News and Tip of the Day


Small Business Taxes & ManagementTM--Copyright 2024, A/N Group, Inc.

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May 17, 2024

The IRS announced (IR-2024-141) tax relief for individuals and businesses in Ohio that were affected by tornadoes that began on March 14, 2024. These taxpayers now have until Sept. 3, 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 Auglaize, Crawford, Darke, Delaware, Hancock, Licking, Logan, Mercer, Miami, Richland and Union counties qualify for tax relief. The same relief will be available to any other counties added later to the disaster area. The tax relief postpones various tax filing and payment deadlines that occurred from March 14, 2024, through Sept. 3, 2024 (postponement period). As a result, affected individuals and businesses will have until Sept. 3, 2024, to file returns and pay any taxes that were originally due during this period. This means, for example, that the Sept. 3, 2024, deadline will now apply to:

In addition, penalties for failing to make payroll and excise tax deposits due on or after March 14, 2024, and before March 29, 2024, will be abated as long as the deposits were made by March 29, 2024.

Bargain purchse from estate . . . Wills sometimes contain a clause allowing someone to buy an asset from the estate for a bargain price. For example, letting your son buy your 1969 Camaro from the estate for $20,000 when it's value is more like $60,000. That could backfire. If your son does take the offer his basis in the car will be $20,000 and the holding period will start on the day of the purchase. Should he sell the car a month later he'll face a $40,000 short-term capital gain. If you leave him the car in your will his basis will be $60,000 and his holding period is the same as the that of the deceased. Thus, now he can sell the car the next day with no capital gain. Hold the Camaro for six months and sell it for $70,000 and he'll have a $10,000 long-term capital gain.

 

May 16, 2024

The IRS has issued proposed regulations (REG-133850-13) that would remove the associated property rule and similar rules from the existing regulations on the interest capitalization requirements for improvements to designated property. In addition, this document contains proposed regulations that would modify the definition of "improvement" for purposes of applying those existing regulations. Lastly, this document contains proposed regulations that would modify other rules in those existing regulations in light of the proposed removal of the associated property rule. The proposed regulations would affect taxpayers making improvements to real or tangible personal property that constitute the production of designated property.

The IRS has updated the notice of May 6 providing relief for individuals and businesses in Oklahoma that were affected by severe storms, straight-line winds, tornadoes, and flooding that began on April 25, 2024. The area covered under the declaration now includes Osage, Pontotoc, and Washita Counties. Thus, the counties that qualify for relief are now Carter, Hughes, Love, Murray, Okmulgee, Osage, Pontotoc, and Washita. For more information, see OK-2024-01.

Tip of the Day

House sale in estate . . . Chances are good you may be living in your house or condo at the time you pass. If there is more heir that will inherit the home, you should take special care to deal with the issue in your will. There's a chance one of the beneficiaries will not agree to sell at the price offered for the property. That can tie up the estate for an extended period. If you bring it up to your attorney he can offer a number of potential solutions. If there's an independent executor (someone who won't inherit, or will inherit only a small percent of the estate) you could empower him to make the final decision. Or you could have an arbitor determine the price. While that's not free, it could be a lot cheaper than setting off a legal fight. You might also consider this approach for any high-value asset where there's no ready market price--for example, a classic auto collection.

 

May 15, 2024

The IRS issued a consumer alert (IR-2024-139) following ongoing concerns about a series of tax scams and inaccurate social media advice that led thousands of taxpayers to file inflated refund claims during the past tax season. The IRS warned taxpayers not to fall for these scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit and Household Employment taxes. The IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims. The IRS continues to urge taxpayers to avoid these scams as myths continue to persist that these are ways to obtain a huge refund. Many of these scams were highlighted during this spring’s annual Dirty Dozen series, including the Fuel Tax Credit scam, bad social media advice. For taxpayers who did fall for these traps, they need to follow steps to verify their eligibility for the claim. Some taxpayers could also face steep financial penalties, potential follow-up audits or criminal action for improper claims. The IRS encourages people to review the guidelines, talk to a trusted tax preparer and, in some cases, file an amended return to remove claims for which they're ineligible to avoid potential penalties.

Tip of the Day

Bad credit score? . . . Trying to improve your credit score? One way is to reduce the amount outstanding on each card. Your score will improve when the percentage used decreases. You need to get it below half, preferably even less. There's another plus here. If you use the card infrequently, or not at all, you can call and tell the card issuer you'd use it more if the interest rate was lower. You could get the rate dropped. While closing accounts can actually reduce your credit score, you can drop one card a year without any effect. Another way to boost your score? Get a car or similar installment loan. Sounds counter intuitive, but it works.

 

May 14, 2024

The IRS is reminding taxpayers (IR-2024-137) that making certain energy efficient updates to their homes could qualify them for home energy credits. The credit amounts and types of qualifying expenses were expanded by the Inflation Reduction Act of 2022. Taxpayers who make energy improvements to a residence may be eligible for home energy tax credits. Taxpayers can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for the year the qualifying expenditures are made. Homeowners who improve their primary residence< will find the most opportunities to claim a credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences. Landlords cannot claim this credit. IRS encourages taxpayers to review all requirements and qualifications at IRS.gov/homeenergy for energy efficient equipment prior to purchasing. Additional information is available on energy.gov, which compares the credit amounts for tax year 2022 and tax years 2023-2032.

Tip of the Day

Operating too thin? . . . The trend for a number of years has been to "lean" operations. Keeping inventory at a minimum, reducing staff to a minimum, keeping only essential equipment, etc. That may work in normal times, but can result in real problems if forecasts don't work out as planned. That could happen if a significant portion of your staff calls in sick, supply chains are disrupted, equipment breaks down and parts are unavailable, etc. The ultimate solution will depend on your type of business, but in most cases the first step is to analyze your critical areas. For example, five employees can run virtually all the machines on the floor. But Fred is the only employee who can weld certain sections. If that's early in the process and the part Fred works on is relatively inexpensive, you might consider stockpiling a supply. The problem is bigger if Fred's job is the last in the process and the final part is too expensive to inventory. For items you order, you may want to account for the shipping time. A product that takes two weeks to get may need to be inventoried; one made in a nearby factory where you have good relations with the company may not need that safety factor. At a minimum take a critical look at your operations so that you're aware of potential problems.

 

May 13, 2024

The eight amendment to the constitution cotains a prohibition against excessive bail and fines and crue and unusual plunishments. In Raju J. Mukhi (162 T.C. No. 8) the taxpayar filed a petition with the Tax Court challenging the IRS's notice of determination related to approximately $11 million of foreign reporting penalties under Secs. 6038(b) and 6677. The parties filed cross-motions for summary judgment on the issues of whether the settlement officer violated the taxpayer's right to due process under the Fifth Amendment to the U.S. Constitution, whether the settlement officer abused his discretion in rejecting collection alternatives, and whether the penalties violated the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution. The Court held the settlement officer did not violate the taxpayer's Fifth Amendment due process rights or his rights under Sec. 6320 or Sec. 6330 and that the settlement officer did not abuse his discretion in rejecting the taxpayer's collection alternatives that were significantly below his reasonable collection potential. The Court also held that the IRS lacked authority to assess the penalties under Sec. 6038(b) and therefore cannot proceed with collection actions as they relate to these penalties and that the penalties imposed under Sec. 6677 are not fines and therefore do not implicate the Excessive Fines Clause of the Constitution.

Tip of the Day

Estimated taxes and S corporations . . . Generally, an S corporation doesn't pay taxes. The income and losses are passed through to the shareholders and reported on their individual returns. But when is the income of the S corporation income to the shareholder for estimated tax purposes? That is, if the shareholder's share of S corporation earnings for the first 3 months of the year is $50,000, must the shareholder take that amount into income when computing his or her estimated taxes? The answer is that you have to use the quarterly income of the S corporation for estimated tax purposes. That means you've got to get information from the S corporation on a regular basis. The other, simpler, alternative is to base your estimated taxes on last year's liability. That is, pay in each quarter an amount equal to one-fourth of last year's liability. That's not only simpler, it's a smarter move if your income this year is higher than last. However, if this year's income is lower, annualizing this year's income each quarter will result in lower estimated payments.

 

May 10, 2024

The IRS has announced (Rev. Rul. 2024-11) that interest rates on over- and underpayments will remain the same for the calendar quarter beginning July 1, 2024. For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily. Here is a complete list of the rates:

Revenue Procedure 2024-25 provides the 2025 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under Section 223 of the Code and the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements (HRAs) provided under Section 54.9831-1(c)(3)(viii) of the Pension Excise Tax Regulations. The limitation on deductions for an indivudal with self-only coverage under a high deductible plan will be $4,300, for family coverage the limit is $8,500. A "high-deductible health plan is one with not less than $1,650 for self-only coverage or $3,300 for family coverage.

The IRS has updated the notice of May 6 providing relief for individuals and businesses in Oklahoma that were affected by severe storms, straight-line winds, tornadoes, and flooding that began on April 25, 2024. The area covered under the declaration now includes Okmulgee County. Thus, the counties that qualify for relief are now Carter, Hughes, Love, Murray, and Okmulgee. For more information, see OK-2024-01.

Tip of the Day

Backup executor . . . Serious consideration should be given to naming one in your will. Even if you've discussed it with your first choice he or she may end up declining or not up to the task when the time comes. There could be any number of reasons. Don't forget that person may not be called on for many years.

 

May 9, 2024

Many IRS deadlines can be extended either by statute or by the IRS such as in a disaster area. In Mohamed K. Abdo and Fardowsa J. Farah (162 T.C. No. 7) the IRS issued a notice of deficiency dated December 2, 2019. The notice specified March 2, 2020, as the last day to petition the Tax Court. That date was not a Saturday, Sunday, or legal holiday in the District of Columbia. The taxpayers mailed the Petition on March 17, 2020. They resided in Ohio at all relevant times. On March 31, 2020, the President issued a major disaster declaration with respect to Ohio as a result of the COVID-19 pandemic. The declaration identified the disaster conditions as "beginning on January 20, 2020, and continuing." On September 2, 2020, the IRS filed a Motion to Dismiss for Lack of Jurisdiction on the ground that the Petition was not filed within the time prescribed by law. The taxpayers contended that Sec. 7508A(d), which provides for a mandatory 60-day extension of certain tax-related deadlines by reason of a federally declared disaster, operated in conjunction with the President's declaration to automatically extend the filing deadline. On June 11, 2021, final regulations were issued with respect to Sec. 7508A(d). The IRS contended that the regulations apply to this case, that they are entitled to deference under Chevron, U.S.A., Inc and that the Petition was untimely filed under their provisions. The taxpayers agreed that Chevron provides the proper framework for the Court to review the regulations and that the deadline to file their Petition was not extended under the regulations. The taxpayers argued, however, that the Petition was timely under all reasonable constructions of Sec. 7508A(d) and that Reg. Sec. 301.7508A-1(g)(1) and (2) is invalid. The Court held that Sec. 7508A(d) provides for an unambiguously self-executing postponement period for the filing of a petition with the Court for a redetermination of a deficiency. The Tax Court held that Reg. Sec. 301.7508A-1(g)(1) and (2) is invalid to the extent it limits the non-pension-related "time-sensitive acts that are postponed for the mandatory 60-day postponement period … [to] the acts determined to be postponed by the Secretary's exercise of authority under 7508A(a)." Finally, the Court held the taxpayers were entitled to an automatic, mandatory 60-day postponement period from January 20, 2020, to at least March 20, 2020, to file their Petition. The taxpayers' Petition was filed timely, and the Court has jurisdiction.

Tip of the Day

Don't wait too long to sell out . . . Deciding on closing a business, or even a product line, can be difficult both from a business and a sentimental standpoint. But holding on to the business could prove far more expensive in the long run. Take an honest look at the business. If you're too attached or don't have the technical skills, talk to your CPA. If the business isn't doing well, or your health is waning the longer you hold the more the vultures will circle and lowball a price. As Macbeth says "If it were done when 'tis done, then 'twer well it were done quickly".

 

May 8, 2024

The rules have chnged somewhat for charitable conservation easements. In Valley Park Ranch, LLC, Reed Oppenheimer, Tax Matters Partner the taxpayer timely petitioned the Tax Court challenging the IRS's notice of final partnership administrative adjustment. In 2016, the taxplayer donated a conservation easement and claimed a charitable contribution deduction under. The easement deed provides that if the conservation restriction is terminated, the donee will receive (i) an amount determined by a court, unless otherwise provided by state or federal law, or (ii) in the event of the government's exercise of eminent domain, the respective share of the proceeds from a "qualified appraisal." The parties filed Cross-Motions for Partial Summary Judgment as to whether the deed conveying the easement satisfies the requirements of Sec.170(h) and Treas. Reg. Sec. 1.170A-14(g)(6)(ii). The taxpayer principally contended that the deed satisfies the statute and the regulation, but in the alternative contends that the regulation is invalid under the Administrative Procedure Act, or that the deed is ambiguous. Following Hewitt v. Commissioner, (11th Cir. 2021), rev'g and remanding T.C. Memo. 2020-89 the Court held that Reg. Sec. 1.170A-14(g)(6)(ii) is procedurally invalid under the Administrative Procedure Act and that the deed therefore need not comply with its requirements. To the extent Oakbrook Land Holdings, LLC, 154 T.C. 180 (2020), aff'd, holds otherwise, the Tax Court will no longer follow it. The Court also held the easement deed satisfies the "restriction (granted in perpetuity)" requirement under Sec. 170(h)(2)(C) and the "protected in perpetuity" requirement of Sec. 170(h)(5).

Tip of the Day

Nothing is free . . . Just because you didn't pay for the service or product doesn't mean it's really free. When magazines were still popular you could get a subscription for a fraction of the newstand price and you it was delivered to you. Why? Because the magazine sold your name to it's advertisers or other magazines who would sell you a product. It was a cheap way of getting leads. The magazine made good money from selling your name--sometimes more than from selling the magazine. The same is true today. But not only your name is being sold now. It could be your name, your DNA, your phone number, how you use your credit cards, your social activities, etc.

 

May 7, 2024

The IRS has issued final regulations (T.D. 9996) (Sec. 2642 and 7805) that provide guidance describing the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the generation-skipping transfer (GST) tax. The statutory provision underlying these rules was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The guidance affects individuals (or their estates) who failed to make a timely allocation of GST exemption, a timely election out of the GST automatic allocation rules, or certain other timely GST elections.

The IRS has announced tax relief for individuals and businesses in Oklahoma that were affected by severe storms, straight-line winds, tornadoes, and flooding that began on April 25, 2024. These taxpayers now have until September 3, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Carter, Hughes, Love, and Murray counties 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 April 25, 2024, and before Sept. 3, 2024, are granted additional time to file through Sept. 3, 2024. As a result, affected individuals and businesses will have until Sept. 3, 2024, to file returns and pay any taxes that were originally due during this period. The Sept. 3, 2024, deadline also applies to any payment normally due during this period, including the quarterly estimated tax payment due on June 17, 2024, and the quarterly payroll and excise tax returns normally due on May 1 and July 31, 2024. In addition, penalties on payroll and excise tax deposits due on or after April 25, 2024, and before May 10, 2024, will be abated as long as the tax deposits are made by May 10, 2024. For more information, go to www.irs.gov/newsroom/irs-announces-tax-relief-for-taxpayers-impacted-by-severe-storms-straight-line-winds-tornadoes-and-flooding-in-oklahoma.

Tip of the Day

Before you bid . . . You just got an opportunity to bid on a project that could not only put you on the map but could be very profitable. Before you jump consider all the factors surrounding the job. For example, what's the customer like? Is the company just naturally litigious? Some companies make outrageous claims in an effort to reduce the price. Is the company creditworthy? The bigger the sale or the longer the time to completion the more consideration for this factor. Is the engineering or fabrication going to be a big stretch for your business? How much capital will you need to finance the inventory, payroll, and other costs? Having a standard checklist to review before submitting that should be reviewed by different team members is a must.

 

May 6, 2024

The IRS has issued final regulations for the new and previously owned clean vehicle credits. The final regulations provide rules regarding the critical mineral and battery components requirements for the new clean vehicle credit. This guidance finalizes rules for taxpayers intending to transfer the new and previously owned clean vehicle credits to dealers who are eligible to receive advance payments as well as provides rules regarding the process for dealers to become eligible entities to receive advance payments of the transferred credits. The final regulations also provide guidance regarding the IRS compliance process in the case of the taxpayer's omission of a correct vehicle identification number.

Tip of the Day

Buying a house? . . . Many buyers are reluctant because of the high interest rates. Some are biting the bullet and hoping to refinance soon. Get good advice before acting now. While interest rates will come down, don't expect them to be near where they were during the pandemic. That was an unusual time. Long term rates for home mortgages are more like 5%. Not as good as before, but a lot better than now. But there's a second issue. Some lenders may increase the cost of refinancing by putting in more costly early repayment charges. For years we've generally assumed that any repayment penalty would expire early in the loan. Check the terms of your mortgage carefully. It's a tough read so you may need help.

 

May 3, 2024

The IRS is reminding (FS-2024-18) businesses that starting in tax year 2023 changes under the SECURE 2.0 Act may affect the amounts they need to report on their Forms W-2. The SECURE 2.0 Act allows for additional features in various employer retirement plans to encourage use of these plans. The provisions potentially affecting Forms W-2 (including Forms W-2AS, W-2GU and W-2VI).

Tip of the Day

The employee may now elect the contributions be made to a Roth SEP or Roth SIMPLE but since these contributions must be after taxthe gross amount has to be included as income in boxes 1, 3, and 5 of the employee's W-2. Employer contributions are not subject to withholding but are included on a 1099-R. For more information and links to other resources, click on the link above.

Tip of the Day

Exclusive use . . . The phrase pops up in more than one section of tax law, but the one at hand involves deducting part of your home for the storage of records. For example, you do consulting and your only office is in your home. You also store your records there, but in a separate portion of the house. That space, like a home office, has to be an identifiable space, not used for anything else. For example, a section of the basement. It doesn't have to be walled off, but it shouldn't be intermixed with nonbusiness items. In one case a taxpayer used close to 20% of their apartment for business records, but the court allowed nothing because some records were in the couple's clothes closet, some were in a hallway closet, others were in their child's room, etc.

 

May 2, 2024

Revenue Procedure 2024-24 provides updated procedures for taxpayers requesting private letter rulings from the IRS regarding certain matters pertaining to Section 355 transactions, including representations, information, and analysis to be submitted with those requests. This revenue procedure modifies Rev. Proc. 2017-52, and supersedes Rev. Proc. 2018-53. Notice 2024-38 accompanies Rev. Proc. 2024-24, which provides procedures for requesting private letter rulings from the IRS regarding certain matters pertaining to . Specifically, this notice requests public feedback on the provisions set forth in the Rev. Proc. 2024-24 and describes the Treasury Department’s and the IRS’s views and concerns relating to certain matters addressed in the revenue procedure.

Tip of the Day

Check credit reports regularly . . . Even if you're not looking for a new credit card, car loan, etc., you should check your credit report at least once a year. That means review the report, not just your credit score. A lot more gets reported than you might think. Besides your payment history on a mortgage, credit card, or car loan, many businesses report late or failures to pay. Didn't pay that doctor bill for $500. It could show up and reduce your credit score. Late payments on utility bills, or any open account could affect your score. Those negative marks could affect your score for some time--and they may be in error. You did pay that $500 doctor bill, the receptionist didn't record the receipt. Issues like that are much easier to correct when they're young.

 

May 1, 2024

Most taxpayers don't realize there are two parts to fraud--civil and criminal. You can be convicted of criminal fraud and face jail time and also be held liable for civil fraud and the 75% penalty. In John Thomas Minemyer (T.C. Memo. 2023-149) the taxpayer had pled guilty to criminal income tax evasion. The IRS noted the taxpayer substantially understated his income, used multiple fund transfers to make the income hard to trace, filed false documens with the intent to conceal, mislead, or prevent the collection of tax, engaged in illegal activities, and paid personal expenses with business assets.The Court found him guilty of civil fraud.

Tip of the Day

Cost cutting . . . Clearly the first place to start are the big expenditures. Replacing the summer festival with the carnival and fireworks for a more sedate affair can save a lot. But so can cutting out smaller recurring charges. For example do you really need five copies of that graphic design software at $200 a month. One of the users left the firm and the VP in charge hasn't actually worked with the program in three years. One other copy is used so infrequently that you might as well drop it. at $200 a month getting rid of just two copies could save you $4,800 a year. In three years that's $14,400. Have trouble cutting for psychological reasons? Get someone else to do it.

 

April 30, 2024

The IRS issued Notice 2024-36 for owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects and critical material projects. On Feb. 13, 2023, the Department of Treasury and the IRS issued Notice 2023-18 to establish the program and announce an initial allocation round of credits. On May 31, 2023, the Department of Treasury and the IRS issued Notice 2023-44 to provide additional guidance for the program. Approximately $4 billion in credits were allocated in the first allocation round. Today's notice announces the second round of credit allocations for the program to allocate the remaining $6 billion credits. The notice also modifies appendices A, B and C of Notice 2023-44. Like in the prior allocation round, the Department of Treasury and the IRS are partnering with the Department of Energy (DOE) to recommend projects. The DOE section 48C portal will open no later than May 28, 2024, for taxpayers to submit a concept paper and begin the process of seeking a section 48C credit allocation. More information about IRA guidance may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Fraud in any case is hard to prove, and that's also true in tax law. Rather than the IRS being presumed right as in most situations, it has to show by clear and convincing evidence the existence of fraud. In Edward Francis Bachne, IV and Rebecca Gay Bachner (T.C. Mwmo 2023-148) the IRS did prove that and the taxpayer failed to show by a preponderance of the evidence that any portion of the underpayment was not due to fraud.

Tip of the Day

Fed on interest rates . . . The Fed would prefer not to interfer in the economy--if it's running right. Things appear different now than just a short time ago. The economy is holding its own despite the high rates and inflation, while lower seems to be holding close to two percentage points above what the Fed would like. The bottom line is rates may go down more slowly than previously anticipated and is likely to stop going down at a higher rate.

 

April 29, 2024

The IRS announced (IR-2024-122) the closure of the Direct File pilot with several hundred thousand taxpayers across 12 states signing up for Direct File accounts, and 140,803 taxpayers filing their federal tax returns using the new service. By design, the Direct File Pilot started out small, and in mid-March the IRS incrementally ramped up availability of the option. During the final days and weeks of the filing season, there was steadily increasing interest from taxpayers in pilot states using the new tool. By the final week of the filing season, Direct File processed more than 5,000 accepted returns each day, bringing the total number of returns filed to more than 140,000. Overall, for the pilot, leading states with accepted returns included California (33,328), Texas (29,099), Florida (20,840), New York (14,144) and Washington (13,954). Since the pilot began, the IRS has been collecting and analyzing data, which we will continue analyzing in the coming weeks. In the coming days, the agency plans to release a report about the pilot’s scope, technology and taxpayer experience, customer support, state integration and the costs and benefits. The report examines both the strengths of the pilot and areas that could be improved if Direct File goes forward. No decision has been made about the future of Direct File at this time. Over the next several weeks, the IRS will meet with a wide variety of partners and stakeholders to learn more about how taxpayers interacted with Direct File and what they expect from a direct e-filing system, then carefully review data from the pilot and feedback from those discussions. Based on that data and feedback, the IRS expects to announce a decision about the future of Direct File later this spring.

Tip of the Day

Early tax planning . . . If you haven't already, you should take the time to look at the just finished return. Were you able to itemize? Chances are if you don't have a mortgage deduction or high medical expenses you won't be able to itemize. Was 2023 the last year for you to file joint because of a divorce or the loss of a spouse? Your standard deduction will drop significantly and itemizing may work in 2024. Or close to itemizing? Bunch your charitable contributions into one year. Looking to sell some stocks with big gains? You should also look to potential losses that will offset the gains. You might have a handle on your business at this point. If it looks like a good year start looking for offsets now. Tax planning should begin early.

 

April 26, 2024

The IRS has issued final regulations (T.D. 9993) describing rules and definitions for the transfer of eligible credits in a taxable year, including specific rules for partnerships and S corporations. The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors act (CHIPs) enable taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer provisions. For tax years beginning after Dec. 31, 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments. The unrelated taxpayers are then allowed to claim the transferred credits on their tax returns. The cash payments are not included in gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers. The final regulations also describe special rules related to excessive credit transfers and recapture events, including rules for determining whether an event has occurred, the resulting tax impact and the person responsible for that tax impact.The final regulations also provide rules for a mandatory IRS pre-filing registration process through an electronic portal. The pre-filing registration process must be completed, and a registration number received, prior to making an election to transfer eligible credits. Click on the link above and see also IRS Publication 5884.

Tip of the Day

New rules for investment advisers . . . And this change will affect you. More 401(k) owners have converted their accounts to IRAs in recent years because of job switches, retirment, etc. There's now more money in various types of IRAs (SEP, SIMPLE, Roth, etc.) than ever. In a effort to protect investors there are new rules extending the fiduciary duties of advisers and brokers to IRAs. That's generally good news for investors as it holds the brokers and advisers to a higher standard. It can be bad news because some advisers will no longer want to deal with IRAs. Don't be surprised if you find your account being switched to another company. In general you'll probably find less companies in the field providing such services. ,

 

April 25, 2024

The Internal Revenue Service Independent Office of Appeals announced (IR-2024-119) the formation of a new Alternative Dispute Resolution Program Management Office. This office will collaborate with the IRS Business Operating Divisions to help taxpayers resolve tax disputes earlier and more efficiently. For years, the IRS has offered ADR at various stages of the tax administrative process. While ADR can be a quicker, more collaborative and cost-effective approach to case resolution, use of the programs has declined in recent years. By increasing awareness, changing and revitalizing existing programs and piloting new approaches, the IRS hopes to make its ADR programs, such as Fast Track Settlement, Fast Track Mediation, Rapid Appeals Process and Post-Appeals Mediation more attractive and accessible for all eligible parties.

You may escape the substantial understatement (accuracy-related) penalty if (1) you can show you had substantial authority for the tax position (2) the facts were adequately disclosed and you had reasonable basis for your treatment and (3) you had reasonable cause for any portion of the underpayment and acted in good faith. But in Paul C. Robinson (T.C. Memo. 2023-147) the Tax Court didn't get to rule on his arguments since the taxpayer failed to file an opening brief and arguments not mentioned in a brief are deemed abandoned.

Tip of the Day

Late adopter . . . Quick implementer. Sometimes being the first to market is a big advantage. That can be tough for small businesses, especially if it's really a new, untested market. Almost no one remembers the first non-Apple PC. The first major non-Apple PC was eclipsed by several brands not far down the road. The same is true for the first spreadsheet and word processing program. Some of the early adopters made tactical or strategic mistakes, for a variety of reasons. Letting someone else test the market and then jumping in can avoid significant risk. You may even be able to leapfrog the competition with changes. The trick is to being a quick implementer. That means you've got to spot the new product or trend, get up to speed in the early phases of introducing the product or service so you can ramp up quickly. Fortunately, that's one of the things small businesses are good at.

 

April 24, 2024

If payment on a transaction doesn't occur at the same time as the transaction, interest generally has to be charged. In the case of Charles G. Berwind Trust For David M. Berwind, David M. Berwind, D. Michael Berwind, JR.; Gail B. Warden, Linda B. Shappy and Valerie L. Pawson, Trustees, et al. (T.C. Memo. 2023-146) the outcome depended on local (Pennslyvania) law. (A short form merger occurs when a subsidiary that is majority owned (often 80% or more) is mergeed into the parent. This can be done without shareholder approval.) The merger involved a trust and a closely held corporation. The merger took place in 1999 but the trust sued and the suit was not resolved till 2002. The IRS argued the sale of the shares took place in 1999 while the taxpayers contended that it occurred almost three years later. The Court noted that state law provided that the merger was effective when the articles of merger were filed. Thus, payment should have been made at that time. It was not until 2002 and interest should have been paid on the deferred amount. The taxpayers could not show that the merger was void or took place at the later date.

Tip of the Day

Do you need a lawyer? . . . A lawyer isn't required in most cases for real estate closings, but you're smart to have one. If you're buying a house, commercial property, or virtually anything other than some raw land in the country, you're payying from $250,000 on up and making a mistake can be costly. Your lawyer should be able to handle all the details as well as making sure there are no issues with the contract the title or the mortgage. Moreover, the cost, especially relative to the size of the transactiion, is relatively low.

 

April 23, 2024

The IRS has released a draft copy of Form 1099-DA, Digital Asset Proceeds From Broker Transactions. This is an early draft release of a form that will be used for brokers to report the sale of digital assets. Reporting can be broader than the typical broker reporting and the items to be reported are also more diverse.

There are a number of procedural requirements for the IRS before issuing notices, liens, etc. Challenging the IRS on failure to meet these requirements usually fails. In Warner Enterprises, Inc. (T.C. Memo. 2024-145) the taxpayer argued that Postal Service Forms 3877 proving that the notice of deficiency and the notice and demand for payment were not certified and the case activity report (CAR) showed the notice returned because it was not deliverable. The Court found the law only requires delivery to the taxpayer's last known address and the settlement officer verified that. The taxpayer also argued that the notice and demand for payment was not issued within 60 days of the assessment. The IRS countered that was not a hard and fast rule. The Court sustained the filing of both the proposed levy and the notice of Federal tax lian.

Tip of the Day

Credit card use . . . If your putting too much on your credit cards one way to control it is to cancel some cards. But that usually lowers your credit rating. Instead of cancelling, take some cards and lock them away where they're difficult to get at. Depending on your mindset it could be as simple as a drawer at home or as sophisticated as a safety deposit box. Carry only one card when you go out to reduce impulse spending. You might have to modify that if you use a store or special card for home renovations or other special purposes. Married? Make sure neither one of you is cheating--on card use.

 

April 22, 2024

A new law requires many companies doing business in the United States to report information to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) about who ultimately owns or controls them. On April 30, 2024 at 2 pm a FinCEN representative will host a virtual information session on beneficial ownership information reporting requirements and how to comply with the law. Federal regulations require certain companies to file their initial reports in one of two deadlines. Existing companies created or registered to do business in the United States before Jan. 1, 2024, must file by Jan. 1, 2025. Newly created or registered companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company's creation or registration is effective.

The IRS has released its 2023 Internal Revenue Service Data Book covering October 1, 2022 to September 30, 2023. The book contains statistics on audit activities, criminal investigations, taxpayer assistance activities, Beyond statistics, the 2023 Data Book reflects the initial impacts of the historic long-term funding provided under the Inflation Reduction Act (IRA) of 2022 to transform the IRS and modernize how the agency serves the American people.

Tip of the Day

Didn't file yet? . . . If you didn't file an extension and haven't filed your return you should do so as soon as possible. There are penalties for failing to file and penalties for failure to pay and they can add up quick. Things get particularly expensive depending on how much you owed on the return on April 15th. If you filed an extension you avoid some penalties but interest can continue to accrue. And that tax return isn't like a classic car that appreciates with age. Generally doing it only gets tougher. The only reason for not getting on with it is if you're waiting for a K-1 or information from an outside source.

 

April 19, 2024

An award for physical injury or sickness is excludable from gross income. Not so for other awards. In Luminita Roman; Gabriel L. Roman (T.C. Memo. 2023-142) the taxpayers had moved in to a special apartment as a result of Mr. Roman's disabilities and income. The couple subsequently filed a discrimination complaint against the landlord with the California Department of Fair Employment and Housing (DFEH) when the landlord gave them notice to terminate residency claiming the termination was a result of the couple's claim of discrimination regarding Mr. Roman's disabilities. The landlord attempted to sell the apartments and a deal was in the works but the buyer, upon learning of the issue with the Romans wanted either a reduction in the price or that before the sale the Romans vacate the property. At one point the buyer was ready to walk away. The Romans accepted an offer to vacate with the landlord agreeing to pay them $700,000. The settlement did not cite a reason for the payment and it contained a clause stating no admission of fault or liability on the part of either party. The taxpayers did not report any of the $700,000 as income on the return. The Court held the full amount of the payment was taxable. The Cort noted the facts and circumstances surrounding the Settlement Agreement leave no doubt that the landlord intended to compensate the Romans primarily for moving out and not for physical injuries or sickness. That was borne out by the facts, the language, in the settlement.

Tip of the Day

Bargain basement business? . . . There's a business selling at a bargain basement and you always felt it was attractive. The reason for the low price could be the owner just wants to retire or has health issues. Or it could be he's got a cash flow problem and is desparate. The first step is to ascertain the reason for the sale. But even if he jsut wants to retire you should also be looking trouble spots--employees or customers leaving at a faster rate than usual, trouble with suppliers, equiopment problems, etc. Check the business in the customer list. How recently and how often do the names on the list actually order. If you're buying assets rather than the entity, look for liens on the property and equipment. If you're buying the entity, you'll also be acquiring the liabilities and that could include unrecorded ones. If this isn't your regular line of business, make sure you've got up to date market projections. Technology is obsoleting businesses faster than ever. Twenty years ago the yellow pages was still a good business. When was the last time you used them? Your accountant can help to determine if the business is financially sound.

 

April 18, 2024

In general, amounts in IRAs and qualified plans have to be distributed within 10 years of the death of the employee for employees that died after December 31, 2019. There are exceptions where the spouse or a minor is the beneficiary. Failure to take this required minimum distribution can subject the beneficiary to an excise tax (penalty) equal to 25% of the difference between the amount distributed and the required minimum distribution. The proposed regulations require a annual required distributions and more than a few taxpayers were not prepared for that. Notice 2024-35 provides a further extension of previous extensions of the beginning effective date for this rule to apply to distributions after January 1, 2025. the notice provides that if certain requirements are met, a plan will not fail to be qualified for failing to make a specified RMD in 2024, and a taxpayer will not be assessed an excise tax for failing to take the RMD. This notice also announces that the final regulations intended to be published relating to RMDs are anticipated to apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025.

The IRS has updated frequently asked questions in Fact Sheet 2024-14 to provide guidance related to the New, Previously Owned and Qualified Commercial Clean Vehicle Credits. These FAQs supersede earlier FAQs that were posted in Fact Sheet 2023-29PDF on Dec. 26, 2023. The FAQs revisions are:

Tip of the Day

Interest rate forecast . . . Everyone was betting that rates would soon be cut by the Fed. It's foolish to bet on the economy, particularly this one. Inflation, while not rampant, has been more stubborn than anyone, even the Fed which has probably the best insight into the economy, could have imagined. It looks like the Fed may not drop for a while. Some predict not this year at all. More likely is a single with a possible second rate cut late in the year. If you're looking for debt financing, you may have to accept the higher rate.

 

April 17, 2024

The IRS has reported (IR-2024-109) a number of service improvements during the 2024 filing season. During the recent season the IRS answered over one million taxpayer phone calls and helped over 170,000 more people in person. The live assistors answered over 7,600,000 calls, up from 6,513,000 the year before, an increase of almost 17%. Response times have improved and there were more callback options.

The IRS has issued Fact Sheet-2024-13 providing answers to frequently asked questions (FAQs) addressing the tax treatment of work-life referral services (sometimes also called caregiver or caretaker navigation services) provided by an employer to an employee. Under certain circumstances, the value of such referral services can be excluded from gross income and employment taxes as a de minimis fringe benefit.

Tip of the Day

Personal finance review . . . Hope your return is done, but whether or not it is now is the perfect time to reviews your finances and think of a general finance plan for the year. You may remember many of the numbers on your brokerage statement(s). Did you get hit with a big tax bill? Think about contributing to an IRA, change your 401(k) contributions, consider a Roth conversion. But the first thing is to review your portfolio of investments. Plan any big house projects such as adding a garage or additional bedroom, etc. And for sure, if you owed a lot of money or got a big refund, you might want to change your withholdings or estimated tax payments. If you're under paid on your estimated tax you'll get a penalty next April and, since the penalty is interest based, the penalty will be much worse than usual because of the higher rates.

 

April 15, 2024

Tip of the Day

Times Up! . . . With the exception of those of you who live in Massachusetts or Maine, today's the last day. Unless you're mostly done, like 95%, throw in the towel for now, file and extension, and get back on it after the crush. Trying to finish up be would be rushing it and risking an error. An extension doesn't increase your chances of an audit or have other adverse consequences.

 

April 12, 2024

News

When the IRS receives a 1099 the income on the form is assumed to be earned by the taxpayer. If you claim otherwise you've got to prove it to the Service or the court. In Danielle Monique Scott (T.C. Memo. 2023-141) the IRS claimed the taxpayer failed to report income shown on 1099-DIVs and from a 1099-R. In addition, the pension plan distribution was indicated to be premature on the 1099-R (i.e. before the taxpayer was 59-1/2). The taxpayer was found liable for the additional income and the premature distribution penalty because he could not show it didn't apply.

Tip of the Day

Down to the wire . . . You've still got the weekend and Monday to finish your return and you should probable do so (because you'll most likely procrastinate later), but there's no harm in asking for an extension. If you do, try and be paid up. If you still owe money and can't pay in full, pay as much as you can. Any amount you owe will carry a late fee, and IRS interest rates are as high as they have been in years. Don't rush the return. Extensions are automatic if you file the request. While you can file an amended return if you find something you missed, it's not the best approach.

 

April 11, 2024

News

The IRS is encouraging (IR-2024-103) low- to moderate-income individuals and families, especially those who don't normally file a tax return, to use IRS Free File to prepare their federal tax return and get potentially overlooked refunds and tax credits. For most taxpayers, the deadline to file their personal federal tax return is Monday, April 15, 2024. Taxpayers living in Maine or Massachusetts have until April 17, 2024. The only way to get a refund is to file a tax return. There is an income limit of $79,000. For more informationo, click on the link above.

The IRS has annou9nced (FS-2024-09) the IRS Direct File Pilot Program is only open to taxpayers until April 15th (the 17th for taxpayers in Massachusetts and Maine because of Patriots' Day). (Keep in mind that the Direct File program transmits data directly to the IRS.) Click on the link above for more information about the program.

Tip of the Day

Don't listen to your friends . . . Or social media. Or the guy in the office next to you. They could be right, but probably only by dumb luck. Professionals hear stories all the time about how they saw I can convert my IRA to a Roth (yes you can but you'll have to pay the taxes) or I put my rental in an IRA (you can but you could be asking for trouble). Taxes are a broad area and the best planning and the answer to many questions depends on an exact set of facts and circumstances. And, what your friend did may not be legal. Just because he got away with it doesn't mean you will.

 

April 10, 2024

News

The IRS has announced that the Whitman County is now included in the area where individuals and businesses in parts of Washington state affected by wildfires that began on Aug. 18, 2023 can get tax relief. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

Tip of the Day

Charitable contributions . . . If you get something back from the charity you can't deduct the full amount of the contribution. For example, for a contribution of $200 to your local PBS channel you get a boxed set of DVDs. The charity values them at $26.50. You've got to deduct that from your $200 contribution. There is a lower limit on that rule. A tote bag worth $2.75 is considered insignificant and no adjustment need be made. Tell your tax preparer if you got something in return.

 

April 9, 2024

News

The IRS has announced (IR-2024-99) it will open 70 Taxpayer Assistance Centers (TACs) around the country on Saturday, April 13, for face-to-face help. This special help is available from 9a.m. to 4p.m. local time. At TACs, people meet face-to-face with IRS employees to get help with tax account issues, such as authenticating someone’s identity, asking about account adjustments and making payments by check or money order. The IRS plans one additional special Saturday opening on May 18. Before travelling to an office, the IRS encourages everyone to visit the event page IRS face-to-face Saturday help to get current information. The IRS notes representatives can’t accept cash payments during the special Saturday openings, and tax return preparation is not an available service. The IRS has online resources for many common tax situations, including several tools for making payments, getting an extension to file and setting up installment agreements. Taxpayers can make payments using their personal financial accounts, debit or credit cards and even digital wallets using tools on IRS.gov. Click on the link above for more information on services provided, tips on planning a visit, etc.

Tip of the Day

Monday's the deadline . . . For returns and for contributions to IRAs--Roth, traditional either deductible or nondeductible. You can get an extension to file your return, but not to make that contribution. And once the deadline has passed you've forever lost your opportunity to make that contribution. The rules for a SEP are different. Because contributions are based on the income of a business you've got until you file that year's business return or personal return with a Schedule C. Don't know where to put the money? Throw it in a savings account--you can always switch later.

 

April 8, 2024

News

The IRS issued Announcement 2024-19 that addresses the federal income tax treatment of amounts paid for the purchase of energy efficient property and improvements. Generally, taxpayers who receive rebates for the purchase of energy efficient homes will not include the value of those rebates as income on their tax returns, however they will need to reduce the basis of the property when they sell it by the amount of the rebate. The Inflation Reduction Act (IRA) statutory language describes performance-based incentives and electrification product subsidies as "rebates." Announcement 2024-19 provides that amounts received from the Department of Energy (DOE) home energy rebate programs funded through the IRA will be treated as a reduction in the purchase price or cost of property for eligible upgrades and projects. Accordingly, the consumer that receives an IRA rebate will not be required to report the value of the rebate as income. Additional information about energy-related tax benefits under the Inflation Reduction Act, such as energy efficient homes, can be found on IRS.gov.

Tip of the Day

File separate or joint? . . . That's an often asked question. A married couple can file either way. But most of the time filing joint will produce a considerably better result. It's not as simple as just dividing the income. A whole new set of rules comes into play. For example, you cannot take the earned income credit and, if your spouse itemizes, you must too. Fortunately, you or your tax preparer can often quickly see if filing separately will produce a better result. Tax software programs can calculate which approach is better--but only if you've entered all the data correctly. This is not the time to start a fight with your spouse and file separately. The IRS will be the winner and both of you the losers.

 

April 5, 2024

News

The IRS announced (IR-2024-93) tax relief for individuals and businesses in parts of Maine affected by severe storm and flooding that began on Jan. 9, 2024. These taxpayers now have until July 15, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Cumberland, Hancock, Knox, Lincoln, Sagadahoc, Waldo, Washington, and York counties 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 Jan. 9, 2024, and before July 15, 2024, are granted additional time to file. As a result, affected individuals and businesses will have until July 15, 2024, to file returns and pay any taxes that were originally due during this period. The tax relief also applies to quarterly estimated tax payments, normally due on Jan. 16, 2024, April 15, 2024 and June 17, 2024. Penalties on payroll and excise tax deposits due on or after Jan. 9, 2024, and before Jan. 24, 2024, will be abated as long as the tax deposits were made by Jan. 24, 2024. The IRS urges anyone who needs an additional tax-filing extension, beyond July 15, 2024, for their 2023 federal income tax return to request it electronically by April 15, 2024. Though a disaster-area taxpayer qualifies to request an extension between April 15, 2024, and July 15, 2024, a request filed during this period can only be submitted on paper. Whether requested electronically or on paper, the taxpayer will then have until Oct. 15, 2024, to file though payments are still due on July 15, 2024. Visit IRS.gov/extensions for details.

The IRS announced (IR-2024-94) tax relief for individuals and businesses in parts of Rhode Island that were affected by severe storms and flooding that began on Dec. 17, 2023, and Jan. 9, 2024. These taxpayers now have until July 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 the FEMA. Currently, individuals and households that reside or have a business in Kent, Providence and Washington counties qualify for tax relief. Click on the link above for more information.

Tip of the Day

Child and dependent care credit . . . If you're single and work or you're married and both you and your spouse work and need child care in order to continue work, you can claim a credit for a percentage of up to $3,000 of qualifying expenses for the first child and $6,000 for two or more children. The child must be under age 13. Disabled individuals such as an older child or even a parent may qualify. The credit starts at 35% of qualifying expenses but quickly drops to 20% with AGI of $43,000 or more. Day care, summer programs, etc. can qualify, but they must be necessary to enable you or you and your spouse to work. See IRS Publication 503.

 

April 4, 2024

News

The IRS is warnin taxpayers (IR-2024-89) to watch out for promoters who push improper Fuel Tax Credits claims in the fourth day of the 2024 Dirty Dozen list of tax scams. The Fuel Tax Credit is available only for off-highway business and farming use and not for most taxpayers. But the IRS continues to see instances where unscrupulous promoters or return preparers mislead taxpayers about fuel use and create fictitious documents or receipts for fuel. The IRS has seen an increased number of fictitious claims for fuel tax credits on Form 4136, Credit for Federal Tax Paid on Fuels . By claiming the fuel tax, these promoters are looking out for their own financial interests by charging the taxpayers inflated fees. But taxpayers should realize the IRS has heightened scrutiny on this scam, and people claiming it improperly risk future compliance action by the IRS.

Tip of the Day

Annuity income . . . It may be partially or fully taxable. The 1099-R may show the taxable amount. If you made no after-tax contributions to the annuity it's all fully taxable. If you made contributions, each payment will be partially taxable and partially nontaxable. You'll have to know the amount of the original contribution. You can then use the Simplified Method to compute the taxable and nontaxable amounts. See IRS Publication 939 for details on how to use the method. If you're using software to prepare your return, there should be a worksheet in the program.

 

April 3, 2024

News

've got to dot all the i's when you employ relatives in the business. Kunjlata J. Jadhav and Jalandar Y. Yadhav (T.C. Memo. 2023-140) the taxpayer-husband had a good job but started a side business doing specialty marketing for chemical companies. The business was operated as a sole proprietorship and reported its income and expenses on a Schedule C. The taxpayers employed their two children work in the business, covered them with a 401(k) plan and made a substantial contribution to the plan. The IRS challenged the contribution and question the children's status as employees. The IRS did not dispute the employer-employee relationship in later years, but questioned it in the first year because no W-2s were issued. The Court noted that other indicia of the employer-employee relationship existed. While the children were claimed employees while in college the father assigned them research tasks, supervised their work, etc. The Court allowed the deduction for the pension plan contribution.

Tip of the Day

File now, pay later . . . You can file your return today and make payment. If you're paying by check simply delay sending the check. If you're using a paid preparer ask him or her to specify a later date for payment. You can select any date up to the due date. And if filed earlier you might have been able to get your refund of the state or federal while delaying payment of the federal or state.

 

April 2, 2024

News

In Allen R. Davison and Sharon L. Davison (T.C. Memo. 2023-139) there were a number of issues but the one of interest here is a claim for net operating losses (NOLs) with claims filed on Form 1040X for prior years. The revenue agent (RA) reviewed the NOL claims and past Tax Court decisions involving the taxpayers. The taxpayers provided copies of tax returns for the years at issue, but did not provide copies of the NOL calculations. When NOL documentation was requested the taxpayers provided a handwritten document detailing their taxable income from 2002 through 2012 and NOLs claimed to be available each year. The document did not identify the years in which the carrybacks and carryforwards originated. Some NOL carryforward losses were disallowed because there were no losses from 2008 to carry forward. For some losses the taxpayers provided copies of K-1s showing the losses, but the taxpayers failed to provide adequate documentation for their bases in the entities. While promissory notes existed there was no canceled checks to show funds were actually contributed.

Tip of the Day

Converting to a Roth? . . . There are many times when onverting a traditional IRA to a Roth makes sense. If the funds are in a nondeductible IRA with no prior deductible IRAs, converting requires no analysis. But if you're converting a deductible IRA you'll need to run some numbers. How complicated that analysis is depends on your age, the makeup of the assets in the conversion, your tax bracket, etc. Don't make a decision based on your carpool buddy's advice.

 

April 1, 2024

News

The IRS reported that The Partners Instructions to Schedule K-1 of Form 1065 for 2023 provide that Code ZZ "Other" in Box 20 contains "Any other information you may need to file your return not shown elsewhere on Schedule K-1." If a partner receives a 2023 Schedule K-1 from a partnership with information in Code ZZ of Box 20 the partner should follow the Partner’s Schedule K-1 instructions in reporting this information on their return. There was a programming error impacting e-filers of Form 1065 for 2023 that blocked e-filed partnership returns from using Code ZZ. The IRS encourages e-filers to extend the filing of their Form 1065 returns and defer until June 16, 2024, when we estimate that the Code ZZ issue will be fixed and Code ZZ can be properly e-filed in Box 20 of Schedules K and K-1.

Tip of the Day

Double check your work . . . A brokerage 1099 can contain a myriad of numbers. Make sure you pick up the amount of qualified dividends as well as the total dividends. The statement can have tax-exempt dividends (from a tax free mutual fund) and tax exempt interest. They're different and don't go in the same spot. And foreign taxes paid can produce credits to reduce your taxes. Those are some of the important ones but depending on your holdings there can be many more.

 

March 29, 2024

News

Four years after the enactment of a key pandemic-era law, the IRS released updated numbers (IR-2024-83) showing the Criminal Investigation (CI) has investigated 1,644 tax and money laundering cases related to COVID fraud potentially totaling $8.9 billion, with well over half that amount coming from cases opened in the last year. These cases include a wide range of criminal activity, including fraudulently obtained loans, credits and payments meant for American workers, families and small businesses under the Coronavirus Aid, Relief and Economic Security (CARES) Act. As of Feb. 29, 795 people have been indicted for their alleged COVID-related crimes and 373 individuals have been sentenced to an average of 34 months in federal prison. During the last four years, CI has obtained a 98.5% conviction rate in prosecuted COVID fraud cases.

Tip of the Day

Looking for your refund? . . . Be patient. The IRS is remarkably quick, but, if you filed electronically, it can still take 21 days, though they are usually much faster. While you can check with your preparer, at this time of the year it won't make him happy and if he goes through his software for the information, it comes from the same source. The easiest thing to do is go to the IRS at Where's My Refund.

 

March 28, 2024

News

The IRS further postponed (IR-2024-82) until Aug. 7, 2024, various tax-filing and tax-payment deadlines for individuals and businesses affected by the Aug. 8, 2023, wildfires in Hawaii. Previously, the deadline was Feb. 15, 2024. In general, this means that affected individuals, businesses and tax-exempt organizations will now have until Aug. 7, 2024, to file their 2023 returns and pay any taxes due. This is in addition to the expansive relief, announced last August, shortly after the wildfires occurred. The IRS is offering relief to Maui and Hawaii counties, the two areas designated by the FEMA. Individuals and households that reside or have a business in these localities qualify for tax relief. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.

When the IRS is looking to collect money it can consider retirement accounts as assets. In George E. Kosmides (T.C. Memo. 2024-138) the IRS appeals officer (AO) denied the taxpayer's ppartial payment installment agreement and listed the taxpayer's retirement account as an asset. The AO could not separate the taxpayer's personal expenses from business ones. The AO determined the taxpayer was not eligible for an offer-incompromise because he determined hhe could pay the liability in full by the collection period expiration date. The taxpayer rejected the AO's proposed installment agreement. The AO determined his expenses were small enough to make the offered installment agreement payments. The taxpayer countered that because of a preexisting medical condition should he lose his job he might lose his primary health insurance. The AO found that argument was too speculative. The Court found no abuse of discretion by the AO.

Tip of the Day

Mortgage loans over limit . . . If you incurred home acquisition debt on your home after December 15, 2017 your interest deduction will be limited. You can only deduct the interest on the first $750,000 (before that it was $1,000,000). Your software may flag the issue, and provide you with a worksheet that will handle the calculations or it may perform the calculations automatically. In some cases you might have to make a manual computation. For example, you paid interest of $25,413 on a $853,975 loan. Only 87.8% of the interest is deductible. The balance on the loan is available from Form 1098 from the mortgage lender.

 

March 27, 2024

News

The IRS is reminding (IR-2024-80) taxpayers that time is running out on for taxpayers who have unclaimed refunds for tax year 2020. The deadline is May 17 to submit tax returns. After that you're out of luck. Under normal circumstances the deadline would be April 15, but in 2021 filing was delayed because of the COVID pandemic. Click on the link for further information.

Bought, sold, got digital assets for goods or services, etc.? The IRS has published Digital Asset Reporting and Tax Requirements with the basics and links to other documents.

Tip of the Day

Home office deduction . . . If you qualify and you've decided to take it work through the numbers carefully. Much fewer taxpayers qualify to itemize than in the past and if itemizing isn't advantageous you won't miss the portion of real estate taxes and mortgage interest that you would have deducted and use the percentage of the home's area to find the home office deduction for interest and real estate taxes. On the other hand, if you can itemize it might be better to take the full deduction for those items on Schedule A and use the simplified method for the home office expense.

 

March 26, 2024

News

The IRS announced (IR-2024-81) tax relief for individuals and businesses in the Wrangell Cooperative Association of Alaska Tribal Nation that were affected by severe storms, landslides and mudslides that began on Nov. 20, 2023. These taxpayers now have until July 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 the Federal Emergency Management Agency (FEMA). Currently, this includes the Wrangell Cooperative Association of Alaska Tribal Nation. Individuals and households that reside or have a business in this locality qualify for tax relief. The same relief will be available to any other Alaska localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The IRS has issued proposed regulations (REG-108761-22) that would identify certain charitable remainder annuity trust (CRAT) transactions and substantially similar transactions as listed transactions, a type of reportable transaction. Material advisors and certain participants in these listed transactions would be required to file disclosures with the IRS and would be subject to penalties for failure to disclose. The proposed regulations would affect participants in these transactions as well as material advisors but provide that certain organizations whose only role or interest in the transaction is as a charitable remainderman will not be treated as participants in the transaction or as parties to a prohibited tax shelter transaction subject to excise taxes and disclosure requirements.

Tip of the Day

Form 8606 . . . If you made contributions to a nondeductible IRA last year, you took distributions from a traditional IRA and you made nondeductible contributions to a traditional IRA in 2023 or an earlier year or you converted part, but not all of your traditional IRA (including a SEP etc.) to a Roth, Roth SEP etc. and you made nondeductible contributions to a to a traditional IRA in 2023 or an earlier year you've got to file a Form 8606 with your return.

 

March 25, 2024

News

IRS Advice Memorandum AM 2024-001 discusses the liability of certain third-party payers (TPPs) for an underpayment of certain employment taxes resulting from improperly claimed credit that was claimed by the TPP for a common law employer client on an employment tax return filed by the TPP under its own Employer Identification Number (EIN). Specifically, you inquired about the liability of TPPs for underpayments of employment tax where the Employee Retention Credit (ERC) was improperly claimed.

Tip of the Day

Basis in inherited property . . . It's always important to get inherited property that you intend to sell or hold for investment appraised--even if there's no chance of incurring an estate tax liability. That's because when you sell the property you'll need some sort of proof of basis for any gain or loss. But if the property is a rental property that you intend to keep the stepped up basis will enable you to claim more depreciation and either create losses or reduce reportable propfits.

 

March 22, 2024

News

The IRS is reminding business owners who claimed the Employee Retention Credit that tomorrow, March 22, is the last day to either withdrw their claims or apply to the ERC Voluntary Disclosure Program to avoid penalties and interest and payback any improper credits received at a reduced amount. IR-2024-75 describes seven warning signs that a claim could be incorrect. The News Release also provides links to resources to assist.

Tip of the Day

Losses on small business stock . . . It's not unusual for a small S or C corporation stock to become worthless or sold for much less than the owner's investment. Sec. 1244 allows you to take an ordinary rather than a capital loss. That could result in a lot bigger deduction. There are a number of restrictions, the critical ones being you're the initial holder of the stock, the initial capitalization can't exceed $1 million, and the entity must be an operating company. There are some others, but most businesses will pass the tests. Check with your tax advisor.

 

March 21, 2024

News

Notice 2024-31 provides for adjustments to the limitation on housing expenses for purposes of Section 911 of the Code for the 2024 tax year. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. If the limitation on housing expenses is higher for the 2024 tax year than the adjusted limitations on housing expenses provided in Notice 2023-26, qualified taxpayers may apply the adjusted limitations in this notice for the 2024 tax year to their 2023 tax year.

Tip of the Day

Tax on early distributions from IRAs, etc. . . . Distributions from qualified penion plans and IRAs before age 59-1/2 are generally subject to a 10% excise or penalty tax. But there are a number of exceptions, and, as a result of a recent tax law change a significant number more than in the past. See the instructions for Form 5329 and IRS Publication 590-B.

 

March 20, 2024

News

Even smaller businesses may have multiple entities or operate in more than one state. Dealings between related entities can gen generate IRS scrutiny. In the case of The Coca-cola Company and Subsidiaries (T.C. Memo. 2023-135) the issue was betwwen the U.S. parent company an a Brazilian affiliate. And related foreign transactions are of paricular interest to the IRS. Here the company claimed payment by the Brazilian affiliate to the U.S. for use of the company's intangibles was blocked by a Brazilian legal restriction. The Court found that Brazilian law did not restrict payments back to the U.S. to the extent claimed. The deficiencies proposed by the IRS resulted from adjustments to the transfer-pricing and the allocation by the IRS of prices on intangibles. The standard to apply is an arm's-length price between entities. The IRS can reallocate income between related entities if the current approach distorts income. States also use this to prevent taxpayers from allocating income to low or no tax states and keep it out of high-tax states

Tip of the Day

Note as wages . . . If you're working for a startup you may receive a note instead of a check for part of your services. If the note is secured you've got to include the fair market value of the note (discounted by an amount that depends on the payment terms) in income. Later payments on the note will be partly nontaxable and partly taxable. On the other hand, if the note is unsecured and nonnegotiable, only when you receive payments on the note are they includible in income as compensation.

 

March 19, 2024

News

You may be above to reocover your litigation costs if you take on the IRS and you're the "prevailing party". However, there are a number of requirements that must be met. In Champions Retreat Golf Founders, LLC, Riverwood Land, LLC, Tax Matters Partner (T.C. Memo. 2023-134) the LLC operated a golf course and donated a conversation. The IRS (in an earlier casw) challenged the deduction. The Tax Court sustained the IRS's disallowance of the deduction but that was reversed on appeal. The Tax Court was asked to value the amount of the donation and did so. Since the taxpayer won it's case it sought recovery of litigation costs. The Court noted that to be the "prevailing party" a party must "substantially prevail" with respect to the amount in controversy or "the most significant issue or set of issues presented" and must satisfy certain net worth requirements. The IRS agreed that the taxpayers "substantially prevailed" in the case. When a taxpayer seeks both administrative and litigation costs, the Court applies a bifurcated analysis to determine whether "the position of the United States" was substantially justified in the administrative proceeding and the litigation. To be substantially justified, the position must have a reasonable basis in law if legal precedent substanitally supports the IRS's position given the vacts available to the IRS. The Court noted that the IRS's position may be substantially justified even if incorrect "if a reasonable person could think it correct." The Court held the IRS's position to be substantially justified anddenied the taxpayer his litigation costs.

Tip of the Day

Checking your return . . . We're assuming either you've hire a tax preparer or you're doing your return on a computer. The computer will check for many errors on the return, but not all. For example, missing information on a W-2 might be flagged, but generally not numbers such as the amount of withholdings. The compputer will pick up ertain missing forms, and unchecked boxes where a statement, such as to whether or not you traded in digital assets, but not whether you entered the right number. Some items to check for which can produce real headaches if wrong include social security numbers, the routing and account numbers for direct deposit of a refund or withdrawal for a payment. Check to make sure estimated taxes for the year are entered correctly. You may not be tax savvy, but you can check a self-prepared or professional prepared return to make sure all dividend and interest items have been entered and check the amounts for reasonableness. Do the same for W-2s, other 1099s such as pensions and do a scan of Schedule A. Often discrepancies are large enough to spot without detail checking. For example, you don't remember your spouse's salary, but you recall it's about $150,000s. If all you see on the return is $50,000, you've got to check further. The law imposes a duty on you to review even professionally prepared returns.

 

March 18, 2024

News

In some cases the IRS can waive a deadline, but in most a deadline is absolute barring some unusual circumstances such as a weather disaster, call to active duty, etc. Those exceptions a few. In Paul Andrew Frutiger (162 T.C. No. 5) the IRS issued a Notice of Determination to the taxpayer denying his claim for innocent spouse relief. The taxpayer filed an untimely Petition with the Tax Court seeking review of the IRS's determination. The IRS asked the Court to dismiss the case for lack of jurisdiction (i.e., the petition was filed late). The taxpayer argued that the deadline to file a petition from a denial of innocent spouse relief is not jurisdictional and asks that the Court hear his case on equitable grounds. The Court noted a filing deadline is jurisdictional if Congress clearly states that it is. The Court held the 90-day filing deadline in Sec. 6015(e)(1)(A) is jurisdictional and that because the taxpayer failed to file his Petition within the 90-day deadline, it did not have jurisdiction to hear his case.

The IRS is warning taxpayers who filed incorrect ERC (Employee Retention Credit) that the deadline for correcting claims and avoid penalties and interet and even get a discount on repayment by apply to the ERC Voluntary Disclosure Program by March 22. There's also a claim withdrawal process for businesses whose claim is pending. For more information, go to March 22 Deadline Approaching to Resolve Incorrect Employee Retention Credit Claims

Tip of the Day

Help your tax preparer . . . More than a few taxpayers go to their tax preparer with a pile of unorganized papers and then complain about the bill. Many preparers base their fees on a formula (e.g., a certain amount per rental property, per form, etc.) but don't ignore the time involved. Most preparers who have been doing taxes for a while realize many individuals don't understand all the paperwork they receive, but virtually anyone can put the material in some order. Here are some tips.

 

 

March 15, 2024

News

Sec. 119 allows an employee to exclude the value of meals and ladging furnished to him if provided for the convenience of an employer. For example, a geologist working on site in a remote area of Canada. Sec. 911 provides that taxpayers may exclude a certain amount of income (indexed for inflation) earned in a foreign country while living there. You may also be entitled to a housing cost allowance. While Sec. 119 and 911 may sound generous, they come with a number of strict rules. For Sec. 911 the strting requirement is that they live in the country for a certain amount of time. In Nicole Diane Henaire (T.C. Memo. 2023-131) the taxpayer was employed at a military base in Auzstraila and while there lived in housing provided by the U.S. Air Force. She signed an agreement that she would waive claiming the 911 election to comply with provisions of an agreement between the U.S. and Austraila. The Court found the agreemen to be valid. In addition, she did not establish that her abode was outside the U.S. In addition, she was not entitled to exclude from her gross income under Sec. 119 the value of the housing she was provided in Australia. She did not establish that her employer provided her lodging for its own convenience, that she was required to accept those lodgings as a condition of her employment, or that the lodgings were on the employer's premises.

Tip of the Day

Premium Tax Credit . . . The penalty for not having health insurance is gone but if you got health insurance through the Marketplace you probably also got the advance premium credit. While the credit might have been issued accurately based on your income, you still have to reconcile the amount received and your income reported on the return using Form 8962. The IRS is still updating information on the credit. See the latest Fact Sheet FS-2024-04.


Copyright 2023-2024 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


 

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