April 13, 2022
Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may receive Letter 6501, Qualified Opportunity Fund (QOF) Investment Standard. This letter lets them know that information needed to support the annual certification of investment standard is missing, invalid or the calculation isn't supported by the amounts reported. If they intend to maintain their certification as a QOF, they may need to take additional action to meet the annual self-certification of the investment standard requirement.
To correct the annual maintenance certification of the investment standard, these taxpayers should file an amended return or an administrative adjustment request (AAR). If an entity that receives the letter fails to act, the IRS may refer its tax account for examination. Investors who made an election to defer tax on eligible gains invested in that entity may also be subject to examination.
Additionally, taxpayers may receive Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments, or Letter 6503, Annual Reporting of Qualified Opportunity Fund (QOF) Investments. These letters notify them that they may not have properly followed the instructions for Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, since it appears that information is missing, invalid or that they may not have properly followed the requirements to maintain their qualifying investment in a QOF with the filing of the form.
Opportunity zones allow taxpayers to defer capital gains by investing in entities set up to operate in designated economically underperforming areas. Failure to maintain opportunity zone status could cause early recognition of capital gains otherwise deferred until 2026.
IRS Puts Questionable Opportunity Funds on Notice - Jonathan Curry, Tax Notes ($):
The IRS’s handling of QOF noncompliance was dinged by the Treasury Inspector General for Tax Administration earlier this year. QOFs follow an annual self-certification process to determine eligibility for the Opportunity Zone program, and in its February report, TIGTA contended that while the IRS had provided QOFs and investors with adequate avenues for reporting information, the agency didn’t have effective means for addressing noncompliance.
That TIGTA report also found evidence that a substantial number of QOFs were reporting investments erroneously, as well as significant evidence of “obvious and blatant inaccuracies” in QOF investors’ reporting.
Related: Qualified Opportunity Zone Fund Guidance.
Myth 6: Calling a tax professional will provide a better refund date
Contacting a tax professional will not speed up a refund. Tax professionals cannot move up a refund date nor do they have access to any "special" information that will provide a more accurate refund date. The Where's My Refund? tool provides taxpayers with the same accurate and timely information that a tax professional, or even an IRS telephone assistor can access.
Fact check: true.
The Biden Budget: Build Back Better Again? - David Stewart, Jonathan Curry, and Rohit Kumar, Tax Notes Opinions. " It's essentially a wish list of proposals. While it literally never is enacted as written, it does actually serve as a useful template for establishing what the administration is for and what policies they want to pursue. It's sort of a sense of priorities."
Acute IRS challenges had chronic origins, GAO reports - Paul Bonner, The Tax Adviser. "And while the issues uncovered in the GAO's study mostly stemmed from the COVID-19 pandemic's continuing effects, they are likely to persist unless the IRS rethinks and refocuses some of its practices, the GAO said."
Treasury Inspector General Says FATCA is a Big Fat Flop ….So Far - Virginia LaTorre Jeker, Virginia-US Tax Talk. "The Treasury Inspector General for Tax Administration (TIGTA) just issued a damning report on FATCA: Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act (Report # 2022-30-019 4/7/22), available here."
IRS May Have Missed $3.3B In FATCA Penalties, TIGTA Says - Theresa Schliep, Law360 Tax Authority ($):
"The IRS had not assessed any [Section] 6038D(d) penalties under Campaign 896 because the LB&I Division was slow to identify nonfilers as a part of its campaign, although the IRS indicates it is currently taking affirmative steps to identify nonfilers," the report said. "This had left a significant gap in FATCA enforcement."
So a big nothing for tax compliance - but a big deal for American citizens living abroad, who struggle to engage in normal finance because of the burden FATCA places on foreign financial institutions dealing with U.S. persons. Americansabroad.org explains:
FATCA complicates US tax compliancy (confusion between the FBAR FINcen Form 114 and FATCA Form 8938), increasing the risk of filing errors and subjects individuals to steep willful tax evasion penalties for simple reporting errors.
FATCA is causing some foreign financial institutions to turn away American clients; refusing them services, closing their accounts or charging them higher fees to service their accounts.
A heavy burden on otherwise-compliant taxpayers with no effect on tax cheats. Well done.
Related: Eide Bailly Global Mobility Services.
IRS Gets Low Marks for FATCA Compliance Efforts - Amanda Athanasiou, Tax Analysts ($). "By the close of 2020, FATCA should have yielded $8.7 billion in revenue, according to congressional Joint Committee on Taxation estimates from 2010, the Treasury Inspector General for Tax Administration said in a report released April 12. Despite implementation expenditures of $574 million, the IRS remains unable to demonstrate that compliance activity has resulted in revenue gains above $14 million in penalties, the report says."
Texas Co. Misidentified Nurses As Contractors, Tax Court Says - Emlyn Cameron, Law360 Tax Authority ($): "The Tax Court said the nurses were employees because the record showed, among other things, that the company had significant control over the nurses, hired them on a permanent basis and the nurses had no meaningful capital investment in the job."
From the Tax Court opinion, which involves a nursing agency providing in-home caregivers:
After considering the record, weighing the above Fifth Circuit factors, and being cognizant that doubtful questions should be resolved in favor of employment, the relationship between petitioner and the nurses during the periods at issue is best characterized as that of common law employment. Petitioner possessed and exercised significant control over the nurses, including hiring and firing, setting hours and work schedules, assigning patients, ensuring attendance at required training, mandating how the nurses reported and potentially performed their work in accordance with a patient's plan of care, and supervising the nurses. The nurses were normally hired on a permanent basis and were integral to petitioner's business. They had no meaningful capital investment in the job as petitioner (and others) provided all necessary supplies and equipment. The nurses also bore no risk of loss and had no opportunity for profit outside of their wages and occasional incentive or performance bonuses, which the record does not show was common or substantial. Thus, the nurses cannot be said to have been in business for themselves as a matter of economic reality during the periods at issue.
The agency now is on the hook for over $1 million in back taxes over three years, plus penalties into six figures.
The moral? Misclassifying employees as contractors can be costly.
Bozo Tax Tip #3: Ignore Cryptocurrency! - Russ Fox, Taxable Talk. "It’s clear the IRS means business. Over the last few years the IRS has successfully enforced summonses against several US-based cryptocurrency exchanges. To date, most IRS enforcement efforts in cryptocurrency have been going toward the low-hanging fruit: individuals who have not reported their cryptocurrency. I do expect the IRS to start looking at auditing large users of crypto."
Maximizing your itemized tax deductions - Kay Bell, Don't Mess With Taxes. "If you're close or just slightly over your percentage threshold, make sure you don't miss any allowable medical costs that could help increase your deduction here."
Tax Year 2021 Changes to the Child and Dependent Care Credit Provide Additional Relief to Working Taxpayers Caring for Children and Other Dependents - NTA Blog. "For 2021, the credit for child and dependent care expenses is a refundable credit for taxpayers and their spouses (if married filing jointly), having a principal place of abode in the United States for more than half of 2021. A refundable tax credit directly reduces taxes dollar for dollar, and results in a refund when the amount of the credit exceeds a taxpayer’s tax liability. Taxpayers paying for the care of a qualifying person such as a child, elderly parent, or disabled family member so that they may work or look for work may be eligible for this significant tax break. The credit is designed specifically for working people to help offset the costs associated with providing care."
Last-minute tips as the April 18 tax deadline looms - Michelle Singletary, Washington Post ($). "For 2021 only, more childless workers and couples can qualify for the Earned Income Tax Credit (EITC). The American Rescue Plan Act temporarily increased the maximum credit for the EITC to $1,502, up from $538 for filers without qualifying children who are at least 19 with earned income below $21,430 or $27,380 for spouses filing a joint return. The expansion also includes a special exception for 18-year-olds who were formerly in foster care or are experiencing homelessness."
Your tax department can contribute to your company’s sustainability efforts - Mark Rogers, Eide Bailly. "A 2014 Private Letter Ruling concluded that a taxpayer’s zip type partitions are considered personal property for tax purposes, affording the taxpayer to apply a 5-year recovery period to the asset that accelerates the asset’s depreciation deduction – and potentially for immediate bonus depreciation deductions."
When a taxpayer believes their personal information is being used to file fraudulent tax returns, they should submit a Form 14039, Identity Theft Affidavit , to the IRS. But in most cases, taxpayers do not need to complete this form. Only victims of tax-related identity theft should submit the Form 14039, and only if they haven't received certain letters from the IRS.
All taxpayers can request an Identity Protection Personal Identification Number (IP PIN) using the Get An Identity Protection PIN (IP PIN) tool on IRS.gov to protect themselves from becoming a victim of tax-related identity theft.
Bergen County Man Sentenced to Two Years in Prison for Filing Phony Tax Returns - US Department of Justice (Defendant name omitted):
From January 2020, through February 2020, Defendant and others conspired to utilize stolen personal identifying information (PII) to submit fraudulent tax returns in victims’ names, in order to obtain tax refunds without the victims’ knowledge or consent. A conspirator would obtain falsified Social Security cards, driver’s licenses, birth certificates and W-2s bearing the victims’ stolen PII and provide them to Defendant... who would use them to file tax returns at various tax preparation company branches posing as the victims.
ID theft still happens. Don't invite it. Sending tax information by unencrypted emails or pdf attachments invites trouble. Use encryption or secure portals to send that late K-1 or 1099 to the preparer.
That's not a word! A phrase that you will hear a lot if you celebrate National Scrabble Day today.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.