Small Business Taxes & ManagementTM--Copyright 2018, A/N Group, Inc.
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May 25, 2018
NewsThe IRS and its state and industry Security Summit partners are warning (IR-2018-125) tax practitioners to beware of phishing emails posing as state accounting and professional associations. The IRS has received reports from tax professionals who received fake emails that were trying to trick them into disclosing their email usernames and passwords. Cybercriminals specifically targeted tax professionals in Iowa, Illinois, New Jersey and North Carolina. The IRS also received reports about a Canadian accounting association. The awkwardly worded phishing email states: “We kindly request that you follow this link HERE and sign in with your email to view this information from (name of accounting association) to all active members. This announcement has been updated for your kind information through our secure information sharing portal which is linked to your email server.” Tax practitioners nationwide should be on guard because cybercriminals can easily change their tactics, using other association names or making other adjustments in their scam attempts. Tax practitioners who are members of professional associations should go directly to those associations’ websites rather than open any links or attachments. Tax practitioners who receive suspicious emails related to taxes or the IRS, or phishing attempts to gain access to practitioner databases, should forward those emails to email@example.com.\
You can only take a charitable contribution deduction for the full amount of cash or property donated if you don't receive something in return. If you receive something you must reduce the contribution by the fair market value of the amount received. (There's an exception for certain small items.) In Triumph Mixed Use Investments III, LLC, Fox Ridge Investments, LLC, Tax Matters Partner (T.C. Memo. 2018-65) the taxpayer, a real estate developer, took a deduction for real property and development credits to a city and received an approval for the taxpayer's development plan in exchange. The Court noted that if the donor receives something in return, the Court must value both the contribution and the amount received. The Court found that the taxpayer received a substantial benefit and failed to show the value of the consideration on the tax return. The Court held the taxpayer could not deduct the contribution.
Tip of the DayState employment tax credits . . . Employment tax credits for hiring individuals from targeted groups such as Supplemental Security Income recipients, veterans, etc. have been available on the federal level for a number of years. But many states provide credits for hiring based on similar criteria. While the rules are often similar to the federal ones, some individuals may be qualified for state but not federal purposes. There may be employment related credits in your state. And a credit is worth more than a deduction. It's a dollar-for-dollar reduction in taxes.
May 24, 2018
NewsThe IRS has issued Notice 2018-54 (IRB 2018-24) stating that proposed regulations will be issued addressing the deductibility of state and local tax payments for federal income tax purposes. The notice also informs taxpayers that federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law. The Tax Cuts and Jobs Act (TCJA) limited the amount of state and local taxes an individual can deduct in a calendar year to $10,000. In response to this new limitation, some state legislatures have adopted or are considering legislative proposals allowing taxpayers to make payments to specified entities in exchange for a tax credit against state and local taxes owed. The upcoming proposed regulations, to be issued in the near future, will help taxpayers understand the relationship between federal charitable contribution deductions and the new statutory limitation on the deduction of state and local taxes. Taxpayers should also be aware the U.S. Department of the Treasury and the Internal Revenue Service are continuing to monitor other legislative proposals being considered to ensure that federal law controls the characterization of deductions for federal income tax filings.
You may be able to avoid an understatement penalty if you can show you relied on professional tax advice. But, like most of tax law, you've got to read the fine print. In RB-1 Investment Partners, Eric Reinhart, Tax Matters Partner (T.C. Memo. 2018-64) the taxpayer claimed reliance on a law firm and the accounting firm that prepared the partnership return. The Court noted that reliance on the law firm was misplaced since it was also promoting the shelter. The taxpayer could not rely on the accounting firm because it claimed reliance on the law firm's expert opinion and did not separately issue an opinion. The Court found the taxpayer liable for the accuracy-related penalty.
Tip of the DayProperty transfers subject to sales tax . . . Most states that impose a sales tax have rules regarding the transfer of property outside of a purchase from a retailer. For example, you give your used truck to an old friend. The truck is valued at $4,000. In most states the transfer is subject to sales tax. On the other hand, many states have a exemption for the transfer to a relative. Had you given the truck to your daughter, tax may not have been due. Most states have an exemption for assets transferred to a corporation or partnership in exchange for an interest in the entity. You contribute a truck you own personally along with tools in exchange for all the stock of Madison Inc. Generally, that transaction is exempt from sales tax. Not infrequently, the exception is narrowly worded, so you've got to check the rules carefully. On the other hand, fewer states exempt a transaction going the other way, when the business transfers assets to the shareholders or partners. Again, check the rules. A mistake here could be costly.
May 23, 2018
NewsRev. Proc. 2018-34 (IRB 2018-23) provides indexing adjustments for certain provisions under Section 36B of the Code. In particular, it updates the Applicable Percentage Table in Sec. 36B(b)(3)(A)(i) to provide the Applicable Percentage Table for 2019. This table is used to calculate an individual's premium tax credit. This revenue procedure also updates the required contribution percentage in Sec. 36B(c)(2)(C)(i)(II) for plan years beginning after calendar year 2018. The percentage is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Sec. 36B.
Notice 2018-44 (IRB 2018-21) contains a correction to the foreign housing cost amount for 2018. Notice 2018-44 revokes Notice 2018-33 and provides the correct amount of the maximum housing expenses and the base housing amount for 2018 and also provides an updated table of adjusted limitations on housing expenses.
As a result of severe storms and flooding during the period beginning February 14 to March 4 in Indiana, taxpayers who sustained personal or business losses in the counties of Benton, Carroll, Clark, Crawford, Dearborn, Elkhart, Floyd, Fulton, Gibson, Harrison, Jasper, Jefferson, Lake, LaPorte, Marshall, Newton, Ohio, Perry, Porter, Spencer, St. Joseph, Starke, Switzerland, Vanderburgh, Vermillion, Wabash, Warren, Warrick and White may deduct them on their 2018 or 2017 returns. In addition, taxpayers in the counties of Carroll, Clark, Elkhart, Floyd, Harrison, Jefferson, Lake, Marshall, and St. Joseph counties may qualify for individual assistance and additional tax relief. For taxpayers in the latter group of counties, the IRS may postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Feb. 14, 2018 and before June 29, 2018, are granted additional time to file through June 29, 2018. This includes the April 18 deadline for filing 2017 individual income tax returns and the April 18 and June 15 deadlines for making quarterly estimated tax payments. In addition, penalties on employment and excise tax deposits due on or after Feb. 14, 2018 and before March 1, 2018, will be abated as long as the deposits were made by March 1, 2018. For additional information, go to Tax relief for victims of severe storms and flooding in Indiana.
Tip of the DayGimmicks not the solution . . . Gimmicks such as a loyalty program or special deals will increase sales but they won't make up for a poorly run business. The first step is to have a competitive product or service. The second is to service the customer--on time delivery, refund or replacement of damaged product, etc. Whatever is appropriate for your business. The third is customer assistance. Respond to complaints and questions, make it easy to order, etc. If you've got that under control, you can work on the loyalty program, special sales, etc.
May 22, 2018
NewsThe IRS announced it will conduct the annual Memorial Day Systems Shutdown beginning Saturday, May 26, 2018 at 6:00 p.m. and ending on Tuesday, May 28, 2018 at 6:00 a.m. The Modernized e-File Systems (both Production and ATS) will not be available during this timeframe. Users should refrain from accessing the MeF Systems to transmit business/individual/state tax returns, retrieve acknowledgments or submit any other service requests.
You can only take losses sustained in an S corporation if you have sufficient basis. For loans to be included in your basis you have to have loaned the funds directly to the corporation or if you are the primary obligor on the loan. In Rupert E. Phillips, Sandra K. Phillips (U.S. Court of Appeals, Eleventh Circuit) the Court affirmed a Tax Court holding that the taxpayer-wife could not increase her basis in an S corporation despite the fact that she could be personally liable for judgments rendered against the corporation because the loans were in default. The taxpayer had not made any payments toward satisfying the judgments.
Tip of the DayFirst time home buyer? . . . Unless you've got some special knowledge and skills (e.g., you're a contractor) consider carefully before jumping into a home that needs more than paint and cutting back some overgrown foundation planting. Chances are you'll spend almost everything you had (maybe more than you had) on the purchase. You may be cash strapped for some time. Consider also you may be spending on items you hadn't expected to and that weren't caught in the engineer's report. Looking at the home knowing you'll have to redo the kitchen within a month? Get a good idea of the cost and add it mentally to the purchase to get an idea of the true cost. And then consider how you'll finance that.
May 21, 2018
NewsThe IRS has announced that guidance on the passthrough deduction enacted as part of the Tax Cuts and Jobs Act of 2017 (Sec. 199A) should be issued by the end of July. The guidance should be of assistance, but will not be in final form but in good shape and be open to taxpayer and practitioner suggestions.
If you've filed for bankruptcy, you're afforded protection from your creditors. They are no longer allowed to contact you to try an collect a debt. In In re: Lucy Thal, Debtor; In re: Robert Lee Slattery, Debtor (U.S. Bankruptcy Court, S.D. Florida) (two separate cases with the same result) the debtor filed a plan to pay a portion of the IRS priority claim. After the discharge from bankruptcy the IRS sent Notices of Intent to Seize for several tax years. In the first case the taxpayer filed a Motion for Contempt for Violation of the Discharge Injunction against the IRS arguing the the IRS violated the discharge injunction by attempting to collect the discharged debts. Because of the violation of the discharge injunction, the taxpayer asked the Court to hold the IRS in contempt and order the IRS to pay punitive damages as well as attorney fees and costs for the filing of the motion. The IRS responded that it stopped all action as soon as it was informed of the violation by the taxpayer. The IRS also argued that the taxpayer's request for attorney's fees and costs should be denied because the taxpayer, before filing the motion, failed to exhaust her administrative remedies as required. The Court held the taxpayers may claim damages, but not punitive damages against the IRS. It also held it could force the IRS to return any amounts seized, but, under Sec. 7430, it could not award damages without the taxpayer exhausting the administrative remedies available to the party within the IRS.
Tip of the DayGet detailed bills . . . If you're hiring a professional to do work for your business but the same professional provides services to individuals, get a detailed breakdown of the work performed. You don't want the IRS claiming that some or all of the work performed was personal in nature if it really was business related. That may be even more true now that most miscellaneous itemized deductions are no longer allowed.
May 18, 2018
NewsThe IRS is encouraging taxpayers who typically itemized their deductions on Schedule A of the Form 1040 to use the Withholding Calculator this year to perform a “paycheck checkup.” People who have itemized before may be affected by changes from the Tax Cuts and Jobs Act. Taxpayers who itemize should use the IRS Withholding Calculator to make sure their employers are withholding the appropriate amount of tax from their paychecks for their financial situation. Keep in mind that deductions for state and locals taxes and the deduction for mortgage interest will be limited in 2018. In addition, employee business expenses, investment management fees and other miscellaneous itemized amounts previously deductible will no longer be deductible. For additional information, go to IR-2018-120.
If your children do legitimate work for your business, you can deduct any reasonable salary paid them. But the work should be age appropriate and the younger the children, the more important accurate records become. In Harlan Wax et ux. (T.C. Memo. 2018-63) the parents claimed they employed their two children in their business and paid them by allowing them to use a business credit card for their personal expenses and then deducting the amount as salary. The Court noted that where a family relationship is involved, close scrutiny is applied to determine whether payments to or on behalf of a taxpayer's children are on account of an employment relationship or the family relationship and whether the amounts paid are reasonable for the work performed. The taxpayers did not keep track of the hours the children worked or the services they performed. The Court sided with the IRS in disallowing the amounts. The Court also disallowed other undocumented or unsubstantiated expenses. It further disallowed a deduction for the rental of an office in Florida where their children were going to school because the taxpayers could show no business purpose for the rental.
Cancellation of a debt you owe generally produces taxable income up to the amount canceled. There are a number of exceptions to the general rule, one of them is being insolvent at the time of the cancellation. In Vincent C. Hamilton et ux. (T.C. Memo. 2018-62) the husband, as a result of a chronic disability was no longer able to work and a significant student loan debt was forgiven. They claimed insolvency and did not report the forgiveness as income on their tax return. The taxpayers had, for nontax reasons, transferred a substantial cash balance to their son's bank account but continued to draw on the funds as necessary to pay their expenses. The IRS argued that the funds transferred to the son should be included in their assets. The Court agreed, finding the son to he holding the funds as a nominee, noting the taxpayers retained control of the funds and did not show they received anything in consideration for the transfer of the funds.
Tip of the DayMissed the 60-day IRA rollover deadline? . . . All may not be lost. You may be able to escape the penalty if you can an error by the financial institution (always get and keep any instructions) or illness, a casualty, etc. beyond your control. It's got to be a good reason. "It was allergy season" won't cut it. However, hospitalization, temporary disability and confined to your home, etc. may be enough. If you can perform your regular routine, go to work, etc. you problem won't avoid the penalty. Be prepared to document your situation. And talk to your tax adviser. There are no sure things here, but it's worth a try.
May 17, 2018
NewsRev. Proc. 2018-32 (IRB 2018-23) sets forth the extent to which grantors and contributors may rely on the listing of an organization in IRS databases of organizations eligible to receive tax-deductible contributions under Sec. 170, for purposes of determining whether the grants or contributions to such organizations may be deductible under Sec. 170, and for certain other purposes. This revenue procedure also provides safe harbors for determining that a grantor’s or contributor’s grant or contribution will not cause the grantor or contributor to be considered to be responsible for, or aware of, an act that results in an organization’s loss of public charity classification and for determining that a grant or contribution is considered an unusual grant.
Debt or equity? It makes a big difference to a business. Interest on debt is deductible; payments on equity aren't. And the characterization of an advance is important for a number of other purposes. In Dynamo Holdings Limited Partnership et al. (T.C. Memo. 2018-61) the IRS argued advances were equity; the taxpayer claimed they were debt. The loans were structured as demand notes with no maturity date. The Court noted that while the lack of a fixed maturity date to be "highly significant" in a debt vs. equity analysis, here there was a long standing practice of advancing and repaying loans. That would have made the lack of a maturity date lack of a concern but related-party demand note are generally afforded little weight. The Court also examined the other factors generally examined to determine if a bona fide creditor-debtor relationship existed and held that the loans were bona fide debt. On a second issue, whether the transfer of property between entities was done for less than fair market value, the taxpayers did not fare as well. The Court noted that transfers between family members or entities controlled by family members are subject to special scrutiny. The Court found that transfers were made at less than fair market value and were constructive distributions.
Tip of the DayExchange of life insurance contract . . . You may have purchased a life insurance policy years ago for a specific purpose such as paying estate taxes on your death and find that purpose no longer exists or that you could put the funds to better use. Simply cashing in a whole life policy can have tax consequences, some of them significant if held for some time. There are some options available. You can do a tax-free exchange of one life insurance policy for another, or exchange a life insurance policy for an endowment or annuity contract or for a qualified long-term care insurance contract. You can also exchange one annuity contract for another or for a qualified long-term care insurance contract. As always there are some fine points and selling, terminating or exchanging one of these contracts is a significant financial decision. Get good, independent, advice.
May 16, 2018
NewsIn these consolidated cases (Dynamo Holdings Limited Partnership et al., 150 T.C. No. 10) C, a corporation, and P, a partnership, share common ownership. During the years in issue C transferred property to P. The IRS argued that the transfers were gifts among the ultimate beneficial owners. The IRS argued in the alternative that the transfers were for less than fair market value and that the amounts of the discount are subject to withholding tax under Secs. 1442 and 1445(e)(3). The IRS determined that penalties under Sec. 6662(a) applied to the adjustments in the partnership proceeding and also determined additions to tax under Sec. 6651(a)(1) and penalties under Sec. 6656(a) against C. The Court noted that in an earlier case it held that in cases where the IRS bears the burden of production with respect to penalties under Sec. 7491(c), the burden of production includes evidence of written supervisory approval of penalties as required by Sec. 6751(b)(1). Under Sec. 7491(c), the IRS “shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.” The IRS filed a motion to reopen the record to supplement existing proof of supervisory approval. C and P moved for dismissal as to the penalties because the IRS did not meet the burden of production with respect to penalties under Sec. 7491(c). The Court held in a partnership-level proceeding the IRS does not bear the burden of production with respect to penalties under Sec. 7491(c). In addition, the Court held where the IRS does not bear the burden of production as to penalties, the lack of supervisory approval of penalties may be raised as a defense to those penalties. The Court also held C and P did not raise the lack of supervisory approval of penalties as a defense to penalties, and therefore the defense is waived. Finally, the Court held the motion to reopen the record was denied and the motion to dismiss as to penalties was denied.
Tip of the DayAnalyzing rental property purchase? . . . Some investors just look at the current income from the property; others are more interested in the residual value--that is what they can sell it for some years down the road. The proper approach is to look at the current income, the projected future income, and the residual value. Focusing on just the residual value is risky. The demographics could change, population decrease, the area change the type of residential or commercial use, traffic patterns change, etc. The longer the horizon, the riskier the valuation. Projected future income is riskier than current income simply because it is projected some years down the road. Tenants may not renew, rents could decline, etc. But just looking at current income can undervalue a potentially profitable property. There's software that can analyze different scenarios (e.g., different probabilities of tenant renewal, increases or decreases in rent, etc.). Do your homework before committing. Consider professional advice.
May 15, 2018
NewsRev. Proc. 2018-30 that for calendar year 2019 the annual limitation on deductions to Health Savings Accounts (HSAs) under Sec. 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,500. For calendar year 2019, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000. For calendar year 2019, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage.
Tip of the DaySubcontractor? . . . Many businesses are. Many companies decide to concentrate on their strengths and farm out the other work. That can range from using a payroll service instead of doing it in house to a company with an in-house capability such as advertising using an ad agency for some additional expertise or to avoid increasing the size of the company's staff. If there's a slowdown in business the payroll service may be well protected from customers going in house, but that might not be the case for an outside ad agency. If you're that supplier you should keep tabs on your customers. What will they do if there's a slowdown in their business? Could they take business in house? If that's the case you want to make sure you're valuable to their business.
May 14, 2018
NewsVictims of a tornado and severe storms that occurred on April 15, 2018 in parts of North Carolina may qualify for tax relief from the IRS. The President has declared that a major disaster exists in the State of North Carolina. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain North Carolina counties will receive tax relief. Individuals who reside or have a business in Guilford and Rockingham 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 April 15, 2018 and before Aug. 15, 2018, are granted additional time to file through Aug. 15, 2018. This includes the April 18 deadline for filing 2017 individual income tax returns and the April 18 and June 15 deadlines for making quarterly estimated tax payments. In addition, penalties on employment and excise tax deposits due on or after April 15, 2018 and before April 30, 2018, will be abated as long as the deposits were made by April 30, 2018. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief. For more information to to Tax Relief for Tornado and Severe Storms Victims in North Carolina
Rev. Proc. 2018-29 (IRB 2018-21) provides new procedures for taxpayers changing their method of accounting for the recognition of income for federal income tax purposes to a method for recognizing revenues described in the new financial accounting standards issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (New Standards). In particular, this revenue procedure modifies Rev. Proc. 2017-30, 2017-18 I.R.B. 1131, to provide procedures under §446 of the Internal Revenue Code (Code) and §1.446-1(e) of the Income Tax Regulations to obtain automatic consent of the Commissioner of Internal Revenue (Commissioner) to change to an otherwise permissible method of accounting that uses the New Standards to identify performance obligations, allocate transaction price to performance obligations, and/or consider performance obligations satisfied, if such method change is made for the taxable year in which the taxpayer adopts the New Standards.
Tip of the DayQualified charitable distributions . . . If you're at least age 70-1/2 you can make a distribution from a traditional IRA (limit $100,000 per year) directly to a charity. The distribution can count as your required minimum distribution. This type of distribution is not included in your income, but you can't take a charitable contribution for the amount either. There are several pluses to taking a distribution and then making a charitable contribution. First, the distribution isn't income. That means it won't increase your adjusted gross income for the myriad of income thresholds that can result in lost exemptions, deductions and/or credits or increased taxes. Second, with no deduction for mortgage interest and a $10,000 limit on taxes, there's a good chance at least part of any charitable contribution deduction would be wasted. There are some fine points to consider, so discuss the issue with your tax advisor.
May 11, 2018
NewsIn an audit of IRS’s fiscal years 2017 and 2016 financial statements, the General Accountability Office (GAO) identified a new control deficiency involving the timely correction and posting of tax transactions to taxpayer accounts that contributed to IRS’s continuing material weakness in internal control over unpaid assessments as of September 30, 2017. To see the full report, go to www.gao.gov/assets/700/691626.pdf.
The IRS has warned of a new twist tied to an old scam aimed at international taxpayers and non-resident aliens. In this scam, criminals use a fake IRS Form W-8BEN to solicit detailed personal identification and bank account information from victims. In the scam the criminals mail or fax a letter indicating that although individuals are exempt from withholding and reporting income tax, they need to authenticate their information by filling out a phony version of Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting. Recipients are requested to fax the information back. The Form W-8BEN is a legitimate U.S. tax exemption document, however, it can only be submitted through a withholding agent. In the past, fraudsters have targeted non-residents of the U.S. using the form as a lure to get personal details such as passport numbers and PIN codes. The legitimate IRS Form W-8BEN does not ask for any of that information. The phony letter or fax also refers to a Form W9095, which does not exist. Furthermore, the IRS doesn’t require a recertification of foreign status. The IRS is also warning taxpayers to be alert to bogus letters, emails and letters that appear to come from the IRS or your tax professional requesting information. Scam letters, forms and e-mails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. These phishing schemes may seek personal information, including mother’s maiden name, passport and account information in order steal the victim’s identity and their assets.
Most taxpayers believe just keeping receipts for expenses is good enough to substantiate a deduction. But the IRS can require additional documentation. In Tara Patrice Moore et vir (T.C. Memo. 2018-58) the taxpayer was denied a deduction for expenses related to a seminar because she could not prove she participated attended the session. Some travel and entertainment expenses were denied because she failed to show a business purpose.Tip of the Day Mortgage application documentation . . . While documentation of financial condition varies among lenders, you should be prepared to show the source of any large deposits into your bank account in the months leading up to the closing. That's especially true for small business owners. The lender wants to make sure the funds aren't coming from a business where the withdrawal will adversely impact the business. The best approach is to plan ahead so there aren't any out-of-the-ordinary movement of funds. If you can't do that, make sure you can explain the source of funds. If you're a business owner and have an outside accountant, make sure to keep him or her in the loop.
May 10, 2018
NewsRevenue Procedure 2018-31 (IRB 2018-22) provides the List of Automatic Changes to which the automatic change procedures in Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as modified by Rev. Proc. 2017-59, and by section 17.02 of Rev. Proc. 2016-1, apply. The definitions in section 3 of Rev. Proc. 2015-13 apply to this revenue procedure.
The IRS is reminding calendar-year tax exempt organizations that Form 990-series information returns are due May 15. Organizations will have their exempt status automatically revoked if they fail to file for three consecutive years. Small tax-exempt organizations with average annual gross receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard). This form requires only a few basic pieces of information. Tax-exempt organizations with average annual gross receipts above $50,000 must file a Form 990 or 990-EZ, depending on their receipts and assets. The IRS generally does not ask organizations for Social Security Numbers and cautions filers not to provide them on Form 990. By law, both the IRS and most tax-exempt organizations are required to publicly disclose most parts of Form 990 filings, including schedules and attachments.
The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Maria in Puerto Rico and the U.S. Virgin Islands. The extension applies to deadlines--either an original or extended due date--that occur during these periods:
Personal casualty losses attributable to certain 2017 federally declared disasters, including Hurricane Irma and Hurricane Maria, may be claimed as a qualified disaster loss. For more information go to Help for Victims of Hurricanes Irma and Maria.
In order to qualify for tax exempt status, an organization must be organized and operated exclusively for exempt purposes, and that “no part of . . . its net earnings . . . inure to the benefit of any private shareholder or individual”. In Abovo Foundation, Inc. (T.C. Memo. 2018-57) the Court found that the organizatio was a facade for an individual's consulting activities. The benefits relating to the organization would inure to the individual, it's sole employee, service provider, and primary source of funding. The Court held the entity did not qualify for tax exemption.
Tip of the DayNew product too big for company? . . . Just because you've got a great idea for a new product for your company doesn't mean you should pursue it. If the fit isn't right you could overtax the company's resources and end up in a worse position. You should be especially careful if the end market isn't a good fit to your current business, if the cost of developing the product (from research through manufacturing and marketing) would be excessive. It can be a tough call, but often it's better to sell a patent or license the product and collect the royalties.
May 9, 2018
NewsVictims of severe storms and tornadoes that began on Feb. 14, 2018 in parts of Indiana may qualify for tax relief from the IRS. Affected taxpayers in certain Indiana counties will receive tax relief. Individuals who reside or have a business in Carroll, Clark, Elkhart, Floyd, Harrison, Jefferson, Lake, Marshall, and St. Joseph 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 Feb. 14, 2018 and before June 29, 2018, are granted additional time to file through June 29, 2018. This includes the April 18 deadline for filing 2017 individual income tax returns and the April 18 and June 15 deadlines for making quarterly estimated tax payments. In addition, penalties on employment and excise tax deposits due on or after Feb. 14, 2018 and before March 1, 2018, will be abated as long as the deposits were made by March 1, 2018. For more information, go to Tax Relief for Victims of Severe Storms and Flooding in Indiana.
Victims of severe storms and tornadoes that began on March 19, 2018 in parts of Alabama may qualify for tax relief from the IRS. The President has declared that a major disaster exists in the State of Alabama. The IRS announced that affected taxpayers in certain Alabama counties will receive tax relief. Individuals who reside or have a business in Calhoun, Cullman, and Etowah 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 March 19, 2018 and before July 31, 2018, are granted additional time to file through July 31, 2018. In addition, penalties on payroll and excise tax deposits due on or after March 19, 2018 and before April 3, 2018, will be abated as long as the deposits were made before April 3, 2018. For more information, go to Tax Relief for Victims of Severe Storms and Tornadoes in Alabama.
Notice 2018-30 (IRB 2018-21) modifies the 338 and 1374 approaches as set forth in Notice 2003-65 for determining recognized built-in gains or losses under Section 382(h). Under the proposed notice, the hypothetical cost recovery deductions that would have been allowable had an election under Section 338 been made or had the asset been purchased at fair market value are determined without regard to the additional first year depreciation deduction in Section 168(k).
Tip of the DayNonqualified deferred compensation . . . Payments made to a former employee or independent contractor may be nonqualified deferred compensation. In the case of an independent contractor they may be subject to the self-employment tax. Whether they are or not could depend on the facts of the situation. In some cases the payments may be explicitly defined as deferred compensation. In others it may be for the purchase of goodwill or as a noncompete agreement. Because, without a written agreement, there can be considerable ambiguity, you should get it in writing. Talk to your tax advisor (and attorney) before signing anything.
May 8, 2018
NewsThe IRS has introduced a new online tool on IRS.gov designed to provide faster, easier access to publicly available information about exempt organizations. The new Tax Exempt Organization Search (TEOS) replaces EO Select Check, a more limited tool available since 2012 that focused primarily on providing information on an organization’s tax-exempt status. Users can access more types of information than were previously available using EO Select Check and the search process has been simplified and allows users to look across multiple data files for information in one search. Publicly-available data from electronically-filed 990 forms will continue to be available in a machine-readable format through Amazon Web Services.
The IRS has posted a news release (IR-2018-113) about the Work Opportunity Tax Credit. The credit is available to employers who hire workers from any of 10 categories such as long-term unemployment recipients, certain veterans, etc.
Tip of the DayGet customers to pay . . . If you manufacture or distribute goods some customers might want a design or formulation change. That may be an opportunity to break into a new market, but it also entails risk. In some cases you can get the customers to pay for the research and design, or get them to foot a portion of the bill. Sometimes taking the risk alone is worth it if you can sell a certain amount. Get an upfront commitment from the customer for a minimum dollar or volume purchase.
May 7, 2018
NewsTax Tip 2018-69 focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last December. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave. To claim the credit, employers must have a written policy that an employer must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time. In addition, the paid leave must be not less than 50 percent of the wages normally paid to the employee. For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.
The IRS has updated it's page on Enrolled Agent News. Updates include a new enrolled agent logo and that data security courses can count toward continuing education credit. Enrolled agents have until October 31, 2018 to discontinue use of the logo containing the IRS eagle. The obsoleted logo may not appear in any publications, advertising, websites, business cards, or other communications with clients or prospective clients.
Tip of the DayHow much are your parents' worth? . . . Do you know? Do they know how much you're worth? Often the answers are pretty obvious. You may not know whether they're got $1 million available for retirement or $3 million. And that probably doesn't make a difference. You do know that, barring a catastrophe they'll be able to take care of themselves. But we have seen situations where the parents have lived a quiet lifestyle, have contributed to their retirement and made some smart investments, yet their children are worried about them being able to retire. And we've seen the opposite situation. The parents have 6 rental properties, but they're all mortgaged to the hilt. Or parents or children living beyond their means with the other party assuming all is well. In that environment neither side can devise a proper financial plan. Sit down and have a talk. Neither side has to divulge numbers; it's enough to say they're comfortable financially.
May 4, 2018
NewsVictims of severe storms and tornadoes that began on March 19, 2018 in parts of Alabama may qualify for tax relief from the IRS. The President has declared that a major disaster exists in the State of Alabama. The IRS announced that affected taxpayers in certain Alabama counties will receive tax relief. Individuals who reside or have a business in Calhoun, Cullman, and Etowah 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 March 19, 2018 and before July 31, 2018, are granted additional time to file through July 31, 2018. In addition, penalties on payroll and excise tax deposits due on or after March 19, 2018 and before April 3, 2018, will be abated as long as the deposits were made before April 3, 2018. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief. For more information, go to Tax relief for victims of severe storms and tornadoes in Alabama.
The rule is that you must have either a canceled check or a receipt for cash charitable contributions under $250; for $250 or more you need a contemporaneous acknowledgment from the charity. For noncash contributions you need a detailed receipt from the donee organization unless doint so is impractical. The donee receipt must show: (1) the name of the donee organization; (2) the date and location of the contribution; and (3) a description of the property in detail reasonably sufficient under the circumstances. The reliability of these records is determined on the facts and circumstances of each case. The courts consider the contemporaneous nature of the records and the regularity of the taxpayer's recordkeeping procedures in making this determination, though a court's consideration is not limited to those factors. In Bernard A. Davis et ux. (T.C. Memo. 2018-56) the taxpayer was also the head of the church he donated the property to. The church had been an active organization, but had gone dormant. The Court put little weight on the letter acknowledging the contribution because it was signed by the taxpayer himself. In addition, the letter was not contemporaneous.
Tip of the DayYou may need more than a will . . . Just because the estate tax exemption amount means you probably won't tax when you die, a will is still critical to insure that your assets are passed on to your chosen heirs. It can also avoid substantial legal fees. But you may need more than that. If you have a minor child, or one who has special needs, you want to make sure you've appointed a guardian, and a back-up guardian. You definitely don't want the courts making that decision for you. And make sure your choice is amenable to your request. If you don't think an heir can handle his or her new found wealth talk to your attorney about a testamentary trust. Finally, if you have specific requests you can include them in a will. For example, that vacation home on the lake you and your spouse enjoyed can't be sold for five years.
May 3, 2018
NewsSummary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” An officer, shareholder, employee, of a business can be held personally liable for employment taxes if the business fails to make them. In David H. Bibler (U.S. District Court, S.D. Ohio) the IRS sought summary judgment holding the treasurer of a tax-exempt organization responsible for undeposited employment taxes. The petitioner served as treasurer, and signed checks made out to other creditors while payments to the IRS were in arrears. The petitioner showed that the treasurer's position was not involved in the day-to-day operations of the organization. He signed checks as another duty or power assigned him by the Board of Directors. He was not involved in the payroll. The Court found the petitioner met the first two prongs of the test for voluntary board members of tax-exempt organizations. However, the Court also noted that the petitioner had actual knowledge of the underpayment. But the Court also found that he had a reasonable belief the taxes were being paid. The Court denied the IRS's motion for summary judgment.
Tip of the DayBuildng vacancy up? . . . If you own a commerical property such as an office building, strip center, apartment completx, etc. and you have significant vacancies which have been hard to fill, or you've had to lower your rent to fill the space, contesting your property taxes could make sense. Residences are usually assessed based on comparable values of other properties in your area. But the value of commercial properties depends on the net rental income and the amount of the rent received is the main factor that determines the property's income. If the property income declines a prospective buyer is willing to pay less, regardless of how attractive the property is physically. And most localities take an income approach to assessments. Check with a professional in your area who deals with assessment cases.
May 2, 2018
NewsNotice 2018-44 (IRB-2018-21) corrects Notice 2018-33 (IRB 2018-17; issued April 23, 2018) which provides for adjustments to the limitation on housing expenses for purposed of Section 911 of the Code. If the limitation on housing expenses is higher for taxable year 2018 than the adjusted limitations on housing expenses provided in Notice 2017-21, qualified taxpayers may apply the adjusted limitations for taxable year 2018 to their 2017 taxable year. Notice 2018-44 revokes Notice 2018-33 and provides the correct amount of the maximum housing expenses and the base housing amount for 2018. Notice 2018-44 also provides an updated table of adjusted limitations on housing expenses.
Filing your return electronically has a number of advantages. The software can catch many errors even before the return is transmitted. And, after transmittal, the IRS checks the return for mismatched Social Security numbers, incorrect information on a W-2, etc. You'll generally know if your return is accepted or rejected very quickly (states can take a day or two). In John Spottiswood (U.S. District Court, N.D. California) the taxpayer made an error when inputting a dependent's Social Security number. The IRS rejected the return because of the name-number mismatch the same day it was filed (April 12). The software provider received the rejection notice and emailed the taxpayer. The taxpayer did not check the software nor the email account given the software provider to insure acceptance of the return until some months later. The IRS assessed late payment and late filing penalties. The taxpayer asked for an abatement of the late filing penalties, noting that the return would have been timely if he had mailed it. The Court found the taxpayers had no reasonable cause for not filing on time.
Tip of the DayReverse mortgage . . . They're being advertised extensively both in the media and by some mortgage brokers. Are they a good move or bad? First, the costs to obtain the loan can be substantial. Second, the interest on the mortgage accrues monthly unless you are making current payments, which is unlikely for most borrowers. And interest isn't deductible if you don't pay it. At some point you'll have used up all the available equity, but can remain in the house as long as you pay the taxes and insurance. Should you? Generally no. It's basically a last resort option. If you just want money to go for an expensive vacation, buy a new car, etc., a reverse mortgage is a decidely bad idea. On the other hand, if you and/or your spouse are in poor health or in need extra cash for food and/or basic living expenses, it might be a consideration. You should talk to a disinterested financial professional to review your financial and health situation. You should discuss your spending habits with the professional. Finally, talk to your children or other heirs. They may be willing to help out.
May 1, 2018
NewsSeveral pieces of legislation has been introduced in the House or Senate that would (1) make permanent some of the temporary provisions of the Tax Cuts and Jobs Act of 2017 including the rates applying to individual taxpayers, the deduction for qualified business income of pass-through entities, and the capital gains rates, the medical expense floor, the standard deduction and repeal of personal exemptions and the increase in the estate and gift tax exemption; (2) create a employer-provided worker training credit; and (3) provide inflation indexing of certain asset for purposes of determining gain or loss.
In Lawrence Y. Lui (U.S. District Court, N.D. California) the IRS sought a court order compelling the taxpayer's cooperation with an IRS summons regarding foreign bank accounts. In an order, the Court concluded that the taxpayer had sufficiently demonstrated that he did not possess the documents directly related to the assets, but that he had not demonstrated that he had no documents related to the transfer of those assets. the taxpayer filed a declaration, under penalties of perjury, that he did not possess or control any documents relating to the transfer in question. As to the testimonial summons, the Court concluded that the taxpayer properly invoked his Fifth Amendment privilege and could not be compelled to answer questions regarding his interests in foreign accounts or the ownership and reporting of foreign entities, and ordered him to answer only eleven questions—five general background questions identified in the parties' joint brief, the question of “who keeps of the books and records of Netfinity Asset Corporation,” and five specific questions regarding his lack of possession or control of the summoned documents as of the date of the summons. In the current case the Court found that the taxpayer could not be held in contempt for not answering questions he was not required under the court order to answer.
Tip of the DayRising tide lifts all boats . . . Well, unless your's has a hole in it. The old phrase means everyone does better if the economy in general is improving. And, there's no question a better economy is good for everyone. But your business can still be left behind if it doesn't have the right products, can't update equipment, etc. While a good business should do better in a better economic environment, that's an added plus. You should always be looking to see how you can improve your business, especially in relation to your competitors.
April 30, 2018
NewsRev. Rul. 2018-11 (IRB 2018-18) contains the Sec. 1274A(b) amount for a qualified debt instrument for 2018 ($5,831,500) and the Sec. 1274A(c)(2)(A) amount for a cash method debt instrument for 2018 ($4,165,300).
Notice 2018-27 (IRB 2018-20) provides relief for employers that properly claimed the credit under Section 45R for all or part of the 2016 taxable year, or that properly claim the credit for all or part of a later taxable year, but are unable to offer employees a QHP through a SHOP Exchange for all or part of the remainder of the credit period because the employer’s principal business address is in a county in which a QHP through a SHOP Exchange is not available. With respect to those employers, this notice provides transition relief allowing employers to calculate the credit for such subsequent portion of the credit period by treating health insurance coverage as qualifying for the credit if that coverage would have qualified for the credit under the section 45R rules applicable before January 1, 2014.
Tip of the DayGrow to survive? . . . Some businesses can be stand alone operations. A restaurant that's profitable and has loyal customers may not want to, or need to expand to a second location. In fact, some businesses don't do well at multiple locations or on a larger scale. The personal touch of the owner is what makes the business. But some businesses have to grow in order to survive. A business that benefits from economies of scale has been is one of those. But in more recent times many industries have seen a major players or investment funds buying into traditionally smaller businesses. Funeral homes, medical practices, car dealerships, etc. To survive on your own you may have to expand your business to additional locations. Be sure to follow the trends, position yourself well in the market and understand your financials. Don't hesitate to get outside advice. Sometimes the smart move is to position yourself well and look to sell out at an attractive price.
April 27, 2018
NewsRevenue Procedure 2018-27 (IRB 2018-20) provides relief for taxpayers with family coverage under high deductible health plans (HDHPs) concerning the annual deductible contributions limit for their 2018 health savings accounts (HSAs) under Section 223. The maximum for family coverage was originally issued as $6,900 on May 4, 2017. On March 2, 2018, the limit was reduced to $ 6,850 for taxpayers with family coverage under HDHPs pursuant to Tax Reform legislation that changed the calculation for 2018 and future years. This guidance allows taxpayers to continue to treat the 2018 limit as $6,900. It also provides clarifications on how taxpayers who already received a distribution from an HSA of an excess contribution based on the $6,850 deduction limit may treat the distribution as a mistake and repay the HSA without any tax or reporting consequences. It also clarifies how to treat a distribution of an excess contribution (and earnings) based on the $6,850 deduction limit.
The IRS has published IRS Tax Tip 2018-64 for the 2018 National Small Business Week that starts April 29. The page has links to a number of other IRS pages with help on a number of topics to small business owners. In addition, the IRS announced (2018 National Small Business Week webcasts. This link provides a schedule of five webcasts aimed at small businesses.
Tip of the DayDon't put all your eggs in one basket . . . It's an old adage, but continues to apply. It's particularly true if you're investing in the company you work for or putting your money in stocks that are in the same line as your business. Enron was a prime example. The company stock was doing so well that many employees put their retirement money (and more) in the stock. When the company collapsed they lost their retirement, their investments and their jobs. Same thing can apply to business owners. If you're a contractor and the housing market turns down, you could not only have a hard time getting jobs, an investment in the big box home supplies retailer could get hit. Fighting the desire to invest in the industry you know best is tough. If it makes you feel better, put a small percentage of your money there to satisfy that urge and put the bulk in diversified investments.
April 26, 2018
NewsThe IRS has published a new web page, IRS Offers Tips about Tips, for taxpayers who receive tips. The page has basic information along with links to additional pages and IRS publications.
If you're filing your Form 941, Employer's Quarterly Federal Tax Return, on paper, taxpayers located in Georgia, Illinois, Kentucky, Michigan, Tennessee, and Wisconsin should be aware that the filing addresses have changed. For the latest instructions go to Instructions for Form 941. Also keep in mind that the wage base for social security wages is $128,400 for 2018. Finally, for 2018 social security and Medicare taxes apply to the wages of household workers paid $2,100 more in cash wages.
The IRS has released tax statistics on Accumulation and Distribution of Individual Retirement Arrangements (IRA) and Affordable Care Act (ACA) Statistics: Credit for Small Employer Health Insurance Premiums.
Tip of the DayDon't fall in love . . . Well, it's OK to fall in love with a person, your dog, cat, horse, etc. But don't fall in love with your investments, a product or supplier for your business, a customer, a building, etc. Love is important if you're going to be spending the rest of your live with a person, but it clouds your judgment when it comes to investments or a supplier. Often it means sticking it out long after the rational move would have been to sell the investment or look for a new supplier. In more than a few cases its brought the fall of a business. Sometimes it's hard to take love out of the picture (your father started your machining business supplying a certain customer who is now a slow pay soon to be a no pay). If that's the case step back and ask a colleague, an adviser, etc. to look at the issue objectively. Can't fire the customer? Get someone to do the dirty work.
Copyright 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