10 critical tax issues for 2016

5. Harder to hide money overseas

It's getting harder and harder for international account owners to elude the IRS's reach, and trying to do so could subject them to substantial penalties and possible criminal prosecution if caught. Seventy-nine countries, including the Holy See, have signed the Foreign Account Tax Compliance Act, which was enacted in 2010 following reports that foreign banks were encouraging U.S. taxpayers to hide assets abroad.

FATCA requires foreign financial firms to report account data for their U.S. account owners or face stiff penalties. In October, the IRS announced that it had started automatically exchanging digital financial account information with tax authorities abroad.

The IRS urges owners of international accounts to come clean through its offshore voluntary disclosure program under which they can pay what they owe on their overseas money. In turn, the agency will back off on some of the potential penalties.

6. Proving education tax break eligibility

It's bad enough that higher education generally costs so much. Starting with the 2016 tax year, taxpayers seeking federal tax breaks to help pay for college or training will have to prove they are actually in class. A provision in trade legislation enacted in 2015 requires taxpayers to show Form 1098-T to claim any educational tax benefits.

Form 1098-T is sent by schools to students and copied to the IRS, verifying that the student paid "qualified educational expenses" in the preceding tax year, including tuition, any fees required for enrollment and required course materials. Without this official verification, the taxpayer cannot claim the American Opportunity or Lifetime Learning tax credits or the tuition and fees deduction.

The change will not affect any education claims made on 2015 returns filed in 2016, but will go into effect in 2017 for claims on the 2016 return.

7. Tax preparer regulation effort continues

Hand it to the IRS: It keeps trying to regulate tax preparers against legal and legislative challenges. After the courts disallowed the agency's plans to require certain tax preparers to take classes and pass tests, the agency set up a voluntary continuing education program for tax professionals, which remains in place for 2016.

Koskinen wants more, and continues to lobby Congress for a law change that would authorize the IRS to establish the kind of oversight system it wants. Although a bipartisan bill to allow stricter regulation went nowhere, its drafting suggests Capitol Hill resistance may be easing.

But the agency is again facing legal challenges to its tax preparer regulatory efforts in the form of a lawsuit working its way through the federal court system. Filed by the American Institute for CPAs, it aims to end the voluntary program.

8. MyRAs and ABLE accounts open

Taxpayers who don't earn much money can now open a retirement savings plan with minimal contributions — and no fees — thanks to two new tax-favored savings accounts introduced in 2015.

The starter retirement savings account myRA, which became available on Nov. 4, is patterned after Roth IRAs. This means that although there is no immediate tax benefit, the account grows tax-free.

The Achieving a Better Life Experience account option, available Jan. 1, 2015, resembles state-run 529 college savings plans. It is designed to help people with disabilities and their families save and pay for disability-related expenses. Contributions to an ABLE account are not tax deductible, but withdrawals for qualified expenses are free from federal taxes.

9. Fantasy sports fallout

The burgeoning fantasy sports business is coming under increasing scrutiny by states that question its legality. New York and Nevada have gone so far as to declare fantasy sports firms to be gambling enterprises and have ordered them to cease operations within their borders.

Some members of Congress are questioning whether a loophole in the Unlawful Internet Gambling and Enforcement Act that sanctions fantasy sports as games of skill should be closed.

Fantasy sports players should watch how state tax departments and the federal government ultimately designate the game, as it will affect tax reporting. At present, the IRS considers the money made on fantasy sports a taxable hobby. That won't change if at some point the games are deemed gambling, but it will change how players are able to deduct any of their costs and losses against their winnings.

10. Persistent tax scams

The IRS has enlisted taxpayers' assistance in its effort to stem identity theft and related false refund claims by alerting them to scam artists' machinations and reminding them to remain alert. "With the public's help, this will greatly strengthen and improve the new tools being put into place by the IRS, states and industry," Koskinen says.

The agency points out that tax crooks are always on the lookout for new ways to steal information they can then use to file for bogus refunds. Take a new law that requires the IRS to use private bill collectors to track down some tax debts. Scammers, the IRS says, could leverage this law to con conscientious taxpayers out of their cash.