MO - Candy sales qualified for reduced tax rate A taxpayer’s sales of bulk candy, in-house-made fudge, and individual in-house-made chocolate were subject to Missouri sales and use tax at the reduced food sales tax rate because the majority of th...
For 2024, the Social Securitywagecap will be $168,600, and social security and Supplemental Security Income (SSI) benefits will increase by 3.2percent. These changes reflect cost-of-living adjustments to account for inflation.
For2024, theSocial Securitywagecapwill be $168,600, andsocial securityand Supplemental Security Income (SSI)benefitswillincreaseby3.2percent. Thesechangesreflect cost-of-living adjustments to account for inflation.
The Federal Insurance Contributions Act (FICA) tax onwagesis 7.65percenteach for the employee and the employer. FICA tax has two components:
a 6.2percentsocial securitytax, also known as old age, survivors, and disability insurance (OASDI); and
a 1.45percentMedicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3percent, consisting of:
a 12.4percentOASDI tax; and
a 2.9percentHI tax.
OASDI tax applies only up to awagebase, which includes mostwagesand self-employment income up to the annualwagecap.
For2024, thewagebase is $168,600. Thus, OASDI tax applies only to the taxpayer’s first $168,600 inwagesor net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $168,600.
There is nowagecapfor HI tax.
MaximumSocial SecurityTax for2024
For workers who earn $168,600 or more in2024:
an employee will pay a total of $10,453.2 insocial securitytax ($168,600 x 6.2percent);
the employer will pay the sameamount; and
a self-employed worker will pay a total of $20,906.4 insocial securitytax ($168,600 x 12.4percent).
Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9percent. This tax applies towagesand self-employment income that exceed:
$250,000 for married taxpayers who file a joint return;
$125,000 for married taxpayers who file separate returns; and
$200,000 for other taxpayers.
The annualwagecapdoes not affect the Additional Medicare tax.
Finally, a cost-of-living adjustment (COLA) willincreasesocial securityand SSIbenefitsfor2024by3.2percent. The COLA is intended to ensure that inflation does not erode the purchasing power of thesebenefits.
The IRS announced taxrelief for individuals and businesses affected by terroristattacks in the State of Israel. The IRS would continue to monitor events and may provide additional relief.
The IRS announcedtaxrelieffor individuals and businesses affected byterroristattacksin the State ofIsrael. The IRS would continue to monitor events and may provide additionalrelief.
Filing and Payment Deadlines Extended
The IRS extended certain deadlines that occurred or would occur during the period from October 7, 2023, through October 7, 2024. As a result, affected individuals and businesses would have until October 7, 2024, to file returns and pay anytaxesthat were originally due during this period. This extension includes filing for most returns, including:
individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. However, becausetaxpayments related to these 2022 returns were due on April 18, 2023, those payments were not eligible for thisrelief. So, these individuals filing on extension have more time to file, but not to pay;
calendar-year corporations whose 2022 extensions run out on October 16, 2023. Similarly, these corporations have more time to file, but not to pay;
2023 individual and business returns and payments normally due on March 15 and April 15, 2024. These individuals and businesses have both more time to file and more time to pay;
quarterly estimated incometaxpayments normally due on January 16, April 15, June 17 and September 16, 2024;
quarterly payroll and excisetaxreturns normally due on October 31, 2023, and January 31, April 30 and July 31, 2024;
calendar-yeartax-exempt organizations whose extensions run out on November 15, 2023; and
retirement plan contributions and rollovers.
The penalty for failure to make payroll and excisetaxdeposits due on or after October 7, 2023 and before November 6, 2023, would beabated. But the deposits must be made by November 6, 2023.
The Internal Revenue Service could release as soon as today the process that businesses can use to withdraw employee retention creditclaims.
TheInternal Revenue Servicecouldreleaseas soon as today theprocessthat businesses can use to withdrawemployee retention creditclaims.
The move comes in the wake of the agency announcing that it is halting the processing of newERCclaimsuntil at least the beginning of 2024 and scrutinizing existingclaimsdue to the prevalence of suspected fraudulentclaimsfollowing a spike inclaimsin 2023 coupled with the saturation marketing by so-calledERCmills. Thus far, theIRScloser examination ofclaimshas led to thousands already being submitted for auditing.
As part of the heightened scrutiny ofclaims, theIRSsaid it would create aprocessby which businesses would have the ability to withdrawclaimsbefore they are processed if they do a more thorough review and determine theclaimis not actually a validclaimfor the credit that was created as part of the CARES Act to help businesses that may have lost income retain employees during the COVID-19 pandemic.
"I learned this morning that there is going to be an announcement tomorrow [October 19, 2023] on the withdrawalprocessinitiative that the Service is going to be initiating,"Linda Azmon, special counsel at theIRS’s Tax Exempt and Government Entities Division, said October 18, 2023, during a session of the American Bar Association’s Virtual 2023 Fall Tax Meeting.
Azmon said that"taxpayers who have not received theirclaimsfor refund will be entitled to participate in thisprocess,"adding that there is"going to be specific procedures that taxpayers can follow to request their withdrawal of theirclaimsfor refund."
She did not provide any specific information on what theprocessentails, but noted that requesting a withdrawal"means that a taxpayer is requesting that the amended return not be processed at all. And it’s going to be required that the complete return be withdrawn."This is limited to taxpayers who have not had theirclaimprocessed, have not received their check or who have the check but have not yet cashed it.
One of the reasons a taxpayer may want to withdraw aclaimis"taxpayers have been advised that the only way the Service can recaptureclaimsfor refund is through the erroneous refund procedures,"she said."That usually means the service asks for the funds back and if they don’t receive it, the Service asks [the] Department of Justice to bringsuitwithin two years of the payment."
But Azmon points out that taxpayers being told this are being given information that is not entirely correct, as the agency has issued final regulations that allow theIRSto treat an erroneous refund as an underpayment of tax subject to the regular assessment and administrative collections procedures.
"This is a way for the service to recover funds that a taxpayer should have received in an efficient way without the cost of litigation,"she said."And it still provides the administrative processing rights for taxpayers to dispute theirclaims"without the cost of litigation.
The Internal Revenue Servicedetailed how it is proceeding with a pilot program that will allow taxpayers to file their taxes directly on the IRS website as an option along with doing an electronic file or working through a tax professional or other third-party tax preparer.
TheInternal Revenue Servicedetailedhow it is proceeding with apilotprogram that will allow taxpayers tofiletheir taxes directly on theIRSwebsite as an option along with doing an electronicfileor working through a tax professional or other third-party tax preparer.
Residents in select states will have the option to participate thedirectfileprogram, which is being set up as part of the provisions of the Inflation Reduction Act, in the upcoming 2024 tax filing season. The nine states included in thepilotare states that do not have a state income tax, including Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Thepilotwill also include four states that have a state income tax – Arizona, California, Massachusetts, and New York – and in those states, thedirectfilepilotwill incorporate filing state income taxes.
The agency is expecting several hundred thousand taxpayers across the thirteen states to participate in thepilot.
"We will be working closely with the states in this important test run that will help us gather information about the future direction of thedirectfileprogram,"IRSCommissioner Daniel Werfel said during an October 17, 2023, press teleconference."Thepilotwill allow us to further assess customer and technology needs that will help us evaluate and develop successful solutions for any challenges posed by thedirectfileoption."
Werfel stressed that there is no intention for theIRSto require taxpayers use thedirectfileoption and if thepilotproves successful and the agency moves forward with the program, it will simply be another option in addition to everything that currently is available for taxpayers tofiletax returns without eliminating any of those other options.
He noted that thepilotwill be aimed at individual tax returns and will be limited in scope. Not every taxpayer in thosepilotstates will be able to participate.
"Thepilotwill not cover all types of income, deductions, or credits,"Werfel said."At this point, we anticipate that specific income types, such as wages from Form W-2 and important tax credits, like the earned income tax credit and the child tax credit, will be covered by thepilot."
According to anIRSstatement issued the same day, the agency also expects participation will include Social Security and railroad retirement income, unemployment compensation, interest income of $1,500 or less, credits for other dependents, and a few deductions, including the standard deduction, student loan interest, and educator expenses.
Some examples that were given that would disqualify a taxpayer from filing through thedirectfilepilotwould be those receiving the health care premium tax credit or those filing a Schedule C with their tax return, though in future years if the agency moved forward beyond thepilot, those could be incorporated into the freefileprogram.
He added that the agency is still working on thepilot’s details and that testing is still ongoing. Participants who will be invited to use the freefileprogram in thepilotphase will be noticed later this year. Those participating in thepilotprogram will have their own dedicated customer service representatives to help them with the filing process.
Werfel provided a broad look at the metrics that will be used to evaluate the program, including the customer experience, logistics and how well theIRScan operate such adirectfileplatform, and how many taxpayers thepilotactually draws in addition to how many ultimately meet the criteria for participation, which will help quantify the demand for the program overall.
The IRS released substantial new guidance regarding the new clean vehicle credit and the used clean vehicle credit. The guidance updates procedures for manufacturer, dealer and seller registrations and written reports; and provides detailed rules for a taxpayer’s election to transfer a credit to the dealer after 2023. The guidance includes:
The IRS released substantial new guidance regarding the new clean vehicle credit and the used clean vehicle credit. The guidance updates procedures for manufacturer, dealer and seller registrations and written reports; and provides detailed rules for a taxpayer’s election to transfer a credit to the dealer after 2023. The guidance includes:
-- Rev. Proc. 2023-33, which is scheduled to be published on October 23, 2023, in I.R.B. 2023-43;
--NPRMREG-113064-23, which is scheduled to published in the Federal Register on October 10, 2023; and
-- IRS Fact Sheet FS-2023-22, which updates the IRS Frequently Asked Questions (FAQs) for the clean vehicle credits.
The proposed regs are generally proposed to apply to tax years beginning after they are published in the Federal Register. However, the proposed regs for transferring credits to dealers are proposed to apply beginning on January 1, 2024, which is when the transfer election becomes available. Proposed regs for treating the omission of a correct vehicle identification number (VIN) as a mathematical or clerical error would also apply to theCode Sec. 45Wclean commercial vehicle credit. They are proposed to apply to tax years beginning after December 31, 2023.
For purposes of the new clean vehicle credit, the used clean vehicle credit, and the commercial clean vehicle credit, the proposed regs would treat a taxpayer as having omitted the required correct vehicle identification number (VIN) for the vehicle if the VIN is missing from the taxpayer’s return or the number reported on the return is an invalid VIN. An invalid VIN is a number that does not match any existing VIN reported by a qualified manufacturer. A taxpayer would also be treated as omitting the VIN if the provided VIN is not for a qualified vehicle for the year the credit is claimed.
With respect to the new clean vehicle credit and the used clean vehicle credit, the proposed regs would clarify that taxpayer must file an income tax return for the year the clean vehicle is placed in service, including a Form 8936, Clean Vehicle Credits. The taxpayer is treated as having omitted the vehicle’s correct VIN if the VIN on the taxpayer’s return does not match the VIN in the seller’s report. In addition, a dealer under the proposed regs would not include persons licensed solely by a U.S. territory. To facilitate direct-to-consumer sales, a dealer generally could make sales outside the jurisdiction where it is licensed; however, it could not make sales at sites outside its own jurisdiction.
New Rules for Used Clean Vehicle Credit
The proposed regs would clarify that a vehicle’s eligibility for the used vehicle credit is not affected by a title that indicates it has been damaged or an otherwise a branded title. In addition, the used vehicle credit could not be divided among multiple owners of a single vehicle. With respect to the MAGI limit for eligible taxpayers, if the taxpayer's filing status for the tax year differs from the taxpayer's filing status in the preceding tax year, the taxpayer would satisfy the limit if MAGI does not exceed the threshold amount in either year based on the applicable filing status for that tax year. These last two rules are consistent with earlier proposed regs for the new clean vehicle credit.
The proposed regs would provide a first transfer rule, under which a qualified sale must be the first transfer of the previously-owned clean vehicle since August 16, 2022, as shown by the vehicle history of such vehicle, after the sale to the original owner. The rule would ignore transfers between dealers. The taxpayer generally could rely on the dealer’s representation of the vehicle history; however, taxpayers would also be encouraged to independently examine the vehicle history to confirm whether the first transfer rule is satisfied.
Under the proposed regs, a used vehicle’s sale price would include delivery charges, as well as fees and charges imposed by the dealer. The sale price it would not include separately-stated taxes and fees required by law, separate financing, extended warranties, insurance or maintenance service charges.
Cancellation of Sale, Return of Clean Vehicle, and Resale of Clean Vehicle
The proposed regs would clarify that a taxpayer cannot claim a clean vehicle credit if the sale is canceled before the taxpayer places th vehicle in service (that is, before the taxpayer takes delivery). The credits also would not be available if the taxpayer returns the vehicle within 30 days after placing it in service. A returned new clean vehicle would no longer qualify as a new clean vehicle. However, a returned used clean vehicle could continue to qualify for the credit if the vehicle history does not reflect the sale and return. A vehicle’s return would nullify any election the taxpayer made to transfer the credit for the vehicle.
Under the proposed regs, a taxpayer acquires a clean vehicle for resale if the resale occurs withing 30 days after the taxpayer places the vehicle in service. The resold vehicle would not qualify for either credit. If the taxpayer elected to transfer the credit, the election remains valid after the resale; thus, the credit is recaptured from the taxpayer, not from the dealer.
Taxpayers returning or reselling a clean vehicle more than 30 days after the date the taxpayer placed it in service would generally remain eligible for the applicable clean vehicle credit for purchasing the vehicle. Any election to transfer the taxpayer’s credit to the dealer also remains in effect. The returned or resold vehicle would not remain eligible for either credit. However, the IRS could disallow the credit if, based on the facts and circumstances, it determines that the taxpayer purchased the vehicle with the intent to resell or return it
Taxpayer's Election to Transfer Clean Vehicle Credit to Dealer
A taxpayer that elects to transfer a credit to a registered dealer must transfer the entire amount of the allowable credit. Each taxpayer may transfer a total of two credits per year (either two new clean vehicle credits, or one new clean vehicle credit and one used clean vehicle credit). This is the case even if married taxpayers file a joint return. A transfer election is irrevocable.
Under the proposed regs, the amount of a clean vehicle credit an electing taxpayer could transfer could exceed the electing taxpayer’s regular tax liability; and the amount of a transferred credit would not be subject to recapture merely because it exceeds the taxpayer’s tax liability. The dealer’s payment for the transferred credit, whether in cash or as a partial payment or down payment for the vehicle, is not includible in the electing taxpayer’s gross income. To ensure that the credit properly reduces the taxpayer’s basis in the vehicle, the electing taxpayer is treated as repaying the payment to the dealer as part of the purchase price of the vehicle.
Both the electing taxpayer and the dealer must make detailed disclosures and attestations. Some of these disclosures must be made to the other party, and some must be made through the IRS Energy Credits Online Portal. All must be made no later than the time of the sale. A taxpayer cannot transfer any portion of the new clean vehicle credit that is treated as part of the general business credit.
A seller or a registered dealer must retain records of transferred credits for at least three years after the taxpayer makes the credit transfer election or a seller files its report for the sale.
Manufacturer, Dealer and Seller Registration and Report Requirements
Clean vehicle manufacturers, sellers and dealers must register through an IRS Energy Credits Online Portal that should be available on the IRS website later this month. A representative of the manufacturer, seller or dealer will have to create or sign into an account on irs.gov. Registration help is available atwww.irs.gov/registerhelp. Manufacturers, sellers and dealers may checkIRS.gov/cleanvehiclesfor updates.
Taxpayers and sellers may rely on information and certifications by a qualified manufacturer providing that a vehicle is eligible for the new clean vehicle credit or the used clean vehicle credit. However, this reliance is limited to information regarding the vehicle’s eligibility for the applicable credit.
Rev. Proc. 2023-33 details the required registration information for sellers and dealers. The IRS will confirm the information or notify the seller or dealer that it has been unable to do so. If the IRS accepts a dealer registration, it will issue a unique dealer identification number. If the IRS rejects the registration, the dealer may request administrative review.
s for a qualified manufacturer’s written agreement with and a dealer’s written reports to the IRS before January 1, 2024, manufacturers and sellers may still use the procedures described inRev. Proc. 2022-42. However, as of January 1, 2024, qualified manufacturers must have entered into written agreements with the IRS via the IRS Energy Credits Online Portal, even if they previously registered and filed written agreements under Rev. Proc. 2022-42. Also as of January 1, 2024, qualified manufacturers and sellers must use the Portal to file their required reports to the IRS.
A seller must file its report within three calendar days of the sale, and provide a copy to the taxpayer within another three days. If the information in the report does not match information in IRS records, the IRS may reject the report and notify the seller. The seller must notify the buyer within three calendar days. If the IRS rejects a seller report, a dealer will not be eligible for advance credit payments. A seller must also use the Portal to update or rescind information for a scrivener’s error or the cancellation of a sale as promptly as possible (the seller must also file a new report noting the return of a vehicle). The seller must notify the buyer within three calendar days and provide a copy of the updated or rescinded report.
Advance Credit Payments to Dealers
When a buyer elects to transfer a clean vehicle credit to a dealer, the advance credit program allows the dealer to receive payment of the credit before the dealer files its tax return. The proposed regs would clarify that the advance payments are not included in the dealer’s income and they may exceed the dealer’s tax liability. The dealer cannot deduct the payment made to the electing taxpayer. The advance payment is included in the amount realized by the dealer on the sale of the clean vehicle. If the dealer is a partnership or an S corporation, the advance payment is not treated as exempt income.
To receive advance credit payments, the registered dealer must be an eligible entity under the proposed regs. An eligible entity is a registered dealer that submits additional registration information and is in dealer tax compliance. The IRS will conduct dealer tax compliance checks before disbursing an advance credit payment, and also on a continuing and regular basis.
Dealer tax compliance means that, for all tax periods during the most recent five tax years, the dealer has filed all of its required federal information and tax returns, including for federal income and employment tax; and paid all federal tax, penalties, and interest due at the time of sale (or is current on its obligations under any installment agreement with the IRS). The dealer must also retain information related to the vehicle sale or credit transfer for at least three years. A dealer that does not satisfy this test may still be a registered dealer, but it cannot be an eligible entity until the tax compliance issue is resolved.
The dealer that receives the transferred credit must provide the qualified vehicle’s VIN, the seller report, and the required taxpayer disclosure information through the IRS Energy Credits Online Portal. The IRS will disburse advance payments of the credits only through electronic payments; it will not issue any paper checks.
The IRS may suspend a registered dealer’s eligibility to participate in the advance payment program for sever reasons, including the provision of inaccurate information regarding eligible for the credit; failure to satisfy dealer tax compliance requirements; and failure to properly use the IRS Energy Credits Online Portal. The IRS will notify the dealer of its suspension, and give the dealer an opportunity correct the errors. If a suspended dealer does not correct the errors withing one year, the IRS will revoke its registration.
The IRS may also revoke a dealer’s registration to receive transferred credits and its eligibility for the advance payment program for failure to comply with the registration or tax compliance requirements, for losing its dealer license, for providing inaccurate information, for failing to retain required records for three years, or if it is suspended three times in the preceding year. The IRS will notify the dealer within 30 days of its decision to revoke eligibility for the advance payment program, and the dealer may request administrative review of the decision. The dealer may re-register after one year, but will be permanently barred after three revocations.
The proposed regs would provide that a dealer could not administratively appeal the IRS’s decisions relating to the suspension or revocation of a dealer’s registration unless the IRS and the IRS Independent Office of Appeals agree that such review is available and the IRS provides the time and manner for the review.
The IRS requests comments on the proposed regs. Comments and requests for a public hearing must be received by December 11, 2023. They may be mailed to the IRS, or submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS andREG-113064-23).
The IRS has released the 2023-2024special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:
The IRS hasreleasedthe2023-2024special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. Thesespecial per diem ratesinclude:
1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.
Transportation IndustrySpecial Per Diem Rates
The special M&IE rates for taxpayers in the transportation industry are:
$69 for any locality of travel in the continental United States (CONUS), and
$74 for any locality of travel outside the continental United States (OCONUS).
Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.
High-Low Substantiation Method
For purposes of the high-low substantiation method, the2023-2024special per diem ratesare:
$309 for travel to any high-cost locality, and
$214 for travel to any other locality within CONUS.
The amount treated as paid for meals is:
$74 for travel to any high-cost locality, and
$64 for travel to any other locality within CONUS
Instead of the meal and incidental expenses only substantiation method, taxpayers may use:
$74 for travel to any high-cost locality, and
$64 for travel to any other locality within CONUS.
Taxpayers using the high-low method must comply withRev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.
The IRS provided guidance on the new energy efficient home credit, as amended by the Inflation Reduction Act of 2022 (P.L. 117-169). The guidance largely reiterates the statutory requirements for the credit, but it provides some new details regarding definitions, certifications and substantiation.
TheIRSprovided guidance on thenew energy efficient home credit, asamendedby the Inflation Reduction Act of 2022 (P.L. 117-169). The guidance largely reiterates the statutoryrequirementsfor the credit, but it provides some new details regarding definitions, certifications and substantiation.
For purposes of therequirementthat a home must be acquired from an eligible contractor, a home leased from the contractor for use as a residence is considered acquired from the contractor. However, a home the contractor retains for use as a residence is not acquired from the contractor. A manufactured home may be acquired directly from the contractor, or indirectly from an intermediary that acquired it from the contractor and then sold or leased it to a buyer for use as a residence, or to intervening intermediaries that eventually sold it to a buyer for use as a residence.
For a constructed home, the eligible contractor is the person that built and owned the home and had a basis in it during its construction. For a manufactured home, the eligible contractor is the person that produced the home and owned and had a basis in it during its production.
The United States includes only the states and the District of Columbia.
A dwelling unit that is certified under the applicable Energy Star program is considered to meet the programrequirementsfor purposes of the credit. Similarly, a dwelling unit that is certified under the Zero Energy Ready Home (ZERH) program is deemed to meet therequirementsfor the credit for a ZERH. The ZERH program in effect for purposes of the credit is the one in effect as of the date identified on the Department of Energy’s ZERH webpage athttps://www.energy.gov/eere/buildings/doe-zero-energy-ready-home-zerh-program-requirements.
The eligible contractor must obtain the appropriate Energy Star or ZERH certification before claiming the credit. The contractor should keep the certification with its tax records, but does not have to file it with the return that claims the credit.
Rules for homes acquired before 2023, under which eligible certifiers could certify a home and contractors could use approved software to calculate a new home’s energy consumption, do not apply to a home acquired after 2022.
To substantiate the credit, the contractor must retain in its tax records, at a minimum, the home's Energy Star or ZERH certification, including its date; and records sufficient to establish:
the address of the qualified home and its location in the United States;
the taxpayer’s status as an eligible contractor;
the acquisition of the home from the taxpayer for use as a residence, including the name of the person who acquired it; and
if applicable, proof that the prevailing wagerequirementswere met.
However, for a manufactured home the contractor sells to a dealer, a safe harbor allows the contractor to rely on a statement by the dealer to establish the date the home was acquired, its location in the United States, and its acquisition for use as a residence. The statement must:
Specify the date of the retail sale of the manufactured home, state that the dealer delivered it to the purchaser at an address in the United States, and provide that the dealer has no knowledge of any information suggesting that the purchaser will use the manufactured home other than as a residence;
Provide the name, address and telephone number of the dealer and any intervening intermediaries; and
Declare, under penalties of perjury, that the dealer statement and any accompanying documents are true, correct and complete.
The IRS identified drought-strickenareas where taxrelief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-strickenarea has a drought-free year.
TheIRSidentifieddrought-strickenareaswheretaxreliefis available to taxpayers that sold or exchangedlivestockbecause of drought. Thereliefextends the deadlines for taxpayers to replace thelivestockand avoid reporting gain on thesales. These extensions apply until thedrought-strickenareahas a drought-free year.
Salesoflivestockdue to drought areinvoluntaryconversions of property. Taxpayers can postpone gain oninvoluntaryconversions if they buy qualified replacement property during the replacement period. Qualified replacement property must be similar or related in service or use to the converted property.
Usually, the replacement period ends two years after thetaxyear in which theinvoluntaryconversion occurs. However, a longer replacement period applies in several situations, such as whensalesoccur in adrought-strickenarea.
LivestockSold Because of Weather
Taxpayers have four years to replacelivestockthey sold or exchanged solely because of drought, flood, or other weather condition. Three conditions apply.
First, thelivestockcannot be raised for slaughter, held for sporting purposes or be poultry.
Second, the taxpayer must have held the convertedlivestockfor:
Third, the weather condition must make theareaeligible for federal assistance.
TheIRSextends the four-year replacement period when a taxpayer sells or exchangeslivestockdue to persistent drought. The extension continues until the taxpayer’s region experiences a drought-free year.
The first drought-free year is the first 12-month period that:
ends on August 31 in or after the last year of the four-year replacement period, and
does not include any weekly period of drought.
WhatAreasare Suffering from Drought
The National Drought Mitigation Center produces weekly Drought Monitor maps that reportdrought-strickenareas. Taxpayers can view these maps at
However, theIRSalso provided a list ofareaswhere the year ending on August 31, 2023, was not a drought-free year. The replacement period in theseareaswill continue until theareahas a drought-free year.
With the Internal Revenue Service announcing more details on how it will be targeting America’s wealthiest taxpayers, Kostelanetz’s Megan Brackney offered up some advice on preparing for increased compliance activity.
With theInternal Revenue Serviceannouncing more details on how it will be targeting America’s wealthiest taxpayers, Kostelanetz’s Megan Brackney offered up some advice on preparing forincreasedcomplianceactivity.
The first step, especially for those that fall within the agency’s announced parameters for who is being targeted, is to review recent tax filings. The agency announced in September it would be targeting large partnerships.
"I would say to look back over the last three years because that’s the typical statute of limitations period for theIRStoauditand assess, maybe look back even a little bit longer,"Brackney, partner at the law firm, said in an interview.
In particular, she recommended a focus on major financial transactions.
"Look at significant transactions and make sure that you have all the substantiation because a lot of times, the issue isn’t so much a legal question or anything to complex,"she continued."It’s just whether or not you know [for example if] the partnership sold an asset, do they actually have records that substantiate their basis?"
Brackney expects that after the agency completes its work on the largest partnerships, it will continue this kind of compliance work on those high earning partnerships that may be outside of the original targeted thresholds.
Other things to start thinking about if you are a large partnership is how you plan to respond to anauditif you end up targeted for enforcement action by theIRS, especially if you have significant transactions that might draw extra scrutiny. Some questions to ponder are whether you have the in-house expertise to handle anauditor if you plan on going to an outside source.
"Nobody is going to do those things until they are actuallyaudited, but its good to start thinking about it and planning it,"she said."And if you do have a really significant transaction, maybe go ahead and have someone take a look at it already to make sure it is properly documented."
She also suggested that if a partnership finds an error as they look back on their own to go ahead and correct it with theIRSbefore the agency"is poking around and looking at it."
And while theIRSis moving forward with its plans toaudithigh earning partnerships, Brackney expressed some concerns relative to agent training.
She recalled a few years ago when theIRSannounced global high net worthauditsprogram that ended up collecting very little.
"Most of thoseauditsresulted in no change letters,"Brackney said,"which is wild because youaudita normal middle-class taxpayer with a Schedule C business, you are going to have a change [and] not because anybody is trying to cheat. There is going to be something that they can’t substantiate."
She said it was hard to understand how most of the global high net worthauditshad no changes, and expressed some concerns that this could happen again, but is hopeful that with the agency’s supplemental funding from the Inflation Reduction Act will come proper training to handle the complexities of reviewing these tax returns.
"I support theIRSbeing fully funded,"she said."It’s good for tax administration and it makes a fairer society because it’s not like people are just getting away with stuff because theIRSdoesn’t have the resources."
The IRS has cautioned taxpayers to be vigilant about promotions involving exaggeratedartdonationdeductions that may target high-income individuals and has also provided valuable tips to help people steer clear of falling into such schemes. Taxpayers can legitimately claim artdonations, but dishonest promoters may employ direct solicitation to make unrealistically promising offers. In a bid to boost compliance and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.
TheIRShas cautioned taxpayers to be vigilant about promotions involvingexaggeratedartdonationdeductionsthat may target high-income individuals and has also provided valuable tips to help people steer clear of falling into such schemes. Taxpayers can legitimately claimartdonations, but dishonest promoters may employ direct solicitation to make unrealistically promising offers. In a bid to boost compliance and protect taxpayers from scams, theIRShas active promoter investigations and taxpayer audits underway in this area.
Also, theIRShas employed various compliance tools, including tax return audits and civil penalty investigations, to combat abusiveartdonations. Taxpayers, especially high-income individuals, are advised to watch out for aggressive promotions. Additionally, following Inflation Reduction Act funding theIRShas intensified the efforts to ensure accurate tax payments from high-income and high-wealth individuals.
The Service has advised taxpayers to watch-out for the following red flags:
Be wary of purchasing multiple works by the same artist with little market value beyond what promoters claim.
Watch for specific appraisers arranged by promoters, as their appraisals often lack crucial details.
Taxpayers are responsible for accurate tax reporting, and engaging in tax avoidance schemes can lead to penalties, interest, fines, and even imprisonment.
Charities should also be cautious not to inadvertently support these schemes.
In order to to properly claim a charitable contributiondeductionfor anartdonation, a taxpayer must keep records to prove:
Name and address of the charitable organization that received theart.
Date and location of the contribution.
Detailed description of the donatedart.
Also, TheIRShas a team of trained appraisers inArtAppraisal Serviceswho provide assistance and advice to theIRSand taxpayers on valuation questions in connection with personal property and works ofart.
Finally, the taxpayers can report tax-related illegal activities relating to charitable contributions ofartusing:
Form 14242, Report Suspected Abusive Tax Promotions or Preparers, to report a suspected abusive tax avoidance scheme and tax return preparers who promote such schemes.