Weekly Report from Washington, D.C.

During the week of August 20, the IRS released proposed regulations that limit charitable contributions made to avoid the state and local tax (SALT) deduction limit. In addition, new temporary rules were released clarifying that the six-year spread applies to Code Sec. 481(a) adjustments after terminated S corporation’s accounting method change. Further, the IRS introduced a new format for individual tax transcripts. Moreover, interim guidance and transition rules concerning UBTIs were released.

Treasury

Business Identity Theft. The Treasury Inspector General for Tax Administration (TIGTA) found that since its first business identity theft report in September 2015, the IRS had created 25 business identity theft filters and three dynamic selection lists to identify potential business identity theft returns. The IRS could take additional actions to further reduce refund losses associated with business identity theft, (Ref. No. 2018-40-061; TAXDAY, 2018/08/24, T.1).

Commissions. The IRS’s controls over nonenforcement commissions were not adequate in preventing the Service from accounting for all issued commissions, according to a report released by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA estimated that 2,996 IRS employees may have a commission that was not recorded in official IRS records, (Ref. No. 2018-IE-R005; TAXDAY, 2018/08/23, T.1).

Comments. The Financial Crimes Enforcement Network (FinCEN) requested comments on anti-money laundering programs, correspondent accounts and suspicious activity reporting by brokers and dealers, (TAXDAY, 2018/08/22, T.1).

Priority Guidance Plan. The Treasury and IRS released their fourth quarter update to the 2017-2018 Priority Guidance Plan. The 2017-2018 Priority Guidance Plan contains guidance projects spread over a twelve-month period from July 1, 2017, through June 30, 2018, (TAXDAY, 2018/08/20, T.1).

IRS

SALT. The IRS released proposed regulations that limit charitable contributions made to avoid state and local tax (SALT) deduction limit. An individual, estate, and trust generally must reduce the amount of any charitable contribution deduction by the amount of any SALT credit he or she receives or expects to receive for the transfer under proposed regulations. The rules would blunt attempts by state and local governments to get around the new SALT deduction dollar limits, (NPRM REG-112176-18; TAXDAY, 2018/08/24, I.1).

Art Advisory Panel. Information was shared regarding a closed meeting of the Art Advisory Panel that has been scheduled for September 13, 2018. The agenda would consist of the review and evaluation of the acceptability of fair market value appraisals of works of art involved in federal income, estate or gift tax returns, (TAXDAY, 2018/08/24, I.2).

Tax Tip. Taxpayers were advised to visit the updated IRS website to understand tax reform, (TAXDAY, 2018/08/24, I.3).

Adjustments. New temporary rules were released to clarify a six-year spread period for Code Sec. 481(a) adjustments after an eligible terminated S corporation changes from a cash to an accrual method of accounting. These rules apply if the corporation revokes its S corporation election during the two-year period beginning on December 22, 2017, (Rev. Proc. 2018-44; TAXDAY, 2018/08/23, I.1).

Tax Transcripts. The IRS has introduced a new format for individual tax transcripts; the new format will redact personally identifiable information from the Form 1040 series to better protect taxpayer data, (IR-2018-171; TAXDAY, 2018/08/23, I.2).

Tax Tip. Tax preparers were provided tips on client data encryption, (TAXDAY, 2018/08/23, I.3).

UBTI. Interim guidance and transition rules were released regarding the special rule requiring exempt organizations that have unrelated business taxable income from operating more than one unrelated business to calculate the unrelated business taxable income of each trade or business separately and without regard to the specific deduction of $1,000, (Notice 2018-67; TAXDAY, 2018/08/22, I.1).

Excessive Employee Compensation. The IRS provided guidance on what constituted a covered employee under Code Sec. 162(m). Taxpayers could rely on new guidance related to the limitation on the deduction for employee compensation in excess of $1 million. Apart from providing the definition of covered employee, the guidance addressed what constituted a binding contract under the grandfather rule and what constituted a material modification of a binding contract so that the grandfather rule no longer applied, (Notice 2018-68; TAXDAY, 2018/08/22, I.2).

Data Security. The IRS urged tax professionals to educate their employees about data security for protecting taxpayer data given the increase in tax-related identity theft. Scammers use stolen data from tax practitioners to create fraudulent returns that are harder to detect, (IR-2018-170; TAXDAY, 2018/08/22, I.3).

TAP Meeting. The Taxpayer Advocacy Panel Special Projects Committee meeting that was originally scheduled for Wednesday, September 12, 2018, was changed to Wednesday, September 19, 2018. The meeting would take place at 2:00 p.m., ET, via teleconference, (TAXDAY, 2018/08/22, I.4).

Comments. The IRS requested comments on various forms, regulations and procedures related to tax-exempt organizations, (TAXDAY, 2018/08/22, I.5).

Tax Tip. Tips were provided on natural disaster preparedness, (TAXDAY, 2018/08/22, I.6).

Tax Forum. The IRS reminded tax professionals that they could save $115 by registering by August 28, 2018, for the IRS Nationwide Tax Forum in Orlando. The forum is scheduled to take place September 11-13, 2018, (IR-2018-169; TAXDAY, 2018/08/21, I.1).

Comments. The IRS requested comments on various forms and reporting requirements of certain charitable contributions and for widely held fixed investment trusts, (TAXDAY, 2018/08/21, I.2).

Tax Tip. Tips were provided on stronger passwords for tax professionals, (TAXDAY, 2018/08/21, I.3).

Interest Rates. A listing of the average annual effective interest rates on new loans under the Farm Credit System has been issued by the IRS. The rates are used in computing the special use value of farm real property for which an election is made under Code Sec. 2032A. The rates may be used by estates that value farmland under Code Sec. 2032A as of a date in 2018, (Rev. Rul. 2018-22; TAXDAY, 2018/08/20, I.1).

Participation Certificate. Investors who purchased a Participation Certificate (a Freddie Mac investment vehicle consisting of pooled residential mortgage loans) are not taxed if they exchange their Participation Certificate for a substantially identical interest in a Uniform Mortgage-Backed Security, (Rev. Rul. 2018-24; TAXDAY, 2018/08/20, I.2).

Transition Tax. Taxpayers who elected under Code Sec. 965(h) to pay the transition tax in installments are not entitled to a refund of an excess installment payment, until there is an overpayment of the entire 2017 tax liability, including all installments of the deferred payment. The IRS’s offset refund bypass procedures will not apply if there is no overpayment, PMTA 2018-16; TAXDAY, 2018/08/20, I.3).

Withholding. The IRS has urged taxpayers working in the sharing economy to check their withholding to avoid an unexpected tax bill or penalty while filing their 2018 tax return. The Service also reminded employees to do a paycheck checkup by using the Withholding Calculator in order to make sure that they were having the right amount of tax taken out of their pay, (IR-2018-168; TAXDAY, 2018/08/20, I.4).

AFR. Various prescribed rates for federal income tax purposes for September 2018 have been provided by the IRS, (Rev. Rul. 2018-23; TAXDAY, 2018/08/20, I.5).

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CCHTaxGroup

All stories by: CCHTaxGroup