Practical IRS Tax Insights – May 2019 Newsletter
Will you be audited: The second wave of audit letters from the IRS should hit next week or so. I’ve yet to see anyone follow my 4 part checklist for avoiding an audit, unless it was one of my own clients. It’s sad that 90% of people who come to me for audit representation could have prevented an audit if they would have had me prepare their tax return in the first place.
So you think you are in a valid installment agreement with the IRS. Over 90% of the people who tell me that wind up realizing that it’s not true. All I have to do is ask a few questions and then we see that the installment agreement was not set up correctly or the taxpayer did something to break it. How does that happen? People don’t understand their obligations. Between the IRS, any representative they hire, or their own research, they never know exactly what they have to do. I learned what to do years ago from experience doing many IRS cases. If you think you are in a binding agreement with the IRS and are willing to do something if you are not, call us and set up a consultation.
The IRS is going after people who are dodging payroll. Revenue officers make surprise visits to companies they suspect are not paying and withholding. In fact I know personally they have been doing this for several years. As a person who specializes in trimming corporate payroll liabilities down to just what was taken from the paychecks, I can tell you that if the IRS feels that you as an owner/stockholder/responsible party benefited personally from the money, they will send the case to criminal investigations, especially if over $100,000 is owed.
Want to enter into an installment agreement with IRS to pay back taxes? Make sure you’re up to date with current taxes. A company learned this the hard way after falling behind on paying employment taxes for 2011 through 2014 and submitting a proposed installment
agreement to the collection officer in June 2016. The officer rejected the proposal because the firm also failed to deposit payroll taxes for the quarter ending Sept. 30, 2016. According to a court, the IRS officer’s actions in this instance were reasonable (Coastal Luxury Management, TC Memo. 2019-43).
The Service can’t levy a future stream of royalties to pay one’s tax debts, an appeals court decides. To collect a musician’s unpaid income taxes, IRS in 2012 sent notices of levy to two music publishing firms that had contracted with the musician to pay royalties. In 2016, the two companies remitted nearly $1 million to the Service. The musician contested the levy, asserting the royalties weren’t fixed and determinable. Per the court, a contractual obligation to pay money to a taxpayer after the levy date is fixed when performance is complete except for payment. And it’s determinable if, on that same date, the amount can be ascertained with reasonable accuracy. The court concluded that standard wasn’t met here (Gold Forever Music, 6th Cir.).
There are multiple bills now in Congress that are intended to help IRA owners and participants in workplace retirement plans such as 401(k)s. The proposals have some overlapping provisions, along with a number of important differences. We’ve reviewed two of the main proposals:
A House version known as the SECURE Act, which passed the House Ways & Means Com. in April.
And a years-old, recycled Senate package, commonly referred to as RESA.
We’ll focus on the House bill and point out areas where the versions differ.
Among the hodgepodge of ideas:
Giving part-timers more retirement options. 401(k) plans would be required to allow employees logging at least 500 hours annually for three years to make salary reduction contributions. Collectively bargained plans would be exempt. This idea, which is opposed by many businesses, isn’t in RESA.
Having 401(k) plans show annuity illustrations in benefit statements at least once each year. Participants would see not only their account balance, but also a lifetime stream of monthly payments based on expected-mortality tables.
Granting small firms a credit for establishing automatic enrollment 401(k)s or IRAs. It would be up to $500 annually for three years to defray start-up costs.
Upping the age for taking required minimum distributions from 70½ to 72. Note this isn’t in RESA. But another bill recently introduced in the upper chamber would incrementally hike the age for taking RMDs to 72 in 2023 and to 75 by 2030.
Letting owners of traditional IRAs make contributions past the age of 70½.
Allowing early distributions from 401(k)s and IRAs for folks having a baby or adopting a child, without having to pay the 10% fine for pre-age-59½ withdrawals. This provision, which is endorsed by Rep. Kevin Brady (R-TX), isn’t part of RESA.
Also, requiring many inherited accounts to be cleaned out within 10 years. There’d be exceptions allowing payouts over life expectancy for surviving spouses, kids under age 18, folks who are less than 10 years younger than the account owner and the disabled. RESA also addresses this, but with a couple of important changes. It would impose a five-year cleanout (instead of 10). And it would apply the rule only to the extent that the account inherited by the beneficiary exceeded $400,000.