News & Articles

Delinquent Taxpayers May Experience Passport Issues

Posted on Wed, Mar 27, 2019

Let's say a person is planning to take a plane trip out of the country. And further suppose that individual owes the federal government a fair amount of back taxes. The person may not be able get a passport if he or she owes the government a significant amount of back taxes. The IRS is now reminding taxpayers that legislation passed in 2015 allows the tax agency to revoke passports or deny new ones to major debtors.

Taxpayers Free to Go Overseas

The IRS says it won't certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification for an individual who: 

  • Is in bankruptcy;
  • Has been identified by the IRS as a victim of tax-related identity theft;
  • Has an account the IRS has determined is currently not collectible due to hardship;
  • Is located within a federal disaster area;
  • Has a request pending with the IRS for an installment agreement;
  • Has a pending offer in compromise with the IRS; or
  • Has an IRS accepted adjustment that will satisfy the debt in full.

Background of the Law

Under the Fixing America's Surface Transportation Act of 2015, a highway spending measure, the IRS was granted the authority to notify the State Department about taxpayers who have "seriously delinquent tax debts." The State Department is then tasked with denying the individual their passport application or renewal. It took awhile to put the wheels in motion, but the IRS began enforcing this provision of the law last year.

For these purposes, a seriously delinquent tax debt is defined as $50,000 or more, indexed for inflation. The threshold for 2019 is $52,000. This includes back taxes, penalties and interest for which the IRS has filed a tax lien or issued a levy.

How It Works

If a taxpayer is certified as owing a seriously delinquent tax debt, he or she receives a Notice CP508C from the IRS. This notice explains the steps that must be taken to resolve the debt. For instance, IRS representatives may help a taxpayer set up a payment plan or explain other payment alternatives. People who owe back taxes shouldn't delay — especially if they're planning a trip abroad.

Once the tax obligations are met, the IRS will reverse the taxpayer's certification within 30 days. Matters may be expedited under certain circumstances.

Before denying a passport renewal or new passport application, the State Department will hold a taxpayer's application for 90 days to allow him or her to resolve any erroneous certification issues, make full payment of the tax debt or enter into a satisfactory payment arrangement with the IRS.

In an IRS announcement, the agency presents several ways that an individual can avoid having the State Department notified of a seriously delinquent tax debt, including the following:

  • Pay the tax debt in full;
  • Pay the tax debt in a timely manner under an approved installment agreement;
  • Pay the tax debt in a timely manner under an accepted offer in compromise (OIC);
  • Pay the tax debt in a timely manner under the terms of a settlement agreement with the Department of Justice (DOJ);
  • Have requested or have a pending collection due process appeal with a levy; or
  • Have collection suspended because you've made an innocent spouse election or requested innocent spouse relief.

The IRS also has provided details on two key relief programs available to taxpayers who could have their passports revoked or denied.

1. Payment agreements. A taxpayer can formally request to use a payment plan by filing Form 9465. This form can be sent with a tax return bill or notice or a taxpayer can arrange a monthly payment agreement online.

2. Offers in compromise. With an OIC, a taxpayer settles up with the IRS for an amount that's less than the actual tax liability. The IRS will examine the individual's income and assets to determine his or her ability to pay. An individual can use an online pre-qualifier to see if he or she is likely to qualify for an OIC.

Other special rules apply to taxpayers who are currently serving in a combat zone.

Moral of the story: As you can see, there are several available options for avoiding a worst-case scenario. With assistance from a tax advisor, a person who owes back taxes should be able to find a happy tax landing.

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Tags: Filing Taxes, IRS, Tax Cuts and Jobs Act (TCJA)

Tax Issues to Consider When Small Business Owners Get Divorced

Posted on Thu, Mar 14, 2019

For many small business owners, their ownership interest is one of their biggest personal assets. What will happen to your ownership interest if you get divorced? In many cases, your marital estate will include all (or part) of your business interest.

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Tags: IRS, Divorce, Small Business

IRS Issues Final QBI Deduction Regulations

Posted on Wed, Feb 13, 2019

The IRS has issued final regulations on determining allowable deductions based on qualified business income (QBI) from pass-through entities. This break is available only through 2025, unless it's extended by future legislation.

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Tags: IRS, Qualified Business Income (QBI), Pass-Through Entities

How Much Does the IRS Let Delinquent Taxpayers Live On Each Month?

Posted on Wed, Oct 10, 2018

The IRS uses "Collection Financial Standards" to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those that meet the test of being necessary to provide for a taxpayer's (and his or her family's) health and welfare, as well as his or her ability to produce income.

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Tags: Healthcare, IRS, Taxes

QBI Deduction Provides Tax Break to Pass-Through Entity Owners

Posted on Fri, Aug 24, 2018

The IRS recently issued proposed reliance regulations to help clarify the new qualified business income (QBI) deduction that was introduced as part of the Tax Cuts and Jobs Act. This guidance is complex and hundreds of pages long. As part of the proposed regs, the IRS explained that, if certain requirements are met, individuals, estates and trusts (all referred to as "individuals" by the proposed regs) that own interests in more than one qualifying trade or business can (but aren't required to) aggregate them, by treating them as a single trade or business.

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Tags: IRS, Business Owner, Tax Cuts and Jobs Act (TCJA), Qualified Business Income (QBI)

Ensure You Qualify for Charitable Donation Deductions

Posted on Thu, Jul 12, 2018

Giving to charity can provide you with a warm feeling as well as a nice tax break. But you've got to itemize deductions on your tax return. And, like most tax breaks, charitable deductions come with a number of rules you must follow to actually claim the write-off. Here are the details.

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Tags: Charitable Giving, IRS, Charitable Donations

Handle with Care: The Nanny Tax Rules

Posted on Wed, Nov 22, 2017

When you hire a nanny, housekeeper or other domestic worker, pay close attention to the tax rules.

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Tags: Social Security, IRS, Independent Contractor, Taxes

IRS Guidance on Leave-Sharing Programs to Help Hurricane Harvey Victims

Posted on Mon, Sep 11, 2017

The IRS recently announced special tax relief for leave-based donation programs set up by employers to assist victims of Hurricane Harvey and Tropical Storm Harvey.

Basics of Employer Programs

Under a leave-based donation program, an employer can allow its employees to forgo their vacation, sick, or personal time off in exchange for cash payments made by the employer to charitable organizations. Under IRS regulations, leave-based charitable donations are ordinarily included in the donating employee's income. In addition, the opportunity to elect such contributions raises the concern that eligible employees might be taxed on income that could have been donated because the ability to make the contribution triggers "constructive receipt."

IRS Relief

The new IRS guidance addresses both concerns:

  • Cash payments that employers make to qualified tax-exempt organizations in exchange for vacation, sick, or personal leave that their employees elect to give up won't constitute income to the employees if the payments are made before January 1, 2019, for the relief of victims of Hurricane Harvey or Tropical Storm Harvey.

    Such payments don't need to be included in Box 1, 3, or 5 of the employee's Form W-2.
  • The opportunity to make a leave donation won't result in constructive receipt of income. Employees who participate in these programs can't deduct the value of the donated leave on their income tax returns. Reason: Such deductions would involve "double-dipping" because the donated time off already would have been excluded from their incomes.

    Employers cannot claim a charitable deduction for the value of the forgone leave. However, they will be permitted to deduct the contributions as trade or business expenses without regard to the charitable contribution restrictions under the tax code.

This guidance closely resembles the relief for leave-based donation programs that the IRS has issued after other recent disasters, including last year's severe storms and flooding in Louisiana and Hurricane Matthew.

If you need more information about leave-based donation programs, consult with your EHTC Tax Advisor or employee benefits advisor.

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Tags: Employers, IRS, Charitable Donations

IRS: Swap Your Vacation Home in Tax-Deferred Exchange

Posted on Mon, Aug 28, 2017

Many taxpayers own vacation homes that they've rented out and also used as their personal residences. Can one of these homes be traded for another vacation home in a tax-deferred Section 1031 exchange? According to the IRS, the answer is "yes" under the right circumstances. The IRS has even issued guidelines for how to do it. (IRS Revenue Procedure 2008-16)

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Tags: Vacation Home, Section 1031 Exchange, Safe-Harbor Guidelines, IRS

Bring Home a Tax Credit for Adoption

Posted on Wed, Aug 23, 2017

When you adopt a child, you could bring home more than a bundle of joy. You may also be in line for a valuable tax credit.

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Tags: Tax Credit, IRS, Tax Credits, Child expenses