With Hawaii’s Kilauea volcano declared major disaster, IRS grants residents tax relief

Kilauea lava flow USGS via Giphy.comKilauea lava flow from U.S. Geological Survey via Giphy.com

Hawaiians got some relatively good news this week in connection with the continuing lava flow from Mount Kilauea.

The volcano is continuing to spew potentially deadly gases and pour flaming lava across a growing southeastern section of the 50th state’s Big Island. The eruption, which started May 3, also is still producing explosions and earthquakes.

Now, however, the catastrophe has been declared a major disaster by the White House.

That is good tax news for affected residents, which is everyone on the state’s largest island, also named Hawaii, as is the county designation.

Not only are they eligible for assistance from the Federal Emergency Management Agency (FEMA), the Internal Revenue Service says affected residents may qualify for certain tax relief.

And folks who sustained Kilauea-caused losses in excess of their insurance coverage now can claim those amounts as an itemized expense.

New tax law limits on disaster claims: Under prior law, that tax relief option was available under the Internal Revenue Code. The claim could be made even in cases where taxpayers sustained less severe storm damages, as well as in cases of losses from theft, burglary and auto accidents.

That broad tax deduction claim opportunity, however, ended with the enactment at the end of 2017 of the Tax Cuts and Jobs Act (TCJA). Now tax relief is available only when the president declares an area a major disaster area.

But with the major disaster declaration, affected Hawaii residents now can claim their volcano damages. They also have the option to claim them on their 2017 returns or wait and make the Schedule A claims when they file their 2018 returns next year.

The decision as to which tax year to file the disaster damages depends on (1) which tax year will give you a more favorable tax result, e.g., a larger refund, and (2) how soon you need the tax money to pay for recovery efforts.

You can find details on making such claims in this earlier story I wrote. The years and disasters in the article are dated, but the claim process remains the same for current major disasters.

More disaster filing info can be found in IRS Publication 547, as well as in Form 4684, Casualties and Thefts, and its instructions.

If you are making a volcano-related casualty claim, the IRS says to put the Disaster Designation, “Kilauea Volcanic Eruption and Earthquakes” at the top of the form so that agency employees can expedite the processing of your tax refund.

Expedited tax data requests: If you need your tax information from the IRS to complete your disaster claim, the IRS says it will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers.

As with the actual tax filing, you should put the assigned Disaster Designation “Kilauea Volcanic Eruption and Earthquakes” in red ink at the top of Form 4506, Request for Copy of Tax Return, or, if appropriate for your needs, Form 4506-T, Request for Transcript of Tax Return, when you submit it to the IRS.

Regular IRS relief: Who qualifies? In addition to the major disaster claim, affected Aloha Sate residents also are granted some relief from general tax duties.

The relief applies to both individual taxpayers and business owners who live in or have companies in Hawaii County that have been affected or damaged by Kilauea.

USGS Kilauea map_image-487

Also, taxpayers who don’t live in the covered disaster area, but whose records necessary to meet a tax deadline are in the covered disaster area, are also entitled to this relief.

So are all relief workers in Hawaii as part of a recognized government or philanthropic organization effort to provide volcano aid.

Regular IRS relief: What qualifies? The first break is a postponement of certain tax deadlines for the affected Hawaiians.

In this case, tax due dates falling on or after May 3, 2018, and ending Sept. 17, 2018 are given special consideration. That means Aloha State taxpayers have until Sept. 17 to complete their tax tasks that fell/fall in this time frame.

The most obvious individual tax filing in this period was the June 15 estimated tax filing deadline. If you missed it, you now have three added months to file second 1040-ES payment.

The next estimated payment, due Sept. 15, also will be within the volcano tax relief period, giving Hawaii taxpayers a couple of extra days to make that payment.

Other Hawaii taxpayer filings that have either an original or extended due date in the May 3 through Sept. 17 relief period and are covered under this disaster relief ruling include:

  • Individual, corporate, and estate and trust income tax returns;
  • Partnership returns, S corporation returns, and trust returns;
  • Estate, gift, and generation-skipping transfer tax returns; and
  • Employment and certain excise tax returns annual information returns of tax-exempt organizations; Form 5500 filings; like-kind property exchanges; and employment and certain excise tax returns.

However, the IRS says that the postponement of time to file and pay, does not apply to:

  • Information returns in the W-2, 1094, 1095, 1097, 1098, or 1099 series;
  • Forms 1042-S, 3921, 3922 or 8027; or to most employment and excise tax deposits, with one exception (see below).

The IRS says penalties on employment and excise tax deposits due on or after May 3 will be abated as long as the deposits were made by May 18.

Automatic relief, penalty notice procedures: If you’re in the covered disaster area, the IRS will automatically identify you by your filing address and apply filing and payment relief.

But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline toll-free at (866) 562-5227 to request this tax relief.

If you qualify for the extended filing relief but still get a late-filing or late-payment penalty notice from the IRS, the agency says to call the telephone number on the notice to have the IRS abate the penalty.

Finally, if you’re a volcano-affected filer in the midst of an IRS audit or collections process, the IRS doesn’t want to add tax insult to Mother Nature’s injury.

In examination cases, if you’re contacted by the IRS explain how Kilauea is affecting you so that the agency representative can give your case the appropriate consideration.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2018/06/hawaii-kilauea-volcano-major-disaster-irs-tax-relief.html

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Still waiting on passthrough tax guidance (& more)

Rules and regulations and guidance

June generally is a good time to review your tax situation and make moves while there are months for them to make a difference to your upcoming tax bill.

That’s particularly true this year, what with the Tax Cuts and Jobs Act (TCJA) changes in full force.

Unfortunately, questions remain as to just how the new tax law changes will affect some folks.

Business change uncertainty: Businesses in particular are among the taxpayers still unsure about TCJA provisions.

Many are waiting for clarification of the new law’s elimination of business entertainment expenses.

The tax community is divided as to whether Congressional tax writers meant to ax specific entertainment expenditures only, or whether business meals allowable at 50 percent of their costs are included/ended, too.

The biggie, though, is the 20 percent deduction for income for passthrough businesses.

This provision has been a mess since the get-go.

It’s still confusing, largely because it’s complicated, leaving many companies and their tax professionals unsure exactly how to calculate it. And critics complain that despite claims it will help small businesses, larger firms are more likely to benefit from the deduction.

Then there’s the added uncertainty as to how the Internal Revenue Service will enforce it.

Earlier this month, acting IRS Commissioner David Kautter and Treasury Secretary Steven Mnuchin met with Capitol Hill lawmakers to discuss forthcoming guidance.

At that time, Kautter indicated that the IRS’ first batch of proposed regulations on the new passthrough deduction could come “within a couple weeks.”

Congressional nagging: Kautter’s promise of prompt action was possibly prompted by a June 4 letter sent by 65 U.S. House members who prodded the IRS to act soon regarding the deduction.

The ability of eligible businesses to fully realize the 20 percent passthrough deduction “depended on the rules addressing the way by which they will be allowed to calculate qualified business income.”

“Absent a logical approach to the rules related to calculating business income and the deduction allowance, similar businesses could end up being affected in significantly different ways,” wrote the bipartisan group, none of whom is on the House tax-writing panel and led by Reps. Mario Diaz-Balart (R-Florida), Kathleen Rice (D-New York) and Jimmy Gomez (D-California).

That missive followed one sent by Ways and Means Committee Ranking Member Rep. Richard Neal (D-Massachusetts), the ranking Democrat on the House Ways and Means Committee, on May 1.

In his letter, Neal urged Mnuchin and Kautter to issue clarifying guidance on the new passthrough, noting that in addition to taxpayer confusion about eligibility for the deduction, the delay in details as to how it applies reportedly is leading to aggressive tax positions on how to claim the it.

“Without computational and definitional guidance to assist taxpayers in determining whether, and to what extent, they may qualify for the pass-through deduction, it is difficult for them to properly calculate their quarterly estimated tax payments,” wrote Neal. 

“Given the possibility that individuals may have considerably different tax liabilities under the new law, the inability to determine the appropriate estimated tax payment could result in liability for additions to tax and underpayment penalties,” wrote Neal.”

Sadly, for affected taxpayers, the estimated tax deadline Neal was worried about came and went with no input from the IRS. But the ultimate tax bills and possible detrimental tax consequences remain and grow with each passing day of passthrough uncertainty. 

Still waiting: Despite the concerns of lawmakers, taxpayers and tax professionals, we’re now on the down side of June and still no IRS guidance.

I get it. As Kautter noted during a speech at earlier this month at the annual Virginia Conference on Federal Taxation hosted by the University of Virginia School of Law, the passthrough deduction is “an exceedingly complex subject.”

And it’s just one of the many challenges that we’re all facing giving the hurried way that Republicans rammed the law through at the end of the last Congressional session.

Treasury and the IRS also are promulgating regs on how some states have devised ways for their residents to claim state and local tax (SALT) payments in excess of the new $10,000 cap as charitable deductions.

The IRS hinted at the end of May that such schemes would not be allowed. But once that formal announcement is made, it will just be the start of the process. Lawsuits are expected to follow, further throwing tax plans into disarray.

And remember that when the IRS does issue proposed regulations, there must be time for public comment before anything becomes final. That could push some ultimate decisions to near year’s end. That’s not much time for tax planning or action.

Regs, guidance, whatever: Because of the process, Kautter told the gathering in Charlottesville that his agency and Treasury are working to find the right balance between formal regulatory rules and informal guidance like notices and press releases.

The key factor as to whether an issue should be dealt with via informal guidance will be, said Kautter, “whether a provision is having or could have a significant effect on economic activity.”

An argument could be made that all tax provisions have a significant effect on economic activity, at least for those affected.

And whichever guidance route is taken, the consensus in the tax world is that the sooner, the better.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2018/06/still-waiting-on-passthrough-tax-deduction-guidance-and-more.html

World Cup star Ronaldo reportedly settles tax charges

Cristiano_Ronaldo_vs_Luka_Modric_Portugal_vs_Croatia_June_2013_Fanny-Schertzer_Wikipedia

Real Madrid teammates Cristiano Ronaldo, left, and Luka Modrić go against each other in a Portugal vs. Croatia friendly match in June 2013. (Photo by Fanny Schertzer via Wikipedia)

I’m not a soccer or World Cup fan, but many of my social media pals are. That’s why my Twitter feed is full of updates on upsets and expected results from this year’s tournament hosted by Russia.

But those sports fans have overlooked one thing. Some of soccer’s — football to the world beyond the United States — biggest global stars also have faced serious international tax battles.

Portugal star fights with Spain on and off the pitch: Cristiano Ronaldo scored a hat trick in his native Portugal’s World Cup game against Spain, the country where he currently makes his living.

But before that match, Ronaldo also had been going head-to-head with the Spanish government over allegedly unpaid taxes.

The 33-year-old Real Madrid footballer was accused last year of defrauding Spanish tax authorities of €14.8 million (more than $17 million U.S.) Tax officials allege that Ronaldo tried to hide money linked to image rights made between 2011 and 2014.

Ronaldo denies the charges, but offered in June 2017 to pay the government almost the full amount, €14 million ($16.3 million U.S.). Spanish authorities, however, back then refused the offer.

Spain’s hard line apparently worked. The BBC has reported that Ronaldo has agreed to accept an €18.8 million (almost $22 million U.S.) fine and a suspended jail term to settle the tax evasion charges.

The final word on whether the deal is acceptable must come from Spain’s tax agency.

Earlier tax evasion template: It’s the second victory for Spain’s tax authorities over international football stars.

Before Ronaldo’s case, the sports and tax world focused on Argentine football star Lionel Messi. How wonderfully ironic that Messi and Ronaldo, who faced similar tax charges, also are rivals on the pitch.

Messi, who’s come under fan fire during the World Cup for missing a late penalty shot in Argentina’s tie with Iceland, was convicted of Spanish tax evasion charges in 2017.

Football aside: Argentine legend Diego Maradona has come to Messi’s missed kick defense.

Messi, who plays professionally for Barcelona, was found guilty of defrauding Spain of €4.1 million ($4.8 million U.S.) by using tax havens in Belize and Uruguay between 2007 and 2009 to hide earnings from image rights.

The World Cup star’s father also was convicted for his role in the tax scheme. Both men paid fines to avoid Spanish jail time.

Messi’s father’s 15-month sentence was dropped in lieu of a €180,000 ($209,122 U.S.) fine. Messi’s cost to avoid imprisonment was €252,000 ($292,771 U.S.).

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2018/06/world-cup-star-ronaldo-reportedly-settles-spanish-tax-evasion-charges.html

State Bewilderment to TCJA – Podcast Too!

A State Tax Notes article of mine for 5/28/18 is titled, “Moving Past a TCJA State of Bewilderment.” My focus is on a few states, notably, New York, where the governor and a few others made statements implying that the Tax Cuts and Jobs Act would harm the state and its residents.  Yes, some will pay more, but the vast majority will see a tax reduction.

Many new rules are at play including ones that may result in loss of deductions, such as capping the state and local tax (SALT) deduction to $10,000, but many will get new deductions, such as if they are self-employed or have rental income (the “199A deduction”). And the rates go down for everyone.

We are seeing some states enact workarounds to the SALT cap, including New York and New Jersey. Connecticut just enacted (SB 11) a new tax on partnerships and S corporations with a credit given to the owners – that starts now! (See information from CT Dept. of Revenue.) That’s an interesting workaround. The IRS plans to issue regulations on whether these workarounds, including ones to donate money to a state fund to get a federal charitable contribution deduction and a state tax credit, work (Notice 2018-54).

I recently had the opportunity to record a “Simply Tax” podcast with BKD’s Damien Martin on this topic – state tax workarounds (6/7/18).  Or see link on Apple Podcasts or link on YouTube. You can also find links to over 30 terrific podcasts Damien has produced on various tax topics – many on TCJA provisions.

What do you think? Should states be truly worried?
Source: http://21stcenturytaxation.blogspot.com/2018/06/state-bewilderment-to-tcja-podcast-too.html

Find out where your taxes rank under the new law

Campaign-Yard-Signs

It’s a cliché because it’s true. All politics is local.

That applies to taxes, too. Whether you love or hate a tax law depends on how much it helps or hurts you personally.

That’s why this weekend’s Saturday Shout Out goes to the Tax Foundation’s interactive map that lets you see average 2018 tax cuts in your congressional district.

If you want to go beyond your locality, you can check out the dollar differences on average make to taxpayers across the country.

As you can see on the Washington, D.C.-based tax policy nonprofit’s map reproduced below, you simply enter your annual income amount and your state.

That then takes you to the next step, entering your Congressional district. If you’re unsure of where you’ve been gerrymandered placed for federal voting purposes, another click takes you to the Census Bureau’s search page that will let you find out.

Even if your Zip code is split between two districts, like ours here in Central Texas, you can drill down using your street address.

Armed with your broad data, you’ll find out the average income in your Congressional district, as well as the average tax cut amount for you (based on your income range) in dollars and as a percentage of income. 

Estimates for entertainment purposes: Again, the Tax Foundation’s tax change map tool is an average, so your numbers could change when you finally file your first tax return fully affected by the Tax Cuts and Jobs Act. That’ll be your 2018 Form 1040 due next April.

Or, as economist Amir El-Sibaie notes in the organization’s tax map explanation:

“High-income tax filers, particularly in high-tax states, are impacted differently than middle-income filers due to the new $10,000 cap on the deduction for state and local taxes paid. Family size matters too; the new child tax credit lowers taxes for a number of filers. Not everyone in the country is affected in the same way.” 

But it’s a fun weekend diversion. OK, fun if you’re a tax geek, but you are reading this so enjoy!

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2018/06/your-taxes-under-the-new-law-compared-by-district-state-nationally.html

Tax-exempt system under spotlight in wake of Trump Foundation’s legal problems

Charity collection jar

Yes, as soon as I heard about the New York Attorney General filing a lawsuit against Donald J. Trump’s charitable foundation, I checked the Internal Revenue Service exempt organization online search tool.

There it, or they, were.

When I entered Trump Foundation into the Tax Exempt Organization Search, or TEOS because everything in Washington, D.C. has an acronym, it turned up six results. The top two were what I was looking for:

Trump Foundation 
EIN: 13-3054537 | New York, NY, United States

Donald J Trump Foundation Inc.
EIN: 13-3404773 | Woodbury, NY, United States

Both organizations are listed in IRS Publication 78, the document that details which groups are eligible to receive tax-deductible charitable contributions, as private foundations.

When someone gives to a private foundation, the tax deductibility of such gifts generally is limited to up to 30 percent of the donors’ adjusted gross income (AGI).

Public charities — tax-exempt groups like places of worship, Goodwill, Red Cross and Salvation Army to which most of us give — generally are 50 percent charities (or now, under Tax Cuts and Jobs Act (TCJA) changes, 60 percent charities when donations are in cash), meaning the deduction amount is up to half (or more) of AGI.

Many nonprofit tax designations, rules: Private and public charity designations are among the 11 types of deductibility codes used to annotate the nonprofits listed in Publication 78.

As for the groups themselves, after meeting IRS and tax code requirements, they are put into one of seven different and wide-ranging categories. They are all 501(c) organizations, which comes from the Internal Revenue Code section that created them, and fall into one of these areas:

  • 501(c)(3) for religious, educational, charitable, scientific, or literary organizations; testing for public safety organizations; as well as organizations dedicated to preventing cruelty to children or animals, or fostering national or international amateur sports competition;
  • 501(c)(4) for civic leagues, social welfare organizations and local associations of employees;
  • 501(c)(5) for labor, agriculture and horticultural organizations;
  • 501(c)(6) for business leagues, chambers of commerce and real estate boards;
  • 501(c)(7) for social and recreational clubs;
  • 501(c)(8) for fraternal beneficiary societies and associations; and
  • 501(c)(9) for voluntary employee beneficiary associations.

As I said five years ago in a post during the Congressional and public debate about tax status for groups that engage in political activities, enough already!

It’s time to reduce the number of tax-exempt status designations.

SALT “charities,” too: Tax code complexity is the most common complaint individual taxpayers have about our system. That’s obviously is an issue with the section 501(c) rules.

The recent TCJA was touted as a way to simplify the system. It really didn’t.

What it did do, though, was make itemizing less appealing, largely by increasing the standard deduction.

Charitable giving is an option that the new tax law left on Schedule A. But because of other restrictions, notably the $10,000 deduction limit on state and local income taxes, known as SALT in tax-speak, the charity designation is again under fire.

Tax-filing-for-charity-Schedule-A

In this case, it’s states that are creating so-called charities to which their taxpayers can give their SALT payments that are in excess of the new deduction limit. This would, under the states’ machinations, make these “donations” fully deductible.

The IRS is expected to soon formally strike down such SALT deduction workarounds. But lawsuits will follow that ruling.

Again. Just stop it.

Regardless of your personal or political opinion about the Trump family and its charitable efforts, the New York AG lawsuit and possible IRS investigation again point out that there are just way too many groups that are playing the tax code to their advantage, not necessarily to fulfill the needs of those for whom the groups ostensibly were created to help.

It’s way past time to truly simplify and reduce the tax-exempt status possibilities so that we and the tax code focus on what charity is supposed to be.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2018/06/taking-a-look-at-the-tax-exempt-system-in-light-of-the-trump-foundations-legal-problems.html