The IRS has updated its simplified procedure for estates requesting an extension of time to make a portability election under Code Sec. 2010(c)(5)(A). The updated procedure replaces that provided in Rev. Proc. 2017-34. If the portability election is made, a decedent’s unused exclusion amount (the deceased spousal unused exclusion (DSUE) amount) is available to a surviving spouse to apply to transfers made during life or at death.

The IRS has updated its simplified procedure for estates requesting an extension of time to make a portability election under Code Sec. 2010(c)(5)(A). The updated procedure replaces that provided in Rev. Proc. 2017-34. If the portability election is made, a decedent’s unused exclusion amount (the deceased spousal unused exclusion (DSUE) amount) is available to a surviving spouse to apply to transfers made during life or at death. The simplified method is to be used instead of the letter ruling process. No user fee is due for submissions filed in accordance with the revenue procedure.

A simplified method to obtain an extension of time was available to decedents dying after December 31, 2010, if the estate was only required to file an estate tax return for the purpose of electing portability. However, that method was only available on or before December 31, 2014. Since December 31, 2014, the IRS has issued numerous letter rulings under Reg. §301.9100-3 granting extensions of time to elect portability in situations in which the estate was not required to file a return under Code Sec. 6018(a). The number of ruling requests that were received after December 31, 2014, and the related burden imposed on the IRS, prompted the continued relief for estates that have no filing requirement under Code Sec. 6018(a). Rev. Proc. 2017-34 provided a simplified method to obtain an extension of time to elect portability that is available to the estates of decedents having no filing obligation under Code Sec. 6018(a) for a period the last day of which is the later of January 2, 2018, or the second anniversary of the decedent’s death. An estate seeking relief after the second anniversary of the decedent’s death could do so by requesting a letter ruling in accordance with Reg. §301.9100-3.

Despite this simplified procedure, there remained a significant number of estates seeking relief through letter ruling requests in which the decedent died within five years of the date of the request. The number of these requests has placed a continuing burden on the IRS. Therefore, the updated procedure extends the period within which the estate of a decedent may make the portability election under that simplified method to on or before the fifth anniversary of the decedent’s date of death.

Section 3 provides that the simplified procedure is only available if certain criteria are met. The taxpayer must be the executor of the estate of a decedent who: (1) was survived by a spouse; (2) died after December 31, 2010; and (3) was a U.S. citizen or resident at the time of death. In addition, the estate must not be required to file an estate tax return under Code Sec. 6018(a) and did not file an estate tax return within the time prescribed by Reg. §20.2010-2(a)(1) for filing a return required to elect portability. Finally, all requirements of section 4.01 of the revenue procedure must be met.

The revenue procedure does not apply to estates that filed an estate tax return within the time prescribed by Reg. §20.2010-2(a)(1) to elect portability. For taxpayers that do not qualify for relief because the requirements of section 4.01 are not met, the estate can request an extension of time to file the estate tax return to make the portability election by requesting a letter ruling.

Under Section 4.01, the requirements for relief are: (1) a person permitted to make the election on behalf of a decedent must file a complete and properly-prepared Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, (as provided in Reg. §20.2010-2(a)(7)) on or before the fifth annual anniversary of the decedent’s date of death; and (2) "FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER §2010(c)(5)(A)" must be written at the top of the Form 706. If the requirements of sections 3.01 and 4.01 are met, the estate will be deemed to meet the requirements for relief under Reg. §301.9100-3 and relief will be granted to extend the time to elect portability. If relief is granted pursuant to the revenue procedure and it is later determined that the estate was required to file a federal estate tax return, based on the value of the gross estate, plus any adjusted taxable gifts, the extension of time granted to make the portability election is deemed null and void.

If a decedent’s estate is granted relief under this revenue procedure so that the estate tax return is considered timely for electing portability, the decedent’s deceased spousal unused exclusion amount that is available to the surviving spouse or the surviving spouse’s estate for application to the transfers made by the surviving spouse on or after the decedent’s date of death. If the increase in the surviving spouse’s applicable exclusion amount attributable to the addition of the decedent’s deceased spousal unused exclusion amount as of the date of the decedent’s death result in an overpayment of gift or estate tax by the surviving spouse or his or her estate, no claim for credit or refund may be made if the limitations period for filing a claim for credit or refund with respect to that transfer has expired. A surviving spouse will be deemed to have filed a protective claim for refund or credit of tax if such a claim is filed within the time prescribed in Code Sec. 6511(a) in anticipation of a Form 706 being filed to elect portability pursuant to the revenue procedure.

The revenue procedure is effective July 8, 2022. Through the fifth anniversary of a decedent’s date of death, the procedure described in section 4.01 of this revenue procedure is the exclusive procedure for obtaining an extension of time to make portability election if the decedent and the executor meet the requirements of section 3.01 of this revenue procedure. If a letter ruling request is pending on July 8, 2022, and the estate is within the scope of the revenue procedure, the file on the ruling request will be closed and the user fee will be refunded. The estate may obtain relief as outlined in the revenue procedure by complying with section 4.01. Rev. Proc. 2017-34, I.R.B. 2017-26, 1282, is superceded.

The IRS intends to amend the base erosion and anti-abuse tax (BEAT) regulations under Code Secs. 59A and 6038A to defer the applicability date of the reporting of qualified derivative payments (QDPs) until tax years beginning on or after January 1, 2025.

The IRS intends to amend the base erosion and anti-abuse tax (BEAT) regulations under Code Secs. 59A and 6038A to defer the applicability date of the reporting of qualified derivative payments (QDPs) until tax years beginning on or after January 1, 2025.

Background

Final BEAT regulations adopted with T.D. 9885 include rules under Code Secs. 59A and 6038A addressing the reporting of QDPs, which are not treated as base erosion payments for BEAT purposes. The final regulations generally apply to tax years ending on or after December 17, 2018.

In general, a payment qualifies for the QDP exception if the taxpayer satisfies certain reporting requirements. Reg. §1.6038A-2(b)(7)(ix) requires a taxpayer subject to the BEAT to report on Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts, the aggregate amount of QDPs for the tax year, and make a representation that all payments satisfy the reporting requirements of Reg. §1.59A-6(b)(2). If a taxpayer fails to satisfy these reporting requirements with respect to any payments, those payments are not eligible for the QDP exception and are treated as base erosion payments, unless another exception applies.

The QDP reporting rules of Reg. §1.6038A-2(b)(7)(ix) apply to tax years beginning on or after June 7, 2021. Before these rules are applicable (the transition period), a taxpayer is treated as satisfying the QDP reporting requirements to the extent that the taxpayer reports the aggregate amount of QDPs on Form 8991, Schedule A, provided that the taxpayer reports this amount in good faith ( Reg. §1.59A-6(b)(2)(iv); Reg. §1.6038A-2(g)).

In Notice 2021-36, I.R.B. 2021-26, 1227, the IRS announced the intention to extend the transition period through tax years beginning before January 1, 2023, while the IRS studies the interaction of the QDP exception, the BEAT netting rule in Reg. §1.59A-2(e)(3)(vi), and the QDP reporting requirements. The IRS has not yet issued regulations amending the applicability date of Reg. §1.6038A-2(g). The IRS continue to study these provisions and has determined that it is appropriate to further extend the transition period.

Deferred Applicability Date of QDP Reporting and Taxpayer Reliance

The IRS intends to amend Reg. §1.6038A-2(g) to provide that the QDP reporting rules of Reg. §1.6038A-2(b)(7)(ix) will apply to tax years beginning on or after January 1, 2025. Until these rules apply, the transition period rules described above will continue to apply. Taxpayers may rely on this Notice before the amendments to the final regulations are issued.

John Hinman, Director, IRS Whistleblower Office highlighted the importance of whistleblower information in identifying noncompliance and reducing the tax gap in an executive column published by the IRS. Each year, the IRS receives thousands of award claims from individuals who identify taxpayers who may not be abiding by U.S. tax laws. The IRS Whistleblower Office ensures that award claims are reviewed by the appropriate IRS business unit, determines whether an award should be paid and the percentage of any award and ensures that approved awards are paid. The IRS has paid over $1.05 billion in over 2,500 awards to whistleblowers since 2007.

John Hinman, Director, IRS Whistleblower Office highlighted the importance of whistleblower information in identifying noncompliance and reducing the tax gap in an executive column published by the IRS. Each year, the IRS receives thousands of award claims from individuals who identify taxpayers who may not be abiding by U.S. tax laws. The IRS Whistleblower Office ensures that award claims are reviewed by the appropriate IRS business unit, determines whether an award should be paid and the percentage of any award and ensures that approved awards are paid. The IRS has paid over $1.05 billion in over 2,500 awards to whistleblowers since 2007.

Further, Hinman stated that according to the IRS’s Large Business and International (LB&I) division, whistleblowers have provided invaluable insights into violations perpetuated by large corporations, wealthy individuals and their planners. Further, since the inception of the Whistleblower Office, information from whistleblowers has resulted in over 900 criminal tax cases. Hinman stated that individuals can file a Form 211, Application for Award for Original Information, to be considered for an award. Specific, credible and timely claims are most likely to be accepted for additional consideration and referred to one of IRS’s operating divisions. A subject matter expert may contact the whistleblower to ensure the IRS fully understands the information submitted. The IRS will notify whistleblowers when a case for which they provided information is referred for audit or examination.

Further, Hinman noted that the IRS takes the protection of whistleblower identity very seriously.The IRS prevents the disclosure of a whistleblower’s identity, and even the fact that they have provided information, to the maximum extent that the law allows. Additionally, whistleblowers are protected from retaliation by their employers under a law passed in 2019. Finally, Hinman noted that going forward, the Whistleblower Office team will continue to make improvements to this important program, raise awareness about the program for potential whistleblowers and look for ways to gain internal efficiencies to move cases forward as quickly as possible.

A group of Senate Democrats is calling on the IRS to extend the filing deadline for those unable to file for and receive the advanced child tax credit (CTC) due to the processing backlog of individual taxpayer identification number (ITIN) applications.

A group of Senate Democrats is calling on the IRS to extend the filing deadline for those unable to file for and receive the advanced child tax credit (CTC) due to the processing backlog of individual taxpayer identification number (ITIN) applications.

In a July 14, 2022, letter to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig, the Senators, led by Robert Menendez (D-N.J.), called on the IRS to "allow families who applied for an ITIN or ITIN renewal prior to April 15, 2022, to file for and receive the advanced CTC if they file a return before or on October 15, 2022."

An ITIN is needed for taxpayers who do not have and are not eligible to receive a Social Security number but still have a U.S. tax filing requirement. This includes individuals who are nonresident aliens; U.S. resident aliens; dependents or spouses of U.S. citizen/resident alien; dependent or spouse of a nonresident alien visa holder; nonresident alien claiming a tax treaty benefit; or nonresident alien student, professor, or researcher filing a U.S. tax return claiming an exception.

The senators cite figures from the Treasury Inspector General of Tax Administration stating that prior to COVID-19 pandemic, it generally took between seven and 11 weeks to process an ITIN application (depending on if it was filed during tax season).

"But, as reported by TIGTA and the IRS’ own website, processing times have increased—with ITIN application processing averaging three to four months and renewal times doubling to 41 days," the letter states.

"Given that the Protecting Americans from Tax Hikes (PATH) Act required that an ITIN had to be issued on or before the due date of the return in order to file for the CTC, many families may not have received their ITIN prior to April 15, 2022," the letter adds, preventing access to the benefit.

The IRS has released a Fact Sheet to help taxpayers understand how and why agency representatives may contact them and how to identify them and avoid scams. Generally, the IRS sends a letter or written notice to a taxpayer in advance, but not always.

The IRS has released a Fact Sheet to help taxpayers understand how and why agency representatives may contact them and how to identify them and avoid scams. Generally, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Depending on the situation, IRS employees may first call or visit with a taxpayer. Further, the IRS clarified that other than IRS Secure Access, the agency does not use text messages to discuss personal tax issues, such as those involving bills or refunds. The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS initiates most contacts through regular mail. Taxpayers can report fraudulent emails and text messages by sending an email to phishing@irs.gov.

Further, taxpayers will generally first receive several letters from the IRS in the mail before receiving a phone call. However, the IRS may call taxpayers if they have an overdue tax bill, a delinquent or unfiled tax return or have not made an employment tax deposit. The IRS does not leave pre-recorded, urgent or threatening voice messages and will never call to demand immediate payment using a specific payment method, threaten to immediately bring in law enforcement groups, demand tax payment without giving the taxpayer an opportunity or ask for credit or debit cards over the phone.

Additionally, IRS revenue officers generally make unannounced visits to a taxpayers home or place of business to discuss taxes owed or tax returns due. However, taxpayers would have first been notified by mail of their balance due or missing return. Taxpayers should always ask for credentials or identification when visited by IRS personnel. Finally, the IRS clarified that taxpayers who have filed a petition with the U.S. Tax Court may receive a call or voicemail message from an Appeals Officer. However, the Appeals Officer will provide self-identifying information such as their name, title, badge number and contact information.

The American Institute of CPAs offered the Internal Revenue Service a series of recommendations related to proposed regulations for required minimum distributions from individual retirement accounts.

The American Institute of CPAs offered the Internal Revenue Service a series of recommendations related to proposed regulations for required minimum distributions from individual retirement accounts.

The July 1, 2022, comment letter to the agency covered two specific areas: minimum distribution requirements for designated beneficiaries when death of the employee or IRA owner occurs after the required beginning date, and the definition of employer and guidance for multiple arrangements.

Regarding the minimum distribution requirements, AICPA recommended in the letter that the agency "eliminate the requirement … mandating that a designated beneficiary who is not an eligible designated beneficiary take distribution in each of the 10 years following the death of an employee."

AICPA also recommended that "the final regulations follow the rule … requiring only that the entire interest is to be distributed no later than by the end of the tenth year following the death of the employee/IRA owner."

Regarding the definition of employer and guidance related to multiple employer agreements, AICPA recommended "defining the retirement requirement in section 401 (a)(9)-2(b)(1)(ii) as met at the plan level in reference to MEPs [multiple employer plans] and PEPs [pooled employer plans]; when an employee terminates employment with the employer after attaining age 72 and is reemployed with either the same employer or another employer sponsoring the same MEP or PEP prior to attaining their RBD of April 1 the following year."

The Government Accountability Office (GAO) issued a report on stimulus checks during the Coronavirus 2019 (COVID-19) pandemic. From April 2020 to December 2021, the federal government made direct payments to taxpayers totaling $931 billion to address pandemic-related financial stress.

The Government Accountability Office (GAO) issued a report on stimulus checks during the Coronavirus 2019 (COVID-19) pandemic. From April 2020 to December 2021, the federal government made direct payments to taxpayers totaling $931 billion to address pandemic-related financial stress.

Report Findings

Some eligible taxpayers never received payments. Eligible taxpayers can still claim their payments through October 17. There were challenges for the Service and Treasury to get payments especially to nonfilers, or those who were not required to file tax returns. Taxpayers who think they may be eligible but did not receive the third economic impact payment (EIP) or child tax credit (CTC) can request an extension and file a simplified return at https://www.childtaxcredit.gov/. Although no new EIP and advance CTC payments are underway, the Treasury and Service could learn to manage other refundable tax credits such as the earned income tax credit (EITC). Further, the IRS’s new Taxpayer Experience Office could help improve outreach and improve taxpayer experience.

Recommendations

GAO made two recommendations. First, the Treasury and IRS could use available data to update their estimate of eligible taxpayers to better tailor and redirect their ongoing outreach and communications efforts for similar tax credits. Second, both agencies could focus on improving interagency collaboration. They could use data to assess their efforts to educate more taxpayers about refundable tax credits and eligibility requirements.

The Organisation for Economic Co-operations and Development (OECD) is delaying the implementation of Pillar One of the landmark agreement on international tax reform.

The Organisation for Economic Co-operations and Development (OECD) is delaying the implementation of Pillar One of the landmark agreement on international tax reform.

A new Progress Report on Pillar One, which includes "a comprehensive draft of the technical model rules to implement a new taxing right that will allow market jurisdictions to tax profits from some of the largest multinational enterprises," will be open to stakeholder comment through August 19, 2022, OECD said in a statement.

That report notes that the plan is to finalize Pillar One by mid-2023, with the more than 135 countries and jurisdictions that are a part of the agreement able to put the framework into operation in 2024.

The revised timeline "is designed to allow greater engagement with citizens, businesses, and parliamentary bodies which will ultimately have to ratify the agreement," OECD said.

The Department of the Treasury welcomed the delay.

"Treasury welcomes the additional year agreed to at the OECD to allow further time for negotiations among governments and consultations with stakeholders on implementation of the Pillar One agreement, which will make the international tax system more stable and fair for businesses and workers in the United States and globally," a spokesperson for the agency said. "Tremendous progress has been made, and additional time will ensure we all get this historic agreement right."

OECD also noted that technical work under Pillar Two, which will introduce the 15 percent global minimum corporate tax rate, "is largely complete." The implementation framework is expected to be released later this year.

Casualty losses are damages from a sudden, unexpected or unusual event, including natural disasters. These losses are deductible to the extent they fit under specific tax rules. Ironically, however, due to insurance reimbursements and other payments, you may actually have taxable "casualty gain" as the result of a disaster or accident. Casualty losses and gains are reported on Form 4684.

Casualty losses are damages from a sudden, unexpected or unusual event, including natural disasters. These losses are deductible to the extent they fit under specific tax rules. Ironically, however, due to insurance reimbursements and other payments, you may actually have taxable "casualty gain" as the result of a disaster or accident. Casualty losses and gains are reported on Form 4684.

Casualty loss

The amount of casualty loss is based on the fair market value of the property immediately before it was damaged compared to its value immediately after the event. Alternatively, the loss determination can be based on the property's adjusted basis just before the loss. However, if business property (or property that produces income) is totally destroyed, the casualty loss is the adjusted basis of the property regardless of its fair market value. Whatever value you place on the loss, however, you then must deduct any insurance reimbursement that you receive or are likely to receive for that loss. That final figure is your official casualty loss for tax purposes.

Deductions

You can deduct a personal casualty loss only as an itemized deduction, only to the extent that it is more than $100 for any one event and only to the extent that all such losses over the course of the tax year are than 10 percent of your adjusted gross income. If the property is covered by insurance, you must file a claim for reimbursement. Otherwise, the loss cannot be deducted as a casualty loss. If the loss is on business property, the deduction is not restricted by the $100 or 10 percent rule. These restrictions apply only to personal casualty loss.

Disaster loss

A disaster loss can receive special treatment if it occurs in an area declared by the President of the United States to be eligible for federal disaster assistance. Typically, these are areas damaged by fire, hurricane or other natural disasters. A special rule allows you to deduct the loss in either the year in which the loss occurred or the preceding year. Claiming it in the preceding year typically allows you to file a refund claim immediately and, therefore, have immediate cash-in-hand from the deduction.

Gain

If your insurance reimbursement is more than your personal property's cost or basis (which may be the case if your property has increased in value since you bought it), you have a "personal casualty gain." If personal casualty gains from any year exceed personal casualty losses, a net capital gain results. Net capital gain generally is taxed at a maximum rate of 15 percent.

You may, however, be able to pay no tax on your gain. You can postpone net casualty gain using the so-called involuntary conversion rules. To postpone gain, you must purchase replacement property for a price equal to or more than the reimbursement you received.

You should beware of fancy footwork when it comes to estimating, filing, and paying federal taxes. One misstep can lead to harsh penalties. Willful or fraudulent mistakes can generate criminal sanctions as well.

Failure to pay tax

If you don't pay your taxes when due, the IRS may impose a penalty in addition to the tax. The addition to tax is one-half of one percent of the amount not paid, for each month (or part of a month) it remains unpaid, up to a maximum of 25 percent.

Delinquent returns

Failure to file on time may result in an "addition to tax" (the formal name that the IRS gives to its late-payment fee). This penalty is five percent for each month that no return is filed, up to 25 percent. If the return is not filed within 60 days of the due date (including extensions), the penalty will be at least $100 or 100 percent of the tax due on the return, whichever is less.

The penalty doesn't apply if you can show a reasonable cause for not filing. However, a "reasonable cause" for failure to file does not include (1) reliance on the advice of an agent; (2) reliance on the accountant to do the filing; or (3) misjudging the extension date.

Understatement of tax

If you substantially understate taxes due, the IRS can impose a 20 percent accuracy-related penalty. A "substantial understatement" occurs if the amount is (1) 10 percent of the tax required to be shown on the return (including self-employment tax) or (2) $5,000, which ever is greater.

You may be able to avoid this penalty if:

-- You acted in good faith and there was reasonable cause for the understatement;

-- The understatement was based on substantial authority; or

-- There was a reasonable basis for the tax treatment and the relevant facts were adequately disclosed.

Negligence, fraud, and criminal acts

If underpayment is due to negligent, reckless or intentional disregard of the tax laws, the IRS may impose a 20 percent accuracy-related penalty. Negligence includes failure to reasonably comply with the tax laws, to exercise reasonable care in preparing a tax return, to keep adequate books and records, or to properly substantiate items.

Fraud is punished more harshly. A penalty may be imposed on 75 percent of the underpayment due to fraud. The fraud penalty will not apply, however, if no return is filed, other than a return prepared by the IRS when a person fails to file a return. Criminal sanctions also are likely.

Frivolous returns

If you file a frivolous return, you risk a $500 penalty. A return is "frivolous" if it omits necessary information, shows a substantially incorrect tax, is based on a frivolous position, or is filed in an attempt to avoid tax collection. Changing or crossing-out the "penalty of perjury" language above the signature line on a return is treated as filing a frivolous return.