- gate the new regulatory landscape, and as they hire new or repurpose old employees to address new obligations. Q: Are there any changes to the ACA's small business tax credit that will impact employers? A: The small business tax credit changed for tax years beginning in 2014 or later. Previously the maxi- mum credit was 35 percent of premiums paid for small business employers, and 25 percent of premiums paid for small tax-exempt employers. For tax years begin- ning in 2014 or later, the maximum credit will increase to 50 percent for small business employers and 35 per- cent for small tax-exempt employers. Generally speaking, to qualify for a small business tax credit after the 2014 changes, employers must have no more than 25 full-time equivalent employees with average annual wages of less than $50,000, purchase insurance through the SHOP marketplace (or qualify for an exemption to this requirement), and cover at least 50 percent of the cost of employee-only healthcare cov- erage for each of their employees. The credit is certainly an advantage to those who qual- ify, and it applies in addition to the business expense tax deduction already applicable to premium payments. How- ever, the small business tax credit can only be claimed for two consecutive tax years, and many small employers are finding the cost of health insurance on the SHOP market- place to be unaffordable. In addition, the credit applies on a sliding scale and is designed to benefit companies with low-to middle-income employees. Many small businesses will not find the credit to be as valuable as they may hope. Q: Starting this year some employers face a pen- alty if they don't offer their worker's health insur- ance. Who is impacted by this, and how does the penalty work? A: This is the employer mandate discussed above, and it applies to employers that qualify as an applicable large employer (ALE). Generally speaking, an ALE is an employer that employed an average of at least 50 full-time employees on business days during the preceding calen- dar year. The employer mandate went into effect on Jan. 1, 2015, though there is a transition period through Jan. 1, 2016 for ALEs with 50-99 full-time equivalent employ- ees. The employer mandate requires ALEs to either offer health insurance to their full-time employees in accor- dance with these rules, or pay applicable penalties. Two different penalties apply under the employer mandate. Generally speaking, if an ALE does not offer minimum essential health insurance to 95 percent of its full-time employees (70 percent in 2015), and an employ- ee applies for and receives a premium reduction or cost- sharing subsidy for coverage purchased on the exchange marketplace, then the employer will be assessed a penal- ty of $2,000 per year multiplied by the number of full-time employees for each calendar month of the year, minus the first 30 full-time employees (80 in 2015). If an ALE does offer minimum essential coverage, but the coverage is not affordable or does not provide mini- mum value, then the employer will be assessed a $3,000 penalty per employee who is not offered minimum value affordable coverage and receives a premium sub- sidy for coverage purchased on the insurance exchange marketplace. Q: What new tax reporting requirements are there under the Affordable Care Act? A: Under the new reporting rules, ALEs will need to provide information to the IRS about the health insurance they do (or do not) provide to their employ- ees, including information about their employee pop- ulation. ALEs with fully-insured health plans must file Forms 1094-C and 1095-C, which will include separate statements for each individual who is pro- vided minimum essential coverage as well as a single transmittal form. Self-insured plan sponsors and health insurance carriers must file Forms 1094-B and 1095-B. Coverage statements will also need to be provided to employees. The first returns required to be filed are for the 2015 cal- endar year and must be filed no later than Feb. 29, 2016, or March 31, 2016, if filed electronically. The IRS is encouraging ALEs to file these forms for calendar year 2014, but this is not required. n I l l u s t r a t I o n | r I c a r d o r e I t m e y e r , s h u t t e r s t o c k . c o m

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