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Atlanta Tax Law Blog

Vacation rental income must be disclosed on income tax returns

Many Georgia residents often travel during the summer months, and some choose to rent out their homes while they are away. While renting a residence temporarily can provide an additional and welcome revenue stream, failing to properly record and disclose this source of income can have serious tax implications. Tax must be paid on rental income even if the property being rented out was used as a taxpayer's primary residence for most of the year, but declaring this income also makes certain expenses tax deductible.

A dwelling can be a home, condominium or even a boat or motor home according to the IRS. Any rental income earned on a dwelling that has also been used as a residence must be declared on a Schedule E form, and high earners may be required to pay a net investment income tax in addition to regular income tax on this kind of rental revenue.

What you should know about IRS liens and levies

Some people only have to hear the words “IRS lien” or “IRS levy,” and they break out in a cold sweat. This may be because they are not quite current on their income tax obligations.

The Internal Revenue Service does have methods of dealing with recalcitrant taxpayers. However, the agency also gives fair warning of impending action and offers ways to halt a lien or levy process.

IRS private collectors using some problematic tactics

Partial privatization of tax collections has introduced a serious problem for Georgia residents. In some cases, collections agencies are using their affiliation with the IRS to harass people who alleged to owe the IRS money, and the tactics used are running afoul of the Fair Debt Collection Practices Act. Suggestions are provided for citizens looking to protect themselves from illegal activity carried out by IRS collectors.

One of the more common tactics to protect against when it comes to unscrupulous collectors is knowing what they can and can't do. In the case of IRS collections firms, they cannot impose a tax lien or wage levy. Only the IRS can carry out enforcement to collect debt. Independent agencies are also barred from collecting directly. People should never be asked to make payment to anyone but the United States Treasury.

IRS warns taxpayers not to rely on its own website

Georgia taxpayers may think that they can depend on the official website, but the Internal Revenue Service itself has stated that this may not always be the case. Instead, taxpayers need to refer to official publications. Content like frequently asked question lists may appear on the IRS website, but they don't constitute law, and following them could place people in danger of noncompliance.

Ths IRS has distributed a memorandum that told tax examiners that they needed to adhere to the information and guidelines in the formal Internal Revenue Bulletin. In the case that the IRS website publishes information that isn't in the IRB, it lacks legal authority.

IRS issues warning about new telephone scam

The Internal Revenue Service has warned taxpayers in Georgia and around the country about a new telephone scam. According to the agency, callers posing as representatives of the IRS tell potential victims that attempts to contact them using certified mail have been unsuccessful and they must make an immediate payment using a prepaid debit card to avoid arrest. The callers are said to be adding an air of credibility to the scam by claiming that the prepaid debit cards are connected to the Electronic Federal Tax Payment System.

Potential victims are also told to not contact an attorney, their tax preparers or the IRS until after they have made the tax payment. The IRS advises taxpayers to immediately hang up and call the agency directly when contacted by telephone over alleged unpaid taxes. The IRS sends taxpayers bills before taking any action to collect unpaid taxes, and the agency's representatives do not make calls threatening to involve local law enforcement and demanding immediate payment.

IRS addresses estate tax exemption portability

Estate planning professionals in Georgia and around the country will likely welcome news that the Internal Revenue Service has made it easier for a surviving spouse to receive the unused portion of the deceased partner's estate tax exemption. Under Revenue Procedure 2017-34, the executors of individuals who died in 2011 or later will have until January 2018 or later to make what are known as portability elections. The executors of estates of individuals who died on or after Jan. 2, 2016 have two years to make portability elections under Revenue Procedure 2017-34. The new rules went into effect immediately.

The estate tax exemption portability provision was originally passed by Congress in 2010, but lawmakers gave surviving spouses only a matter of months to elect to receive the unused portion of their deceased partners' exemptions. Under the 2010 rules, those who missed the deadline were required to petition the IRS for portability relief and pay a fee of up to $10,000. Before Congress acted, special trusts were used to prevent the unused portions being lost.

Will your tax debt be discharged under a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy is designed to give the debtor a fresh start by discharging most debt. Tax debt under a bankruptcy is very complex. Sometimes, it can be discharged, but it depends on multiple factors, such as the type of tax, whether the debtor filed a return and the type of bankruptcy. For example, payroll taxes or penalties for fraud are not generally dischargeable. 

The IRS lists six considerations for discharging federal tax debt under a Chapter 7 bankruptcy. A taxpayer must meet all of the following conditions: 

  • The debt must be for federal income taxes
  • The debtor must have filed a legitimate tax return for two years before the bankruptcy
  • The tax debt must be at least 3 years old
  • The IRS must have assessed the tax debt at least 240 days before the bankruptcy filing
  • The debtor did not willfully evade taxes
  • The debtor committed no deliberate tax fraud, i.e., the tax debt cannot be due to an intention to defraud the IRS 

How to handle a tax error

Georgia residents may believe that their tax returns won't be audited after they receive a refund check. However, this is not necessarily the case as the IRS has up to three years to audit most returns. Those who receive a refund that seems too large may wish to keep the check and mention the possible error to the government. This is because the IRS may ask for the money back plus interest if a refund was mistakenly issued.

The IRS will send a notice a few days after the refund check has arrived. If the refund is smaller than expected, it could be because of a math error or a penalty was applied. Refunds may be lower than expected if a taxpayer takes a deduction that he or she was not entitled to.

Some believe IRS needs more funding

Georgia residents may have heard that watchdog groups believe the IRS needs more resources to effectively do its job. This was according to testimony given to a House subcommittee by the Treasury inspector general for tax administration. It was also the opinion of a tax advocate who also gave testimony on May 23. However, neither had actually seen the budget before coming to this conclusion.

The IRS commissioner has said that the agency would be able to close the tax gap if it had more money and people. The tax gap is the difference between what the government should collect and what it actually does. The commissioner said that every dollar spent on enforcement could result in up to $20 in additional tax revenue. The latest budget proposal from President Trump asks for a $239 million cut to the agency.

Divorce agreements not binding on IRS

Georgia residents sometimes enter into tax-sharing agreements through which two parties agree to be responsible for paying a certain percentage of the tax liabilities owed. These types of agreements or orders are common in divorce cases. As a 2017 case demonstrates, the agreements are not binding on the Internal Revenue Service.

In the case, the IRS disallowed some rental property loss deductions that two former spouses had claimed on their joint income tax returns before they divorced. The ex-spouses asked the tax court to relieve them of joint and several liability for the tax liabilities that resulted from the disallowance.

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