Happy Thanksgiving from MA/RI NATP!

This Charitable Contribution Deduction was a Bit Too Much for the IRS to Allow

William Delaney, EA
Westwood, MA

In March 2002, a partnership paid $2.95 million for a remainder interest in real property.  In August 2003, the partnership assigned (gifted) the remainder interest to a university (charitable contribution).  The assigned value of this transfer, i.e. the charitable contribution deduction, was slightly in excess of $33 million.  Quite a jump in value in an ownership period of approx. 17 months!  Naturally, the IRS was more than a bit curious. 
See RERI Holdings I, LLC, et. al. v. Comm., 149 T.C. 1 (7/3/17).

Now to Form 8283, the back-up for non-cash contributions.  The date and manner of acquisition (by purchase) of the donated property was disclosed, but the space for the donor’s cost was left blank.  Gee, why would you omit that?  Perhaps because of the tenfold difference between cost and claimed fair market value (just a guess on the part of your Editor; the case is silent).  And, what happens if you omit this kind of information?  Well, as it turns out, the Courts have looked at the regulations covering substantiation of charitable contributions and determined that the requirements are directory and not mandatory.  See Reg. 1.170A-13(c)(1)(i).  OK, so the taxpayer is off the hook if he has substantially complied (a “little” omission isn’t fatal)?

Well, as it happens, one of the substantiation requirements in the regulations is that the cost basis must be disclosed.  Reg. 1.170A-13(c)(4)(ii)(E).  So, there it is and the Court opined that “…disclosure of its cost or other basis in the contributed property would have alerted R (the IRS) to a potential overvaluation of that property, omission of that information prevented the Form 8283 from achieving its intended purpose [emphasis added], the omission thus cannot be excused on the grounds of substantial compliance.”

As a result, the entire charitable deduction amount was denied (we all know that this is a simple pass or fail test).  But, that was not all…read on.

The Court determined that the fair market value of the transferred interest was $3,463,886.  That triggered the substantial valuation misstatement (if the claimed value is greater than 150% of the actual value) of Sec. 6662(e)(1)(A) and the 40% of assessed tax penalty of Sec. 6662(h)(2).  And, of course, this dumped the taxpayer into the definition of negligence and intentional disregard – see Sec. 6662(c).

The case covers 41 pages of mostly technical reading about how appraisals are determined and how different appraisers arrive at differing results.  The take on this case is quite simple.  If you intent to selectively omit information from an income tax return, be certain that you know what you are doing.  This “little” omission opened the floodgates for significant tax penalties and, essentially, knocked the taxpayer out of the box regarding an appeal of the IRS determination, since the tax return filing was not substantially complete.  The only reason that the Court computed the fair market value of the gift was to see how many penalty provisions would apply and to calculate the amount(s) of the penalties.  The taxpayer’s deduction was NOT reduced to the Court’s determination of fair market value; the taxpayer’s deduction was reduced to zero.

Annual E-file Production Shutdown and Switchover is November 18

That will be the last day to e-file Rhode Island returns for tax year 2016

PROVIDENCE, R.I. – The Rhode Island Division of Taxation’s annual electronic filing shutdown and switchover will occur on November 18.

Thus, individuals and businesses seeking to e-file their Rhode Island returns for tax year 2016 must do so on or before Saturday, November 18, 2017. After that date, returns for tax year 2016
must be filed on paper.

Each year, the Division temporarily closes its system to e-filing in order to prepare the system
for the upcoming filing season. The Internal Revenue Service, and many other states, follow the
same practice. This year, the Rhode Island modernized e-file (MeF) shutdown and cutover will
occur on Saturday, November 18, 2017, the same date as the IRS’s.

Transmission schedule

To ensure that all e-filed Rhode Island returns for tax year 2016 on Form RI-1040 (resident and
nonresident), Form RI-1120C, Form RI-1120S, and Form RI-1065 are processed in a timely
manner, transmitters must abide by the schedule.

All e-filed Rhode Island returns for tax year 2016 will have a transmission deadline of 10:00 p.m.
Eastern Time on Saturday, November 18, 2017. To avoid any last-minute logjams, preparers
and taxpayers should get their electronic submissions to their transmitters well in advance of the
deadline.

For e-file purposes, Rhode Island accepts only currentyear returns.

Thus, November 18, 2017, is the deadline for e-filing Rhode Island personal and business tax returns for the 2016 tax year.

When the switchover is complete and the Division of Taxation reopens to e-filing, scheduled for January 2018, it will be only for returns for the 2017 tax year.

Fiscal-year filers

How the annual e-file production shutdown will affect fiscal-year filers depends on the filer’s deadline. For example, a fiscal-year filer with a due date of November 30, 2017, can still e-file, but only if willing to file early, by the November 18, 2017, e-file shutdown. Otherwise, the entity will have to file on paper.

Monthly Conference Call with the IRS NYA IMRS - Novermber 15th, 2017

The next NYA IMRS Monthly Discussion will be on Wednesday, November 15, 2017 at 10:00 a.m.

The meeting will take place via WebEx technology.

On the date and time of the meeting, please click on the "Join the meeting” link provided below.

You will have the choice to call into a designated telephone number or use your computer’s mic and speakers for audio once you join the meeting. Follow the instructions below if you are not able to access the WebEx system.

When it's time, join the meeting from here:
Join the meeting
When: Wednesday, November 15, 2017, 10:00 am (30 mins), Eastern Standard Time (New York, GMT-05:00).
Access Information
Meeting Number:
995 375 987
Password:
(This meeting does not require a password.)
Audio Connection
855-865-6792 (IRS WebEx External)
304-579-6720 (Alternate Number)

Access Code:
995 375 987

For non-IRS personnel you will need to download the CISCO WebEx Client Application.  We recommend you go to www.webex.com and download the WebEx Client Application.

WARNING! THE SYSTEM IS FOR AUTHORIZED USE ONLY!
Do not share PII/SBU data.

Carl F. Young
Stakeholder Liaison
Internal Revenue Service
Phone:  617-316-2319
email:    carl.f.young@irs.gov

Annual Filing Season Program Webinar from IRS - November 16th, 2017

The IRS wants you to have the information you need when you need it. The attached Resources @ Your Fingertips document contains information about the Annual Filing Season Program

Information relating to this topic will provide guidance, hot topics and updates for you and your clients:

What is the Annual Filing Season Program?
Review the general requirements
Webinar – November 16, 2017


IMPORTANT: Please sign up to receive other important updates through Subscribe to IRS Newswire and Subscribe to IRS Tax Tips to make sure you receive the daily messages.

If you have any questions about IRS policies, practices and procedures, please contact me. If you email, please don’t send any personally identifiable information.

Please share this information with your members, staff, colleagues and anyone who may benefit from it.

The IRS is interested to know how you share this information and the feedback you receive so we can adjust and enhance our resource tools to better fit your needs.

Please Contact to register for the webinar:

Mary Hanson
Senior Stakeholder Liaison
Communications & Liaison

Internal Revenue Service
Andover, Massachusetts

phone 978 783-8459
e-fax 1-877-477-8178
Mary.S.Hanson@irs.gov

Employers May Once Again Reimburse Employees for Their Private Health Care Plan Insurance Premiums

William Delaney, EA
Westwood, MA

This was a big deal in the days before passage of the Affordable Care Act.  The small employer did not need to have/offer a group health plan.  An employee could have his/her own plan and be reimbursed for the premiums.  However, the ACA put a stop to this tax planning, but now comes the 21st Century Cures Act, a giant compendium of all sorts of so-called great things for big pharma and others, which also just happens to include something nice for small employers and their employees.  President Obama signed it into law on Dec. 13, 2016.  I had intended to summarize this new Act, but when I saw that the House Committee explanation runs to 966 pages, your Editor quickly lost his enthusiasm!

What we need to know is that this stuff is buried within the act, and it is good stuff…

The Act allows a small employer to avoid ACA penalties associated with a reimbursement scheme by establishing a “qualified small employer health reimbursement arrangement.”   We now must learn a new acronym – QSEHRA!

Requirements…

Employer with fewer than 50 employees.
Must be offered to ALL “eligible” employees (see below).
Must be funded solely by employer contributions.
Must be offered on the same terms to each employee, BUT employee reimbursements may vary depending on variations in policy costs due to age rating or family size.

Who may be excluded from the definition of “eligible employee?”

Those with fewer than 90 days of service.
Those under the age of 25.
Part-time and seasonal employees (no regulatory guidance available)
Union employees unless collective bargaining agreement makes them eligible.
Non-resident aliens with no U.S. source income.

So, this is an Health Savings Plan, which allows employees to draw on the set-aside funds to reimburse health insurance premiums and out-of-pocket medical expenses.
It avoids the Sec. 4980H penalty (which has yet to be imposed, absent regulations).
The expenses must qualify under Sec. 213(d) and must be sufficiently documented.  Maximum amount of reimbursement per employee is $4,950; $10,000 for family coverage.  The reimbursement is not taxable unless the employee lacks “minimum essential coverage” under ACA.  Lack of such coverage means that the QSEHRA benefit is taxable income.  Also, these reimbursements work against the health insurance marketplace subsidy calculation.

Finally, while this plan is subject to certain ERISA provisions, it is NOT a group plan covered under COBRA.

Rhode Island Division of Taxation Launches Website For Tax Amnesty

Mailing begins, phone bank opens, in advance of amnesty, which starts December 1, 2017

PROVIDENCE, R.I. – The Rhode Island Division of Taxation today officially launched a special website for the state’s upcoming tax amnesty: www.TaxAmnesty.ri.gov.

In addition, the Division has begun the process of mailing amnesty-related paperwork, and officially opened a phone bank to field questions about amnesty from taxpayers, tax professionals, and others.

“Tax amnesty will run from December 1, 2017, through February 15, 2018. But we want to give taxpayers and their advisors plenty of time, well in advance, to learn more about amnesty, how it will work, and how it will apply to them,” said Rhode Island Tax Administrator Neena S. Savage.

WEBSITE

On the Division’s amnesty website, www.TaxAmnesty.ri.gov, taxpayers and tax professionals will be able to find the “Tax Amnesty Return” (the amnesty application form), along with answers to frequently asked questions (FAQs), amnesty posters, and other information.

MAILING

The Division of Taxation has begun the process of mailing more than 60,000 information packets to
taxpayers who, according to Division records, have an outstanding balance. Each packet will include a “Statement of Accounts” (an account statement, a bill), an “Amnesty Bill Coupon” (a payment coupon, attached to the Statement of Accounts), a blank “Tax Amnesty Return” (the amnesty application form), and a one-page summary of the amnesty in question-and-answer format.

CALL CENTER

Those with questions may call the Division’s amnesty phone bank (a call center), at (401) 574-8650, which is staffed from 8:30 a.m. to 3:30 p.m. business days. Or email: Tax.Amnesty@tax.ri.gov.

About amnesty: Tax amnesty is a unique opportunity for you to get a fresh start. Pay what you owe in
delinquent Rhode Island state taxes – no matter the type of tax. In exchange, the Division will waive
penalties and reduce, by 25 percent, the amount of interest normally charged. Any person, corporation, or other entity that is subject to Rhode Island tax is eligible for amnesty – no matter
where that person, corporation, or other entity is located. All Rhode Island state taxes are eligible –
including personal income tax, corporate income tax, sales tax, use tax, estate tax, unemployment
insurance tax, withholding tax, and other Rhode Island state taxes.

The amnesty applies to taxes due for any taxable period ended on or before December 31, 2016. The
Division begins accepting amnesty payments, amnesty tax returns, and related paperwork on December 1, 2017. Amnesty runs through February 15, 2018.

New for Massachusetts 2017 Tax Returns - 529 Plan Contribution Deduction

As reported earlier in the year, Chapter 62, Section 3A(a)(19) of the MA tax statute was amended to allow a deduction from MA Part A income for…

“…the purchase of an interest in, or the amount contributed in the taxable year to an account in, a prepaid tuition program or college savings program established by the commonwealtjh or an instrumentality or authority of the commonwealth…” (emphasis added).  According to the web site www.savingsfor college, the eligible funds are U Fund College Investment Plan and U Plan, both managed by Fidelity.

There is a deduction recapture provision if a distribution is NOT used to pay qualified higher education expenses (as defined in the federal Code), or for a reason other than the beneficiaries death, disability or receipt of a scholarship.

The deduction per year shall not exceed $1,000 for a single person or a married person filing separately, or $2,000 for married filing jointly.  Furthermore, the deduction is limited to taxable years beginning on or after January 1, 2017 through the tax year beginning on January 1, 2021.