Federal Tax News

The Tax Cuts and Jobs Act (TCJA) financially hurts some children receiving military survivor benefits. The Congressional Research Service (CRS) recently issued a new report suggesting ways to fix the issue. The TCJA changed the calculation of the “kiddie tax” on certain military survivor benefits of Gold Star children. Retired servicemembers and dependents of servicemembers who die while in active service can elect to provide their families with up to 55% of their pension after their death. 
The tax on these payments generally increased under the TCJA. The law modified the “kiddie tax” so that the earned income of a child is taxed at the rates for single individuals. And the net unearned income of a child is taxed according to the brackets (10% to 37%) that apply to trusts and estates. The CRS suggests legislative options to prevent a child’s benefits from being taxed at rates higher than they used to be. Read the report here: http://bit.ly/2JJ8ev4
Meanwhile, Congress is also discussing ways to fix this issue. The House is expected to vote on a retirement bill during the week of May 20 that would reverse tax increases on Gold Star children. And the Senate could add such a fix to one of its bills. 
Convictions for an identity theft and tax fraud operation are upheld by a U.S. Appeals Court. Two brothers became the targets of an investigation after the IRS received a tip. A witness went undercover into a townhouse where the brothers were suspected of conducting fraud activities. 
In the house and in one of their cars, agents found hundreds of prepaid debit and credit cards as well as computers, firearms and “scores of documents” with victims’ names, birthdates and Social Security numbers. The brothers raised multiple arguments on appeal. For example, they maintained that the evidence seized during a warrantless search of their car should have been suppressed. But the court found the car search evidence could be allowed because “there was a fair probability that the car contained evidence of a crime,” in part because agents could see boxes in the car with what appeared to be credit or debit cards inside. The court ruled there was sufficient evidence to support the brothers’ convictions. (Delva, CA 11, 4/29/19)
The IRS announces the dollar amount related to the personal use of vehicles provided by employers. In Notice 2019-34, the IRS has provided the maximum value of an employer-provided vehicle, first made available to employees for personal use in calendar year 2019, for which the vehicle cents-per-mile valuation rule or the fleet-average valuation rule may be applied. The maximum 2019 value is $50,400. The Tax Cuts and Jobs Act significantly increased the maximum dollar limitations on the depreciation deductions for passenger automobiles and also changed the way that inflation increases are calculated. To read the Notice: http://bit.ly/2VdEkkC
A man’s Offer in Compromise (OIC) was properly rejected by the IRS. An OIC is an agreement between a taxpayer and the IRS to settle a tax debt for less than the amount owed. But an OIC may be rejected by the IRS if the taxpayer’s “reasonable collection potential” exceeds the offer. The reasonable collection potential is derived by estimating a taxpayer’s assets and likely future income.
In one case, the IRS determined the taxpayer owed $19,125, plus interest and penalties. The IRS issued two Notices of Intent to Levy. The taxpayer requested a hearing and made an OIC of $100. The IRS Settlement Officer (SO) noted the taxpayer reported income and assets far below what he actually had and reported expenses far above what he actually spent. The SO rejected the $100 OIC because it was less than his reasonable collection potential, and the U.S. Tax Court agreed. (Ansley, TC Memo 2019-46)
A taxpayer met the “material participation” test even though he spent a great deal of time away from his business location. Taxpayers who show losses from business activities can generally deduct the losses against certain other income. But if a taxpayer doesn’t materially participate in the activities, the losses may be limited. 
One man operating a money-lending business had an office in Chicago but spent 60% of his time at his Florida home, working from a home office. After he deducted business losses, the IRS said he hadn’t materially participated in the business activity — and denied the deduction as passive losses. The U.S. Tax Court disagreed. The taxpayer kept regular hours at both locations, had an office staff and made significant business decisions. The court allowed the deduction. It found the taxpayer participated in the business activity on a regular, continuous and substantial basis and thus met the material participation test. (Barbara, TC Memo 2019-50)
Categories: June 2019, Monthly Bulletins

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