News & Articles

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

Revenue Recognition for Contracts: Changes Coming Soon

Posted on Thu, Aug 10, 2017

Revenue is the top line of your company's income statement. So it tends to receive a lot of attention from investors, lenders and other stakeholders. Why? Changes in revenue can tell whether your company is growing or declining. Moreover, changes in the composition of revenue can provide insight into your strategic plans.

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Tags: Business, IRS, Business Finance, Cash Flow Statement

How Much Does the IRS Let Delinquent Taxpayers Live On?

Posted on Mon, Jul 31, 2017

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: Federal Taxes, Bill Collecting, Taxpayer, IRS

Do You Have a Deductible Business Loss or a Nondeductible Hobby Loss?

Posted on Wed, Jul 26, 2017

There's a fine line between businesses and hobbies under the federal tax code. If you engage in an unincorporated sideline — such as a marketing director by day and an artist on the nights and weekends — you may think of that side activity as a business and hope to deduct any losses on your personal tax return. But the IRS may disagree and reclassify the money-losing activity as a hobby.

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Tags: Hobby vs Business, IRS, Business Activity Rules, Losses

How to Set Up an IRS-Approved Family Loan

Posted on Mon, Jul 17, 2017

Today's relatively low-interest-rate environment makes it easy to loan money to family members on favorable terms with full IRS approval. Here's a rundown of what the law covers and why now might be a good time to set up loans.

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Tags: IRS, Interest Rates, Family Loans, Loan

Hockey Team's Meals at Away Games Were a De Minimis Fringe Benefit

Posted on Fri, Jul 14, 2017

The U.S. Tax Court recently ruled that the Boston Bruins hockey team's pregame meals to players and personnel at out-of-town hotels qualified as a de minimis fringe benefit under the Internal Revenue Code. Therefore, 100% of the cost of those meals could be deducted — it wasn't subject to the 50% tax code limitation.

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Tags: Benefits, Deductions, IRS, Employee Compensation, Deductible Costs

Notify the IRS if You Change Your Address

Posted on Mon, Jun 26, 2017

It's important to notify the IRS if you move and change your address. Under tax law regulations, a taxpayer's last known address is the one that appears on the tax return you filed most recently — unless the IRS is otherwise notified.

In one court case, it was made clear that the burden of informing the IRS of address changes falls on taxpayers. The IRS is not obligated to find them.

 

Note: Tax notices are sent to mailboxes through the U.S. Postal Service. The IRS never contacts taxpayers via telephone, email, text message or social media to ask for personal or financial information. An IRS solicitation in any format other than a letter sent through the U.S. Postal Service could be a ploy to steal your personal information or access your financial records.

The Court of Appeals for the Seventh Circuit ruled that the IRS did not abuse its discretion when it mailed a deficiency notice to the last known address of a taxpayer after it had been informed by the U.S. Postal Service that mail to the taxpayer at that address was undeliverable. IRS had no duty to seek out address information. The taxpayer filed no tax returns from 2001 through 2007, moved seven times during that period and never notified IRS of his new addresses.

Basic rules: Under federal regulations, a taxpayer's last known address is the one that appears on the taxpayer's most recently filed and properly processed federal tax return, unless the IRS is given "clear and concise" notification of a different address. Change of address information that a taxpayer provides to a third party, such as a payor or another government agency, isn't clear and concise notification for these purposes.

However, the IRS will update taxpayer addresses maintained in IRS records by referring to data accumulated and maintained in the U.S. Postal Service's National Change of Address database. The rules allow notification to be made in several ways (see chart below). 

Facts of the Case

From 2001 through 2007, a man filed no income tax returns. During that same period he moved frequently, living at eight different addresses in four cities and two states. The IRS sent a notice of taxpayer's 2001 deficiency in March 2004 to his apartment in San Francisco. This was the address he had reported on his most recently filed tax return for the 2000 tax year, and it was the most recent address in the IRS's computer system. The IRS had no record of any address update from the taxpayer.

Forms submitted to the IRS by third parties, however, showed a few possible addresses. In November 2004, the IRS mailed a Form 2797 "R-UThere" letter to a street in Oakland. The IRS received no answer to this letter.

The IRS sent a deficiency notice to the San Francisco street address for tax year 2003 on December 11, 2006. Notwithstanding the fact that the Postal Service returned this deficiency notice to the IRS marked "not deliverable as addressed" and "unable to forward," the IRS sent another deficiency notice to the same San Francisco address for tax year 2002 on July 30, 2007. This notice was also returned as undeliverable by the Postal Service. The IRS took no further steps to locate the man or to reissue either notice. A deficiency was assessed for tax years 2002 and 2003 in 2007, and the IRS filed a federal lien on the man's real property in 2009.

Later, the man requested a collection due process hearing. The IRS Appeals Office issued a notice of determination sustaining the tax agency's lien notice and concluding that the tax agency followed all legal and procedural requirements in the assessment and collection process.

The U.S. Tax Court sustained the Appeals Office determinations. The man appealed to the Court of Appeals claiming that the IRS abused its discretion in using the San Francisco address as his last known address for deficiency notices for tax years 2002 and 2003.

The IRS wins. The Seventh Circuit ruled that the IRS properly mailed deficiency notices to the taxpayer's last known address before filing the lien and held that the man waived any challenge as to the correctness of the determination of his underlying tax liabilities.

The Court of Appeals rejected the man's argument that he updated his address because he provided no documentation to support his testimony. The Court found that the IRS has no obligation to send notifications to possible addresses provided by third parties on W-2 or 1099 forms, since third party notification is not clear and concise notification.

Finally, the court rejected the man's assertion that the IRS didn't act with reasonable diligence when it sent the tax year 2002 deficiency notice to the original San Francisco address when it knew at the time of mailing that the notice would be undeliverable. The court agreed with the IRS Appeals Office that no amount of diligence would have uncovered a new return or notification from the taxpayer because the man never submitted one. The court noted that this was not a case of the IRS overlooking a more recently filed return, ignoring an address update from the taxpayer or misaddressing an envelope. (Gyorgy, (CA 7 2/27/2015) 115 AFTR 2d)

As you can see, you need to let the IRS know if you move. There are several ways to inform the tax agency of a new address:

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Tags: Taxpayer, IRS

Can Your Research Credits Offset Your Payroll Tax Bill?

Posted on Wed, Jun 21, 2017

Does your small business engage in qualified research activities? If so, you may be eligible for a research tax credit that can now be used to offset your federal payroll tax bill.

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Tags: Tax Credit, Research, IRS