Basis Consistency Reporting by Estates – Extension Deadline Approaching!
IRS issues Notice 2016-27, giving estate executors until the end of this month, June 30—to meet a new reporting obligation on estate basis consistency. “The Treasury Department and the IRS have received numerous comments that executors and other persons have not had sufficient time to adopt the systemic changes that would enable the filing of an accurate and complete Form 8971 and Schedule A,” the IRS says. See Notice 2016-27, 2016-15 IRB 362. The IRS stated that it has received many comments that executors, among others, have not had sufficient time to, “adopt the systemic changes that would enable the filing of an accurate and complete Form 8971 and Schedule A.” Therefore, the IRS added, statements required under §6035(a)(1) and §6035(a)(2) to be filed with the IRS or furnished to a beneficiary before June 30, 2016, do not need to be filed with the IRS and furnished to a beneficiary until June 30, 2016.
IRS Uses Indirect Methods to Prove Tax Deficiency
The IRS used the bank deposits method to determine that a computer consultant providing services to a bank (IADB) understated his income by $70,671. U.S. Tax Court Judge Lauber sustains most of the $56,063 deficiency the IRS assessed against Luis Alejandro Rey after the agency used Rey’s statements from multiple IADB accounts to determine Rey omitted $70,671 of income. Rey was also unable to substantiate $106,918 in claimed business expenses. The IRS’ use of such indirect methods was once widespread but had more recently been criticized. From my personal experience as an IRS Agent, the IRS can back into income and expenses through a variety of indirect methods. For example, analysis of purchases and costs of goods sold can provide insight into true sales. Analysis of water bills can predict sales for a laundromat. Under IRS audit, the first documents analyzed are bank statements. The IRS will add up deposits and deem it all income unless the taxpayer can prove that it is a non-taxable transfer, such as loan proceeds, a transfer from another account, a re-deposit, a non-taxable refund, etc. For this reason it’s important for clients to understand how use of their bank account is viewed by the IRS. Keep records of non-taxable deposits!
Prohibited Use of IRA Funds Results in $180,000 Tax Deficiency
Two taxpayers used funds from their IRA account to purchase a metal fabrication business and now owe $180,000 in tax deficiencies and penalties for participating in a prohibited transaction. U.S. Tax Court Judge Marvel rules that James E. Thiessen and his wife, Judith T., were prohibited from guaranteeing a loan for the business purchase under tax code Section 4975, and says that because the couple hadn’t reached the statutory age for using the individual retirement account monies, they owe additions to their tax deficiency.
Stupidity Award Goes to Terry DiMartino
A Connecticut insurance salesman is convicted of tax fraud after a jury finds that he filed three false returns, including one requesting a $14 million refund. The Justice Department says Terry DiMartino used nominee entities to divert insurance commissions and hide his assets to prevent the IRS from collecting on his tax liabilities. DiMartino also “sent false and threatening correspondence to the IRS in an attempt to defeat the IRS’s assessment, collection and investigative efforts” and threatened insurance companies that sought to cooperate with the IRS investigation, the DOJ says. Just goes to show you, requesting a $14M refund after engaging in affirmative acts to hide your income and assets is a sure bet to get you three square government meals per day, plus room and board.
Transfers of Non-Voting Stock to Grantor Trust Worked for Carmex
In a second stipulated decision, the heirs of Carmex lip balm magnate Alfred Woelbing again owe no estate or gift tax deficiencies under a settlement reached with the IRS. U.S. Tax Court Judge Kerrigan signs the stipulated decision in the case, which was the companion case to Estate of Donald Woelbing v. Commissioner, settled March 25. The case involves whether Woelbing’s heirs should pay $32 million in gift taxes on each of two estates resulting from the transfer of nonvoting stock to a grantor trust.
Young, Broke and Scared of the IRS: The Millennial Tax Trap
The IRS doesn’t keep track of how many millennials incur tax debt, but a survey by personal finance adviser NerdWallet found they are more afraid of filing their taxes than any other generation. Eighty percent of millennials, defined by the survey as 18 to 34 years old, fear they will make a mistake, underpaying or overpaying. Digging their tax trap deeper, fewer than 10 percent of millennials go to the IRS when they have a tax question, and only about a quarter seek help from a tax professional. Instead, most young people turn to friends and family, a largely unreliable if well-meaning group. Millennial taxpayers in particular bemoan the long wait times on the phone with the IRS and the agency’s weird penchant for mail (like, mail).
Fewer Audits Mean $5 Billion Annual Revenue Loss: IRS Chief
The government is losing as much as $5 billion a year in tax revenue as budget constraints shrink the number of audits the IRS can do, Commissioner Koskinen says. As the agency fights for funding on Capitol Hill, lawmakers need to realize that less money for the IRS means less money for the country, Koskinen says at the National Press Club. In a speech spanning a broad range of issues, including the treatment of conservative groups and the ability to fight inversions, the commissioner says his agency has lost more than 5,000 key enforcement personnel since 2010.
Whitney Sorrell is a lawyer, CPA, and former IRS Revenue Agent and senior partner of Sorrell Law Firm, PLC, in Scottsdale, AZ. Mr. Sorrell’s law practice focuses on business organizations and federal tax planning, IRS dispute resolution, asset protection planning for small business owners, and estate planning for nigh net worth individuals.