Federal Tax News

Is that the IRS at the door? IRS field revenue officers (ROs) have begun knocking on the doors of taxpayers with ongoing tax compliance issues. According to the IRS, these home visits (starting in AK, TX and WI) are made if numerous mail contacts have proven unsuccessful. ROs are trained IRS civil enforcement employees who work to resolve issues, such as missing returns or unpaid taxes. They can ask for payment of a federal tax debt. In a new “Tax Tip” the IRS explains how to confirm the identity of an RO, who should display two forms of official identification. Taxpayers also can verify an RO’s identity by calling a dedicated IRS phone number, which the RO should provide. To read the Tax Tip: https://bit.ly/37kaFfr.

When can an entrepreneur deduct “start-up expenses?” Taxpayers can generally deduct the ordinary and necessary expenses of running a business, in the year incurred. But amounts spent to acquire or create a new business (called start-up expenses) are limited to a deduction of up to $5,000, and the excess can only be deducted ratably over a 180-month period. In one case, a taxpayer bought forest land in 2011 and prepared it for production of commercial blueberries and maple syrup. After six years of preparation, he began selling these products. He deducted his preparation costs on his 2012 and 2013 tax returns. The IRS denied them, arguing they were start-up expenses, deductible over 180 months. The U.S. Tax Court agreed. (Primus, TC Summary Op. 2020-2)

Are you required to file a 2019 tax return? Not everyone is. But even if you’re not required to file, it can be a good idea to do so anyway. For example, some people need to file to get a refund they’re due. In general, the requirement to file depends on factors such as: income, filing status, and age, but dependency status and self-employment may also play a role. Other questions to ask include: did you make tax payments (through withholding or estimated payments)? If so, did you overpay? Do you qualify for: the earned income tax credit, child tax credit, credit for other dependents or higher education credits? We can help you determine if you (or a loved one) should file a return.

Business owner told he should have kept better records. If a taxpayer is audited and doesn’t have good records, the IRS can reconstruct his or her income. A “bank-deposits analysis” assumes that all money deposited in accounts during a given period is taxable income. In one case, the IRS conducted such an analysis of a business owner’s coin shop and precious metals business. The IRS found he owed more than $1 million. The owner had filed a return showing he owed no tax. He argued with the income the IRS attributed to him and claimed he had no money to pay. But the U.S. Tax Court stated that he should have kept better records and that “a taxpayer’s inability to pay does not mean he doesn’t have a tax deficiency.” (Hommel, TC Memo 2020-4)

Nonprofits that paid the “parking lot tax” may be eligible for a refund or credit. The IRS is reminding tax-exempt groups of recent tax law changes that might affect their current or previous tax years. The Taxpayer Certainty and Disaster Tax Relief Act repealed the “parking lot tax” on exempt employers. This retroactively canceled the increase in unrelated business taxable income by amounts paid or incurred for certain fringe benefits for which a deduction isn’t allowed. Most notably, it applied to qualified transportation fringe benefits such as employer-provided parking. The provision applied to amounts paid or incurred after December 2017.If your organization paid the tax, learn more here: https://bit.ly/36F9zeh.

Categories: March 2020
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