Monthly Archives: April 2021

In an e-News for Tax Professionals, the IRS has announced that on December 31, 2021, it is closing several individual payment P.O. boxes in San Francisco, CA and Hartford, CT and has noted that mailing to those addresses now could result in delays.

Effective January 1, 2022, the following San Francisco and Hartford P.O. Boxes will be permanently closed: 

Form 1040 --------------------------- P.O. Box 7704, San Francisco, CA 94120-7704.

Form 1040ES ------------------------ P.O. Box 510000, San Francisco, CA 94151-5100.

Form 4868 --------------------------- P.O. Box 7122, San Francisco, CA 94120-7122.

Installment Agreements ------------ P.O. Box 7125, San Francisco, CA 94120-7125.

Form 1040 --------------------------- P.O. Box 37008, Hartford, CT 06176-7008.

Form 1040 --------------------------- P.O. Box 37910, Hartford, CT 06176-7910.

Form 1040ES ------------------------ P.O. Box 37007, Hartford, CT 06176-7007.

Form 4868 --------------------------- P.O. Box 37009, Hartford, CT 06176-7009.

Form 4868 --------------------------- P.O. Box 37911, Hartford, CT 06176-7911.

Installment Agreements ------------ P.O. Box 37004, Hartford, CT 06176-7004.

To ensure the IRS's timely receipt of any payments, the IRS encourages taxpayers and tax professionals to avoid mailing payments to these closing addresses.  

To help ensure timely receipt, IRS encourages you to avoid mailing to these closing addresses as there could be mail delays. Please check Where to File on irs.gov for active addresses, before mailing your payments. However, payments mailed to these closed payment locations after Jan. 1, 2022, will be returned to sender. If you receive an IRS payment letter, send your payment to the address located in the letter.

IRS encourages taxpayers to use IRS Direct Pay. It's fast, secure and easy to pay a tax bill or estimated tax payment directly from a checking or savings account. Users receive instant confirmation that their payment has been made. See Publication 3891, Lockbox Addresses for 2021, for more information.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

According to Law360, nearly 170,000 taxpayers possibly didn't report up to $29 billion of peer-to-peer payments that they received despite getting information returns for the transactions, according to a watchdog report released Monday. 

The taxpayers received Forms 1099-K for the payments, according to data from three peer-to-peer payment applications, but they never filed a tax return and therefore the payments were never reported to the government, according to the report from the Treasury Inspector General for Tax Administration.

Limited reporting requirements pose problems for the agency in identifying unreported business income facilitated by peer-to-peer payment applications, but the agency didn't always take action against nonfilers and underreporters even when information was available, according to the report.

Peer-to-peer payment applications such as Venmo, PayPal and SquareUp allow users to send money from a mobile device through a linked bank account or card, the watchdog's report said. The applications are growing, and present tax compliance challenges for the Internal Revenue Service, according to TIGTA.

"If The IRS Is Unable To Effectively Identify Noncompliance, Taxpayers May Begin Using Peer-To-Peer Payment Applications

 To Conduct Business, Skirt Third-Party Reporting And Avoid Paying Taxes On Income," The Watchdog Report Said.

Internal Revenue Code Section 6050W  requires entities designated as third-party settlement organizations, or central organizations obligated to make payments to payees of third-party network transactions, to file Form 1099-K information returns when total transactions with a payee exceed 200 and gross payments exceed $20,000, according to the report.

However, it is unclear if many peer-to-peer applications meet the definition of third-party settlement organizations and are therefore required to file the information reports, the report said. Nevertheless, many of the applications file the Forms 1099-K when the criteria are met anyway, TIGTA said.

TIGTA made three recommendations to the IRS in the report. The agency agreed with two, including one that it should work with the U.S. Department of the Treasury's Office of Tax Policy to consider pursuing a regulatory change clarifying the third-party settlement organization designation.

However, the IRS pushed back on a TIGTA recommendation that it launch a compliance initiative project that includes Form 1099-K payments associated with peer-to-peer payment applications.

De Lon Harris, Small Business/Self-Employed Commissioner, Examination, one of the division's co-commissioners, wrote in the agency's response in the report that the IRS has necessary systems in place to find noncompliance.

"Given Our Existing Resource Constraints 

And The Opportunity Costs Inherent In Prioritizing
This 1099-K Issue Over Higher Priority Work
That Is Likely To Yield Greater Tax Assessments, 

the IRS does not believe there is a demonstrated compliance problem that would warrant further examination resources," he wrote. "We are concerned TIGTA has not considered the results of the compliance efforts taken by the IRS, particularly in the underreporter programs."

The American Rescue Plan Act  significantly lowered the information reporting threshold under Section 6050W to $600 regardless of the number of transactions starting in 2022.

TIGTA has raised concern about the agency's Form 1099-K compliance work before. The watchdog in a December report identified 314,586 business taxpayers with $335.5 billion in Form 1099-K income that appeared to have a filing obligation but weren't identified as nonfilers by the IRS. 

The report also found 62,087 individual nonfilers with $575 million in Form 1099-K income who the IRS hadn't identified as nonfilers and nonfiler cases weren't created. TIGTA estimated that if the agency identified, created and worked just the nonfiler and underreporter cases with Form 1099-K income of $1 million or more for businesses and $100,000 for individuals it could have assessed more than $5.7 billion in taxes.

Eric Hylton, then the commissioner of SB/SE, in the management response in that report, wrote that both underreporting programs were functioning as intended.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

On March 24, 2021 we posted Top 1% Fail To Report a Fifth of Their Income, where we discussed that the IRS underestimated the income that the top 1% of earners fail to report to the agency in its random audit program, finding they fail to report more than 20% of their income, according to a paper released on March 22,2021.

And on April 14, 2021 we posted that The Tax Gap Could Exceed $1 Trillion - IRS Enforcement is The Answer, where we discussed that IRS the Commissioner Chuck Rettig told the Senate Finance Committee that the gap between taxes owed each year and those actually paid could be more than $1 trillion, much larger than the most recent estimate of $441 billion. Rettig said the agency has lost about 17,000 employees in the enforcement area over the last decade.

President Joe Biden's Fiscal 2022 Budget Request Calls For A 10.4% Funding Increase For The IRS.

Included in the Biden Administration’s proposed budget for fiscal 2022 is an additional $1.2 billion in funding to help the IRS ramp up its tax enforcement efforts after more than a decade of spending and staffing cuts. 

What this means for taxpayers is a likely increase in IRS audits and heightened scrutiny of tax compliance, especially for corporations and high-net-worth individuals. Whether taxpayers can survive unscathed largely depends on their record-keeping practices and their ability to substantiate their tax positions and claims of income, deductions, and credits.

It is no secret that the U.S. tax code is complex and rife with grey areas that taxpayers may use to their advantage to legally reduce their taxable income and/or tax liabilities. However, it is critical that taxpayers at all income levels ensure the methods they use for purposes of tax efficiency do not cross the line into tax evasion, which is the intentional concealment of income and/or information from the IRS or other taxing authorities. Whereas a simple mistake on your tax return can result in penalties and interest on unpaid amounts, willful tax evasion can lead to substantial fines, penalties, interest and even jail time for taxpayers and their accomplices, which many include employees and/or a spouse.

Generally, the IRS can conduct an audit during the three years subsequent to a taxpayer’s return filing date. If it detects a substantial error, the agency may be able to extend the audit period to six years. 

Once selected for an audit, taxpayers’ bear the responsibility to prove the accuracy of their previously filed tax returns, including demonstrated proof of all items of income, deductions and credits. Such support may include bills, dated receipts and cancelled checks or other proof of payments; legal documents, including divorce papers, loan agreements and property settlements; records of employment; documentation of damages from theft or loss, including property appraisals; and Schedule K-1s reporting shareholders’ shares of income, losses, deductions and credits. If taxpayers lack this documentation, the government may use its own methods to reconstruct the taxpayers’ income and expenses.

Furthermore, high net worth individuals should also prepare for the Proposed Estate Tax Increases & Do Their Planning Now.

To prepare for the prospect of a better funded, more aggressive IRS, businesses and taxpayers at the upper income levels should take the time now to meet with experienced independent Tax Attorneys to review their current tax positions to ensure tax compliance, identify tax risks and even uncover potential opportunities to maximize their taxes.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

According to Shearman & Sterling LLP  on March 25, 2021, Senators Bernie Sanders (VT) and Sheldon Whitehouse (RI) introduced the For the 99.5% Act (the “Act”), which proposes major changes to the U.S. transfer tax regime by increasing estate, gift and generation-skipping transfer (GST) taxes and vitiating the effectiveness of certain wealth transfer planning techniques.

The chart below highlights the proposed substantial reductions in estate, gift and GST exemption amounts and increases in transfer tax rates for gifts made, and estates of decedents dying, after December 31, 2021:

 

Annual Exclusion Gifts: Annual exclusion gifts would no longer be unlimited. A donor could not give more than twice the annual exclusion amount (currently $15,000) if the gift is of an asset that cannot be immediately liquidated by the recipient, such as gifts in trust or gifts of entity interests. Withdrawal or put rights would be disregarded for this purpose. Other proposed changes would affect transfers made, and trusts created, after the enactment date of the Act. These changes include:

• Grantor Trusts: Assets that are transferred by a decedent to a grantor trust after the enactment date would generally no longer avoid estate tax, and distributions made from a grantor trust would be subject to gift tax. A grantor trust created and funded prior to the enactment date would generally be exempt from these provisions to the extent no additional contributions were made after the enactment date.
• GRATs: Grantor-Retained Annuity Trusts (GRATs) would be less effective in transferring wealth as they would be required to have: (i) a minimum term of 10 years, (ii) a maximum term of the grantor’s life expectancy plus 10 years and (iii) a remainder interest of not less than the greater of 25 percent of the fair market value of trust assets and $500,000.
• GST Exempt Trusts: For a trust distribution to qualify for GST exemption, the trust could no longer have a term of more than 50 years. Existing GST exempt trusts lasting more than 50 years would lose their GST exempt status 50 years after enactment.
• Valuations: The availability of marketability and minority discounts for appraisals of interests held in entities would be severely limited.
• Basis Step-Up: The Act would confirm that a step-up in basis is not available to assets held in a grantor trust unless those assets are includable in the grantor’s estate, which is something most practitioners have already accepted. A separate bill, known as the Sensible Taxation and Equity Promotion (STEP) Act, was also recently introduced with the purpose of effectively eliminating any step-up in basis at death.

It is unclear which, if any, of these provisions will be enacted into law and—other than the proposed reductions in exemption amounts and increases in tax rates which become effective on January 1, 2022—what the effective date would be.

What is clear, is that the Act is intended to substantially increase the transfer tax burden on high-net-worth families. 

By Engaging In Proactive Planning Now, However, You Can Still Take Advantage Of The Current Law,
Which Is Considerably More Favorable.

Due to the introduction of the Act, we encourage you to revisit your estate plan to ensure that it continues to reflect your wishes and that you consider if you should take advantage of certain effective wealth transfer planning techniques while they are still available.

Want To Cut Your Estate Tax?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact us at

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243). 

Read more at: Tax Times blog