Final Regulations on #Charitable #Contributions and #State and #Local #Tax #Credits

Final Regulations on Charitable Contributions and State and Local Tax Credits

WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulations that require taxpayers to reduce their charitable contribution deductions by the amount of any state or local tax credits they receive or expect to receive in return. In a notice also issued today, the IRS stated that taxpayers may treat payments they make in exchange for these credits as state or local tax payments. This allows some taxpayers to deduct certain of the payments as taxes.    

Treasury Decision 9864, available today in the Federal Register, finalizes proposed regulations published Aug. 27, 2018, that were designed to clarify the relationship between state and local tax credits and the federal tax rules for charitable contribution deductions. The Treasury Department and the IRS issued the Treasury Decision after carefully reviewing the more than 7,700 written comments received during the comment period and 25 comments made at the November 2018 public hearing. About 70 percent of the comments recommended adopting the proposed regulations without change.

The final regulations, which apply to contributions made after Aug. 27, 2018, and are effective on Aug. 12, 2019, largely adopt the rules in the proposed regulations. Under the final regulations, a taxpayer making payments to an entity eligible to receive tax-deductible contributions must reduce the federal charitable contribution deduction by the amount of any state or local tax credit that the taxpayer receives or expects to receive in return. The regulations also apply to payments made by trusts or decedents’ estates in determining the amount of their charitable contribution deductions.

For example, if a state grants a 70 percent state tax credit pursuant to a state tax credit program, and an itemizing taxpayer contributes $1,000 pursuant to that program, the taxpayer receives a $700 state tax credit. A taxpayer who itemizes deductions must reduce the $1,000 federal charitable contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300.

The regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the amount transferred. Thus, a taxpayer who receives a state tax deduction of $1,000 for a contribution of $1,000 is not required to reduce the federal charitable contribution deduction to take into account the state tax deduction; and a taxpayer who makes a $1,000 contribution is not required to reduce the $1,000 federal charitable contribution deduction if the state or local tax credit received or expected to be received is no more than $150.

The IRS also posted a notice (Notice 2019-12) providing a safe harbor that allows an individual who itemizes deductions to treat, in certain circumstances, payments that are or will be disallowed as charitable contribution deductions under the final regulations as state or local taxes for federal income tax purposes. Eligible taxpayers can use the safe harbor to determine their state and local tax (SALT) deduction on their tax-year 2018 return. Those who have already filed may be able to claim a greater SALT deduction by filing an amended return, Form 1040X, if they have not already claimed the $10,000 maximum amount ($5,000 if married filing separately).

The Treasury Department and the IRS continue to consider issuing future guidance on a number of issues raised by commenters.

Updates on the implementation of the Tax Cuts and Jobs Act (TCJA) can be found on the Tax Reform page of IRS.gov.

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IRS takes additional steps to #protect #taxpayer #data; plans to end faxing and third-party mailings of certain #tax #transcripts

IRS takes additional steps to protect taxpayer data; plans to end faxing and third-party mailings of certain tax transcripts

WASHINGTON — As part of its ongoing efforts to protect taxpayers from identity thieves, the Internal Revenue Service today announced it will stop its tax transcript faxing service in June and will amend the Form 4506 series to end third-party mailing of tax returns and transcripts in July.

Tax transcripts are summaries of tax return information. Transcripts have become increasingly vulnerable as criminals impersonate taxpayers or authorized third parties. Identity thieves use tax transcripts to file fraudulent returns for refunds that are difficult to detect because they mirror a legitimate tax return.

The halt to the faxing and third-party service this summer are two more steps the IRS is taking to protect taxpayer data. In September 2018, the IRS began to mask personally identifible information for every individual and entity listed on the transcript. See New Tax Transcript and Customer File Number. At that time, the IRS announced it intended to stop its faxing and third-party mailing service, and has since worked with tax professionals to assure they have what they need for tax preparation and representation.

Faxing service ends June 28

Starting June 28, 2019, the IRS will stop faxing tax transcripts to both taxpayers and third parties, including tax professionals. This action affects individual and business transcripts.

Individual taxpayers have several options to obtain a tax transcript. They may:

  • Use IRS.gov or the IRS2Go app to access Get Transcript Online; after verifying their identities, taxpayers may immediately download or print their transcript, or
  • Use IRS.gov or the IRS2Go app to access Get Transcript by Mail; transcript will be delivered within 10 days to the address of record, or
  • Call 800-908-9946 for an automated Get Transcript by Mail feature, or
  • Submit Form 4506-T or 4506T-EZ to have a transcript mailed to the address of record.

    Tax professionals also have several options to obtain tax transcripts necessary for tax preparation or representation as follows: 
  • Request that the IRS mail a transcript to the taxpayer’s address of record, or
  • Use e-Services’ Transcript Delivery System online to obtain masked individual transcripts and business transcripts, or
  • Obtain a masked individual transcript or a business transcript by calling the IRS, faxing authorization to the IRS assistor and the IRS assistor will place the document in the tax practitioner’s e-Services secure mailbox.
  • When needed for tax preparation purposes, tax practitioners may:
    • Obtain an unmasked wage and income transcript by calling the IRS, faxing authorization to the IRS assistor and the IRS assistor will place the document in the tax practitioner’s e-Services secure mailbox, or
    • Obtain an unmasked wage and income transcript if authorization is already on file by using e-Service’s Transcript Delivery System.

Certain third-party mailings stop July 1

Effective July 1, 2019, the IRS will no longer provide transcripts requested on Form 4506, Form 4506-T and Form 4506T-EZ to third parties, and the forms will be amended to remove the option for mailing to a third-party. These forms are often used by lenders and others to verify income for non-tax purposes. Among the largest users are colleges and universities verifying income for financial aid purposes. Tax professionals also are large volume users.

Taxpayers may continue to use these forms to obtain a copy of their tax return or obtain a copy of their tax transcripts. This change will NOT affect use of the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process.

Third parties who use these forms for income verification have other alternatives. The IRS offers an Income Verification Express Service (IVES) which has several hundred participants, who, with proper authorization, order transcripts. Lenders or higher education institutions can either contract with existing IVES participants or become IVES participants themselves. The tax transcript is an official IRS record. Taxpayers may choose to provide transcripts to requestors instead of authorizing the third party to request these transcrpts from the IRS on their behalf.

Tax professionals who are attorneys, Certified Public Accountants or Enrolled Agents (i.e., Circular 230 practitioners) and do not have an e-Services account may create one and, with proper authorization from clients, can access the e-Services’ Transcript Delivery System. Unenrolled tax practitioners must have an e-File application on file and be listed as delegated users to access TDS.

Customer File Number helps match transcripts

Because the taxpayer’s name and Social Security number are now partially masked, the IRS also created a Customer File Number space that can be used to help third parties match transcripts to taxpayers. Third parties can assign a Customer File Number, such as a loan application number or a student identification number. The number will populate on the transcript and help match it to the client/student.

Learn more about the Customer File Number at About the New Tax Transcript and the Customer File Number.

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Tips for #taxpayers who may need to #amend_their_tax_return

Tips for taxpayers who may need to amend their tax return

Although the IRS often finds and corrects errors during processing, there are certain situations in which a taxpayer may need to file an amended return to make a correction. Here are some quick tips for anyone who discovered they made a mistake or forgot to include something on their tax return.

Use the Interactive Tax Assistant. Taxpayers can use the Who should file an amended return? interview tool to help determine if they should file an amended return to correct an error or make other changes to their return.

Don’t amend for math errors or missing forms. Taxpayers generally don’t need to file an amended return to correct math errors on their original return. The IRS may correct math or clerical errors on a return and may accept it even if the taxpayer forgot to attach certain tax forms or schedules. The IRS will mail a letter to the taxpayer, if necessary, requesting additional information.

Wait until receiving refund for tax year 2018 before filing. Taxpayers who are due refunds from their original tax year 2018 tax return should wait for the IRS to process the return and they receive the refund before filing Form 1040-X to claim an additional refund. It may take the IRS up to 16 weeks to process amended returns.

File Form 1040-X to amend. Taxpayers must file on paper using Form 1040-X, Amended U.S. Individual Income Tax Return, to correct their tax return. While taxpayers can use software to prepare Form 1040-X, they can’t file Form 1040-X electronically. Taxpayers should indicate the year of the original return and explain all changes made by attaching any forms or schedules. Taxpayers then sign and mail the Form 1040-X to the address listed in the instructions. Taxpayers filing Form 1040-X in response to an IRS letter should mail it to the address shown on the letter.

Amend to correct errors. Taxpayers should correct their return if they find that they should have claimed a different filing status or didn’t report some income. Taxpayers who claimed deductions or credits they shouldn’t have claimed or didn’t claim deductions or credits they could have claimed may need to file an amended return.   Changes made on a federal return may also affect state taxes. The taxpayer should contact the state tax agency to see if this is so.

Pay additional tax. Taxpayers who will owe more tax should file Form 1040-X and pay the tax as soon as possible to avoid penalties and interest. They should consider using IRS Direct Pay to pay any tax directly from a checking or savings account for free.

File within three-year time limit. Taxpayers generally have three years from the date they filed their original tax return to file Form 1040-X to claim a refund. They can file it within two years of the date they paid the tax, if that date is later.

Use separate forms if amending more than one tax year. Taxpayers must file a Form 1040-X for each tax year and mail each year’s form in a separate envelope to avoid confusion. They should check the box for the calendar year or enter the other calendar year or fiscal year they are amending. The form’s instructions have the mailing address for the amended return.

Track amended return status online. Taxpayers can track the status of their amended tax return in English and Spanish using Where’s My Amended Return?  Amended returns take up to 16 weeks to process and up to three weeks from the date of mailing to show up in the system. Before that time, there’s no need to call the IRS unless the tool specifically tells the taxpayer to do so.

Share this tip on social media — #IRSTaxTip: Tips for taxpayers who may need to amend their tax return.  https://go.usa.gov/xmHa4

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#Taxpayers have the #right to #appeal an #IRS decision

Taxpayers have the right to appeal an IRS decision

A taxpayer might at some point see the IRS make a decision about their taxes. If the taxpayer disagrees with this decision, they have the right to appeal it. The right to appeal an IRS decision in an independent forum is one of 10 basic rights known collectively as the Taxpayer Bill of Rights

Here are some facts taxpayers should know about the right to appeal an IRS decision:

  • Taxpayers have the right to a fair administrative appeal of most IRS decisions.
  • There is an independent office called the IRS Office of Appeals. This office is separate from the IRS office that first reviewed the case.
  • Generally, the Office of Appeals will not discuss a case with the IRS.
  • Taxpayers also have the right to receive the Office of Appeals’ decision in writing.
  • Taxpayers generally have the right to take their cases to court.
  • Your Appeal Rights and How to Prepare a Protest if You Don’t Agree is a publication that explains how a taxpayer can appeal a tax case when they disagree with the IRS’s findings.
  • If the IRS sends a notice proposing that the taxpayer owes more money, the taxpayer may want to dispute it. If so, the taxpayer may file a petition with the United States Tax Court.
  • Some taxpayers may have a claim for a refund. These taxpayers may take their case to their United States District Court or to the United States Court of Federal Claims. Generally, the taxpayer must file this claim two years from the date of the IRS notice denying the taxpayer’s refund.

More information:
What the Taxpayer Bill of Rights Means for You
Forms and Publications About Your Appeal Rights
Taxpayer Advocate Service
Online Videos and Podcasts of the Appeals Process

Share this tip on social media — #IRSTaxTip:Taxpayers have the right to appeal an IRS decision. https://go.usa.gov/xmHaa

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#IRS now billing those who filed for 2018 but didn’t pay; many #payment #options available

IRS now billing those who filed for 2018 but didn’t pay; many payment options available

WASHINGTON ― The Internal Revenue Service today advised those now receiving tax bills because they filed on time but didn’t pay in full that there are many easy options for paying what they owe.

Taxpayers can pay online, by phone or using their mobile device. Taxpayer who can’t pay in full may consider payment plans and compromise options; the IRS wants anyone facing a tax bill to know that they have many choices available to them.

If a tax return was filed but the amount owed are unpaid, the taxpayer will receive a letter or notice in the mail from the IRS, usually within a few weeks. These notices, including CP14 and CP501, which notify taxpayers that they have a balance due, are frequently mailed during June and July.

Recent major tax law changes affect most taxpayers, and while the vast majority are receiving refunds, others discovered that they owe tax this year. Many of them may qualify for a waiver of the estimated tax penalty that normally applies. See IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and its instructions for details.

Taxpayers are reminded to pay as much as possible, as soon as possible to minimize interest and penalties.

Making a payment

Taxes can be paid anytime throughout the year. When paying, taxpayers should keep in mind:

  • Electronic payment options are the quickest way to make a tax payment. 
  • IRS Direct Pay (bank account) is a free way to pay online directly from a checking or savings account.
  • Taxpayers can choose to pay with a debit or credit card. Although the payment processor will charge a processing fee, no fees go to the IRS.
  • The IRS2Go app provides mobile-friendly payment options. Taxpayers can use Direct Pay or card payments on mobile devices.
  • Taxpayers can pay using their tax software when they e-file. For those using a tax preparer, they can ask the preparer to make the tax payment electronically.
  • Taxpayers may also enroll in the Electronic Federal Tax Payment System and have a choice of using the internet or phone and using the EFTPS Voice Response System.

    Those who can’t pay in full have several options. They can:

    Set up a payment plan
    With the Online Payment Agreement, taxpayers can usually set up a payment plan (including an installment agreement) in a matter of minutes. Individuals who owe $50,000 or less in combined income tax, penalties and interest likely qualify for an Online Payment Agreement. 
    Online applications to establish tax payment plans are available Monday – Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time.Another option is getting a loan. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.Make paying easier 
    Automating payments makes it easy to avoid default. Using direct debit from a bank account or a payroll deduction means taxpayers don’t have to remember to send in a payment and saves postage costs. User fees may apply, except to low-income taxpayers, but are lower than fees for manual payment plans.
    Pausing collection
    If the IRS determines a taxpayer is unable to pay, it may delay collection until their financial condition improves.Settle for less 
    The Offer in Compromise program allows some struggling taxpayers to settle their tax bill for less than the full amount due. User fees apply except to low-income taxpayers. This year’s Offer in Compromise guide and application can be found at www.irs.gov/OICbooklet. The online Offer in Compromise Pre-Qualifier tool can help taxpayers determine if they are eligible.
    Check tax withholding
    For many taxpayers, this year’s unexpected tax bill could have been avoided with a Paycheck Checkup. The IRS urges all taxpayers to check their withholding for 2019, including those who made withholding adjustments in 2018 or had a major life change. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction as well as two-wage-earner households, employees with non-wage sources of income, and those with complex tax situations.Taxpayers can figure out the appropriate withholding to their paychecks with the IRS’s Withholding Calculator on IRS.gov. It’s never too early to check withholding. 

    Online toolsThe IRS urges everyone to take advantage of the many tools and other resources available on IRS.gov. The Let Us Help You page answers most tax questions, and Publication 5136, IRS Services Guide, links to these and other IRS services.Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, payment history and key information for the most current year tax return as originally filed. Visit IRS.gov/secureaccess to review the required identity authentication process.  

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