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IRS provides tax relief for some expatriates

The Internal Revenue Service usually likes to get its hands on as much money as possible. Even individuals who live outside the United States may have a tax obligation they must meet. Still, for those who have renounced their U.S. citizenship, some tax relief may be possible. 

On September 6, 2019, the IRS announced a change to how it handles the tax liability of certain expatriates. If you are no longer living in the country and have renounced your citizenship, you may be able to take advantage of the process change. Nevertheless, the new procedure has a limited scope, so you should be certain you understand its intricacies before ignoring your tax responsibility. 

IRS tax audits can be daunting

While it's true that most Georgia residents do not look forward to the yearly ritual of filing and paying taxes, at least there's some satisfaction, and perhaps a degree of relief, when it's over and done for the year. However, for those who receive the dreaded audit letter, the real problems may just be starting. Not every audit, however, is cause for alarm. The best way to be prepared is to understand the basics of what an audit is and the best manner in which it can be addressed.

One thing to be aware of is that the only way the IRS initiates an audit is through the mail. Secondly, while an audit typically involves an issue with that particular return and taxpayer, it may alternatively be the result of a random selection or computer screening or due to an irregularity of a tax return from a related party, such as a partner or investor. Tax experts point out that the IRS most typically conducts either a paper audit through the mail, consisting of all documents filed plus requested supporting documentation, or a field audit, in which agents come to the taxpayers home or place of business to gain access to the taxpayer's records.

Penalties for willful tax violations can be steep

The IRS does make a distinction between tax errors that were willful and not willful in nature. Generally speaking, taxpayers in Georgia and elsewhere will escape harsh punishment for errors deemed to be not willful. In some cases, it may be possible to avoid penalties altogether for an honest mistake. However, if the government believes that a person engaged in willful tax evasion, the penalties can be steep. For example, failing to report an offshore account could result in a fine of $100,000.

Failing to withhold payroll taxes is another mistake that an individual or corporate entity will want to avoid. The government considers the act to be willful if an individual or other responsible party should have known it was against the law. Furthermore, the IRS can collect those taxes from anyone who is responsible for signing a paycheck or has a senior role within the organization.

IRS issues extension for closed defined-benefit plans

Sponsors of closed defined benefits plans in Georgia may be interested to learn that a fifth extension was granted for temporary nondiscrimination relief for these plans. Under federal benefits law, employers that offer benefits must offer equal benefits to all employees. However, a number of companies shifted from offering traditional defined benefits or pension plans to offering defined contribution plans, including 401(k)s. The defined benefits plans continue in place, but are "closed," because they only include employees who worked at the company as of the date of the plan's closure. Since 2014, the IRS has issued temporary relief for these plans, allowing them to continue so long as they remain "closed" to only those employees enrolled at a certain date.

On August 27, the IRS issued Notice 201-49, renewing that guidance for an additional year for all plan years beginning before 2021, so long as the closed plans involved meet the guidelines specified in the original 2014 notice. It includes defined-benefit plans that were amended before December 13, 2013 to limit accruals to employees that were already employed as of a certain specific date. In most cases, new employees have been included in a defined-contribution plan instead.

IRS: Failing to cash checks doesn't change tax liabilities

For many people in Georgia, qualified retirement plans like 401(k)s and IRAs are important not only because they enable retirement savings but also because they support tax benefits over the years. Many receive distributions from their plans, whether loans from a program or payments after retirement, through electronic methods like direct deposit. In these cases, people do not need to worry about depositing the check or potentially losing or forgetting it. However, the IRS has ruled on the tax issues that arise when people receive paper checks and fail to cash them. To the extent that people continue to rely on paper checks, uncashed checks can present a significant tax question, especially when the amounts involved are substantial.

In the IRS ruling, the agency noted that it is continuing to analyze a number of issues involving uncashed checks. The hypothetical the agency presented involved a person who received a fully taxable distribution from a qualified retirement plan. However, this person did not cash the check, make a rollover contribution or in any way deal with the monies disbursed. The IRS said that despite the failure to cash the check, the amount is still part of the person's taxable gross income for the year. Whatever happens to the check, it remains income for tax purposes.

2018 penalties waived for some paying taxes late

Taxpayers in Georgia may be relieved to learn that they could be exempt from a certain penalty imposed on filers. Each year, people must generally pay at least 90% of their total tax burden prior to filing their returns. If they do not, they will receive an additional fee as an underpayment penalty from the IRS. However, for 2018 returns, those who paid at least 80% of their burden prior to filing will automatically have the penalty waived. The IRS noted that a special penalty waiver was available in the spring, but many eligible taxpayers failed to claim it in time.

They will instead receive the waiver automatically. Of course, the waiver only extends to the penalty fee itself. People still must pay the amount of money that they owe in taxes, but they will not have to add the additional cost to their payments. In general, people face even harsher standards for tax liabilities if they have a high income, over $150,000 each year. However, due to changes in tax law that were enacted in late 2017, many changes took place in the way that taxes were withheld. Some individual income tax rates were cut, and the standard deduction was doubled. Accounting systems did not necessarily change in time, and withholdings may have been incorrect for many people.

What determines your “Taxable Estate” after you pass away?

If you are thinking about creating your will and perhaps other documents in an estate plan, one of your questions will likely be about taxes and how they will affect the assets you want to leave to your heirs.

For example, what constitutes a taxable estate? What constitutes an exemption, and will your estate qualify?

The difference between a tax opinion and tax ruling

Taxpayers in Georgia and around the country may find that they need guidance from the IRS to answer a question about their return. The IRS may be willing to issue a private letter ruling, and generally speaking, any guidance provided by the ruling is binding. Alternatively, the government may offer to issue a tax opinion, which is generally not binding. However, it may be faster to get a tax opinion as opposed to the private letter ruling.

It is also more likely that the IRS will provide a tax opinion as opposed to a ruling. In fact, the agency has a list of subjects that it says it cannot or will not provide a ruling on. It is worth noting that a taxpayer may not get a ruling if his or her position is so strong that the answer to the question should be clear.

IRS posts update to new postcard 1040 form

Georgia taxpayers will have to fill out a slightly longer 1040 form when they file their 2019 taxes, according to the Internal Revenue Service. The agency has posted a draft of the new form, which updates the postcard-sized return that debuted in 2018, on its website.

After Congress passed the Tax Cuts and Jobs Act of 2017, the IRS and the U.S. Treasury replaced the 1040, 1040A and 1040EZ forms with a single 1040 form that was advertised as being the size of a postcard. While the new form was shorter, it wasn't quite as small as a postcard. It also included six schedules for taxpayers to follow when doing their taxes, which didn't exactly cut down on paperwork.

Cryptocurrency investors and IRS warning letters

In Georgia and across the U.S., the Internal Revenue Service is currently mailing official letters to thousands of people who invest in cryptocurrencies. The letters issue official warnings for taxpayers with complex tax issues. The IRS plans to mail letters to approximately 10,000 United States taxpayers. A person who may have failed to pay their taxes on cryptocurrency sales may receive form letter 6173, 6174 or 6174-A.

According to various social media posts, some investors have mentioned that the three warning letters represent different levels of income tax neglect. For instance, one letter asks the recipient to review their income tax return and submit an amended form as needed. Another letter warns the taxpayer about their noncompliance with IRS regulations and the possibility of IRS enforcement. The third letter demands a response from the taxpayer with a warning that their failure to return a response will result in an audit.

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