Rev. Proc. 2022-40 modifies Rev. Proc. 2016-37, 2016-29 IRB 136, which, in part, provides the circumstances under which a plan sponsor may submit a determination letter application to the Internal Revenue Service with respect to a qualified individually designed plan, to permit the submission of determination letter applications for section 403(b) individually designed plans. Among other things, this revenue procedure also modifies the circumstances under which a plan is considered to have been issued an initial plan determination and modifies the scope of review of qualified individually designed plans submitted under the determination letter program. 

In most cases, distributions from a traditional Individual Retirement Account are taxable in the year the account owner receives them but there are some exceptions. A qualified charitable distribution is one of the few exceptions.

A QCD is a nontaxable distribution made directly by the trustee of an IRA to organizations that are eligible to receive tax-deductible contributions. QCDs can’t occur from Simplified Employee Pension plans and Savings Incentive Match Plan for Employees IRA.

Making a QCD can benefit the taxpayer by reducing their taxable income while they support qualifying charitable organizations of their choice. The taxpayer doesn’t have to worry about meeting the standard deduction or itemizing deductions with a QCD.

Financial institutions report QCDs on Form 1099-R for the calendar year the distribution occurs. There’s no number or letter code on the Form 1099-R that indicates the distribution was a QCD.

QCD Guidelines

• Taxpayers who make a QCD must be at least 70½ years old on the day of the distribution.
• A QCD will count toward a required minimum distribution.
• The taxpayer must have an acknowledgement of the contribution.
• The amount of the QCD can’t be more than the amount of the distribution that would count as income.
• Declare the QCD as income to claim the charitable contribution as a deduction.
• The maximum annual exclusion for QCDs is $100,000.
  • When filing a joint return, the spouse can also have a QCD and exclude up to $100,000.
  • Any QCD more than the $100,000 exclusion limit counts as income like any other distribution.
• The amount of QCD contribution limits for exclusion reduce after age 70½.

Reporting a QCD on an income tax return

• Report a QCD on Form 1040; report the full amount of the charitable distribution on the line for IRA distributions.
• On the line for the taxable amount, enter zero if the full amount was a QCD and enter "QCD" next to this line.
• See the Form 1040 instructions for additional information.

Taxpayers must also file Form 8606 if the QCD came from:

• a traditional IRA and they received a distribution from the IRA during the same year, other than the QCD; or
• a Roth IRA. 

More information:
Retirement Plans
IRA FAQs - Distributions Withdrawals
Charitable Contribution Deductions

WASHINGTON — The Internal Revenue Service today warned taxpayers of a recent increase in IRS-themed texting scams aimed at stealing personal and financial information.

So far in 2022, the IRS has identified and reported thousands of fraudulent domains tied to multiple MMS/SMS/text scams (known as smishing) targeting taxpayers. In recent months, and especially in the last few weeks, IRS-themed smishing has increased exponentially.

Smishing campaigns target mobile phone users, and the scam messages often look like they’re coming from the IRS, offering lures like fake COVID relief, tax credits or help setting up an IRS online account. Recipients of these IRS-related scams can report them to phishing@irs.gov.

“This is phishing on an industrial scale so thousands of people can be at risk of receiving these scam messages,” said IRS Commissioner Chuck Rettig. “In recent months, the IRS has reported multiple large-scale smishing campaigns that have delivered thousands – and even hundreds of thousands – of IRS-themed messages in hours or a few days, far exceeding previous levels of activity.”

With the approach of October’s Cybersecurity Awareness Month, the IRS and the Security Summit partners in the states and the nation’s tax community remind people and the tax professional community to be on the lookout for phishing scams and other schemes that could put sensitive tax data at risk.

In the latest activity, the scam texts often ask taxpayers to click a link where phishing websites will try to collect their information or potentially send malicious code onto their phones. The IRS does not send emails or text messages asking for personal or financial information or account numbers. These messages should all be red flags for taxpayers.

Beginning in the fall of 2020, the IRS observed an increase in reports of smishing scams requesting taxpayer personal and financial information. These smishing campaigns continued through the pandemic. The IRS has taken numerous steps to warn people of this ongoing threat, including posting a video about how to avoid IRS text message scams.

Taxpayers should continue reporting these scams to phishing@irs.gov. Their reporting allows the IRS to report these scams to the appropriate service providers for action, protecting other taxpayers who might receive a variant of the same scam.

While the IRS works to shut down online fraud, criminals are using ever-evolving tactics to cast a wider net and catch more victims, like using algorithms to automatically generate hundreds or even thousands of fraudulent domains. For example, a recent campaign used just three dozen stolen or bogus email addresses to create over 1,000 fraudulent domains.

“Particularly in these cases, the best offense is a good defense,” said Rettig. “Taxpayers and tax pros need to remain constantly vigilant with suspicious IRS-related emails and text messages. And if you get one, sending the IRS important details from the text can help us disrupt the scams and protect others.”

Reporting IRS-related smishing
The IRS maintains an inbox, phishing@irs.gov, to process IRS, Treasury and/or tax-related online scams only. Smishing involving other agencies and/or brands should not be reported to phishing@irs.gov.

Reporting IRS-themed texts to the IRS allows security professionals to track and disrupt these scams. Individuals reporting scam texts to the IRS should include both the body of the message and the sender’s information in one email or text. Copying the actual text into an email is preferred. However, if necessary, screenshots can be sent. Scam SMS/text messages can also be copied and forwarded to wireless providers via text to 7726 (SPAM), which helps them spot and block similar messages in the future.

The following process will help capture important details for reporting smishing to the IRS:

Additional reporting
In addition to reporting the scam to phishing@irs.gov, if IRS-related, report the message to the Treasury Inspector General for Tax Administration using their IRS Impersonation Scam Reporting form and the Federal Trade Commission (FTC) through their Complaint Assistant to make the information available to investigators.

All incidents, successful and attempted, should also be reported to the Internet Crime Complaint Center at www.ic3.gov.

Any individual entering personal information, or otherwise finding themselves a victim of tax-related scams, can find additional resources at Identity Theft Central on IRS.gov.

Additional resources

• IRS.gov: Reporting Phishing and Online Scams
• IRS YouTube: “Here’s How to Avoid IRS Text Message Scams”
• COVID Tax Tip 2020-167: IRS warns people about a COVID-related text message scam
• Federal Communications Commission: Smartphone Security Checker

Federal Trade Commission: How to recognize and report spam text messages

WASHINGTON − The Internal Revenue Service is reminding farmers and ranchers in applicable regions forced to sell livestock because of drought conditions that they may have more time to replace their livestock and defer tax on any gains from the forced sales.

Today, the IRS posted Notice 2022-43 listing the applicable regions, a county or other jurisdiction, designated as eligible for federal assistance on IRS.gov. This includes 44 states, two U.S. Territories and two independent nations in a Compact of Free Association with the United States. The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.

The sales must be solely due to drought, causing an area to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is authorized to further extend this replacement period if the drought continues.

The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.

The IRS provides this extension to eligible farmers and ranchers that qualified for the four-year replacement period, if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2021, and Aug. 31, 2022. This determination is made by the National Drought Mitigation Center.

As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire on Dec. 31, 2022, in most cases now have until the end of their next tax year to replace the sold livestock. Because the normal drought-sale replacement period is four years, this extension impacts drought sales that occurred during 2018. The replacement periods for some drought sales before 2018 are also affected due to previous drought-related extensions affecting some of these localities.

More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, available on IRS.gov.

WASHINGTON — The Internal Revenue Service today updated its frequently-asked-questions (FAQs) (FS-2022-36) on Coronavirus State and Local Fiscal Recovery Funds (SLFR Funds). These funds give eligible state and local governments a substantial infusion of resources to meet pandemic response needs.

This update adds Question 15 through 17.

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible.

More information about reliance is available.

WASHINGTON — Victims of storms and flooding that began on Sept. 15 in parts of Alaska now have until Feb. 15, 2023, to file various federal individual and business tax returns and make tax payments, the Internal Revenue Service announced today. 

The IRS is offering relief to any area designated for individual or public assistance by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim and Lower Yukon, in Alaska qualify for tax relief. Other areas added later will also qualify for this relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. 

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 15, 2022. As a result, affected individuals and businesses will have until Feb. 15, 2023, to file returns and pay any taxes that were originally due during this period. 

This means individuals who had a valid extension to file their 2021 return due to run out on Oct. 17, 2022, will now have until Feb. 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief.   

The Feb. 15, 2023, deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2022, and Jan. 17, 2023, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2022, and Jan. 31, 2023. Businesses with an original or extended due date also have the additional time including, among others, calendar year partnerships and S corporations whose 2021 extensions ran out on Sept. 15, 2022, and calendar-year corporations whose 2021 extensions run out on Oct. 17, 2022. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on Nov. 15, 2022.      

In addition, penalties on payroll and excise tax deposits due on or after Sept. 15, 2022, and before Sept. 30, 2022, will be abated as long as the deposits are made by Sept. 30, 2022. 

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated. 

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization. 

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2022 return normally filed next year), or the return for the prior year (2021). Be sure to write the FEMA declaration number – DR-4672-AK − on any return claiming a loss. See Publication 547 for details. 

The tax relief is part of a coordinated federal response to this disaster and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Notice 2022-43 explains the circumstances under which the four-year replacement period under section 1033(e)(2) is extended for livestock sold on account of drought.  The Appendix to this notice contains a list of counties that experienced exceptional, extreme, or severe drought conditions during the 12-month period ending August 31, 2022.  Taxpayers may use this list to determine if an extension is available.

Notice 2022-43 will be in IRB:  2022- 42, dated October 17, 2022.

Notice 2022-45 extends the deadline for amending an eligible retirement plan (including an individual retirement arrangement or annuity contract) to reflect the provisions of section 2202 of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 (2020) (CARES Act), and section 302 of Title III of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), set forth in Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182.

Notice 2022-45 will be in IRB: 2022-42, dated October 17, 2022.

Notice 2022-44 announces the special per diem rates effective October 1, 2022, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.  This notice provides the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. 

Rev. Proc. 2019-48 provides the rules for using per diem rates, rather than actual expenses, to substantiate the amount of expenses for lodging, meals, and incidental expenses for travel away from home.  Taxpayers who use per diem rates to substantiate the amount of travel expenses under Rev. Proc. 2019-48 may use the federal per diem rates published annually by the General Services Administration.  Rev. Proc. 2019-48 allows certain taxpayers to use a special transportation industry rate or to use rates under a high-low substantiation method for certain high-cost localities.  The IRS announces these rates and the rate for the incidental expenses only deduction in an annual notice.

Use of a per diem substantiation method is not mandatory.  A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.

Notice 2022-44 will be in IRB:  2022-41, dated October 11, 2022.

WASHINGTON  ̶  The Internal Revenue Service today reminded struggling individuals and businesses, affected by the COVID-19 pandemic, that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by Sept. 30, 2022.

Besides providing relief to both individuals and businesses impacted by the pandemic, this step is designed to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.

“We thought carefully about the type of penalties, the period covered and the duration before granting this penalty relief.  We understand the concerns being raised by the tax community and others about the Sept. 30 penalty relief deadline,” said IRS Commissioner Chuck Rettig. “Given planning for the upcoming tax season and ongoing work on the inventory of tax returns filed earlier this year, this penalty relief deadline of Sept. 30 strikes a balance. It is critical to us to not only provide important relief to those affected by the pandemic, but this deadline also allows adequate time to prepare our systems and our workstreams to serve taxpayers and the tax community during the 2023 filing season.”

The relief, announced last month, applies to the failure-to-file penalty. The penalty is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov.

For anyone who has gotten behind on their taxes during the pandemic, this is a great opportunity to get caught up. To qualify for relief, any eligible income tax return must be filed on or before Sept. 30, 2022.

Those who file during the first few months after the Sept. 30 cutoff will still qualify for partial penalty relief. That’s because, for eligible returns filed after that date, the penalty starts accruing on Oct. 1, 2022, rather than the return’s original due date. Because the penalty accrues, based on each month or part of a month that a return is late, filing sooner will limit any charges that apply.

Unlike the failure-to-file penalty, the failure-to-pay penalty and interest will still apply to unpaid tax, based on the return’s original due date. The failure-to-pay penalty is normally 0.5% (one-half-of-one percent) per month. The interest rate is currently 5% per year, compounded daily, but that rate is due to rise to 6% on Oct. 1, 2022.

Taxpayers can limit these charges by paying promptly. For more information, including details on fast and convenient electronic payment options, visit IRS.gov/Payments. Penalty and interest charges generally don’t apply to refunds.  

The notice also provides details on relief for filers of certain international information returns when a penalty is assessed at the time of filing. No relief is available for applicable international information returns when the penalty is part of an examination. To qualify for this relief, any eligible tax return must be filed on or before Sept. 30, 2022.

Penalty relief is automatic. This means that eligible taxpayers who have already filed their return do not need to apply for it, and those filing now do not need to attach a statement or other documents to their return. Generally, those who have already paid the penalty are getting refunds, most by the end of September.

Penalty relief is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court.

This relief is limited to the penalties that the notice specifically states are eligible for relief. For ineligible penalties, such as the failure-to-pay penalty, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program. Visit IRS.gov/penaltyrelief for details.

This relief doesn’t apply to 2021 returns. Whether or not they have a tax-filing extension, the IRS urges everyone to file their 2021 return soon to avoid processing delays. For filing tips, visit IRS.gov.