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Tag Archive for IRS

Pre-Marital Agreements And The IRS

Pre-Marital Agreements And The IRS

It is certainly not uncommon for one taxpayer with significant federal tax debts to want to marry another taxpayer without any tax debts at all.  In these instances, both taxpayers may naturally desire to enter into a pre-marital agreement to ensure that their respective assets and debts (including federal tax debts) are kept separate.  This is particularly so in so-called “community property states” where the presumption is that each taxpayer is deemed to have rights to one-half of the other taxpayer’s community property income and assets.

Taxpayers in these circumstances should understand that the IRS will not always respect a pre-marital agreement.  Rather, the IRS will, in many cases, carefully scrutinize the agreement itself and the surrounding circumstances to determine whether it can pierce through the agreement and reach the liable spouse’s community property share of assets.  Accordingly, taxpayers should, where warranted, consult with a tax professional to determine whether the pre-marital agreement complies with federal tax law and IRS guidance.

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IRS Releases Reporting Guidance For Partnership Interests Held In Connection With The Performance Of Services

IRS Releases Reporting Guidance For Partnership Interests Held In Connection With The Performance Of Services

The Internal Revenue Service posted detailed reporting directions for certain passthrough entities and taxpayers reporting of partnership interests held in connection with the performance of services, often referred to as “carried interests,” in the form of frequently asked questions (FAQs).

The FAQs contain sample worksheets that certain passthrough entities and taxpayers may be required to use in reporting “carried interests,” partnership interests held in connection with the performance of services for tax returns, filed after December 31, 2021 in which a passthrough entity applies the final regulations.

In addition, the FAQs contain additional instructions for certain passthrough entities and taxpayers who though not required to file the sample worksheets must provide similar information and must disclose whether the information was determined under the proposed regulations or another method for tax returns filed after December 31, 2021 for a taxable year beginning before January 19, 2021.

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Independent Contractor (Self-Employed) Or Employee?

Independent Contractor (Self-Employed) Or Employee?

It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.

Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Select the Scenario that Applies to You:

  • I am an independent contractor or in business for myself
    If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center.
  • I hire or contract with individuals to provide services to my business
    If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.

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New IRS $67 User Fee Applies To Estate Tax Closing Letters

Estate Tax Closing Letter

The Internal Revenue Service announced that starting Oct. 28, a new $67 user fee will apply to any estate that requests a closing letter for its federal estate tax return.

The new user fee was authorized under final regulations, TD 9957, available today in the Federal Register. Closing letter requests must be made using Pay.gov. The IRS will provide further procedural details before the user fee goes into effect.

By law, federal agencies are required to charge a user fee to cover the cost of providing certain services to the public that confer a special benefit to the recipient. Moreover, agencies must review these fees every two years to determine whether they are recovering the cost of these services.

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What Is IRS Notice Of Deficiency?

What Is IRS Notice Of Deficiency?

Ordinarily, taxpayers file their income tax returns each year with the IRS and hear nothing more.  Rather, the Internal Revenue Service (“IRS”) simply processes the tax return, assesses the reported amount of tax due, and accepts and credits the taxpayer’s payment against the reported tax amount.  In this manner, life moves on until the same process is repeated again the next year.

But, there are times in which the IRS disagrees with the amount of tax reported on a taxpayer’s return.  In these instances, the IRS must utilize so-called “deficiency procedures” to communicate to the taxpayer the IRS’ belief that adjustments should be made to the return.  These deficiency procedures provide taxpayers with significant procedural rights to contest the IRS’ determinations.  This article discusses the deficiency procedures including the Notice of Deficiency (“NOD”) the IRS must issue prior to making an assessment of federal tax.  This article also discusses the taxpayer’s right to challenge the IRS’ determinations in the NOD through filing a petition with the United States Tax Court (“Tax Court”).

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IRS States Abusive Trust Tax Evasion Schemes

Trust Tax Evasion Schemes
Accessing The Offshore Funds

How do taxpayers involved in these schemes enjoy the fruits of their abusive scheme since their funds are offshore? There are several methods to repatriate the taxpayer’s funds to the U.S. All of these methods, at some point, involve the opening of foreign bank accounts. Two examples are described below:

  • A bank account is opened in the tax haven country and a debit or credit card is issued from the account. These cards are used by the taxpayer in the U.S. to withdraw cash and to pay for everyday expenses. Since the cards are issued by banks located in tax haven countries, it is very difficult for the IRS to trace these transactions back to the taxpayer.
  • An International Business Corporation (IBC) is established. Funds are transferred from the foreign trusts to the IBC via foreign bank accounts. Fraudulent loans are set up from the IBC to taxpayers and funds are wired back to the taxpayers in the U.S. Because loans are generally not taxable, the repatriation of funds is not reported on a U.S. tax return. In addition, because the ownership of IBCs is documented with bearer shares and IBCs are located in tax haven countries, it is very difficult for the IRS to prove that fraudulent loans are actually the taxpayer’s income.

IRS

IRS Estate And Gift Tax Frequently Asked Questions

IRS: Estate And Gift Tax FAQs

The FAQs on this page provide details on how tax reform affects  Estate and Gift Tax. Visit the Estate and Gift Taxes page for more comprehensive estate and gift tax information.

Making large gifts now won’t harm estates after 2025

On November 26, 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. The IRS formally made this clarification in final regulations released that day. The regulations implement changes made by the Tax Cuts and Jobs Act (TCJA), tax reform legislation enacted in December 2017. Here are some questions and answers on the new law and regulations.

Q. What are gift and estate taxes?

A. Gift and estate taxes apply to transfers of money, property and other assets. Simply put, these taxes only apply to large gifts made by a person while they are alive, or large amounts left for heirs when they die.

Q. How are gift and estate taxes figured?

A. In general, the Gift Tax and Estate Tax provisions apply a unified rate schedule to a person’s cumulative taxable gifts and taxable estate to arrive at a net tentative tax.  Any tax due is determined after applying a credit based on an applicable exclusion amount.  A key component of this exclusion is the basic exclusion amount (BEA).  The credit is first applied against the gift tax, as taxable gifts are made.  To the extent that any credit remains at death, it is applied against the estate tax.

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Tax Time Guide: Make Protecting Tax And Financial Information A Habit

Tax Time Guide: Make Protecting Tax And Financial Information A Habit

WASHINGTON – The Internal Revenue Service urged people to continue practicing proper cybersecurity habits by securing computers, phones and other devices. Scams and schemes using the IRS as a lure can take on many variations, so practicing personal information security is vital.

This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax.

The IRS works with the Security Summit, a partnership with state tax agencies and the private-sector tax industry, to help protect taxpayer information and defend against identity theft. Taxpayers and tax professionals can take steps to help in this effort by doing things like minimizing cybersecurity footprints, staying vigilant in protecting personal tax and financial information and being aware of common scams and schemes.

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Tips To Help Taxpayers Spot And Avoid Tax Scams

Tips To Help Taxpayers Spot And Avoid Tax Scams

Tax season is also busy season for savvy criminals. Scammers impersonating the IRS either over-the-phone, by email or in-person can steal money from people. All taxpayers should stay vigilant against these schemes.

Here are some tips to help people recognize and avoid tax-related scams.

Email Phishing Scams
The IRS does not initiate contact with taxpayers by email to request personal or financial information. Generally, the IRS first mails a paper bill to a person who owes taxes. In some special situations, the IRS will call or come to a home or business.

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IRS Form 8300: Understand How To Report Large Cash Transactions

IRS Form 8300; Reporting Cash To IRS

Although many cash transactions are legitimate, the government can often trace illegal activities through payments reported on complete, accurate Forms 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business PDF. Here are facts on who must file the form, what they must report and how to report it.

Who Must File

Generally, any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file a Form 8300. By law, a “person” is an individual, company, corporation, partnership, association, trust or estate. For example, dealers in jewelry, furniture, boats, aircraft or automobiles; pawnbrokers; attorneys; real estate brokers; insurance companies and travel agencies are among those who typically need to file Form 8300.

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 4 of Series): “TPEP Resolution Phase & Takeaways”

Transfer Pricing Exams & IRS Preparedness Measures

In this fourth article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we briefly summarize the IRS’s Transfer Pricing Examination Process (TPEP) Resolution Phase, which is the final phase of the TPEP’s three phases, and we list extrajudicial taxpayer courses of action such as Appeals.

The goal of the Resolution Phase is to reach agreement on the tax treatment of each transfer pricing issue examined. Important parts of the Resolution Phase include the IRS’s presentation of the issue and its resolution, case closing, and when necessary, issuing a Revenue Agent Report with adjustments, penalties (if the taxpayer failed to timely provide documentation), and tax liability.

The TPEP instructs the issue team to provide the taxpayer an opportunity to agree or disagree with the findings for each transfer pricing issue developed during the examination. For a transfer pricing issue to be resolved, there must be an open discussion between the issue team and the taxpayer in three areas: 1) factual development, 2) the law(s) that applies to the facts, and 3) each party’s interpretation of the law(s). The issue team should meet with the taxpayer to discuss all issues and determine whether a “principled resolution” can be reached. If a field resolution is not reached, the issue team will finalize the Notice of Proposed Adjustment (“NOPA”) and Economist Report.

The TPEP discusses options that the taxpayer can pursue, including Appeals,[1] and when a tax treaty country is involved, U.S. Competent Authority (CA) requests, Accelerated CA Procedures to cover subsequent taxable years, and Simultaneous Appeals Procedures whereby Appeals works jointly with the Advance Pricing and Mutual Agreement (APMA) Program and the taxpayer prior to APMA’s consultations with the foreign CA(s). Taxpayers may request CA assistance after receiving a NOPA and are not required to wait until the conclusion of an examination to file a CA request. If APMA accepts a CA request, it will assume jurisdiction over the transfer pricing issues. Otherwise, the case remains under the jurisdiction of the issue team.

We invite you to read our article Six Time-Tested TPEP Takeaways where we share pertinent insights that are even more important today than a few years ago when the TPEP was still hot off the press.

Stay tuned for the next blog post in this series, where we discuss the IRS’s April 2020 transfer pricing guidance, Transfer Pricing Documentation Frequently Asked Questions (FAQs).

If you have any questions or would like more information on the issues discussed in this article, please contact the authors:

Guy Sanschagrin, Principal in Charge of Transfer Pricing and Valuation Services, WTP Advisors (Minneapolis, MN, USA) guy.sanschagrin@wtpadvisors.com

Doug Schwerdt, Transfer Pricing and Valuation Specialist, WTP Advisors (Houston, TX, USA) doug.schwerdt@wtpadvisors.com

 

Read Blog Post Part 1 in this Series

Read Blog Post Part 2 in this Series

Read Blog Post Part 3 in this Series

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[1] The TPEP reaffirms that the IRS requires 365 days to remain on the statute of limitations for taxpayers to request Appeals consideration.

Skating On Thin Ice: IRS Does Not Recognize Organization’s 501(c)(3) Status

IRS Does Not Recognize Organization’s 501(c)(3) Status

Various 501(c)(3) organizations may pursue charitable activities or operate to pursue altruistic purposes. However, what if such activities or purposes do not fall within the Internal Revenue Code’s requirements for charitable organizations? Besides jeopardizing the ability of donor taxpayers to deduct contributions, the organizations may find that they are taxable and have certain filing requirements other than annual Form 990 filings. In a recent Private Letter Ruling, the Internal Revenue Service highlighted that “charitable” organizations, such as hockey organizations, that ultimately take care of their own members may not be so charitable for tax purposes.

501(c)(3) Organizations, Generally

Generally, charitable organizations must meet certain requirements to be exempt for federal tax purposes.[1] First, the organization must operate for limited purposes (e.g., religious, charitable, scientific, testing for public safety, literary, or educational purposes). Second, individuals must not privately benefit from the net earnings of the organization. Finally, the organization must not engage in substantial propaganda or lobbying activities, and the organization must not participate in (or intervene in) any political campaign for or against a political candidate.[2]

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