The IRS After January 20

William Stromsem, CPA, J.D., Department of Accountancy, George Washington University School of Business

 

We and our clients will face new challenges in working with the IRS after January 20. Budget cuts will further reduce audit credibility and may result in the loss of key employees and a demoralized IRS workforce. This will have a direct effect on how we do business with the IRS and how much your clients will pay in taxes, as well as a possible reduction in revenue for our country, which has chronic deficits and an unsustainable $36 trillion national debt.

 

Budget Cuts

 

On Jan. 20, 2025, Republicans will control both houses of Congress and the Presidency. Republican lawmakers have often been hostile to IRS funding, viewing the agency as too intrusive into private matters of businesses and individuals, and potentially hostile to conservative interests, such as years ago when the IRS heavily scrutinized certain exempt organization applications for perceived political reasons. President Biden had boosted IRS funding by $80 billion over 10 years, but this was reduced by $20 billion in the Inflation Reduction Act of 2022. Even before taking control of Congress, in the recent compromise to keep the government from shutting down, Republican lawmakers forced the clawback of another $20 billion in IRS funding. Further cuts may be expected following the theme that the tax law and the IRS need to be “pulled out by their roots,” expressed in recent hearings on IRS abuses in the Republican-controlled House of Representatives.

 

Loss of Audit Credibility

 

We help our clients comply with the tax law, but other taxpayers with less competent or honest tax advisers or without assistance may be tempted to play the “audit lottery.” We have a self-assessment system of taxation that needs to be backed up by credible audit potential. We currently have $500 billion in unpaid taxes each year with the average taxpayer only being audited once every 200 years. IRS funding cuts will further impair audit credibility. Our clients may resent that we require them to comply with complex tax provisions that are often ignored by others. Honest and compliant clients may have to pay more if other taxpayers do not pay their fair share, or government services will have to be cut back. If not, budget deficits and the national debt will continue to grow. 

 

Return to the Office Dilemma

 

After years of telecommuting since the COVID-19 pandemic, government employees have recently been encouraged to return to the office. This has been more aspirational than actual, with many employees saying that they would rather change jobs and with employers relenting to avoid the loss of critical workers. President-elect Trump has flatly said that he will fire those who do not return to work in the office. This might seem to be a plus for tax practitioners who could interact more easily with IRS employees, but the possible loss of many trained employees in critical positions coupled with the lack of funding and lower morale in a gutted organization could make our work with the IRS more difficult.

 

Leadership Change

 

IRS Commissioner Danny Werfel was appointed by President Biden and has nearly three years remaining in his term. He has been fairly popular, working to rebuild the IRS after COVID, boost customer service and refocus audits on higher-income individuals. However, Trump wants to take the IRS in a different direction and has nominated Billy Long, a former congressman, real estate broker and auctioneer, to replace Werfel as commissioner. Long has advised clients on tax savings, particularly using the employee retention credit. He is not an attorney or CPA like previous commissioners but is a “certified business and tax adviser,” a little-recognized professional credential. Long has not had experience managing large organizations and will be challenged to run the IRS with its 85,000 employees and an annual budget of around $12 billion. 

 

While in Congress, Long sponsored the Tax Code Termination Act that would have eliminated the tax code as we know it and shifted to a flat tax as of 2020. This was not enacted, but it shows his interest in radical changes in the tax area. His leadership may shake up the IRS and lead it in a new direction, but with potential rewards come possible risks of lapses in tax administration and dispirited employees.

 

Conclusion

 

While no one loves the IRS, it is an essential part of government, collecting the revenue that allows for all the expenses of serving citizens. With inadequate funding and leadership changes in direction, the IRS may be less responsive and potentially less reasonable in working with us. We may not want our clients to be audited, but without a credible audit potential, billions of dollars of lost revenue will result in reduced government services, higher national debts and deficits, or higher taxes for our compliant clients.

 

TXCPA’s Federal Tax Policy Committee has previously encouraged adequate funding for the IRS, generally focusing on taxpayer service. We should watch carefully to see what action may be needed to maintain an efficient and effective IRS after January 20. 

 

Court Issues Injunction Halting BOI Reporting

 

By Nathan George, CPA-Abilene

 

On Tuesday, Dec. 3, 2024, a federal district court in the Eastern District of Texas issued a nationwide injunction against the Corporate Transparency Act (CTA) and its implementing regulations. In Texas Top Cop Shop, Inc., vs. Garland, the court cited the “CTA’s attempt to regulate companies that are registered to do business under State’s laws…on pain of severe penalties” without any “tenable theory that the (law) falls within Congress’ power.” Ultimately, the court found the CTA is likely unconstitutional, thus prohibiting the Financial Crimes Network (FinCEN) from enforcing its requirements, which include:

 

• Submitting beneficial ownership information (BOI) reports to FinCEN,
• Providing detailed personal information about beneficial owners, and
• Complying with ongoing reporting obligations.

 

The decision is, however, preliminary and temporary, and could quickly change as the case moves through the legal system. Treasury filed an appeal with the Firth Circuit Court on December 5 and it is unknown how the Fifth Circuit may respond.

 

Impact to “Reporting Companies”

 

The ruling comes days before the required reporting deadline of Jan. 1, 2025, for the majority of companies that were formed before Jan. 1, 2024. While reactions have varied, certain themes for action have arisen.

 

Hurry Up and Wait

 

Consistent with AICPA’s guidance, many firms have advised a “hurry-up-and-wait” approach, instructing reporting companies to continue gathering relevant information, in anticipation that the reporting requirement may soon resume. From AICPA’s December 6 statement:

 

“While we do not know how the Fifth Circuit court will respond, the AICPA continues to advise members that, at a minimum, those assisting clients with BOI report filings continue to gather the required information from their clients and are prepared to file the BOI report if the injunction is lifted.”

 

Voluntary Reporting

 

If the plaintiff loses the case, Treasury (and FinCEN) could stick to its guidance and there may be consequences for missing the deadline. As such, another option is for reporting companies to move forward with reporting despite the decision. FinCEN has confirmed it will comply with the injunction but will continue to accept voluntary submissions while the litigation is pending resolution. From its website:

 

“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

 

Moving Forward

 

In addition to the Texas Top Cop Shop case, other efforts could impact the reporting measures. As noted in its November 11 letter to Congress, AICPA and 54 state CPA societies continue to raise concerns regarding “the lack of awareness in the small business community.” AICPA has requested an extension of “at least a year so the small business community can become better informed of their filing requirement.” 

 

Appropriate action will, of course, be situation dependent. CPAs should continue to keep their existing client base informed, monitoring changes and relaying relevant information. To meet this need, both AICPA and TXCPA are continually updating their respective resource pages as things continue to evolve.

 

1099-K Reporting is Coming

William Stromsem, CPA, J.D., George Washington University School of Business

 

In the recently released IRS Notice 2024-85, the IRS provided final “transition rules” for implementing the Form 1099-K reporting by third-party settlement organizations, such as Zelle, PayPal, StubHub and others that facilitate payments for various goods and services. Note that personal payments, such as payments to a family member or friend, should not result in a 1099-K.

 

The American Rescue Plan of 2021 would have required the forms to be sent out beginning in 2022 for 2021 payments over $600, but payors were not prepared to comply and the IRS was not prepared to process the many new forms that would be required. Since then, the IRS has repeatedly delayed implementation and now has announced a phase-in starting with a threshold of:

• $5,000 in aggregate payments in 2024 payments that will be sent out early in 2025,
• $2,500 for payments in 2025 to be reported early in 2026, and
• $600 for payments in years after 2025.

 

The IRS has tried to implement the reporting requirements before, but has repeatedly delayed enforcement and this could happen again, but don’t count on it—they now seem to be getting serious about implementation. 

 

If a client receives a Form 1099-K, the payment must be accounted for on the income tax return. There may be initial glitches in matching reported payments with tax returns and, hopefully, these will be a minimum, particularly with the higher thresholds for 2024 payments as everyone gets used to the reporting. If the payment is for goods or services, these can be accounted for as business revenue hopefully offset by expenses on a Schedule C if the taxpayer is self-employed or an independent contractor. This may require a Schedule C for a new business if payments have been incorrectly ignored before. Note that the payment reported on the 1099-K is for the gross payment and it will all be taxable if the taxpayer does not claim expenses related to the production of the revenue.

 

If your client receives an erroneous 1099-K, they should contact the issuer and ask for a corrected form to avoid possible matching problems and keep records of correspondence in case the issue is raised by the IRS.

 

National Tax Security Awareness Week - Watch Out for Bad Tax Advice on Social Media

Throughout the past year, the IRS and its Security Summit partners saw an escalation of new scams and bad advice surface on social media that promise to magically enrich taxpayers. This year, the public has seen the emergence and rapid spread of financial scams ranging from the fuel tax credit on federal tax returns to “pig-butchering” scams that involve investments in fake cryptocurrencies that ultimately leave the victims penniless. 

 

Scams that promise easy money through claiming inaccurate credits or other schemes are seen in social media and in other places. Some producers of misleading content on social media are driven by a criminal profit motive, while others are simply trying to gain attention and clicks, with little regard for the risks it poses to their followers. 

 

“Common wisdom dictates that if it sounds too good to be true, it often is, and that’s especially with some of the crazy ideas about taxes being spread on social media,” IRS Commissioner Danny Werfel said. “Social media platforms are rife with influencers making claims about tax credits or deductions that stretch the truth or are outright lies, aimed at gaining themselves clout or pushing up their views. At the same time, this puts their audience’s tax returns and personal finances at risk. If people want good tax information on social media, they should follow options like a trusted tax professional or the IRS social media platforms.” 

 

What to Watch Out for on Social Media 

 

The IRS is aware of various filing season hashtags and social media topics leading to inaccurate and potentially fraudulent information. A common theme among many of these examples involves people trying to use legitimate tax forms for the wrong reason.

 

The IRS has seen a spike this year in the following types of scams on social media:

 

Self-Employment Tax Credit

 

Promoters on social media have made misleading claims that taxpayers – particularly self-employed individuals and gig economy workers – can get up to $32,000 through the so-called “self-employment tax credit.” 

 

In reality, there is no self-employment tax credit; rather, scammers are advising taxpayers to incorrectly use Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to improperly claim the specialized and very limited sick leave and family leave credit on their income. 

 

People who were self-employed could claim credits for sick and family leave only for limited COVID-19 related circumstances in 2020 and 2021; the credit is not available for 2023 or 2024 tax returns. The IRS has a detailed set of FAQs describing the very technical requirements for meeting this provision of the law. 

 

Household Employment Taxes

 

In a variation on the “self-employment tax credit” scheme, taxpayers are being advised to “invent” fictional household employees and then file Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid. 

 

Fuel Tax Credit

 

This specialized credit is designed for off-highway business and farming use. Taxpayers need a business purpose and a qualifying business activity such as running a farm or purchasing aviation gasoline to be eligible for the credit. 

 

The vast majority of individual taxpayers do not qualify for the fuel tax credit. It is only for businesses that use certain types of fuel (not for the gas people put in their car). Yet, promoters increasingly advise ineligible taxpayers to claim it and then the promoters line their own pockets by charging the individual a hefty fee. 

 

Inflated Income and Withholding

 

This scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. Scam artists suggest people make up large income and withholding figures, as well as the employer from which it’s coming. They then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund – sometimes as much as five figures – due to the large amount of withholding. 

 

Claim of Right

 

In this long-seen scheme, taxpayers are advised to file tax returns and attempt to take a deduction equal to the entire amount of their wages. Promoters advise them to label the deduction as “a necessary expense for the production of income” or “compensation for personal services actually rendered.” The deduction is based on a complete misinterpretation of the Internal Revenue Code and has no basis in law. 

 

The IRS has seen hundreds of thousands of dubious claims like these, leading to refunds being delayed and the need for taxpayers to show legitimate documentation to support their claims – that they often do not have. Many of these scams were highlighted during this spring’s annual Dirty Dozen series. The IRS is on the lookout for each of these types of false tax claims as well as others. 

 

The IRS and Summit partners urge taxpayers to exercise caution when filing their tax returns and ensure they only claim credits to which they’re entitled. Taxpayers who did fall victim need to follow steps to verify their eligibility for the claim. Otherwise, they could face audits and expensive fines; in some cases, they could be subject to federal criminal prosecution and imprisonment. 

 

If individuals have doubts about the legitimacy of a particular tax credit, they should review the many resources available on IRS.gov or seek advice from a qualified tax professional and, in some cases, file an amended return to remove ineligible claims to avoid potential penalties. 

 

‘Tis the Season 

 

These threats are present year-round, but the approach of the 2025 tax filing season means that misinformed influencers and outright scammers will intensify efforts to persuade the public to take their bad advice.

 

Instead of looking to shady or ill-informed influencers on social media, a better option for taxpayers to learn how to properly use tax forms and claim credits is to go to IRS.gov and follow IRS social media channels. 

 

• IRS.gov has a forms repository with legitimate and detailed instructions for taxpayers on how to fill out the forms properly.

• Use IRS.gov to find the official IRS social media accounts, or other government sites, to fact check information. 

 

Taxpayers should also consider consulting a tax pro if they are thinking of applying tax advice seen on social media to their own tax situations. 

 

Pass it On 

 

The IRS encourages the public to report improper and abusive tax schemes, as well as tax return preparers who knowingly prepare improper returns, including “ghost preparers.” 

 

To report an abusive tax scheme or a tax return preparer, people should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations. 

 

Mail: 

Internal Revenue Service

Lead Development Center MS7900

1973 N. Rulon White Blvd

Ogden, UT 84404

Fax: 877-477-9135 

 

Alternatively, taxpayers and tax professionals may report the information to the IRS Whistleblower Office for possible monetary award. 

 

Taxpayers can also report scams to the Treasury Inspector General for Tax Administration or the Internet Crime Complaint Center. The Report Phishing and Online Scams page at IRS.gov provides complete details.

 

Final Regulations on Basis Consistency Reporting on Inherited Property

RSM US LLP authors Carol Warley, CPA-Houston, PFS, J.D.; Maddie Ryer, CPA; Scott Filmore, J.D., LL.M.; and Amber Waldman, CPA

 

Executive Summary

 

Final regulations regarding Internal Revenue Code Sections 1014(f), 6035, 6724 and 6662 are in effect for estate tax returns filed after Sept. 17, 2024. The following highlights some of the significant revisions made in response to comment letters sent related to the proposed regulations.  

 

Applicability

  

There is no requirement to file Form 8971 if an estate is less than the basic exclusion amount (for 2024 - $13,610,000 and 2025 - $13,990,000). There is also no requirement to file Form 8971 if an estate files an estate tax return only for portability, generation-skipping transfer tax exemption allocation or protective claims. 

 

Removal of Zero-Basis Rule for Unreported Basis

 

The proposed regulations provided that assets that were not reported on a decedent’s estate tax return would have a zero basis for beneficiaries receiving those assets. The final regulations eliminated that provision. Beneficiaries still do not have a course of action for assets they believe to be misvalued on the estate tax return. The IRS acknowledges in the preamble that the final regulations serve only to deter willful nonreporting and are considering future guidance for valuation disputes.

 

Reporting Due Dates – 30 Days or January 31?

  

Form 8971 is still due 30 days after the estate tax return is filed. Under the proposed regulations, executors were required to report any assets a beneficiary may receive, even if the property had not been distributed by the Form 8971 due date. This confused beneficiaries who did not understand why their Schedule A reported more assets than they were going to receive. This also disclosed more information to beneficiaries than what was needed, causing potential conflicts and litigation. Executors are now only required to report assets when they are acquired, as defined below, by the beneficiary. Assets acquired on or before the estate tax return is filed are required to be reported on the Form 8971 and Schedule A(s) by the 30-day deadline. Assets acquired after the estate tax return is filed should be reported by January 31 in the year after acquisition.  

 

New Definition of “Acquiring”

 

Under Reg. Section 1.6035-1(c)(4), acquired property is defined as when title vests in the beneficiary or when the beneficiary otherwise has sufficient control. This can occur when property is distributed by the executor or trustee, by contract or by operation of law including all assets held in a revocable trust. The change removes the executor’s need to report all assets the beneficiary “may” receive and aligns with the common understanding of “acquired.”

 

Subsequent Reporting Requirements

 

Individual beneficiaries are not required to report subsequent transfers of inherited assets.

 

Executors are required to submit supplemental statements to individual beneficiaries reporting actual assets acquired if the initial filing included incorrect assets, omissions or the asset’s final value changes. The due date of these supplemental statements is 30 days after the information is available to the executor.

 

Trustees are required to file supplemental statements for trust funding and all distributions. For example, if a trust is funded 60 days after the estate tax return filing and the trust makes distributions of the inherited assets annually to beneficiaries, then the trustee is required to file supplemental statements annually by January 31.

 

The initial basis in consistent basis property may be adjusted pursuant to the operation of Section 1014 or other provisions of the Internal Revenue Code governing basis.

 

List of Assets Exempted from Reporting Requirements

 

• Cash, as redefined as “US dollar,” including certain deposits, lump-sum life insurance payouts, tax refunds and other refunds,
• Notes forgiven in full, regardless of currency denomination,
• Household and personal effects for which an appraisal is not required,
• Income in respect of a decedent including retirement plans and deferred compensation, and
• Property sold or exchanged prior to distribution that are recognition events.

 

The above information is not all encompassing of the finalized regulations.

California Compliance Potpourri

Torakichi Jesús Oba Pérez, EA, CPA, and Kelly Blocker, CPA; CalCPAs

 

Being a born and raised Californian, I have come to accept certain truths about the California taxation system, which I tend to forget does not necessarily apply outside of my state. Here are a few pointers to consider when dealing with former Californians who could still very much have California income tax to consider although they may have successfully (or unsuccessfully) ceased to be California tax residents.

 

1. Estate Planning

Make sure that inbound Californians update their estate plans for Texas laws/considerations. As much as I love California, I don’t think that feeling would extend to someone passing away without a will with assets in California and Texas. In such cases, it is more than likely that two probates would have to be administered, which ranks low on the scale of desired outcomes for beneficiaries.

Additionally, non-resident beneficiaries of California situs assets would also be subject to backup withholding on any income from the assets of the estate, so when completing the updated estate planning, be sure to keep an eye on any California situs assets and understand the eventual implications of inheriting those assets.

 

2. California LLC Considerations

A good resource to understand what the compliance implications are for California LLCs is FTB Publication 3556. It is filled with information that may be particularly eye catching for non-California practitioners:

        a. Single Member LLCs

Keep in mind that a single member LLC is a disregarded entity for federal tax purposes, but still must file a California Form 568 for every year it has conducted business, as well as pay their applicable LLC annual tax and LLC fees.

        b. Doing Business in California

The section of Pub. 3556 gives an overview of what doing business in California is considered to be and gives specific examples for non-California LLCs that run into California filing requirements because they are interpreted to be doing business in California.

I would pay particular attention to the examples that give an overview of non-California LLCs that are considered to be conducting business in California.

 

3. Management of an LLC

If an LLC is located, operated or managed in California, the LLC is considered doing business in California. This remains true even if the LLC is not a California LLC. If the LLC is located or operated in another state with no business activity in California and no management decisions are made by the California resident manager, the LLC is not considered doing business in California. This becomes especially important because management activities, location and source of sales drives income sourcing.

 

4. Income Sourcing on Sale of an LLC Interest

When an LLC member sells their interest, the sourcing rules vary depending on the assets/interest held/sold. For former Californians considering selling their LLC interests, a few key considerations to ask a potential client are – did the LLC hold inventory, have receivables, have other tangible property subject to depreciation recapture? California generally treats the sale of an LLC interest as a sale of intangible personal property, generally sourced to the seller’s current state of residence. However, per FTB Legal Ruling 2022-02, unrealized receivables or appreciated inventory necessitate the treatment of the sale as two separate sales – (1) the sale of the member’s interest in any unrealized receivables and/or appreciated inventory (is likely to have gain sourced to California) and (2) the sale of the remaining LLC interest (treated as an intangible).

 

5. 1031 Exchange - Isley Brothers Edition

I had a great idea once to take a client’s unrealized gains on their California situs real estate investments and 1031 exchange it to non-California situs property thereby getting rid of any future California tax bill. I was, however, foiled by the forward-thinking folks at the Franchise Tax Board, which requires an annual information return, Form FTB 3840, to be filed annually until the gain is realized and tax is paid to the state of California.  

Much like the haunting refrain from the Isley Brothers’ “Voyage to Atlantis,” the Franchise Tax Board will always come back to you to request their share of the tax on the eventual gain recognition, and if you do not file your 3840 in a timely manner, the Franchise Tax Board may issue a Notice of Proposed Assessment to adjust the income for the California sourced deferred gain and assess tax plus any applicable penalties and interest.

 

In summary, a good rule of thumb may be to assume that anything from California comes with certain strings attached, and the work remains to understand and explain those strings to our clients.

IRS Survey on Services to Tax Practitioners and Clients

William Stromsem, CPA, J.D., George Washington University School of Business

 

The IRS is conducting a random survey of tax professionals to help improve services to practitioners and taxpayers. Although we are always wary of phishing scams, this is a legitimate survey that could help you, your clients and the tax system as you respond to questions about e-filing, electronic document submission, data security, due diligence requirements and other areas of service.

 

You may have already received an email from the IRS encouraging you to participate if selected. Those selected will then receive follow-up mail or a phone call from ICF Inc., an independent research firm that is conducting the survey for the IRS, with more information. The survey takes only about 20 minutes, can be completed online, and results are anonymous and confidential. It will be conducted from now through Dec. 6. 

 

The survey will not ask for personal information about tax pros or their clients. All responses are anonymous and confidential.

 

Tax Professionals Might Be Contacted About IRS Survey - CPA Practice Advisor

IRS to Stop Automatic Penalties on Late Forms 3520

John M Kelleher, CPA-Fort Worth

 

On Oct. 24, 2024, IRS Commissioner Danny Werfel announced that effective immediately, the IRS will no longer automatically issue penalty notices for late filed Forms 3520 related to foreign gifts, Part IV of the form. The Commissioner, speaking at a conference at UCLA, also indicated that the IRS will begin to review the reasonable cause statements provided with the late filed forms before any penalties are issued. Prior to the policy change, the IRS would automatically issue penalties for the greater of $10,000 or 25% of the gift for late filed forms. Many taxpayers were not even aware of the requirement to file the form.

 

There has been a strong push from the National Taxpayer Advocate, as well as other bodies such as the TXCPA Federal Tax Policy Committee, for the IRS to change its policy in this area.

 

IRS Hears Concerns from TAS and Practitioners, Makes Favorable Changes to Foreign Gifts and Inheritance Filing Penalties - Taxpayer Advocate Service

Annual IRS Inflation Adjustments

William Stromsem, CPA, J.D., George Washington University School of Business

 

The just-released Revenue Procedure 2024-40 provides the inflation adjustments for next year and some of the numbers may be helpful in year-end planning this year. The Rev. Proc. is 27 pages long and this article will only cover some of the most important changes. 

 

Standard Deduction

 

The standard deduction will rise to $30,000 for married filing jointly, $15,000 for singles and married filing separately, and $22,500 for heads of households. The additional standard deduction for old age and blindness will be $1,350. This may be helpful in timing deductions if a taxpayer wants to use the strategy of “bunching” itemized deductions into alternating years to exceed the standard deduction every other year. 

 

The standard deduction for dependents rises to $1,350 (or to earned income plus $450) and this may be helpful in income shifting without running afoul of the “kiddie tax” rules, where the child can have up to $1,350 of unearned income without any tax liability, and an additional $1,350 taxed at the child’s tax rate, with unearned income over $2,700 taxed at the parent’s marginal rate.

 

Marginal Rates

 

Brackets for marginal tax rates will be adjusted for inflation. These will not be used until 2025 returns are filed in 2026. They will be subject to change depending on election results and they will be built into return preparation software, but they may be of interest in current political discussions. The standard deductions listed above are effectively a 0% tax bracket for lower-income individuals, offsetting otherwise taxable income. On the other end of the scale, taxpayers reach the top marginal tax rate of 37% with taxable income greater than $751,600 for married filing jointly and $626,350 for singles. Note the top marginal rate will sunset at the end of 2025, bringing the maximum rate to 39.6%. 

 

Transfer Taxes

 

The annual gift tax exclusion rises to $19,000 and the transfer tax unified credit offset amount rises to $13,990,000 per transferor. This may be helpful for those planning to make gifts before the expiration of the higher unified credit offset amount at the end of 2025 when the credit amount will sunset back to approximately $6,500,000 per transferor. 

 

Alternative Minimum Tax Exemption

 

The AMT exemption amounts will increase to $88,100 for unmarried individuals and $137,000 for married filing jointly. The exemption begins to phase out at $626,350 for singles and $1,252,700 for married filing jointly.

 

Other Adjustments

 

Many other numbers are adjusted slightly for inflation, so see the Rev. Proc. for specifics, including limits on health care flexible spending accounts, medical savings accounts and the foreign earned income exclusion.    

 

IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service

IRS Launches Pass-Through Compliance Unit

David Donnelly, CPA-Houston

 

The IRS announced on Oct. 22, 2024, that the new Pass-Through Unit has started operations. The new unit will audit partnerships, trusts and S corporations of all sizes and will be part of the Large Business & International (LB&I) Division.

 

Commissioner Danny Werfel said, “…we will be able to reverse our historically low audit rates for complex arrangements employed by certain high-wealth individuals and large entities, while at the same time improving the taxpayer experience through a more tailored exam approach.”

 

The announcement also included the disclosure that the IRS has “…launched examinations of 76 of the largest partnerships with average assets over $10 billion that includes hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and many other industries.”

 

IRS Announces Launch of Pass-Through Compliance Unit in LB&I