Saturday January 25, 2020
Washington News
Free File for 2019 Tax Returns
As the tax filing season moves into focus, the Service announced the Free File program is available on IRS.gov. The Free File program has served 57 million taxpayers since 2003. Ten tax software companies and the IRS offer free tax-preparation software for 2019 returns.
Free File is available for taxpayers with adjusted gross incomes of $69,000 or less. IRS Commissioner Chuck Rettig notes, "Free File online products offer free federal tax return preparation, free electronic filing and free direct deposit of refunds to help get your money faster. The IRS has worked to improve the program for this year, and we encourage taxpayers to visit IRS.gov and consider using the Free File option to get a head start on tax season."
There are four steps in order to use Free File.
Active duty military personnel have specific rules for housing, travel, permanent change of station and service in combat zones. Rettig notes, “The IRS takes special steps to help military members and their families with their taxes, and the Free File program is part of that effort. Almost 10% of the IRS workforce are veterans. We greatly appreciate the service to the nation of every veteran and their supportive families, and we will do all we can to assist them."
Seniors are also frequent users of Free File. Most providers now offer a new option –– IRS Form 1040–SR for seniors. Corbin notes, “When you are on a fixed income, every penny saved matters. With Free File, you can save lots of pennies. Free File also does all the hard work for you. It finds the right forms, benefits, and does all the math."
At the Heckerling Institute on Estate Planning in Orlando, attorney Turney P. Berry cautioned estate advisors to fully comply with substantiation requirements for conservation easements.
Berry explained that the IRS has been aggressive in auditing syndicated conservation easement partnerships. Approximately 75 syndicated conservation partnership charitable deduction cases are pending in the Tax Court.
On January 3, Berry noted the IRS is "grumpy in a major way with syndicated easements. They are grumpy with people who invested. They are grumpy with the promoters."
In Notice 2017–10, 2017–4 IRB 544, the Service classified syndicated conservation easements as listed transactions. Berry continued, "What is problematic is you are buying something for $100 and getting it appraised for $150. The IRS has decided that, based on the evidence that it sees –– and it has seen a lot of evidence over a long period of time –– that most syndicated easements are problematic."
While many clients hold property that may qualify for a perpetual conservation easement charitable deduction, tax advisors should recognize the risks involved. Because the IRS is auditing many conservation easement deductions, even an individual landowner may be examined.
Berry noted, "For a practical matter, you have to assume that every single conservation easement case is going to be pulled for audit.”
With the audits, the IRS also is strictly interpreting the conservation easement deduction rules. In Pine Mountain Preserve LLLP. v. Comm., 151 T.C. No. 14 (2018), the Tax Court denied a $29 million conservation easement deduction. The deduction had been reported by an Alabama partnership.
The developer in the partnership reserved the right to adjust lot boundaries with the consent of the conservation nonprofit. The Tax Court held this right to substitute one property for another violated the "granted–in–perpetuity" requirement under Sec. 170.
Berry concluded, "Even if you are doing plain vanilla conservation easements, be careful and beware of audits.”
Editor’s Note: Conservation nonprofits have supported legislation to limit syndicated partnership deductions. They are correctly concerned that the IRS audits may can cause donors to be reluctant to set up conservation easements. These nonprofits hope that legislation to limit the actions of syndicated conservation easement partnerships will resolve that issue.
In NonBelief Relief Inc. v. Charles Rettig; No. 1:18–cv-02347 (10 Jan 2020), the United States District Court for the District of Columbia dismissed a suit by NonBelief Relief. Because NonBelief Relief had not filed IRS Form 990 for three years, its exempt status was revoked. NonBelief Relief sued the IRS and requested reinstatement as an exempt entity and an injunction requiring the IRS to mandate filing IRS Form 990 by churches and other houses of worship.
NonBelief Relief, Inc. was founded in 2015. It failed to file IRS Form 990 for three years. In accordance with the policy to revoke the exempt status of nonprofits who do not file Form 990 for three years, in 2018 the IRS revoked its exemption.
NonBelief sued the IRS and claimed the IRS exemption for churches from filing Form 990 violated the First Amendment Establishment Clause and the Fifth Amendment Due Process Clause. The IRS claimed the suit was barred by the Anti–Injunction Act, the Declaratory Judgment Act and the lack of standing by NonBelief to bring the action.
Because NonBelief had lost tax-exempt status, the District Court held, "The Anti–Injunction Act and Declaratory Judgment Act divest this Court of jurisdiction to hear claims that NonBelief Relief’s tax–exempt status was improperly revoked, since the award of an injunction or declaratory judgment on NonBelief Relief’s behalf would restrain the Government's collections of taxes against NonBelief and its donors.”
In addition, a claim for injunctive relief requires standing. Because NonBelief is no longer tax-exempt, it could not benefit even if the IRS required churches to file Form 990. The Court stated, "NonBelief Relief has not meaningfully contested the Commissioner's argument that its claims as to its tax–exempt status are barred by the Anti–Injunction Act and the Declaratory Judgment Act.”
Finally, the court concluded, “Because it is not suffering from an ongoing or imminent injury, it does not have standing to obtain the declaratory and injunctive relief at issue.”
The IRS has announced the Applicable Federal Rate (AFR) for February of 2020. The AFR under Section 7520 for the month of February is 2.2%. The rates for January of 2.0% or December of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.
Free File is available for taxpayers with adjusted gross incomes of $69,000 or less. IRS Commissioner Chuck Rettig notes, "Free File online products offer free federal tax return preparation, free electronic filing and free direct deposit of refunds to help get your money faster. The IRS has worked to improve the program for this year, and we encourage taxpayers to visit IRS.gov and consider using the Free File option to get a head start on tax season."
There are four steps in order to use Free File.
- Go To IRS.gov – Select Do Your Taxes for Free, then select Choose a Free File Online Product.
- Choose a Tax Provider – Review the 10 providers and select one. Some providers may have different income limits that are below the $69,000 maximum.
- Complete the Return – Follow the links to your selected tax provider and begin your return. You will need your income, financial and deduction records.
- File Your Return – After completing your return, use electronic filing for the quickest refund. If you owe income tax, there are several electronic payment options.
Active duty military personnel have specific rules for housing, travel, permanent change of station and service in combat zones. Rettig notes, “The IRS takes special steps to help military members and their families with their taxes, and the Free File program is part of that effort. Almost 10% of the IRS workforce are veterans. We greatly appreciate the service to the nation of every veteran and their supportive families, and we will do all we can to assist them."
Seniors are also frequent users of Free File. Most providers now offer a new option –– IRS Form 1040–SR for seniors. Corbin notes, “When you are on a fixed income, every penny saved matters. With Free File, you can save lots of pennies. Free File also does all the hard work for you. It finds the right forms, benefits, and does all the math."
Conservation Easement Caution Urged
At the Heckerling Institute on Estate Planning in Orlando, attorney Turney P. Berry cautioned estate advisors to fully comply with substantiation requirements for conservation easements.
Berry explained that the IRS has been aggressive in auditing syndicated conservation easement partnerships. Approximately 75 syndicated conservation partnership charitable deduction cases are pending in the Tax Court.
On January 3, Berry noted the IRS is "grumpy in a major way with syndicated easements. They are grumpy with people who invested. They are grumpy with the promoters."
In Notice 2017–10, 2017–4 IRB 544, the Service classified syndicated conservation easements as listed transactions. Berry continued, "What is problematic is you are buying something for $100 and getting it appraised for $150. The IRS has decided that, based on the evidence that it sees –– and it has seen a lot of evidence over a long period of time –– that most syndicated easements are problematic."
While many clients hold property that may qualify for a perpetual conservation easement charitable deduction, tax advisors should recognize the risks involved. Because the IRS is auditing many conservation easement deductions, even an individual landowner may be examined.
Berry noted, "For a practical matter, you have to assume that every single conservation easement case is going to be pulled for audit.”
With the audits, the IRS also is strictly interpreting the conservation easement deduction rules. In Pine Mountain Preserve LLLP. v. Comm., 151 T.C. No. 14 (2018), the Tax Court denied a $29 million conservation easement deduction. The deduction had been reported by an Alabama partnership.
The developer in the partnership reserved the right to adjust lot boundaries with the consent of the conservation nonprofit. The Tax Court held this right to substitute one property for another violated the "granted–in–perpetuity" requirement under Sec. 170.
Berry concluded, "Even if you are doing plain vanilla conservation easements, be careful and beware of audits.”
Editor’s Note: Conservation nonprofits have supported legislation to limit syndicated partnership deductions. They are correctly concerned that the IRS audits may can cause donors to be reluctant to set up conservation easements. These nonprofits hope that legislation to limit the actions of syndicated conservation easement partnerships will resolve that issue.
Request For IRS to Require Churches to File Form 990 Dismissed
In NonBelief Relief Inc. v. Charles Rettig; No. 1:18–cv-02347 (10 Jan 2020), the United States District Court for the District of Columbia dismissed a suit by NonBelief Relief. Because NonBelief Relief had not filed IRS Form 990 for three years, its exempt status was revoked. NonBelief Relief sued the IRS and requested reinstatement as an exempt entity and an injunction requiring the IRS to mandate filing IRS Form 990 by churches and other houses of worship.
NonBelief Relief, Inc. was founded in 2015. It failed to file IRS Form 990 for three years. In accordance with the policy to revoke the exempt status of nonprofits who do not file Form 990 for three years, in 2018 the IRS revoked its exemption.
NonBelief sued the IRS and claimed the IRS exemption for churches from filing Form 990 violated the First Amendment Establishment Clause and the Fifth Amendment Due Process Clause. The IRS claimed the suit was barred by the Anti–Injunction Act, the Declaratory Judgment Act and the lack of standing by NonBelief to bring the action.
Because NonBelief had lost tax-exempt status, the District Court held, "The Anti–Injunction Act and Declaratory Judgment Act divest this Court of jurisdiction to hear claims that NonBelief Relief’s tax–exempt status was improperly revoked, since the award of an injunction or declaratory judgment on NonBelief Relief’s behalf would restrain the Government's collections of taxes against NonBelief and its donors.”
In addition, a claim for injunctive relief requires standing. Because NonBelief is no longer tax-exempt, it could not benefit even if the IRS required churches to file Form 990. The Court stated, "NonBelief Relief has not meaningfully contested the Commissioner's argument that its claims as to its tax–exempt status are barred by the Anti–Injunction Act and the Declaratory Judgment Act.”
Finally, the court concluded, “Because it is not suffering from an ongoing or imminent injury, it does not have standing to obtain the declaratory and injunctive relief at issue.”
Applicable Federal Rate of 2.2% for February -- Rev. Rul. 2020-3; 2020-6 IRB 1 (16 Jan 2020)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2020. The AFR under Section 7520 for the month of February is 2.2%. The rates for January of 2.0% or December of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.
Published January 17, 2020
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