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January 23, 2018
NewsThis is the time of the year when the IRS releases a number of revised forms and publications. You should check the IRS web page regularly. You can sort the columns by product number, title, revision date or posted date. Here are some of the most recent form and instruction changes of greatest interest:
If you're using tax software, make sure it's either automatically updated or you check before filing your return.
Tip of the DayCasualty loss limited to lesser of FMV or basis . . . Personal property losses are limited to the lesser of the fair market value of the item at the time of the casualty or your cost basis. For example, you paid $2,000 for that high end TV, but at the time of the flood, it's fair market value was $500. If the TV was completely destroyed, your loss would be $500. The autograph of Teddy Roosevelt which you bought for $250 was worth $3,000 when the flood washed it away. Your deductible loss would be limited to $250. Add the two losses and your deduction (before factoring in the $100 floor and 10% limitation) would be $750.
January 22, 2018
NewsVictims of the wildfires, flooding, mudflows and debris flows that took place beginning on Dec. 4, 2017 in parts of California may qualify for tax relief from the IRS. The President has declared that a major disaster exists in the State of California. Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain California counties will receive tax relief. Individuals who reside or have a business in Los Angeles, San Diego, Santa Barbara and Ventura Counties may qualify for tax relief. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Dec. 4, 2017 and before April 30, 2018, are granted additional time to file through April 30, 2018. This includes 2017 individual income tax returns normally due on April 17, 2018. It also includes the fourth quarter estimated tax payment normally due on Jan. 16, 2018. In addition, penalties on payroll and excise tax deposits due on or after Dec. 4, 2017, and before Dec. 19, 2017, will be abated as long as the deposits were made before Dec. 19, 2017. For more information, go to Tax Relief for Victims of Wildfires, Flooding, Mudflows and Debris Flows in California.
The Treasury Department and the IRS are providing additional guidance (Notice 2018-13) for computing the “transition tax” on the untaxed foreign earnings of foreign subsidiaries of U.S. companies under the Tax Cuts and Jobs Act. On Dec. 29, 2017, the Treasury Department and the IRS provided initial guidance on computing the transition tax in Notice 2018-07. The current notice describes regulations that the Treasury Department and the IRS intend to issue, including rules addressing the calculation of earnings under the transition tax and other rules to clarify certain aspects of the law. The notice also makes a modification to the prior notice issued on Dec. 29, 2017, regarding the repatriation of earnings subject to the transition tax. Finally, the notice provides taxpayers targeted relief from certain unintended regulatory and reporting consequences arising from a change to existing stock attribution rules in the recent tax legislation.
Tip of the DayGovernment shutdown . . . As this is written the Federal government is still in shutdown mode. While that could change at any time, but there are no bets on timing. The IRS has gone into shutdown mode furloughing a little more than half of the workforce. That doesn't mean tax deadlines are extended--there's no change in filing and paying requirements. Some operations will stop, such as audits, manual collection activity, 1040X (amended return) processing, and no tax refunds will be issued. Telephone call centers will remain in operation, but most likely will be under additional pressure. The IRS website will still be up and running and should be handling all functions. But there are a number of support staff writing revenue procedures, notices, regulations, etc. Those are expected to stop. While the Service will not issue refunds during the shutdown, e-filing should speed your refund once the shutdown is over.
January 19, 2018
NewsThe IRS is adding another level of security to the Practitioner Priority Service for telephone questions about taxpayers' account information. Practitioners will be asked for their birthdate and Social Security number as well as their Centralized Authorization File (CAF) number before the IRS will release information. Practitioners who use a third party provider to access client transcripts must check a box on revised Form 2848 (Power of Attorney) and Form 8821 (Tax Information Authorization) to require tax professionals to inform their clients.
Tax exempt organizations come under special rules to prevent officers, board members, etc. from using the organization's funds for their own benefit. In Joan Farr f.k.a. Joan Heffington (T.C. Memo. 2018-2) the petitioner was the chief executive officer and a board member and had exclusive signature authority over a tax exempt entity's bank account. As a result she was a disqualified person. The petitioner was unable to show that withdrawals were compensation rather than purchases of goods and services her own benefit. The Court did not find her testimony convincing or credible. It held that the outlays were excess benefit transactions and subject to the excise taxes under Sec. 4958(a)(1) (a tax equal to 25% of the transaction) and (b) (a tax equal to 200% of the transaction if not corrected within the taxable period).
Tip of the DayFiling Forms 1099-MISC . . . The Protecting Americans from Tax Hikes (PATH) Act of 2015 requires Forms 1099-MISC reporting non-employee compensation (NEC) in box 7 to be filed by January 31. Therefore, a Form 1099-MISC is due as follows.
After January 31, if you submit one or more Forms 1099-MISC reporting NEC together with other Forms 1099-MISC not reporting NEC, the IRS may inadvertently treat all Forms 1099-MISC in that submission as subject to the Section 6721 penalty for failure to file by January 31, even though many of the forms might not be due until February 28 or March 31 (depending on the filing method). In this case, the IRS may send you a Notice 972CG, A Penalty is Proposed for Your Information Returns, to which you may respond and clarify the content of the submission, indicating the number of Forms 1099-MISC that did not report NEC. For more information go to Filing Forms 1099-MISC With NEC in Box 7.
January 18, 2018
NewsThe IRS is strongly encouraging taxpayers who are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy. This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport. A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy. For more information, go to Revocation or Denial of Passport in Case of Certain Unpaid Taxes.
The IRS is generally presumed to be correct and the burden of proof is on the taxpayer to prove otherwise. But that's not the case when the IRS asserts fraud; then the burden is on the government to prove it. And that not taken lightly. In Curtis Eugene Ankerberg (T.C. Memo. 2018-1) the taxpayer, an accountant, understated his income and overstated deductions. On examination, the taxpayer failed to turn over documents requested by the agent and declined to turn over bank statements. Before trial, the parties entered into a stipulation in which petitioner conceded unreported gross receipts of $20,423, $69,960, and $20,983 for 2012, 2013, and 2014, respectively. He also conceded the disallowance of deductions for unsubstantiated insurance, taxes and licenses, office expenses, etc. The Tax Court noted the evidence established a pattern of unreported income and overstated deductions, failure to keep or produce record, and failure to cooperate with the IRS. Misstatements during an audit, even by an unsophisticated taxpayer, may support a finding of fraud. The taxpayer's education and experience may be considered in determining whether he acted with fraudulent intent. The taxpayer here was an accountant and tax professional, preparing a number of returns each year. He attributed the errors to his serious medical conditiions. The Court noted he continued to drive a car and prepare returns for others during this time period. The Court found the IRS had established fraudulent intent for each year.
Tip of the DayFinancials from tenants . . . There are few things worse than a deadbeat tenant. That applies to both business and residential rentals. In the best case the tenant essentially walks away from the business. The consequences to the landlord are a number of months of lost rent while looking to replace the tenant. If the tenant goes to bankruptcy court and tries to reorganize you may have to give a very hefty rent cut, or forgo a number of months rent and still not know whether you should look for a replacement while the case is pending in court. The lost rent can be crippling. The larger the tenant, the greater the impact. You should ask for annual financial statements from all tenants. Do an analysis to determine if you're at risk. You may have options. That could include encouraging the tenant to give up the space for some consideration on your part. Many business owners will try to hang on rather than cut their losses. In the current environment retail tenants are particularly vulnerable, but commercial tenants are far from immune. And the size of the tenant isn't an indication of creditworthiness. For residential tenants, do a credit check before renting. Talk to your attorney, particularly with respect to tenants in bankruptcy.
January 17, 2018
NewsThe IRS has released the final 2017 version of Form 1040. There are some minor differences including the income level where personal exemptions phase out, the date (January 2, 1953) on which individuals 65 or older can take a higher standard deduction, and Line 34, Tuition and fees deduction is labeled "Reserved for future use". The last change could still be in flux. Congress is still considering an tax package that would extend the now expired deduction.
In Kenneth William Kasper (150 T.C. No. 2) the IRS rejected the petitioner's claim for a whistleblower award under Section 7623(b), stating that the information he provided about corporate taxpayer T “did not meet our criteria for an award.” The petitioner argued his information was used by the IRS to keep “held open” the IRS's bankruptcy claim against T, which eventually led to a settlement payment. The Court granted the petitioner's motion to compel the discovery of information about the IRS's involvement in T's bankruptcy proceedings over the IRS's objection that the information was outside of the IRS's administrative record. The Tax Court held that when reviewing the IRS's determinations under Section 7623(b) would limit the scope of its review to the administrative record and the administrative record may be supplemented if it is incomplete. The Court also held that the applicable standard of review for determinations under Section 7623(b) is abuse of discretion and that the IRS did not abuse its discretion in rejecting the petitioner's claim for a whistleblower award.
Tip of the DayTax professionals . . . Authorized IRS e-file Providers are prohibited from submitting electronic returns to the IRS prior to the receipt of all Forms W-2, W-2G, and 1099-R from the taxpayer. If the taxpayer is unable to secure and provide a correct Form W-2, W-2G, or 1099-R, the return may be electronically filed after Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. is completed in accordance with the use of that form. This is the only time information from Pay stubs or Leave and Earning Statements (LES) is allowed. For additional information, go to e-file Providers Prohibited From Transmitting Returns Prior to Receiving Forms W-2, W-2G or 1099-R.
January 16, 2018
NewsWhile the tax filing season officially opens Jan. 29, taxpayers can begin preparing and e-filing their taxes for free with IRS Free File software. Free File software will automatically submit returns as soon as the filing season begins. A dozen brand-name Free File partners, acting through the Free File Alliance, offer their software free to eligible taxpayers. Each partner sets its own criteria, but any taxpayer earning $66,000 or less will find one or more software products available. Some providers offer both free federal and free state tax preparation, a seamless way to file taxes. Active duty military personnel with incomes of $66,000 or less may use any Free File software product of their choice without regard to the criteria. For more information, go to Free Tax Software Available Now through Free File. You can use the Free File Software Lookup Tool to see if you are eligible.
Treasury Secretary Steven Mnuchin announced he intends to hire more employees to staff IRS positions to implement the recently signed Tax Cuts and Jobs Act. The IRS has estimated that it will cost some $495 million to draft the regulations, design the forms, etc.
Tip of the DayChecking account fees? . . . You may have had a free personal checking account, or paid only a nominal sum, but your bank is changing the rules and you're going to start getting hit with real fees. You may be able to find a free or cheaper account at another commercial or savings bank, but they may soon start charging more. You might consider a credit union. They often charge lower or no fees. But before jumping ship, check all the fees at your current and any potential new bank. It's not unusual for fees to vary widely. In some cases you may have to carry a balance or have a certain type of credit card to be able to get the low or no fee. If you normally keep a low balance it doesn't make much sense to keep $3,500 in your account in order to avoid $15 a month in fees while you're carrying a balance on your credit cards.
January 12, 2018
NewsThe IRS has released an early copy of the 2018 percentage method tables for income tax withholding. You can download Notice 1036 here.
There are a number of tax provisions that expired at the end of 2016 that would be extended if the Tax Extender Bill of 2017 may be back on the table. The bill would extend a number of energy incentives, both for residential applications and biofuels. The bill would also extend the provision excluding the discharge of indebtedness on a principal residence from gross income, the tuition and fees deduction, and the deduction for premiums for mortgage insurance.
National Taxpayer Advocate Nina E. Olson today released her 2017 Annual Report to Congress, describing challenges the IRS will face as it implements the recently enacted tax reform legislation and unveiling a new publication, “The Purple Book,” that presents 50 legislative recommendations intended to strengthen taxpayer rights and improve tax administration. The report also examines a wide range of other tax administration issues, including the IRS’s administration of the private debt collection program, the agency’s increasing emphasis on online taxpayer accounts, and its implementation of a recent law that would deny or revoke the passports of taxpayers with significant tax debts. The report also highlights the need to modernize the way the IRS handles telephone service and the underreporting of compliance activity (i.e. audit rates) by increasing compliance it doesn't deem to be traditional audits.
Tip of the DayRoth contributions . . . If you can't (or don't want to) contribute to a deductible IRA, you should definitely consider contributing to a Roth. But there are restrictions based on your adjusted gross income (AGI). If you're married filing jointly, your contribution phases out if your AGI is between $186,000 and $196,000. If you're single, head of household, or married filing filing separately and you didn't live with your spouse at any time during the year, your contribution phases out if your AGI is between $118,000 and $133,000. Excess contributions are subject to a 6% excise tax.
January 11, 2018
NewsThe Joint Committee on Taxation has published a list of expired (2016-2017) and expiring (2018-2027) Federal tax provisions. For the complete list go to www.jct.gov.
Sec. 6038D, enacted on Mar. 18, 2010, and effective for taxable years beginning after the date of enactment, imposes new reporting requirements with respect to certain “specified foreign financial assets”. Sec. 6501(e)(1)(A)(ii), also enacted on Mar. 18, 2010, provides a six-year period of limitations if the taxpayer omits from gross income amounts attributable to one or more assets with respect to which information is required to be reported under Sec. 6038D. The Tax Court held that because Sec. 6501(e)(1)(A)(ii) applies only to omissions from gross income of amounts attributable to assets with respect to which the reporting requirement of Sec. 6038D is applicable (or would be applicable without regard to specified exceptions), it is effective only for tax years with respect to which the reporting requirement of Sec. 6038D is effective. Mehrdad Rafizadeh (150 T.C. No. 1)
Tip of the DayProperty as good as cash . . . At least when it comes time to reporting amounts you pay employees. If, during the year, you pay your employees in goods, lodging, food, clothing, or services you must include the fair market value of the payments in their income. In addition, the value of the payments is subject to income tax withholding and social security, Medicare, and FUTA taxes. More than likely, the amounts are subject to state unemployment and income tax withholding also. (Noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes.) Check with your tax advisor. Some payments may be exempt because of a de minimis, working condition fringe benefit, or some other rule. For example, at Christmas time you pass out holiday turkeys or obsolete inventory items.
January 10, 2018
NewsThe IRS, state tax agencies and the tax industry are warning tax professionals of early signs that cybercriminals already are at work as the nation’s tax season approaches. Fraudsters are using a new round of emails posing as potential clients or even the IRS to trick tax practitioners into disclosing sensitive information. The Security Summit partners encourage tax practitioners to be wary of communicating solely by email with potential or even existing clients, especially if unusual requests are made. Data breach thefts have given thieves millions of identity data points including names, addresses, Social Security numbers and email addresses. If in doubt, tax practitioners should call to confirm a client’s identity. Numerous data breaches last year mean the entire tax preparation community must be on high alert this filing season to any unusual activity. Thieves may try to leverage stolen identities to steal even more data that will allow them to better impersonate taxpayers and file fraudulent tax returns for refunds. In recent days, tax professionals have reported numerous attempts by fraudsters to pierce their security by posing as potential clients. Crooks are using the same tactic they did last year (IR-2017-03), using phishing emails to trick tax practitioners into opening a link or attached document. For more information, go to Security Summit Partners Warn Tax Pros of Heightened Fraud Activity as Filing Season Approaches.
Rev. Rul. 2018-04 provides tables of covered compensation under Section 401(l)(5)(E) of the Code and the Regulations thereunder, for the 2018 plan year. These tables of covered compensation reflect a revision to the taxable wage base for 2018 that was announced by the Social Security Administration on November 27, 2017, and apply in lieu of the tables that were provided in Revenue Ruling 2017-22.
Tip of the DayS corporation election . . . Making an election for your corporation to become an S corporation is generally easy. But that doesn't mean it can't be botched. In one case a professional the IRS rejected the election because it had two different errors. The election must be made within 2-1/2 months of the earlier of when the corporation first had shareholders or first began to do business. For an existing corporation it must be made within 2-1/2 months of the beginning of the tax year or in the prior year. There is relief for late-filed elections, but that should be your fall back position. An officer of the corporation must sign as well as all shareholders. You'll also have to input each shareholder's ownership and social security number. There's a trick here. Each shareholder who owned stock for the first year the election is intended must sign. For example, Sue, Fred, and Carol formed a corporation on January 7, 2018. Carol sold her shares to Sue on January 20, 2018. Sue and Fred decide to elect S corporation status January 30, effective for all of 2018. Carol must sign the consent form, even though she is no longer a shareholder. And check your state rules. You may have to make a separate state election.
January 9, 2018
NewsYou may be able to have your debts discharged in bankruptcy, but there are limitations. In In re: Tyrone A. Conard, Joyce L Conard, Debtors. Tyrone A. Conard, Joyce L. Conard (U.S. Bankruptcy Court, E.D. Virginia) the IRS opposed the relief the requested by the debtors, asserting their tax liabilities were nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(1)(C). The taxpayer operated a life insurance sales agency and felt under pressure from the insurance company to increase policy sales. For several years the taxpayer did not file returns and knew he owed the IRS money but claimed he had to put the money back in the business. The IRS noted a list of purchases during those years that included, among other things, a $86,000 Mercedes Benz, a $47,000 BMW, a $50,000 Buick tuition for his son ($48,000) and other expenditures. The debtor claimed they were business related, but failed to convince the Court of the relationship. The Court noted that the Government must prove that the debtor (1) had a duty to file income tax returns and pay taxes; (2) knew that he had such a duty; and (3) voluntarily and intentionally violated that duty. The Court also noted that in an earlier case, <>i>Clayton>, the court held that lavish spending coupled with the knowledge of tax debts as an indication that a debtoracted willfully in the evasion of his tax obligations. The Court did not agree with the debtor that the IRS had to establish that the debtor acted with fraudulent intent. The Court held that the debtor's chapter 7 discharge does not discharge him from his debt to the IRS for the years at issue.
Tip of the DayNever ending contract . . . It's not unusual to hire a consultant for a job and find him or her still working there years later. While that's unlikely in a very small company, it can happen in even a company with 50 employees if no one is reviewing outside contractors on a regular basis. If you hire someone for a specific job, they should be gone when the work is completed. If it's an ongoing commitment, such as using an outside firm for your IT work, put a time limit on the contract (a renewal option can make sense), and review it at expiration. Your needs may, indeed probably have, changed. Maybe you've grown and should hire a dedicated individual, the technology has changed, or your operations have changed. We know of one company that hired an individual with particular expertise to assist in starting a new operation. He was paid $150,000 annually and well worth the money when he worked 4 days a week. The company terminated the agreement some years later when they realized they were paying him $150,000 a year for less than 4 hours work a week.
January 8, 2018
NewsThe IRS has announced that all Forms 8809, Application for Extension of Time to File Information Returns, filed on paper are now processed by the Internal Revenue Service Center in Ogden, Utah. These paper forms must be mailed. Faxes will not be accepted. The mailing address is:
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0209
The IRS will only grant extensions for very specific reasons. For example, records were lost in a disaster or someone responsible for filing the company’s returns has an unavoidable absence.
The IRS has posted a list of six questions preparers should ask themselves about office security. While intended for tax professionals, they apply to virtually any office or business.
Tip of the DayMake it difficult . . . You don't have to have the best security system in your building or the most complicated passwords on your computer. The same goes for internal controls in your business. Most thieves aren't into hard work--that's why they're thieves. What you have to do is make your office, computer, etc. harder to get into than the one next door. The thieves will quickly move to the next opportunity. There was a neighborhood where cars were broken into and cash and small items stolen. In no case did the thieves actually "break" in; they simply tried the doors. If a car was locked, they quickly moved on. Nine out of ten tries resulted in failure, but there were enough cars unlocked to make the venture lucrative on a regular basis. There are enough people out there whose password is "password" or "administrator" to make breaking into a computer easy.
January 5, 2018
NewsEffective January 2, 2018, the IRS simplified the user fees charged for most submissions made under the Voluntary Correction Program (VCP). The total amount of net plan assets determines the applicable user fee. Most alternative or reduced fees that were part of previous revenue procedures no longer apply. For more information, see Voluntary Correction Program User Fees Changes.
The IRS has posted information on How to Obtain or Re-Establish an EIN for a Retirement Plan Trust.
The IRS has announced that the tax season will begin Monday, Jan. 29, 2018 and reminded taxpayers claiming certain tax credits that refunds won’t be available before late February. The IRS will begin accepting tax returns on Jan. 29, with nearly 155 million individual tax returns expected to be filed in 2018. The tax deadline will be April 17 this year. Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS is reminding taxpayers that, by law, it cannot issue refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February. The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.
The IRS has also announced that it will begin accepting all business tax returns on January 8, 2018.
Tip of the DayFailure to file . . . That's different from failure to pay. And the IRS takes a dimmer view of not filing returns than not paying the tax. Why? One of the reasons is because not filing is more work for the IRS. Many taxpayers who don't file don't get caught for a number of years. But when the day of reckoning comes, and it will, the bill will be huge. Not only taxes, but substantial penalties and interest. In fact, failure to file is one of the 11 "badges of fraud". On the other hand, if you file a return and can't pay the amount due, the IRS has a number of options from settling for less than the full amount to putting a lien on your property and forcing a sale. If you've got returns for unfiled years (business or personal), talk to a tax professional and to see about getting current.
January 4, 2018
NewsIn John L Roth et ux. (T.C. Memo. 2017-248) the taxpayers overstated by more than 200% the value of a conservation easement donated during the taxable year 2007. The IRS examiner determined that the taxpayers were liable for the 40% gross valuation misstatement penalty under Sec. 6662(h) and obtained written approval from her immediate supervisor. The notice of deficiency ultimately issued to the taxpayers was based on the IRS Appeals officer's closing memorandum, for which he obtained written approval from his immediate supervisor. The notice of deficiency omitted the 40% Sec. 6662(h) penalty, but the IRS asserted the penalty in his answer, which was signed by the IRS trial counsel and her immediate supervisor. The taxpayers contended that the IRS failed to comply with the requirements of Sec. 6751(b) and that assessment of the 40% Sec. 6662(h) penalty was barred. The taxpayers also received Colorado State income tax credits for the charitable donation of a separate conservation easement. For the 2007 taxable year they included in gross income amounts received from the sale of some of those tax credits. As a result of litigation, the taxpayers repaid some of those proceeds in subsequent tax years. They contended they were entitled to a 2007 taxable year deduction under Sec. 1341 for repayment of the credit proceeds. The Tax Court held the IRS complied with the requirements of Sec. 6751(b) and that the 40% accuracy-related penalty for a gross valuation misstatement was sustained for tax years 2007 and 2008. The Court also held the taxpayers were not entitled to a deduction for the repayment of credits for taxable year 2007 under Sec. 1341.
Tip of the DayRight to alterations . . . The rules with respect to alterations of space you're renting can vary greatly depending on the kind of space. If it's a significant amount of office space in a class A building, chances are they'll be a section on alterations in the lease. You may be allowed a certain amount of alterations free, but the landlord may only allow you to use his crew and has to approve all work. In shopping centers there can be more restrictions on the alterations. Industrial and warehouse space often have few restrictions. Don't assume anything. Read the lease carefully. If you even think you might make alterations in the future, make sure they'll be allowed under the lease.
January 3, 2018
NewsThe IRS has updated a number of Revenue Procedures for 2018 including the list of areas where it will not issue determination letters or letter rulings, procedures for requesting letter rulings and determination letters, fees for such requests, and other procedural issues. For a synopsis of the Revenue Procedures and a link to the full text, go to IRS Pronouncements-2018 on our web page.
The IRS has issued final regulations (T.D. 9829) regarding the implementation of certain portions of Section 1101 of the Bipartisan Budget Act of 2015 (BBA) which repeals the current rules governing partnership audits and replaces them with a new centralized partnership audit regime that, in general, assesses and collects tax at the partnership level. This document provides final regulations for electing out of the centralized partnership audit regime. The final regulations affect partnerships for taxable years beginning after December 31, 2017.
Tip of the DayProperty insurance . . . Besides the obvious, there are some fundamental differences from auto insurance. Most auto insurers will cover you almost no matter how risky (they draw the line on some situations). We know of one 93-year old lady who had three accidents in 18 months--all clearly her fault. She continued to be insured, but decided to stop driving when she was quoted $4,500 a year for a $20,000 car in a suburban market. (Her brother was driving at 96, but he hadn't had an accident in 8 years.) But many property insurers won't take on new customers if they're within a certain distance of a river or ocean, will do a full inspection on new customers, won't insure in hurricane regions, etc. They're also leary about keeping customers who have more than one relatively small casualty, such as a kitchen fire, burst pipe. Shopping for car insurance can make sense, but be careful about switching property insurers.
January 2, 2018
NewsThe Treasury Inspector General for Tax Administration (TIGTA) reminded taxpayers to remain on “High Alert” during the coming tax filing season to avoid being conned by criminals who impersonate IRS and Treasury employees in an effort to steal their money. TIGTA has mad significant progress in the investigation and prosecution of the perpetrators of the scam, which has robbed U.S. taxpayers of more than $61 million dollars since it began in 2013. In total, TIGTA investigations have resulted in Federal charges being filed against over 90 individuals. In October 2016, 56 individuals (24 of whom were located in the United States), and five call centers located in India, were named in a sweeping Federal indictment for their roles in the IRS impersonation scam and other frauds. On November 13, 2017, the last of the 24 U.S.-based defendants from the October 2016 indictment pleaded guilty. “This is the largest, most comprehensive investigation that TIGTA has ever conducted, and I am extremely proud of our work,” said Inspector General George, who added that collaboration between TIGTA and a broad cross-section of Federal law enforcement partners, including the Department of Justice, the Federal Trade Commission, the Federal Communications Commission, other offices of Inspectors General, and the U.S. Department of Homeland Security, have strengthened U.S. efforts to thwart these fraudulent schemes." “Please remember to remain on guard against fraudulent calls. If you receive one, hang up, and report the call immediately to our website,” he added. TIGTA continues to receive reports of thousands of contacts every month in which individuals fraudulently claiming to be IRS officials make unsolicited calls and “robocalls” to taxpayers and demand that they make payment. Inspector General George noted that the scam has hit taxpayers in every State in the country. These scammers threaten unsuspecting taxpayers with arrest, imprisonment, deportation, grand jury indictment, loss of a business or driver's license, or other punishments, if the taxpayers do not immediately pay them for taxes the taxpayers actually do not owe. Over 12,400 victims reported that they have collectively paid more than $61.6 million dollars as a result of the scam. For more information go to www.treasury.gov/tigta/press/press_tigta-2017-30.htm.
Tip of the DayAlternate, residuary, and life estate beneficiaries . . . Even if you're having a lawyer draft your will (and, unless you have a very simple one we suggest you get professional help) you've got to know your options. You may decide to leave that 1969 Camaro to your brother, but what if he predeceases you? You may not want his reckless son to get it. You can specify someone else as an alternate beneficiary. That person will receive the property based on conditions that you can spell out in the will. Residuary beneficiaries receive property that hasn't been expressly left to other beneficiaries. Naming one or more residuary beneficiaries is important since it's unlikely your will will detail all your property. You should also name an alternate residuary beneficiary to anticipate the death of a primary one. A life estate beneficiary receives an interest in the property only for as long as he lives. On his death the property passes to a final beneficiary. For example, you leave that '69 Camaro to your brother to enjoy while he's alive, but on his death the car goes to your son. If your brother dies before you do, the property passes directly to your son.
December 29, 2017
NewsIn a proposed notice of deficiency for 2004 and 2005, the IRS'S examining agent proposed 40% gross valuation misstatement penalties under Sec. 6662(h) with respect to the proposed disallowance of the taxpayer's noncash charitable contribution deduction and carryover deduction. During mandatory review of the proposed notice, the IRS's counsel recommended, as an alternative position, that 20% accuracy-related penalties be determined under Sec. 6662(a) with respect to these same items. The IRS's counsel's recommendation was approved in writing by his immediate supervisor and added to the notice of deficiency. After the petition and the answer were filed, the IRS conceded the 40% gross valuation misstatement penalties and amended its answer to reassert the 20% penalties with respect to the noncash charitable contribution deductions. The amendment to answer also asserted for the first time 20% accuracy-related penalties with respect to the proposed disallowance of a cash charitable contribution deduction and carryover deduction. The penalties asserted in the amendment to answer were approved in writing by the appropriate immediate supervisor. The taxpayers contended that the IRS was barred from assessing the penalties at issue because it failed to comply with Sec. 6751(b)(1), which requires that the “initial determination of * * * [the] assessment” of the penalty be “personally approved (in writing) by the immediate supervisor * * * or such higher level official as the Secretary may designate.” In Graev (147 T.C. No. 16) (Graev II), the Tax Court sustained the 20% penalties at issue, holding in part that the taxpayers' argument that the IRS failed to comply with Sec. 6751(b)(1) was premature in this preassessment deficiency proceeding. Subsequently, the Court of Appeals for the Second Circuit issued its opinion in Chai (2d Cir. 2017), aff'g in part, rev'g in part T.C. Memo. 2015-42, holding that “the written-approval requirement of * * * Sec. 6751(b)(1) is appropriately viewed as an element of a penalty claim”, and that Sec. “6751(b)(1) requires written approval of the initial penalty determination no later than the date the IRS issues the notice of deficiency (or files an answer or amended answer) asserting such penalty”. Because this case is appealable to the Court of Appeals for the Second Circuit, we vacated our decision in Graev II. The Court held that the taxpayers' argument that the IRS failed to comply with Sec. 6751(b)(1) is appropriately considered in this deficiency proceeding; Graev II is overruled in part. The Tax Court also held that a showing that the written approval requirement of Sec. 6751(b) is satisfied is part of the IRS's burden of production under Sec. 7491(c) and that the IRS has shown compliance with the written approval requirement of Sec. 6751(b) for the penalties at issue. Finally, the Court held the taxpayers were liable for 20% accuracy-related penalties with respect to their disallowed deductions for both the cash and noncash charitable contributions. Lawrence G. Graev et ux. (149 T.C. No. 23)
Tip of the DayAttorney client privilege has its limits . . . The attorney-client privilege protects confidential communications between client and an attorney made for the purpose of obtaining or providing legal assistance. Information conveyed to a lawyer by a client solely for the purpose of retransmission to a third-party is generally not protected by the attorney-client privilege, and the result is no different when the third-party is the IRS and the means of retransmittal is a tax return. The issue hinges on whether the information was conveyed by the client to the attorney in confidence for the purpose of obtaining legal advice and not merely for the purpose of retransmittal to a third party. The attorney-client privilege can also be lost if you reveal the information to a third party. Best advice? If you want the information to remain privileged, talk to your attorney and make sure you understand the nuances of the law.
December 28, 2017
NewsThe IRS has released an updated version of Form 8965, Health Coverage Exemptions and the accompanying instructions.
The IRS has announced it is working to develop withholding guidance to implement the tax reform bill signed into law on December 22. It anticipates issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time. Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February. In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems.
Tip of the DayPrivate rulings from your state . . . The IRS issues private letter rulings directed to taxpayers with questions about a transaction where the tax consequences are unclear. The rulings are public, but the name and other information is omitted so the taxpayer can't be identified. Many states have a similar procedure. Thus, if there are no regulations, case law, etc. on the topic you can request a written determination asking, for example, whether a certain item is subject to sales tax. You can usually rely on the letter ruling, but only if the facts are the same as stated in the request. The good news is you can avoid getting hit with taxes and penalties if you request a ruling and the state later takes a contrary position. The bad news is if you don't like the ruling, you're stuck with it. Even if the state doesn't charge for a ruling (we don't know of any that do; the IRS does), there is an expense on your part. Requesting a ruling makes sense if the amount involved is substantial or the issue will recur. Talk to your tax adviser.
December 27, 2017
NewsNotice 2018-06 extends the 2018 due date for certain entities to provide 2017 health coverage information forms (Forms 1095-A and 1095-C) to individuals. Insurers, self-insuring employers, other coverage providers, and applicable large employers now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals, which is a 30-day extension from the original due date of Jan. 31. Insurers, self-insuring employers, other coverage providers, and applicable large employers must furnish statements to employees or covered individuals regarding the health care coverage offered to them. Individuals may use this information to determine whether, for each month of the calendar year, they may claim the premium tax credit on their individual income tax returns. This 30-day extension is automatic. Employers and providers don't have to request it. The due dates for filing 2017 information returns with the IRS are not extended. For 2018, the due dates to file information returns with the IRS are:
Because of these extensions, individuals may not receive their Forms 1095-B or 1095-C by the time they are ready to file their 2017 individual income tax return. While information on these forms may assist in preparing a return, the forms are not required to file. Taxpayers can prepare and file their returns using other information about their health coverage. They do not have to wait for Forms 1095-B or 1095-C to file.
The Financial Crimes Enforcement Network (FinCEN) is announcing (Notice 2017-1) a further extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of the notice of proposed rulemaking (NPRM) FinCEN issued on March 10, 2016, which proposes to revise the regulations implementing the Bank Secrecy Act (BSA) regarding FBARs. Specifically, one of the proposed amendments would expand and clarify the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts. This proposed amendment seeks to address questions raised regarding the filing requirement and its application to the individuals with signature authority over, but no financial interest in, certain types of accounts as outlined in FinCEN Notice 2016-1. On December 16, 2016, FinCEN issued Notice 2016-1 to extend the filing date for FinCEN Form 114 - FBAR 2 for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts to April 15, 2018. In the past five years, FinCEN has issued identical extensions that applied to similarly situated individuals. 3 As noted in these previous Notices, FinCEN received questions that required additional consideration with respect to the exemptions addressed in these Notices. As stated above, the proposed amendments in the NPRM seek to address these exemptions. Because the proposal is not yet finalized, FinCEN is further extending the filing due date to April 15, 2019, for individuals whose filing due date for reporting signature authority was previously extended by Notice 2016-1. 4 This extension applies to the reporting of signature authority held during the 2017 calendar year, as well as all reporting deadlines extended by previous Notices 2016-1, 2015-1, 2014-1, 2013-1, 2012-1 and 2012-2, along with Notices 2011-1 and 2011-2. For all other individuals with an FBAR filing obligation, the filing due date remains April 15, 2018.
Tip of the DayLump-sum Social Security payment . . . It's not unusual for a taxpayer to receive a lump-sum Social Security benefit attributable to one or more prior years in addition to a current-year benefit. That can result in an inequity since Social Security benefits may be nontaxable, 50% taxable, or 85% taxable depending on your adjusted gross income. Thus, receiving a lump-sum benefit in one year can result in higher taxation of the benefits. Taxpayers can make a special election under Section 86(e) to recalculate the taxability of the lump-sum as if it were paid in the years to which it is attributable. That doesn't require amended returns, just a special calculation for the year of receipt.
December 26, 2017
NewsPresident Trump has signed the Tax Cuts and Jobs Act. Most of the provisions take effect beginning January 1, 2018. The IRS is expected to have new withholding tables ready for February 1 payrolls. Because of the number of changes in the Act, it will require a number of new regulations. One of the more involved changes affects pass-through entities.
The Republicans on the Senate Finance Committee have introduced the Tax Extenders Bill of 2017. The bill extends a number of expiring tax provisions including:
Tip of the DayRecord ownership . . . Selling your business? Liquidating? If you're audited down the road you may need access to those records. It's common to provide records to the new owner, but make sure you either keep a copy or include language in the contract allowing you access to them for the appropriate period of time. There's no reason you shouldn't be able to retain a copy of any electronic data, e.g., your accounting files. Chances are the info will fit on a couple of CD's. Talk to your accountant and attorney.
Copyright 2017-2018 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536