Tag Archives: IRS filing

Proposed Earned Income Tax Credit Expansion for Individuals

President Barack Obama proposed an expansion of the Earned Income Tax Credit (EITC) in his budget last week. The amendment would double the maximum credit for taxpayers with no qualifying children, raise the qualifying income amount, and lower the eligible age from 25 to 21 years old.

The recommendation targets low-income students and encourages more single adults to enter the workforce. An approximate 5.8 million people would be newly qualified for the EITC, and 7.7 million people would benefit from the increased maximum credit. The proposal intends to help those caught in poverty on a larger scale than current legislation.

Obama also supports a bill for minimum wage to increase from $7.25 to $10.10, in tandem with the EITC expansion. Neither one is likely to pass within the next year, but the discussion of poverty as a legislative issue may bring action into the foreseeable future.

The maximum EITC for 2013 taxes:

  • $6,044 with three or more qualifying children
  • $5,372 with two qualifying children
  • $3,250 with one qualifying child
  • $487 with no qualifying children

To see if you qualify for the EITC, visit:

http://www.irs.gov/Individuals/EITC-Income-Limits,-Maximum-Credit–Amounts-and-Tax-Law-Updates

 

Read more about it here.

 

IRS Issues Draft Form 990 and Instructions for 2013

IRS sealA draft form and instructions for the 2013 Federal Form 990 have been issued by the IRS.  There are very minimal changes from the previous year’s form and instructions.   There is some clarification in the instructions for reporting short period returns and accounting method changes that are very helpful.   A link to the draft form and instructions is here:

http://apps.irs.gov/app/picklist/list/draftTaxForms.html

EFT Payment Requirement Threshold Reduced to $5,000

The District of Columbia requires business taxpayers to make tax payments over a certain threshold by electronic funds transfer (“EFT”).  The most recent guidance issued by the D.C. Office of Tax and Revenue regarding EFT payments says that business taxpayers must pay EFT for all tax payments exceeding $10,000.  However, over the last couple of months the Office of Tax and Revenue have been issuing notices to business taxpayers informing them that the EFT requirement has been decreased to payments exceeding $5,000.  Although the Office of Tax and Revenue is authorized by statute to require EFT payments at this threshold, it has yet to issue a general notification to taxpayers or practitioners informing them of this new requirement. 

According to conversations we have had with the Office of Tax and Revenue, their system will generate the 10% non-compliance penalty when a payment is submitted by check over $5,000.  Although there is a reasonable cause waiver to the penalty that we think would obviously apply in these circumstances (i.e., no notice to taxpayers), the waiver requires a written request that could take some time in getting approved. 

Taxpayers that suspect that they will have upcoming payments over $5,000 should register for making EFT payments on the Office of Tax and Revenue’s Electronic Taxpayer Service Center (eTSC) well advance of the payment due date.  It can take 7-10 business days to receive the ID and password for the website, which are sent separately to taxpayers via regular mail.  Taxpayers can call the Office of Tax and Revenue to receive their ID earlier, but the ID still may not be available for up to 7 business days after the registration is submitted. 

Therefore, we would recommend completing the eTSC registration early if there is any chance that it will have an upcoming payment over $5,000.  Please contact Aronson’s tax department if you have any questions.

Substantiation of Charitable Contributions

The documentation requirements taxpayers must maintain in order to take a charitable contribution deduction on their tax return have been in place for almost 20 years. They are worth repeating however, as two recent tax court cases have upheld the necessity of following these rules and denied contribution deductions to taxpayers who did not have the necessary documentation.

As a review a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous written acknowledgement of the contribution from the recipient organization. Although it is a donors responsibility to obtain a written acknowledgement, charities should be very mindful of these rules because certainly donor relations are at stake if something goes wrong.  IRS publication 1771 outlines these requirements.

In a 2012 case, David and Veronda Durden were denied a tax deduction for contributions made to their church because the original acknowledgement letter received from the Church did not clearly stipulate that no goods or services were provided to the donors in exchange for their donation ( TC Memo 2012-140). To correct this problem, the Church issued a second acknowledgement letter with the required statement but it was rejected by the Court because it was not considered to be contemporaneous.

To be considered contemporaneous, the documentation must be obtained on or before the earlier of:

  • The date the taxpayer files the original return for the taxable year, or
  • The due date ( including extensions ) for filing the original return for the year.

There are rules outlining necessary steps if a non-cash donation of over $5000 is claimed for what is required to take a deduction for non-cash property (real estate, furniture, computer equipment, clothing etc.). The donor is required to file a Form 8283 with their standard return and it must include the signature of a “qualified appraiser” as to the value assigned to the donated property.

The tax court case of Joseph and Shirley Mohamed (TC memo 2012-152) also ruled against the taxpayers (who had taken a deduction of millions of dollars for donated real estate) because they did not properly comply with the rules regarding Form 8283  and did not obtain a qualified appraisal.  This case resulted in a really draconian result for the taxpayer who had clearly donated substantially valuable property to their presumably valid charitable remainder trust, yet were denied the deduction due to improper reporting of the gift as far as completing the requirements of IRS Form 8283.

In both of these cases, the Tax Court has sent a strong message that the substantiation rules DO MATTER and failure to follow them closely will result in the loss of a contribution deduction.

Charitable Contribution Denied

How important are a few words? Ask the taxpayer whose charitable contribution deduction was denied by the IRS.  The IRS requires organization to contemporaneously document whether any goods or services were provided in consideration for a contribution.  Now is a good time to read through your organization’s gift acknowledgement to see that required wording is included.  Aronson LLC is available to assist as needed.  For more details of the IRS court case see ECFA.

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