Tuesday March 31, 2020
IRS Launches 2020 Tax Filing Season
The IRS anticipates receiving 150 million individual tax returns. Most returns will be filed prior to the April 15 deadline, but some taxpayers may choose to extend their filing date until October, 15, 2020. Taxpayers on extension must pay the appropriate amount of tax due on April 15, even though their filing date will be delayed until October.
IRS Commissioner Chuck Rettig stated, “The IRS workforce has worked for nearly a year to prepare for the opening of tax season. Our dedicated employees are committed to help the taxpayers, process tax returns and serve the nation – not just through the April 15 tax deadline but throughout the year."
The IRS anticipates that about 90% of returns will be filed electronically. It encourages electronic filing because it is the fastest and safest way to file an accurate tax return and promptly receive a refund.
Rettig continued, “The IRS reminds taxpayers there are many options to get help. Our website has round-the-clock information available and is the fastest way to get assistance. We have made improvements to the Free File program and filing electronically with direct deposit remains the best way to speed refunds and minimize errors."
Virtual currencies received new IRS attention this year. For taxpayers who bought or sold a virtual currency in 2019 must file Schedule 1, Additional Income and Adjustments to Income. Taxpayers must have documentation to show the purchase, exchange, sale or other transfer of the virtual currency. Finally, taxpayers must substantiate the fair market value determination of any virtual currency transactions.
Rettig noted, “Virtual currency is an important addition to the 1040 this year. This emerging area is a priority for the IRS, and we want to help taxpayers understand their obligations involving virtual currency. We will also take steps to ensure fair enforcement of the tax laws for those who do not follow the rules involving virtual currency."
A new form for taxpayers age 65 and older is IRS Form 1040–SR. This form is designed for seniors with larger print. It allows reporting of investment income, Social Security, distributions from retirement plans and annuities. There is a helpful standard deduction chart on Form 1040–SR.
Approximately 90% of taxpayers will use tax software to file their 2019 returns. The IRS reminds senior taxpayers that they can use Free File, benefit from the Volunteer Income Tax Assistance (VITA) program or be assisted through the Tax Counseling for the Elderly (TCE) program. The Free File online program is a consortium of 10 software companies that offer free software for many individuals.
Taxpayers with income of $69,000 or less in 2019 are permitted to use the Free File program. There is a “lookup tool” on IRS.gov that helps taxpayers select one of the 10 Free File programs. Each program has its own eligibility standard. Some of the tax return software programs are available in Spanish.
The IRS urges taxpayers to gather all necessary forms before filing their 2019 returns. Employers will send out IRS Forms W–2. Taxpayers will receive Forms 1099 from banks, financial institutions and similar organizations. Most of these forms arrive by mail during late January.
The IRS plans to issue refunds within 21 days after a taxpayer files his or her return. Taxpayers who file electronically will receive refunds more quickly. However, the IRS notes that it cannot by law issue refunds for the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Most of the EITC/ACTC refunds are expected to be available during the month of March.
Tax Professionals Prepare for 2020 Filing Season
As the IRS opened the filing season on January 27, tax professionals across the nation are gearing up for the usual busy time from now until April 15.
Jeffrey S. Trinca is the Legislative Counsel for the National Association of Enrolled Agents. He noted, “The IRS is open for business; everything seems to be ready. They are going to ring the bell and off we go."
Neil H. Fishman is a CPA and president of the National Conference of CPA Practitioners (NCCPAP). He continued, “I am hopeful that this season will be a little bit easier than last year.”
Trinca expects this to be a more favorable filing season. He stated, “This year the agency has gotten information out early, and the filing season is starting relatively early, and all their software seems to work. I think right now people are upbeat and they are ready for it to start."
Tax preparers are concerned about several issues, including individuals who have not withheld correct amounts, the definition of qualified business income (QBI) and concerns about the new IRS Form 1040–SR.
Each person who has earned income must file IRS Form W–4 and withhold correct amounts. CPA Stephen Mankowski is the NCCPAP's past president. He noted, “Even if you have filed the new Form W–4, you may not have enough withheld."
The new Form W–4 includes additional information that is not always on a pay stub. It also may not provide the correct basis for state income tax withholding. CPAs and enrolled agents may spend time reviewing your pay stubs and recommending changes for tax withholding in the 2020 tax year.
Qualified business income (QBI) will enable taxpayers with income to take a 20% deduction under Section 199A. The QBI is reported on Form 8995, Qualified Business Income Deduction Simplified Computation and Form 8995–A, Qualified Business Income Deduction. The new forms are designed to make it easier for professionals to calculate the QBI deduction.
Mankowski explained that the Section 199A deductions will be easier to manage this year. He noted, "There is not a giant learning curve like there was last year."
Tax professionals will also be able to use the new IRS Form 1040–SR for senior citizens. The new form lists additional standard deduction amounts on the front page and is designed to simplify taxes for seniors. Joel Grandon is president of the National Society of Accountants. He noted that most preparers will continue to use the regular Form 1040. Grandon stated, “So I am not confident this form will see much use."
Grassley and Wyden Continue the Conservation Easement Battle
On January 28, 2020, Senate Finance Committee Chairman Chuck Grassley (R–IA) and Ranking Member Ron Wyden (D–OR) sent a letter to attorney Sean M. Akins requesting compliance with their subpoena. Akins represents Robert McCullough of Georgia. The Senators sent a subpoena to obtain information on McCullough's participation in large charitable deductions obtained through syndicated conservation easement transactions.
McCullough is currently litigating the claimed charitable deductions in the U.S. District Court for the Northern District of Georgia. McCullough has provided thousands of documents to the court, but has not provided the requested information to Grassley and Wyden.
Grassley and Wyden explain that the syndicated conservation partnerships McCullough participated in have produced thousands of documents for the litigation. The letter states, “Given the sizable number of documents your client mentions to the Court as being at issue in both recent and forthcoming productions in that case, we are at a loss to understand how your client can certify accurately to having produced all responsive documents found pursuant to a diligent search of 47,587 documents that have recently been produced in ongoing litigation – with more to come – but none produced in response to our subpoena. To that end, we expect full compliance to our subpoena by February 25, 2020."
McCullough and the partnership claimed that the production of documents was limited by FINRA regulations. Because of the various general regulations, they were not able to provide all of the materials. Grassley and Wyden note that, “McCullough has failed to fully comply with the subpoena by failing to produce all responsive emails.”
Because the deadline is ten months from the initial subpoena, the Senators expect full compliance or they will “determine whether it may be necessary to proceed towards criminal or civil enforcement of the subpoena."
Editor’s Note: There has been a determined effort in the Senate Finance Committee to address the actions of syndicated conservation easement partnerships that produce large charitable deductions for investors. This letter indicates that Grassley and Wyden are continuing that effort. They also are reviewing the Charitable Conservation Easement Program Integrity Act (S.170; H.R. 1992). This proposed legislation limits conservation deductions for syndicated partnerships to 2½ times each partner's adjusted basis.
Andrew Bowman is president of the Land Trust Alliance. The Alliance has supported the legislation limiting charitable deductions for syndicated partnerships. Bowman stated on January 29, “It is time for these abusive transactions to end."
Applicable Federal Rate of 2.2% for February -- Rev. Rul. 2020-3; 2020-6 IRB 1 (16 Jan 2020)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2020. The AFR under Section 7520 for the month of February is 2.2%. The rates for January of 2.0% or December of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.