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Thursday April 19, 2018
Ten Ways to Reduce Tax Return Errors
In IR-2018-86, the Service offered 10 tips for avoiding "common tax return filing mistakes," as the April 17 tax return deadline approaches. These apply especially to taxpayers rushing to file before the deadline.
Foreign Account Tax Reporting
In IR-2018-7 and IR-2018-87, the Service reminded taxpayers that if they had a foreign account in 2017 that held more than $10,000 in assets, they are required to report that amount. The 2017 Report of Foreign Bank and Financial Accounts (FBAR), Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 17, 2018. There is an automatic extension to October 15, 2018 if you do not file on time.
The FBAR is due for joint accounts, spousal accounts and accounts owned by children.
There are major penalties for failure to file the FBAR. A willful violation will subject a taxpayer to a penalty of the greater of $124,588 or 50% of the foreign account balance. For a criminal violation, there may be a fine and up to five years in prison.
There is still time for taxpayers with unreported foreign accounts to use the Offshore Voluntary Disclosure Program (OVDP). The details on OVDP are available on www.IRS.gov. The Service plans to close OVDP on September 28, 2018.
Serious Steps Toward IRS Reform
While the House Ways and Means Committee discussed a "Taxpayer First" IRS reform bill, Acting IRS Commissioner David Kautter appeared before the Senate Finance Committee. Senate Finance Committee Chair Orrin Hatch (R-UT) emphasized the importance of serious steps toward IRS reform.
Hatch stated, "On the one hand, the IRS has made marked improvements in recent years. Including catching more identity fraud, preventing more fraudulent returns, and moving forward to implement the multitude of tax law changes that have occurred, including the most comprehensive tax reform in the generation. But, on the other hand, it is an agency stuck in the past. It relies on software and core processing systems designed during the Kennedy Administration."
Kautter started with a report on the 2018 filing season. By March 30, the Service received 94 million tax returns and issued 73 million refunds. The $212 billion in total refunds produced an average amount of $2,900 for each taxpayer.
Kautter also highlighted the IRS success in reducing identity theft. Between 2015 and 2017, the number of fraudulent returns declined 57% from 1.4 million to 597,000. The dollar value of fraudulent refunds recovered by banks declined from $852 million to $204 million during those two years.
Two key issues for both House and Senate tax writers are increasing customer service and updating IRS technology. House Ways and Means Committee Chair Kevin Brady (R-TX) praised the bipartisan IRS reform bill by Rep. Lynn Jenkins (R-KS) and Rep. John Lewis (D-GA).
Brady stated, "They advance a modern vision for the IRS so taxpayers are treated fairly, their disputes are handled objectively, and issues resolve quickly and more affordably. They create an independent office to handle taxpayer appeals and ensure taxpayers are no longer at a disadvantage to the IRS. They also insist that the IRS aggressively protects personal taxpayer information, proactively combats identity theft and is prepared to readily assist American taxpayers when they are victims of this theft."
Kautter agreed to consider new metrics for evaluating IRS performance. The current system simply measures time on the phone per taxpayer. An improved system would analyze the effectiveness of electronic and phone support in actually answering taxpayer questions.
Editor's Note: There are substantive and bipartisan steps in both the House and Senate to create a more "taxpayer friendly" level of IRS service. Some substantial IRS reform may occur during 2018.
Applicable Federal Rate of 3.2 for April -- Rev. Rul. 2018-9; 2018-13 IRB 1 (16 Mar 2018)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2018. The AFR under Section 7520 for the month of April is 3.2%. The rates for March of 3.0% or February of 2.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.
Published April 13, 2018