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Wednesday March 20, 2019

Washington News

Washington Hotline

Tax Time Guide for IRS.gov

In IR-2018-76, the Service published a "Tax Time Guide" with tips on making best use of IRS.gov.

Taxpayer usage of IRS.gov in 2018 is up 21% over last year. The Service explained nine ways taxpayers can benefit from the website.
  1. Where's My Refund - The "Where's My Refund?" tool is available both on IRS.gov and on the mobile app IRS2Go. Your refund information may be available within one day after filing an electronic return or four weeks after filing a paper return.
  2. Free Helps - The Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) programs allow free one-on-one help for tax preparation. The IRS.gov website has a locator for VITA/TCE assistance to find a convenient site.
  3. Do it Yourself - If you want to prepare your own return using professional software, the IRS Free File program is available to the 70% of taxpayers who earned $66,000 or less in 2017. The online software will help find deductions, credits and exemptions. If you earned more than $66,000 in 2017, you may still complete your return using the Free File Fillable Forms.
  4. Find a Tax Pro - There is a searchable directory on IRS.gov to find a tax professional. Use the search function for "tax professional" to locate tax return preparers in your region. You also can search the directory if you are looking for a tax pro with specific credentials or qualifications.
  5. Get a Tax Transcript - There is an online tool titled "Get Transcript." You may view, print or download your tax transcripts for any year, so long as the IRS has processed your return.
  6. Answers to Tax Questions - There are several tools that help you with tax questions. The Interactive Tax Assistant or the Frequently Asked Questions (FAQs) will give you quick help. You may also want to use Publication 17, which is a complete tax reference tool kit for individuals. Finally, the IRS Tax Map may help you find answers to your questions.
  7. Make a Payment - The quickest and easiest way to make a payment is to use IRS Direct Pay. This online system enables you to pay tax bills or make quarterly estimated tax payments from your checking or savings account. For more information on payment options visit www.IRS.gov/payments.
  8. Unable to Pay Tax - If you are not able to pay your current tax, there is an Online Payment Agreement Tool. This may help you determine whether you qualify for a payment plan. There also is an Offer in Compromise Pre-Qualifier. This may indicate that you could settle your tax liability for less than the full amount owed.
  9. Amend your Return - There is a "Where is my Amended Return?" tool to discuss the status of an amended tax return. Some taxpayers have filed IRS Form 1040X to amend their prior tax returns.

Sen. Thune Promotes CHARITY Act

Sen. John Thune (R-SD) and co-sponsor Ron Wyden (D-OR) continue to advocate action on the CHARITY Act (S. 1343). The bill has six Republican and seven Democratic co-sponsors. It includes several provisions to increase charitable giving.

Sen. Thune seeks to have a vote on a standalone bill or include it in another "must-pass" bill. At the Washington Non-Profit Legal and Tax Conference on March 26, Finance Committee Staffer Christopher T. Arneson supported the bill. With the large increase in the standard deduction under the Tax Cuts and Jobs Act of 2017, the number of itemized charitable deductions will decline. As a result, there must be a substantial effort to promote charitable giving by passing the CHARITY Act.

There are five principal provisions in the CHARITY Act.
  1. Charitable Mileage - The rate for charitable mileage is changed from the flat $0.14 per mile to the rate for medical and moving travel ($0.18 per mile in 2018).
  2. Form 990 eFile - All nonprofits that file any version of IRS Form 990 will be required to use electronic filing.
  3. IRAs to Donor Advised Funds (DAFs) - IRA owners over age 70½ may transfer up to $100,000 per year in a qualified charitable distribution to a nonprofit. The CHARITY Act permits this transfer to fund a DAF. There are specific new charity disclosure requirements. The charity must disclose the number of DAFs that have been in existence for 36 months, the grants from these DAFs and the policies to monitor and handle inactive DAFs.
  4. Private Foundation Excise Tax - The existing excise tax is simplified to a flat 1% excise tax on private foundation income.
  5. Philanthropic Enterprise - A new exemption is created for the excess business holding rules. This exemption will allow private foundations (PFs) to create 100%-owned Philanthropic Enterprises (PEs). All profits over reasonable business reinvestment amounts must be distributed by the PE to the PF. The PE must be operated independently from the PF.
Editor's Note: Community foundations and religious foundations are very hopeful the IRA to DAF rollover will be approved. DAFs have grown rapidly in importance during the past decade. Many donors over age 70½ who are using the existing IRA charitable rollover would increase their giving if they could also fund DAFs from their IRAs.

Estate Tax Lien Has Priority

In Bennett, Benjamin R. et al. v. Susan Bennet Bascom et al.; No. 5:17-cv-00113 (26 Mar 2018), the U.S. District Court for the Eastern District of Kentucky held that an IRS lien for estate taxes had priority over an LLC that purchased the estate assets.

Duane Bennett, Sr. was the general partner and 40% owner of two limited partnerships, Black Star Land & Mining, Ltd. and Manalapan Land Company. There were 14 limited partners in the two entities. Bennett had taken loans of approximately $1 million from both partnerships prior to his death.

When he passed away, the estate claimed that he owed Manalapan $796,086 and Black Star $1,515,582. After he passed away, the IRS assessed an estate tax of $2,783,849. On May 1, 2017, the unpaid estate tax amount was $2,107,499.

The estate and limited partners sold all assets of the two partnerships to Kingdom Energy Research LLC (KER). The estate held $2,117,525 of proceeds from the sale in an escrow account. The 14 limited partners, KER and the IRS all claimed priority distribution rights with respect to the escrowed funds.

The limited partners claimed that notes for the loans were partnership assets. Therefore, they should receive the escrowed funds. However, the estate sold all assets to KER. Therefore, the limited partners did not own the notes.

KER bought all assets of the partnerships, including the notes. It claimed it had a protected security interest in the estate's ownership of the death obligations. However, the IRS had filed a tax lien against the sale proceeds. The court found that the properly filed tax lien had priority and the IRS received the escrowed funds.

Applicable Federal Rate of 3.2 for April -- Rev. Rul. 2018-9; 2018-13 IRB 1 (16 Mar 2018)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2018. The AFR under Section 7520 for the month of April is 3.2%. The rates for March of 3.0% or February of 2.8% 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 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.

Published March 30, 2018

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