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Boston Tax Law Blog

IRS finalizes rules regarding charitable contributions

Recently the IRS issued final rules regarding the reporting and record-keeping requirements for deductible non-cash charitable contributions. There are different categories of mandatory documentation required for various amounts of contributions. Regardless of the value of the contribution, though, proof of its value is necessary, whether in the form of a hand-written note, a receipt or a qualified appraisal.

Following these documentation requirements can help you avoid having the IRS come asking questions, and they might even prevent you from being audited.

Neglecting FATCA reporting risks noncompliance for banks

Foreign financial institutions (FFIs) without an adequate reporting strategy could risk noncompliance with IRS regulations regarding offshore accounts. Non-domestic accounts subject to the Foreign Account Tax Compliance Act (FATCA) must be reported by financial institutions as well as by the account holders themselves under the tax code. Not adequately informing the IRS – either directly or indirectly – about the presence of foreign assets held by U.S. taxpayers could lead to steep penalties, both for the account holder and the FFI itself. In particular, the FFI could face a punitive withholding tax that may far outweigh the cost of any single foreign account.

Evolution is key

Tax burden on retirees could shift this fiscal year

Thanks to the Tax Cuts and Jobs Act of 2017, many of us saw our income tax requirements and need for withholding shift. The IRS is now warning a particular demographic of the need to carefully review withholdings in light of upcoming changes brought about by the TCJA: retirees.

In particular, retired persons who draw social security and are higher-income overall may need to adjust withholding in order to avoid paying taxes for fiscal year 2018. In addition, retirees who receive income from pensions, annuities and tax-deferred retirement accounts may also be in for a shock when filing their 2018 taxes.

Don’t forget to report 1099-C debt cancellation income

A recent tax court decision reveals just how important it is to not ignore income on Form 1099-C come tax time. The case, TCM 2018-140, involves a taxpayer who received debt discharge to the tune of over $360,000 back in 2010. Lacking any other income for the year, the taxpayer chose to not file a tax return. In 2018, he incurred failure-to-file and failure-to-pay penalties due to his lack of tax reporting.

The tax court tried to throw the taxpayer a proverbial bone by allowing him time to prove that the debt discharge dealt with his primary residence and/or that he was insolvent at the time, but the taxpayer failed to meet the burden of proof for either claim. Had he proven that debt forgiveness income as reported on Form 1009-C was indeed tied to his primary residence, that would have offset the income and made him eligible for tax forgiveness as well.

Offshore amnesty ends: A review of a decade of enforcement

Over the last decade, the IRS has sought to close the tax gap by going after unpaid taxes on income earned in foreign financial accounts. The historic crackdown started with a whistleblower detailing how UBS and other Swiss banks helped Americans hide money to avoid taxes.

A 2008 Justice Department case against UBS “pierced the veil of Swiss banking secrecy” and became a model for prosecutions against banks and financial firms in the Caribbean, Liechtenstein and Israel. These institutions have paid approximately $6 billion and turned over customer information to avoid criminal prosecution.

Ensuring tax health in the sharing economy

We’ve discussed previously the importance of proper estimated tax payments if you have a profitable hobby or so-called “side-gig.” It’s understood and fairly well-known that if your side project brings in more than $1000 per year (via cash, check, bank account transfers, electronic currency or other source), you need to report that income, even if you don’t receive a 1099-MISC, W-2 or other similar tax form. You can also deduct qualified business expenses for a side gig just like you’d be able to with a full-time job.

It’s also pretty common knowledge that side-gigs have become the only gigs for many people, as they’ve been able to quit their full-time jobs just from the income of renting spaces via AirBnB or similar services, driving cars for Uber or Lyft, or selling products from a multilevel marketing company like Amway or LulaRoe.

Can tax liens affect business finance options?

Imagine this: a while back, your business was having some cash flow problems and you got behind on your taxes. You weren’t able to make an offer in compromise or cover the taxes in the timeframe requested by the IRS, so they put a tax lien on your business assets. Fast forward to today, when you are trying to raise capital to grow your operation. Will that tax lien make it impossible to secure financing?

The short answer is, like so many other things in the legal arena, “it depends.”

IRS offers guidance on new head-of-household credits

The passage of the 2017 Tax Cuts and Jobs Act (TCJA) brought many changes to the way that most Americans handle their income taxes. Most of the changes for middle-class earners comes with the loss of personal exemptions and an increase in the standard deduction. There are also new tax brackets, which may allow some people to pay less even while maintaining their same salary.

Two key changes as a result of the TCJA deal with head-of-household and child tax credits. The IRS recently offered guidance (in the form of Notice 2018-70 “Qualifying Relative and Exemption Amount”) to make it easier for the average person to understand when he or she would be eligible for credits for dependents and “qualifying relatives.”

Understanding the new 1040

One of President Trump’s campaign promises involved simplification of the tax return process for most filers; he specifically mentioned being able to file on a postcard-sized tax form. While that particular goal still hasn’t really come to fruition, Form 1040, the tax form used by most individual and married households throughout the country, has indeed undergone an overhaul.

Understanding how the tax forms have changed in light of the new tax law passed in 2017 is vital to avoid red flags that could potentially trigger an audit, result in under-withholding or mean that you could owe the IRS big money come tax time next year.

Fighting against a bank levy or wage garnishment by the IRS

Most Massachusetts residents know that the IRS has quite a bit of power when it comes to collecting the taxes it believes an individual owes. If you have been subjected to the agency's collection efforts, you may have a bank levy or wage garnishment filed against you. More than likely, these collection efforts put you in a precarious financial position. You may be able to stop these actions with the proper support.

If you receive a notice of a bank levy from the IRS, it means that the agency has told the bank to freeze your account. You will not have access to the funds in it during this time. At the expiration of 21 days, if you have not paid the taxes the IRS says you owe, it could seize the funds from your account to apply toward your debt. Due to the time sensitive nature of this collection action, you may want to seek the guidance and assistance of a tax law attorney as quickly as possible.

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