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Monday February 24, 2020

Washington News

Washington Hotline

Taxpayer Advocate Service Scam

The IRS operates the Taxpayer Advocate Service (TAS) to assist taxpayers. As an independent organization within the IRS, the TAS exists to protect your rights as a taxpayer, and help you with tax problems you cannot resolve on your own.

The TAS oftens helps answer common questions and concerns. These include "I Can't Pay my Taxes," "How to Choose a Tax Return Preparer," "What is a Health Care Premium Tax Credit," "Identity Theft" and "I Need a Filing Extension."

The latest creative scam involves robocalls claiming to represent the TAS. The return phone number is similar to the TAS numbers in major cities. When the taxpayer returns the call, the scammer uses a fake IRS name and badge number.

Some scammers are able to spoof caller ID to appear to be from the IRS. They may know the last four digits of your Social Security Number. The scammer explains that you are qualified for a large refund, but must give your bank and personal information to receive it.

If you refuse to cooperate, the scammer may resort to threats. He or she may threaten you with immediate arrest or loss of your driver's license.

The IRS has several policies in place to protect taxpayers from scams. It will not demand immediate payment using a prepaid debit card, gift card or wire transfer. It will not threaten to call local law enforcement, will not ask for your credit or debit card number and will not demand payment without giving you the opportunity to appeal the amount of tax owed.

If you are contacted by a scammer, hang up and report the call to phishing@irs.gov. You also may call 800-366-4484 or go to FTC.gov and report using the "FTC Complaint Assistant."

Clergy Housing Allowance Upheld

In Annie Laurie Gaylor et al. v. Steven T. Mnuchin et al.; No. 18-1277; No. 18-1280 (7th Cir. 2019), the Seventh Circuit reversed a lower court decision that the clergy housing allowance violates the Establishment Clause of the First Amendment, Gaylor v. Mnuchin, 278 F. Supp. 3d 1081, 1104 (W.D. Wis. 2017).

Section 107 of the Internal Revenue Code states, "In the case of a minister of the Gospel, gross income does not include – 1) the rental value of a home furnished to him as part of his compensation; or 2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home."

The case Lemon v. Kurtzman, 403 U.S. 602 (1971) creates a three part test to determine whether a statute is Constitutional. To pass the test, a statute must have a secular purpose, must primarily neither advance nor inhibit religion and must not foster an excessive entanglement between government and religion.

The plaintiffs are officers of the Freedom From Religion Foundation (FFRF). They contend that the clergy housing allowance confers an impermissible government benefit on religion. Treasury contends the clergy housing allowance exists to place clergy on "par with secular" persons.

The Seventh Circuit noted there are other specific housing benefits under the IRC, such as a housing benefit for persons who live abroad. Because there are housing benefits for categories other than clergy, this allowance does not advance religion. In addition, the benefit applies equally to all clergy and therefore it avoids discrimination between various denominations.

While the government must define who is a member of the clergy, there are multiple other cases with tests in which that determination has been regularly made. Therefore, the need for the government to determine whether or not a person is a minister of a particular religion is not an "excessive entanglement."

Editor's Note: This was a unanimous decision by the three judge panel of the Seventh Circuit. It is likely to be appealed to the full Seventh Circuit or to the Supreme Court. This case represents an opportunity for the Supreme Court to clarify the three parts of the Lemon Test.

Timeshare Charity Scam Penalty

In James Tarpey v. United States; No. 2:17-cv-00094 (2019), the U.S. District Court for the District of Montana, Butte Division, held James Tarpey subject to a Sec. 6700(a) penalty for false appraisals of timeshare donations.

In 2006, James Tarpey formed a nonprofit named Donate For Cause (DFC). Tarpey had previously operated a business named Resort Closings. That business managed timeshare closings.

DFC was created to facilitate donations of timeshares. It received 7,600 timeshare donations prior to a court decision that enjoined further gifts. The gift appraisals required for IRS Form 8283 were completed by Tarpey, his sister Suzanne Tarpey and real estate appraisers Ron Broyles and Curt Thor.

The IRS claimed the appraisals were far above the value realized when DFC sold the gifted timeshares. It obtained an injunction against Tarpey that precluded the defendant from "1) preparing (or assisting others in preparing) any property appraisal that will be used in connection with federal taxes; 2) encouraging or advising (or assisting others in encouraging or advising) others to claim charitable contribution deductions on any federal tax return; and 3) organizing, promoting, selling, marketing or advising with respect to (or assisting others in organization, promoting, selling, marketing or advising with respect to) any plan or arrangement regarding charitable contribution deductions claimed on federal tax returns."

Because Tarpey and other defendants only appraised timeshares for DFC, they were not qualified appraisers. A qualified appraiser must "perform a majority of his or her appraisals made during his or her taxable year for other persons." Reg. 1.170A-13(c)(5)(iv)(F)

While taxpayer's CPA George Schramm claimed Tarpey could be a qualified appraiser of certain personal property, Tarpey signed the Declaration of Appraiser and affirmed that he knew the "donor of the property, the donee of the property, a related person or an appraiser who does not perform a majority of their appraisals for other persons" all of which represented conflicts that would exclude him from serving as the appraiser. Reg. 1.170A-13(c)(5)(iv).

Because Tarpey knew he was not qualified to do timeshare appraisals for gifts to DFC, the Sec. 6700(a) penalty is applicable.

Applicable Federal Rate of 3.0% for April -- Rev. Rul. 2019-8; 2019-14 IRB 1 (15 Mar 2018)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2019. The AFR under Section 7520 for the month of April is 3.0%. The rates for March of 3.2% or February of 3.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published March 22, 2019

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