Amended Tax Returns Now Eligible for E-Filing

Taxpayers will soon be able to file amended tax returns electronically

For the first time, taxpayers will now be able to file a Form 1040-X, Amended U.S Individual Income Tax Return electronically.  Making this form electronically fileable has been a long-time goal for the IRS. It will greatly benefit the tax professional community and taxpayers.

The new electronic option will allow the IRS to receive amended returns faster while minimizing errors normally associated with manually completing the form. It will also provide the IRS with more complete and accurate data to help customer service representatives answer taxpayer questions.

When the electronic filing option becomes available, taxpayers will only be able to amend tax year 2019 Forms 1040 and 1040-SR returns electronically. In general, taxpayers will still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form.

Whether an amended return is filed electronically or manually, taxpayers can still use the “Where’s My Amended Return?” online tool to check the status of their amended return. 

If you discovered you made a tax return mistake will you be required to amend an incorrect tax return? If you need assistance with a tax compliance issue, contact Long Island Tax Attorney Peter Alizio for a complimentary consultation.   

IRS Virtual Settlement Days

IRS allows unrepresented taxpayers to settle tax court cases virtually! 

The Internal Revenue Service Office of Chief Counsel announced the Settlement Days program will continue remotely enabling unrepresented taxpayers to work towards resolving their pending United States Tax Court case despite "stay-at-home" orders in many jurisdictions.  The first two events are for docketed cases with a place of trial in Detroit or Atlanta.  Future events may be scheduled in other cities throughout the United States.

Virtual Settlement Days is a coordinated effort to resolve Tax Court cases by giving taxpayers not represented by counsel the opportunity to receive free tax advice and possible representation from Low-Income Taxpayer Clinics (LITCs) or another pro bono organizations. Taxpayers can discuss their Tax Court case and federal tax issues with members of the IRS Office of Chief Counsel, Appeals and Collections.

The program is geared to help unrepresented taxpayers receive free assistance in discussing a potential fair settlement of their tax disputes in an informal setting without the need for further litigation or a trial in Tax Court. The vast majority of taxpayers participating in previous Settlement Days programs have resolved their cases; most of those who ended up with a liability have been able to enter into an installment payment arrangement.

The Tax Court canceled scheduled trial sessions in a series of Orders issued on March 11, 13 and 23, 2020.  The Tax Court Orders state that it is expected that parties will continue to work together to exchange information and address pending issues. The Settlement Days events accomplish the Tax Court’s goals by allowing the parties to work towards settling case on a remote basis. 

Chief Counsel has scheduled Virtual Settlement Days events for May 2020 for cases docketed on the Detroit and Atlanta Tax Court trial sessions. Chief Counsel has invited more than 100 unrepresented taxpayers to meet with Chief Counsel attorneys or paralegals via WebEx for the two events. The taxpayers will be able to speak with LITC representatives prior to the WebEx meetings. If the taxpayer desires, the LITC representatives will later join the WebEx meetings.

The Detroit Office of Chief Counsel will host its event on Saturday, May 9, in conjunction with the University of Michigan Law School LITC for the Detroit trial session cases. The IRS has invited over 100 Tax Court petitioners.  The cases being selected are from recently canceled Tax Court calendars, as well as other docketed cases not yet set for trial. The event may be extended, if needed, to meet taxpayer’s needs. 

The Atlanta Office of Chief Counsel will host the second event on Thursday, May 21, in conjunction with the North Georgia Low Income Taxpayer Clinic for the canceled Atlanta trial session cases and other docketed cases. The event may extend over several days to accommodate the schedules of the participants. The IRS will focus on inviting unrepresented taxpayers whose cases sessions have been delayed due to Tax Court cancellations.

While docket taxpayers with cases currently under consideration by the IRS Independent Office of Appeals have not been sent invitations to the Detroit and Atlanta events, the IRS encourages those petitioners to contact the Appeals Officer assigned to their case to discuss a resolution. Appeals continue to work cases, including use of virtual conferences. For unrepresented taxpayers who are working with an Appeals Officer and receive an invitation to the event, the IRS will work with them at the event to resolve all their issues.

In addition, IRS Chief Counsel recently prepared a Virtual Settlement Days Best Practice Guide for external use that will be released in advance of the Virtual Settlement Days events. Chief Counsel anticipates that Virtual Settlement Days will be a mainstay of its Settlement Day efforts even after this crisis is over. Chief Counsel released an initial Settlement Days Best Practices Guide in January 2020, which outlined a remote model for the program.

IRS During the Coronavirus (People First Initiative)

On March 25, 2020 the IRS announced the People First Initiative a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions. The People First Initiative was designed to provide relief to taxpayers during the COVID-19 pandemic. 

The Highlights of the People First Initiative: 

Existing Installment Agreements –For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Debit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.

New Installment Agreements – The IRS reminds people unable to fully pay their federal taxes that they can resolve outstanding liabilities by entering into a monthly payment agreement with the IRS. See IRS.gov for further information.

Offers in Compromise (OIC) – The IRS is taking several steps to assist taxpayers in various stages of the OIC process:

• Pending OIC applications – The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer's consent.

• OIC Payments – Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances.

• Delinquent Return Filings - The IRS will not default an OIC for those taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.

• New OIC Applications – The IRS reminds people facing a liability exceeding their net worth that the OIC process is designed to resolve outstanding tax liabilities by providing a "Fresh Start." Further information is available at IRS.gov

• In-Person Meetings - In-person meetings regarding current field, office and correspondence examinations will be suspended. Even though IRS examiners will not hold in-person meetings, they will continue their examinations remotely, where possible. To facilitate the progress of open examinations, taxpayers are encouraged to respond to any requests for information they already have received - or may receive - on all examination activity during this period if they are able to do so.

• Unique Situations - Particularly for some corporate and business taxpayers, the IRS understands that there may be instances where the taxpayers desire to begin an examination while people and records are available and respective staffs have capacity. In those instances when it's in the best interest of both parties and appropriate personnel are available, the IRS may initiate activities to move forward with an examination -- understanding that COVID-19 developments could later reduce activities for an agreed period.

• General Requests for Information - In addition to compliance activities and examinations, the IRS encourages taxpayers to respond to any other IRS correspondence requesting additional information during this time if possible.  

Non-Filers –The IRS reminds people who have not filed their return for tax years before 2019 that they should file their delinquent returns. More than 1 million households that haven't filed tax returns during the last three years are actually owed refunds; they still have time to claim these refunds. Many should consider contacting a tax professional to consider various available options since the time to receive such refunds is limited by statute. Once delinquent returns have been filed, taxpayers with a tax liability should consider taking the opportunity to resolve any outstanding liabilities by entering into an Installment Agreement or an Offer in Compromise with the IRS to obtain a "Fresh Start." See IRS.gov for further information.

Field Collection Activities - Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.

Automated Liens and Levies – New automatic, systemic liens and levies will be suspended during this period.

Passport Certifications to the State Department – IRS will suspend new certifications to the Department of State for taxpayers who are "seriously delinquent" during this period. These taxpayers are encouraged to submit a request for an Installment Agreement or, if applicable, an OIC during this period. Certification prevents taxpayers from receiving or renewing passports.

Private Debt Collection – New delinquent accounts will not be forwarded by the IRS to private collection agencies to work during this period.

Field, Office and Correspondence Audits – During this period, the IRS will generally not start new field, office and correspondence examinations. We will continue to work refund claims where possible, without in-person contact. However, the IRS may start new examinations where deemed necessary to protect the government's interest in preserving the applicable statute of limitations.

Earned Income Tax Credit and Wage Verification Reviews – Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income. These taxpayers are encouraged to exercise their best efforts to obtain and submit all requested information, and if unable to do so, please reach out to the IRS indicating the reason such information is not available. Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information.

Independent Office of Appeals – Appeals employees will continue to work their cases. Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by videoconference. Taxpayers are encouraged to promptly respond to any outstanding requests for information for all cases in the Independent Office of Appeals.

Statute of Limitations - The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes. Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.

Practitioner Priority Service – Practitioners are reminded that, depending on staffing levels and allocations going forward, there may be more significant wait times for the PPS. The IRS will continue to monitor this as situations develop.

Tax Return Filing Date Extended to July 15th

IRS NOTICE 2020-18 - Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic.

The due date for taxpayers to file Federal income tax returns (and make payments) has been extended from April 15, 2020 to July 15th, 2020. 

New York State announced the due date has been extended for filing personal income tax returns from April 15, 2020 to July 15th, 2020.   

IRS increasing focus on taxpayers who have not filed tax return

The Internal Revenue Service announced it will visit more taxpayers who haven't filed tax returns for prior years in an effort to increase tax compliance and further enforce the law. In addition, the IRS is increasing the use of data analytics, research and new compliance strategies, including personal visits, to reach taxpayers and tax return preparers who have not filed federal tax returns.

The goal of these strategies is to bring delinquent taxpayers into compliance with their filing and payment tax obligations and promote future tax compliance.

To further promote voluntary compliance with tax laws, the IRS is also using new ways to leverage existing processes and systems, including:

• Increase the identification and case creation for individual and business non-filers. New cases will be assigned to IRS employees for appropriate resolution.

• Automated Substitute for Return program (ASFR). This affects individual taxpayers who have not filed tax returns, but whose available income information shared with the IRS indicates a significant income tax liability. As part of the ASFR program, the IRS sends notices to these taxpayers alerting them to the potential liability.

• Automated 6020(b) process. Promotes employment tax filing compliance by identifying business taxpayers with employment tax requirements who have not filed for a specific period. Ensuring businesses comply with their employment tax filing and payment requirements is another priority for the IRS.

• Delinquent Return Refund Hold program (DRRH). Systemically holds an individual taxpayer's income tax refund when their account has at least one unfiled tax return within the five years surrounding that return.

In addition, the IRS is also working with key partners to better educate taxpayers and tax professionals on filing requirements.

The IRS reminds taxpayers that many non-filers are actually owed refunds, and they are also encouraged to look into filing their tax returns.The deadline for claiming refunds on 2016 tax returns is April 15, 2020.

This content was originally published by the IRS, E-News for Tax Professionals Issue Number: 2020-10. If you need assistance filing past due income tax returns contact us.

IRS Rebrands Shared Economy Tax Center

IRS Launches Gig Economy Tax Center 

Today, I received an email from the IRS (IRS Newswire - January 9, 2020). The email discusses the launch of a new Gig Economy Tax Center on IRS.gov to help inform individuals who earn money performing "gigs" or through the "shared economy" of their tax obligations. 

The IRS previously had a Shared Economy Tax Center which appears to have been rebranded into the new Gig Economy Tax Center.

It is my belief that the IRS will start paying special attention to ride-sharing and temporary room or housing rentals (airbnb) going forward.

“Whether renting out a spare bedroom or providing car rides, we want people to understand the rules so they can stay compliant with their taxes and avoid surprises down the line.” - IRS Commissioner Chuck Rettig 

The Gig Economy Tax Center is comprised of two sections:

Section for Gig Workers  

Information specifically for individuals that have revenue from gig work. These are taxpayers who will probably receive one ore more IRS 1099-MISC forms and file a Schedule C income tax return.  The "Gig Worker" will find information about tax forms, keeping records, deducting expenses, and filing and paying taxes here.

What is Gig Work?

Gig work is a certain activity you do to earn income, often through an app or website (digital platform), like:

• Drive a car for booked rides or deliveries
• Rent out property or part of it
• Run errands or complete tasks
• Sell goods online
• Rent equipment
• Provide creative or professional services
• Provide other temporary, on-demand or freelance work

Note: This list does not include all types of gig work.

Section for Digital Platforms 

Information for businesses that operate digital platforms, marketplaces, or businesses in the gig economy. These businesses can learn about classifying workers, reporting payments, paying and filing taxes here.  

What are Digital Platforms?

Digital platforms are businesses that match workers' services or goods with customers via apps or websites. This includes businesses that provide access to:

• Ridesharing services
• Delivery services
• Crafts and handmade item marketplaces
• On-demand labor and repair services
• Property and space rentals

Note: This list does not include all types of digital platforms.

The Gig Economy Tax Center will be a good resource for taxpayers participating in the sharing economy.  However, if you still have tax questions feel free to contact us. 

Tax Planning

IRS Publication 5349: Year-round tax planning is for everyone as life changes can affect taxpayers’ expected refunds or the amount of tax they will owe. These changes include things like employment status, marital status, and financial gains or losses. Publication 5349 (below) provides tips on developing habits throughout the year that will help make tax preparation easier. This resource also includes a checklist of items taxpayers should have on hand when filing their tax returns.

 

IRS issues Due Diligence Compliance Letters to Certain Tax Preparers

This week in E-News for tax professionals (issue 2019-46) the IRS will be issuing compliance letters to tax preparers who have submitted returns with questionable claims for:

• Earned Income Tax Credit
• Child Tax Credit 
• Additional Child Tax Credit
• American Opportunity Tax Credit
• Head of Household Status

Letter 5025  seems to be informational in nature acting almost like a warning or notice. Additionally, tax preparers in receipt of Letter 5025 do not need to respond:  

"This letter is for your information only. You don't need to respond. We'll continue to check future returns you prepare that claim these benefits to ensure you're meeting your due diligence requirements" 

IRS E-News states that the intent of the letter is to raise awareness around questionable tax returns and assist preparers in meeting their due diligence requirements.  

U.S. Justice Department Proposed Settlement with Liberty Tax Services

A complaint was filed in U.S. District Court alleging that Liberty Tax Services maintained a substantial degree of control over franchisees and the ability to prevent potentially false or fraudulent tax returns from being e-filed with the IRS.  Furthermore, Liberty Tax failed to set up adequate internal controls necessary to prevent the filing of false or fraudulent tax returns. The Justice Department highlighted a pattern of prior tax return preparer fraud involving Liberty Tax Services including: 

Earned Income Tax Credit Fraud (fake income); 

Fabricated Expenses (itemized deductions & business expenses);

False or Improper Dependents;

Fraudulent Claims for Education Credits;

PTIN Violations (Paid Prepares). 

From tax years 2012 thru 2016 the IRS has assessed over 25,000 separate penalties against tax return preparers for tax returns prepared at Liberty Tax franchises and company-owned tax return preparation stores.  

From the Complaint: 

• For tax years from 2012 to 2018, over 88% of the electronically filed federal income tax returns prepared at stores Liberty Tax owned directly or franchised in the United States included a claim for a tax refund. In total, those income tax returns claimed over $28 billion in federal tax refunds.  

•  A substantial portion of the tax returns prepared at Liberty Tax franchise and company-owned store locations and electronically filed with the IRS by Liberty Tax claim the EITC. For tax years from 2012 to 2018, approximately 41% of federal income tax returns that Liberty Tax electronically filed with the IRS included a EITC claim – more than double the proportion compared against all other federal income tax returns electronically filed with the IRS during that period. In total, the EITC claimed by federal tax returns electronically filed by Liberty Tax during this timeframe exceeded $12 billion. 

• Because store locations prepare tax returns using Liberty Tax software,which transmits each tax return to Liberty Tax prior to filing with the IRS, Liberty Tax has the capability to prevent electronic filing of federal tax returns that it identifies as containing potentially false or fraudulent information. 

• Liberty Tax has the capability to prevent electronic filing of federal tax returns prepared by individual tax return preparers working at store locations it owns or owned by its franchisees, if the tax return includes the correct Preparer Identification Number (“PTIN”) of the preparer as required by federal law. Therefore, Liberty Tax can bar individuals from filing tax returns through its systems that it identifies as having filed improper, false, or fraudulent federal tax returns in the past, or identifies as high risk for filing improper, false, or fraudulent federal tax returns.

The Justice Department announces proposed settlement that would:   

• Permanently bar Liberty from engaging or employing certain individuals going forward, including the company’s founder and former CEO, John T. Hewitt.

• Implement enhanced compliance measures, including training programs and additional resources to monitor, detect, and report non-compliance with federal laws and regulations, as well as to ensure effective quality control over tax return preparation throughout the Liberty Tax Service system;

• Conduct a minimum number of onsite compliance reviews of its stores, test its stores’ compliance with tax laws using mystery shoppers, and automatically prevent electronic transmission of tax returns to the IRS that report certain items with a high risk of fraud until the company independently verifies the accuracy of the tax return;

• Disclose to the United States any violations Liberty discovers from onsite reviews, mystery shoppers, and automatic holds of tax returns, as well as internal reviews Liberty previously conducted of its officers and employees who violated federal tax laws;
• Enact specific verification requirements at Liberty Tax Service stores for tax returns that claim itemized tax deductions or report certain forms of income to claim the Earned Income Tax Credit;

• Maintain a whistleblower program to encourage Liberty employees, franchisees, and franchisee employees to report suspected fraudulent activity; and

• Engage a third party, approved by the United States, to act as an independent monitor to review the company’s compliance with terms of the order, to assess the sufficiency of Liberty’s fraud prevention measures, and to report findings to a government official designated by the United States and, if necessary, to the court.

The proposed settlement can be viewed here. 

Planning on Making Charitable Contributions this Holiday Season?

Will Your Donation Be Tax Deductible? 

Many taxpayers think that donating to any tax-exempt organization is tax-deductible. However, only contributions to specific tax-exempt organizations are deductible. §170 of the Internal Revenue Code does allow a tax deduction for charitable contributions but what are "Charitable Contributions"? 

§170(c) defines "Charitable Contribution" as a contribution or gift to or for the use of (I will stop us here as the section gets complicated). It would be difficult for an individual reading the tax code to determine whether a donation to a not-for-profit organization or tax-exempt organization is deductible without the help of a tax professional. Thankfully, the IRS rolled out Tax Exempt Organization Search (TEOS) an online tool allowing users to search for information about the exempt organization. Taxpayers may use TEOS to determine if a donation to a specific charity qualifies as a tax-deductible charitable contribution.  

How Much of Your Donation is Tax-Deductible?

Assuming you make a donation to a qualified organization, how much of this donation is deductible on your income tax return?  First, it is important to understand that receiving a tax benefit for claiming a charitable contribution is only available for those taxpayers who itemize their tax returns. Said another way taxpayers electing the standard deduction will not receive a tax benefit.

Did You Receive a Benefit or Something of Value? 

If you received a benefit or something of value in exchange for your donation than the amount of donation representing the FMV of goods or services received is not deductible.  Said another way, you may only deduct the amount of your donation that exceeds the value of any benefit received.

To illustrate: If you purchased two charity event tickets for $1,000 ($500 each) only a portion of the $1,000 will be tax deducible. If the FMV of goods or services being provided at the event is $150 per person/ticket than $350 a ticket is tax-deductible. In practice, the ticket might state how much of the purchase price is tax-deductible. Alternatively, the organization should mail letters to donors acknowledging the contribution and the value of goods or services provided.

I want to wish everyone a happy holiday and remember that making donations this time of year is not about the tax deduction(s) but about giving back and paying it forward.  HAPPY HOLIDAYS! 

Unable to Pay Tax Return Balance Due?

As tax season winds down many taxpayers will owe taxes when filing their income tax returns. This is not an issue when the taxpayer has money to pay the tax balance due. However, when the taxpayer does not have the funds necessary to pay the tax some individuals would rather not file or file a tax return extension.

Income Tax Return Balance Due (and cannot pay) 

In the event, a taxpayer has a balance due on their tax return and currently unable to pay.  The taxpayer should file the tax return without making payment for the amount due. Doing this will avoid a late filing penalty.

What is the Penalty for Failing to File a Tax Return by the Due Date?

Under §6651 of the Internal Revenue Code, a penalty is imposed for failure to file a tax return.  This penalty is 5% of the tax return balance due; and 5% for each additional month the tax return is not filed but not to exceed 25% in the aggregate. Therefore it is more important for a taxpayer expecting to owe taxes to timely file a tax return, than a taxpayer expecting a refund because the taxpayer receiving a refund will not be subject to a failure to file penalty.  

The IRS offers advice to taxpayers who owe taxes but can't pay.

An Extension of Time to File is Not an Extension of Time to Pay!  

Extensions are needed when information necessary to file a complete and accurate tax return is not available until after the filing deadline. This is very common for taxpayers that are partners and shareholders in flow-thru entities who receive their K-1 after April 15th.  

Taxpayers will need to estimate the amount of tax that will be owed with the tax return.  This amount should be paid with the extension (i.e. an extension payment). If the taxpayer underestimates this amount the taxpayer may be subject to a failure to pay estimated tax penalty (IRC §6654).  

Beware of Trap! Remember, an extension is an extension of time to file your tax return, not to pay the tax.  Therefore taxpayers need to estimate the amount of tax that will be owed and submit payment with the extension.  IRS TRAP-> the IRS can VOID your extension!  If the IRS determines the estimate was not reasonable the extension will be voided (as if the extension was never filed).  If this happens the taxpayer will be subject to a failure to file penalty.  

Additional information on filing a tax return extension can be found here. 

Apply for an Installment Agreement 

After filing an income tax return with a balance due (and without payment), the taxpayer will receive a bill from the IRS for the tax due plus any interest or penalty. The taxpayer may now enter into a payment plan called an installment agreement to pay the outstanding tax balance.  

If you have any income tax questions or need to speak with a Long Island Tax Attorney feel free to contact our law firm at (212) 520-2906.  Disclaimer: This blog post is offered for information and educational purposes only and not intended to be tax or legal advice.