Covid-19

Due to the current Covid-19 crisis, I’ve been particularly focused on health and preparedness. Older adults are and will continue to face increased hardships during the Coronavirus pandemic. But there are things they can do. I’ve found some additional resources I hope are helpful for you.

• COVID-19 Resources for Older Adults
• Debt Management for Older Adults
• Impacts of COVID on Older Workers
• Staying Connected and Avoiding Social Isolation
• Retirement Insecurity in the time of COVID

Economic Impact Payment - Coronavirus "Stimulus Check"

Coronavirus "Stimulus Check"

• How does one return a "Stimulus Check" that was deposited into the account of a deceased taxpayer? Information I can find says it has to be returned? No problem there. However, nothing explains "HOW" to send it back, when the check was direct deposited?
• The stimulus is $1,200 per taxpayer whose income is $-0- to $75,000 ($-0- to $150,000 MFJ). So the 2018 vs. 2019 issue was, if the taxpayer qualified, based on 2018 income, but didn't qualify based on 2019 income, they could wait to file 2019, until they got the stimulus based on 2018. If they had filed 2019 and was over the income limit, they still had a chance to get it, but had to wait until they filed 2020 because this is what the stimulus is based on. In any case, there is no "clawback" of the stimulus in 2020.
• The proof the advance stimulus payment does not need to be paid back is §6428(e)(1), which was added to the Code by the CARES Act:
• (e) COORDINATION WITH ADVANCE REFUNDS OF CREDIT.--
• (1) IN GENERAL.---The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (f).
• The phrase "this section" refers to §6428.  Note the language, "but not below zero."  As a result, if the taxpayer's credit on the 2020 return ("the amount of credit which would (but for this paragraph) be allowable under this section"), after being reduced by the advance credit, is less than zero, then the taxpayer does not get an additional credit on the 2020 return, and none of the advance payment needs to be paid back.

What the Coronavirus Stimulus Package Means for You

What the Coronavirus Stimulus Package Means for You
The pandemic has brought lots more attention to §7508A which allows the IRS to extend deadlines in the event of certain disasters. Using its authority under §7508A(a) the IRS first announced the extended time to pay taxes, then it announced the extended time to file taxes and then it announced broad extensions including the time to file Tax Court petitions and numerous other acts outlined in Rev. Proc. 2018-58.

Backdoor Roth

• A backdoor Roth IRA is not an official type of retirement account. Instead, it is an informal name for an, IRS-sanctioned method for high-income taxpayers to fund a Roth, even if their income is higher than the maximum the IRS allows for regular Roth contributions. The annual Roth IRA limit is $6,000 in both 2020 and 2019, up from $5,500 in 2018 (if you’re 50 or older, you can add $1,000 to those amounts).
• TY2019 Traditional IRA phaseout (MAGI):
• Single: 64,000 - 74,000
• Married: 103,000 - 123,000
• TY2019 Roth IRA phaseout (MAGI):
• Single: 122,000 - 137,000
• Married: $193,000 to $203,000
• Backdoor Roth IRAs are not a special type of account; rather, they are usually traditional IRA accounts or 401-K's which have been converted to Roth IRAs. A backdoor Roth IRA is a legal way to get around the income limits that normally restrict high-earners from contributing to Roths. A backdoor Roth IRA is not a tax dodge—in fact, you might incur a small amount of tax when it's established—but it does provide investors with future tax savings.
• Traditional IRAs don't have income limits. And since 2010, the IRS has not had income limits restricting who can convert a traditional IRA to Roth IRA. As a result, the backdoor Roth has become an option for higher-income taxpayers who ordinarily weren't able to contribute to a Roth.
• The funds you put into the Roth are considered converted funds, not contributions. This means you have to wait five years to have penalty-free access to your funds if you’re under age 59½. In this sense, they differ from regular Roth IRA contributions, which you can withdraw at any time without tax or penalty.
• You can do a backdoor Roth IRA in one of several ways:
• The first method is to contribute money to an existing traditional IRA and then roll over the funds to a Roth IRA account. Or, you can roll over existing traditional IRA money into a Roth—as much as you want at one time, even if it's more than the annual contribution amount.
• Second way is to convert your entire traditional IRA account to a Roth IRA account.
• Third way to make a backdoor Roth contribution is by making an after-tax contribution to a 401-K plan and then roll it over into a Roth IRA.
• Backdoor Roth is not a tax dodge. You still need to pay taxes on any money in your traditional IRA that hasn’t already been taxed.
• 10% Penalty and Roth IRA Conversions
• While funds you convert to a Roth IRA are taxable no matter your age, the 10% penalty doesn't apply to conversions. Be careful here. Withholding funds to pay tax on the conversion results in a 10% penalty to the amount withheld. (Any amount not converted is a regular distribution).
• For example, if you contribute $6,000 to a Traditional IRA and then convert that money to a Roth IRA, you’ll owe taxes on the $6,000, or whatever portion of your existing Traditional IRA basis ratio is to your rollover. IRS Form 8606 is used to help determine the taxable portion of a distribution or conversion and must be filed in the distribution year.) If you're non-deductible Traditional IRA contribution is immediately converted (rolled-over) into your Roth, (1099-R Box 7, Code "2" - Roth Exception),
• You’ll owe taxes on whatever money it earns between the time you contributed to the Traditional IRA and when you converted it to a Roth IRA. (1099-R Codes for Box 7. ... Use Code 2 only if the participant has not reached age 59 1/2 and you know the distribution is: A Roth IRA conversion (an IRA converted to a Roth IRA) or a distribution made from a qualified retirement plan, or IRA, because of an IRS levy under §6331.

Revocation or Denial of US Passport: §7345 US Citizens with Seriously Delinquent Tax Debt

Revocation or Denial of US Passport: §7345)

& US Citizens with “Seriously Delinquent Tax Debt"

New §7345 completely modifies how US citizens living and traveling around the world have to now consider very seriously actions taken by the Internal Revenue Service. It is the IRS, which now holds the power under this new law that requires the US Department of State to revoke or deny to issue a US passport in the first place. US State Department is in charge of the actual suspensions. 

• In other words, the US State Department can revoke, deny or limit passports for anyone the IRS certifies as having a "seriously delinquent tax debt."

§7345 is part of HR 22 – Fixing America’s Surface Transportation Act, the “FAST Act.”

• The two new IRS provisions: 
• Passport Provision
• Taxpayers with delinquent taxes in excess of $50,000 are potentially subject to having their passports revoked and/or denied unless they get into an agreement to pay the debt. There are many questions about the “due process” that the IRS will use to enforce this provision.
• As an administrative exception, the State Department can issue a passport in an emergency or for humanitarian reasons, granting special dispensation. 
• You are still able to travel if your tax debt is being paid in a timely manner, e.g. under a signed Installment Agreement. The rules are not limited to criminal tax cases or where the government thinks you are fleeing a tax debt.
• In fact, you could have your passport revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. A $50,000 tax debt including interest and penalties is common, and the IRS files tax liens routinely. It’s the IRS way of putting creditors on notice. 
• The IRS can file a Notice of Federal Tax Lien after the IRS assesses the liability, sends a Notice and Demand for Payment, and taxpayer fails to pay-in-full within 10 days.
• Collection Agency Provision.
• IRS may soon contract with private collection agencies in pursuit of taxpayer delinquent taxes. A monument concern with the IRS proceeding with private collection agencies, is to ensure taxpayers' collection due process rights, and taxpayers' rights to an “affordable” resolution as currently stated in the IRM are observed. An equal concern is the degree to which private collection agents are trained to help the taxpayer arrive at a suitable resolution based on the current IRM, and the many potential failures that could occur as the result of overly aggressive collection activity.

Passport Section Code Provisions:

• New §7345(e) provides in relevant part as follows: “upon receiving a certification described in §7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. . . ” [emphasis added].
• §7345 that provides for a new collection technique—the revocation or denial of a passport to individuals who have past due taxes under certain conditions.
• The denial or revocation takes place if the IRS sends certification to the State Department that an individual has a “seriously delinquent tax debt.” 
•  A “seriously delinquent tax debt” exists when there is an unpaid, legally enforceable Federal tax liability of an individual:
• Which has been assessed;
• Which is greater than $50,000 (which will be adjusted for inflation in future years); and
• Either:
• A notice of lien has been issued and the administrative rights under §6320 have lapsed or
• A levy has been made §7345(b)(1)
• However it does not include:
• A debt being paid in a timely manner under an installment agreement or offer in compromise;
• A debt for which collection has been suspended
• Because a due process hearing under §6330 is requested or pending or
• Innocent spouse relief has been requested under §6015(b), (c), or (f) §7345(b)(2)
• An affected individual will have a right to challenge either an IRS certification or failure to reverse a certification in either US District Court or the United States Tax Court. §7345(e)
• §7345. Revocation or denial of passport in case of certain tax delinquencies.
• (a) In general.—If the Secretary receives certification by the Commissioner of Internal Revenue that an individual has a seriously delinquent tax debt, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act.
• (b) Seriously delinquent tax debt.—
• (1) IN GENERAL.—For purposes of this section, the term ‘seriously delinquent tax debt’ means an unpaid, legally enforceable Federal tax liability of an individual—
• (A) which has been assessed,
• (B) which is greater than $50,000, and
• (C) with respect to which—
• (i) a notice of lien has been filed pursuant to section 6323 and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or
• (ii) a levy is made pursuant to section 6331.

• (2) EXCEPTIONS.—Such term shall not include—
• (A) a debt that is being paid in a timely manner pursuant to an agreement to which the individual is party under section 6159 or 7122, and
• (B) a debt with respect to which collection is suspended with respect to the individual
• (i) because a due process hearing under section 6330 is requested or pending, or
• (ii) because an election under subsection (b) or (c) of section 6015 is made or relief under subsection (f) of such section is requested.
• Checkpoint summary of all three relevant provisions.

Revocation or denial of passports to certain delinquent taxpayers:

• Under pre-Act law, Chapter 75 of the Code, “Crimes, Other Offenses, and Forfeitures,” makes no provision for denying or revoking passports on the basis of unpaid taxes.
• New law. The FAST Act adds a new Code section,§7345, to Chapter 75 of the Code. (Act Sec. 32101) Under §7345, having a “seriously delinquent tax debt” is, unless an exception applies, grounds for denial, revocation, or limitation of a passport, effective January 01, 2016.
• RIA observation: Passports are handled by the State Department, not IRS. This new provision effectively authorizes disclosure of certain tax information from IRS to the State Department, which in turn will use this information in making passport-related determinations.
• Except as provided in the next sentence, a seriously delinquent tax debt is an assessed tax debt that exceeds $50,000 and for which a notice of lien has been filed under §6323. A seriously delinquent tax debt does not include a debt for which: there is an agreement in place to repay the debt under §6159 or §7122; or collection is suspended because of a collection due process hearing under §6330 or because innocent spouse relief under §6015(b),§6015(c), or §6015(f) is requested or pending.
• The $50,000 amount will be adjusted for inflation for calendar years beginning after 2016.
• The Act provides procedures for, and restrictions on, IRS's disclosure of the return information for purposes of passport revocation, as well as procedures for how an individual who was certified by IRS as having a seriously delinquent tax debt gets that certification reversed (i.e., in the case of an error).

New rules mandating IRS use of private debt collectors:

• Under pre-Act law, IRS is authorized under §6306 to enter into “qualified tax collection contracts” with private debt collection agencies. This provision permits the use of such companies to locate and contact taxpayers owing outstanding tax liabilities and arrange for payment thereof. There must be an assessment pursuant to §6201 in order for there to be an outstanding tax liability. An assessment is the formal recording of the taxpayer's tax liability that fixes the amount payable. An assessment must be made before the IRS is permitted to commence enforcement actions to collect the amount payable. In general, an assessment is made at the conclusion of all examination and appeals processes within the IRS.
• There are several steps involved in engaging private debt collection companies, and there are a number of safeguards and taxpayer protections in place.
• The Omnibus Appropriations Act of 2009, however, included a provision stating that none of the funds made available under it could be used to fund or administer §6306 private tax debt collection activities, and IRS announced in IR 2009-19 that it wouldn't renew its contracts with two private debt collection agencies, having “determined that the work is best done by IRS employees who have more flexibility handling cases, which is particularly important with many taxpayers currently facing economic hardship.”
• RIA observation: The National Taxpayer Advocate has repeatedly criticized prior efforts to use private debt collectors for unpaid taxes, noting that these programs raise significant taxpayer rights concerns and have repeatedly fallen far short of revenue-raising expectations.
• New law. The Act adds two new subsections to §6306 (adding new subsections (c) and (d) after the existing (b), and redesignating prior (c) through (f) as (e) through (h), accordingly), both applicable to tax receivables identified by IRS after the enactment date. (Act Sec. 32102)
• New §6306(c) says that IRS shall enter into one or more qualified tax collection contracts for the collection of all outstanding “inactive tax receivables.” An inactive tax receivable is any outstanding assessment that IRS includes in potentially collectible inventory, if:
• (i) at any time after assessment, IRS removes the receivable from active inventory for lack of resources or inability to locate the taxpayer;
• (ii) more than ⅓ of the period of the applicable statute of limitation has lapsed and the receivable hasn't been assigned for collection to any IRS employee; or
• (iii) for a receivable that has been assigned for collection, over 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering its collection.
• RIA observation: The use of the word “shall,” typically construed as mandating a certain action, is a significant departure from the present law version of §6306(a), which permits, but doesn't require, IRS action.
• New §6306(d) renders certain tax receivables ineligible for collection by private collectors, including those that, among other things, are subject to a pending or active offer-in-compromise or installment agreement, are classified as an innocent spouse case, or involve taxpayers that are deceased, under age 18, or identity theft victims.
• The Act adds §6103(k)(11) to provide procedures and restrictions on the disclosure of return information to qualified tax collection contractors.

Establishment of special compliance personnel program:

• New law. New §6307 provides that IRS should establish an account for carrying out a program consisting of the hiring, training, and employment of special compliance personnel. Special compliance personnel are individuals employed by IRS as field collection officers or in a similar position, or employed to collect taxes using the automated collection system or an equivalent replacement system. (Act Sec. 32103)

References:

1. Jonathan Bochese, Director of Resolution Services, Tax Defense Network
2. Internal Revenue Code

Virtual Currency

Virtual Currency

Under Notice 2014-21, virtual currency such as Bitcoin is considered property for federal tax purposes; it is recognized as a capital gain or loss on the sale. If virtual currency is received for performing services, your clients would recognize ordinary income equal to the fair market value of the virtual currency.
Newly issued Revenue Ruling 2019-24 established the following rules:

• Cryptocurrency: A type of virtual currency where the transactions are digitally recorded on a distributed ledger, such as blockchain.
• Hard fork: A protocol change and results in a permanent diversion. A new cryptocurrency and new distributed ledger are created, in addition to the legacy system. However, the taxpayer does not receive income in a hard fork alone.
• Airdrop: Cryptocurrency units are dispersed to the distributed ledger addresses of multiple taxpayers. This results in income to taxpayers, since they receive new currency.

Example: Taxpayer owns 100 units of Crypto A. Crypto A experiences a "hard fork" and Crypto B is created. 50 units of Crypto B are "airdropped" to the taxpayer. The taxpayer must report ordinary income equal to the fair market value of Crypto B.
Source: D'Avolio, Mike, CPA, JD, cpapracticeadvisor.com, 12/05/2019

Essential Information for Seniors

Essential Information for Seniors:

• Guide to a Happy Retirement
• Talking To Your Kids About Your/Parent’s Terminal Illness
• Caregiver Guide to Senior Health Issues
• Eating Well as You Age
• Most Common Health Concerns for Seniors
• Get the Facts on Alzheimer's
• What To Ask Your Doctor

Casualty or Theft Loss, §165(c)(1) of Business Property, §1245

Casualty or Theft Loss, §165(c)(1) of Business Property, §1245

• The taxpayer (TP) is a BitCoin Miner and lives in New Hampshire. TP owned $150,000 of computer equipment and servers, used for "BitCoin mining". The servers and computers used for BitCoin mining were located in Tennessee and maintained and managed by a registered company with employees owned by a Tennessee resident. The Tennessee owner of the Tennessee company committed larceny and stole all of the $150,000 worth of servers and equipment used in Bitcoin mining from the NH TP. TP has received NO insurance proceeds on the theft. Police reports have been filed with the local authorities and the TP has a lawyer working the case. The TN thief was arrested by local authorities. 
• The Tax Cuts and Jobs Act (TCJA), took effect in 2018, greatly reduced the casualty loss deduction for losses to personal property like your home. During 2018 through 2025, only losses to personal property caused by federally declared disasters are deductible.
• Nevertheless, this limitation does not apply to casualty losses related to business property, such as an office building, business equipment, or a car used for business. 

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Hi Stephen,

• What you’re looking for is right in the Code.
• IRC §165(h)(5) was added by §11044(a) of the TCJA effective for losses incurred in tax years beginning after 12/31/2017. It provides that in the case of an individual, any “personal casualty loss” isn’t deductible unless it is attributable to a Federally declared disaster.
• IRC §165(h)(3)(B) defines a “personal casualty loss” as a loss described in IRC §165(c)(3), which is a loss “of property not connected with a trade or business or a transaction entered into profit.” 
•  A loss incurred in a trade or business is described in IRC §165(c)(1), which is still allowable and need not be attributable to a Federally declared disaster.

David M. Fogel

Certified Public Accountant
1400 Spring Valley Drive
Roseville, CA 95661-7329
Tel. (916) 782-8933
Fax (916) 910-2071
E-mail: dfogel@surewest.net

Web: https://fogelcpa.com