Another District Court Agrees Maximum FBAR Penalty Limited to $100,000

Yet another U.S. District Court has decided that the IRS must follow the terms of its own regulations and limit the maximum penalty for a willful violation of the FBAR rules to $100,000.  In the case of Wadhan v. United States, US DC Colorado, Case No. 1:17-cv-01287, the IRS was limited in the amount of penalty that could be assessed for the same reasons cited by the U.S. District Court for the Western District of Texas in United States v. Colliot.

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Utah Latest State to Adopt South Dakota Style Remote Seller Law

The latest state to act to force out of state sellers to collect sales tax is Utah.  In a special session, the Utah Legislature passed SB 2001 which conforms the state’s rules requiring out of state sellers to file with Utah with the provisions found in South Dakota’s law.

Utah’s triggers for filing by an out of state seller will conform to South Dakota’s, effective on January 1, 2019.  As well, the previous rule that allowed sellers who voluntarily collected Utah tax to retain 18% of the tax collected will be repealed effective on the same date.

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Regulations Modified to Allow Use of Forfeitures to Fund QMACs and QNECs

The IRS has published final regulations (TD 9835) that modify the requirements for qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) for employer retirement plans.  These regulations are adopted essentially unchanged from the proposed versions issued in January 2017.

These payments are used to deal with issues that arise when an employer initially runs the ADP and/or ACP tests for a retirement plan and discovers the plan does not comply with one or both tests for the plan year.

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Two States Find Their States' Statutes for Taxing Trusts Violate Due Process Clause

While most conversations since the Wayfair decision regarding state and local taxes have revolved around an expansion of a state’s ability to impose taxes, the high courts in two states have moved to reduce the state’s ability to impose taxes on income from trusts, finding that the state’s attempts to tax trust income are in violation of the U.S. Constitution.

The North Carolina Supreme Court in the case of Kimberley Rice Kaestner 1992 Family Trust v. Dep’t of Revenue, No. 307PA15-2 and the Minnesota Supreme Court in the case of Fielding v. Comm’r of Revenue, A17-1177 each ruled the respective states had inappropriately attempted to tax the income of the trusts in question.

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Willful Failure to Comply With FBAR Includes Mere Recklessness in IRS's View

An IRS Program Manager Technical Advice (PMTA 2018-013) the Chief Counsel’s office outlined its position on what constitutes willfulness for purposes of imposing the maximum penalty for FBAR reporting violations, as well as the standard of proof that must be established for the IRS to carry the issue of applying the penalty.

Under 31 USC §5321(a)(5)(B) the maximum penalty for an FBAR violation is $10,000 unless the violation is willful.  In that case, 31 USC §5321(a)(5)(C) increases the maximum penalty to the greater of $100,000 or 50% of the balance in the account.

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PMTA Explains Effect on Employee Wages of Payroll Tax Exam Treating Fringe Benefit as Taxable

In Program Manager Technical Advice 2018-015 the IRS analyzes how to handle the implications to the employee of an examination of an employer where it is determined the employer failed to properly classify fringe benefits received by an individual as taxable wages.  Specifically, the guidance looks at whether the employer’s payment of the federal income taxes and FICA not withheld creates income for the employee.

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Proposed Regulations Issued for Preparer's Head of Household Due Diligence Following TCJA

The IRS has issued proposed regulations (REG-103474-18) to implement the Tax Cuts and Jobs Act changes made to IRC §6695(g), expanding the preparer due diligence rules and penalty to cover qualification for head of household filing status.

Congress in recently years has decided that having preparers be required to do more work inquiring about taxpayer’s qualifications for various tax benefits has proven useful, so they have expanded the due diligence from being limited to the earned income tax credit, to cover additional items.

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Contributor Information Will Not Be Required from Non-§501(c)(3) Organizations on Form 990 Schedule B Beginning on 2018 Returns

In Revenue Procedure 2018-38 the IRS announced that tax exempt organizations, other than §501(c)(3) organizations, will no longer be required be required to report the names and addresses of certain donors on Schedule B of Form 990, but will be required to have such information available should the IRS request it.  The new rules will take effect for taxable years ending on or after December 31, 2018.

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Unlike Some Feared, TCJA Did Not Block a Trust's Ability to Deduct Expenses Incurred Due to Property Being Held in Trust

In the Tax Cuts and Jobs Act (TCJA), Congress eliminated the ability of individuals to claim miscellaneous itemized deductions beginning with their 2018 income tax returns.  In Notice 2018-61 the IRS explains how this rule will impact trusts and estates whose returns are computed in a manner similar to that of individuals, but with some modifications found at IRC §67(e).

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North Dakota to Require Out of State Sellers to Collect Sales Tax Beginning October 1, 2018

North Dakota, the first state to post an announcement that it planned to force out of state sellers to collect sales tax on the afternoon of the decision in South Dakota v. Wayfair has now officially announced the date for the start of collections.  In a release dated July 11, State Tax Commissioner Ryan Rauschenberger indicated that the sellers will be required to collect beginning on October 1, 2018.

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South Carolina Will Follow South Dakota Minimum Sales/Transactions Levels to Require Collection of Tax

South Carolina has joined the growing list of states that have announced they plan to begin requiring out of state sellers to collect and remit sales taxes following the Supreme Court’s decision in the case of South Dakota v. Wayfair. In a July 9 letter to members of the General Assembly, the South Carolina Department of Revenue Director Hartley Powell indicated South Carolina was moving forward to force out of state vendors to collect and remit the sales taxes imposed by the state.

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Wisconsin Implementing South Dakota Out of State Tax Collection Trigger by Administrative Rule

Following up on an earlier memorandum and answer from the governor’s office that Wisconsin aimed to begin expanded out of state seller sales tax collection October 1, 2018, the Wisconsin Department of Revenue has announced in a July 5 release that the minimum sales level at which it will force collection will be the same levels as those Justice Kennedy commented favorably on in the case of South Dakota v. Wayfair.

This notice was followed up by a formal Statement of Scope (SS 079-18) which provided official notice that that Wisconsin Department of Revenue was drafting rules to implement this decision.  This would have the effect of adding the South Dakota trigger amounts to Wisconsin law by an administrative rule rather than by an act of the state legislature.

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IRS Updates Data Security Guidance for Tax Professionals

The IRS has again cautioned tax professional to take steps to protect taxpayer date in News Release IR-2018-147, Tax Security 101 – IRS, Security Summit partners launch new awareness campaign; Urge tax professionals to step up protections for client data.  The release cautions that “[d]ata thefts at tax practitioners’ offices continue to rise and result in fraudulent tax returns that can be especially difficult for the IRS and states to detect.”  As well, the IRS modifies its guidance to take into some of the latest thinking in the technology security world.

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IRS Indicates Agency Accepts Back Door Roth IRA Contribution Technique

Many CPAs are aware of the “backdoor” Roth IRA technique.  But many have also wondered about whether the IRS might challenge this technique given that it, first, has gained a name that sounds like a “cheat” and, second, it is clearly trying to work around the contribution limits Congress has left in the law even after removing the income limits on converting a regular IRA to a Roth IRA.  But now we have at least an unofficial blessing of the technique from an IRS employee on an IRS sponsored broadcast.

Tax Analysts reported in the July 11, 2018 edition of Tax Notes Today that Donald Kieffer Jr., tax law specialist (employee plans rulings and agreements), IRS Tax-Exempt and Government Entities Division made favorable comments about the technique in a Tax Talk Today webcast broadcast on June 10.

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IRS Reiterates Its Position on Deducting Prepaid Property Taxes

The battle lines are being drawn between the IRS and various states upset about the $10,000 limit on state and local taxes.  The most recent evidence of this is found in an IRS Information Letter to New Jersey’s Attorney General (INFO 2018-009). 

This letter deals with a planning option pushed by some states for their residents at the end of 2017, allowing for the prepayment of 2018 property taxes before the new $10,000 deduction limit came into the law for 2018 returns.  The IRS issued a news release (IR 2017-20) on December 27, 2017 that indicated the IRS’s position, limiting any deduction only to taxes actually assessed before that date.

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Louisiana Working to Come Up With Wayfair Decision Compliant System for January 1, 2019 Rollout

A state with a relatively complicated sales tax system, Louisiana, has announced that it plans to come up with a mechanism that it feels meets the “suggestions” laid out in the majority opinion in South Dakota v. WayfairThe Advocate and various other sources reported that Louisiana Department of Revenue Secretary Kimberly Robinson has set a January 1, 2019 date to have the program in place and begin requiring out of state sellers to collect taxes.[1]

The story on The Advocate website noted that although Louisiana already has a simplified flat rate program in place for catalog sellers (using a flat 9% rate), the state plans to require internet vendors to collect a variable amount based on the many and varied local tax rates charged in the state, using the delivery zip code to determine the tax to be imposed.

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Alabama to Start Enforcing Economic Nexus Rules For Out of State Sellers on October 1, 2018

The announcements keep coming from the states following the Wayfair decision. Not surprisingly, the Alabama Department of Revenue has announced that it will begin enforcing its economic nexus rule for collection of sales taxes on October 1. (ADOR Announces Sales and Use Tax Guidance for Online Sellers, Alabama Department of Revenue Website, July 3, 2018)

Alabama’s economic nexus rule is a bit different from South Dakota’s, being based solely on total revenue from sales into Alabama and not having a transaction-based trigger as well. The Alabama sales level is $250,000 annually to triggera tax collection requirement.  As well, Alabama is not a full member of the Streamlined Sales and Use Tax Agreement (SSUTA).  Instead, Alabama has implemented its own Simplified Seller’s Use Tax Program (SSUT).

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Preparer Penalty Normally Cannot Be Assessed Against Equity Holder of Employer of Misbehaving Preparer

In Chief Counsel Email 201825028 the document addresses the question of how far afield the IRS may go in asserting a preparer penalty under IRC §6694(b).  In this case, the employee was asking whether an individual who is a shareholder of an S corporation that was involved in the preparation of a return could be assessed the penalty personally.

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Wisconsin Indicates Plans to Begin Requiring Remote Sellers to Collect Sales Tax on October 1, 2018

Another state has been heard from in the aftermath of the Supreme Court’s decision in Wayfair v. North Dakota.  Wisconsin’s Legislative Fiscal Bureau has published a memorandum issued to the members of the Wisconsin Legislature (Memorandum: South Dakota v. Wayfair, Inc. - Sales and Use Tax Collections on Remote Sales) that implies that Wisconsin’s Department of Revenue is aiming for an October 1, 2018 start date for collecting sales tax from remote sellers.

Tax Analysts, in their story in State Tax Today covering this memorandum, reported that Wisconsin Governor Scott Walker’s press secretary, Amy Hasenberg, confirmed the October 1 beginning date for the state to start requiring out of state sellers to collect and remit the tax.

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IRS Announces Five LB&I Compliance Campaigns

The IRS Large Business & International Division announced on July 2, 2018 five compliance campaigns (IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns, IRS Website).  The campaigns announced are in the areas of:

  • Restoration of the Sequestered AMT Credit Carryforward

  • S Corporation Distributions

  • Virtual Currency

  • Repatriation via Foreign Triangular Reorganizations

  • Section 965 Transition Tax

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