With the end of the 35-day federal government shutdown, the IRS returned to a backlog of five million pieces of unopened mail and a busy tax-filing season. However, IRS Commissioner Chuck Rettig reports the Service has fully recovered and is setting new records in processing returns.
At a Washington conference of the International Fiscal Association on February 21, Rettig noted the current filing season is "running incredibly smoothly." He continued, "We run smoothly because our people care. Never let the message be that our workforce is not giving its best."
Rettig reported that two new tax return processing records were set. More than 1.9 million returns were processed in one hour and 536 returns processed in one second.
Rettig also noted that the IRS has many job openings, but he focused on those in enforcement. He predicted the IRS will increase both enforcement staff and audits. Rettig stated, "I am a huge believer in enforcement. You should anticipate that I will hold tax practitioners to a very high standard."
Most of the audience at the conference were tax advisors. In giving counsel to their clients, Rettig suggested, "Give the advice that you would follow if you were the client. Do not worry about whether the client will follow the advice. Those are two different issues."
This week, the IRS also reminded tax advisors that businesses must report cash transactions in excess of $10,000. While it is permissible to use IRS Form 8300, Report of Cash Payments over $10,000, electronic filing is much faster.
Secure accounts for electronically filing Form 8300 can be set up with the Bank Secrecy Act (BSA) E-Filing system. Advisors may call 866-346-9478 or email BSAEFilinghelp@finsen.gov
for assistance with creating an account.
Nonprofits Hope for Repeal of Parking Tax
On February 14, David Thompson, Vice President of Public Policy for the National Council of Nonprofits (NCN), sent a letter of appreciation to Rep. James E. Clyburn (D-SC). Earlier this month, Clyburn introduced the "Stop the Tax Hike on Charities and Places of Worship Act."
The bill would repeal the new unrelated business taxable income rules (UBTI) for nonprofit parking lots under Sec. 512(a)(7). Thompson explained in a letter to Rep. Clyburn that this Section levies a 21% tax on "the amounts they spend providing public transit to their employees, such as Comet and CARTA bus passes in and around your district. Equally troubling, the tax applies to the costs houses of worship and other nonprofit organizations pay to provide parking for their employees."
Thompson noted, "It is imperative that Congress immediately repeal new Internal Revenue Code Section 512(a)(7) to avoid manifest injustice, taxpayer confusion, risky speculation about what all is covered and how to calculate what might be due, and filings of potentially inaccurate and/or unnecessary forms by hundreds of thousands of houses of worship, charitable nonprofits and foundations."
The NCN also sent a letter to the IRS with specific and detailed concerns about the parking tax and the IRS guidance under Notice 2018-99. The NCN letter explains four challenges for nonprofits that will affect the determination of the correct UBTI.
- Expenses – The parking tax is based on employer expenses, not the value of the employee benefit. Deciding how to allocate proper amounts of a nonprofit organization's budget to parking expenses is arbitrary and uncertain.
- Reserved Parking – In order for nonprofits to avoid paying UBTI on reserved parking, signs for staff spots must be removed by March 31, 2019.
- Public Parking – While public parking spots are not taxed, the Notice 2018-99 four-part calculations to qualify as public parking may cost the nonprofit more in fees than the tax generated.
- $1,000 Threshold – There is a $1,000 unrelated business income exemption, but calculating the parking tax payable may cost that much in accounting fees. For small nonprofits, this is a major expense even if they do not have to pay UBIT.
AICPA Requests DSUE Protection
In a February 15 letter to the IRS, American Institute of CPAs (AICPAs) Chair Annette Nellen requested protection for the deceased spouse unused exemption (DSUE). The request applies to estates when the first spouse passes away between December 31, 2017 and January 1, 2026.
The Tax Cuts and Jobs Act (TCJA) increased the basic exclusion amount (BEA) from $5 million to $10 million (plus indexed increases). The BEA may be increased under Sec. 2010(c)(4) by the deceased spouse unused exemption (DSUE). The total of BEA and DSUE is the applicable exclusion amount (AEA).
Nellen notes the proposed regulations on the BEA and AEA (REG-106706-18) do protect taxable gifts. She states, "If a decedent had made cumulative post-1976 taxable gifts of $9 million, all of which were sheltered from gift tax by a BEA of $10 million applicable on the dates of the gifts, and if the decedent died after 2025 when the BEA was $5 million, the credit to be applied in computing the estate tax is that based upon the $9 million of BEA that was used to compute gift tax payable."
The AICPA concern is that if a decedent passes away when the BEA is $10 million and the DSUE is therefore established at that amount, but the surviving spouse passes away in 2026 when the BEA may be $5 million, the estate may lose the benefit of the larger DSUE.
Nellen concludes, "We recommend that Treasury and the IRS provide guidance clarifying that if the BEA decreases (either because of the 2026 expiration of the provision in the TCJA, or other congressional action), the DSUE is not less than the amount of DSUE claimed on the estate tax return of the first spouse to die."
Applicable Federal Rate of 3.2% for March -- Rev. Rul. 2019-7; 2019-10 IRB 1 (15 Feb 2018)
The IRS has announced the Applicable Federal Rate (AFR) for March of 2019. The AFR under Section 7520 for the month of March is 3.2%. The rates for February of 3.2% or January of 3.4% 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 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.