The Federal Trade Commission and the Internal Revenue Service plan to sponsor a free webinar on Wednesday, July 20 at 2 p.m. Eastern Time (11:00 a.m. PT, 12 p.m. MT, 1:00 p.m. CT). The free webinar will help taxpayers understand potential tax scams and identity theft risks.

The topics of the seminar are quite timely. It will explain current methods popular with identity thieves who attempt to trick victims. The thieves use these methods to obtain your personal and financial information.

The seminar will also help individuals understand how to avoid unscrupulous tax return preparers and explain the resources that help protect you from identity theft. If you are a victim of identity theft, there will be an explanation of the methods that you should use to report the identity theft.

You may register for the free seminar by going to www.IRS.gov and selecting the Internal Revenue Service Webinar Registration page. The IRS also will respond to questions if you send an email to [email protected].

The IRS Security Summit published information that will be discussed at the seminar. This Security Summit information is helpful for individuals who want to protect themselves and their family.

1. Identity Protection PINs — All taxpayers can use the IP PIN to verify their identity online. This PIN is also helpful if you have a phone call with an IRS employee. The six-digit PIN is used to identify you and prevent a fraudster from filing a tax return in your name.

2. Spear Phishing Scams — Email phishing scams continue to be one of the most effective strategies of identity thieves. They will send an email with a link that downloads malware to your computer. Identity thieves have become very skilled in starting an email conversation with the victim and building a level of trust through multiple emails. After the level of trust has been built, the identity thief will send you the email with the link that downloads the malware. Because you have started to trust the identity thief, you are much more likely to click on that link.

3. Signs of Identity Theft — There are several signs that indicate identity theft. If you receive multiple IRS letters that are not expected or a letter promising a substantial tax refund that you think is not correct, you should be on guard. You also may discover that the malware on your computer is causing your cursor to move on its own or there are unusual computer actions.

4. Protect Yourself at Home or When Traveling — Work-from-home options have created additional security risks. If you are regularly working from home on your computer, you may have saved important information on your local machine. If an identity thief downloads malware and gains access to your computer, you could suffer a substantial data loss. In addition, when you are traveling you should be very cautious when using Wi-Fi. Many public Wi-Fi sites do not have encryption and are monitored by identity thieves.

Hobby Lobby IRS Form 8283 Battle Continues

Hobby Lobby Stores Inc. (HLSI) is a Subchapter S corporation. The founders of HLSI have gifted millions of dollars in books, textual items, and other historical artifacts to the Museum of the Bible in Washington, DC.

The 2011 HLSI gifts had an aggregate basis of $1.75 million and fair market value of $23 million. The gifts in 2012 had an aggregate basis of $18.7 million and the deduction reported was $61.6 million. There were 431 Hebrew scrolls in the 2011 gift, while the 2012 gift included 800 separate items related to the charitable purpose of the museum.

HLSI obtained appraisals for the gifts and filed IRS Forms 8283. The Forms 8283 stated there was a "Full USPAP-compliant Self-Contained Appraisal Report attached, with individual descriptions, photos, condition reports, and FMV appraised values of each of the scrolls."

In Mart D. Green et al. v. Commissioner; No. 19634-19, the IRS denied the deductions on the ground that the two Forms 8283 included the aggregate basis and values, but did not specify the date of acquisition, the cost basis and the fair market value for the approximately 1200 separate items. For example, the bases of the Dead Sea Scroll gifted in 2012, the Papyrus Bodmer XXIV, the Codex Climaci Rescriptus and the Santa Cecilia Bible were not properly reported.

Reg. 1.170A-13(e)(2)(i) requires a complete appraisal summary. The IRS noted that the deduction was denied because the 2011 and 2012 Forms 8283 reported the "aggregate" basis, a range of acquisition dates for the 1200 items and an "aggregate" fair market value. In addition, there were two additional appraisers who valued the items in 2012 but did not sign IRS Form 8283.

If the aggregate value of similar items exceeds $500, then IRS Form 8283 must be filed. Reg. 1.170A-13(e)(4)(iv)(B) indicates that with similar items gifted to a same donee, one appraisal summary may be attached. However, the regulation also states that if the aggregate collection value is over $100, it is required that the basis and fair market value must be provided "for each item of property."

HLSI claimed that the information was sufficiently complete and the IRS could determine whether or not to commence an examination. However, the IRS noted, "aggregating basis and fair market values on the Form 8283, without providing the individual basis and date of acquisition of each contributed item enables taxpayers to effectively hide high-value artifacts among otherwise worthless ones and results in potential overvaluations going undetected."

The appraisals also did not fulfill substantial compliance doctrine requirements. Generally, the substantial compliance doctrine "should be interpreted narrowly" and should not be permitted to apply where there is an important failure to comply with the requirements.

The IRS stated, "The defects at issue here — basis, date of acquisition, fair market value — are neither unimportant nor confusingly stated in the regulations or statutes."

The 431 Hebrew scripts in the 2011 Form 8283 had values ranging from $1,000 to $295,000. On the 2012 Form 8283, millions of dollars of manuscripts were grouped together, including a Dead Sea Scroll valued at $1.3 million and 42 Hebrew scrolls with a zero value. Therefore, the omissions were deemed significant by the IRS and the substantial compliance doctrine was not applicable.

In addition, appraisers Michael Thompson and Carol Sandberg were involved in determining the value of some of the 2012 items. They signed the valuation determination in the appraisal, but the IRS Form regulation states, "Where one or more appraisers contribute to a single appraisal, all must sign the appraisal summary." Appraisers Thompson and Sandberg failed to sign the appraisal summary.

HLSI also claimed a reasonable cause defense because it relied on accounting firm Grant Thornton. Reliance on a CPA is a good faith defense if the taxpayer reasonably believes a CPA is competent, the taxpayer provides the necessary and accurate information to the CPA and the taxpayer relies in good faith on the CPA. While HLSI relied on Grant Thornton to review the work, the CPA firm did not prepare IRS Forms 8283 or advise specifically on the charitable deduction. Therefore, this did not constitute reliance on "advice" of the tax professional.

HLSI also created spreadsheets in 2015 with additional information on acquisition dates, basis and fair market value for the 1200 items. However, there were discrepancies between the two cash flow spreadsheets and neither spreadsheet had been provided to the appraisers at the time the returns were filed in 2011 and 2012.

Editor's Note: This case involves a motion for partial summary judgment on the deductions. However, this eventually will be a landmark case on the appropriate requirements for IRS Form 8283 when there is a deduction for a collection of items. The IRS has clearly outlined its position that all appraisers must sign Form 8283. There must be a detailed supplemental schedule with the dates of acquisition, basis and value for all items in a collection with an aggregate value over $100. Because the date of acquisition, basis and fair market value of each item is a significant factor in the charitable deduction, there will not be a substantial compliance deduction without these specific items.

Five Year Portability Election Window

In Rev. Proc. 2022-32, 2022-30 IRB 1, the IRS published a welcome enhancement to the grace period for taxpayers to claim the deceased spouse applicable exclusion amount.

Section 2010(c) allows the estate of a surviving spouse to benefit from a portability election made by the executor of the deceased spouse. The unused exemption of the deceased spouse may be applied under the "portability" election. The deceased spousal unused exclusion (DSUE) may increase the available applicable exclusion amount for the surviving spouse to potentially double the indexed amount on the year of demise.

Rev. Proc. 2017-34 specified a two-year time period for making a portability election for individuals who pass away after December 31, 2010, provided that the estate was not required by Section 6018(a) to file an estate tax return. Because a number of estates had not complied with the filing requirement within two years of the death of the first spouse, the IRS received numerous requests for private letter rulings to obtain an extension of time to file. Because most of these ruling requests are for estates of decedents who passed away within the previous five years, the IRS determined that it would extend the portability election date for most individuals to the fifth anniversary of decedent's date of death.

The new simplified filing method has several requirements. There must be a surviving spouse of the decedent who passed away after December 31, 2010. The decedent must be a citizen or resident of the United States and the executor must not be required to file an estate tax return under Section 6018(a), based upon the value of the gross estate.

If an estate is required to file a return on under Section 6018(a), then the simplified procedure does not apply. However, the executor of a qualifying estate may file IRS Form 706 under the provisions of Reg. 20.2010-2(a)(7). The top section of Form 706 must state "FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A)."

If an executor of the decedent is subsequently determined to be subject to the Section 6018(a) filing requirement, then this five-year period is not applicable. In some circumstances, an executor may wish to file a protective claim for credit or refund of tax if the portability election has not yet been made.

The IRS offered an example. Spouse one (S1) is survived by Surviving Spouse (S2) and S1 passes away with a nontaxable estate on January 1, 2018. S2 passes away on January 29, 2021 with a taxable estate of $17 million. S2's executor claims an applicable exclusion amount of $11.7 million and pays the estate tax.

Subsequently, on December 1, 2022, the executor for S1 files a proper IRS Form 706 and reports a DSUE of $11.18 million. The required statement is included at the top of IRS Form 706. Because this is a valid portability election, the executor of S2 may file a claim for refund of tax by October 29, 2024. So long as IRS Form 843, Claim for Refund and Request for Abatement is filed by that date, the IRS may process the claim for the refund.

Applicable Federal Rate of 3.8% for August - Rev. Rul. 2022-14; 2022-32 IRB 1 (15 July 2022)

The IRS has announced the Applicable Federal Rate (AFR) for August of 2022. The AFR under Section 7520 for the month of August is 3.8%. The rates for July of 3.6% or June of 3.6% 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 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.