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August 23, 2019
NewsThe IRS is reporting (IR-2019-145) a new email scam. The email subject line may vary, but recent examples use the phrase “Automatic Income Tax Reminder” or “Electronic Tax Return Reminder.” The emails have links that show an IRS.gov-like website with details pretending to be about the taxpayer’s refund, electronic return or tax account. The emails contain a "temporary password" or "one-time password" to "access" the files to submit the refund. But when taxpayers try to access these, it turns out to be a malicious file. This new scam uses dozens of compromised websites and web addresses that pose as IRS.gov, making it a challenge to shut down. By infecting computers with malware, these imposters may gain control of the taxpayer’s computer or secretly download software that tracks every keystroke, eventually giving them passwords to sensitive accounts, such as financial accounts. The IRS is reminding taxpayers it doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.
Notice 2019-46 (IRB 2019-37) announces that the IRS intends to issue regulations that will permit a domestic partnership or S corporation that is a U.S. shareholder of a controlled foreign corporation to apply proposed Reg. Sec. 1.951A-5, related to the treatment of domestic partnerships and S corporations for determining the amount of the global intangible low-taxed income inclusion, for taxable years ending before June 22, 2019. The notice also addresses the applicability of penalties for a domestic partnership or S corporation that acted consistently with proposed Sec. 1.951A-5 on or before June 21, 2019, but files a tax return consistent with the final regulations under Sec. 1.951A-1(e). In order to apply the rules in proposed Sec. 1.951A-5 or for penalties not to apply under the notice, a domestic partnership or S corporation must satisfy certain notification and reporting requirements described in the notice. Prior to the issuance of the regulations described in the notice, domestic partnerships and S corporations may rely on the notice, provided they satisfy the requirements described therein.
On again, off again. That's the story on payroll tax cuts and indexing capital gains to inflation. President Trump suggested a cut in the social security taxes as a way to boost the economy; indexing has been under discussion for some time. The latter could increase tax receipts in the short term and investors sell stock they've been holding with gains where they don't want to absorb a big tax hit. Apparently both tax changes are technically no longer under consideration.
Tip of the DayReconstructing lost records . . . With hurricane season upon us, there's a chance your tax and business records may be partially or wholly destroyed, despite your best efforts. If you can show the IRS or court that your records were in the disaster area you're sure to get sympathy as well as some leeway. Nonetheless, you can't just say they were lost in the flood and expect to be believed. You're expected to take steps to reconstruct your records. That includes requesting bank and credit card statements from the financial institutions, invoices from vendors, etc. If you paid by credit card or check you should be able to secure the original invoice at many stores. Paid cash at the gas pumps? No way you'll recover those. Often the IRS and courts will accept less documentation than they would under other circumstances. And you may be able to use a back door approach. Your mechanic provided oil change receipts that show the car mileage. The court may estimate the amount of gas used based on a prior year's documentation and use an average cost per gallon. Chances are the 80-20 rule will apply. You should be able to alternatively document 80% of the expenses fairly easily (though time consuming). The other 20% could be extremely difficult. The IRS and court may give you a significant part of the 20%. Talk to your accountant and tax advisor on other tips.
August 22, 2019
NewsThe IRS has reported that it will conduct its annual Labor Day power outage beginning Saturday, August 31, 2019, starting at 9:00 p.m. and ending Tuesday, September 3, 2019, at 7:00 a.m. The Modernized E-File Systems (both Production and ATS) will not be operational during this timeframe. Please refrain from accessing the MeF Systems to transmit business/individual/state tax returns, retrieve acknowledgements or submit any other service requests. You can get updates at Modernized eFile (MeF) Operational Status.
The IRS has announced that effective August 19, 2019, all individuals listed as a Principal or Responsible Official will be required to sign a new Terms of Agreement when adding individual(s) and/or Provider Option(s) to an e-file application. The Terms of Agreement include the Privacy Act and Paperwork Reduction Act Notice, and the FBI Privacy Act Statement. Your application status will change to Resubmission Required and must be submitted to complete the application process. Your EFIN will remain active during this process.
Tip of the DayAnswer that survey? . . . Be sure you know who it's from first. Both bogus and real surveys can gleam personal or business information that, either alone or combined with other info the requester has about you, can be enough be valuable to a scammer. In any event, even your email address can prove valuable to company if it knows another item as innocuous as your zip code. The zip code can give the company a clue to your wealth or income. Reveal as little as possible and consider opting out of allowing companies to release your information to third-party sources.
August 21, 2019
NewsIn Bianca Lavinia Gilmore (T.C. Memo. 2019-97) the taxpayer had unpaid tax liabilities for the years 2012 and 2015 and sought a collection due process hearing. The settlement officer (SO) spoke with the taxpayer's represented and wrote in the file record that the representative advised him, among other things, that the taxpayer: (1) sought either an installment agreement of $300 per month or an OIC, (2) did not dispute the underlying tax liabilities for 2012 and 2015, and (3) had closed her business and was now unemployed. The SO informed the representative that in order for petitioner to qualify for an installment agreement or OIC, he needed to receive a number of items no later than March 29, 2017, including: (1) documentation proving her compliance with, inter alia, her estimated tax payment obligations, (2) information regarding when her business closed, and (3) updated financial information reflecting her financial condition after the closure of her business. The SO received some, but not all, the information by the due date, but the taxpayer provided no documentation corroborating the date the business was closed, or showing compliance with her estimated tax requirements. The taxpayer attempt to challenge her liability at trial. However, the Court noted that it could not now consider such a challenge because the underlying tax liabilities were not challenged in the CDP hearing. The Court also held that the SO did not have to consider collection alternatives because the taxpayer was not current with her estimated tax liabilities.
Tip of the DaySpecific bequests in a will . . . Estates have a nasty way of creating rifts among the closest relatives. And often it's not the size of the bequest, but one or more items. Fred may not care that he got the larger share of the inheritance, he's upset he didn't get the lake property where he spent summers and proposed to his wife. Because of the way the will was written the property had to be sold and the proceeds divided. Often the best approach is to talk to the heirs and find out what they want and either put that as a specific bequest in the will or gift the property before you pass.
August 20, 2019
NewsDoing business as a C (regular) corporation now can be a big advantage. The tax rate is only 21 percent. But for many small businesses there's a potential trap. Dividends paid out by the corporation are again taxed to the shareholders, resulting in a double tax. The corporation doesn't necessarily have to declare a dividend for an amount to be a "constructive dividend". In Patrick Combs (T.C. Memo. 2019-96) the taxpayer was the sole shareholder in a corporation where the taxpayer performed comedy shows and was a motivational speaker. The taxpayer, as part of a tax avoidance scheme, paid many personal expenses out of the corporate account. The Court noted that Sections 301 and 316 govern the characterization, for Federal income tax purposes, of corporate distributions of property to shareholders. If the corporation making the distribution has sufficient earnings and profits (E&P) (similar to retained earnings), the distribution is a dividend that the shareholder must include in gross income. If the distribution exceeds the corporation's E&P, the excess generally represents a nontaxable return of capital to the extent of the shareholder's basis in the corporation, and any remaining amount is taxable to the shareholder as a gain from the sale or exchange of property. The Court also noted that the taxpayer's voluminous documentation, in which personal living expenses were not clearly distinguished from legitimate business expenses, provided no reasonable means of estimating or determining which if any of the expenditures in question were incurred as ordinary and necessary business expenses of the corporation. The Court sided with the IRS in holding that the taxpayer received and failed to report constructive dividends.
Tip of the DaySafeguarding business info . . . Some safeguards involve hi-tech methods such as firewalls, malware checks, encryption, etc. and you'll definitely have to go that route, but there are steps you can take while waiting for the IT guy to show up. For example, employees should be warned not to leave a company laptop in a car or public place unattended. One small company had a major breach of customer data (including social security numbers, addresses, age, etc.) when a company laptop was stolen from a car. Another had it's secured network breached when a list of logins and passwords was obtained from an employee's phone that was stolen. In one case customer information was obtained when a member of the outside cleaning crew when into files that were left unlocked. In another a cleaning crew member stole blank checks that weren't locked up. Outside workers including contractors working on projects have also been known to steal information. Limit access to information to those employees that really need it. Once they no longer need it, their access should be denied. Warn employees not to share passwords and other information, even long-time employees. Talk to your CPA about other steps you may take.
August 19, 2019
NewsThe IRS has updated the disaster notification for victims of the severe winter storm, straight-line winds, and flooding that took place on March 9, 2019 in Nebraska to include Dawson county. As a result, Individuals who reside or have a business in Antelope, Boone, Boyd, Buffalo, Butler, Burt, Cass, Colfax, Cuming, Custer, Dawson, Dodge, Douglas, Hall, Howard, Knox, Madison, Nance, Nemaha, Pierce, Platte, Richardson, Saline, Sarpy, Saunders, Stanton, Thurston, and Washington counties, and the Santee Sioux Nation may qualify for tax relief that includes both the postponement of certain deadlines and the ability to claim losses on either their 2018 or 2019 returns. For more information, go to IRS announces tax relief for Nebraska victims of severe winter storm, straight-line winds, and flooding
Tax cases often involve a number of different issues. In Hisham N. Ashkouri and Ann C. Draper (T.C. Memo. 2019-95) the Tax Court denied a number of meals, entertainment and travel expenses in part for lack of documentation and in part because the taxpayers did not provide evidence to indicate the business purpose of some of the expenses. On a second issue the Court noted that capitalization of some expenses are required. It allowed a current deduction for marketing and promotional expenses but noted that some of the expenses involved the cost of bidding on a contract. The latter is not a currently deductible expense under Regs. Sec. 1.263A-1(e)(3)(ii)(T). Third, capital assets sold at a gain may receive favorable tax treatment if held for more than a year. Assets that are stock in trade of the taxpayer that would properly be included in inventory or held for sale to customers don't qualify for special treatment. Here the Court ruled that the assets sold. did not qualify for capital gain treatment. Finally, deductions taken in one year only to be recovered in another (e.g., a refund of state income taxes) must be included in income in the year received.
Tip of the DayHR decisions . . . While some entrepreneurs have a number of skills, that is they're technically good, have business smarts, etc., many fall down in one area--HR (human resources). It rarely produces major cost savings and never generates revenue. But good people management is vital to most businesses. And many technically competent entrepreneurs don't have good people skills. Add to that the myriad of federal and state regulations governing that area that many businesses must contend with. The first step is to recognize your limitations. The second is to either hire a competent professional if your business can support one or find a firm that can provide consulting help on an hourly or daily fee schedule. Ideally you should have someone who understands your industry. There may be other options. But the worst choice is to try and blunder through on your own. Employee confrontations can produce some of the biggest lawsuits.
August 16, 2019
NewsThe IRS is reminding taxpayers with expiring individual taxpayer identification numbers should renew their number as soon as possible. There are nearly 2 million ITINs set to expire at the end of 2019. Taxpayers with an expiring number should renew before the end of this year. This will help avoid unnecessary delays related to their tax refunds next year. (ITINs are used by taxpayers required to file or pay taxes, but who aren’t eligible for a Social Security number.) ITINs not used on a federal tax return at least once in the last three consecutive years and those with numbers with middle digits 83, 84, 85, 86 or 87 not already renewed expire on December 31, 2019. ITINs with the middle digits 83, 84, 85 or 86, 87 need to be renewed, even if it was used it in the last three years. Taxpayers with expiring ITINs should receive a CP48 Notice explaining the steps to renew. ITINs with middle digits of 70 through 82 have previously expired. Taxpayers with these ITINs can still renew at any time, if they haven’t already. To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. They don’t need to attach a tax return. However, taxpayers must note why they need an ITIN on the W-7. There are three ways taxpayers submit the renewal application:
The IRS is required by law to notify taxpayers of their rights when requesting an extension of the statute of limitations for assessing additional taxes and penalties. Taxpayers might be adversely affected if the IRS does not follow the requirements to notify both the taxpayers and their representatives of the taxpayers’ rights related to assessment statute extensions. The Treasury Inspector General for Tax Administration (TIGTA) is required by law to annually determine whether the IRS complied with Code Section 6501(c)(4)(B), which requires that the IRS provide notice to taxpayers of their rights to decline to extend the assessment statute of limitations or to request that any extension be limited to a specific period of time or specific issues. TIGTA’s review of a statistical sample of 60 closed taxpayer audit files with assessment statute extensions found that the IRS was compliant with Internal Revenue Code Section 6501(c)(4)(B). However, 13 of the taxpayer audit files lacked documentation to support that employees followed the IRS’s internal procedures for further explaining the taxpayers’ rights to the taxpayers. In addition, TIGTA’s review found instances in which the audit files lacked documentation to support that the IRS complied with procedures requiring the notification of a taxpayer’s representative when an authorization for third-party representation exists. Seven of the taxpayer audit files did not contain documentation to support that the taxpayers’ representatives were provided with the required notifications. To read the complete report, go to www.treasury.gov/tigta/auditreports/2019reports/201930054fr.pdf.
Tip of the DayHeathcare mandate . . . Even if Obamacare (ACA) is repealed that doesn't mean they'll be no requirement to have health insurance in the U.S. Massachusetts had a mandate some years before Obamacare and the requirement continues unchanged. And, beginning in 2020, California will require residents to obtain some sort of healthcare coverage. In both states failure to have coverage can result in a penalty.
August 15, 2019
NewsRevenue Ruling 2019-19 (IRB 2019-36) provides guidance about an individual who receives a distribution check from a qualified plan and does not to cash the check. The revenue ruling concludes that the individual’s failure to cash the check does not permit the individual to exclude the amount of the designated distribution from gross income under Sec. 402(a) and does not alter the employer’s withholding obligations under Sec. 3405 or Form 1099-R reporting obligations under Sec. 6047(d).
Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. The Tax Cuts and Jobs Act of 2017 repealed the deduction for alimony as well as the requirement to report alimony payments received as income for any divorce or separation instrument executed after December 31, 2018. However, it did not repeal the deduction and income reporting requirement for individuals who pay or receive alimony in accordance with agreements executed prior to January 1, 2019. In Tax Year 2016, 569,978 tax returns claimed alimony deductions that totaled more than $12.9 billion. The Treasury Inspector General for Tax Administration (TIGTA) performed an audit to evaluate the IRS’s use of systemic processes to identify and address alimony income reporting discrepancies. An alimony income reporting discrepancy occurs when individuals claim deductions for alimony that they did not pay or individuals do not report alimony income they received. TIGTA found that apart from examining a small number of tax returns involving alimony, the IRS has yet to adequately address the substantial compliance gap that results from alimony income reporting discrepancies. TIGTA analyzed Tax Year 2016 tax returns with an alimony deduction processed as of February 8, 2018, and found that alimony income reporting discrepancies increased 38 percent from $2.3 billion in Tax Year 2010 to more than $3.2 billion in Tax Year 2016. Although the IRS identifies both electronically filed and paper tax returns with a missing or incomplete Taxpayer Identification Number (TIN), the processes still do not ensure that all individuals who claim an alimony deduction provide a valid TIN of the recipient as required. TIGTA's analysis of the 569,978 Tax Year 2016 tax returns with an alimony deduction claim identified 2,168 tax returns that claimed more than $38.5 million in alimony deductions in which the recipient TIN was invalid and the IRS allowed the deduction. In addition, penalties are not being assessed when valid recipient TINs are not provided. TIGTA's review of the 2,168 tax returns in which the recipient TIN was invalid found that the IRS assessed penalties on only 66 tax returns (3 percent) totaling $3,300. To see the full report, go to www.treasury.gov/tigta/auditreports/2019reports/201940048fr.pdf.
Tip of the DayCustomer data protection . . . You've heard the stories about retailers, credit agencies, and just about every type of business having their data breached. Failure to take steps to prevent a breach in your organization could prove costly. It could be a loss of customers, suits by customers, or, in some cases, substantial fines. At least one state has passed legislation imposing fines for a breach of a customer's information. Exactly what steps you should take can depend on a number of factors. Unless you have an in-house expert, the first step should be outside advice. Make sure you have antivirius and antimalware in place. Use strong passwords and change them frequently (substantially, not by just changing a letter or two). Make sure you have a firewall. Password protect your computer and don't leave it unattended. On purchases of new machines, consider those with fingerprint or eye scanners. Avoid phishing schemes. Limit access to sensitive files only employees specifically assigned should be able to get in. Change passwords if an employee is no longer allowed access to certain files. Be particularly careful with independent contractors. Stay away from unfamiliar websites. Review the rules regularly with employees. This is one area where people drop their guard after a while.
August 14, 2019
NewsThe IRS has released the second draft version of W-4, Employee's Withholding Certificate for use beginning in 2020. The IRS has indicated that it is providing this draft version now so that programming of payroll systems can begin. This second early release draft of Form W-4, the computation of withholding has not changed from the first early release. The next early release of Publication 15-T (scheduled for the middel of August) will expand on the first draft including separate computations for figuring withholding for employees who file a 2020 Form W-4 in 2020 and for a 2019 or earlier Form W-4. While a final form W-4 will not be posted for a few months, the IRS indicated there will be no further substantive changes.
The IRS has released an update of Understanding Your 2802C Letter. The letter is sent to taxpayers who may, based on IRS guidelines, have too little withheld from their wages.
Tip of the DayWhere not to cut product costs . . . It may be hard to raise prices so the only other option is to cut costs. But be careful where you cut. One manufacturer who sold a tool for about $40 either by design or accident saved some money on a 19-cent part, the battery hatch. Sure enough, the part failed from fatigue within 2 years on some 40 percent of the units. The company replaced some of the units at a cost of $12 each and wrote "sorry, out of warranty" letters to the remaining customers. Not a great outcome. Be careful where you cut costs.
August 13, 2019
NewsThe IRS has issued proposed regulations (REG-130700-14) regarding the classification of cloud transactions for purposes of the international provisions of the Code.
These proposed regulations also modify the rules for classifying transactions involving computer programs, including by applying the rules to transfers of digital content. They clarify the treatment under certain provisions of the Code of income from transactions involving on-demand network access to computing and other similar resources. The proposed regulations also extend the classification rules in existing Reg. Sec. 1.861-18 to transfers of digital content other than computer programs and clarify the source of income for certain transactions governed by existing Reg. Sec. 1.861-18.
In order to continue its tax-exempt status a non-profit corporation must be operated exclusively for one or more specified tax-exempt purposes. In Giving Hearts, Inc. (T.C. Memo. 2019-94) the organization used a for-profit corporation to solicit charitable donations. The exempt organization used a for-profit corporation sponsor for telemarketing purposes. That is, if a person called accepted an offer for a product demonstration of the for-profit corporation's product, the exempt organization would receive a contribution from the for-profit corporation. The Court noted that the IRS did not dispute that petitioner was organized for exempt purposes (the so-called organizational test) but instead determined that it did not operate exclusively for exempt purposes (the so-called operational test). Specifically, the IRS maintained that the petitioner operated as a conduit to generate sales leads (and revenues) for commercial businesses. The Court did agree with the petitioner that it operated at least in part to further a charitable purpose. The petitioner correctly asserted that the Code does not preclude the use of for-profit enterprises, to solicit or collect charitable donations, but the standard for tax-exempt status requires an organization be operated exclusively for an exempt purpose. The Court agreed with the IRS that the organization was not eligible for an exemption from taxation under Sec. 501(c)(3).
Tip of the DayMissed issues . . . Seems that everything in life is more complicated these days and everyone is a specialist. It may be up to you to make sure that a professional doesn't miss something. You go to a lawyer to draft a purchase agreement for some property. He also helps with the loan agreement. He knows you use a CPA for your business accounting and tax work so he assumes you'll get the CPA's opinion on some of the terms in the loan agreement. But you assume the attorney is in charge and you don't have to consult another professional. That can be a mistake. You can't blame the attorney here. The reverse can also be true. The smart move would be to ask the attorney if you should be discussing any portion of the agreement with your CPA.
August 12, 2019
NewsIf the IRS suspects you have unreported income they can reconstruct your income using the bank deposits method. Unless you can show otherwise, deposits are considered income. In Christopher Michael Dufresne (T.C. Memo. 2019-93) the taxpayer worked full time as a psychic counselor for his mother's business. The IRS determined he had unreported taxable cash deposits totaling $1.505,546 for the years 2010-13. According to the taxpayer these cash deposits were repayments he received from his mother for loans of approximately $1,490,388 for the payment of past due Federal taxes and for the purchase of real estate properties. He produced a letter with his mother's signature, which attests that she owed him some $308,000 for past due income taxes. The Court looked at the eight factors that can indicate whether a bona fide debt exists. The factors weighed against the existence of any bona fide loans. The Court noted the lack of records and substantiating evidence is particularly detrimental to the taxpayer's claim of bona fide loans. The Court held the cash deposits to be unreported income.
Tip of the DayDeferred maintenance . . . It may seem like you're saving money by deferring maintenance, but more often than not the opposite is true. In many cases repairing the damage from not maintaining equipment can be much more than the initial savings. In some cases customers will notice the lack of maintenance--poor appearance of delivery or service vehicles, cheerless office or retail space, or the retail store with the sparsely stocked shelves. What if you're selling the property or business? You'll take a chance the potential buyer won't notice. If he doesn't, you're ahead of the game. If he does he may walk or make a lower offer to offset his cost--less an additional amount because he may think you're desperate to sell. Deferred maintenance is certainly tempting if cash flow is critically tight and making a loan payment or real estate taxes are good reasons for skipping repairs, it will catch up.
August 9, 2019
NewsThe IRS is urging taxpayers (IR-2019-141) to resolve their significant tax debts to avoid putting their passports in jeopardy. They should contact the IRS now to avoid delays in their travel plans later. Under the law, the IRS notifies the State Department (State) of taxpayers certified as owing a seriously delinquent tax debt, which is currently $52,000 or more. The law then requires State to deny their passport application or renewal. If a taxpayer currently has a valid passport, State may revoke the passport or limit a taxpayer’s ability to travel outside the United States. When the IRS certifies a taxpayer to State as owing a seriously delinquent tax debt, the taxpayer receives a Notice CP508C from the IRS. The notice explains what steps the taxpayer needs to take to resolve the debt. IRS telephone assistors can help taxpayers resolve the debt. For example, they can help taxpayers set up a payment plan or make them aware of other payment options. Taxpayers should not delay because some resolutions take longer than others. It’s especially important for taxpayers with imminent travel plans who have had their passport applications denied by State to call the IRS promptly. The IRS can help taxpayers resolve their tax issues and expedite reversal of their certification to State. When expedited, the IRS can generally shorten the 30 days processing time by 14 to 21 days. For expedited reversal of their certification, taxpayers will need to inform the IRS that they have travel scheduled within 45 days or that they live abroad. For the complete IRS news release, go to IR-2019-141.
Tip of the Day$85,000 bill holds up $30 million deal . . . The owner of a multi-unit catering establishment was getting ready to sell out for almost $30 million. But one week before the closing a former supplier claimed a $85,000 bill was unpaid, holding up the sale. Depending on the circumstances, this could be a small nuisance or an expensive headache. In this case it was a big headache because the business wasn't generating enough cash to cover the interest payments on a mortgage on the building. Between that and legal fees, taxes, etc. delays were costing the owner well over $5,000 per day. Plan ahead. Make sure there are no outstanding debts that could hold up a sale.
August 8, 2019
NewsThe IRS and has published another cybersecurity article. This one (IR-2019-140) discusses the tell-tale signs that a tax preparer's office may have experienced a data theft that resulted in fraudulent tax returns being filed in their clients' names. IR-2019-140 provides a list of signs that a tax preparer's system has been breached and the preparer experienced data theft. The article includes links to a number of other IRS web pages that can provide additional information.
You may be able to settle your tax debt for less than the fully amount through an offer-in-compromise (OIC), or pay the debt over time with an installment agreement, but how you fare can depend on your assets and income. In Danny R. Love (T.C. Memo. 2019-92) the taxpayer submitted an OIC which the IRS rejected the offer noting some of the expenses were disallowed and the taxpayer had sufficient assets to pay the liability. The IRS settlement officer determined the taxpayer's disposable monthly income (inccome less allowed expenses) of $1,712. The taxpayer argued that the expenses did not include amounts that enabled his children to attend private high school. The IRS Internal Revenue Manual allows private school tuition only if required for a physically or mentally challenged child and no public education providing similar services are available. The Court found the settlement officers involved did not abuse their discretion in rejecting his OIC.
Tip of the DayMatch assets to need . . . Many business asset purchases are made rationally, but within the box. One of the salesmen at Madison Inc. needs a new car. He visits customers and takes them to lunch in the vehicle several times a week. The company has to buy a well-equipped new, higher-end car every three years. The company can shop for price, but it really doesn't have much flexibility. Madison also needs another pickup truck to haul tools and equipment around the plant site. The farthest the truck will ever go is 3 miles to town for supplies and mail pickup. Annual mileage is likely to be less than 4,000. No need to purchase new, or even in anything more than fair condition. You could save more than $15,000 by buying used and older. While you may spend a little more on maintenance, insurance (and personal property taxes) would be less. We know one company that keeps a tool kit at its remote locations. A name brand setup would cost over $1,500. For 10 locations that would be $15,000. But the company purchased off-brand tools at a discounter for $400. Granted, the tools aren't for daily use, but the tool kits are only needed for emergencies. The same logic can apply to office equipment such as fax machines, laptops, etc. Buy quality if the item is used heavily or you've got to rely on it; otherwise consider going cheap.
August 7, 2019
NewsThe IRS is alerting taxpayers and the payroll community about a new IRS Tax Withholding Estimator online tool. It replaces and expands the old IRS Withholding Calculator. The new tool offers a robust, mobile-friendly, step-by-step way for workers, as well as retirees, self-employed individuals and others to tailor the amount of income tax withheld from their wages and pension payments. In designing the Tax Withholding Estimator, the IRS listened carefully to the concerns of payroll professionals and other stakeholders. As a result, the new tool features:
The IRS continues to urge everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for taxpayers who faced an unexpected tax bill when they filed this year, those who have a major life change in 2019. Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.
The IRS has added the counties of Callaway, Jefferson, Lewis, McDonald, Newton and Saline to those that qualify for relief as a result of severe storms, tornadoes, and flooding that took place in Missouri on April 29, 2019. As a result, individuals who reside or have a business in Andrew, Atchison, Boone, Buchanan, Callaway, Carroll, Chariton, Cole, Greene, Holt, Jackson, Jasper, Jefferson, Lafayette, Lewis, Lincoln, Livingston, McDonald, Miller, Newton, Osage, Pike, Platte, Pulaski, Saline, and St. Charles counties may qualify for tax relief including the postponment of certain deadlines as well as claiming associated losses on their 2018 tax return. For more information, go to IRS announces tax relief for Missouri victims of severe storms, tornadoes and flooding.
Tip of the DayIRA beneficiary . . . You can designate a beneficiary for your IRAs and doing so can be very important. If he or she is the beneficiary they can take over the IRA as if it was their own. There are a number of advantages to that. There are also advantages to naming another relative. But if there's no beneficiary the proceeds generally pass to the estate. In a recent letter ruling (201931006) the IRA owner named no beneficiary. Worse, the decedent died without a will. In the ruling the IRS held that the IRA could be treated as the surviving spouse's own because he was the administrator and sole heir of the estate. That's a narrow exception and the surviving spouse had to request a letter ruling to secure the benefit. Make sure you have at least one beneficiary and make any necessary changes if a beneficiary dies. (Letter rulings provide advice only to the taxpayer requesting them and cannot be cited as precedent.)
August 6, 2019
NewsThe IRS has released draft copies for 2019 returns of Form 1040, Form 1040 Schedule 1, Form 1040 Schedule 2, and Form 1040 Schedule 3. While Schedule 1 is relatively unchanged Form 1040 now includes information from Schedule 6, foreign addresses and third-party designees, and wages, interest, dividends, etc. starts on the first page and the form contains more information. As a result it is slightly larger than the 2018 form and the taxpayer's signature, preparer info, etc. is now at the bottom of page 2. Schedule 2 combines Schedules 2 and 4 and Schedule 3 combines Schedules 3 and 5.
Tip of the DayPlan ahead for sales growth . . . The economy continues to improve, albeit in uneven measure. But if your business is picking up you should plan ahead for staffing. For most jobs it takes some time for a new employee to become truly productive. How long that takes can depend on a number of factors. A skilled professional may be able to get up to speed doing manufacturing or service work very quickly--for example a licensed plumber. Others may take from a week to a year, depending on the job, the individual's experience, etc. Management positions too can vary, depending on the position being filled and the nature of the industry. You don't want to have to turn down work because you don't have the staff. In some cases hiring in anticipation is your only option; in others you can do some groundwork to make the actual hiring and training process easier. And there is some evidence that the job market is getting tighter.
August 5, 2019
NewsThe IRS has reported that as this year’s enrolled agent renewal cycle has finished, it is beginning its annual clean-up of enrolled agents who have social security numbers ending in 0, 1, 2, or 3 and did not renew. Enrolled agents who did not renew during the 2016 and 2019 cycles will be moved to terminated status. Those who did not renew during the 2019 cycle will be moved to inactive status. Beginning this week, the IRS will send letters to those affected advising them of this action. An enrolled agent in inactive status can still submit a late renewal for approval with proof of continuing education credit. Any enrolled agent in terminated status must re-take the Special Enrollment Exam to apply for re-enrollment. If an enrolled agent disagrees and has a record of previously renewing, he or she should contact the number on the letter.
Tip of the DayCustomer support . . . Apparently companies are downgrading the importance of customer satisfaction as one way to cut costs. There's little doubt that keeping customers on hold for extended periods of time, using automated systems to answer common questions, outsourcing support to a foreign country or prison, using online chat, etc. can reduce the cost of customer support, but does it produce an overall cost saving? If you've got no competition, you don't have to worry about treating your customer poorly. But if you've got even one competitor, you'll have to use a sharper pencil to calculate the savings. If support is frustrating enough there's a good chance your customer will migrate to the competitor and it'll cost you to get him or her back. The next question is how much will that cost be? In more than a few situations the cost of getting a new (or previous) customer can be substantial. Providing poor customer service to lower value customers can make sense. Take a broad look at the consequences before deciding.
August 2, 2019
NewsIRS News Release IR-2019-136 contains tips and links for tax professionals for protecting taxpayer data.
The IRS has released an updated version of Publication 535, Business Expenses and Publication 5341, The Taxpayer Roadmap 2019. The later publication provides the detailed steps a return interaction with the IRS from return preparation and the filing process through return processing, examination, assessment, collection, appeals and litigation.
Tip of the DayCredit score . . . There are a number of ways to improve your credit score. One is obvious. Reduce your overall credit card debt and don't add cards. But you can improve your score and still carry relative high debt by paying down individual cards so that your balance is 40% or less of your credit line. And, ironically, you can also boost your score by having an installment loan such as a car loan. Business owners may be able to improve their score by providing updated or more detailed information on their earnings. If you and your spouse have both joint and separate cards, you've got to evaluate your situations individually. It's not usual for the scores of two spouses to be materially different.
August 1, 2019
NewsRevenue Procedure 2019-33 (IRB 2019-34) allows a taxpayer to make a late election, or to revoke an election, under Section 168(k) for certain property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017. First, a taxpayer can elect not to deduct the additional first year depreciation for all qualified property that is in the same class of property and placed in service by the taxpayer in the same tax year. Second, a taxpayer can elect to deduct 50-percent, instead of 100-percent, additional first year depreciation for all qualified property acquired and placed in service by certain dates. Third, a taxpayer can elect to deduct additional first year depreciation for any specified plant that is planted or grafted after September 27, 2017, and before 2027.
Tip of the DayRead the fine print . . . When you opened your checking (or other) account you received a statement of the bank's rules. Banks periodically update the rules. Some are arcane; some can prove important. Providing a post-dated check to a contractor or vendor? If the holder of the check presents it to the bank before the date on the check, the bank can either pay on the check before the date or refuse to certify or pay the check before its date. The bank is not liable either way. If that makes other items bounce, the bank isn't liable. Much the same is true of stale checks. The bank is probably not required to pay an uncertified check six months after its date. If it pays it, the bank won't be liable. Check the rules with your bank. You might want to review your procedure for post-dated checks.
July 31, 2019
NewsThe Federal Financial Management Improvement Act (FFMIA) remediation plan is an important part of the IRS’s efforts to bring its financial management systems into compliance with the FFMIA and to provide reliable and timely financial data. Complete and reliable financial information is critical to the IRS’s ability to accurately report on the results of its operations to both internal and external stakeholders, including taxpayers. The Treasury Inspector General for Tax Administration (TIGTA) did an audit to determine any instances of and reasons for missed intermediate target dates established in the IRS’s September 30, 2018, FFMIA remediation plan and to determine whether the IRS has taken adequate corrective actions on TIGTA’s prior audit findings related to the Fiscal Year 2017 remediation plan. TIGTA found that during Fiscal Year 2018, the IRS made progress addressing a long-standing material weakness in its internal controls over unpaid assessments. For example, the IRS completed four of the 12 open remediation actions related to internal control weaknesses. IRS management also approved the extension of one open remediation action to a future date. This open remediation action and seven other actions have expected completion dates between Fiscal Year 2019 and Fiscal Year 2021. In addition, the IRS also included all six open Government Accountability Office recommendations in its remediation plan as required. However, the IRS still does not include resource cost information for each corrective action in accordance with Federal and internal requirements. In November 2018, the Government Accountability Office downgraded the IRS’s material weakness over unpaid assessments to a significant deficiency due to the IRS’s progress in addressing the control weaknesses that affect its financial reporting. Federal agencies with a material weakness over internal controls are required to report externally on the actions taken to address the weakness. While external reporting is no longer required, the Office of Management and Budget requires the IRS to internally assess its progress in addressing the significant deficiency over unpaid assessments. To see the complete report, go to www.treasury.gov/tigta/auditreports/2019reports/201910051fr.pdf.
Tip of the DayBuying a house and business together? . . . It's not that unusual to buy both a home and a business in the same deal. For example, you're buying a house and an orchard with outbuildings for storage, maybe even equipment such as a tractor. If you plan on operating the business yourself or leasing the property and equipment (and probably even if you're not) there are some steps you should take to make sure you maximize your tax benefits and minimize any disputes with the IRS. After buying the property you may be depreciating some of the assets. That's when the trouble begins. Depreciation will depend on the relative values of the assets at the time of purchase. The IRS will claim the house and land (both nondepreciable, except for a home office or if you use the house for rental, etc.) were worth much more at the time of purchase than you claim. The IRS will want to ascribe a lower value to any equipment (which can usually be quickly written off) than to buildings (which have a longer writeoff). Things become even more complicated in some farming applications or if special purpose structures (such as a greenhouse) are involved. If possible, have the purchase price of the assets broken out on the purchase and sale agreement. Better yet, have one contract for the house and its land and another for the business and its assets (with a breakdown of the assets). What if the seller won't agree to either? Get an appraisal on all the assets as close to the closing date as possible. (Before is better. You may find the property isn't worth as much as you think.) Any appraisal costs will be returned many times over if you're ever audited by the IRS. Ask your tax adviser and attorney for their input.
July 30, 2019
NewsThe noncustodial parent may still be able to claim a child as a dependent, but, as usual, certain requirements must be met. In Jason George Demar (T.C. Memo. 2019-91) the taxpayer's spouse had custody of their minor child but, according to the divorce decree the taxpayer was allowed to claim the child as a dependent on his return. The Court noted that in order for a noncustodial parent to claim a qualifying child as a dependent under Section 152, (1) the custodial parent must sign a written declaration stating that he or she will not claim the child as a dependent and (2) the noncustodial parent must attach that declaration to his or her return. The necessary written declaration is commonly made on Form 8332. Here the taxpayer failed to receive a Form 8332 or similar written declaration from his ex-spouse indicating she was releasing her claim. The ex-spouse claimed the child as her dependent. The Court noted that the release can be provided with an amended return or during examination, but only if the custodial spouse did not claim the child. As a result the taxpayer was not entitled to a dependency exemption, the child tax credit, the earned income tax credit, and head of household filing status for the year at issue.
Tip of the DayRecordkeeping for capital losses . . . You can use capital losses to offset capital gains or up to $3,000 in ordinary income. Any unused amounts can be carried forward indefinitely. When the market has turned sour for an extended period taxpayers may have capital loss carryforwards for a number of years. You've got to be able to substiate the losses. At a bare minimum you'll need your return for the year the loss arose and all intervening years to show the loss wasn't fully used, as well as be able to show the selling price and cost basis in the security. That's one reason to keep all your old tax returns.
July 29, 2019
NewsYou may be able to get an IRS NFTL (notice of filing of tax lien) withdrawn if (1) the filing of the NFTL was premature or not in accordance with administrative procedures; (2) the taxpayer has entered into an agreement to satisfy the tax liability underlying the lien through installment payments, unless the agreement provides otherwise; (3) withdrawal of the NFTL will facilitate collection; or (4) with the consent of the taxpayer or the National Taxpayer Advocate, the lien's withdrawal would be in the best interests of the taxpayer and the United States. If the Commissioner determines conditions for withdrawal are present, the Commissioner may, but is not required to, authorize the withdrawal. Because the NTFL withdrawal is a collection alternative, petitioners were required to provide the settlement officer with relevant information for her to consider in determining whether the NFTL should be withdrawn. In Deborah P. Richards and Daniel D. Richards (T.C. Memo. 2019-89) The Court noted the petitioners did not present any credible evidence that any of the above circumstances were applicable. While the taxpayers asserted the NFTL was negatively affecting their credit rating and ability to obtain a car loan, their bare assertion was insufficient to establish that lien withdrawal would facilitate collection or would be in the Government's best interests. The Court found the settlement officer considered the totality of the taxpayers' circumstances and properly performed a balancing analysis. The Court found no abuse of discretion by the settlement officer.
Tip of the DayEquipment liens . . . When you finance a piece of equipment it's relatively certain the lender will file a UCC-1 with your state putting a lien on the equipment, vehicle, etc. being financed. The lien is lifted by the loan is paid off. Well, it should be. An individual took out a three-year loan on a 1988 Buick. The loan was paid off in 1991, but when the owner when to sell the vehicle in 2003 he found the loan had never been released. Now it's highly unlikely the finance company would want a 15-year old car, and the lien was quickly released. But it might not be so easy if the equipment or vehicle is much younger or for construction, farm, or other equipment that retains it's value. When you make the last payment make sure the lien is released. If not, deal with it quickly. It'll get more difficult as time goes on.
July 25, 2019
NewsRevenue Procedure 2019-32 (IRB 2019-33) grants an extension of time to eligible partnerships to file a superseding Form 1065, U.S. Return of Partnership Income, and furnish a corresponding Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., to each of its partners. This relief only applies to partnerships that, for the applicable taxable year: (1) have not elected out of the centralized partnership audit regime, (2) have timely filed Form 1065, and (3) have timely furnished all Schedules K-1 required to be furnished (without regard to the extensions of time provided by this revenue procedure).
The IRS announced that a second early release draft of the 2020 Form W-4, Employee’s Withholding Allowance Certificate, is coming soon. A couple of weeks after that, the second draft of the new Publication 15-T, Federal Income Tax Withholding Methods, will follow. The IRS will issue final versions of the 2020 Form W-4 and Pub 15-T in November after receiving the annually adjusted values used in these products. Go to FAQs on the early release of the 2020 Form W-4 for more information on the redesigned W-4.
Tip of the DayRight to audit . . . You hire an independent contractor for consulting work and agree to reimburse him for expenses including meals, lodging, equipment rentals, subcontractors, etc. If the contract is substantial, make sure you include a right to audit his expenses. Contractors have been known to pad charges that should be legitimately passed through without a markup. Similarly, if you're a tenant in a building you should also have the right to review building cost data if a share of the expenses are being passed through on your lease.
July 25, 2019
NewsThe IRS has issued final regulations (T.D. 9871) with respect to a provision of the Code that addresses the allocation by a partnership of foreign income taxes. These regulations are necessary to improve the operation of an existing safe harbor rule that determines whether allocations of creditable foreign tax expenditures are deemed to be in accordance with the partners' interests in the partnership. The regulations affect partnerships that pay or accrue foreign income taxes and partners in such partnerships.
In IR-2019-131the IRS, state tax agencies and the nation's tax industry are reminding all “professional tax preparers” that federal law requires them to create a written information security plan to protect their clients' data.
You might be able to avoid liability for some of your taxes if you filed a joint return with an ex-spouse, but you've got to meet certain requirments. In Brigette Ogden (T.C. Memo. 2019-88) the taxpayer was separated from her husband, but they filed a joint return. She requested innocent spouse relief, but the Court noted that she filed her request more than two years after the IRS commenced collection action and the unpaid tax for one year resulted from income she failed to report on the return. The Court denied relief beyond that granted by the IRS.
Tip of the DayNeed a tax transcript? . . . There can be a number of reasons--need something to show a lender, proof you filed the return, confirm estimated tax payments to IRS, etc. There are also a number of different types of transcripts. A tax return transcript shows most line items including your adjusted gross income (AGI) from your original tax return as filed, along with any forms and schedules. It doesn’t show changes made after you filed your original return. A tax accounts transcript shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after you filed your original return. A wage and income transcript shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. For more information along with links on additional information and requesting a transcript, go to Transcript Types and Ways to Order Them.
July 24, 2019
NewsThe IRS has issued final regulations (T.D. 9873) relating to the Section 506 requirement, added by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), enacted on December 18, 2015, that organizations described in Section 501(c)(4) of the Code must notify the IRS, no later than 60 days after their establishment, of their intent to operate under Section 501(c)(4).
Statistical tables related to the Form W-2, Wage and Tax Statement, for Tax Years 2008–2016 are now available on SOI's Tax Stats Web page. These tables include detailed information about individual wages, tax withholding, elective deferral contributions, and retirement plan participation of individual income taxpayers. This data release corrects data discrepancies from earlier years and updates the data with two additional years, Tax Years 2015–2016. For more details on the available information and to access the tables, go to Individual Information Return Form W-2 Statistics.
Tip of the DayDon't oversell the job . . . Managers sometimes oversell a job to a prospective employee. In almost any market, but particularly in today's environment, that can backfire. When the new employee finds the job is very different than the advertised you could find him or her quickly looking for another position or just staying put for awhile and being disgruntled. Worse, in close-knit industries you could find that the word is out on your practice. If you know there's a issue and you're trying to improve the position be honest.
July 23, 2019
NewsThe National Taxpayer Advocate has released a special report to Congress on the Earned Income Tax Credit. The report is part of the taxpayer advocate's Objectives Report to Congress.
Rev. Proc. 2019-29 provides indexing adjustments required by statute for certain provisions under Section 36B. Specifically, this revenue procedure updates the applicable percentage table used to calculate an individual’s premium tax credit for taxable years beginning in calendar year 2020 and updates the required contribution percentage for plan years beginning after calendar year 2019.
You may be able to exclude all or a portion of your foreign earned income if you meet certain requirements. In Janice Kay Haskins and Julian William Haskins (T.C. Memo. 2019-87) the wife was working for a contractor who had her stationed in Afghanistan. The taxpayer failed the residency test (in a foreign country). The Court noted the taxpayer did not have strong nonwork ties to Afghanistan and could not leave the military base and concluded the taxpayer's abode was the U.S.
Tip of the DayGetting organized-Part II . . . We recently discussed the imporantance of bank, brokerage, etc. accounts, passwords, relatives, etc. But there's another issue. Title to some of your assets might be outdated, such as the car you inherited from Uncle Fred but never put on the road. It's still in Uncle Fred's name. Getting odds and ends straightened out when you're alive is often much easier than having your executor or a lawyer do it. And, even if someone has a power of attorney, that will lapse on your death and the executor will take over.
July 22, 2019
NewsGenerally, the IRS assessment is presumed correct; it's up to the taxpayer to prove otherwise. There's an exception in the case of fraud. The burden is on the IRS to show by clear and convincing evidence that fraud exists. In Shahram Kohan and Yonina Kohan (T.C. Memo. 2019-85) the taxpayer was a dentist whom the IRS found underreported his income. The taxpayer did not maintain a separate bank account for the business and did not deposit cash payments and copayments. The taxpayer did not dispute that he substantially underreported the income of his dental practice. He testified that the underreporting was not his fault, urging that he does not know much about business, that he kept very poor records, and that he relied on his office administrator to keep his books and on his accountant to prepare proper tax returns. The Court did not find the taxpayer's testimony credible. Moreover the testimony at trial showed the taxpayer took deliberate steps to conceal assets and income. The Court looked at the eight badges of fraud and found the IRS had shown the underpayments for the years at issue were due to fraud.
Tip of the DayDealing with duplicate invoices . . . They present a number of problems. The obvious one is paying the same invoice twice--and it's been done more times that companies will admit--and don't expect the vendor to voluntarily return it. The second is the possibility that an employee embezzled the amount using a dummy company. Stopping duplicate payments isn't that difficult. The first step is making sure the invoice is entered correctly when received. When paying the invoice you should be entering an invoice number into your system. That way you should be able to pick up an invoice has already been paid. If that doesn't stop it you can periodically do a search for duplicate payments by simply searching for duplicate payments. If your business is small, that shouldn't be difficult. On a larger business there are approaches for going into the data base. To avoid the problem you should have a good system and follow it religously. Talk to your accountant. Another point is to avoid "rush" payments. That includes special requests from purchasing to expedite a payment or the treasurer to get the early pay discount.
July 19, 2019
NewsVictims of the severe storms and flooding that took place on June 24-25, 2019 in Texas may qualify for tax relief from the IRS. The President has declared that a major disaster occurred in the State of Texas. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals who reside or have a business in Cameron, Hidalgo and Willacy 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 June 24, 2019 and before Oct. 31, 2019, are granted additional time to file through Oct. 31, 2019. This includes taxpayers who had a valid extension to file their 2018 return due to run out on Oct. 15, 2019. It also includes the quarterly estimated income tax payment due on Sept. 16, 2019, as well as the employment and excise tax returns due on July 31, 2019. In addition, penalties on payroll and excise tax deposits due on or after June 24, 2019, and before July 9, 2019, will be abated as long as the deposits were made by July 9, 2019. For more information, go to IRS announces tax relief for Texas victims of severe storms and flooding.
The IRS has issued final regulations (T.D. 9872) that provide guidance concerning the income inclusion rules under Section 50(d)(5) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. These final regulations also provide rules to coordinate the Section 50(a) recapture rules with the Section 50(d)(5) income inclusion rules. In addition, these final regulations provide rules regarding income inclusion upon a lease termination, lease disposition by a lessee, or disposition of a partner's or S corporation shareholder's entire interest in a lessee partnership or S corporation outside of the recapture period. Accordingly, these regulations will affect lessees of investment credit property when the lessor of the property makes an election to treat the lessee as having acquired the property and an investment credit is determined under Section 46 with respect to such lessee.
In Martin A. Kapp (T.C. Memo. 2019-84) the petitioner was a CPA who prepared tax returns for mariners and claimed a per diem meal allowance as a miscellaneous itemized deduction even if they did not incur a meal expense and the meals were furnished by the employer. The IRS was granted a motion for summary judgment holding that the petitioner be permanently enjoined and that the so-called mariner tax deduction was illegal and in violation of Sec. 6694. The Tax Court has issued two addtional opinions related to the petitioner's mariner clients. The Court held that the IRS satisfied its burden of proving that the petitioner prepared tax returns for the years in issued with knowledge that the returns and/or schedules prepared would result in understatements of tax.
Tip of the DayStore credit cards . . . Think twice before signing up. First it's another credit card. Second, the come-on is generally a one-time amount off your purchase when you sign up. Hardly worth it. Interest rates tend to be high and they've got you on a list. There are exceptions. One big box retailer gives 5 percent off to seniors on every purchase--and large purchases are not unusual. There are others that give regular rewards to cardholders. Best advice. Check before signing up.
July 18, 2019
NewsNotice 2019-45 (IRB 2019-320 expands upon previous guidance (Notice 2004-23, Notice 2004-50 and Notice 2013-57) by providing an appendix with a limited list of additional preventive care services and items for certain chronic conditions that may be treated as preventive care for purposes of Section 223(c)(2)(C). These additional services and items are treated as preventive only when prescribed to treat an individual diagnosed with the specified chronic condition, and only when prescribed for the purpose of preventing the exacerbation of the chronic condition or the development of a secondary condition.
You have 60 days to rollover an IRA distribution. In Nancy Burack (T.C. Memo. 2019-83) the taxpayer took a $524,981 distribution to pay for a new home. She planned on rolling over the amount when the sale of her prior home closed. The first part of the plan worked and she overnighted a check for the same amount to the IRA provider, her financial adviser, as per their instructions, which arrived on the 58th day. But the check was not deposited into the account of the custodian until the 62nd day, which turned out to be the day of record. Why there was a delay between the adviser's receipt of the check and the deposit at the custodian wasn't clear. The IRS assessed additional taxes of $214,333 and an accuracy-related penalty of $42,867. The IRS claimed the check should have been sent to the custodian, but the record showed that all the taxpayer's correspondence and contacts were with the adviser and not the guardian, thus she sent the check to the right party. Court accepted the fact that the delay was due to a bookkeeping error and granted a hardship waiver.
Tip of the DayGet organized . . . Generally good advice. You'll be more efficient at work. But it's even more important if you die. You spouse, children, executor, or whoever will take care of your estate will probably find it difficult enough to step into your shoes cold. (An exception might be your spouse.) But if you're not organized and there's no list of bank accounts, credit cards, brokers, passwords and PIN numbers, property (personal and real), debts, the executor the job will be much more difficult. It's even more important if you have a business. Got it all on computer? That probably won't make it easier, but harder. Where are the files? Are they password protected? Are we missing any? Organizing now will mean all you have to do as time goes on is change, add, or delete from the list or the file cabinet.
July 17, 2019
NewsThe IRS has released a number of draft tax forms to be used with 2019 filings. A new form, Form 1040-SR, U.S. Tax Return for Seniors is of particular interest. While it looks very similar to a regular 1040, it includes a standard deduction chart on the first page. Other recent releases of interest are Form 1040, and a number of schedules. To review any of the forms, go to Draft Tax Forms.
The IRS has provided additional information (IR-2019-128 to help taxpayers meet their filing and payment requirements for the Section 965 transition tax on untaxed foreign earnings. The Tax Cuts and Jobs Act requires certain taxpayers that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits have been repatriated to the? United States. The law provides details on the income that must be recognized. It also provides a related deduction which generally lowers the effective tax rate to between 8% and 15.5%. Certain taxpayers may elect to pay the transition tax over eight years. IR-2019-128 contains links to information in question and answer format, as well as additional information.
Tip of the DayWithdraw from investments or IRA? . . . We're just talking about after retirement and traditional IRAs. The usual answer is to hit your investments first. If the investment is a savings account there's no tax consequences. If it's investments such as stocks you'll have to pay tax on any gains, but that might be at long-term capital gain rates. Weigh that against the ordinary income generated from distributions from a traditional IRA. Keep in mind that once you reach age 70-1/2 you'll have to take your required minimum distribution each year. But talking more than the minimum one year won't reduce what you have to take the following year (except to the extent you'll have a smaller total amount in the IRA). Get good advice before making a decision.
July 16, 2019
NewsThe IRS has released Tax Tip 2019-92, a number of tips to help organizations understand the tax-exempt application process.
There are some manuevers that can save taxes, but these days it's difficult. Many approaches either won't work or only result in a deferral of taxes. In Samuel Wegbreit and Elizabeth J. Wegbreit; The Samuel Wegbreit Trust Fund (T.C. Memo. 2019-82) the taxpayer-husband had started and investment company which proved successfull and eventually agreed to sell the business. That precipated some serious tax planning. The facts are complicated but what is simple is that the taxpayer assigned his ownership interest in the business to a trust that involved a life insurance policy. The Court noted that the taxpayers, the trust and various related entities failed to maintain adequate books and records, revealing an inattention to detail. Several assignment and transfer documents in the record appear to convey property and assets to the wrong entity, entities that had not been formed yet, and entities of whose existence there is no evidence. The Court found no error in the IRS's reconstruction of income using the bank deposits method. The IRS argued the trust formed was a sham. The Court looked a four factors normally examined in such cases and concluded the trust was, indeed, a sham. The Court noted there ware three versions of the trust's formation agreement and the taxpayer was unable to identify which of the three was the correct one. The taxpayers used funds from the trust for personal purposes without restriction. In another issue the taxpayers exchanged an insurance policy for another policy. This should be a tax-free exchange, but the Court found the policy was not a valid life insurance policy under the tax law. The Tax Court also found that some of the underpayment was due to fraud, noting, among other things, that the taxpayers provided falsified and back-dated documents to conceal assets and income from the Government.
Tip of the DayIRA rollovers . . . While you can still do IRA rollovers by receiving the money in your own hands (rather than a trustee-to-trustee), you're now limited to one per year. And the 60-day rollover period is strict. Miss it by one day and you'll have to pay tax on the money and a 10 percent penalty if you're not 59-1/2 or don't meet one of the exceptions. There's a trap in here too. While most deadlines are postponed to the next business day if they fall on a Saturday, Sunday, or holiday, that's not true here. If the 60-day period is up on Saturday, you'll have to redeposit the funds on Friday. And be aware that some brokers close their books before closing the office. But in one recent situation the bank made a bookkeeping error failing to record the deposit on the proper day. The taxpayer requested a letter ruling from the IRS and had the income reversed and the penalty abated.
July 15, 2019
NewsThe IRS has added Muscatine to the counties where victims may qualify for IRS relief as a result of severe storms and flooding that took place on March 12, 2019 in Iowa. As a result, the full list of areas where individuals who reside in or have a business where taxpayers may qualify for tax relief include Fremont, Harrison, Louisa, Mills, Monona, Muscatine, Pottawattamie, Scott, Shelby, and Woodbury counties. In addition to other relief, victims may qualify for postponement of certain deadlines. For more information, go to IRS announces tax relief for Iowa victims of severe storms and flooding.
The IRS has issued final regulations (T.D. 9870) that streamline IRS regulations by removing regulations that are no longer necessary after the enactment of recent tax legislation. Specifically, these final regulations remove existing regulations regarding advance payments for goods and long-term contracts. These final regulations affect accrual method taxpayers who receive advance payments for goods, including those for inventoriable goods.
Tip of the DayGrowing by acquisition . . . It's one way of getting bigger. But if you read the financial news and follow companies that make acquisitions, you find that a relatively large percentage don't pan out well. Some of them are disasters. No matter how careful you are, the deal can still be a failure. There is a way to reduce your exposure. Instead of going for a blockbuster that will double the size of your business, consider smaller purchases. That way even if a deal does go sour, it won't jeopardize the firm. That's also a good way to gain experience.
Copyright 2019 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