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September 26, 2023
NewsThe IRS announced (IR-2023-177) tax relief for individuals and businesses affected by Hurricane Lee anywhere in Maine and Massachusetts. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. All 16 counties in Maine and all 14 counties in Massachusetts qualify. Individuals and households that reside or have a business in these counties qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Sept. 15, 2023, through Feb. 15, 2024 (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period. This means, for example, that the Feb. 15, 2024, deadline will now apply to:
In addition, penalties for the failure to make payroll and excise tax deposits due on or after Sept. 15, 2023, and before Oct. 2, 2023, will be abated as long as the deposits are made by Oct. 2, 2023. Click on the link above for additional information.
The IRS has released (Notice 2023-68) the special per diem rates for taxpayers to use while traveling away from home including the (1) the special transportation industry meal and incidental expenses (M&IE) rates, (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method. The high-low method can be used in place of the actual per diem rate.
Tip of the DayQualified birth and adoption . . . One of the benefits in the original SECURE Act was a distribution from a tax-qualified retirement plan of up to $5,000 (per parent, per child) for a qualifying birth or adoption that would not be subject to the 10% early withdrawal penalty, would not be treated as an eligible rollover distribution, and can be recontributed to the qualified plan or an IRA. The distribution, called a qualifying birth and adoption distribution (QBAD) can be included in a tax-qualified plan but it is not mandatory.
September 25, 2023
NewsGenerally, working with the IRS will be better for you than not working with them. In Ronald Powell and Cynthia Powell (T.C. Memo. 2023-48) the IRS determined a deficiency and in an effort to collect the Service them a Notice of Intent to Seize Your Assets. The taxpayers received a collection due process hearing and the settlement officer determined the taxpayers were eligible for an installment agreement (IA) but they failed to submit the requested financial information to lower their projected monthly payments on the IA. The taxpayers claimed they submitted the documentation but had no proof of doing so. The settlement officer other offers to which the taxpayers failed to respond. The Tax Court found no abuse of discretion by the settlement officer and granted the IRS summary judgment.
Tip of the DayBuy now, pay later . . . The concept is simple. Online sellers often offer the deal. Buy the item and pay for it in (usually) four installments. No interest if paid on time. Sounds like a good deal. And it is if you can control your purchases. The seller is hoping you won't feel the cost of the item in your bank account or on your credit card, at least immediately and that will induce you to make more purchases than you would have. A different version is used by retailers of major appliances and similar items. Many of the big box home improvement centers use it. No interest (and no payments) for a year (or some other time period). However, if you miss the first required payment the forgiven interest kicks in. You're betting you'll pay on time; the retailer is betting you won't. Know your limitations. You can win the game if you're careful.
September 22, 2023
NewsUnder the cash method of accounting you can only deduct expenses actually paid in that year. But what constitutes paid? If you write a check and mail it in late December and it's not cashed until January to which year does it belong? That was the issue in Edwin L. Gage and Elaine R. Gage (T.C. Memo. 2023-47) the Tax Court held that if a check is cashed in the subsequent year the deduction belongs in that year unless the taxpayer can show that the check was actually delivered in the year written. The taxpayers had argued that under state law (Oklahoma) when the payment was tendered counted. The Tax Court held that federal law controlled since a federal lawsuit was involved.
Tip of the DayEmployee Retention Credit . . . The IRS is finding the fraud and other issues involved with the Employee Retention Credit (ERC) so pervasive that it is asking Congress for additional authority to combat the problems. While similar requests have been put into tax bills in planned fashion, this has never been done on an "emergency" basis. The IRS is asking to regulate paid preparers in general and asked for legislation targeted to the ERC to help curb the fraudulent claims.
September 21, 2023
NewsThe IRS is focusing more attention onto high-income compliance issues, the IRS announced (IR-2023-176) plans to establish a special area to focus on large or complex pass-through entities. The new work unit will be housed in the IRS Large Business and International (LB&I) division. In addition, the new pass-through area will include the people joining the IRS under the new IRS hiring initiative announced last week. As part of larger transformation work underway at the IRS, the Service last week announced the opening of more than 3,700 positions nationwide to help with expanded enforcement work focusing on complex partnerships, large corporations, and high-income and high-wealth individuals. Following a top-to-bottom review of enforcement efforts, the IRS announced on Sept. 8 the start of a sweeping, historic effort (IR-2023-168)to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws. Pass-through organizations, which will be the focus of the new group, includes entities such as partnerships and S-corporations.
Tip of the DayIRS to limit EITC audits . . . The IRS plans to reduce the number of correspondence audits that address the Earned Income Tax Credit, the Additional Child Tax Credit, and the American Opportunity Tax Credit (AOTC). Instead the agency plans to increase efforts to educate taxpayers on the rules and to focus on unscrupulous preparers who underreport income and/or overclaim credits and deductions.
September 20, 2023
NewsThe IRS is reminding (IR-2023-174) individuals and businesses in most of California and parts of Alabama and Georgia that their 2022 federal income tax returns and tax payments are due on Monday, Oct. 16, 2023. The normal due date of April 18 was postponed for many residents of these states in the wake of natural disasters earlier this year. The following areas are affected:
You may be able to escape the joint liability with your spouse, but it's not always easy. In Robert A. Di Giorgio, Sr. v. Commissioner; Robert A. Di Giorgio, Sr. and Zandra M. Di Giorgio (T.C. Memo. 2023-44) the IRS reconstructed the taxpayer's income and showed that the underpayments stemming from the unreported income were due to fraud. The taxpayer's wife was able to show that the husband controlled the finances, she had no financial experience or knowledge, and, as an immigrant, had not seen a tax return before 2008, with 2007 being the year at issue.
Tip of the DayForeign investments, etc. . . . If you think U.S. laws are complex, don't get yourself involved in foreign investments, business, etc. In one case an individual a Canadian Registered Retirement Savings Plan was not a qualified retirement plan exempted from a bankruptcy estate because it was organized outside the U.S. As soon as you're dealing with foreign entities or individuals you should consult a professional. The rules in other countries are usually very different than in the U.S. Tax treaties with other countries afford some relief, but the treaties vary from country to country.
September 19, 2023
NewsThe U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule. Starting in 2024, many entities created in or registered to do business in the United States will be required to report information about their beneficial owners--the individuals who ultimately own or control a company--to FinCEN. The Guide is intended to help businesses determine if they are required to report their beneficial ownership information to FinCEN. The Guide will, among other things:
The page has links to other resources as well.
In order for the IRS to assess a valid penalty, it must be approved by a revenue agent's immediate supervisory in a timely fashion. In Piper Trucking and Leasing, LLC (161 T.C. No. 3) the IRS assessed, through his Combined Annual WageReporting (CAWR) computer program, a Section 6721(e)penalty against the taxpayer for failure to file Forms W–2, Wage and Tax Statement, with the Social Security Administration. The assessment occurred without human intervention or supervisory approval. The IRS filed a Notice of Federal Tax Lien and subsequently issued a notice of determination sustaining the lien. The Tax Court held that a Sec. 6721(e) penalty assessed through the IRS's CAWR computer program is not subject to the Sec. 6751(b)(1) supervisory approval requirement.
Tip of the DayExperience a valuable teacher . . . Most business owners wouldn't tackle preparing their business tax return on their own but are willing to open or acquire a new business for the first time essentially on their own. While buying a business may seem a lot simpler than preparing a tax return, there are more than enough pitfalls to catch a novice in a costly trap. In the case of the tax return you can amend it for three years in case you find a mistake. If you're buying a business to augment your current operations, start small if you can. It should be easier and a mistake is unlikely to be as costly. And get professional help. Even if you're trying to go it alone, find an attorney you can work with who will review your work and offer suggestions. Some retiring owners just want to find a good home for their "baby", others will try to sell a disaster for top dollar.
September 18, 2023
NewsAs part of larger transformation work underway to make improvements, the IRS announced (IR-2023-172) the opening of more than 3,700 positions nationwide to help with expanded enforcement work focusing on complex partnerships and large corporations. These compliance positions will be open in more than 250 locations nationwide and is part of a larger effort to add fairness to the tax system and expand tax enforcement involving areas of concern with high-income earners, partnerships, large corporations and promoters. The hiring will be for higher-graded revenue agents, which are specialized technical positions that generally focus on audits. This continued hiring effort builds off earlier efforts to add taxpayer service employees at the IRS, part of the landmark Inflation Reduction Act funding approved in August 2022.
The IRS continues to warn businesses to watch out for aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC) and urged people to watch out for red flags that can signal trouble. The credit, also called the Employee Retention Tax Credit or ERTC, is a legitimate pandemic-era tax credit but as time passes the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit. Although promoters advertise that ERC submissions are "risk free," there are actually huge risks facing businesses as the IRS increases its audit and criminal investigation work. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit. The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps and avoiding being pushed by a promoter, including instances where a promoter can collect contingency fees as much as 25%. For more information, see IR-2023-170.
Tip of the DayTransfer to partnership was gift to children . . . Gifting stock or an interest in an S corporation, partnership or LLC to children or other relatives can make sense. But don't try to use the entity as a tax avoidance device. It may not work. In a Technical Advice Memorandum the taxpayer established a limited partnership with her children. She then transferred municipal bonds to the partnership with the entire amount of the contribution allocated to the capital accounts of the children. Sometime later the bonds were distributed to the children. The IRS held that the contribution of the bonds to the partnership were part of an integrated transaction to simply transfer title by way of a gift to the children. The IRS also held that no discount on the valuation was appropriate since the bonds were publicly traded. The IRS also noted that indirect gifts to the individual shareholders can occur when someone transfers property to a corporation (or other entity).
September 15, 2023
NewsWe've mentioned the problems the IRS has been having with bogus claims for the Employee Retention Credit (ERC). The IRS has now taken the unprecedented step of ordering an immediate halt to new ERC processing amid a surge of questionable claims. The concerns are coming from both within the IRS and from tax professionals. The IRS has published two News Releases IR-2023-170 and IR-2023-169 with more information.
Today's the deadline for filing calendar-year partnership and S corporation returns as well as estimated taxes for corporations, individiduals and trusts.
There is now enough inflation data for the major tax publishers to project the inflation adjusted brackets, standard deduction, estate tax exemption, etc. for 2024. The adjustment factor is about 5%, but not all amounts subject to adjusted will increase since many are subject to a rounding down provision. For example, there wasn't enough of an increase to boost the "catch-up" contribution for IRAs, etc. above $1,000. The tax brackets are higher, but not by as much as last year. High income married couples filing jointly won't get into the 37% bracket until their taxable income exceeds $700,000. The IRS generally publishes the inflation information in two parts, one for IRAs, 401(k)s, and other pensions and one for all other amounts between mid-October and early November.
Tip of the DayStudent loan forgiveness . . Individuals with student loans enjoyed a moratorium on repayment but that's about to end. And there is no shortage of scammers ready to offer help. The truth is tha while you may be able to adjust your repayments, you can do that without paying anyone. And forgiveness of student loan debt is virtually impossible. Not even bankruptcy will automatically get you free. The important thing to remember is that these services won't reduce your debt but do cost. The Federal Trade Commission has links to resources at https://consumer.ftc.gov/consumer-alerts/2023/09/pay-your-student-loans-not-scammers?utm_source=govdelivery>
September 14, 2023
NewsThe IRS announced that taxpayers affected by Hurricane Idalia in parts of Georgia that began Aug. 30, 2023, now have until Feb. 15, 2024, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households affected by Hurricane Idalia that reside or have a business in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware, and Wayne counties in Georgia qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 30, 2023, and before Feb. 15, 2024, are granted additional time to file. As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief. The Feb. 15, 2024, deadline also applies to quarterly estimated tax payments, normally due on Sept. 15, 2023, and Jan. 16, 2024. In addition, businesses with an original or extended due date including, among others, calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023, and calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023, also qualify for the Feb. 15, 2024 filing postponement deadline. Penalties on payroll and excise tax deposits due on or after Aug. 30, 2023, and before Sept. 14, 2023, will be abated as long as the tax deposits are made by Sept. 14, 2023. Click on the link above for more information.
Tip of the DayKeep it rented . . . An important key to making money on a rental properties is to keep them rented. Vacancy means no income. Giving a free months' rent on signing is worth it if you can get a paying tenant for the next 11 months. While the residential market is still hot, many office and retail properties have above normal vacancies. Letting a space stay vacant in the hopes of getting top dollar for it generally doesn't make sense. Offering a month of free rent is usually far less trouble than providing a similar value in alterations. If you've got to offer more than a month on an multiyear lease, provide the free rent in a later year of the lease.
September 13, 2023
NewsRevenue Procedure 2023-31 supersedes Rev. Proc. 2015-47, which sets forth procedures for filers of Forms 8955-SSA and 5500-EZ to request a hardship waiver of the requirement to file those forms electronically. Rev. Proc. 2015-47 is being superseded because of recently issued Treasury regulations which (among other things): (1) implement a lowered threshold for mandatory electronic filing of Forms 8955-SSA and 5500-EZ (as authorized by the Taxpayer First Act of 2019), and (2) provide a new administrative exemption with respect to electronic filing of Form 8955-SSA. Rather than set forth specific procedures, this revenue procedure refers filers to applicable publications, forms, instructions, or other guidance, including postings on the IRS.gov website, for the procedures for seeking a hardship waiver or administrative exemption from the requirements to file Forms 8955-SSA and 5500-EZ electronically. This revenue procedure is effective with respect to Forms 8955-SSA and 5500-EZ required to be filed for plan years beginning on or after January 1, 2024.
The IRS has controls and safeguards to mitigate risks to taxpayer information. But in a Report to Congressional Requesters (GAO-23-105395), the GAO (General Accountability Office) found that while some 97 percent of IRS employees had completed the training for handling taxpayer information but less than 75 percent of outside contractors who may have access to such information had received the training. You can find the complete report at www.gao.gov/assets/gao-23-105395.pdf.
Tip of the DayDonating to a charity? . . . If you can use the donation as a deduction you want to make sure the contribution qualifies. But even if it's not going to save you on taxes you want to make sure your money is being put to a good cause and used effectively. Contributing to "pop up" organizations when a disaster strikes is always more dangerous as scammers see that as a perfect opportunity. The IRS has published Tax Tip 2023-110 that contains information to minimize your risk and links to other resources. https://www.irs.gov/newsroom/tips-to-help-taxpayers-make-sure-their-donations-go-to-legitimate-charities
September 12, 2023
NewsFinCEN announced that victims of the Hawaii Wildfires and Hurricane Idalia, in parts of Florida, have until February 15, 2024, to file Reports of Foreign Bank and Financial Accounts (FBARs) for the 2022 calendar year. The FBARs for calendar year 2022 otherwise would be due on or before October 16, 2023. FinCEN is offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance as a result of the Hawaii Wildfires and Hurricane Idalia. Should FEMA designate FBAR filers in other localities affected by these natural disasters as eligible for individual assistance at a later date, they will receive the same filing relief automatically. In addition, FinCEN will work with any FBAR filer who lives outside the disaster areas but who must consult records located in the affected areas to meet the deadline.
If you use gasoline or diesel fuel for off-highway use (such as construction, farming) you can claim a federal excise tax credit of $0.184 for gasoline or $0.244 for diesel. In following up on a prior audit, the Treasury Inspector General for Tax Administration (TIGTA) found that while the IRS has updated its method of screening and examining questionable FTC claims, improvements to FTC compliance processes are needed. For example, of the 1,172,732 Forms 1040 with FTC claims processed from January 1, 2018, through December 31, 2021, 263,522 returns had no business purpose and 24,769 of these returns had FTC claims above the examination threshold. The IRS did not examine 15,779 of the 24,769 returns with $32.5 million in FTC claims. The IRS considers an FTC claim without a business purpose as a frivolous position and subject to a $5,000 frivolous filing penalty. The IRS examined 10,026 returns filed by individual taxpayers from October 1, 2017, through December 31, 2021, which had no business purpose indicated on the return. The IRS decreased the FTC on 7,070 returns but assessed a penalty on only 13 returns. The 7,057 remaining returns may have been subject to $35.3 million in frivolous filing penalties. To read the complete report, go to www.tigta.gov/sites/default/files/reports/2023-09/202330053fr.pdf.
Tip of the DayGifts between spouses . . . They're generally exempt from any gift taxes. Thus, the $17,000 gift tax threshold for transfers in 2023 applies to pretty much everyone but a spouse. There's no limit on a spouse. Transfers incident to a divorce also have no gift tax consequences. There's a big catch if your spouse is a not a citizen. In that case the gift is not excluded if it exceeds $175,000.
September 11, 2023
NewsCurrently individuals can only deduct casualty losses if they are related to a presidentially declared disaster; businesses aren't so restricted. But even then you've got to be able to show you actually incurred a loss. First you've got to show you incurred a loss and that the loss was related to the disaster. Showing your house was destroyed may be relatively easy. But can you show the boat you had in your backyard was carried away by the flood and destroyed? Or that valuable contents of your home was lost? The second thing you've got to do is show the amount of the loss. That may not be as simple as the amount you paid or how much it cost to have the damage repaired. In Thomas K. Richey and Maureen Pl Cleary (T.C. Memo. 2023-43) the Court found the taxpayers had not adequately shown the amount of their loss or even that the damage claimed as a casualty loss was caused by the storm.
Tip of the DayDcoumentation for casualty losses . . . The importance of documenting the loss can't be overemphasized. The insurance companies and the IRS are sticklers. Part of it stems from the fact that an insurance adjusted and the IRS examiner need something tangible for the files. On more valuable items you should save the purchase receipt (and always if the item is for a business). In the case of real estate a running list of all improvements and the cost. For smaller items, make a list with details. For example, for books list the name, author, publication date and your best guess on the purchase date. If you do it when items are purchase, include the cost. That will also come in handy if you sell the item online or donate to a thrift store. In one case a couple's home was destroyed by fire. They had a substantial collection of baseball cards. When their nephew visited them he would catalog the cards and use a "blue book" to value them. The cards were destroyed in the fire but the detailed list managed to get the couple $15,000 from the insurance company. And take pictures. Your smart phone will do. Just make sure they're archived in a safe place. Documents can be scanned and the files saved. Make sure there's a reference in the picture so you can show those collectible guitars were residing in your home and not a museum. Finally,
September 8, 2023
NewsThe 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 may be adversely affected if the IRS does not follow the requirements to notify the taxpayers of their rights related to assessment statute extensions. In an audit the Treasury Inspector General for Tax Administration (TIGTA) found instances in which taxpayer audit files lacked documentation to support that the IRS complied with its internal procedures for further explaining the taxpayers' rights to the taxpayers. TIGTA found that 13.2 percent of the sample taxpayer audit files did not contain required documentation to support that taxpayers and/or taxpayers’ representatives were provided with the required notifications. To see the complete report, go to www.tigta.gov/sites/default/files/reports/2023-09/202310049fr.pdf
Tip of the DayVehicles used by two business . . . Many business owners have more than one business. Sometimes they're split into two entities--for example, a power equipment repair shop using an S corporation and a equipment rental shop in another S corporation. Or simply two S corporations. Or an LLC and an S corporation. The problem is you use the same truck for two businesses. You can't ignore the problem and put the truck on just one business and claim 100% business use. Discuss the issue with your tax preparer. The solution is likely to depend on the situation. The same issue can arise if in the example above, the repair shop provides space for the rental activity. Here the solution could be the repair shop charging rent to the rental business.
September 7, 2023
NewsThe IRS has announced tax relief for individuals and businesses affected by Idalia, anywhere in South Carolina. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments. This is similar to relief already being provided in most of Florida. The IRS is offering relief to any area designated by the FEMA. All 46 counties in South Carolina qualify. Individuals and households that reside or have a business in these counties qualify for tax relief. For a complete list of the returns and payments extended and additional information, go to IR-2023-163.
The Inflation Reduction Act was supposed to provide funding for the IRS to, in part, increase review of returns by high-income taxpayers. An audit by the Treasury Inspector General for Tax Administration (TIGTA) found that the Large Business and International (LB&I) Division of the IRS has expertise in training revenue agents on examining high-income taxpayers. However, the IRS's efforts to train new hires do not appear to be fully leveraging this expertise. The IRS treats this training as specialized and only offers it when necessary for employees auditing in this specialized area. Commensurate with the new IRA funding, the IRS should revise its training paradigm and expose new hires to the types of issues associated with high-income taxpayer returns. TIGTA made six recommendations, including that the IRS leverage the LB&I Division's extensive knowledge base by embracing its current high-income individual training content and ensure that examination plans follow the Secretary of Treasury's Directive to prioritize coverage of individual high-income earners over $400,000. For the full report go to www.tigta.gov/sites/default/files/reports/2023-09/202330054fr.pdf.
Tip of the DayCasualty losses . . . They're generally no longer deductible, but there's a big exception. That's for damage in a presidentially declared disaster area. The first benefit is that you can deduct your losses in excess of any insurance recovery. The second is that you can take the loss in the prior year. For example, you incur a $75,000 casualty loss from a hurricane in 2023. Because of the hurricane your income in 2023 is going to be a lot lower than in 2022. You can elect to report the loss in 2022 when you were in a higher tax bracket and get more benefit.
September 6, 2023
NewsThe IRS is reminding consumers considering an electric automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules. The Inflation Reduction Act of 2022 (IRA) made several changes to the new Clean Vehicle Credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles. Before taxpayers purchase a clean vehicle they should be sure that the vehicle was made by a qualified manufacturer. Taxpayers must also meet other requirements such as the modified adjusted gross income limits. To be a qualified manufacturer, the manufacturer must enter into an approved agreement with the IRS and supply the IRS with valid vehicle identification numbers (VINs) that can later be matched at the time of filing to the VIN reported on the return. When purchasing a new or used clean vehicle, purchasers should check if the make and model are eligible. In addition, for a new or used clean vehicle to be eligible for a Clean Vehicle Credit, the seller must provide the buyer with a seller report verifying that the vehicle purchased will qualify for the credit, which will include the make, model, and VIN. Also, the clean vehicles tax credits are non-refundable, meaning that they can increase a refund or reduce the amount of tax owed, they cannot be used to create a tax refund.
Tip of the DayResident and nonresident aliens . . . If you are a resident alien for the entire year, you must file a tax return following the same rules that apply to U.S. citizens. If you are a nonresident alien, the rules and tax forms that apply to you are different from those that apply to U.S. citizens and resident aliens. Publication 519 contains details on which laws apply and which tax forms you should file. If you were a resident alien for part of the year and a nonresident alien for part, you're considered a dual-status taxpayer and different rules apply for each part of the year.
September 5, 2023
NewsThe IRS has issued proposed regulations related to the increased tax credit or deduction amounts for clean energy facilities and projects if taxpayers satisfy certain prevailing wage and registered apprenticeship (PWA) requirements. Generally, these new proposed rules provide guidance on the PWA requirements, enacted as part of the Inflation Reduction Act, for certain green energy facilities or projects. The Inflation Reduction Act provides increased credit or deduction amounts that generally apply for taxpayers who satisfy certain PWA requirements regarding the construction, installation, alteration or repair of a qualified facility, qualified property, qualified project, qualified equipment or for certain energy facilities. Under the tax law, the increased credit or deduction amount is generally equal to the base amount multiplied by five if the taxpayer satisfies the PWA requirements. There are certain limited exceptions where a taxpayer may be eligible for an increased credit amount without satisfying the PWA requirements. The proposed regulations would provide guidance to taxpayers intending to claim the increased credit or deduction amounts and those intending to transfer increased credit amounts. Additionally, the proposed regulations would provide guidance for taxpayers that initially fail to satisfy the PWA requirements but seek to cure the failure by complying with certain correction and penalty procedures. Finally, the proposed regulations would provide rules concerning specific PWA recordkeeping and reporting requirements. In addition to the proposed regulations the IRS has released frequently asked questions and Publication 5855.
Tip of the DayStopping a business? . . . It's usually not as simple as turning off the lights and locking the door for the last time. There's a final tax return, possible sales tax returns due, etc. If you're doing business as a corporation, you have to legally dissolve. Often not a big deal, but an important one. And there could be expenses after you close. Talk to your accountant and/or attorney about closing bank accounts, notices to vendors, etc.
September 1, 2023
NewsThe IRS announced it has released Notice 2023-56 providing guidance on the federal tax status of refunds of state or local taxes and certain other payments made by state or local governments to individuals. The IRS previously provided guidance on state payments made in 2022 in news release IR-2023-23, IRS issues guidance on state tax payments to help taxpayers. The guidance is being issued as part of the IRS's efforts to provide additional certainty to states and their residents regarding the federal income tax consequences of state payments made to taxpayers. In 2022, a number of states implemented programs to provide payments to certain individuals residing in their states. Many of these programs were related, directly or indirectly, to the various consequences of the Coronavirus Disease 2019 (COVID-19) pandemic, and the programs varied in terms of the types of payments, payment amounts and eligibility criteria. IRS issues guidance on state tax payments to help taxpayers addressed the federal tax treatment of these 2022 payments.
Tip of the DayUpside and downside to automatic withdrawals . . . Often a bank, insurance company, etc. will ask (or in some cases require) you to have automatic withdrawals from your checking account (or a credit card) to pay a home mortgage, car insurance, etc. Given the option, should you do so? On the plus side having automatic withdrawals there's a convenience factor and a safety factor (you won't have your vehicle insurance canceled for nonpayment. In some cases you might get a perk such as a discount for doing so. If it's not offered, try to negotiate one. On the negative side you've got to make sure your debit your check register or other record so you don't overestimate the balance in your account. You should also be careful to make sure you can easily cancel the service and get a refund for a partial month. Make sure the payments stop when the service stops or the loan matures.
August 31, 2023
NewsThe IRS has announced tax relief for individuals and businesses affected by Idalia in parts of Florida. Taxpayers affected by the storm that began on Aug. 27. 2023, now have until Feb. 15, 2024, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households affected by Idalia that reside or have a business in Alachua, Baker, Bay, Bradford, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties in Florida qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 27, 2023, and before Feb. 15, 2024, are granted additional time to file. As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.
Do you have to file Forms 8300? Note that the threshold required to electronically file is much lower than in prior years. The IRS has announced (IR-2023-157) that starting Jan. 1, 2024, businesses are required to electronically file (e-file) Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return. This new requirement follows final regulations amending e-filing rules for information returns, including Forms 8300. Businesses that receive more than $10,000 in cash must report transactions to the U.S. government. Although many cash transactions are legitimate, information reported on Forms 8300 can help combat those who evade taxes, profit from the drug trade, engage in terrorist financing or conduct other criminal activities. The government can often trace money from these illegal activities through payments reported on Forms 8300 that are timely filed, complete and accurate. The new requirement for e-filing Forms 8300 applies to businesses mandated to e-file certain other information returns, such as Forms 1099 series and Forms W-2. Electronic filing and communication options will be simpler and will make it easier to interact with the IRS. Beginning with calendar year 2024, businesses must e-file all Forms 8300 (and other certain types of information returns required to be filed in a given calendar year) if they're required to file at least 10 information returns other than Form 8300. For example, if a business files five Forms W-2 and five Forms 1099-INT, then the business must e-file all their information returns during the year, including any Forms 8300. However, if the business files fewer than 10 information returns of any type, other than Forms 8300, then that business does not have to e-file the information returns and is not required to e-file any Forms 8300. However, businesses not required to e-file may still choose to do so.
Tip of the DayDebt consoiidation? . . . Personal loans are always more expensive than mortgages or car loans, but they are almost always considerably cheaper than credit card interest. That can mean lower interest payments. Your ability to get a personal loan can vary and depends on your financial situation. Having a big credit card debt will make it more difficult. And there's a darkside to the debt consolidation. It frees up those credit cards for more purchases. If you've got no willpower you could end up in an even worse situation. Get good advice on your situation before acting.
August 30, 2023
NewsThe IRS has announced (AK-2023-10) victims of flooding in parts of Alaska that began on May 12, 2023, now have until Oct. 31, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households affected by flooding that reside or have a business in the regional educational attendance areas of Bering Strait, Copper River, Kuspuk, Lower Kuskokwim, Lower Yukon and Yukon Flats, in Alaska qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 12, 2023, and before Oct. 31, 2023, are granted additional time to file. As a result, affected individuals and businesses will have until Oct. 31, 2023, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief. Click on the link above for more information
The IRS has issued proposed regulations related to the increased tax credit or deduction amounts for clean energy facilities and projects if taxpayers satisfy certain prevailing wage and registered apprenticeship (PWA) requirements. Generally, these new proposed rules provide guidance on the PWA requirements, enacted as part of the Inflation Reduction Act, for certain green energy facilities or projects. The Inflation Reduction Act provides increased credit or deduction amounts that generally apply for taxpayers who satisfy certain PWA requirements regarding the construction, installation, alteration or repair of a qualified facility, qualified property, qualified project, qualified equipment or for certain energy facilities.
Tip of the DayBuying a franchise? . . . A good franchise can increase your chances of succeeding in a business, but it's not a guarantee. A business owner can fail at the best franchise and not every franchise has a good track record, even with the best of owners. The Federal Trade Commission has a number of articles and tips on the subject. For more information and links to additional resources to to Franchise Fundamentals.
August 29, 2023
NewsThe IRS is reminding E-file Applicants and E-file Providers/ERO they are encouraged to respond to correspondence by using the Document Upload Tool (DUT). DUT is used to upload documents via an URL. If the correspondence includes the URL, you should respond using the web address. If you use the DUT to respond to correspondence, there is no need to respond by mail or fax, as this may delay the processing of your response.
Legal expenses frequently draw IRS scrutiny because they can be deductible, nondeductible, or have to be capitalized. In William French Anderson and Kathryn D. Anderson (T.C. Memo. 2023-42) the taxpayers took a deduction for legal expenses that they described as "investigatory". There was no clear breakdown of what the expenses were for. The Court noted The deductibility of legal fees depends on the origin and character of the claim for which the expenses were incurred and whether the claim bears a sufficient nexus to the taxpayer's business or income-producing activities. The Court found that most of the expenses were unrelated to the taxpayer's business activities, but instead were personal in nature and sustained the IRS's disallowance of those expenses.
Tip of the DayPrimarily and exclusively . . . Words in law can carry some very strict meanings so you've go to be careful how you interpret them. Primarily means more than 505 of the time. Exclusively means all the time with no exceptions. For example, you can only claim a home office for space used exclusively for business. `
August 28, 2023
NewsThe IRS announced IR-2023-155) an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions. At the same time, the IRS also clarified that plan participants who are age 50 and over can continue to make catch‑up contributions after 2023, regardless of income. The announcement was in Notice 2023-62. This notice provides initial guidance for section 603 of the SECURE 2.0 Act, enacted in December 2022. Under that provision, starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a 401(k), 403(b) or governmental 457(b) plan and whose prior-year Social Security wages exceeded $145,000.
The IRS has issued proposed regulations (REG-109348-22) that would require brokers to report sales and exchanges of digital assets by customers. The proposed regulations cover a range of digital asset issues where there have been questions, including defining brokers and requiring proceeds to be reported to the IRS on new Form 1099-DA. IRS Commissioner Danny Werfel said "These proposed regulations are designed to help end confusion involving digital assets and provide clear information and reporting certainty for taxpayers, tax professionals and others." While the regulations will make the rules on digital assets clearer, they are also intended to insure reporting of the transactions. For sales or exchanges of digital assets that take place on or after Jan. 1, 2025, the proposed regulations would require brokers, including digital asset trading platforms, digital asset payment processors and certain digital asset hosted wallet providers, to report gross proceeds on a newly developed Form 1099-DA and to provide payee statements to customers. Brokers, in certain circumstances, would also be required to include gain or loss and basis information for sales that take place on or after Jan. 1, 2026, on these information returns and statements, so that customers have the information they need to prepare their tax returns.
Tip of the DayInterest rates on underpayments rise . . . The interest rates on under (and overpayments) for individuals were just announced and they are now up to 8%. That's up from 3% just under two years ago. The rates apply to estimated tax payments. That means being underpaid will be much more expensive than in the past. That means if your underpaid on your estimated taxes by $10,000 it'll cost you $800 for the year, up from $300. Two years ago you may not have been concerned with a modest underpayment, but now even a relative small shortage will cost real money. The third quarter estimate is due September 15th.
August 25, 2023
NewsYou can't deduct charitable contributions on your Schedule C sole proprietorship form. That's also true of an S corporation or partnership. Instead your share is deductible on Schedule A, but only, of course, if you itemize. On a Schedule C that means the charitable contribution won't reduce your self-employment tax. That was the situation in Duncan Bass (T.C. Memo. 2023-41. The taxpayer was also denied a deduction for vehicle expenses because he failed to keep a contemporaneous diary. Finally, the Court sustained the IRS holding that only a portion of the taxpayer's noncash charitable contributions were deductible. The value of the clothing donated exceeded $5,000 and the taxpayer failed to get an appraisal as required when the fair market value of all similar (clothing in this case) items donated during the year exceeds that threshold. The taxpayer argued that each individual contribution during the year was no more than $250 but it was the total of all 173 contributions that counted.
Tip of the DayEmployer assistance on student loans , , , The IRS is reminding employers and employees that under federal law, employers who have educational assistance programs can use them to help pay student loan obligations for their employees. Under a qualified educational assistance program an employer can provide a nontaxable amount to an employee for education up to $5,250 per year. There must be a written plan and it must not discriminate in favor of highly compensated employees. Payments made after March 20, 2020 and before January 1, 2026 can be used to pay off student loans. Go to IRS.gov for more information and for details on an upcoming webinar. You should also check with your tax advisor on the details.
August 24, 2023
NewsRevenue Procedure 2023-29 provides the applicable percentage table in Sec. 36B(b)(3)(A) of the Code for taxable years beginning in calendar year 2024. This table is used to calculate an individual’s premium tax credit under Sec. 36B. This revenue procedure also provides the indexing adjustment for the required contribution percentage in Sec. 36B(c)(2)(C)(i)(II) for plan years beginning in calendar year 2024. This percentage is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Sec. 36B.
You may be able to change your method of accounting for taxes. Some changes are automatic, simply file the required form. Some require permission from the IRS. In Conmac Investments Inc. (T.C. Memo. 2023-40) the taxpayer was a C corporation owned farmland that it rented to tenant farmers. The land was base acres, also known as acreage base or crop contracts, the right to receive farm program subsidies for the production of certain commodities. The taxpayer sought to change the treatment of amortization or depreciation of base acres rented to tenant farmers from nonamortizable to amortizable. The IRS found this was not a permissible account method. The Court noted that Reg. Sec. 1.446-1(b)(2)(ii) states that a change in treatment due to a change in underlying facts is not a change in accounting method, the taxpayer failed to demonstrate such a change and sustained the IRS's position.
Tip of the DayRead the fine print . . . Besides the ubiquitous car warranties, guarantees abound on almost everything today. For some purchases a warranty might be a good idea. There's far more electronics in appliances these days, particularly higher end models, and it's frequently the electronics that fail. If you buy the warranty, what does it cover? Commercial use may be excluded or limited in some way. With a car warranty or other complex equipment you need to also consider exclusions for specific parts or systems. You need to also know what you may have to do to maintain the warranty. You may have to have regular service done or, as in the case of a piston aircraft engine, use the item a certain number of hours per year.
August 23, 2023
NewsSubstantiation is key to most deductions. In Greatest Common Factor (T.C. Memo. 2023-39) the Court sided with the IRS in disallowing deductions for vehicle use because the log books for vehicle usage did not show a business purpose. In addition, some of the mileage logged was for commuting and nondeductible. In addition, the Court sustained the disallowance of a home office deduction for the C corporation. The Court noted there was no rental agreement and the corporation expended none of its funds in maintaining the property. Thus, there were no grounds under Section 162 where the taxpayer could deduct the expenses.
Arguing before the Tax Court that payments received for services aren't taxable won't get you anywhere. However, in the case of Darcy-Mae Englert (T.C. Memo. 2023-38) the taxpayer had been warned by the Court that maintaining a frivolous position could be costly, and, when the taxpayer presented the same argument after the trial the Court imposed a penalty of $1,000 under Section 6673. The Court also warned that a greater penalty could be imposed in the future if the taxpayer took the same position in future cases before the Court.
Tip of the DayMoney market funds . . . If you've still got your money gathering moss in a checking account it's time to take a look at money market funds. Most are yielding 5%, some a bit more (and some a bit less). Most funds hold securities that mature in 1 to 7 days (about 75% of the portfolio). That means the risk is very low, but if interest rates start to head lower these funds will react quickly. Depending on your objectives (short-term or long-term) you might want to switch out to a longer-term investment to lock in a high rate. Talk to your financial advisor.
August 22, 2023
NewsAn estate where real property used in a farming business can be valued as farm land rather than "highest and best use" when valuing the property for estate tax purposes. The rules are contained in Section 2032A and there are a number of requirements that must be met. The valuation requires the use of an interest rate based on for Federal Land Bank Loans. The IRS has published thw new rates for 2023 in Rev. Rul. 2023-15, IRB 2023-34.
The IRS issued a report card on itself with respect to the Inflation Reduction Act. One year into its modernization efforts the IRS continues to make significant progress toward its goals of delivering world-class service, upgrading its technology and ensuring high-income taxpayers, large corporations, and complex partnerships pay taxes owed. First year progress includes:
Tip of the DayGift card payments . . . Scammers love to use gift cards because they've been generally impossible to stop payment on and can't be traced. Scams can involved phone calls, texts, emails or social media messages. In fact, if you're very asked for payment in gift cards (other than in a legitimate retail location), you can assume you're being scammed. But that isn't universally true any more. Some gift card companies are flagging fraudulent transactions and freezing stolen gift card money so scammers can't get it. But in order to stand any chance at all, you've got to act fast and report it to the gift card company and tell them you were scammed. You'll need a receipt or a copy of the numbers on your gift card. Then ask for your money back.
August 21, 2023
NewsThe IRS announced expansive tax relief for Hawaii wildfire victims in Maui and Hawaii counties. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. This means that individuals and households that reside or have a business in these counties qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 8, 2023, through Feb. 15, 2024 (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period. That includes individual tax returns extended to October 16, 2023 (but not payments for 2022), quarterly estimated payments due September 15, 2023 and January 16, 2024, calendar-year partnerships and S corporations due September 15, 2023, and quarterly payroll and excise tax returns normally due October 31, 2023 and January 31, 2024. For more information, click on the link above.
The IRS is reminding truck and bus owners with a taxable gross weight of 55,000 or more to e-file Form 2290, Heavy Highway vehicle Use Tax. The return is due by August 31, 2023, payment deadline for vehicles first used in July 2023. For more information see IR-2023-149 and Trucking Tax Center on IRS.gov.
Tip of the DayCheck your insurance policy . . . Your home may be underinsured in light of the seemingly more violent natural disasters. Insurance companies are putting higher deductibles on damage associated with some natural disasters. For example, coverage for wind damage may be subject to a $5,000 or higher deductible. You may not be able to do anything about the coverage, but you can plan ahead for potential losses. And you may be able to reduce your premium if you take certain steps to protect your home. Check with your agent. And keep in mind that casualty losses are no longer deductible unless they're related to a presidentially declared disaster. Make sure you've got adequate coverage for your contents. At the same time, check to make sure you're not paying for coverage you don't need.
August 18, 2023
NewsRenting part of your home to a friend while they get back on their feet? That was essentially the situation in Charles Lin and Amy Lin (T.C. Memo. 2023-37). The taxpayers rented a basement apartment to a friend, charging a modest rent. The rent was only $300 a month which might have been below the fair market rent, but the Court ignored that issue instead focusing on the expenses. The Court found that a number of expenses were deducted on Schedule E that should have been allocated or simply did not pertain to the space rented. The taxpayers also claimed depreciation, but used as their basis the entire cost of the house. They supplied no basis, such as square footage, on which to allocate the expenses. The Court also noted that the expense to renovate the bathroom was incurred after the tenant moved out and there was no indication the taxpayers had ever rented the space before or would do so in the future. The Court did allow taxpayers to deduct the expenses that were allowed by the IRS.
Tip of the DayRental property losses . . . While seemingly simple, the rental real estate losses can quickly get complicated. One is renting to a friend or relative at a below market rental rate. If you do so you're likely to lose the opportunity to deduct any rental losses. another is a failure to properly allocate expenses to the property. If you're renting 33% of the space and using the other 66% fo personal purposes you can only deduct 33% of the whole property's expense. There are two exceptions. If the expense belongs 100% to the rental (such as the repair of a door on the part rented out) or if non of it should be allocated to the rental (such as the cost of repairing stairs on the second floor where the rental is a basement apartment).
August 17, 2023
NewsThe IRS has announced victims of severe storms and flooding in parts of Illinois that began on June 29, 2023, now have until Oct. 31, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the Federal Emergency Management Agency, individuals and households affected by severe storms and flooding that reside or have a business in Cook County qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 29, 2023, and before Oct. 31, 2023, are granted additional time to file through Oct. 31, 2023. As a result, affected individuals and businesses will have until Oct. 31, 2023, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief. The Oct. 31, 2023, deadline also applies to the quarterly estimated tax payment, normally due on Sept. 15, 2023. In addition, penalties on payroll and excise tax deposits due on or after June 29, 2023, and before July 14, 2023, will be abated as long as the tax deposits were made by July 14, 2023. In addition, businesses with an original or extended due date including, among others, calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023, and calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023, also qualify for the Oct. 31, 2023 deadline. Click the link above for more information.
The IRS reported that one year into its modernization efforts under the Inflation Reduction Act, the IRS has made significant progress toward its goals of delivering world-class service, upgrading its technology and ensuring high-income taxpayers, large corporations and complex partnerships pay taxes owed. As the IRS marks the anniversary of the Inflation Reduction Act, it is announcing two new milestones as part of its Paperless Processing Initiative: Scanning 225 times more forms than in 2022 and enabling taxpayers to reply to an additional 51 forms and letters online. In addition, the IRS has met its targets to further improve its customer callback option, so taxpayers do not need to wait on hold during periods of high call volume. The customer callback option will now be available for up to 95% of callers seeking live assistance. The Service also announced that Inflation Reduction Act resources, the IRS delivered dramatically improved service in Filing Season 2023. IRS achieved an 87% Level of Service on its main taxpayer help line. The IRS noted that through the end of Filing Season 2023, it answered 3 million more calls, cut phone wait times to three minutes from 28 minutes, served 140,000 more taxpayers in-person, digitized 80 times more returns than in 2022 through the adoption of new scanning technology, cleared the backlog of unprocessed 2022 individual tax returns with no errors, launched two new digital tools and enabled a new direct-deposit refund option for taxpayers with amended returns. For more milestones, information and details, click the link abouve.
Tip of the DayPayroll taxes . . . Employment taxes are subject to more stingent rules when it comes to collection. The IRS considers them "trust fund taxes" and the business is simply collecting them for the government. A corporation, LLC, etc. can't escape the liability the way a business can for a debt owed to a vendor, lender, etc. And the IRS can go after corporate officers, shareholders, etc. even if a corporation or LLC is involved. And even employees, independent contractors, etc. can be liable if they have signature authority and can pay the taxes or cause them to be paid, but didn't or didn't take steps to see that they were paid. For example, Sue Flood is only a bookkeeper at Madison Inc. but she was in charge of making payroll tax deposits. Her boos, a majority shareholder told her to pay suppliers first. The IRS may go after her boss first, but if they get no satisfaction they'll try to get the taxes from Sue. In one case a prime contractor was held liable for the tax when it wrote the checks for a subcontractor who was not paying his suppliers. And similar rules generally apply to state employment taxes and state sales taxes.
August 16, 2023
NewsThe IRS has announced that victims of severe storms, straight-line winds, and tornadoes in parts of Mississippi that occurred from June 14, 2023 to June 19, 2023, now have until Oct. 16, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the Federal Emergency Management Agency, individuals and households affected by severe storms, straight-line winds, and tornadoes that reside or have a business in Claiborne, Copiah, Covington, Jackson, Jasper, Jefferson, Jefferson Davis, Lawrence, Leake, Neshoba, Newton, Rankin, Scott, Simpson, Smith and Wayne Counties and the Mississippi Choctaw Indian Reservation qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June. 14, 2023, and before Oct. 16, 2023, are granted additional time to file through Oct. 16, 2023. As a result, affected individuals and businesses will have until Oct. 16, 2023, to file returns and pay any taxes that were originally due during this period. The Oct. 16, 2023, deadline also applies to the quarterly estimated tax payments, normally due on Sept. 15, 2023. In addition, penalties on payroll and excise tax deposits due on or after June. 14, 2023, and before June 29, 2023, will be abated as long as the tax deposits were made by June 29, 2023. In addition, businesses with an original or extended due date including, among others, calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023 also qualify for the Oct. 16, 2023 deadline.
You may be able to deduct a bad debt loss, but only if the debt is bona fide. In Arland T. Keeton a.k.a. Arland Keeton and Ima Jean Keeton (T.C. Memo. 2023-35) the taxpayers were unable to show the debt was bona fide. The Court noted there was no repayment date on either of the advances, nor was there a demand for the repayment. In addition, an unrelated party would not have made the advances based on the financial condition of the debtor.
Tip of the DayAre you dead? . . . You may know, but the IRS isn't so sure. The Treasury Inspector General for Tax Administration (TIGTA) did an audit and found that indicators used to prevent filing of tax returns for deceased taxpayers were incorrectly placed on some taxpayer accounts. The snafu occurred when the IRS locked the accounts without having received notification that a taxpayer was deceased from the Social Security Administration. TIGTA identified some 78,000 taxpayers with potentially errroneous deceased account locks.
August 15, 2023
NewsElectronic filing has been mandated for some time depending on the forms being filed. Beginning with the 2024 filing season return preparers filing 11 or more returns will have to file electronically. But there are some exceptions. Notice 2023-60 addresses the availability of administrative exemptions from the requirement to file certain returns and other documents in electronic form. This notice also addresses the availability of information about the procedure to request a waiver of the requirement to file electronically Forms 1120, 1120-S, and 1120-F (Forms 1120), and information about failed attempts to file electronically Forms 1120 using Internal Revenue Service (IRS) filing systems. In addition, this notice obsoletes Notice 2010-13.
Tip of the DayCredit score for retirees . . . You may think once you're older and are living comfortably there's no need to worry about a credit rating. That's not true. You might still want to get a card for certain needs and, if you're purchasing a car, chances are you'll want to finance it. In addition, many institutions that advance credit or just checking on your stability use your credit rating for at least part of the score. That includes landlords, insurance companies, etc. So it behooves you to maintain a good rating.
August 14, 2023
NewsThe IRS announced IR-2023-146 the availability of a new option that provides an easier, more efficient way for taxpayers or their tax professionals to submit electronic requests for relief for certain late-filed international documents to improve taxpayer service. As part of a step toward full digitalization being taken across the IRS, the new option will apply to the following filings:
The IRS is offering a free webinar on the taxation of nonresident alien individuals on August 17, 2023. The webinar will explain how nonresident alien individuals are taxed among other topics and will iszsue a certificate of completion for 2 CE credits for tax professionals. For more information, go to Webinars for Tax Practitioners.
Tip of the DayDeath of a spouse . . . There's generally enough tragedy to go around, but the tax implications can make things worse. One of the most serious consequences is that the tax rate, except in the highest bracket, will jump. For example, if your taxable income as married, filing joint is $364,200 your tax would be $74,200. If your income is the same after your spouse's death, the tax will be $99,364. That doesn't take into account the lower standard deduction. Your income will probably drop, but if you're in retirement the chances are won't be much lower. You might consider accelerating income into the year of your spouse's death since you'll still use the married, joint rates for that year. Work through the numbers. You don't want to overdo it.
August 11, 2023
NewsThe IRS has issued final regulations and Revenue Procedure 2023-27 to provide guidance for owners of certain solar or wind facilities built in connection with low-income communities. The guidance issued today provides definitions, requirements and procedures applicable to the Section 48(e) low-income communities bonus energy investment credit program established under the Inflation Reduction Act. The IRS estimates that applications from individuals, businesses and tax-exempt organizations that own certain energy credit qualifying solar or wind facilities could number in the thousands. The Inflation Reduction Act provides for an increase in the energy investment credit for solar and wind facilities that apply for and receive an allocation of environmental justice solar and wind capacity limitation. Taxpayers that receive an allocation and properly place the facility in service may then claim the increased energy investment credit in the year that the facility is placed in service. For more information click on the link above or see Internal Revenue News Release IR-2023-145.
Tip of the DayShort-term, long-term . . . The term of a loan, contract, lease, etc. can be just as important as the rate or amount. You don't want to lock in a dollar amount for delivery of goods for three years into the future if the price could drop. Businesses who signed 10-year leases before the pandemic might be regreting that now that rental rates have dropped in many areas. The term can be difficult to evaluate because you're betting on events in the future, but taking the time to consider all the factors can help you avoid a potential disaster.
August 10, 2023
NewsThe IRS has announced (IR-2023-144) as part of an expanded focus on ensuring high-income taxpayers pay what they owe, the IRS warned businesses and tax professionals to be alert to a range of compliance issues that can be associated with Employee Stock Ownership Plans (ESOPs). The move is aimed at spotting aggressive tax claims as they emerge and warning taxpayers. Businesses and individual taxpayers should seek advice from an independent and trusted tax professional instead of promoters focused on marketing questionable transactions that could lead to bigger trouble. Werfel noted the IRS is working to ensure high-income filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers may use to hide their income and evade paying their share. Part of that includes alerting higher-income taxpayers and businesses to compliance issues and aggressive schemes involving complex or questionable transactions, including those involving ESOPs. ESOPs are retirement plans that allow employees to own stock in their employer's company. Any company that has stock can sponsor an ESOP for its employees as long as the ESOP invests primarily in the securities of the employer. ESOPs can be complex arrangements since the ESOP can borrow funds from the employer or a third party to purchase shares of the employer. For more information, click on the link above.
Tip of the DayGifts to relatives . . . Annual gifts to children or other relatives of no more than $17,000 (2023 limit) can make sense. The asset is out of your estate and there are no gift tax consequences. But not every asset is created equal. That Madison stock you bought for $1 a share 30 years ago is now trading at $30. Gift it to your daughter and her basis will be $1 a share. If she sells it she'll pay a big capital gain. Left in your estate she'll get a stepped-up basis. But that may be better than gifting stock in your closely held company. The issues will be the same but in addition you'll need a formal appraisal that can be expensive and it could be challenged by the IRS adding to the cost. There may be options. Talk to your tax adviser before making any moves.
August 9, 2023
NewsYou can'f attach just any appraisal to your tax return where one is required for a charitable contribution deduction. In Estate of Scott M. Hoensheid, Deceased, Anne M. Hoensheid, Personal Representative, and Anne M. Hoensheid (T.C. Memo. 2023-34) the taxpayers made a contribution of appreciated stock in a closely held corporation to a charitable organization that administers donor advised funds for tax-exempt purposes. The first question involved the date of the gift. The Court noted tht the donor advised fund (DAF) wanted the stock certificates before it would accept the gift. The Court found the gift occurred two days after the date claimed. Since the shares contributed to the DAF were to be redeemed by the corporation shortly after the contribution, the Court looked at the issue of anticipatory assignment of income. The Court looked at a number of facts including the timing of the transactions virtually guaranteed that the DAF would sell the shares to petitioners. Finally, the Court held that the tax return was not accompanied by a qualified appraisal for several reasons, the primary one being that the appraiser was not a "qualified appraiser".
Tip of the DayIRS tips to recognize scammers . . .The IRS continues to be extremely concerned about scammers of all sorts. They cause a lot of headache for the Service and a taxpayers return is a treasure trove of financial information. To help taxpayers identify scammers posing as IRS agents the Service released IRS Tax Tip 2023-99.
August 8, 2023
NewsThe IRS is reminding (IR-2023-142) eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home. The actual amount of the credit depends on eligibility requirements such as the type of home, the home's energy efficiency and the date when someone buys or leases the home. This important credit was expanded as part of the Inflation Reduction Act of 2022. To qualify, eligible contractors must construct or substantially reconstruct a qualified new energy efficient home. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence. The homes must also be specified categories of single-family (including manufactured) or multifamily homes under Energy Star programs, be located in the United States, and meet applicable energy saving requirements based on home type and acquisition date. Click on the link above for more information.
Tip of the DayInterest may be stuck . . . Some professionals believe that, while interest rates may not go much higher, they may be stuck at a higher level than we're accustomed to for some time. That could have an impact on business plans.
August 7, 2023
NewsThe IRS issued Notice 2023-59 regarding the requirements for home energy audits for taxpayers that want to claim the Energy Efficient Home Improvement Credit. The Inflation Reduction Act of 2022 created several clean energy credits. Each of these credits has requirements for the type of clean energy property or service purchased and how they are claimed. This includes a non-refundable Energy Efficient Home Improvement Credit for the purchase and installation of certain energy efficient improvements in taxpayers' principal residences. The credit amount is equal to 30 percent of the total amount that taxpayers pay during the year for:
Notice 2023-59 provides specific requirements to claim the Home Energy Improvement Credit and the process for conducting the home energy audit. The audit must identify the most significant and cost-effective energy efficiency improvements to the residence, including an estimate of the energy and cost savings to each improvement. The maximum credit for home energy audits is $150. Therefore, taxpayers can claim a 30 percent credit on audits that cost up to $500. The home energy auditor must provide a written audit report to the taxpayer. When obtaining a home energy audit make sure that it meets the credit requirements. Specifically, starting in 2024, taxpayers will need to substantiate that a qualified auditor conducted their home audit. To satisfy this requirement, the written audit should state that the auditor is certified by one of the certification programs listed on the Department of Energy certification programs for the Energy Efficient Home Improvement Credit page to conduct the home energy audit.
Tip of the DayExpenses of earning tax exempt income . . . They're generally not deductible. The most common example is interest expenses. Interest on debt incurred to purchase and hold tax exempt bonds isn't dedutible. A notable exception was the recent PPP loans. Even if the loan was forgiven, purchases made with PPP funds are deductible.
August 4, 2023
NewsThe IRS announced (FS-2023-18) is working toward a goal of paperless processing of tax returns, correspondence, non-tax forms, and responses to notices in the 2024 tax season. The IRS estimates more than 94% of individual taxpayers will no longer ever need to send mail to the IRS. Taxpayers use non-tax forms to request or submit information on a range of topics, including identity theft and proof that they are eligible for key credits and deductions to help low-income households. Achieving this milestone will enable up to 125 million paper documents to be submitted digitally per year. Taxpayers who want to submit paper returns and correspondence can continue to do so. Taxpayers will be able to e-file 20 additional tax forms. Achieving this milestone will enable up to 4 million additional tax documents to be filed digitally every year. This includes amendments to Forms 940, 941, 941-SS and 941 (PR), which are some of the most common forms taxpayers file when amending returns. At least 20 of the most used non-tax forms will be available in digital, mobile friendly formats that make them easy for taxpayers to complete and submit. These forms will include a Request for Taxpayer Advocate Service Assistance, making it easier for taxpayers to get the help they need. Additonal forms will be added to the digital library in 2025 and more forms processed in 2025 with a goal of digitizing up to 1 billion historical documents.
Tip of the DayComplex investments . . . There are many more exotic and complex investments on the market now than ever. And there's no question that some offer high returns, but the risks can also be high. Sometimes higher than you think. There's an old rule, if you don't understand the investment, don't invest. Many complex investments aren't subject to the same rules and may contain provisions that you're unfamiliar with such as restrictions on selling, cash calls, etc. If you've got a fair amount in the market and can afford to take the risk, consider putting a small percentage into one of these investments. Just read the information first to see if there's any risk you're not willing to take.
August 3, 2023
NewsOnce again, documentation and recordkeeping is key. In Russell E. Barrios (T.C. Memo. 2023-32) the taxpayer failed to file a return for the year at issue. The taxpayer owned and operated a welding business that had some $7.5 million in gross receipts. The taxpayer had few business records, instead relying on a profit and loss statement that, in this case, wasn't prepared until shortly before trial and number of years later. In addition, the taxpayer failed to establish the business purpose of the expenses. The Court noted that it could accept reconstructed records if the reason for the lack of records was that there were lost as a result of a casualty such as a flood, fire, etc. The taxpayer made no such claim here. The Court sustained the amounts in the IRS notice of deficiency.
Tip of the DayTalk to your spouse, kids . . . If you've got a reasonably complicated life--you're a collector, have a business, have some unique assets--talk to your spouse and/or kids and provide them with details so they can handle your estate should you die. For example, everyone has seen Fred's 1969 Camaro and loves it. It's in great shape and a appraiser at a car show suggested it's worth $65,000. But Fred didn't tell his wife that he has the original bill of sale, the window sticker, and records of all the repairs. In addition, the car has a fold-down rear seat, a rare option. These could all add considerably to the price. There can be many other pieces of information that could affect the price of an item or even reveal an asset where there's no documentation. Make sure your family knows the details.
August 2, 2023
NewsOnce a corporation or other entity is dissolved, merged, or otherwise ceases to exist, the entity may lose its power to sue or file a petition in Tax Court. That was the case in Techtron Holding, Inc. (T.C. Memo. 2023-29). The Court noted that with respect to corporate taxpayers a proper filing requires taxpayers to have the capacity to engage in litigation before the Court. The capacity to engage in litigation is determined by the law under which it was organized (Delaware in this case). The state statute provides that, after a merger, the separate existence of all corporations other than the surviving corporation "shall cease." Accordingly, nonsurviving corporations under Delaware law cannot sue or be sued. The Court held the taxpayer lacked the capacity to litigate when its petition was filed and no other taxpayer with the capacity to litigate ratified the petition. The case was dismissed for lack of jurisdiction.
Tip of the DayWhat's the commission? . . . A good question to ask before you hand over your money for an investment. While the commission on a mutual fund can be as low as 1 percent, some investments can be as high as 30 percent. Annuities can be as high as 10 percent. Years ago when tax shelters were common, commissions on their purchase could eb 20 percent. The more offbeat the investment, generally the higher the commission. The fee is particularly harmful because it's taken out of the investiment up front. Thus, if you hand over $100,000 and the commission is 15 ercent, on the first day only $85,000 is working for you.
August 1, 2023
NewsRevenue Ruling 2023-14 provides that if a taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market value of the rewards received is included in the taxpayer's gross income in the taxable year in which the taxpayer gains dominion and control over the rewards. The fair market value is determined as of the date and time the taxpayer gains dominion and control over the rewards. The revenue ruling clarifies that this is also the case if a taxpayer stakes cryptocurrency through a cryptocurrency exchange and the taxpayer receives additional units of cryptocurrency as rewards as a result of the validation.
The IRS has added new questions and answers to the page Frequently Asked Questions About the Employee Retention Credit in response to questions from tax professionals and other sources regarding the Employee Retention Credit (ERC).
Tip of the DaySending money peer-to-peer? . . . Be extra careful. Digital money movement channels are being targeted by scammers. Don't send funds to companies or government agencies that request you to wire funds that way. They request that type of transfer for the same reason they request funds through gift cards--it's almost impossible to trace. Any company or government agency requesting funds will provide alternate means of payment such as a credit card, direct transfer using their system, etc. Sending funds to friends, relatives or other parties who you deal with regularly or know is still safe.
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