Archive for the ‘IRS’ Category

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.

Prepare to Panic!

Monday, September 25th, 2017

Today is Monday, September 25, 2017. Exactly three weeks from today is Monday, October 16, 2017. That’s the deadline for individual taxpayers on extension to file their tax returns (save for those in hurricane disaster zones in Florida, Georgia, Texas, Puerto Rico, and the Virgin Islands). If you have yet to send your paperwork to your tax professional it’s past the time to do so. Yes, it’s time to panic.

If your return is simple and straightforward, stop procrastinating and get it done and filed. If your return has any sort of complexities, you must start working on it now! Your tax professional needs time to get it done correctly. You need to turn in that paperwork post haste. If you’ve procrastinated, stop, sit down, and get it done.

It may already be too late for your return to be timely filed with many tax professionals. For example, our official deadline was last Wednesday. Luckily, we’re not behind so our procrastinating clients are still in good shape. However, that might not be the case with all tax professionals. And I can guarantee if you drop off your paperwork with us on October 13th your return is almost certainly not going to be timely filed.

If you file late, it’s as if you never filed your extension. So sit down and get everything done now! Of course, if you like paying a 25% penalty, simply procrastinate for another three weeks.

IRS Transcript Delivery System Failing for Many Users; No Fix Time

Tuesday, September 12th, 2017

One of the major tools I use is the IRS’s e-Services system; the component I use the most is the Transcript Delivery System (TDS). Last weekend, the IRS did a major “upgrade” of the system. I have to put upgrade in quotes because it’s been a downgrade for me and many other users. The system does not recognize that I have authority (a Power of Attorney or a Tax Information Authorization) on file.

The problem appears to be that the IRS must also migrate their Centralized Authorization File (CAF) database. This database is how the IRS keeps track of which returns (names, social security numbers, and tax years) tax professionals are authorized for. Unfortunately, the migration of this database hasn’t gone smoothly.

Until this is resolved tax professionals will need to call the IRS’s Practitioner Priority Service and request the IRS fax over any transcripts that are needed. I just had to do this and was on hold for only 11 minutes so it could be much worse.

IRS Gives Tax Deadline Relief to Victims of Hurricane Irma

Tuesday, September 12th, 2017

The IRS today announce that they are extending tax filing deadlines for victims of Hurricane Irma to January 31, 2018. The relief applies to any area designated by FEMA as qualifying for individual assistance (areas in Florida, Puerto Rico, and the Virgin Islands currently). Here is the pertinent part of the IRS announcement:

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 4, 2017 in Florida and Sept. 5, 2017 in Puerto Rico and the Virgin Islands. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period.

This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 deadline for quarterly payroll and excise tax returns. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2016 extensions run out on Sept. 15, 2017 and calendar-year tax-exempt organizations whose 2016 extensions run out on Nov. 15, 2017. The disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

IRS Appeals Steele Decision

Thursday, September 7th, 2017

Earlier this year a court ruled that the IRS cannot charge for Practitioner Tax Identification Numbers (PTINs). To no one’s surprise, yesterday the IRS appealed the decision to the US Court of Appeals for the District of Columbia. It will likely be sometime next year before the case is heard and a decision rendered. I also expect the IRS to ask the Court of Appeals to lift the permanent injunction on charging for PTINs while the appeal is being heard.

I will update when there is additional news.

Hat Tip: NAEA