Gambling – Winnings and Losses

Helpful Tips to Know About Gambling Winnings and Losses

Taxpayers must report all gambling winnings as income. They must be able to itemize deductions to claim any gambling losses on their tax return.

Taxpayers who gamble may find these tax tips helpful:

  1. Gambling income. Income from gambling includes winnings from the lottery, horseracing and casinos. It also includes cash and non-cash prizes. Taxpayers must report the fair market value of non-cash prizes like cars and trips to the IRS.
  2. Payer tax form. The payer may issue an IRS Form W-2G, Certain Gambling Winnings, to winning taxpayers based on the type of gambling, the amount they win and other factors. The payer also sends a copy of the form to the IRS. Taxpayers should also get a Form W-2G if the payer withholds income tax from their winnings.
  3. How to report winnings. Taxpayers must report all gambling winnings as income. They normally should report all gambling winnings for the year on their tax return as “Other Income.” This is true even if the taxpayer doesn’t get a Form W-2G.
  4. How to deduct losses. Taxpayers are able to deduct gambling losses on Schedule “A”, Itemized Deductions, but keep in mind, they can’t deduct gambling losses that are more than their winnings.
  5. Keep gambling receipts. Keep records of gambling wins and losses. This means gambling receipts, statements and tickets or by using a gambling log or diary.

 

IRS TAX PROBLEMS – How to Handle IRS Letter or Notice

IRS TAX PROBLEMS – Tips on How to Handle an IRS Letter or Notice

The IRS mails millions of letters every year to taxpayers for a variety of reasons. Keep the following suggestions in mind on how to best handle a letter or notice from the IRS:

  1. Do not panic. Simply responding will take care of most IRS letters and notices.
  2. Do not ignore the letter. Most IRS notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do. Read the letter carefully; some notices or letters require a response by a specific date.
  3. Respond timely. A notice may likely be about changes to a taxpayer’s account, taxes owed or a payment request. Sometimes a notice may ask for more information about a specific issue or item on a tax return. A timely response could minimize additional interest and penalty charges.
  4. If a notice indicates a changed or corrected tax return, review the information and compare it with your original return. If the taxpayer agrees, they should note the corrections on their copy of the tax return for their records. There is usually no need to reply to a notice unless specifically instructed to do so, or to make a payment.
  5. Taxpayers must respond to a notice they do not agree with. They should mail a letter explaining why they disagree to the address on the contact stub at the bottom of the notice. Include information and documents for the IRS to consider and allow at least 30 days for a response.
  6. There is no need to call the IRS or make an appointment at a taxpayer assistance center for most notices. If a call seems necessary, use the phone number in the upper right-hand corner of the notice. Be sure to have a copy of the related tax return and notice when calling.
  7. Always keep copies of any notices received with tax records.
  8. The IRS and its authorized private collection agency will send letters and notices by mail. The IRS will not demand payment a certain way, such as prepaid debit or credit card. Taxpayers have several payment options for taxes owed.

 

IRS TAX PROBLEMS – Is an “Offer in Compromise” Right for You?

IRS TAX PROBLEMS – Is an “Offer in Compromise” right for you?

 

An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if paying your full tax liability creates a financial hardship.

 

However, the Offer in Compromise program is not for everyone. Before the IRS can consider your offer, you must be current with all filing and payment requirements.

 

Unless you have a valid extension, the IRS will return any Offer in Compromise application if your returns are not filed and any required down payment with your application will be applied to what you owe.

 

In addition, you should explore all other payment options before submitting an offer. If you can pay the full amount, you will find payment options on IRS website at “IRS.gov/payments”. If you can pay through a payment plan, you may be able to set it up using our online payment agreement application.

 

Before you take the time to prepare and submit an offer application, or pay someone to do it for you, consider using the IRS “Offer in Compromise Pre-Qualifier”. This simple online tool will confirm your eligibility and provide you with an estimated offer amount.

 

If you decide that an Offer in Compromise is right for you, you’ll find step-by-step instructions and all the forms for submitting an offer in our Offer in Compromise Booklet, IRS Form 656-B. Prepare your offer application carefully, and be sure to include all required forms and documentation. Also, don’t forget to include the application fee and initial payment with your application if necessary.

 

 

IRS WARNING – Watch Out For Summertime Tax Scams

IRS WARNING – Watch Out for Summertime Scams

The Internal Revenue Service recently issued a warning that tax-related scams continue across the nation even though the tax-filing season has ended for most taxpayers. People should remain on alert to new and emerging schemes involving the tax system that continue to claim victims.

“We continue to urge people to watch out for new and evolving schemes this summer,” said IRS Commissioner John Koskinen. “Many of these are variations of a theme, involving fictitious tax bills and demands to pay by purchasing and transferring information involving a gift card or iTunes card. Taxpayers can avoid these and other tricky financial scams by taking a few minutes to review the tell-tale signs of these schemes.”

EFTPS Scam

A new scam which is linked to the Electronic Federal Tax Payment System (EFTPS) has been reported nationwide. In this ruse, con artists call to demand immediate tax payment. The caller claims to be from the IRS and says that two certified letters mailed to the taxpayer were returned as undeliverable. The scammer then threatens arrest if a payment is not made immediately by a specific prepaid debit card. Victims are told that the debit card is linked to the EFTPS when, in reality, it is controlled entirely by the scammer. Victims are warned not to talk to their tax preparer, attorney or the local IRS office until after the payment is made.

“Robo-call” Messages

The IRS does not call and leave prerecorded, urgent messages asking for a call back. In this tactic, scammers tell victims that if they do not call back, a warrant will be issued for their arrest. Those who do respond are told they must make immediate payment either by a specific prepaid debit card or by wire transfer.

Private Debt Collection Scams

The IRS recently began sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had – and has been aware of – for years. The IRS would have previously contacted taxpayers about their tax debt.

Scams Targeting People with Limited English Proficiency

Taxpayers with limited English proficiency have been recent targets of phone scams and email phishing schemes that continue to occur across the country. Con artists often approach victims in their native language, threaten them with deportation, police arrest and license revocation among other things. They tell their victims they owe the IRS money and must pay it promptly through a preloaded debit card, gift card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls” or via a phishing email.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. The IRS will usually first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their “IRS Impersonation Scam Reporting” web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

For anyone who owes tax or thinks they do:

  • View tax account information online at IRS.gov to see the actual amount you owe. Then review payment options.
  • Call the number on the billing notice, or
  • Call the IRS at 800-829-1040. IRS workers can help

How to Know It’s Really the IRS Calling or Knocking

The IRS initiates most contacts through regular mail delivered by the United States Postal Service. However, there are special circumstances in which the IRS will call or come to a home or business, such as:

  • when a taxpayer has an overdue tax bill,
  • to secure a delinquent tax return or a delinquent employment tax payment, or,
  • to tour a business as part of an audit or during criminal investigations.

Even then, taxpayers will generally first receive several letters (called “notices”) from the IRS in the mail. For more information, visit “How to know its really the IRS calling or knocking on your door” on IRS.gov.

 

BUSINESS PLANNING – Husband and Wife

Can a Husband and Wife operate a business as a Sole Proprietorship or do they need to be a Partnership?

Unless a business meets the requirements listed below to be a “qualified joint venture”, a Sole Proprietorship must be solely owned by one spouse, and the other spouse can work in the business as an employee. A business jointly owned and operated by a husband and wife is a Partnership (and should file IRS Form 1065, U.S. Return of Partnership Income) unless the spouses qualify and elect to have the business be treated as a “qualified joint venture”, or they operate their business in one of the nine community property states.

A married couple who jointly own and operate a trade or business may choose for each spouse to be treated as a Sole Proprietor by electing to file as aqualified joint venture”.

Requirements for a “qualified joint venture”:

  • The only members in the joint venture are a husband and wife who file a joint tax return,
  • The spouses own and operate the trade or business as co-owners (and not in the name of a state law entity such as an LLC or LLP),
  • The husband and wife must each materially participate in the trade or business, or maintain a farm as a rental business without materially participating (for self-employment tax purposes) in the operation or management of the farm, and
  • Both spouses must elect qualified joint venture status on IRS Form 1040, U.S. Individual Income Tax Return, by dividing the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture. Each spouse files with the Form 1040 a separate Schedule “C” (IRS Form 1040), Profit or Loss From Business, Schedule “C-EZ” (IRS Form 1040), Net Profit From Business, Schedule “F” (IRS Form 1040), Profit of Loss From Farming, or IRS Form 4835, Farm Rental Income and Expenses, accordingly, and if required, a separate Schedule “SE” (IRS Form 1040), Self-Employment Tax, to pay self-employment tax.

The qualified joint venture rules are effective for taxable years beginning after December 31, 2006.

 

IRS WARNING – New Phone Scam – Bogus Certified Letters

IRS WARNING – New Phone Scam Involving Bogus Certified Letters

The Internal Revenue Service recently warned people to beware of a new scam linked to the “Electronic Federal Tax Payment System” (EFTPS), where fraudsters call to demand an immediate tax payment through a prepaid debit card. This scam is being reported across the country, so taxpayers should be alert to the details.

In the latest twist, the scammer claims to be from the IRS and tells the victim about two certified letters purportedly sent to the taxpayer in the mail but returned as undeliverable. The scam artist then threatens arrest if a payment is not made through a prepaid debit card. The scammer also tells the victim that the card is linked to the EFTPS system when, in fact, it is entirely controlled by the scammer. The victim is also warned not to contact their tax preparer, an attorney or their local IRS office until after the tax payment is made.

“This is a new twist to an old scam,” said IRS Commissioner John Koskinen. “Just because tax season is over, scams and schemes do not take the summer off. People should stay vigilant against IRS impersonation scams. People should remember that the first contact they receive from IRS will not be through a random, threatening phone call.”

EFTPS is an automated system for paying federal taxes electronically using the Internet or by phone using the EFTPS Voice Response System. EFTPS is offered free by the U.S. Department of Treasury and does not require the purchase of a prepaid debit card. Since EFTPS is an automated system, taxpayers won’t receive a call from the IRS. In addition, taxpayers have several options for paying a real tax bill and are not required to use a specific one.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their “IRS Impersonation Scam Reporting” web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

The IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds.

 

IRS ALERT – IRS Improves Online Taxpayer Information Access

IRS ALERT – IRS Continues to Expand Taxpayer Services; Adds New Features to Taxpayers Online Account

The Internal Revenue Service announced this week the addition of several new features to the online account tool first introduced late last year as part of the IRS’s commitment to improve and expand taxpayer services.

The “Online Account” allows individual taxpayers to access the latest information available about their federal tax account through a secure and convenient tool on IRS.gov. When it first launched in December, 2016, the tool assisted taxpayers with basic account inquiries such as information about their balance due and access to the various IRS payment options. Since then, the IRS has added new features allowing taxpayers to:

  • View up to 18 months of tax payment history
  • View payoff amounts and tax balance due for each tax year
  • Obtain online transcripts of various Form 1040-series through “Get Transcript
  • Give feedback on their experience with their online account and make suggestions for improvements

“We are constantly looking for ways to improve taxpayers’ interactions with the IRS and adding these new features to the taxpayer’s online account is an important step in that direction,” said IRS Commissioner John Koskinen. “The IRS is committed to serving taxpayers in multiple ways and now taxpayers who want to interact digitally with us in a secure environment have access to even more helpful features.”

Before accessing the tool, taxpayers must authenticate their identities through the rigorous “Secure Access” process. This is a “Two-step authentication process”, which means returning users must have their credentials (username and password) plus a security code sent as a text to their mobile phones.

Taxpayers who have registered using “Secure Access for Get Transcript Online” or “Get an IP PIN” may use their same username and password. To register for the first time, taxpayers must have their personal and financial information including: Social Security number, specific financial information, such as a credit card number or loan numbers, email address and a text-enabled mobile phone in the user’s name. Taxpayers may review the “Secure Access” process prior to starting registration.

As part of the security process to authenticate taxpayers, the IRS will send verification, activation or security codes via email and text. The IRS warns taxpayers that it will not initiate contact via text or email asking for log-in information or personal data. The IRS texts and emails will only contain one-time codes.

In addition to the online account, the IRS continues to provide several self-service “Tools” and helpful resources available on IRS.gov for individuals, businesses and tax professionals.

 

IRS ALERT – Revenue Procedure 2017 – 34 (Portability Election Extension Relief)

Rev. Proc. 2017-34
SECTION 1. PURPOSE This revenue procedure provides a simplified method for certain taxpayers to
obtain an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make a “portability” election under § 2010(c)(5)(A) of the Internal Revenue Code (Code). For purposes of the Federal estate and gift taxes, a portability election allows a decedent’s unused exclusion amount (deceased spousal unused exclusion amount, or DSUE amount) to become available for application to the surviving spouse’s subsequent transfers during life or at death. The simplified method provided in this revenue procedure is to be used in lieu of the letter ruling process. No user fee is required for submissions filed under this revenue procedure.
SECTION 2. BACKGROUND .01 Rules for Portability
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(1) Section 303(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA), Pub. L. No. 111-312, 124 Stat. 3296, 3302 (2010), amended § 2010(c) of the Code to allow the estate of a decedent who is survived by a spouse to make a portability election. For purposes of the Federal estate and gift taxes, a portability election allows the surviving spouse to apply the decedent’s DSUE amount to the surviving spouse’s own transfers during life and at death. The portability election applies to estates of decedents dying after December 31, 2010, if such decedent is survived by a spouse. The portability provisions under § 2010(c) of the Code were scheduled to expire on January 1, 2013, pursuant to §§ 101(a)(1) and 304 of TRUIRJCA. However, § 101(a) of the American Taxpayer Relief Act of 2012 (ATRA), Pub. L. No. 112-240, 126 Stat. 2313 (2013), made the ability to elect portability permanent.
(2) Section 2010(c)(2) of the Code defines the applicable exclusion amount used to determine the applicable credit amount as the sum of the basic exclusion amount and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) of the Code defines the basic exclusion amount as $5,000,000, as adjusted for inflation in each year after calendar year 2011. Section 2010(c)(4) of the Code, as amended pursuant to a technical correction in § 101(c) of ATRA, defines the DSUE amount as the lesser of (A) the basic exclusion amount, or (B) the excess of the applicable exclusion amount of the last deceased spouse of the surviving spouse over the amount with respect to which the tentative tax is determined under § 2001(b)(1) of the Code on the estate of such deceased spouse.
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(3) Section 2010(c)(5)(A) provides certain requirements that the executor of the estate of a deceased spouse must satisfy to elect portability and thereby make the decedent’s DSUE amount available to the decedent’s surviving spouse. In particular, the executor of the estate of the deceased spouse must elect portability of the DSUE amount on an estate tax return, which must include a computation of the DSUE amount. Under § 2010(c)(5)(A), a portability election is effective only if made on an estate tax return that is filed within the time prescribed by law (including extensions) for filing such return.
(4) On June 18, 2012, the Department of the Treasury (Treasury) and the Internal Revenue Service (the Service) published in the Federal Register (77 FR 36150) temporary regulations under §§ 2010 and 2505 (T.D. 9593, 2012-28 I.R.B. 17). The portability provisions of the temporary regulations have retroactive effect, applying to estates of decedents dying on or after January 1, 2011. On the same day, a notice of proposed rulemaking (REG-141832-11) containing regulations proposed by cross- reference to the temporary regulations was published in the Federal Register (77 FR 36229). Treasury and the Service published final regulations (80 FR 34279) under §§ 2010 and 2505 on June 16, 2015 (T.D. 9725, 2015-26 I.R.B. 1122), which generally adopt the rules in the temporary and proposed regulations and apply to estates of decedents dying on or after June 12, 2015.
(5) Section 20.2010-2(a)(1) of the Estate Tax Regulations provides that an estate that elects portability will be considered, for purposes of subtitle B and subtitle F of the Code, to be required to file a return under § 6018(a). Accordingly, the due date of an estate tax return required to elect portability is 9 months after the decedent’s date of
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death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Section 20.2010-2(a)(1) further provides that an extension of time to elect portability will not be granted under § 301.9100-3 to an estate that is required to file an estate tax return under § 6018(a), as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability election purposes. Such an extension, however, may be available to an estate that is not required to file an estate tax return under § 6018(a), as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability election purposes.
(6) Section 20.2010-2(a)(2) provides that, upon the timely filing of a complete and properly prepared estate tax return, an executor of an estate of a decedent survived by a spouse will have elected portability of the decedent’s DSUE amount unless the executor chooses not to elect portability and satisfies the requirements in § 20.2010- 2(a)(3)(i) for the portability election not to apply.
.02 Extensions Granted to Elect Portability under § 301.9100-3 (1) Section 301.9100-3 provides the standards that the Service is to apply to
determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation or other administrative guidance (and not by statute). The due date for electing portability for those estates not required by § 6018(a) to file an estate tax return is prescribed by § 20.2010-2(a), and not by statute. Therefore, the executor of such an estate may seek an extension of time under § 301.9100-3 to elect portability under § 2010(c)(5)(A).
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(2) In general, under § 301.9100-3, relief will be granted if the taxpayer establishes to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith and that the grant of relief will not prejudice the interests of the government.
(3) On February 10, 2014, the Service published Rev. Proc. 2014-18, 2014-7 I.R.B. 513, which provided a simplified method for obtaining an extension of time under § 301.9100-3 to make a portability election under § 2010(c)(5)(A) that was available to the estates of decedents dying after December 31, 2010, if such an estate was not required by § 6018(a) to file an estate tax return and if such a decedent was survived by a spouse. However, this simplified method was available only on or before December 31, 2014. The revenue procedure stated that, through that same date, the Service would not issue letter rulings to such estates granting an extension of time under § 301.9100-3 to make a portability election under § 2010(c)(5)(A).
(4) Since December 31, 2014, the Service has issued numerous letter rulings under § 301.9100-3 granting an extension of time to elect portability under § 2010(c)(5)(A) in situations in which the decedent’s estate was not required by § 6018(a) to file an estate tax return. Many of these ruling requests have involved estates of decedents that discovered the failure to elect portability not long after the due date set forth in § 20.2010-2(a)(1) for filing an estate tax return to elect portability. Other ruling requests have involved estates of decedents with a date of death in the first years after the enactment of the portability election provisions, where the executor did not know about the need to file a return to elect portability, or did not discover the failure to elect portability, until many years later, often after the death of the surviving spouse.
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(5) Treasury and the Service have determined that the considerable number of ruling requests for an extension of time to elect portability received since December 31, 2014, indicates a need for continuing relief for the estates of decedents having no filing requirement under § 6018(a). Further, the considerable number of ruling requests received has placed a significant burden on the Service. Accordingly, this revenue procedure provides a simplified method to the estates of decedents having no filing requirement under § 6018(a) to obtain an extension of time under § 301.9100-3 to elect portability, provided that certain requirements (set forth in sections 3.01 and 4.01 of this revenue procedure) are met.
(6) In providing this relief, Treasury and the Service have considered requests received for a permanent and unlimited extension, but also have considered both the statutory requirement of a timely filed return and the prejudice to the government from a lack of available records and current appraisals resulting from a long delay between a decedent’s death and the filing of an estate tax return for that decedent’s estate. Accordingly, this revenue procedure provides a simplified method to obtain an extension of time to elect portability that is available to the estates of decedents having no filing requirement under § 6018(a) for a period the last day of which is the later of January 2, 2018, or the second anniversary of the decedent’s date of death. A taxpayer seeking relief to elect portability after the second anniversary of a decedent’s death may do so by requesting a letter ruling in accordance with the requirements of § 301.9100-3 and Rev. Proc. 2017-1, 2017-1 I.R.B. 1 (or any successor revenue procedure).
(7) Making the simplified method of this revenue procedure available for all eligible estates through January 2, 2018, provides additional relief to the estates of
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decedents with a date of death in the first years after the enactment of the portability election provisions because the executors of those estates and their advisors may not have been aware of the opportunity and need to file an estate tax return to elect portability. Making the simplified method of this revenue procedure available after January 2, 2018, to estates during the two-year period immediately following the decedent’s date of death should not unduly compromise the ability of the taxpayer or the Service to compute and verify the DSUE amount because the necessary records are likely to be available during that period. In addition, limiting the availability of this simplified method to that two-year period could be beneficial to the surviving spouse or the surviving spouse’s estate in two ways. First, it increases the likelihood that the portability election will be made before the surviving spouse or the executor of the surviving spouse’s estate is required to file a gift or estate tax return, thus eliminating the need to file such a return without claiming any DSUE amount and then, after the portability election has been made, having to either file a supplemental return or file a claim for a credit or refund. Second, if the allowance of the portability election made pursuant to this revenue procedure and the corresponding revised computation of the surviving spouse’s applicable credit amount would result in a credit or refund of the surviving spouse’s gift or estate tax, the availability of the simplified method during the two-year period may reduce the risk that the period under § 6511 for filing a claim for that credit or refund (generally, extending three years from the date of filing or, if later, two years from the date of payment) would expire before the portability election could be made pursuant to this revenue procedure.
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SECTION 3. SCOPE .01 In General. The simplified method of this revenue procedure is available to
the executor (either an appointed executor or, if none, a non-appointed executor, as provided in § 20.2010-2(a)(6)) of the estate of a decedent if:
(1) The decedent: (a) was survived by a spouse; (b) died after December 31, 2010; and (c) was a citizen or resident of the United States on the date of death.
(2) The executor is not required to file an estate tax return under § 6018(a) as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes;
(3) The executor did not file an estate tax return within the time required by § 20.2010-2(a)(1) for filing an estate tax return; and
(4) The executor satisfies all requirements of section 4.01 of this revenue procedure.
.02 Executors that Timely Filed an Estate Tax Return. The simplified method of this revenue procedure is not available to the estate of a decedent whose executor filed an estate tax return within the time prescribed by § 20.2010-2(a)(1). Such an executor either will have elected portability of the DSUE amount by timely filing that estate tax return or will have affirmatively opted out of portability in accordance with § 20.2010-2(a)(3)(i).
.03 Failure to Qualify for Relief under this Revenue Procedure. The executor of an estate not within the scope described in section 3.01 of this revenue procedure only
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because the executor does not satisfy the requirements of section 4.01 of this revenue procedure may request an extension of time to make the portability election under § 2010(c)(5)(A) by requesting a letter ruling under the provisions of § 301.9100-3. The requirements for requesting a letter ruling are described in Rev. Proc. 2017-1 (or any successor revenue procedure).
SECTION 4. RELIEF FOR CERTAIN LATE PORTABILITY ELECTIONS .01 Requirements for Relief. The requirements for relief under this revenue
procedure are as follows: (1) A person permitted to make the election on behalf of the estate of a
decedent–that is, an executor described in § 20.2010-2(a)(6)–must file a complete and properly prepared Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death. The Form 706 will be considered complete and properly prepared if it is prepared in accordance with § 20.2010-2(a)(7).
(2) The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
.02 Extent of Relief. Satisfaction of the requirements for relief, as provided in section 4.01 of this revenue procedure, by an executor for whom the relief is available pursuant to section 3.01 of this revenue procedure, is deemed to satisfy the requirements for relief under § 301.9100-3 and, upon that satisfaction, relief is granted under the provisions of § 301.9100-3 to extend the time to elect portability under § 2010(c)(5)(A). Accordingly, for purposes of electing portability, the Form 706 of the
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decedent’s estate will be considered to have been filed timely in accordance with § 20.2010-2(a)(1).
.03 Subsequent Determination that Executor Is Required to File a Return under § 6018(a). If, subsequent to the grant of relief pursuant to this revenue procedure, it is determined that, based on the value of the gross estate and taking into account any taxable gifts, the executor was required to file an estate tax return under § 6018(a), the grant of an extension as provided in section 4.02 of this revenue procedure is deemed null and void ab initio. SECTION 5. IMPACT OF RELIEF ON SURVIVING SPOUSE
.01 Application of DSUE Amount. If the decedent’s estate is granted relief under this revenue procedure so that the estate tax return is considered to have been timely filed for purposes of electing portability, the DSUE amount of that decedent is available to the decedent’s surviving spouse or the estate of the surviving spouse for application to the surviving spouse’s transfers made on or after the decedent’s date of death in accordance with the rules prescribed under § 20.2010-3 of the Estate Tax Regulations and § 25.2505-2 of the Gift Tax Regulations. However, if the increase in the surviving spouse’s applicable exclusion amount attributable to the addition of the decedent’s DSUE amount as of the decedent’s date of death results in an overpayment of gift or estate tax by the surviving spouse or his or her estate, no claim for credit or refund may be made if the period of limitations under § 6511(a) for filing a claim for credit or refund of an overpayment of tax with respect to such transfer has expired. That is, an extension of time to elect portability granted under this revenue procedure does not
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extend the period during which the surviving spouse or the surviving spouse’s estate may make a claim for credit or refund under § 6511(a).
.02 Protective Claim for Credit or Refund of Tax in Anticipation of Relief under this Revenue Procedure. Because a surviving spouse has no DSUE amount from a deceased spouse to apply to such surviving spouse’s transfers until the portability election has been made by the deceased spouse’s executor (see §§ 20.2010-3(a)(2) and 25.2505-2(a)(2)), a claim for credit or refund of tax filed within the time prescribed in § 6511(a) by the surviving spouse or the estate of the surviving spouse in anticipation of a Form 706 being filed to elect portability pursuant to this revenue procedure will be considered a protective claim for credit or refund of tax.
.03 Examples. (1) Example 1.
(a) Predeceasing Spouse (S1) dies on January 1, 2014, survived by Surviving Spouse (S2). The assets includible in S1’s gross estate consist of cash on deposit in bank accounts held jointly with S2 with rights of survivorship in the amount of $2,000,000. S1 made no taxable gifts during life. S1’s executor is not required to file an estate tax return under § 6018(a), and does not file such a return.
(b) S2 dies on January 30, 2014. S2’s taxable estate is $8,000,000 and S2 made no taxable gifts during life. S2’s executor files a Form 706 on behalf of S2’s estate on October 30, 2014, claiming an applicable exclusion amount of $5,340,000. S2’s executor includes payment of the estate tax with the Form 706.
(c) Pursuant to this revenue procedure, S1’s executor files a complete and properly prepared Form 706 on behalf of S1’s estate on December 1, 2017, reporting a
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DSUE amount of $5,340,000. The executor includes at the top of the Form 706 the statement required by section 4.01(2) of this revenue procedure. The filing of the return satisfies the requirements for a grant of relief under this revenue procedure and S1’s estate is deemed to have made a valid portability election. The Service accepts S1’s return with no changes.
(d) To recover the estate tax paid, S2’s executor must file a claim for credit or refund of tax by October 30, 2017 (the end of the period of limitations prescribed in § 6511(a)), even though a Form 706 to elect portability has not been filed on behalf of S1’s estate by that date. Such a claim filed on Form 843, Claim for Refund and Request for Abatement, in anticipation of the filing of the Form 706 by S1’s executor will be considered a protective claim for credit or refund of tax. Accordingly, as long as the Form 843 is filed on or before October 30, 2017, the Service can consider and process that claim for credit or refund of tax once S1’s estate is deemed to have made a valid portability election and S2’s estate notifies the Service that the claim for credit or refund is ready for consideration.
(2) Example 2. (a) The facts relating to S1 and S1’s estate are the same as in Example 1.
S2 makes a gift to Child of $6,000,000 on December 1, 2014. S2 has made no prior taxable gifts. On April 15, 2015, S2 files a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, claiming an applicable exclusion amount of $5,340,000. S2 tenders payment of the gift tax with the Form 709.
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(b) To recover the gift tax paid, S2 must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund.
(3) Example 3. (a) The facts are the same as in Example 2 except that S2’s Form 709
claims an applicable exclusion amount of $10,680,000 including a DSUE amount of $5,340,000 from S1’s estate. As a result, the Form 709 reports no tax due and S2 tenders no gift tax.
(b) Although the portability election, once made, makes S1’s DSUE amount available to S2 retroactively to S1’s date of death, that DSUE amount is not available until the election is made. Because S2 files the Form 709 before S1’s estate makes the portability election, S2’s claimed application of the DSUE amount will be denied and gift tax on the transfer will be assessed. To recover that gift tax once the portability election has been made by S1’s estate, S2 must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund. SECTION 6. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2017-3, 2017-1 I.R.B. 130, is amplified. SECTION 7. EFFECTIVE DATE
.01 In General. This revenue procedure is effective June 9, 2017.
.02 Letter Rulings Will Not Be Issued. Through the later of January 2, 2018, or the second anniversary of a decedent’s date of death, the exclusive procedure for obtaining an extension of time under § 301.9100-3 to make a portability election under § 2010(c)(5)(A) for the estate of a decedent, if the decedent and executor meet the
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requirements of section 3.01(1)-(3) of this revenue procedure, is the procedure described in section 4.01 of this revenue procedure. If an executor of such an estate has filed a request for a letter ruling seeking an extension of time under § 301.9100-3 to make a portability election under § 2010(c)(5)(A) and that letter ruling is pending in the National Office on June 9, 2017, the Office of the Associate Chief Counsel (Passthroughs & Special Industries) will close its file on the ruling request and refund the user fee, and the estate may obtain the relief granted by this revenue procedure only by complying with section 4.01 of this revenue procedure. SECTION 8. DRAFTING INFORMATION
The principal author of this revenue procedure is Juli Ro Kim of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue procedure contact Ms. Kim at (202) 317-6859 (not a toll-free call).
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IRS TAX PROBLEMS – Tax Scams

TAX SCAM WARNING – IRS Lists “Dirty Dozen” Tax Scams

The Internal Revenue Service wrapped up the “Dirty Dozen” list of tax scams recently with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year’s filing season.

The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

The “Dirty Dozen” Tax Scams:

  • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.
  • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information.
  • Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim.
  • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.
  • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order.
  • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims.)
  • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations.
  • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns.
  • Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.
  • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return.)
  • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.
  • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.

 

IRS TAX PROBLEMS – Defenses to “Accuracy-Related” Penalty

WHAT ARE DEFENSES TO “ACCURACY-RELATED PENALTY”?

 

 

INTRODUCTION – ACCURACY RELATED PENALTY

 

Internal Revenue Code (IRC) Section 6662(b)(2) authorizes the Internal Revenue Service (IRS) to impose a penalty if an underpayment exceeds a computational threshold called a “substantial understatement”.

 

 

Pursuant to IRC Section 6662(d)(1)(A), for Individuals, the “understatement” of tax is “substantial” if it exceeds the greater of $5,000 or Ten percent (10%) of the tax that must be shown on the return.

 

Pursuant to IRC Section 6662(d)(1)B), for Corporations (other than S corporations or personal holding companies), an “understatement” is “substantial” if it exceeds the lesser of Ten percent (10%) of the tax required to be shown on the return (or, if greater, $10,000), or $10,000,000.

 

INTERNAL REVENUE MANUAL Section 20.1.5.3.5  (01-24-2012)

Examination Penalty Assertion

In proposing the penalty to the taxpayer or taxpayer’s representative, the examiner will:

  1. Fully explain the proposed penalty.
  2. Document the reasons why the penalty assertion is appropriate.
  3. Consider and document any possible exceptions to the penalty provided by the taxpayer or the taxpayer’s representative whether or not they are accepted.

Note:

The level of taxpayer cooperation is not grounds for asserting or not asserting a penalty.

 

BURDEN OF PROOF – Pursuant to IRC Section 7491(c), in court proceedings, the IRS bears the initial burden of production regarding the accuracy-related penalty. The IRS must first present sufficient evidence to establish that the penalty is warranted. The burden of proof then shifts to the taxpayer to establish any exception to the penalty, such as reasonable cause.

 

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PENALTY DEFENSE #1 – SUBSTANTIAL AUTHORITY

 

Pursuant to IRC Section 6662(a), the amount of an accuracy-related penalty equals Twenty percent (20%) of the portion of the underpayment attributable to a substantial “understatement”. An “understatement” is the difference between (1) the correct amount of tax and (2) the tax reported on the return, reduced by any rebate.

 

Pursuant to IRC Section 6662(d)(2)B) and Treasury Regulation Section 1.6662-4, understatements are reduced by the portion attributable to an item for which the taxpayer had “substantial authority” for the tax treatment of the item.

 

TREASURY REGULATION Section 1.6662-4(d)Substantial authority

 

(1) Effect of having substantial authority. If there is substantial authority for the tax treatment of an item, the item is treated as if it were shown properly on the return for the taxable year in computing the amount of the tax shown on the return. Thus, for purposes of section 6662(d), the tax attributable to the item is not included in the understatement for that year.

(2) Substantial authority standard. The substantial authority standard is an objective standard involving an analysis of the law and application of the law to relevant facts. The substantial authority standard is less stringent than the more likely than not standard (the standard that is met when there is a greater than 50-percent likelihood of the position being upheld), but more stringent than the reasonable basis standard as defined in § 1.6662-3(b)(3). The possibility that a return will not be audited or, if audited, that an item will not be raised on audit, is not relevant in determining whether the substantial authority standard (or the reasonable basis standard) is satisfied.

 

 

(3) Determination of whether substantial authority is present

 

(i) Evaluation of authorities. There is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting contrary treatment. All authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account in determining whether substantial authority exists. The weight of authorities is determined in light of the pertinent facts and circumstances in the manner prescribed by paragraph (d)(3)(ii) of this section. There may be substantial authority for more than one position with respect to the same item. Because the substantial authority standard is an objective standard, the taxpayer’s belief that there is substantial authority for the tax treatment of an item is not relevant in determining whether there is substantial authority for that treatment.

 

(ii) Nature of analysis. The weight accorded an authority depends on its relevance and persuasiveness, and the type of document providing the authority. For example, a case or revenue ruling having some facts in common with the tax treatment at issue is not particularly relevant if the authority is materially distinguishable on its facts, or is otherwise inapplicable to the tax treatment at issue. An authority that merely states a conclusion ordinarily is less persuasive than one that reaches its conclusion by cogently relating the applicable law to pertinent facts. The weight of an authority from which information has been deleted, such as a private letter ruling, is diminished to the extent that the deleted information may have affected the authority’s conclusions. The type of document also must be considered. For example, a revenue ruling is accorded greater weight than a private letter ruling addressing the same issue. An older private letter ruling, technical advice memorandum, general counsel memorandum or action on decision generally must be accorded less weight than a more recent one. Any document described in the preceding sentence that is more than 10 years old generally is accorded very little weight. However, the persuasiveness and relevance of a document, viewed in light of subsequent developments, should be taken into account along with the age of the document. There may be substantial authority for the tax treatment of an item despite the absence of certain types of authority. Thus, a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision.

 

(iii) Types of authority. Except in cases described in paragraph (d)(3)(iv) of this section concerning written determinations, only the following are authority for purposes of determining whether there is substantial authority for the tax treatment of an item: Applicable provisions of the Internal Revenue Code and other statutory provisions; proposed, temporary and final regulations construing such statutes; revenue rulings and revenue procedures; tax treaties and regulations thereunder, and Treasury Department and other official explanations of such treaties; court cases; congressional intent as reflected in committee reports, joint explanatory statements of managers included in conference committee reports, and floor statements made prior to enactment by one of a bill’s managers; General Explanations of tax legislation prepared by the Joint Committee on Taxation (the Blue Book); private letter rulings and technical advice memoranda issued after October 31, 1976; actions on decisions and general counsel memoranda issued after March 12, 1981 (as well as general counsel memoranda published in pre-1955 volumes of the Cumulative Bulletin); Internal Revenue Service information or press releases; and notices, announcements and other administrative pronouncements published by the Service in the Internal Revenue Bulletin. Conclusions reached in treatises, legal periodicals, legal opinions or opinions rendered by tax professionals are not authority. The authorities underlying such expressions of opinion where applicable to the facts of a particular case, however, may give rise to substantial authority for the tax treatment of an item. Notwithstanding the preceding list of authorities, an authority does not continue to be an authority to the extent it is overruled or modified, implicitly or explicitly, by a body with the power to overrule or modify the earlier authority. In the case of court decisions, for example, a district court opinion on an issue is not an authority if overruled or reversed by the United States Court of Appeals for such district. However, a Tax Court opinion is not considered to be overruled or modified by a court of appeals to which a taxpayer does not have a right of appeal, unless the Tax Court adopts the holding of the court of appeals. Similarly, a private letter ruling is not authority if revoked or if inconsistent with a subsequent proposed regulation, revenue ruling or other administrative pronouncement published in the Internal Revenue Bulletin.

 

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PENALTY DEFENSE #2 – REASONABLE CAUSE

 

Pursuant to IRC Section 6664(c)(1) and Treasury Regulation Section 1.6664-4, the accuracy-related penalty does not apply to any portion of an underpayment where the taxpayer acted with “reasonable cause and in good faith”. A “reasonable cause” determination takes into account all of the pertinent facts and circumstances. The most important factor is the extent to which the taxpayer made an effort to determine the proper tax liability.

 

INTERNAL REVENUE MANUAL (IRM) Section 20.1.5.6.1 (01-24-2012)


Reasonable Cause

  1. No accuracy-related penalty under IRC 6662 is imposed if it is shown that the taxpayer had reasonable cause for the position taken and that the taxpayer acted in good faith.
  2. ****
  3. IRC 6664(c) provides an exception to the imposition of any accuracy-related penalty if the taxpayer shows that there was reasonable cause and the taxpayer acted in good faith.
  4. The determination of whether the taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all the relevant facts and circumstances.
  5. ****
  6. Generally, the most important factor in determining reasonable cause is the taxpayer’s effort to report the proper tax liability. Other factors to consider are the taxpayer’s experience, knowledge, education, and the taxpayer’s reliance on the advice of a tax advisor.
  7. All relevant facts, including the nature of the tax investment, the complexity of the tax issues, the competence of the tax advisor, the education of the taxpayer, and the quality of the opinion relied upon must be developed to determine whether the taxpayer was reasonable and acted in good faith.

 

INTERNAL REVENUE MANUAL (IRM) Section 20.1.5.6.2  (07-01-2008)


Taxpayer’s Effort to Report the Proper Tax Liability

  1. Generally, the most important factor in determining whether the taxpayer has reasonable cause and acted in good faith is the extent of the taxpayer’s effort to report the proper tax liability.

 

 

COURT FINDINGS – The courts abate the accuracy-related penalties, partially or in full, where the taxpayer showed a reasonable and good faith attempt to ascertain the correct amount of tax due. The courts most commonly find reasonable cause on the bases of maintenance of adequate records to substantiate deductions and reasonable reliance on a competent tax professional.