Washington News

The Internal Revenue Service (IRS) announced recently that there will be tax relief for 51 counties in Florida. Many of the counties previously qualified for relief under Hurricane Helene, but at least six additional counties and other locations are included in the new relief.

Generally, Florida taxpayers will have until May 1, 2025, to file most federal tax returns and make tax payments. This could include 2024 individual and business returns and payments that normally were due in March and April 2025.

The May 1, 2025-deadline applies to specific categories. Any individual in the Federal Emergency Management Agency (FEMA) region may defer the tax returns due in March or April 2025. If a C corporation or tax-exempt organization has a valid extension to file the calendar-year 2023 federal return, it also may delay filing. However, the IRS notes that payments were due last April 15 and, therefore, there is no eligibility for deferring those payments.

The relief may apply to quarterly estimated tax payments due on January 15 and April 15, 2025. Some payroll and excise tax returns that are normally due on October 31, 2024, January 31, 2025 and April 30, 2025, will qualify for relief.

The penalties for any organization that is not able to make payroll and excise tax deposits after October 4, 2024, will be abated so long as the deposits are made by October 21, 2024.

The IRS reminds taxpayers that it automatically provides filing and penalty relief to any individual with an address of record in the disaster area. If a taxpayer lives outside the disaster area but is unable to meet a deadline because records are within the disaster zone, the taxpayer must call the IRS at 866-562-5227.

If individuals have uninsured or unreimbursed disaster-related losses, they are permitted to claim those losses on either the 2024 or 2023 tax return. The election for this decision may be made up to six months after the due date of your federal income tax return for 2024. You should write FEMA number 3622-EM on a return claiming a loss.

Disaster relief payments from a government agency are generally excluded from income. These payments must be for "reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents."

The IRS also warns taxpayers about charity scams that often follow disasters. IRS Commissioner Danny Werfel stated, "Many people want to help survivors and their families by donating to charities. Too often, criminals take advantage of would-be donors' kindness by stealing money and personal information from well-meaning taxpayers. You should never feel pressured by solicitors to immediately give to a charity. It is important to do the research to verify if they are authentic first."

Commissioner Werfel offers several tips to avoid fake charities. The fake charity promoters often use emails and fake websites to trick well-meaning individuals. The IRS has a Tax Exempt Organization Search (TEOS) tool on www.IRS.gov that can be used to review the status of a charity.

Donors should be cautious if a charity wants a donation only by a gift card or wiring money. That is typically the mark of a scammer. In addition, if the solicitor asks for your Social Security number, a credit card number or a personal identification number, you should be on guard. Finally, scammers will typically pressure people to make an immediate donation. The IRS explains that legitimate charities are pleased to receive a donation at any time during the year.

Editor's Note: The tax relief until May 1, 2025, is a welcome benefit for Florida taxpayers. The IRS is correct that taxpayers should be generous in helping those in need, but donors should make certain that they are working with qualified disaster charities.

Protect Your Clients from OIC "Mills"

There are frequently advertisements on television and the Internet by companies that claim they are able to settle your tax debt for "pennies on the dollar." While there are certainly legitimate companies, many of the tax resolution companies use aggressive sales tactics and mislead consumers.

The IRS has issued a warning about offer in compromise (OIC) "mills" that "aggressively mislead taxpayers into thinking their tax debts can disappear."

The OIC is a good program for taxpayers who are not able to pay their full tax liability or would face a financial hardship in doing so. The IRS will consider the income, expenses, and asset equity of the taxpayer. However, the IRS warns taxpayers and advisors that the OIC mills have been on the "Dirty Dozen" list for several years because far too many companies mislead individuals.

The OIC mills are changing and many of them are reducing the number of OIC offers. Instead, they are avoiding the significant work of an OIC offer and simply placing taxpayers on installment agreements and seeking first-time abatements.

The first-time abatement program gives relief of many penalties for taxpayers who have been compliant for the past three years. These penalties include the amounts for failure to file returns, failure to pay taxes and failure to make tax deposits.

The number of offers in compromise has declined significantly. In fiscal 2014, there were 68,000 offers and the IRS accepted 27,000. However, in fiscal 2023, the offers declined to 30,000 with about 12,000 accepted.

One explanation for the reduced number of 2023 offers and acceptances is that the IRS enforcement during the COVID-19 pandemic was at a much lower level. Many collection actions were suspended and the number of individuals who potentially could use OIC was smaller. With the return of IRS staff to their offices, it is expected that there will be more collection actions next year.

The OIC requires a great deal of information because it is a hardship program. The OIC is only available if there is significant financial hardship. Many of the OIC mills are reducing their efforts to obtain the OIC offers because they know that this requires more time, effort and work.

Many legal aid organizations assist modest income individuals with their tax debts. The legal aid organizations are concerned the IRS may be overreaching. Many of their clients have modest incomes and, while they may have some home equity, it is difficult to withdraw that home equity.

Clients should work with their tax professional to resolve debt issues with the IRS. The professional could be a CPA, attorney or enrolled agent. These professionals are able to provide both tax and financial advice in addition to working with the IRS to solve the client’s tax problem. Some tax resolution companies have charged half or two-thirds of the amount of the tax debt as compensation for their services. Often, these taxpayers would be much better off if they simply worked directly with their tax advisor and the IRS to resolve the debt.

A staff member for the North Georgia Low Income Taxpayer Clinic said that a common problem is individuals enter the office believing that they can eliminate their tax debts without cost. The staff person noted, "The problem with filing offers for people that are not offer candidates” is that the ten-year collection statute starts running while the offer is pending. “It really is a waste of the government's time. It is a waste of the client's time and money," according to the staffer.

Many individuals receive IRS notices and then contact an OIC mill. The individual may already be on hardship status and the IRS is not likely to pursue the collection. However, the OIC mill insists on a payment to resolve an issue that does not exist. This is particularly a problem for low-income taxpayers.

However, some businesses also have been scammed. Some businesses have paid over $20,000 to resolve matters and the OIC mill failed to take any action. After the IRS levies on the bank account of the business, the business will usually be unable to recover the payment to the OIC mill.

The IRS has been criticized for not making the picture clear to taxpayers about the resolution options. The IRS defended itself and notes that it has "a consistent and dedicated communications strategy to help taxpayers avoid OIC mills, publishing warnings in the annual Dirty Dozen listing and on our social media sites."

The IRS has an OIC webpage on IRS.gov. In November 2023, it added a chatbot to answer questions on the OIC program. In June of 2024, there was a voicebot added to the OIC telephones.

The IRS also is seeking additional power to regulate taxpayers from Congress. If the IRS could regulate taxpayers, they could exercise greater control over the OIC settlement companies.

Nonprofit Hopes for 2025 Tax Bill

Both the National Council of Nonprofits (NCN) and Independent Sector (IS) sent letters to the Senate Finance Committee and House Ways and Means Committee this week. NCN noted, "the expiration of the key provisions of the 2017 tax law at the end of 2025 sets the stage for one of the most consequential tax debates in a generation."

Both associations representing nonprofits were concerned that they would not receive proper recognition in the forthcoming major tax bill. Because hundreds of provisions that were passed in the Tax Cuts and Jobs Act of 2017 (TCJA) sunset at the end of 2025, the forthcoming tax bill could be the most significant tax legislation in a decade.

The NCN and IS representatives offered several principles that tax-writers could consider when they are drafting the 2025 legislation.

1. Do No Harm — Nonprofits are usually Section 501(c)(3) organizations and are not partisan in law, fact and purpose. This is essential to public trust and in order to have an impact in their communities. The nonprofit sector calls on Congress to recognize that tax provisions have a major impact on both the organization and individuals in need who are served by the nonprofits. Therefore, the hope is that the tax-writing committees will consider the impact on nonprofits of the forthcoming bill.
2. Reinstate and Expand the Nonitemizer Deduction — There was a nonitemizer deduction of $300 for an individual and $600 for a couple during the COVID pandemic years. NCN and IS staff recommend the reinstatement of this nonitemizer deduction. TCJA had a significant impact on charitable giving. The increase in the standard deduction was estimated to lead to $13 billion in reduced giving. The research now indicates that giving declined by over $16 billion on an annual basis as a result of TCJA.
3. Retain the 60% AGI Cash Gifts Rule — TCJA allowed an increase for cash gifts from 50% of adjusted gross income (AGI) to 60%. This increased gift option is used each year by a small number of generous donors and should be retained.
4. Employment Tax Incentives for Nonprofits — Employment tax incentives are frequently tax credits that only benefit for-profit employers. However, tax-exempt employers could benefit from employment tax incentives that have a refundability feature.
5. Remove the Excise Tax on Nonprofit Compensation —There is a potential excise tax on nonprofit compensation over $1 million dollars per year. NCN and IS suggest that this should be allowed to sunset. It has very minimal impact and raises virtually no significant revenue for the government.
6. Permanent Natural Disaster Tax Relief Package — Natural disasters are becoming more frequent. While FEMA declarations provide benefits, there could be an enhanced nonitemizer deduction available in FEMA-designated zones. It also may be appropriate to encourage support of disaster relief charities by allowing a 100% of AGI deduction for disaster relief.
7. Charitable Mileage Rates — The charitable mileage rate of $0.14 per mile is completely outdated. Business mileage rates have been increased to over $0.60 per mile in recent years and the charitable rate should equal the business rate. There are many charities that depend on volunteer drivers to provide meals and transportation assistance to those who are in need. The increase in the mileage rate charitable deduction would be highly beneficial.

Editor's Note: The other significant change proposed by IS is the repeal of the Form 1023-EZ application. The Taxpayer Advocate Service (TAS) reviewed the 2017 Form-EZ applicants. An extraordinary 42% or more of these applicants failed at least one qualification. The TAS is concerned that there are thousands of unqualified nonprofits that may be defrauding donors. It is good policy for nonprofit associations to reach out now to the tax-writing committees. It is likely the 2025 tax bill will be a very significant bill with great impact on all sectors of America.

Applicable Federal Rate of 4.4% for November: Rev. Rul. 2024-24; 2024-45 IRB 1 (15 October 2024)

The IRS has announced the Applicable Federal Rate (AFR) for November of 2024. The AFR under Sec. 7520 for the month of November is 4.4%. The rates for October of 4.4% or September of 4.8% 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 2024, pooled income funds in existence less than three tax years must use a 3.8% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”