The House Ways and Means Committee has approved a bill containing “extenders” and disaster tax relief. The Taxpayer Certainty and Disaster Tax Relief Act would extend through 2020 some 40 tax provisions that have expired or are about to expire. The disaster tax relief is mostly offset by ending the Tax Cuts and Jobs Act’s estate tax exemption in 2022 instead of 2025. Two other tax-related bills the committee passed would expand the earned income tax credit and permit same-sex married couples to amend their filing statuses with respect to tax returns in which the statute of limitations has already passed. It’s unclear if the bills have enough support to reach the full House for a vote.
Here’s a reminder that the IRS will soon end two services in an effort to protect taxpayers from identity theft. The tax agency announced it will stop its tax transcript faxing service on June 28, 2019, and will end third-party mailing of tax returns and transcripts on July 1, 2019. Tax transcripts (summaries of taxpayers’ tax information) are used by tax professionals to prepare returns, and by lenders to verify borrowers’ income information. But they can also be used by identity thieves to file fraudulent tax returns claiming refunds that are difficult to detect because they contain taxpayers’ actual tax information. (IR-2019-101)
The IRS and the U.S. Treasury Department just issued legal guidance providing information on certain deductions to cooperatives and their patrons. The proposed regulations provide guidance on calculating the qualified business income (QBI) deduction and the deduction for domestic production activities for agricultural or horticultural cooperatives and their patrons (the Section 199A(g) deduction). For more information, here are the regs. In addition, the IRS issued Notice 2019-27, which provides guidance on calculating W-2 wages for purposes of the Section 199A(g) deduction. Contact us for assistance in your situation.
The tax code imposes a 10% penalty on the taxable amount of an early distribution from a qualified retirement plan. An early distribution is one made to an employee who hasn’t attained age 59-1/2. There are exceptions to avoid the 10% penalty, including if a distribution is used to pay qualified higher education expenses. In one case, the U.S. Tax Court ruled that the 10% penalty should be partially upheld against a taxpayer with respect to an early distribution she’d received. While the exception applied to part of the distribution she’d used to pay for education expenses, she didn’t offer any evidence that the remaining portion qualified for an exception to the penalty. (TC Memo 2019-67)
The U.S. Senate just passed a wide-ranging IRS reform bill. The “Taxpayer First Act” passed by a voice vote on June 13. The bill includes provisions to improve customer service and enhance taxpayers’ rights. In addition, it contains provisions to protect personal data in an effort to help prevent tax-related identity theft. Other reforms include changes to the IRS whistleblower and private debt collection programs. The measure now goes to the President, who is expected to sign it.
The IRS has issued final regulations on charitable contributions and state and local tax (SALT) credits. The regs require taxpayers to reduce their charitable contribution deductions by the amount of any SALT credits they receive or expect to receive in return. This allows some taxpayers to deduct certain payments as taxes. The IRS also has issued a safe harbor that allows individuals, in some circumstances, to deduct disallowed charitable contributions as state or local taxes. Treasury Decision 9864, available in the June 11 Federal Register, finalizes proposed regs published August 27, 2018.
The U.S. House of Representatives passed the Taxpayer First Act, a bill to reform the IRS. The version of the bill that was passed on June 10 eliminated a controversial provision that would have codified a program in which the IRS partnered with tax preparation companies. As its principal goal, the bill seeks to improve taxpayer interactions with the IRS, including improving cybersecurity and identity protection. With bipartisan support, the proposed law is expected to be taken up by the Senate shortly. After hearing of the House passage, Senate Finance Committee Chairman Charles Grassley (R-IA) stated that the bill “should pass in the Senate without delay.”
Planning your wedding? The IRS reminds you that it’s not all about cake and gifts. You’ll also be filing your first tax return as a married couple. To help you take the plunge, the IRS lists simple steps to follow. For example, check your withholding. You may need to have more (or less) tax taken out, so you should submit a new Form W-4 to your employer. If the marriage results in a name change, you’ll need to inform the Social Security Administration. For address changes, let the IRS and the U.S. Postal Service know. You’ll also need to decide whether to file joint or separate tax returns. For more details on these important issues, click here.
The IRS has issued final regulations on certain transfers of property to RICs and REITs. They impose a corporate-level tax on some transactions, including those involving regulated investment companies (RICs) in which property of a C corporation becomes the property of a real estate investment trust (REIT). The regulations affect the repeal of the General Utilities doctrine by the Tax Reform Act of 1986. They also prevent abuse of the Protecting Americans from Tax Hikes Act of 2015.
The IRS has made a correction that affects some farmers and fishermen. It concerns taxpayers who claim the Section 199A qualified business income deduction and compute their income taxes via the farmer-fisherman income averaging method, using Schedule J (Form 1040). Under the revised instructions, these taxpayers should figure the amount that may be entered on Line 2a of Schedule J by taking into account amounts on Form 1040, Line 9, “Qualified Business Income Deduction” (but only to the extent that the deduction is attributable to any farming or fishing business). See the complete instructions.
The IRS has issued a draft of its redesign of Form W-4, “Employee’s Withholding Allowance Certificate.” The revised form implements the changes affecting taxpayer withholding made by the Tax Cuts and Jobs Act. The form no longer uses the concept of withholding allowances tied to the personal exemption. Instead, it’s divided into five steps. All employees must complete Step 1 (where the employee will enter personal information, such as his or her filing status) and Step 5 (where the employee will sign the form). Steps 2 through 4 are optional. Beginning in 2020, all employers must use the new form for new employees. (FAQs on the early release of the 2020 Form W-4)