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Monday December 18, 2017

Washington News

Washington Hotline

Tax Professionals and IRS Refund Delays

In the middle of the peak IRS tax filing season, the Service published suggestions for selecting a qualified tax preparer. It also explained why many tax refunds are delayed this year.

In IR 2017-48 the Service offered tax tips on selecting your tax preparer. Professional tax preparers are expected to file 75 million of the anticipated 150 million tax returns this year. Tax tips on selecting your preparer are available at www.irs.gov/chooseataxpro.

1. Ethical – Be careful to select a qualified preparer. Your tax preparer should have a good reputation in the community. You will be releasing your income, investments, assets and Social Security number to this person.

2. Your Tax Review – When you review your return, your tax preparer should explain the basic tax provisions. You must be able to review the return and ask questions before signing it.

3. Preparer Signatures – Your paid tax preparer is required to sign the return. He or she must also include a Preparer Tax Information Number (PTIN).

4. Refunds – Do not sign a blank tax return. A tax preparer may fill out the return and direct the refund to his or her personal checking account. You should check that your bank account is properly listed so that you receive your tax refund.

The IRS also reported refund delays. For the week of February 24, there was an 11% decrease in refunds issued compared with last year.

Because Congress mandated no refunds before February 15 for taxpayers claiming the Earned Income Tax Credit or Additional Child Tax Credit, many taxpayers are waiting to file. Mark Steber is the principal tax officer for a major tax filing service. He stated, "It has certainly been a slower start to tax season. Everybody is down. You don't get your refund as fast, so taxpayers do not come in to file."

Editor's Note: Because many taxpayers know that their refund is delayed until March, they are choosing to file later this year. It is now likely that March and April will be a very busy time for both tax preparers and the IRS. If you qualify for a refund, it is best to proceed to file as promptly as possible.

Medical Reform Bill This Week?


House of Representative Members and their staffers are working diligently through the weekend to make final changes to a comprehensive bill that reforms the Affordable Care Act. They are hoping to mark up a comprehensive medical reform bill in the House Energy and Commerce Committee the week of March 6.

While the House medical bill will not be released until next week, several major provisions in a draft bill were widely reported by major media outlets on February 24.

The draft bill repealed the "Cadillac tax" on high-cost healthcare plans. It also eliminated the medical device tax, the individual mandate and the corporate mandate.

Under the proposed plan, individuals will qualify for healthcare credits. These credits may be used to purchase healthcare insurance. It is expected that the credits will be adjusted so that lower-income persons have larger credits.

The actual bill will include significant changes from the initial draft. House Ways and Means Chairman Kevin Brady (R-TX) has been working daily on the latest drafts. Brady stated, "This is a continuous loop. We are updating our drafts on almost a daily basis. It is a little like turning a Rubik's Cube."

Editor's Note: The key to a successful bill will be scoring by the Joint Committee on Taxation (JCT). All bill drafts are currently being submitted to JCT to have scoring done on the various provisions. Because the bill involves billions of dollars in potential costs, Chairman Brady must also find replacement revenue for the repealed taxes. When the actual bill is submitted to the House Energy and Commerce Committee, there will be a much clearer picture. Because healthcare represents about one sixth of the U.S. economy, any new medical bill will have substantial impact on every American.

Airplane Donation Grounded


In Joe Alfred Izen Jr. v. Commissioner; 148 T.C. No. 5; No. 28358-12 (1 Mar 2017), the Tax Court denied a $338,080 charitable deduction for the gift of a Hawker-Siddley DH125-400A jet to the Houston Aeronautical Society (Society). The denial was due to the lack of a contemporaneous written acknowledgement (CWA) as required by Sec. 170(f)(12).

Joe Alfred Izen, Jr. and On Point Investments LLP (On Point) each purchased a 50% undivided interest in the jet during December of 2007. Both parties paid $21,000 for their respective interest. The jet was in storage from 2007 to 2010. On December 31, 2010, Izen and On Point gave the aircraft to the Society.

The IRS audited the 2009 and 2010 returns of Izen and assessed deficiencies and penalties. On April 14, 2016, Izen filed IRS Form 1040X and attempted to amend his 2010 tax returns. He claimed a charitable deduction for the aircraft gift in the amount of $338,080.

Izen attempted to comply with the Sec. 170(f)(12)(B) substantiation requirements for gift of a vehicle with four documents. These included a letter from the Society to Philippe Tanguy, the representative of On Point, an IRS Form 8283 signed by the Society on April 13, 2016, an "Aircraft Donation Agreement" dated December 31, 2010 and signed by Society President Drew Coats and an appraisal by Winston McKenzie with an effective valuation date of December 30, 2010 and an estimated value of $338,080.

The Court noted that for a vehicle that is not sold by the nonprofit but is intended to be retained there are specific requirements for the CWA. The CWA must include the name and taxpayer identification number, the vehicle identification number, a certification of intended use, a statement that the vehicle is not going to be transferred before completion of the planned use, a statement that no goods or services were provided in favor of the gift and a good-faith estimate of the value of the vehicle.

Izen claimed that the documents were sufficient to substantially comply with the requirements. The Court noted that the contemporaneous written acknowledgement may be satisfied by Copy B of IRS Form 1098-C. However, the Society did not provide this form. A second method of compliance is a signed letter to the taxpayer. The letter submitted was to the representative of the partnership and not to Izen and therefore didn't qualify. Finally, the donation agreement did not include several of the required items of information. There was no taxpayer ID, it was not signed by the donor and there was no certification of intended use. Therefore the deduction was denied.

Editor's Note: When vehicles are sold, the charity reports the deduction value on Form 1098-C. If the vehicle is intended to be retained by the charity and used for its exempt purpose, then the appropriate documentation with all of the required items must be completed. The appropriate contemporaneous written acknowledgement and the appraisal with the IRS Form 8283 signed by the representative of the charity must be received by the donor prior to filing the return and claiming the charitable deduction.

Applicable Federal Rate of 2.4% for March -- Rev. Rul. 2017-7; 2017-10 IRB 1 (17 Feb 2017)


The IRS has announced the Applicable Federal Rate (AFR) for March of 2017. The AFR under Section 7520 for the month of March will be 2.4%. The rates for February of 2.6% or January of 2.4% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published March 3, 2017
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