Archive for the ‘IRS’ Category

2018 Standard Mileage Rates Released

Thursday, December 14th, 2017

The IRS today announced the standard mileage rates for 2018:

  • $0.545/mile for business miles driven (up from $0.535/mile in 2015);
  • $0.18/mile for medical or moving purposes (up from $0.17/mile in 2015); and
  • $0.14/mile in service of a charitable organization (unchanged; set by statute).

You can either use this standard mileage rate or use actual expenses. Either way, it’s important to keep a mileage log!

IRS Interest Rates Unchanged for First Quarter of 2018

Wednesday, December 6th, 2017

The IRS announced that interest rates for the first quarter of 2018 remain unchanged:

The rates will be:

• four (4) percent for overpayments [three (3) percent in the case of a corporation];
• 1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
• four (4) percent for underpayments; and
• six (6) percent for large corporate underpayments.

The IRS notice is published in Revenue Ruling 2017-25.

IRS Mostly Wins Coinbase Summons Fight

Wednesday, November 29th, 2017

The IRS has been battling Coinbase, the United States’ largest cryptocurrency exchange, in a fight to obtain information about individuals who sold Bitcoins during 2013, 2014, and 2015. The IRS issued a summons to Coinbase–basically, an administrative demand for information. Coinbase didn’t respond, so the IRS filed a lawsuit in an attempt to force Coinbase to comply. After the summons was narrowed to just individuals who bought, sold, sent, or received at least $20,000 worth of Bitcoin during those years (but not individuals who only bought and held or who were issued a Form 1099-K), Coinbase still refused to comply. Yesterday, a federal court in San Francisco ruled that Coinbase must (for the most part) comply.

That the IRS won isn’t a surprise. The IRS demonstrated that only 802 returns were filed in 2015 which claimed Bitcoin sales; I prepared 40 such returns so I prepared 5% of all returns that included Bitcoin sales in 2015! The IRS demonstrated there was noncompliance, and they further showed that the Coinbase records would help with tax administration. As for Coinbase’s arguments:

Coinbase argues that the Government committed an abuse of process because it seeks to enforce “a summons that lacks a proper investigative purpose” and “the production of a vast array of documents relating to 14,000 accounts, without any proper foundation.” The Court, however, finds that the Government has met its burden of showing that the Narrowed Summons serves the legitimate investigative purpose of enforcing the tax laws against those who profit from trading in virtual currency. And the information the Court has ordered produced is relevant and no more than necessary to serve that purpose. Coinbase’s novel insistence that it has met its burden to show abuse of process by virtue of the Government having narrowed its summons is unpersuasive. No court has even suggested such a rule, and this Court declines to be the first.

As for the order itself:

Coinbase is ORDERED to produce the following documents for accounts with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013 to 2015 period: (1) the taxpayer ID number, (2) name, (3) birth date, (3 [sic]) address, (4) records of account activity including transaction logs…, and (5) all periodic statements of account or invoices (or the equivalent).

The IRS asked for records on “Know Your Customer” diligence, agreements regarding third-party access, and correspondence between Coinbase and third party users related to the opening and closing of accounts. The court denied the IRS’s request for those records. The Court explained both the IRS’s reasoning and why that portion of the summons was denied:

At oral argument the Government explained that it included such broad swaths of records in its summons so that it will not need to return to court to ask for them if and when needed. The Court is unpersuaded. Especially where, as here, the Government seeks records for thousands of account holders through a John Doe summons, the courts must ensure that the Government is not collecting thousands and thousands of personal records unnecessarily. Moreover, if the Government later determines that it needs more detailed records on a taxpayer, it can issue the summons directly to the taxpayer or to Coinbase with notice to a named user — a process preferable to a John Doe summons.

Coinbase can appeal this ruling, but they would appear to me to have a very difficult case. The IRS has demonstrated the need, and the law is on their side.

This is not going to be the last effort by the IRS, either. There are other US-based exchanges, and the IRS will likely be calling on them. Additionally, I expect Congress eventually to mandate reporting of cryptocurrency transactions (or the IRS to issue regulations attempting to require such reporting). If you’re an American who used Coinbase and left out some cryptocurrency sales, now is a good time to amend your tax returns.

“Hello, It Has Been Detected That You Are a Scammer….”

Thursday, November 16th, 2017

After recovering from a bout with the flu I attended continuing education yesterday with the Nevada Society of Enrolled Agents. We had a presentation from a Special Agent with TIGTA (the Treasury Inspector General for Tax Administration). One of the most interesting things he mentioned was that TIGTA is now robocalling IRS scammers, preventing them from calling out. (They’re also conducting lots of investigations of these scammers and have had some successes. Unfortunately, this is a lot like killing weeds: You get rid of one and two more pop up.)

There’s at least one individual who created something where he has been calling IRS scammers; by flooding their phone lines it prevents them from calling out. I do need to warn you that if you do this yourself you may be violating the law. Luckily, there’s no problem with TIGTA making these robocalls to block the scammers.

Here’s a YouTube video from “Project Mayhem.” (There is some NSFW language.) The advice from Project Mayhem is correct: If you get one of these calls, hang up. If they claim to be from a reputable company (and it’s someone you’re doing business with), hang up, look up their phone number, and you call them. If it’s from the IRS and you think you owe money to the IRS, check with your tax professional or call the IRS up yourself (800-829-1040).

The Shortest Tax Court Opinion I’ve Seen

Tuesday, October 31st, 2017

I’ve seen opinions of the Tax Court run to hundreds of pages on complex cases. Today, I perused what might be the shortest Tax Court decision I’ve ever seen. The petitioner erroneously filed as “Head of Household” when she should have filed as “Married, Filing Jointly (MFJ).” The IRS changed her filing status to “Single” rather than MFJ. Could she get the correct status?

Here’s the Opinion in full:

Petitioner meets the “married filing jointly” status requirements, does not meet the “head of household” or “single” filing status requirements, and thus is entitled to “married filing jointly” status. See secs. 1, 2, 6013, 7703; Ibrahim v. Commissioner, 788 F.3d 834, 840 (8th Cir. 2015) (holding that a married taxpayer who erroneously filed a “head of household” return could file jointly), rev’g and remanding T.C. Memo. 2014-8; Camara v. Commissioner, 149 T.C. ___, ___ (slip op. at 23-24) (Sept. 28, 2017) (stating that a married taxpayer may correct a “single” or “head of household” filing status claimed in error).

Contentions we have not addressed are irrelevant, moot, or meritless. [footnote omitted]

Presumably the petitioner, who was represented by counsel, had attempted to get the IRS to correct the error. One wonders why the IRS wouldn’t make the change to what is the correct filing status; thus, this case ended up at Tax Court. Then again, given some of the things I’ve seen perhaps I don’t need to wonder….

Case: Godsey v. Commissioner, T.C. Memo 2017-214

IRS E-Filing for Individuals Closes on November 18th

Tuesday, October 31st, 2017

The IRS announced today that e-filing for 2016 tax returns will close on Saturday, November 18th. After that date individuals who need to file 2016 tax returns will need to paper-file those returns until e-filing reopens (most likely in late January 2018). Individuals impacted by the hurricanes and wildfires currently on ‘disaster extension’ are those most likely to be impacted by this.

FBAR Snags Manafort

Monday, October 30th, 2017

Paul Manafort, Jr. and Richard Gates III were indicted on Friday. The 12-count indictment alleges “[C]onspiracy against the United States, conspiracy to launder money, unregistered agent of a foreign principal, false and misleading FARA statements, false statements, and seven counts of failure to file reports of foreign bank and financial accounts.” I’ll let others talk about the political issues related to this indictment (the indictment came from Special Counsel Robert Mueller III); I’ll discuss what may be the most serious charges (and the ones most likely to be overlooked by the political chattering class)—the FBAR charges.

The FBAR (Form 114) is a Report of Foreign Bank and Financial Accounts. Let’s say you have a bank account in France; it had €10,000 in it during 2016 (about $10,537). If you have any foreign bank or financial accounts you must check a box on Schedule B of your tax return noting that. If you have $10,000 or more aggregate in those accounts at any time during the year, you must check another box and list the country(ies) you have such accounts in on Schedule B; you must also file the FBAR.

The FBAR is simply a report of such accounts; it is not a tax. It does not change whether or not you have taxable income. It can, though, point investigators into areas where you may have unreported income. Willfully not filing an FBAR is a felony, punishable by a fine of $100,000 or half the balance of the bank account (per account), whichever is higher, plus possible time at ClubFed. It’s a serious charge. It’s no surprise to me that Mr. Manafort chose an attorney who was a former prosecutor in the DOJ Tax Division.

My quick perusal of the indictment shows that allegedly lots of money were in accounts in the Ukraine and Cyprus. So there’s the potential of both multi-year FBAR violations and multiple accounts. Mr. Manafort’s tax professional isn’t going to be indicted over this:

For instance, on October 4, 2011, MANAFORT’s tax preparer asked MANAFORT in writing: “At any time during 2010, did you [or your wife or children] have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account?” On the same day, MANAFORT falsely responded “NO.” MANAFORT responded the same way as recently as October 3, 2016, when MANAFORT’s tax preparer again emailed the question in connection with the preparation of MANAFORT’s tax returns: “Foreign bank accounts etc.?” MANAFORT responded on or about the same day: “NONE.”

Interestingly, there are no allegations in this indictment that Mr. Manafort hasn’t paid his taxes. (It’s possible, of course, that additional charges are forthcoming.) As I tell my clients, “Just file the FBAR.” It appears Mr. Manafort should have done that.

California Fire Victims Have Extension Until January 31, 2018

Friday, October 13th, 2017

The IRS announced today that California wildfire victims have until January 31, 2018 to file various tax returns (including tax returns on extension due this coming Monday, October 16th). California’s Franchise Tax Board (the state income tax agency) immediately followed suit. (California automatically allows extended time for victims of any presidentially declared disasters, including the recent hurricanes.)

Dead Men Tell No Tales, Even When They’re Supposed To

Sunday, October 8th, 2017

For tax practitioners, the IRS’s e-Services suite of applications is extraordinarily useful. When a client give us the appropriate authorization we’re able to pull transcripts from the IRS’s computer system. This helps us file appropriate tax returns and it helps the IRS because we can file the returns.

Early last week I attempted to run a transcript for a deceased individual. I was authorized by the Executor of the estate and filed all appropriate paperwork with the IRS. When I attempted to obtain a transcript I was directed to call the IRS’s Practitioner Priority Service rather than just being able to print the transcript. It turns out the IRS has ‘locked’ about 64 million tax returns of deceased individuals as a security measure.

Neither PPS nor the IRS’s e-Services help desk was aware of this change. The news came from a fellow Enrolled Agent who was told about this from his IRS Liaison. And while I understand why the IRS has done this their implementation leaves something to be desired.

Consider John Smith, a widower. Mr. Smith has given a CPA authority (via a Tax Information Authorization) for tax years 2014-2016. Mr. Smith passes away on August 1, 2017. His authority passes away with him, and it makes sense that the IRS doesn’t allow that CPA to run transcripts. However, Mr. Smith’s Executor gives me authority. (This is done by having the Executor sign a new Tax Information Authorization and the Executor must give the IRS proof of his authority through completing Form 56.) So why must I call PPS to obtain the transcripts? It’s not as if PPS is going to do anything different than the automated checking that is already done through e-Services.

But that’s the good case. Now consider Mary Doe. Her husband John Doe passed away in 2006 (that’s 11 years ago). Ms. Doe has been filing as single for a decade. Ms. Doe signed a Power of Attorney in 2016 as she’s dealing with an IRS automated underreporting notice issue. I needed to run a 2015 transcript to make sure the IRS has appropriately applied a payment. I was unable to do that through e-Services because her account has now been linked to her late husband. (I was able to run these transcripts in the past through e-Services.) This is a true story (other than the names).

PPS duly ordered the transcript for me but I was in for a surprise when it came: It was for her late husband’s tax account. Unless there’s something about the great beyond that I don’t know about he is no longer too concerned with the IRS. I called PPS up and there is now no way for me to obtain an account transcript for Ms. Doe! According to PPS, once an account has been linked it cannot be unlinked! (PPS told me that the payment has been correctly applied. However, given that it was misapplied twice in the past I wish I could run that transcript.)

Come on, man! IRS, this is completely ridiculous. After the year of Mr. Doe’s passing there’s no reason for the two accounts to be linked. Additionally, there’s no reason tax professionals should have to call to obtain transcripts we’re authorized for. It would seem to me to be a simple programming fix: If the authorization is dated after the date of death (and it’s valid), allow the practitioner to just print the transcripts from e-Services.

Unfortunately, tax professionals now have to waste more time on the phone for no particularly good reason.

IRS Suspends ASFR Program

Tuesday, September 26th, 2017

Via Procedurally Taxing comes news that the IRS has suspended the Automated Substitute for Return (ASFR) program. This doesn’t sound like much, but this is huge news.

First, for those who aren’t tax geeks, the ASFR program is an automated program to prepare substitutes for tax returns if you don’t file one. Let’s say you have five 2016 1099-MISC’s received totaling $100,000. You foolishly decide not to file a tax return. The IRS will prepare a return for you, making assumptions about your marital status (you’re single) and your business and itemized deductions (none). The IRS then sends you a copy of the return demanding money, adding in penalties (late filing, late payment) and interest. Many people who get ASFRs file tax returns to replace the ASFR; others write the IRS. All of these have to be reviewed by humans. Others simply ignore the IRS and then get a notice of deficiency (which can be appealed to Tax Court).

Presumably the IRS has concluded that the money raised by the ASFR program has not offset the costs of the program. That’s the conclusion of Carl Smith on Procedurally Taxing and my conclusion, too.

Does this mean that you don’t have to file tax returns? Definitely not. If you don’t and the IRS catches you, you will still be subject to all the possible penalties; additionally, non-filing of tax returns is a crime.

As a tax professional, I’m not a fan of the suspension. Sure, this program may have been overall a cost center; however, it likely forced noncompliant individuals in to compliance—and that’s the goal of the IRS (current compliance). Overall, this change seems to me to be a shocking mistake.