IRS Tax News

  • 11 Apr 2024 9:30 AM | Anonymous

    The IRS Direct File pilot is open to eligible taxpayers in 12 pilot states to file their 2023 federal tax returns online for free — directly with the IRS. Direct File is accurate, secure and easy to use.

    Try the innovative new option by April 15

    IRS Direct File is available 24/7 — in English and Spanish — for eligible taxpayers in Arizona, California, Florida, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming until April 15. People in Massachusetts can use Direct File until April 17 to file, due to the Patriots’ Day and Emancipation Day holidays.

    Direct File is a new option for taxpayers who live in a pilot state and report certain types of income, claim certain credits and take certain deductions. Taxpayers can go to directfile.irs.gov to see if Direct File is the right option for their tax situation. Taxpayers can log in to Direct File to start their return and complete it before the April filing deadline.

    Sign-in to Direct File securely and file online directly with IRS

    Taxpayers will need to verify their identity and securely sign in to file their return with the Direct File pilot.

    If taxpayers don’t have an existing account with the IRS, they will be directed to create an account to verify their identity. Once their identity is verified and they’ve signed in securely to Direct File, they will be providing the tax information directly to the IRS, not a third party.

    Live chat with IRS Direct File staff

    IRS Direct File customer service representatives will be available daily from 7 a.m. to 10 p.m. ET. including April 13 and 14, to help taxpayers file before the tax deadline. Live representatives offer technical support and answer basic tax law questions in English and Spanish. Representatives cannot access taxpayer account data.

    After April 17, live chat customer support for Direct File will only be available through April 20 to assist filers who submitted their tax return with Direct File before the filing deadline and need assistance with a resubmission or a technical issue.

    Direct File offers Direct Deposit and payment options

    Direct File, like other electronic filing options, allows taxpayers to typically get their refund in less than 21 days when they choose direct deposit. Taxpayers can check their refund status at IRS.gov/refunds 24 hours after the IRS accepts their return. Taxpayers who owe tax can make a payment online. Tax payments are due on April 15 for most taxpayers. Learn about IRS payment options at IRS.gov/payments.

    What to do when IRS Direct File is not the right fit

    Everyone should choose the filing option that is best for them. If Direct File is not the right fit, simply choose another option to file, such as other free filing options, a tax professional or paid commercial tax software. Taxpayers who try Direct File but aren’t eligible for the pilot, are directed to other available electronic options to file including IRS Free File.

    No matter their income, all taxpayers canfile an extension with a trusted IRS Free File partner to electronically request a six-month extension of time to file. Filing an extension does not mean additional time to pay taxes owed. To avoid penalties and interest, taxpayers should pay the balance in full or pay as much as they can before the April filing deadline.

    Direct File pilot does not offer the service to amend a 2023 tax return. Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to determine if they need to file an amended return to correct an error or to make other changes after filing. See, About Form 1040-X, Amended U.S. Individual Income Tax Return, for instructions on how to amend a tax return.  


  • 11 Apr 2024 9:29 AM | Anonymous

    WASHINGTON — As part of the Dirty Dozen tax scams effort, the Internal Revenue Service today urged tax professionals and other businesses to remain vigilant and protect themselves against a continuing barrage of e-mail spearfishing attempts designed to steal valuable information.

    Tax professionals and businesses present a tempting target for identity thieves given their extensive information, and scammers continue to look for creative ways to gain access into sensitive systems. In particular, the IRS and the Security Summit partners urge tax pros and businesses to watch out for a surge in a particular type of spearfishing known as “new client” scams, where identity thieves pose as potential clients using fake emails.

    Through spearphishing emails, cybercriminals impersonate real taxpayers seeking help with their taxes, using fake emails to get sensitive data or gain access to a tax professional’s client information from their computer systems. While these can peak around tax season, they remain a year-round threat. Criminals accessing tax preparer credentials, or their client's tax-related information, can affect multiple victims.

    “It’s crucial for tax professionals and businesses to be wary of creative and evolving cyberattacks designed to access sensitive systems,” said IRS Commissioner Danny Werfel. “Cyberattacks pose a threat to not just the livelihood of the businesses, but the sensitive tax and personnel information that identity thieves can use to try filing fake tax returns. The Security Summit partners continue to urge tax pros and businesses to be on guard and educate their employees. Taking simple steps by using extra caution when opening emails, clicking on links or sharing private client information can prevent tax professionals from being taken advantage of by cybercriminals.”

    This marks the ninth day of special Dirty Dozen series. Started in 2002, the IRS' annual Dirty Dozen campaign lists 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. While the Dirty Dozen is not a legal document or a formal listing of agency enforcement priorities, the education effort is designed to raise awareness and protect taxpayers and tax pros from common tax scams and schemes, like spearphishing.

    Raising awareness about common scams threatening taxpayers and tax pros has been an ongoing focus of the Security Summit, a coalition of the IRS, state tax agencies and the nation's tax industry. The groups have worked together since 2015 to strengthen internal systems and controls to protect against tax-related identity theft, and the Summit partners continue to warn people about common scams and schemes during tax season and beyond.

    These scams can threaten a taxpayer's personal and financial information. The Security Summit initiative is committed to protecting taxpayers, businesses and the tax system from scammers and identity thieves, and the annual IRS Dirty Dozen series is incorporated into this larger effort.

    What is spearphishing?

    While phishing refers to emails or text messages designed to steal personal information directly, or by clicking on an embedded link or attachment, spearfishing is more targeted. Spearphishing is a type of phishing that targets specific individuals, organizations or businesses, typically using malicious emails.

    The IRS warns tax professionals about spearphishing because if a tax preparer falls victim to a data breach, the potential for harm is much greater. A successful spearphishing attack can lead to the theft of client data and the identity theft of the tax preparer. This could potentially enable the attacker to file fraudulent returns.

    How to avoid being a victim of spearphishing:

    • Never click suspicious links or download attachments from unknown senders, including potential clients.
    • Call the potential client to confirm the email is from them.
    • Send only password-protected and encrypted documents through email.
    • Protect email accounts with strong passwords and two-factor authentication.
    • Use security software products with anti-phishing tools.
    • Be vigilant year-round, not just during tax filing season.

    New client scam

    The "new client" scam, which involves spearphishing attempts, continues to be a concern for the IRS and its Security Summit partners. Cybercriminals impersonate new, potential clients to trick tax preparers into responding to their emails. Once the preparer responds, the scammer sends a malicious attachment or URL that can compromise the preparer's computer systems and allow the attacker to access sensitive client information.

    There are warning signs that should raise red flags and cause people to question an email's legitimacy. Individuals, including tax pros, should always be cautious and look out for any suspicious requests or unusual behavior before sharing any sensitive information or responding to an email. Warning signs include poorly constructed sentences and unusual word choices. Be aware that by gaining access to a hacked email account, scammers can locate a genuine email from a previous victim's email account sent to their tax professional. This email may contain no spelling or grammatical errors and may refer to genuine tax issues.

    Report spearphishing and other scams

    Individuals should report scams by sending the suspicious email or a copy of the text/SMS as an attachment to phishing@irs.gov. The report should include the sender’s email address, caller’s phone number, date, time and the phone number or email address that received the message.

    The Report Phishing and Online Scams page at IRS.gov provides more information on what to look out for and how to report phishing and scams.

    Taxpayers can also report scams to the Treasury Inspector General for Tax Administration or the Internet Crime Complaint Center. Another useful tool is the Federal Communications Commission's Smartphone Security Checker.

    Report abusive tax schemes and tax return preparers

    In support of the Dirty Dozen awareness effort, the IRS encourages people also to report individuals who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns.

    To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed paper Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

    Mail:    Internal Revenue Service Lead Development Center

    Stop MS5040
    24000 Avila Road
    Laguna Niguel, CA 92677-3405

    Fax:     877-477-9135

    Taxpayers and tax practitioners may also send the information to the IRS Whistleblower Office for a possible monetary award.


  • 11 Apr 2024 9:28 AM | Anonymous

    WASHINGTON – The Department of the Treasury and the Internal Revenue Service today issued proposed regulations that would provide taxpayers and tax professionals with new guidance concerning the one percent excise tax owed on corporate stock repurchases.

    The Inflation Reduction Act imposed a new excise tax on stock repurchases equal to one percent of the aggregate fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments. The stock repurchase excise tax applies to repurchases after Dec. 31, 2022.

    The proposed regulations would impact publicly traded domestic corporations that repurchase their stock or whose stock is acquired by certain affiliates. The regulations also would impact certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates.

    The regulations would implement the statutory netting rule that reduces the aggregate fair market value of stock repurchased by a taxpayer during a taxable year by the aggregate fair market value of stock issued by the taxpayer during the taxable year. Additionally, the regulations would implement the statutory “de minimis” exception which provides that a taxpayer is not subject to the stock repurchase excise tax with respect to a taxable year if the aggregate fair market value of the stock repurchased by the taxpayer during the taxable year does not exceed $1,000,000.

    These regulations follow Notice 2023-2, published on Jan. 17, 2023, which provided initial guidance on the application of the stock repurchase excise tax. The Notice set forth certain interim operating rules for determining the amount of stock repurchase excise tax owed.

    The regulations would provide that the stock repurchase excise tax must be reported on the Form 720, Quarterly Federal Excise Tax Return, with the Form 7208 attached. The Form 7208, Excise Tax on Repurchase of Corporate Stock, would be used to figure the amount of stock repurchase excise tax owed. A draft version of the Form 7208 is currently accessible, and the final version of the form will be released prior to the first due date on which the stock repurchase excise tax must be reported and paid.

    As anticipated in Announcement 2023-18, the proposed regulations would establish that, for taxpayers with a taxable year ending after Dec. 31, 2022, but before the publication of final regulations, any liability for the stock repurchase excise tax for the taxable year must be reported on the Form 720 that is due for the first full quarter after the date the final regulations are published, and that the deadline for payment of the tax is the same as the filing deadline.

    Written comments regarding the proposed regulations must be submitted by the following dates:


  • 11 Apr 2024 9:28 AM | Anonymous

    WASHINGTON — The Treasury Department and Internal Revenue Service today issued guidance for the collection of information for taxpayers to request an emissions value from the Department of Energy (DOE) to petition the Secretary of the Treasury for a determination of a provisional emissions rate (PER). 

    On Dec. 26, 2023, the Department of the Treasury and the IRS issued proposed regulations relating to the credit for production of clean hydrogen and the election to treat clean hydrogen production facilities as energy property. 

    The proposed regulations provide procedures for taxpayers to petition for a PER determination and refer to the process for taxpayers to request an emissions value from the DOE to file a petition. 

    This guidance issued today contains supplemental information relating to the DOE’s emissions value request process and invites comments on that process. 


  • 11 Apr 2024 9:26 AM | Anonymous

    A tax credit is an amount taxpayers claim on their tax return generally to reduce their income tax. Eligible taxpayers can use them to potentially reduce their tax bill and increase their refund.

    Refundable vs. nonrefundable tax credits

    Some tax credits are refundable. If a taxpayer's tax bill is less than the amount of a refundable credit, they can get the difference back in their refund. Some taxpayers who aren't required to file may still want to do so to claim refundable tax credits. Not all tax credits are refundable, however. For nonrefundable tax credits, once a taxpayer's liability is zero, the taxpayer won't get any leftover amount back as a refund.

    There are a wide range of tax credits, and the amount and types available can vary by tax year. Taxpayers should carefully review current tax credits when preparing their federal tax return.

    Earned Income Tax Credit

    One refundable tax credit for moderate- and low-income taxpayers is the Earned Income Tax Credit (EITC). The IRS estimates four out of five eligible workers claim the EITC, which means millions of taxpayers are putting EITC dollars to work for them. Unfortunately, there are millions of workers who qualify but don't claim the EITC - missing out on thousands of dollars every year. This includes workers who are:

    • Grandparents raising their grandchildren.
    • Native Americans.
    • Veterans.
    • Self-employed.
    • Without a qualifying child.
    • Recently divorced, unemployed or experienced other changes to their marital, financial or parental status.
    • Below the filing requirement with earnings.
    • Not proficient in English.
    • Living in rural areas.
    • Receiving certain disability pensions or have children with disabilities.

    Taxpayers can find detailed information in Publication 596, Earned Income Credit, or use the EITC Assistant to learn if they're eligible for the tax credit.

    Child Tax Credit and Child and Dependent Care Tax Credit

    The Child Tax Credit is nonrefundable and reduces the taxpayer's tax liability. To qualify, the child must:

    • Be a U.S. citizen, U.S. national, or U.S. resident under age 17.
    • Have a Social Security number.
    • Be claimed as a dependent on the taxpayer's tax return.

    Qualifying children may include foster children or extended family members if they meet other criteria. Dependents not eligible for the Child Tax Credit may qualify a taxpayer for the credit for other dependents.

    Taxpayers who paid someone to care for their child, spouse or dependent so they can work, be a full-time student or look for work may be able to reduce their tax by claiming the Child and Dependent Care Credit.

    Publication 503, Child and Dependent Care Expenses, has detailed information.

    American Opportunity Tax Credit

    The American Opportunity Tax Credit is for qualified education expenses paid by or on behalf of an eligible student for the first four years of higher education. It is partially refundable. If the credit reduces the amount of tax a taxpayer owes to zero, they can get a refund of 40% of any remaining amount of the credit, up to $1,000. Taxpayers can get a maximum annual credit of $2,500 per eligible student. The amount of the credit is 100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses a taxpayer paid for each eligible student.

    To claim the full credit, a taxpayer's income must be $80,000 or less ($160,000 or less for married filing jointly). The credit phases out entirely for taxpayers with income over $90,000 ($180,000 for joint filers).

    Publication 970, Tax Benefits for Education, has detailed information.

    Other tax credits

    There are many other tax credits for which a taxpayer may be eligible. Taxpayers can review the credits and deductions page on IRS.gov to see which credits they may be able to claim, including:

    • Family and Dependent Credits
    • Income and Savings Credits
    • Homeowner Credits
    • Electric Vehicle Credits
    • Health Care Credits

    Interactive Tax Assistant can help with tax credit questions

    The Interactive Tax Assistant is a tool that provides answers to many common tax law questions based on an individual's specific circumstances. User information is anonymous, and the system discards it when the user exits a topic. The assistant uses information to answer taxpayer questions and won't share or store it, nor can it identify individuals. It can help taxpayers with these tax credit-related questions:

    Taxpayers can find more information about refundable credits and general filing information from:


  • 11 Apr 2024 9:25 AM | Anonymous

    WASHINGTON – The Internal Revenue Service today encouraged low- to moderate-income individuals and families, especially those who don’t normally file a tax return, to use IRS Free File to prepare their federal tax return and get potentially overlooked refunds and tax credits.

    For most taxpayers, the deadline to file their personal federal tax return is Monday, April 15, 2024. Taxpayers living in Maine or Massachusetts have until April 17, 2024. The only way to get a refund is to file a tax return.

    IRS Free File allows qualified individuals to file electronically and get a refund by direct deposit – all for free. It's safe, easy and free to file a federal return.

    With the April deadline nearing, Free File also provides an easy way to get a tax filing extension. A tax filing extension guarantees the taxpayer six additional months to file – with an extended deadline of Oct. 15, 2024. The IRS Free File program is one of the easiest ways to get an extension.

    The program is a public-private partnership between the IRS and several tax preparation software companies who provide their online tax preparation and filing software for free. Through this partnership, tax preparation and filing software providers make their online products available to eligible taxpayers.

    Participating partners provide online guided tax software products this year to any taxpayer with an Adjusted Gross Income (AGI) of $79,000 or less in 2023. One partner also offers a product in Spanish.

    Those with an AGI over $79,000 can use the IRS's Free File Fillable Forms, the electronic version of IRS paper forms. This product is best for people comfortable using IRS form instructions and publications when preparing their own taxes.

    Free File is one of many free options available for taxpayers. The IRS has a special free help page on IRS.gov that provides an easy way of seeing many of the free services and options to help people with their taxes. This includes the Direct File pilot, a free option available to some taxpayers in 12 states who can file directly with the IRS for free.

    People who are not required to file should consider filing

    Generally, taxpayers with gross income less than $13,850 for single filers, and $27,700 for married filing jointly, are not required to file a federal tax return. However, low-income individuals may mistakenly assume that since they owe no tax, they’re not entitled to a refund. In fact, they may get money back if they file a tax return. For example, if an individual qualifies for the Earned Income Tax Credit (EITC) or if their employer withheld taxes from their paycheck, they may be owed a refund when they file their taxes. 

    People should consider taking advantage of IRS Free File to claim potential refunds and credits, especially those who are:

    • Low- to moderate-income workers and working families who don’t normally file a return. They may miss out on certain credits for individuals, including the EITC, the Child Tax Credit, the Child & Dependent Credit and the Premium Tax Credit if they don’t file.
    • People experiencing homelessness (the address of a friend, relative or trusted service provider, such as a shelter, drop-in day center or transitional housing program, may be used on the tax return).
    • Students just entering the workforce or who may have only worked part time.  
    • All eligible parents of qualifying children born or welcomed through adoption or foster care in 2023. They may be eligible for the Child Tax Credit.

    In order to validate and successfully submit an electronically filed tax return to the IRS, taxpayers will need their AGI from their most recent tax return. If using the same tax preparation software as  last year, this field will auto-populate. However, first-time filers over the age of 16 should enter zero as their AGI.

    Don’t have a bank account to direct deposit a refund?

    Taxpayers who don't have a bank account can visit the FDIC website for information on banks that let them open an account online and how to choose the right account. Veterans can use the Veterans Benefits Banking Program for access to financial services at participating banks.

    Free tax return preparation for qualifying taxpayers

    For those not comfortable doing their own tax return, IRS-trained community volunteers offer free tax help through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs to qualified individuals at thousands of locations nationwide. The IRS website has a special tool for finding the nearest site. Taxpayers can also call 800-906-9887.


  • 11 Apr 2024 9:25 AM | Anonymous

    Dear IVES Participants,

    On January 2, 2024, the Income Verification Express Services (IVES) program announced a policy update regarding the use of IVES transcripts for mortgage only purposes. In that communication it was stated that all IVES participants must re-apply to the IVES program by May 1, 2024, and declare their sole purpose for using the IVES program is to secure third party tax data needed for a mortgage on residential or commercial real property (real estate). Subsequently, on March 6, 2024, a communication was sent stating this policy decision was being suspended while the impact of these changes are reevaluated.

    To support ongoing annual suitability reviews, the requirement for all IVES participants to re-apply to the IVES program remains in effect with the May 1, 2024, deadline.

    To remain active, IVES participants must submit an updated Form 13803, Application to Participate in the Income Verification Express Service (IVES) Program, with current business and contact information, and fax the renewal application to 844-251-8254.

    When a policy decision is finalized and implemented, the updated Form 13803 and the stated reason(s) for using the IVES program selected on the form will help the IRS determine an IVES participant’s continued eligibility. Failure to provide an updated Form 13803 by May 1, 2024, may result in removal from the IVES program.

     

    Thank you,

    IRS IVES Team


  • 11 Apr 2024 9:24 AM | Anonymous

    A deduction reduces the amount of a taxpayer's income that's subject to tax, generally reducing the amount of tax the individual may have to pay. Most taxpayers now qualify for the standard deduction, but there are some important details involving itemized deductions that people should keep in mind.

    Standard deduction

    The standard deduction is a specific dollar amount that reduces the amount of taxable income. The standard deduction consists of the sum of the basic standard deduction and any additional standard deduction amounts for age and/or blindness.

    In general, the IRS adjusts the standard deduction each year for inflation. It varies by filing status, whether the taxpayer is 65 or older and/or blind and whether another taxpayer can claim them as a dependent.

    Taxpayers cannot take the standard deduction if they itemize their deductions. Taxpayers can refer to Topic No. 501, Should I Itemize?, for more information.

    Itemized deductions

    Some taxpayers choose to itemize their deductions if their allowable itemized deductions total is greater than their standard deduction. Other taxpayers must itemize deductions because they aren't entitled to use the standard deduction.

    Taxpayers who must itemize deductions include:

    • A married individual filing as married filing separately whose spouse itemizes deductions.
    • An individual who was a nonresident alien or dual status alien during the year (some exceptions apply).
    • An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period.
    • An estate or trust, common trust fund or partnership.

    Schedule A (Form 1040) for itemized deductions

    Taxpayers use Schedule A (Form 1040, Itemized Deductions or 1040-SR, U.S. Tax Return for Seniors) to figure their itemized deductions. In most cases, their federal income tax owed will be less if they take the larger of their itemized deductions or standard deduction.

    Taxpayers can review the instructions for Schedule A (Form 1040), Itemized Deductions, to calculate their itemized deductions, such as certain medical and dental expenses, and amounts paid for certain taxes, interest, contributions and other expenses. Taxpayers may also deduct certain casualty and theft losses on Schedule A.

    Interactive Tax Assistant can help with deduction questions

    The Interactive Tax Assistant (ITA) provides answers to tax law questions based on a taxpayer's individual circumstances. It can help a taxpayer determine the answer to common questions, such as if they:

    • Must file a tax return.
    • Have the correct filing status.
    • Can claim a dependent.
    • Have taxable income.
    • Are eligible to claim a credit.
    • Can deduct expenses.

    The ITA can help taxpayers with these deduction-related questions:


  • 11 Apr 2024 9:22 AM | Anonymous

    WASHINGTON – As part of the Dirty Dozen campaign, the Internal Revenue Service warned wealthy individuals about three tax traps designed for them by dishonest promoters and shady tax practitioners.

    For those with high incomes, they can be tempting targets for a variety of schemes and aggressive tax strategies designed to reduce taxes. These can take many different forms, ranging from inflated art donation deductions to aggressive Charitable Remainder Annuity Trusts and detailed shelters that maneuver to delay paying gains on property.

    "High-income taxpayers can be vulnerable to being pulled into these aggressive schemes and scams,” said IRS Commissioner Danny Werfel. "Taxpayers should be extra careful on tax maneuvers that seem too good to be true. Beware of advertisements for seemingly ideal tax structures that distort tax laws and leave victims with civil or criminal tax penalties.”

    “There’s growing risk for taxpayers pulled into aggressive schemes as the IRS continues to accelerate and expand our compliance work involving high-income individuals,” Werfel added. “The IRS reminds taxpayers that relying on an independent tax or legal professional can help avoid problems with aggressive promoters.”

    This marks the tenth day of the special Dirty Dozen series. The annual Dirty Dozen list comprises a list of scams and schemes that can put taxpayers and tax professionals at risk. The list is not a legal document nor a formal enforcement priority. The education effort is designed to raise awareness and protect taxpayers and tax pros from common tax scams and schemes.

    Improper art donation deductions

    There are ways for taxpayers to properly claim donations of art. But some unscrupulous promoters use direct solicitation to promise values of art that are too good to be true.

    These promoters encourage taxpayers to buy various types of art, often at a "discounted" price. This price may also include additional services from the promoter, such as storage, shipping and arranging the appraisal and donation of the art. The promotor promises the art is worth significantly more than the purchase price.

    These schemes are designed to encourage purchasers to donate the art after waiting at least one year and to claim a tax deduction for an inflated fair market value, which is substantially more than they paid for the artwork. Promoters may suggest taxpayers donate art annually and allow them to buy a quantity of art that guarantees a specific deductible amount. Promoters may even arrange for certain charities to take the donations.

    The IRS has a team of professionally trained Appraisers in Art Appraisal Services who provide assistance and advice to the IRS and taxpayers on valuation questions in connection with personal property and works of art.

    "Creativity in art is a beautiful thing, but aggressive creativity in art donation deductions can paint a bad picture for people pulled into these schemes," Werfel said. "This is another example where people should be careful when it comes to aggressive marketing and promotions. There are legitimate ways to claim an art donation, but taxpayers should be careful to understand the rules and watch out for inflated values or questionable appraisals. Beauty is not always in the eye of the beholder when it comes to tax deductions of art."

    Charitable Remainder Annuity Trust (CRAT)

    Charitable remainder trusts are irrevocable trusts that let persons donate assets to charity and draw annual income for life or for a specific time period. The IRS examines charitable remainder trusts to ensure they correctly report trust income and distributions to beneficiaries, file required tax documents and follow applicable laws and rules. A charitable remainder annuity trust (CRAT) pays a specific dollar amount each year.

    Unfortunately, these trusts are sometimes misused to eliminate capital gain.

    Here’s how it works. The appreciated property is transferred to a CRAT. Taxpayers wrongly claim the transfer of the appreciated assets to the CRAT, which gives those assets a step-up in basis to fair market value as if they had been sold to the trust. The CRAT then sells the property but does not recognize gain due to the claimed step-up in basis. The CRAT then uses the proceeds to purchase a single premium immediate annuity (SPIA). The beneficiary then reports, as income, only a small portion of the annuity received from the SPIA. Through a misapplication of the law relating to CRATs, the beneficiary treats the remaining payment as an excluded portion representing a return of investment for which no tax is due. Taxpayers who seek to achieve this inaccurate result do so by misapplying the rules.

    Monetized installment sales

    In these frequently shady deals, promoters look for taxpayers seeking to defer the recognition of gain upon the sale of appreciated property and then organize an abusive shelter through selling them monetized installment sales. These transactions occur when an intermediary purchases appreciated property from a seller in exchange for an installment note, which typically provides for payments of interest only, with principal being paid at the end of the term.

    In these arrangements, the seller gets the lion's share of the proceeds but improperly delays the gain recognition on the appreciated property until the final payment on the installment note, often slated for many years later.

    Report tax fraud

    As part of the Dirty Dozen awareness effort, the IRS encourages people to report individuals who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns.

    To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed paper Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

    Mail:

    Internal Revenue Service Lead Development Center
    Stop MS5040
    24000 Avila Road
    Laguna Niguel, California 92677-3405

    Fax: 877-477-9135

    Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award. For more information, see Abusive Tax Schemes and Abusive Tax Return Preparers.


  • 09 Apr 2024 11:20 AM | Anonymous

    Announcement 2024-19 addresses the Federal income tax treatment of amounts paid for the purchase of energy efficient property and improvements as part of the Department of Energy’s “Home Energy Rebate Programs” under §§ 50121 and 50122 of the Inflation Reduction Act. The announcement also provides coordination rules for taxpayers who receive such amounts and wish to claim a Federal tax credit under § 25C of the Internal Revenue Code.

    Announcement 2024-19 will be in IRB: 2024-17, dated 4/22/24.


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