Recent Tax Law Updates: July 2019

New IRS Commissioner Promises Increased Enforcement

There is a new sheriff in town, and at the American Institute of CPAs June 10 conference in Las Vegas, Commissioner Charles Rettig announced that there will be a much greater emphasis on enforcement. He also made it a point to remind everyone that the IRS Criminal Investigation Division is alive and well. (United States Tax Reporter ¶ 76,054)

New Bills Will Be Passed

Your government is working to improve its revisions to the recent tax laws passed. On June 13, by voice vote, the Senate passed the Taxpayer First Act, H.R. 3151. The bill will include provisions for improving customer service, protecting personal data, preserving tax preparation services, and curbing the reach of private debt collectors. The president is expected to sign the bill.

If Your Preparer Commits Fraud, It's Still On You

The Eleventh Circuit Court of Appeals affirmed the US Tax Court in ruling that the fraud exception to the three-year statute of limitations on assessments applied when a married couple's returns were fraudulently prepared by their preparer. The court found that the plain meaning of Code Sec. 6501(c)(1) doesn't require the fraud to be the taxpayer's. It also rejected the couple's argument that the USTC abused its discretion by accepting the preparer's out-of-court statement admitting his culpability. (Finnegan, (CA 11 6/11/2019) 123 AFTR 2d ¶ 2019-770)

IRS Blocks State & Local Tax ("SALT") Deduction Limit Workarounds

The IRS has issued final regulations that require taxpayers to reduce their charitable contribution deductions by the amount of any actual and/or expected state or local tax credits. This is in response to some states' attempts to work around the $10,000 limit on SALT deductions. New York Governor Andrew Cuomo and New Jersey Governor Phil Murphy criticized the decision as politicizing the tax code and reaffirmed their commitment to restoring the full SALT deduction. (Internal Revenue Service Final Regulations on Charitable Contributions and State and Local Tax Credits, 06/11/2019; Statement from Governor Andrew M. Cuomo on Rule Finalized by the IRS Regarding SALT Workarounds, 06/11/2019; Statement from NJ Governor Phil Murphy on IRS Ruling Against NJ Taxpayers; 06/11/2019) See also, FTC 2d/FIN ¶ K-4500; United States Tax Reporter ¶ 1644.03.

Withholding Obligations & Related Penalty Relief

The IRS has expanded penalty waivers for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year. The penalty will generally be waived for any taxpayer who paid at least 80% of their total tax liability during the year through federal withholding, quarterly estimated tax payments, or a combination of the two. (Notice 2019-25, 2019-15 IRB) The usual percentage is at least 90% to avoid a penalty. (Code Sec. 6654)

A good way for employees to check their withholding is to use the withholding calculator on IRS.gov to do a paycheck checkup. If necessary, the employee may change his/her withholding allowances on Form W-4 or having an additional flat amount withheld from each paycheck. They may also make estimated tax payments throughout the year.

Accuracy-Related Negligence Penalty Upheld & IRC 7491

The accuracy-related negligence penalty was upheld against a solely owned corporation for the year in which the owner claimed numerous unsubstantiated deductions and losses. The taxpayer was a corporation and hence the IRS had no burden of production on the penalty's applicability under IRC 7491(c), and the taxpayer, who failed to keep adequate records, offered no reasonable cause or good faith defense for its position. (Amnesty National v. Commissioner, (2019) TC Memo 2019-63, 2019 RIA TC Memo ¶2019-63)

Enhanced Sentence for Tax Crimes & Sophisticated Means Affirmed

The defendant used sophisticated means in both the execution and concealment of an underlying tax fraud conspiracy. He prepared and filed thousands of returns, generating millions in false refunds by using recruiters in a jurisdiction outside his office locations and targeting individuals with limited income. He altered their information to hide his fraud and then submitted false W-2s to the IRS. Enhanced sentences for conspiring to commit wire fraud, as part of widespread tax fraud conspiracy, and for a "failure to appear" offense were also affirmed. (U.S. v. Mays, CA 5, 123 AFTR 2d ¶2019-748)

If you have questions, please contact us at 301-424-7585.

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