Tuesday December 18, 2018
IRS Offers Post Tax-Filing Deadline Tips
For those who did not file by April 18, penalties and interest will not apply if a refund is due. Penalties and interest may apply, however, if taxpayers owe taxes and did not file a tax return by April 18. As such, the Service urges taxpayers who have not filed and owe taxes to file a return as soon as possible in order to reduce penalties and interest. Those who qualify may use "IRS Free File" on IRS.gov through October 15 to prepare and file their returns.
The Service explains that the late filing penalty on unpaid taxes, also known as the failure-to-file penalty, is usually 5% of the unpaid balance for each month, or part of each month, that the return is late. If a return is more than 60 days late, then the minimum penalty is the lesser of $210 or 100% of the unpaid taxes.
In some instances, taxpayers may qualify for penalty relief. If the taxpayer has a legitimate reason for filing late, he or she should attach an explanation to the return. Additionally, if a taxpayer has not been assessed a penalty for the past three years, he or she may qualify for penalty relief. For more information, visit the first time penalty abatement page on IRS.gov.
The Service also provided tips for the following issues:
- Errors on Already-Filed Returns - Taxpayers typically are not required to submit amended returns for mathematical errors or missing forms or schedules. The Service will normally correct mathematical errors and notify the taxpayer if there are missing forms or schedules. An amended form may be required to change filing status, to correct total income or to amend deductions or credits claimed. To determine if the error necessitates an amended return, use the "Interactive Tax Assistant" tool on the IRS website.
- Taxes Owed or Additional Payments Needed - If taxes are owed, taxpayers can view their balance online and pay using "IRS Direct Pay." Other electronic payment options are available on IRS.gov/payments.
- Refund Information - Taxpayers can use the IRS's "Where's My Refund" tool to check on the status of their federal income tax refund. The tool is available on IRS.gov, the "IRS2Go" app or by phone at 800-829-1954. Taxpayers will need to provide the primary social security number on the return, the filing status and the expected refund amount.
- Responding to an IRS Notice or Letter - Notices and letters from the IRS will typically include an explanation for the contact and provide taxpayers with the proper steps to be taken. If taxpayers have additional questions after receiving a letter or notice from the IRS, they should visit "Understanding Your Notice or IRS Letter" on IRS.gov or call the Taxpayer Advocate Service office at 877-777-4778.
Deduction for Donations to Taxpayers' Inactive Church Denied
In Davis, Bernard A. et ux. v. Commissioner; No. 28381-15; T.C. Memo. 2018-56 (24 Apr 2018), the Tax Court upheld the IRS's disallowance of a charitable income tax deduction. The Court determined that the taxpayers failed to meet substantiation requirements and that they may have used their inactive church to try to deduct direct gifts to their friends.
Mr. and Mrs. Davis founded the South Broward Church of Christ ("the Church") with another family in 1994. The Church was located in the Davis' home and was registered as a nonprofit corporation in Florida in 1995. Mr. Davis served as the Church's president and senior minister. The Church held weekly services and collected money and clothing to distribute to the poor.
In 2008, economic circumstances required Mr. Davis to find employment outside of Florida. By 2012, the Church did not own any bank accounts and no longer held weekly services or congregational meetings.
When filing their 2012 joint federal income tax return, Mr. and Mrs. Davis claimed $3,091 of cash and noncash charitable contribution deductions to the Church. To substantiate the deductions, Mr. Davis provided a letter that described the amounts of the contributions on church letterhead. The letter was signed by Mr. Davis himself and dated April 19, 2013. The noncash charitable contributions were described on Form 8283 as clothing, footwear, accessories and household items.
The Tax Court noted that charitable gift substantiation requirements depend on the value and type of contribution. For monetary contributions, taxpayers must maintain some form of reliable written records showing the name of the donee, date and amount of the contribution. See Sec. 1.170A-13(a)(1).
For noncash contributions, taxpayers must maintain a receipt from the donee organization that shows: (1) the name of the donee organization; (2) the date and location of the contribution; and (3) a description of the property in detail reasonably sufficient under the circumstances. Sec. 1.170A-13(b)(1). For contributions of clothing and household items, no deduction is allowed unless the clothing or household item is "in good used condition or better." Sec. 170(f)(16)(A). The Tax Court explained that it considers the contemporaneous nature of the records and the regularity of the taxpayer's recordkeeping procedures in determining the reliability of the gift substantiation.
Here, the Tax Court determined that the letter was unreliable and failed to meet the substantiation requirements because it was not contemporaneous with the alleged contributions and no evidence of regular recordkeeping procedures was offered. In addition, no evidence was provided regarding the condition of the clothing and household items that were allegedly donated to the Church. Instead, the Court pointed out, it appeared that Mr. and Mrs. Davis may have used their inactive church to try to deduct their direct gifts to their friends. Therefore, the Tax Court affirmed the IRS's disallowance of Mr. and Mrs. Davis' charitable contribution deductions.
IRS Warns of New Phone Scam
In IR-2018-102, the Service warned of a new phone scam in which criminals attempt to trick taxpayers into paying non-existent tax bills by using phone numbers that mimic IRS Taxpayer Assistance Centers (TACs). If the individual questions the caller's legitimacy, the scammer will point them to the IRS's website to verify the local TAC office phone number.
The scammer does not stop there. If the taxpayer does not provide payment during the first call, the criminals will often call back a second time, using a number that appears to coming from an IRS office. Once the taxpayer is able to "verify" the call number, the scammer will demand money payment. These scam artists have also tried to trick taxpayers by pretending to be local sheriffs' offices, federal agencies and representatives from the state Department of Motor Vehicles.
The IRS reminds taxpayers that TAC offices will not call to demand payment of overdue tax bills. If tax is due, the IRS will typically initiate contact through regular mail delivered by the United States Postal Service. It is only in special or limited circumstances that the IRS will make contact over the phone. Generally, the IRS will begin by mailing several notices if any taxes are owed before initiating further contact.
If the IRS does contact a taxpayer, legitimate IRS representatives will not demand payment without the opportunity to appeal or question the amount owed. Representatives will not demand a specific payment method or ask for debit or credit card numbers over the phone. Additionally, the IRS will not threaten to bring in law enforcement or immigration officers if the taxpayer does not pay. The IRS also cannot revoke an individual's driver's license, business license or immigration status.
Individuals who believe they have been a victim of this scam, or any other IRS impersonation scam, should report it to the Treasury Inspector General for Tax Administration on its IRS Impersonation Scam Reporting website and to the IRS by emailing email@example.com with the subject line "IRS Phone Scam."
Applicable Federal Rate of 3.2 for May -- Rev. Rul. 2018-12 ; 2018-20 IRB 1 (24 Apr 2018)
The IRS has announced the Applicable Federal Rate (AFR) for May of 2018. The AFR under Section 7520 for the month of May is 3.2%. The rates for April of 3.2% or March of 3.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.