Federal tax table 2014-2017 (Ver. 2)

Federal Tax Table 2014 - 2017 (Ver. 2)

Who Must File?	2014	2015	2016	2017
Filing Status/Age
Gross Income at least:
Single-Under 65	10,150	10,300	10,350	10,400
Single-65 or older	11,700	11,850	11,900	11,950
MfJ - Under 65 (both spouses)	20,300	20,600	20,700	20,800
MfJ - 65 or older (1 spouse)	21,500	21,850	21,950	22,050
MfJ - 65 or older (both spouses)	22,700	23,100	23,200	23,300
MfS - Any age	3,950	4,000	4,050	4,050
HofH - Under 65	13,050	13,250	13,350	13,400
HofH - 65 or older	14,600	14,800	14,900	14,950
QW - Under 65	16,350	16,600	16,650	16,750
QW - 65 or older	17,550	17,850	17,900	18,000
Standard  Deduction:	2014	2015	2016	2017
Single	6,200	6,300	6,300	6,350
MfJ/QW	12,400	12,600	12,600	12,700
MfS	6,200	6,300	6,300	6,350
HofH	9,100	9,250	9,300	9,350
Std Ded Pease AGI max limit @80% (reduce itemized deductions by 3% of the amount by which the TP’s AGI exceeds the 80% of AGI Pease threshold amount):
MfS	152,525	154,950	155,650	156,900
Single	254,200	258,250	259,400	261,500
HofH	279,650	284,050	285,350	287,650
MfJ/QW	305,050	309,900	311,300	313,800
Add'l standard deduction allowed for taxpayer blind or age 65 or older at end of tax year:
MfJ/QW/MfS  (married)	1,200	1,250	1,250	1,250
Single/HofH  (unmarried)	1,550	1,550	1,550	1,550
Child Tax Credit:
CTC per child under age 17	1,000	1,000	1,000	1,000
(Max refundable: 3 kids)
Standard Deduction  Phaseout begins @MAGI:
Single/HofH/QW	75,000	75,000	75,000	75,000
MfJ	110,000	110,000	110,000	110,000
MfS	55,000	55,000	55,000	55,000
Nondiscrimination Comp Limits:
Highly Comp EE	115,000	120,000	120,000	120,000
Key EE in top-heavy plan	170,000	170,000	170,000	175,000
Qualified Plan	260,000	265,000	265,000	270,000
Defined Benefit plan	210,000	210,000	210,000	215,000
Dependent Standard Deduction: (when dependent claimed on another person's tax return):
Greater of	1,000	1,050	1,050	1,050
-or- Dependent's earned
income plus	350	350	350	350
Personal Exemption	3,950	4,000	4,050	4,050
PEP Phaseout: 2% for every $2,500 over
AGI begins @AGI:
MfS	152,525	154,950	155,650	156,900
Single	254,200	258,250	259,400	261,500
HofH	279,650	284,050	285,350	287,650
MfJ/QW	305,050	309,900	311,300	313,800
Foreign Income exclusion	99,200	100,800	101,300	102,100
Max housing exp @30%	29,760	30,240	30,390	30,630
Housing exclusion @14%	13,888	14,112	14,182	14,294
Avg annual net income tax imposed for five (5) taxable years preceding date of loss of US citizenship (or cessation of long-term permanent residency) for individual to be a “covered expatriate” under §877A(g)(1)	157,000	160,000	161,000	162,000
Earned Income Credit	2014	2015	2016	2017
EITC is Zero @AGI
Married filing Joint:
with 3+ children	52,427	53,267	53,505	53,930
with 2 children	49,186	49,974	50,198	50,597
with 1 child	43,941	44,651	44,846	45,207
with no children	20,020	20,330	20,430	20,600
EITC is zero @AGI:
Single/QW/HofH:
with 3+ children	46,997	47,747	47,955	48,340
with 2 children	43,756	44,454	44,648	45,007
with 1 child	38,511	39,131	39,296	39,617
with no children	14,590	14,820	14,880	15,010
EITC max credit:
with 3+ children	6,143	6,242	6,269	6,318
with 2 children	5,460	5,548	5,572	5,616
with 1 child	3,305	3,359	3,373	3,400
with no children	496	503	506	510
Gift & Estate:	2014	2015	2016	2017
Personal gift & estate exemption (per Individual)	5.34M	5.43M	5.45M	5.49M
Married couple
Portability between spouses: DSUEA (TRA 2010)	10.68M	10.86M	10.90M	10.98M
GST tax exemption	5.34M	5.43M	5.45M	5.49M
(No DSUEA portability)
Lifetime Gift-tax exemption	5.34M	5.43M	5.45M	5.49M
Estate/GST tax
max/top tax rate	40%	40%	40%	40%
Gift tax
max/top tax rate:	40%	40%	40%	40%
Special use valuation limit (qualified real property in decedent's gross estate): §2032A	1,090K	1,100K	1,100K	1,120K
Annual Exclusion:
Gift tax exclusion §2503	14,000	14,000	14,000	14,000
Gift tax exclusion non-citizen spouse §2523(i)	145,000	147,000	148,000	149,000
Mileage Rates	2014	2015	2016	2017
Standard Mileage Rates (cents/mile):
Business (gas & oil, insurance, repairs, tires,maintenance, depreciation)	56	57.5	54	53.5
Depreciation (component)	22	24	24	25
Medical & moving	23.5	23	19	17
Charitable	14	14	14	14
Lease inclusion table when FMV over:
Automobile	18,500	17,500	19,000	19,000
Truck/Van	19,000	18,500	19,500	19,500
Alternative Min Tax:	2014	2015	2016	2017
AMT Exemption:
MfJ/QW	82,100	83,400	83,800	84,500
Single/HofH	52,800	53,600	53,900	54,300
MfS	41,050	41,700	41,900	42,250
Estates & Trusts	23,500	23,800	23,900	24,100
AMT Exemption Phaseout:
Reduced by 25% over AMTI, begins @AGI:
MfJ/QW	156,500	158,900	159,700	160,900
Single/HofH	117,300	119,200	119,700	120,700
MfS	78,250	79,450	79,850	80,450
Estates & Trusts	78,250	79,450	79,850	80,450
AMT tax rate (low 26%/high 28%)
28% hi-rate begins @AGI:
MfJ/QW/     Estates&Trusts	182,500	185,400	186,300	187,800
Single/HofH	182,500	185,400	186,300	187,800
MfS	91,250	92,700	93,150	93,900
Education Provisions	2014	2015	2016	2017
(only one education   benefit for same  qualifying expense):
American Opportunity Credit (AOTC)*	2,500	2,500	2,500	2,500
(modified HOPE credit)*
(1st 4-years of college) 40% refundable i.e. $1,000
AOTC Phaseout @MAGI:
Single/HofH/QW begins	80,000	80,000	80,000	80,000
Single/HofH/QW ends	90,000	90,000	90,000	90,000
MfJ begins	160,000	160,000	160,000	160,000
MfJ ends	180,000	180,000	180,000	180,000
MfS	-0-	-0-	-0-	-0-
Lifetime Learning Credit (LLC)** (All years of post-secondary education to acquire or improve job skills)	2,000	2,000	2,000	2,000
(20% of 1st $10K tuition)
LLC Phaseout begins @MAGI:
Single/HofH/QW	54,000	55,000	55,000	56,000
MfJ	108,000	110,000	110,000	12,000
MfS	-0-	-0-	-0-	-0-
Tuition & Fees Deduction**	4,000	4,000	4,000	n/a
Tuition & Fees Deduction Phaseout begins @MAGI:
Single/HofH/QW	65,000	65,000	65,000	n/a
MfJ	130,000	130,000	130,000	n/a
Student loan interest** deduction	2,500	2,500	2,500	2,500
Student Loan Interest Phaseout begins @MAGI:
Single/HofH/QW	65,000	65,000	65,000	65,000
MfJ	130,000	130,000	130,000	135,000
MfS	-0-	-0-	-0-	-0-
Coverdell ESA* (< age 18) annual contribution	2,000	2,000	2,000	2,000
(elementary, secondary, college)
Coverdell ESA* Phaseout ends @MAGI:
Single/HofH/QW	110,000	110,000	110,000	110,000
MfJ	220,000	220,000	220,000	220,000
§529 Annual limit/Donor*	14,000	14,000	14,000	14,000
Lump-sum §529-single	70,000	70,000	70,000	70,000
Lump-sum §529-joint	140,000	140,000	140,000	140,000
($300K lifetime)
*per student/**per family
Depreciation/§179	2014	2015	2016	2017
Depreciation limits
1st year cap (New)
Bonus Depr (Add'l 50%):
Automobiles	11,160	11,160	11,160	11,160
Trucks & Vans	11,460	11,460	11,560	11,560
1st year cap (Used)
No Bonus (Standard):
Automobiles	3,160	3,160	3,160	3,160
Trucks & Vans	3,460	3,460	3,560	3,560
2nd year limit:
Automobiles	5,100	5,100	5,100	5,100
Trucks & Vans	5,500	5,600	5,700	5,700
3rd year limit:
Automobiles	3,050	3,050	3,050	3,050
Trucks & Vans	3,350	3,350	3,350	3,450
4th etc. year limit:
Automobiles	1,875	1,875	1,875	1,875
Trucks & Vans	1,975	1,975	2,075	2,075
Code §179 Vehicle Expensing - 1st year:
SUV limit (per vehicle)	25,000	25,000	25,000	25,000
for Trucks & Vans
having 'unloaded' GVWR
over 6,000 lbs. (Plus
50% or 100% additional
1st year Bonus
depreciation.  Subject to
depreciation dollar
limits within MACRS
allowable  percentages)
Code §179:
Annual Expense Limit	500K	500K	500K	510K
Property cost limit prior to phase-out:	2M	2M	2M	2.03M
(Phase-out begins when
§179 property exceeds)
Capital gains rates:	2014	2015	2016	2017
3.8% Medicare surtax	3.8%	3.8%	3.8%	3.8%
(NIIT) on lessor of Net
Investment  Income (NII) or @AGI:
>$250K MfJ/QW
>$200K Single/HofH
>$125K MfS
Estates & Trusts  @3.8%
>Undistributed NII	12,150	12,300	12,400	12,500
(ATRA 2012 IRC §1411)
Long term Capital Gains & Qualifying & Dividends Tax Rate for taxpayers in:
10% - 15% bracket	-0-%	-0-%	-0-%	-0-%
25% - 35% bracket	15%	15%	15%	15%
39.6% bracket	20%	20%	20%	20%
20% Cap Gain tax rate begins @ AGI:
>$450K+COLA MfJ/QW
>$400K+COLA Single
MfJ/QW	457,600	464,850	466,950	470,700
HofH	432,200	439,000	441,000	444,550
Single	406,750	413,200	415,050	418,400
MfS	228,800	232,425	233,475	235,350
Estates & Trusts UNII	12,150	12,300	12,400	12,500
Tax on §1250 gain	25%	25%	25%	25%
depreciation recapture
(buildings) TRA1997
Capital gains tax rate	28%	28%	28%	28%
on collectibles: (gold,
coins, art, antiques) & Qualified Small Business Stock §1202
Retirement	2014	2015	2016	2017
401(k), 403(b), 457 plans Annuities, SARSEP
Annual Elective
Deferral Limit:
Under age 50	17,500	18,000	18,000	18,000
Age 50+ catch-up	5,500	6,000	6,000	6,000
Defined Contribution Plan:
SEP/Profit-sharing
contribution limit	52,000	53,000	53,000	54,000
Age 50+ catch-up	5,500	6,000	6,000	6,000
limited to 25% of comp
SEP Min comp amount	550	600	600	600
Solo 401(k):
Contribution limit	52,000	53,000	53,000	54,000
Age 50+ catch-up (limited to 100%  of comp)	5,500	6,000	6,000	6,000
Saver's credit:
Individual	1,000	1,000	1,000	2,000
Couples	2,000	2,000	2,000	4,000
Phaseout ends @AGI:
Single/MfS	30,000	30,500	30,750	31,000
HofH	45,000	45,750	46,125	46,500
MfJ	60,000	61,000	61,500	62,000
SIMPLE & SIMPLE 401(k) §408(p)(2)(e):
Under age 50	12,000	12,500	12,500	12,500
Age 50 catch-up	2,500	3,000	3,000	3,000
IRA*/Roth Contribution limits
(not to exceed income):
Under Age 50	5,500	5,500	5,500	5,500
Age 50+ catch-up	1,000	1,000	1,000	1,000
Traditional IRA Phaseout begins @AGI:
TP "covered" at work:
Single/HofH	60,000	61,000	61,000	62,000
MfJ/QW	96,000	98,000	98,000	99,000
MfS	-0-	-0-	-0-	-0-
TP "not covered" at work/ Spouse "covered" at work
Phaseout begins @AGI:
MfJ	181,000	183,000	184,000	186,000
*Traditional IRA fully deductible, regardless of income, if NOT covered by employer plan at work.
Roth Phaseout  begins @AGI:
Single/HofH	114,000	116,000	117,000	118,000
MfJ/QW	181,000	183,000	184,000	186,000
MfS	-0-	-0-	-0-	-0-
Social Security	2014	2015	2016	2017
50% Taxable when Modified Adjusted Gross Income (MAGI) is more than:
Single	25,000	25,000	25,000	25,000
Married	32,000	32,000	32,000	32,000
85% Taxable:
Single	34,000	34,000	34,000	34,000
Married	44,000	44,000	44,000	44,000
Benefits Planner
Quarter of Coverage:	1,200	1,220	1,260	1,300
(Earnings needed
to earn one Social
Security credit)
Max earnings - Social
Security recipients:
Benefits witholding	15,480	15,720	15,720	16,920
Prior to FRA (Age 62-65)
($1/$2 earnings above)
Benefits witholding	41,400	41,880	41,880	44,880
Year of FRA (Age 66)
($1/$3 earnings above)
After Full	no limit	no limit	no limit	no limit
Retirement age
Max Monthly SS Benefit	2,642	2,663	2,639	2,687
Worker retiring @ full retirement age
Social Security
Max taxable earnings limit	117,000	118,500	118,500	127,200
subject to
Social Security tax
Max taxable earnings subject	no limit	no limit	no limit	no limit
to Medicare tax
plus 0.9% Medicare
surtax withheld on
taxable income
>$250K MfJ
>$200K Single/HofH
>$125 MfS
(Obama Care)
Medicare Part B:
Base-Premium/year	1,260	1,260	1,464	1,608
Yearly income <$85K	105/mo	105/mo	122/mo	134/mo
(Dr. visits, surgeries,  lab tests, ambulance,
& supplies)
General deductions,	2014	2015	2016	2017
exclusions & Health items:
Adoption credit:	13,190	13,400	13,460	13,570
(non-refundable)
Phaseout begins @MAGI	197,880	201,010	201,920	203,540
Phaseout ends @MAGI	237,880	241,010	241,920	243,540
Nanny tax threshhold:
Household employee
(Schedule H)
Amount FICA begins	1,900	1,900	2,000	2,000
Amount FUTA begins	1,000	1,000	1,000	1,000
"Kiddie Tax" threshold:
(Kids under 19) Kid's unearned income over earnings limit taxed @ parent's highest rate	2,000	2,100	2,100	2,100
Attorney fee award	190	200	200	200
limitation (per hour)
§7430(c)(1)(B)(iii)
Commuter fringe/month (vanpool, bus, ferry, rail & all public trans)	130	250	255	255
Parking fringe	250	250	255	255
ISRP (No MEC?)
ISRP Higher of:
% of Household Income	1%	2%	2.50%	2.50%
-or- flat fee/Adult	95	325	695	695
flat fee/Child   under 18	47.5	162.5	347.5	347.5
Max flat fee per family	285	975	2,085	2,085
(Max cannot exceed Nat'l Avg Marketplace Bronze Plan annual premium)
Medical Savings Account:
Max % of deductible-self	65%	65%	65%	65%
HDHP Max Deductible	3,250	3,300	3,350	3,350
HDHP Min Deductible	2,200	2,200	2,250	2,250
Max out-of-pocket	4,350	4,450	4,450	4,500
Max % of deductible-family	75%	75%	75%	75%
HDHP Max Deductible	6,550	6,650	6,700	6,750
HDHP Min Deductible	4,350	4,450	4,450	4,500
Max out-of-pocket	8,000	8,150	8,150	8,250
HSA Contribution Limit
100% Deductible:
Self-only	3,300	3,350	3,350	3,400
Family	6,550	6,650	6,750	6,750
Catch-up (55+)	1,000	1,000	1,000	1,000
HDHP Min deductible:
Self-only	1,250	1,300	1,300	1,300
Family	2,500	2,600	2,600	2,600
HDHP Max out-of-pocket:
Self-only	6,350	6,450	6,550	6,550
Family	12,700	12,900	13,100	13,100
LTC Premium
deduction limit:
Age 40 or less	370	380	390	410
Age 41 to 50	700	710	730	770
Age 51 to 60	1,400	1,430	1,460	1,530
Age 61 to 70	3,720	3,800	3,900	4,090
Age over 70	4,660	4,750	4,870	5,110
LTC Benefit	330	330	340	360
Max daily excludable
Flex-Spending Account
Cafeteria Plan §125:
Max excludable ($500 max unused annual carryover)	2,500	2,550	2,550	2,600
Property exempt
from levy §6334(a)(2):
Furniture personal	8,940	9,080	9,120	9,200
Tools/Books	4,470	4,540	4,560	4,600
Per Diem Rates §274(d) Annual High/Low
High-cost locality:
Lodging	186	194	207	214
Meals & Incidentals	65	65	68	68
Max high-cost rate	251	259	275	282
Low-cost locality:
Lodging	118	120	128	132
Meals & Incidentals	52	52	57	57
Max low-cost rate	170	172	185	189

Federal Tax Info Source: IRC, Rev Proc's, 

Bulletins, Notices & Announcements 

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This information is provided for general information and educational purposes only.

It is based upon publicly available information from sources believed to be reliable.

No assurance to accuracy or completeness can be made,

 and information may change at any time and without notice.

History of Enrolled Agents

History of Enrolled Agents

• The following is provided as an overview of how Enrolled Agents fit into the US tax system. Post Civil War (April 12, 1861 – April 09, 1865) Congress enacted legislation that gave citizens of the US authority to make claims for the value of horses and other property lost during the Civil War. These claims were to be filed with the Treasury Department.
• It soon became evident that more claims had been submitted than horses lost?
• July 7, 1884 - Under President Chester Arthur, the General Deficiency Appropriation Bill (HR 2735) signed into law. (known as the Horse Act of 1884 or the Enabling Act.)
• This law gave the Secretary of the Treasury authority to regulate the admission of attorneys and agents who represented claimants before the Treasury Department and to take appropriate disciplinary action against those who failed to comply with the regulations or who were incompetent.
• 1966- More revisions to Circular 230 became effective in September 1966.
• The Treasury Department/IRS agreed to continue the Special Enrollment Exam and provide an official name for these representatives by establishing the “Enrolled Agent” designation.
• 1994 More revisions to Circular 230 became effective in 1994.
• Enrolled Agents were approved to use the initials “EA" to denote the Enrolled Agent title.

White House Proposal

White House proposal

(President President Trump Releases a One Page Plan):
Individual Tax Reform

• Reduce seven (7) tax brackets into three (3) tax brackets. 
• The current marginal rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. 
• Three new proposed rates of 10%, 25%, and 35%. 
• The administration has yet to identify the tax bracket income levels for these new rates? 
• Repeal the Affordable Care Act's (ACA) 3.8% net investment income tax imposed upon unearned income and capital gains of high-income taxpayers.
• Double the standard deduction.
• Limit itemized deductions to mortgage interest and charitable contributions.
• Repeal the estate tax.
• Repeal the Alternative Minimum Tax (AMT).
• Provide tax relief for families with child and dependent care expenses. 
• The administration has yet to clarify how this relief will differ from the current expenses under IRC §21.

Business Tax Reform

• Lower the business tax rate to 15%. While the current corporate tax rate is 35%, many small businesses  (S-Corp's P-Ships)  pass through their income via K-1's to the individual level. 
• The administration has yet to identify any rules which may be established to prevent individuals from creating pass-through entities to avoid being taxed at a lower business rate, rather than higher individual rate?  But there would be rules established to prevent this practice from taking place?
• Establish a territorial tax system. 
• Foreign earned income would generally be excluded from this system.
• Eliminate tax breaks for special interests. 
• Establish a "one-time tax" on corporate earnings realized and held overseas (on which tax is deferred).

Source: NAEA E@lert Newsletter April 28, 2017

Tax Court

Tax Court

• The US Tax Court generally provides one of three types of opinions, referred to as TC Opinion, TC Memorandum, and TC Summary. Before we discuss how those opinions differ, an overview is helpful. Each opinion is considered the decision of the entire Tax Court, rather than that of the issuing judge alone. In this fashion, the Court acts in a collegiate manner similar to that of an appellate court (though the Tax Court is not truly "en banc" because the judges do not sit together to hear arguments).
• A draft opinion is prepared after the final reply brief is filed. Usually the judge (or trial judge) who heard the case prepares the draft opinion, but that's not required. Draft opinions do not become opinions of the Tax Court until the Chief Judge reviews them.
• The Chief Judge may choose within 30 days to ask the entire court to review the opinion, making it a "reviewed opinion." Review by the full court is likely to happen if the draft opinion invalidates a regular opinion or overrules Tax Court precedent. If a case of first impression, the full court may review the opinion. Reviewed opinions may also occur if the issue is likely to come up in another pending case, if the matter overrules a prior Tax Court decision, or if the Tax Court was previously reviewed by a Court of Appeals. The Chief Judge selects a judge to write the reviewed opinion and other judges offer concurring or dissenting opinions that follow the Court opinion. The Chief Judge determines which description an opinion will have.Cutting to the chase (finally), the three types of opinions follow:
  • TC Opinion: Regular opinions are published in the Reports of the Tax Court; they are considered to be binding precedent and are cited as XXX TC XX. These are the highest level rulings and may be cited and appealed.
  • TC Memorandum: Memorandum opinions are published commercially; these usually apply settled law to the facts and circumstances of the case in question. Importantly, memo decisions do not set precedent, but the Court does not easily ignore them and they can become even more important if they were subject to an appellate review. They are cited TC Memo YEAR-NUMBER. These decisions may be cited and appealed.
  • TC Summary: Summary opinions are those issued but not officially published (and usually rendered in small tax cases). A summary opinion does not set precedent and may NOT be cited (although they may still be useful with IRS examination staff). They are referred to as TC Summary YEAR-NUMBER.
• As an aside, the entry of a decision may be withheld pending a final computation by both parties. Rule 155 computations may be based on valuation issues, or may indicate a split between the taxpayer and IRS on multiple issues. If the parties agree on the amount of deficiency, liability, or overpayment, each submits a computation and a statement of agreement. To be clear, agreement with a calculation does not waive appeals rights. The Court renders a decision when it receives an agreed Rule 155 computation.
• If the parties cannot agree on computation, either may file with the Court a computation of the amount believed to reflect the Court's findings and conclusions. When parties submit differing computations, they may be allowed the opportunity to be heard in argument, after which the Court will determine the correct amount due.
• No new issues may be raised during the hearing, which is held strictly on the question of correct computation. No reconsideration may be requested, though pure issues of law may be reconsidered and mechanical or math adjustments are permitted.
• You'll see below an example of each type of case: a TC Opinion, a TC Memorandum, and a TC Summary.
  • Is compensation for the donation of eggs includable in income? In Perez (144 TC 4 (1/22/15)), http://www.ustaxcourt.gov/InOpHistoric/perezdiv.holmes.TC.WPD.pdf
     the taxpayer received $20,000 in exchange for undergoing painful procedures to donate her unfertilized eggs to infertile couples. Under her contracts the sums she received were designated as compensation for pain and suffering, and she did not report these amounts on her 2009 income tax return. Judge Holmes in this instance concluded Donor Source did not exceed the scope of the taxpayer's contractual consent; as such compensation for pain and suffering from the consensual performance of a service contract is not "damages" under §104(a)(2) and must be included in gross income (take note: NAEA included this case in their top-ranked "Is This Income?" course at IRS' 2015 Nationwide Tax Forum).
    • NOTE: Judge Holmes also looked to the possible interpretations that could occur if the Court ruled differently - that a professional boxer could argue that part of his fee was payment for bruises, nosebleeds and cuts, or that a hockey player could argue that a portion of his salary was allocable to chipped teeth, and football players could allocate part of their earnings for brain injuries. The risk is known and is part of what they agree to before beginning their work, which is what makes it taxable income and not excludable.
  • It's not a joint return when it's signed under duress ... in Hiramanek (TC Memo 2016-92 (5/10/16)), https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=10796taxpayer's
    ex-wife previously sought relief from joint liability for the 2006 tax year and reached a settlement with the IRS that since she signed under duress, it wasn't a joint tax return and she had no liability for the deficiency (the Tax Court trial came to the same conclusion). While the first case was pending, the taxpayer filed his own request for relief under §6015, which was denied (it isn't possible to have two innocent spouses). Taxpayer appealed the decision in the first case to the 9th Circuit and lost, and attempted to appeal to the Supreme Court, which denied the writ for certiorari. Taxpayer filed Form 8857, Request for Innocent Spouse Relief, for 2006 (the same tax year).
  • How does equitable ownership allow the taxpayer to deduct mortgage interest? In Phan (TC Summary 2015-1 (1/12/15)) http://www.ustaxcourt.gov/InOpHistoric/phansummary.kerrigan.sum.WPD.pdf
    , the taxpayer moved onto a three acre ranch in California to help his mother. In 2010, the legal title was held by Phan's mother, brother and father - the brother and father did not live at the property, and the mother was divorcing the father. Phan could not buy the property himself, but had an oral agreement with his mother and siblings that he would pay the mortgage loan and the property taxes, and those payments would increase his equity interest. His name was added to the title in 2013. In 2010, Phan claimed a $35,880 mortgage interest deduction, which the IRS denied. The taxpayer may become the equitable owner if he or she assumes the benefits and burdens of ownership. Phan resided at the property and made mortgage payments plus property tax and insurance, paid the cable bill, and made improvements to the property. Taxpayer was entitled to the interest deduction as claimed.
• Please note the cover sheet, which states, "Pursuant to Internal Revenue Code Section 7463(b), this opinion may not be treated as precedent for any other case."
Source: SHERRILL L. (GREGORY) TROVATO, MBA, MST, EA, USTCP

OIC Denial due to Home Equity

Offer-in-Compromise (OIC) Denial due to Home Equity

• The IRS lien remains, even if you’re in “Currently-Not-Collectible” (CNC) status. At this point, the only way to remove the IRS lien is to pay off the entire amount of tax due. 
• Here are some options, if lien removal is your primary goal:
• sell your house, then pay this tax debt out of the proceeds and either buy a cheaper home or live in an apartment
• find a lender willing to approve a home equity loan for the amount of the tax debt, then pay off the IRS entirely and make monthly payments to the lender
• set up an installment agreement with the IRS to pay off the entire amount due; this works only if you can do it within six years
• If none of those options are appealing, and some may not be possible... the alternative is Currently-Not-Collectible (CNC) status. You can qualify for this if your sole source of income is Social Security Disability Insurance payments or if your monthly allowable expenses exceed your monthly income. If you are able to get this status, you don’t have to make any more payments to the IRS, ever, so long as your income doesn’t improve significantly. However, the tax debt remains, the lien remains, and interest continues to accumulate. That’s not a happy solution, either, I’m sure.
• The one "bright light at the end of the tunnel" is that the IRS has a time limit for collecting on this sort of tax liability. The limit is ten years from the date of assessment, plus whatever time is spent while contesting the debt in any way, such as via an Offer-in-Compromise or a petition to Tax Court. If you filed for bankruptcy, the ten-year clock would pause, too. (You can sometimes discharge IRS liabilities in bankruptcy, but you can’t remove an IRS lien that way.)
• For example, if your 2012 tax liability was assessed on December 25, 2013 -- this means the IRS can no longer collect on your 2012 tax liability – and the lien will expire a natural death on December 25, 2023, plus however many days the Offer-in-Compromise (OIC) was in process?

Good News for OIC and CNC as posted by Keith Fogg in Procedurally Taxing
On Procedurally Taxing, Keith Fogg discussed in his blog posted February 15, 2017
• Tax Court Opinion, *Brown v. Commissioner*, Docket No. 20006-13L. [importance of this decision for low-income folks with equity in their home who owe the IRS]
• This Tax Court Case can now be cited as authority for using assets to “plug the gap” when expenses exceed income. If the asset is needed to help the taxpayer meet reasonable basic living expenses then the asset arguably can be excluded for calculating the reasonable collection potential. While *Brown v. Commissioner* addresses the financial analysis for CNC the same financial analysis can be applied for OIC. In the past our LITC has cited *Porro v. Commissioner,* TC Memo 2014-81 and *Crosswhite v. Commissioner,* TC Memo 2014-79 though they are only TC Memo cases. In all of these cases the financial analysis is similar as discussed in this recent *Brown* decision.
• In *Porros*, the settlement officer excluded net equity/assets in excess of $200,000 (extrapolating living expenses over ten years)from the taxpayer’s reasonable collection potential calculations. In *Crosswhite*, the Court sent back to the appeals office a case where the appeals officer rejected an OIC and only considered net equity, but failed to determine the taxpayer’s reasonable collection potential by considering future income and monthly deficits.
• Our LITC and other LITC’s in Ohio have been successful excluding pensions, equity in home (though we usually attach a rejection of a home equity loan) and equity in automobiles (though we also submitted handicapped tags). To complete the financial analysis, our LITC uses the Social Security Administration’s actuary tables to determine life expectancy. The next step is to multiply the taxpayer’s monthly deficit by the remaining months on the actuary table. If the total amount of money needed to "plug the gap" is greater than the actual value of the asset then the asset is excluded.
In other words, if the asset will be exhausted before the year of death, then the asset is excluded and is not considered when determining the reasonable collection potential. Our LITC and other LITC’s have been successful using this analysis as described in *Brown.*

Source: Barbara G. Heggie, Coordinator & Staff Attorney, NH Low-Income Taxpayer Project

Kovel Agreements

Kovel Agreements - Because there is NO federal Accountant-Client privilege, Accountant-Client communications are NOT protected from disclosure in federal court. A Kovel Agreement is a key tool to help protect these communications.

• In sensitive tax matters, the answer to this dilemma is the Kovel letter, named after United States v. Kovel. Your tax lawyer hires an accountant. In effect, the accountant is doing your tax accounting and return preparation, but reporting as a subcontractor to your lawyer.
• Properly executed, it imports attorney-client privilege to the accountant’s work and communications. 
• In recent years, the IRS has won several key decisions in the federal courts that limit the extent of the protections afforded to clients under the Kovel Rule. Recent IRS lawsuits eroding the Kovel Rule are United States v. Richey, the Ninth Circuit refused to protect an appraisal that a taxpayer, lawyer and accountant were trying to keep from the IRS. In United States v. Hatfield, the court forced disclosure of discussions between the lawyer and accountant. 
• The Kovel Rule takes its name from Louis Kovel, an IRS agent who later joined a law firm specializing in tax cases, lending his expertise in tax accounting. In 1961, Kovel was sentenced to prison for refusing to answer questions in court about discussions with a client, which he believed to be protected by the principle of lawyer-client privilege. His conviction was overturned upon appeal. 
• In the Kovel case, a law firm specializing in tax law employed an experienced accountant on its own staff. In the course of representing a client that was the target of a grand jury investigation for various income-tax offenses, the taxpayer communicated information to the accountant and the accountant prepared work for the client at the direction of the attorneys. 
• When the accountant appeared before the grand jury and refused to answer questions, the judge held him in criminal contempt and sentenced him to a year in prison. The accountant challenged that decision to the Second Circuit. The Second Circuit held that the attorney-client privilege extends to communications made by a client to an accountant in the attorney's employ incident to the client's obtaining legal advice from the attorney. The court analogized the accountant's role to that of a translator helping the attorney who is "ignorant of the [client's] foreign language" to give more effective legal advice (Kovel, 296 F.2d at 921-22). 
• Since Kovel, courts have recognized both a privilege protection that attaches to communications between the accountant and taxpayer client, as well as a work product protection that attaches to the accountant's work papers and file. 
• Although California state courts have not yet addressed Kovel, under California Evidence Code §954, accountants may be included in the attorney-client privilege if their presence furthers the interest of the client and is reasonably necessary to assist the lawyer in giving the client legal advice. The key is that the accountant's job is to assist the attorney, not the taxpayer, in navigating the accounting complexities that are incident to defending the criminal tax lawsuit. 
• Two privileges may apply to an accountant’s tax advice to a client: the practitioner-client privilege granted by IRC §7525 and the work product privilege established by the Supreme Court in Hickman v. Taylor, 329 U.S. 495 (1947) and codified in the Federal Rules of Civil Procedure. Fed. R. Civ. P. 26(b)(3). 
• The application of each privilege is based on specific standards that are carefully weighed by the court when the privilege is claimed. If the practitioner and the client have maintained a defensive posture throughout the communication and documentation process, it is more likely that the privilege will be upheld and IRS access will be denied. 
• A statutory “tax preparation” privilege was added in 1998 (IRC §7525(a)(1)) but is inapplicable to criminal tax cases, so is of little value. 
• The federal tax practitioner privilege only applies in civil tax proceedings before the IRS and in federal court brought by or against the United States (see 26 USC §7525).
• In addition, the privilege does not extend to communications about tax return preparation [see United States v. KPMG LLP, 237 F. Supp. 2d 35, 39 (D.D.C. 2002); United States v. Gurtner, 474 F.2d 297, 299 (9th Cir. 1973)]. 
• Nor does it apply to communications regarding tax shelters (which the statute defines broadly) or made in furtherance of a crime or fraud [see 26 U.S.C. § 7525(b); United States v. BDO Seidman, LLP, 492 F.3d 806, 819 (7th Cir. 2007) (describing crime-fraud exception)].
• And, the statutory privilege does not protect the accountant's work product from disclosure (see KPMG, 237 F. Supp. 2d at 39).
• Importantly, although clients may prefer it for efficiency and cost reasons, a CPA should not agree to a Kovel arrangement if he/she has already been acting as the taxpayer client's CPA. If you are the taxpayer client's longtime accountant, the line between your work as an accountant and your work as the attorney's consultant may be blurred.
• What the CPA knew and when the CPA knew it vis-a-vis the Kovel arrangement will become critical, and possibly difficult to establish. Although the CPA's instinct may be to continue helping his/her longtime client, the CPA may actually be doing the client a disservice by taking on the Kovel engagement. Instead, recommend another qualified accountant to serve as the Kovel accountant and with whom you can work to provide information regarding your pre-Kovel work.
• If you are the new Kovel accountant, you should advise your client to stop communicating with the longtime CPA directly. Instead, information gathering from the prior CPA should be done by the legal team, including the Kovel accountant. Be aware that the party asserting the attorney-client privilege has the burden of establishing the privileged nature of the communications. A CPA and the Kovel attorney should follow these best practices to ensure that the taxpayer client can meet that burden: 
• Memorialize the Kovel relationship in writing (with a Kovel letter) before any services are performed. The engagement letter should be on the law firm's letterhead and addressed directly to the Kovel accountant.
• The letter should state clearly that the law firm is engaging the accountant directly and that the accountant is rendering services to aid the attorney in the provision of legal services (rather than the accountant providing the taxpayer client with tax-related services). Examples of services that typically fall within a Kovel engagement are reviewing tax returns and determining errors; reviewing financial records for unreported income or inappropriate write-offs; advising the attorney on technical tax issues, and computing taxes to assist in criminal sentencing issues.
• Whereas many standard law firm engagement letters state that any work product generated is the property of the "client," the language should state that the work product generated by the accountant is the property of the law firm. In essence, the law firm becomes your client. 
• Although the attorney is not required to be involved in every communication between you and the client, the attorney should oversee all those communications, and work you perform under the Kovel arrangement must be done at the direction of the attorney.
• Make sure you address any letters or memos you prepare to the law firm, not to the taxpayer client or "the file." 
• While it is acceptable for the taxpayer ultimately to pay your bills as the Kovel accountant, it's a good idea to have the billing run through the attorney first. Or, the attorney may take a bigger retainer at the outset from the taxpayer client and pay you with those funds. 
• You should prominently label all correspondence "attorney-client privileged" and all work papers "attorney work product." 
• In the rare case where you, as the existing CPA, are engaged as the Kovel accountant, you should implement an ethical wall in your accounting firm so that professionals who were involved in preparing prior returns will not have access to Kovel privileged communication.