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Atlanta Tax Law Blog

Questions about proposed partnership rules

Georgia residents who are in business partnerships should be aware of regulations being proposed by the Internal Revenue Service regarding partnership audits. The agency is having a hearing that will provide taxpayers and their financial advisers the opportunity to voice questions about the rules.

The procedures for partnership audits are currently set by the Tax Equity and Fiscal Responsibility Act. However, as a result of the Bipartisan Budget Act of 2015, new policies will be in place on Jan. 1, 2018.

Control capital gains tax with 1031 exchange

When individuals in Georgia buy and sell real estate or business assets, capital gains taxes could be a costly concern. Solutions could emerge with planning and patience because an Internal Revenue Code Section 1031 exchange or irrevocable trust provides the legal instrument for navigating around taxes under the right circumstances.

To accomplish a 1031 exchange, a person works with a qualified intermediary who holds the cash from the sale of the first property. The seller now has 45 days to locate another like-kind property . Because of the chance of deals falling through, the process requires a list of several potential properties for the purpose of a like-kind exchange. After this step, a person has another 180 days to purchase one of the properties and take possession of it. An impending due date for a tax return could push up this deadline.

IRS grants extensions to those affected by Harvey

The Internal Revenue Service has announced tax relief for people and businesses affected by Hurricane Harvey. As another hurricane might be hitting Georgia, taxpayers in that state might soon be seeing a similar announcement in the future. The IRS has said it will automatically provide penalty and filing relief to any taxpayer whose address of record with the IRS is located within the disaster area. Individuals who live in the area, therefore, are not required to contact the IRS to secure relief.

Specifically, tax payment and filing deadlines that were on or after Aug. 23, 2017 are being pushed to Jan. 31, 2018. Estimated quarterly tax payments, for example, that would have been due Sept. 15, 2017 or Jan. 16, 2018 will now be due on or before Jan. 31, 2018 instead. The relief also applies to tax returns for which filers have secured extensions for filing.

Ransomware scam puts taxpayers in danger

Taxpayers in Georgia should be on the lookout for an email scam that may hold a person's computer data for ransom. The ransomware scheme sends a message to taxpayers using the logos of both the FBI and the IRS, and it asks recipients to download a questionnaire from the FBI. However, recipients should know that the regulations cited in the email are fake and the link does not lead to any sort of legitimate document.

Instead, it begins the process of downloading ransomware to the victim's computer. The IRS says that it will never contact an individual by email, text message or social media to discuss matters pertaining to an individual's tax situation. Furthermore, the IRS will never ask a taxpayer to make a payment over the phone or demand that it be made in a specific manner such as by using a prepaid debit card.

Vacation homes and potential tax considerations

Many Georgians own vacation homes and might wonder if they might face tax consequences if they choose to rent them out when they are not using them. It can be smart to recoup some of the expenses that people incur with the maintenance costs, mortgages and property taxes of vacation homes through renting them when they are not in use. However, the owners should be aware of the ways that the IRS treats rental income that is derived from such rentals.

The Internal Revenue Service allows homeowners to deduct the interest on the costs of acquisition of up to $1 million for both their main residence and their secondary residences, including vacation homes. The owners may also claim the property taxes that they pay as itemized deductions on their tax returns.

Tax lien and levy not only IRS enforcement tools

Most Georgia taxpayers realize the IRS has numerous ways of recovering unpaid taxes. Common horror stories that keep citizens honest during tax season involve prison time for serious offenders, wage garnishments and possible imposition of a tax lien on real estate. It may surprise many to learn that the IRS can also exert influence over whether a citizen has the option to leave the country. Though there is no defense except for catching up on debt, there are some easy steps to avoid suffering the indignity of being refused the right to travel abroad.

The IRS does not have direct authority over passport issuance or revocation, but the law allows the Department of State to deny or fail to renew the passport of a citizen with delinquent tax debt. The concern is that a person facing more than $50,000 in past due debt may attempt to flee the country to assets stored in a foreign location. Those with extreme debts could also be dodging criminal charges.

Income tax considerations when selling a home

The gains generated by the sale of a primary residence can be significant, but this income is not subject to federal income tax in many situations. Georgia residents may qualify for this exclusion by establishing ownership and use. This is done by establishing that they have owned the property in question and used it as their primary residence for at least two of the five years preceding the sale.

When ownership and use requirements have been met, individual filers may exclude up to $250,000 of the gain from the sale of their primary residences from their federal income tax returns. Those who file joint returns may exclude up to $500,000, and property sales need not be disclosed at all when the amount gained is less than the applicable exclusion. Reporting is also unnecessary when homes were sold for less than their original purchase price. However, property sales that generate gains must be reported to the IRS when homeowners choose not to claim the primary residence exclusion.

Have you filed an FBAR disclosing your offshore accounts?

Every United States person, whether citizen, permanent resident or resident alien, must file an FBAR with the U.S. Treasury Department under certain circumstances. FBAR is the Foreign Bank Account Report, or FINCEN form 114.

If you are an owner, nominee or signer on one or more foreign accounts worth $10,000 or more, you must file the FBAR.

Avoiding common tax errors to reduce audit chances

There are several common mistakes that some Georgia residents make with their tax returns that could lead them to be targeted for audits. By avoiding these errors, taxpayers may reduce their chances of being selected for audits. If they are facing audits, they may want to get help instead of trying to represent themselves.

The IRS computers look for the use of perfectly round numbers on tax returns. If taxpayers use multiple round numbers, they are likely to be audited. For example, claiming that an itemized expense was exactly $1,000 may catch the interest of the IRS. People should avoid using this kind of estimate.

Getting tax liens released

Some Georgians fall behind on their taxes or are unable to pay them in full. When a taxpayer doesn't pay what the IRS believes it is owed, the IRS may place a lien on the taxpayer's assets. When the IRS does this, the lien will apply to all of the assets that the taxpayer owns, including those that are acquired after the lien has gone into effect.

When the IRS assesses a tax debt, it then sends a demand for payment to the taxpayer. The taxpayer will then have 10 days to take care of the debt. If the taxpayer does not pay it during those 10 days, the IRS can then file a notice of tax lien in the court. This is a public notice, and it can result in significant problems and public embarrassment for the taxpayer.

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