• Inflation-adjusted 2018 figures for various civil penalties

    Inflation-adjusted 2018 figures for various civil penalties

    Failure to file tax return. For 2018, the minimum penalty under Code Sec. 6651(a) for failure to timely file a tax return is $215 (up from $210 for 2017).

    Failure to file certain information returns, registration statements, etc. For 2018, the following penalty amounts under Code Sec. 6652 apply.

    (1) For failure to file an annual return required under Code Sec. 6033(a)(1) (for exempt organizations) or Code Sec. 6012(a)(6) (for political organizations):

    (a) for an organization under Code Sec. 6652(c)(1)(A), $20 per day (same as for 2017), subject to a $10,000 maximum (same as for 2017);

    (b) for an organization with gross receipts exceeding $1,048,500 (up from $1,028,500 for 2017): $100 per day (same as for 2017) subject to a $52,000 maximum (same as for 2017); for managers under Code Sec. 6652(c)(1)(B), $10 per day (same as for 2017) subject to a $5,000 maximum (same as for 2017); for public inspection of annual returns and reports under Code Sec. 6652(c)(1)(C), $20 per day (same as for 2017) subject to a $10,000 maximum (same as for 2017); and for public inspection of applications for exemption and notice of status under Code Sec. 6652(c)(1)(D), $20 per day (same as for 2017) with no maximum (same as for 2017).

    (2) For failure to file a return required under Code Sec. 6034 (for certain trusts) or Code Sec. 6043(b) (relating to terminations, etc., of exempt organizations):

    (a) for an organization or trust under Code Sec. 6652(c)(2)(A), $10 per day (same as for 2017) subject to a $5,000 maximum (same as for 2017);

    (b) for managers under Code Sec. 6652(c)(2)(B), $10 per day (same as for 2017) subject to a $5,000 maximum (same as for 2017);

    (c) for split-interest trusts under Code Sec. 6652(c)(2)(C)(ii), $20 per day (same as for 2017) subject to a $10,000 maximum (same as for 2017); and

    (d) for any trust with gross receipts exceeding $262,000 (up from $257,000 for 2017) under Code Sec. 6652(c)(2)(C)(ii), $100 per day (same as for 2017) subject to a $52,000 maximum (up from $51,000 for 2017).

    (3) For failure to file a disclosure required under Code Sec. 6033(a)(2):

    (a) for a tax-exempt entity under Code Sec. 6652(c)(3)(A), $100 per day (same as for 2017) subject to a $52,000 maximum (up from $51,000 for 2017); and

    (b) for failure to comply with written demand under Code Sec. 6652(c)(3)(B)(ii), $100 per day (same as for 2017) subject to a $10,000 maximum (same as for 2017).

    Other assessable penalties with respect to the preparation of tax returns for other persons For 2018, the following penalty amounts under Code Sec. 6695 apply:

    (1) For failure to furnish a copy to taxpayer under Code Sec. 6695(a), failure to sign return under Code Sec. 6695(b), failure to furnish identifying number under Code Sec. 6695(c), failure to retain a copy or list under Code Sec. 6695(d), $50 per return or claim for refund (same as for 2017) subject to a maximum penalty of $26,000 (up from $25,500 for 2017).

    (2) For failure to file correct information returns under Code Sec. 6695(e), $50 per return or item in return (same as for 2017) subject to a $26,000 maximum (up from $25,500 for 2017).

    (3) For negotiation of check under Code Sec. 6695(f), $520 per check with no limit (up from $510 for 2017).

    (4) For failure to be diligent in determining eligibility for earned income credit under Code Sec. 6695(g), $520 per return or claim for refund with no limit (up from $510 for 2017).

    Failure to file partnership return. For 2018, the dollar amount used to determine the amount of the penalty under Code Sec. 6698(b)(1) is $200 (same as for 2017).

    Failure to file S corporation return. The dollar amount used to determine the amount of the penalty under Code Sec. 6699(b)(1) is $200 (same as for 2017).

    Failure to file correct information returns. For 2018, the penalty amounts under Code Sec. 6721 are:

    (1) For persons with average annual gross receipts for the most recent three tax years of more than $5 million, for failure to file correct information returns:

    (a) under Code Sec. 6721(a)(1)’s general rule, $270 per return (up from $260 for 2017) subject to a $3,282,000 calendar year maximum (up from $3,218,500 for 2017);

    (b) if corrected on or before 30 days after the required filing date under Code Sec. 6721(b)(1), $50 per return (same as for 2017) subject to a $547,000 calendar year maximum (up from $536,000 for 2017); and

    (c) if corrected after the 30th day but on or before August 1 under Code Sec. 6721(b)(2), $100 per return (same as for 2017) subject to a $1,641,000 calendar year maximum (up from $1,609,000 for 2017).

    (2) For persons with average gross receipts for the most recent three tax years of $5 million or less, for failure to file correct information returns:

    (a) under Code Sec. 6721(d)(1)(A)’s general rule, $270 per return (up from $260 for 2017) subject to a $1,094,000 calendar year maximum (up from $1,072,000 for 2017);

    (b) if corrected on or before 30 days after the required filing date under Code Sec. 6721(d)(1)(B), $50 per return (same as for 2017) subject to a $191,000 calendar year maximum (up from $187,500 for 2017); and

    (c) if corrected after the 30th day but on or before August 1 under Code Sec. 6721(d)(1)(C), $100 per return (same as for 2017) subject to a $547,000 calendar year maximum (up from $536,000 for 2017).

    (3) For failure to file correct information returns due to intentional disregard of the filing requirement (or the correct information reporting requirement):

    (a) under Code Sec. 6721(e)(2)(A), for a return other than a return required to be filed under Code Sec. 6045(a), Code Sec. 6041A(b), Code Sec. 6050H , Code Sec. 6050I, Code Sec. 6050J, Code Sec. 6050K, Code Sec. 6050L , per-return penalty equal to the greater of $540 (up from $530 for 2017) or 10% of the aggregate amount of items required to be reported correctly with no limit;

    (b) under Code Sec. 6721(e)(2)(B), for a return to be filed under Code Sec. 6045(a), Code Sec. 6050K, or Code Sec. 6050L , per-return penalty equal to the greater of $540 (up from $530 for 2017) or 5% of the aggregate amount of items required to be reported correctly with no limit;

    (c) under Code Sec. 6721(e)(2)(C), for a return required to be filed under Code Sec. 6050I(a), per-return penalty equal to the greater of $27,350 or the amount of cash received up to $109,000 (up from $26,820 and $107,000 for 2017); and

    (d) under Code Sec. 6721(e)(2)(D), for a return required to be filed under Code Sec. 6050V, per-return penalty equal to the greater of $540 (up from $530 for 2017) or 10% of the value of the benefit of any contract with respect to which information is required to be included on the return with no limit.

    Failure to furnish correct payee statements. For 2018, the penalty amounts under Code Sec. 6722 are:

    (1) For persons with average annual gross receipts for the most recent three tax years of more than $5 million:

    (a) under Code Sec. 6722(a)(1)’s general rule, $270 penalty per return (up from $260 for 2017) subject to a $3,282,000 calendar year maximum (up from $3,218,500 for 2017);

    (b) if corrected on or before 30 days after the required filing date under Code Sec. 6722(b)(1), $50 per return (same as for 2017) subject to a $547,000 calendar year maximum (up from $536,000 for 2017); and

    (c) if corrected after the 30th day but on or before August 1 under Code Sec. 6722(b)(2), $100 per return (same as for 2017) subject to a $1,641,000 calendar year maximum (up from $1,609,000 for 2017).

    (2) For persons with average annual gross receipts for the most recent three tax years of $5 million or less:

    (a) under Code Sec. 6722(d)(1)(A)’s general rule, $270 per return (up from $260 for 2017) subject to a $1,094,000 calendar year maximum (up from $1,072,500 for 2017);

    (b) if corrected on or before 30 days after the required filing date under Code Sec. 6722(d)(1)(B), $50 per return (same as for 2017) subject to a $191,000 calendar year maximum (up from $187,500 for 2017); and

    (c) if corrected after 30th day but on or before August 1 under Code Sec. 6722(d)(1)(C), $100 per return (same as for 2017) subject to a $547,000 calendar year maximum (up from $536,000 for 2017).

    (3) Where failure is due to intentional disregard of the requirement to furnish a payee statement (or the correct reporting requirement):

    (a) under Code Sec. 6722(e)(2)(A), for a statement other than one required under Code Sec. 6045(b), Code Sec. 6041A (in respect of a return required under Code Sec. 6041A(b), Code Sec. 6050H(d), Code Sec. 6050J(3), Code Sec. 6050IK(b), or Code Sec. 6050L(c), per-return penalty equal to the greater of $540 (up from $530 for 2017) or 10% of the aggregate amount of items required to be reported correctly with no limit; and

    (b) under Code Sec. 6722(e)(2)(B), for a payee statement required under Code Sec. 6045(b), Code Sec. 6050K(b), or Code Sec. 6050L(c), per-return penalty equal to the greater of $540 (up from $530 for 2017) or 5% of the aggregate amount of items required to be reported correctly with no limit.

  • Inflation-adjusted 2018 figures for transfer tax and foreign items

    Inflation-adjusted 2018 figures for transfer tax and foreign items

    Unified estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2018, the exclusion amount will be $5,600,000 (up from $5,490,000 for gifts made and estates of decedents dying in 2017).

    Generation-skipping transfer (GST) tax exemption. The exemption from GST tax will be $5,600,000 for transfers in 2018 (up from $5,490,000 for transfers in 2017).

    Gift tax annual exclusion. For gifts made in 2018, the gift tax annual exclusion will be $15,000 (up from $14,000 for gifts made in 2017).

    Special use valuation reduction limit. For estates of decedents dying in 2018, the limit on the decrease in value that can result from the use of special valuation will be $1,140,000 (up from $1,120,000 for 2017).

    Determining 2% portion for interest on deferred estate tax. In determining the part of the estate tax that is deferred on a farm or closely-held business that is subject to interest at a rate of 2% a year, for decedents dying in 2018, the tentative tax will be computed on $1,520,000 (up from $1,490,000 for 2017) plus the applicable exclusion amount.

    Increased annual exclusion for gifts to noncitizen spouses. For gifts made in 2018, the annual exclusion for gifts to noncitizen spouses will be $152,000 (up from $149,000 for 2017).

    Reporting foreign gifts. If the value of the aggregate “foreign gifts” received by a U.S. person (other than an exempt Code Sec. 501(c) organization) exceeds a threshold amount, the U.S. person must report each “foreign gift” to IRS. (Code Sec. 6039F(a)) Different reporting thresholds apply for gifts received from (a) nonresident alien individuals or foreign estates, and (b) foreign partnerships or foreign corporations. For gifts from a nonresident alien individual or foreign estate, reporting is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. For gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $16,111 in 2018 (up from $15,797 for 2017).

    Expatriation. For 2018, an individual with “average annual net income tax” of more than $165,000 (up from $162,000 for 2017) for the five tax years ending before the date of the loss of U.S. citizenship will be a covered expatriate. Under a mark-to-market deemed sale rule, all property of a covered expatriate is treated as sold on the day before the expatriation date for its fair market value. However, for 2018, the amount that would otherwise be includible in the gross income of any individual under these mark-to-market rules will be reduced by $713,000 (up from $699,000 for 2017).

    Foreign earned income exclusion. The foreign earned income exclusion amount will increase to $104,100 in 2018 (up from $102,100 in 2017).

  • The Internal Revenue Service: Coinbase

    The Internal Revenue Service has decided to limit its probe of Coinbase users to those who engaged in transactions of $20,000 or more, according to a court filing.

    The IRS sent a broad request known as a John Doe summons last November seeking information on all of the San Francisco-based digital currency service’s users in an effort to ferret out possible tax evaders (see IRS seeks information on bitcoin users from Coinbase ). Coinbase is one of the largest bitcoin and ethereum exchanges in the U.S., and the Treasury Inspector General for Tax Administration urged the IRS in a report last year to do more to ensure taxpayers aren’t using virtual currencies like bitcoin to avoid taxes (see IRS warned to safeguard against illegal use of virtual currency ).

    The IRS requested a federal court in March to force the exchange to hand over the records, but two Coinbase users asked the courts in May to quash the summons.

    Three Republican lawmakers in Congress who chair key committees and subcommittees related to tax policy wrote a letter in May to IRS Commissioner John Koskinen expressing concerns about the scope and nature of the summons (see GOP lawmakers question IRS summons to Coinbase users ).

    “We strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Oversight Subcommittee Chairman Vern Buchanan, R-Fla., wrote in a letter to Koskinen. “Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.”

    In a court filing last week, first reported by the digital currency news site Coindesk , the IRS limited the scope of the original request. It said the U.S. is seeking information for users “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-15 period.”

    The IRS court filing also said it is not seeking information on “certain identified users who are known to the Internal Revenue Service.” However the narrowed summons request is still asking for a great deal of information on the Coinbase users covered, including their “name, address, tax identification number, date of birth, account opening records, copies of passports and/or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults.”

    An IRS spokesperson declined to comment based on ongoing and pending litigation.

    Coinbase spokesperson Megan Hernbroth emailed Accounting Today, “We aren’t making any further comments at this stage outside of our last public statement on March 16.”

    In its March statement, Coinbase said, “Our legal team is in the process of reviewing the IRS’s motion. We will continue to work with the IRS to assess the government’s willingness to fundamentally reconsider the focus and scope of the summons. If it does not, we anticipate filing opposition papers in court in coming months. We will continue to keep our customers updated as to status.”

  • Hurricane Harvey Victims: Easier Access to Retirement Funds

    Hurricane Harvey Victims: Easier Access to Retirement Funds

    On August 30, 2017, the IRS announced that 401(k)s and similar sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families. Additionally, the IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions.

    With the relaxed rules, a plan may rely on the representations made by a victim as to the need for and amount of hardship distribution. The amount may not exceed the specified statutory limits from the victim’s retirement plan. However, the relief applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required.

    Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey. These areas are identified on FEMA’s website at http://www.fema.gov/disasters . If a plan makes Hurricane Harvey withdrawals available, the plan must be amended no later than the end of the first plan year beginning after December 31, 2017. Hardship withdrawals must be made by January 31, 2018.

    The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

    For further details, see Announcement 2017-11 posted on the IRS website.

  • Hurricane Disaster Relief and Donations: Helping an Employee in Need

    Hurricane Disaster Relief and Donations: Helping an Employee in Need

    Harvey was only the beginning. With Hurricane Irma terrorizing Florida and the East Coast, the need for disaster relief is more crucial than ever. Many employees have been impacted by the hurricanes, and while FEMA and insurance agencies are designed to help relieve some of the impact, such relief takes a long time to arrive. However, employers can take matters into their own hands. Here are several ways to help an employee in need:

    Qualified Disaster Relief Payments

    Qualified disaster relief payments (QDRPs) were created to provide a clear income tax exclusion for employer-funded relief payments to victims affected by federally-declared natural disasters, and other catastrophes like the September 11 terror attacks. QDRPs allow employees affected by Harvey and Irma to receive quick cash payments from employers without being taxed on those payments. Generally, these payments are deductible business expenses for employers.

    QDRPs are a simple and direct option to provide aid to employees in need, without raising the suspicion of the IRS. However, there are still important requirements employers must follow if they choose to make QDRPs. Employers should contact an attorney to discuss these requirements before providing QDRPs to impacted employees.

    Loans

    A low cost way of helping employees in need is to provide no-interest or low-interest loans. Such loans must be properly documented and will result in some additional taxable income to the employee.

    Additionally, under rules recently announced by the IRS, employers can allow loan distributions from 401(k) plans.

    Employees Helping Employees

    There are several ways an employer can facilitate donations from employees unaffected by the hurricanes. Here are a few examples:

    Creating a crowdfunding project to receive donations. Crowdfunding is a very popular way to raise money for new ideas, businesses and charitable donations. Benefits of crowdfunding are simplicity and speed. However, this approach is not as cost-effective as some alternatives. Crowdfunding sites such as Kickstarter, GoFundMe and Indiegogo impose fairly substantial administrative fees for their services. Additionally, crowdfunding does not yield favorable tax benefits to donor employees like the following approach.

    Establishing a 501(c)(3) nonprofit corporation to receive and disburse donations. This approach creates the best tax results for all parties involved. However, there are some drawbacks. First, setting up a new charitable organization requires an initial time commitment. Second, this approach presupposes an ongoing charitable mission, meaning an employer wouldn’t want to take this route to provide relief for a single disaster situation.

    A way of avoiding these drawbacks while still achieving the same tax advantages as a 501(c)(3) entity is for an employer to establish a fund under an existing charity. The existing charity would be responsible for distributing the funds, but the employer would still have significant input on the disbursement.

    Employers who want to help provide relief to employees impacted by recent hurricanes have many options at their disposal. While some of the options have been mentioned above, it is important for an employer to review all avenues and decide what is best for them and their employees. Seek advice from an attorney today.