Monthly Archives: August 2016

New Relief for Missing 60 Day Rollover Deadline

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60 day waiverDistributions from IRAs or qualified plans are not taxable and not subject to penalty if they are transferred to an eligible retirement plan no later than the 60th day following the day of receipt.  A similar rule applies to 403(a) annuity plans, 403(b) tax sheltered annuities, and 457 government plans.

If the rollover is not made within 60 days of receipt, the amount distributed will be subject to income tax and will be subject to a 10% early withdrawal penalty.  Unfortunately, mistakes happen and taxpayers sometimes miss the 60 day deadline to complete the rollover.

Relief Available for Missing the 60 Day Rollover Deadline

The IRS may waive the 60 day requirement where the failure to waive the 60 day requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the taxpayer.

New guidance from the IRS provides relief for taxpayers who have a good reason for missing the 60 day deadline.  The guidance allows the taxpayer to make a written certification to a plan administrator or IRA custodian that the taxpayer meets the requirements for the IRS to waive the 60 day rule.  The IRA custodian or plan administrator may rely on the written certification and treat the rollover as if it was made within the 60 day period.  However, the certification is subject to audit by the IRS.

The requirements of the self certification are:

  1. the IRS must not have denied a previous waiver request with respect to a rollover of all or part of the distribution to which the contribution relates
  2. the taxpayer must have missed the 60 day deadline because of the taxpayer’s inability to complete a rollover due to one or more of the following reasons:
  • an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates
  • the distribution, having been made in the form of a check, was misplaced and never cashed
  • the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan
  • the taxpayer’s principal residence was severely damaged
  • a member of the taxpayer’s family died
  • the taxpayer or a member of the taxpayer’s family was seriously ill
  • the taxpayer was incarcerated
  • restrictions were imposed by a foreign country
  • a postal error occurred
  • the distribution was made on account of an IRS levy and the proceeds of the levy were returned to the taxpayer
  • the party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information

The contribution must be made to the plan or IRA as soon as practicable after the reason(s) listed in the preceding paragraph no longer prevent the taxpayer from making the contribution.  This requirement is automatically satisfied if the contribution is made within 30 days after the reason(s) no longer prevent the taxpayer from making the contribution.

The Self-Certification is Subject to IRS Audit

The IRS may, in audit, consider whether a taxpayer’s contribution meets the requirements for a waiver.  For example, the IRS may determine that the requirements for a waiver were not met because of a misstatement in the self-certification, the reason(s) claimed for missing the 60 day deadline did not prevent the taxpayer from completing the rollover within 60 days, or the taxpayer failed to make the contribution as soon as practicable after the reason(s) no longer prevented the taxpayer from making the contribution.  If the IRS disallows the waiver, the taxpayer will be subject to tax and penalty on the distribution.

To see how this applies to you, give us a call at 248-538-5331.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

IRS Impersonators Now Targeting Students & Parents

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More and more people are receiving phone calls from IRS impersonators.  The latest scam involves telephone scammers targeting students and parents during the back-to-school season and demanding payment for non-existent taxes, such as the “Federal Student Tax.”

During these calls, if the student or parent does not cooperate with the scammer, the scammer will become aggressive and threaten to report the student to the police to be arrested.  As schools and universities are preparing for the new school season, it is important for taxpayers to be aware of this latest scam.

IRS impersonators are constantly identifying new ways to carry out their crimes in new and unsuspecting ways.  Some of the latest scams include:

  • Altering the caller ID on incoming phone calls in a spoofing attempt to make it seem like the IRS, the local police, or another government agency is calling
  • Imitating tax software providers to trick tax professionals
  • Demanding fake tax payments using iTunes gift cards
  • Contacting human resource professionals to solicit W-2 information of employees
  • “Verifying” tax return information over the phone
  • Pretending to be from the tax preparation industry

These scammers often threaten to do things that the IRS would never do.  It is the telltale sign of a scam if the impersonator attempts extraordinary IRS measures.  The IRS will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card, or wire transfer. The IRS will first mail you a bill before doing anything else.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe
  • Ask for credit or debit card numbers over the phone

If you get a call from an IRS impersonator, here’s what you should do:

  • Do not give out any information. Hang up immediately
  • Search the web for telephone numbers scammers leave in your voicemail asking you to call back. Some of the phone numbers may be published online and linked to criminal activity
  • Contact the U.S. Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484 or at their website to report the call.
  • Report the call to the Federal Trade Commission at the FTC Complaint Assistant site website.
  • If you may owe additional taxes, contact a tax professional

 

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

New Deadline for Form 1099-MISC–Avoid Late Penalties!

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Form 1099MISC deadlineForm 1099-MISC has to be filed when payments are made in the course of a trade or business.  Personal payments do not have to be reported on a Form 1099-MISC.  The IRS requires businesses to issue Form 1099-MISC to the payee and submit a copy to the IRS.  This is done to ensure that the payee reports and pays income tax on the payment.

NEW FILING DEADLINE FOR FORM 1099-MISC

Starting with 2016 Form 1099-MISCs, the IRS copy of the form must be filed with the IRS by January 31 if you are reporting payments in box 7 (non-employee compensation).  The prior due date was February 28 (and March 31 if filing electronically).  The form filing deadline for payments outside of box 7 (e.g., rent or royalty) have not changed (i.e., due February 28 or, if filed electronically, March 31).  The payee copy, regardless of the type of payment, is still due on January 31.

Penalties for Late Filing/Non-Filing

If the Form 1099 is filed within 30 days after the deadline, the penalty is $50 per 1099.  If the Form 1099 is filed between 30 days after the deadline and by August 1, the penalty is $100 per 1099.  If the Form 1099 is filed after August 1 (or not filed at all), the penalty is $260 per 1099.  If there is intentional disregard of the filing requirement, the penalty is $530 per 1099.

The above penalties apply if the form is not filed with either the IRS or the payee.  If the Form 1099 is not filed with either the IRS or the payee, the above penalty is essentially doubled.

What Type of Payments Have to Be Reported on Form 1099-MISC?

Payments that require the filing of a Form 1099-MISC include:

  • $10 or more in royalty payments
  • At least $600 in:
    • Rents
    • Services provided to you by someone who is not your employee (e.g., independent contractor)
    • Prizes and awards
    • Other income payments
    • Crop insurance proceeds
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
    • Cash paid from a notional principal contract to an individual, partnership, or estate
    • Payments to an attorney
    • Any fishing boat proceeds

In addition, Form 1099-MISC is used to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

What Payments Do NOT Have to Be Reported on Form 1099-MISC?

Certain payments do not have to be reported on Form 1099-MISC, although they may still be taxable to the payee.  Common payments that do not have to be reported on a Form 1099-MISC include:

  • Payments to a corporation (see exceptions below)
  • Payments to an LLC that elects to be treated as a corporation (again, see exceptions below)
  • Payments for merchandise
  • Wages paid to employees
  • Payments of rent to real estate agents (but the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner)
  • Payments made by credit cards (the credit card company will issue a 1099-K to the recipient)

When Payments to Corporations Must Be Reported on Form 1099-MISC

Form 1099-MISC is required for payments to corporations for:

  • Medical and health care payments
  • Fish purchases
  • Attorney fees
  • Gross payments to attorneys (generally by insurance companies)
  • Substitute payments in lieu of dividends

When Backup Withholding is Required

You must withhold 28% of the payment you make to certain recipients.  This withholding is referred to as backup withholding and is paid to the IRS.  Backup withholding is required when:

  • The payee fails to furnish a SSN or TIN (it is recommended to get the payee’s SSN or TIN prior to the payee performing any services for you)
  • IRS notifies payer to impose backup withholding

To see how this applies to you, give us a call at 248-538-5331.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Crowdfunding & Taxes

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crowdfunding taxSome start-up businesses looking to raise capital have turned to crowdfunding as an alternative to venture capital.  Crowdfunding is a way for businesses and entrepreneurs to solicit online contributions from multiple parties.  This is typically done through a crowdfunding platform such as Kickstarter (www.kickstarter.com) or AngelList (www.angel.co).

Crowdfunding has increased in popularity since the enactment of Title III of the Jumpstart our Business Startups (JOBS) Act in 2012.  This act created a federal exemption under the securities law to permit companies to offer and sell securities through crowdfunding.  Since that time, this practice has generated billions in capital for startups and small businesses.

While this is becoming a more popular method of raising funds, little is known about how such fund-raising models are taxed.

As a general rule, crowdfunding contributions are includable in the startup’s taxable income.  However, depending on how the contribution is structured, the contribution may qualify as a tax-free loan, gift, or capital contribution.

Tax-Free Loan

Crowdfunding contributions structured as loans are tax-free.  However, the arrangement must have sufficient debt-like characteristics.  Debt-like characteristics include an unconditional promise to repay, a fixed interest rate, and a specified maturity date.  If the interest rate depends on the profitability or cash-flow of the business, then it may be considered an equity contribution (which may also qualify as tax-free).  Funds transferred without a bona fide repayment obligation will be taxable even if the parties characterize the deal as a loan.

Tax-Free Gift

If the contribution is a gift, then it is not taxable to the business.  To qualify as a gift, the contribution must be out of a detached and disinterested generosity.  Basically, the donor does not expect any repayment or return on the contribution—it is done out of generosity.  If the donor receives anything of benefit from the contribution, the contribution will be taxable to the business.

Some crowdfunding platforms offer rewards in exchange for contributions.  These rewards may negate a contributor’s donative intent unless the reward is clearly inconsequential.  There is no direct guidance on how to determine if a reward is inconsequential, but the IRS’ guidance on quid pro quo charitable contributions may provide some help.

If the contribution qualifies as a gift, the contributor may have a gift tax issue if the contribution exceeds $14,000.

Tax-Free Equity Contribution

If the crowdfunding contribution qualifies as a contribution to equity and the contributor becomes an owner, it will generally be tax-free to the business and the contributor.

Where We Stand

So far, there are no statutes, regulations, court cases, or IRS rulings that directly address the taxability of crowdfunding contributions.  For now, it is safe to assume that crowdfunding contributions will be taxable income unless it qualifies as a loan, gift, or capital contribution.

To see how this applies to you, give us a call at 248-538-5331.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

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