Category Archives: Uncategorized

IRS Enforcement of Trust Fund Recovery Penalty Likely to Increase

The Treasury Inspector General for Tax Administration (TIGTA) recently studied IRS’ practices in assessing and collecting the IRC Section 6672 “responsible person penalty,” and recommended that group managers pay closer attention to this revenue raising opportunity.

Recall that if an employer fails to pay its payroll taxes, IRS can attempt to collect a penalty equal to 100% of the unpaid taxes from a “responsible person” within the employer’s ranks.

TIGTA notes that when trust fund recovery penalty assessments are not timely made, factors can arise which impede IRS’ chances to collect the trust fund taxes due.

IRS has agreed with all of the TIGTA recommendations, and has indicated that corrective actions will be taken.  The inevitable consequence will be more assertions of the “responsible person penalty” and more assertive collection actions by IRS in the near term.

501(c)(3) App Just Got Easier

In theory, anyway.

That’s because on July 1, IRS introduced a new, shorter application form to help small charities apply for tax exempt status more easily.

The new Form 1023-EZ is a mere three pages long (compared with the standard Form 1023 which spans 26 pages.) IRS thinks as many as 70 percent of all tax exempt applicants will qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible to use the new form, which must be filed online, and be accompanied by a $400 user fee.

Check out Rev Proc 2014-40 for the details.

Tax Court Takes Hard Line on Charitable Deduction Rules

A taxpayer who receives goods or services in exchange for a contribution of property may still be entitled to some deduction if the contribution exceeds the fair market value of any goods or services received.

But in the case of Seventeen Seventy Sherman Street, LLC (TC Memo 2014-124) the Court found that when a taxpayer fails to identify  or value all of the consideration received in the transaction, the taxpayer is not entitled to any charitable contribution deduction because of failure to comply with the regulations in this area.  The burden is on the taxpayer to demonstrate the excess of the value of the property given away over the value of consideration received.

IRS Liberalizes Offshore Compliance Programs

Among other things, changes announced last week by IRS streamline existing procedures to accommodate a larger group of U.S. taxpayers with previously unreported foreign financial accounts.

The expanded, streamlined procedures will be available to a larger population of U.S. taxpayers living outside the U.S. and, for the first time, to certain U.S. taxpayers residing in the U.S.  The changes include:

  • Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
  • Eliminating the required risk questionnaire; and
  • Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

Notably, for eligible U.S. taxpayers residing outside the U.S., all penalties will be waived, and for eligible U.S. taxpayers residing within the U.S., the only penalty will be a charge equal to 5% of the foreign financial assets which gave rise to the compliance issue in the first place.

Check out www.irs.gov for more details.

Good Congressional News Regarding Section 179 Depreciation

Let’s hope the momentum will continue – regarding House action last week to permanently extend the provision allowing certain businesses to write off as much as $500,000 in new equipment purchases.

The limit has been $500,000 since 2010, though without Congressional action would fall back to $25,000 for 2014.

There’s still a ways to go, however, given the need for Senate assent to such a permanent extension, and agreement from Obama who has thus far opposed such a move.

Land Sale Gain Deemed Ordinary Income!

A California District Court recently held that a taxpayer sustained ordinary income, not long term capital gain income, from a land sale because the underlying facts showed an intent to develop the property, as opposed to holding it for long term investment gain.

The decision (Frederic Allen v. U.S. (DC CA 5/28/14) 113 AFTR 2d) reminds us that conclusions in matters of this sort are directly dependent on the facts of each case in the context of factors which courts have identified, including:

  • The nature of the acquisition of the property,
  • The frequency and continuity of sales over an extended period,
  • The nature and the extent of the taxpayer’s business,
  • The activity of the seller concerning the property, and
  • The extent and substantiality of the transactions.

The Court in Allen found that the evidence was demonstrable that the taxpayer intended to develop the property when he purchased it and that he undertook substantial efforts to develop it during the time that he owned it.

Amnesty for Some Delinquent Forms 5500

IRS recently announced a one year pilot program under which small business which may not have filed required Forms 5500 in recent years.  Under the program, catch-up filings will be permitted without imposition of the usual penalties.

Unlike IRS’ usual stance with respect to any number of different delinquent filings, leniency is being offered in cases in which small businesses may have been “unaware” of the filing requirements!

If this is you, and if IRS hasn’t already caught up with you and assessed the penalties (which can reach up to $15,000 per year!) you should look further into the particulars of this program.  See Rev Proc 2014-32.

IRS Crowing About E-Pay Success

IRS last week announced the successful start of its new web-based tax payment system – “IRS Direct Pay.”  Commissioner Koskinen says “IRS Direct Pay simplifies the payment process, and taxpayers can make a payment from the convenience of a home computer.”

Thus far, more than 150,000 taxpayers have remitted more than $340 million in taxes through this system.  Taxpayers receive instant confirmation of each payment via this system, which is available 24-7.

IRS says that bank account information is not retained – we’ll leave that assertion  to you to take or leave.

If you’re interested, go to www.irs.gov, and locate the “pay your tax bill” icon, following the instructions from there.

Don’t Forget Small Business Health Care Tax Credit

Small employers which pay at least half of the premiums for employee health insurance under a qualifying arrangement may be eligible for the small business health care tax credit.

The credit is targeted to small employers who primarily employ low and moderate income workers.  In 2014, the maximum credit is 50% of premiums paid on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.

Check out Form 8941 for use in claiming the credit.

IRS’s Duty to Contact Taxpayer at ‘Last Known Address’

The recent decision in the Georgia case of Music v. U.S. reminds us that IRS has to follow the rules, just as do taxpayers.  Particularly when threatening levy action.  IRS may levy only if it sends the taxpayer notice of its intent at least 30 days prior to the action itself, and sends such notification to the taxpayer’s “last known address.”

In this case, IRS sent repeated notices to the taxpayer’s former Florida address to no avail.  It seems IRS knew the taxpayer’s employer was located in Georgia, and therefore should have been on notice as to where to contact the taxpayer.  And so concluded the Court, which ruled IRS was negligent in sending the repeated notices to the incorrect address.