IRS offers tax relief for student loan debt discharges

The Internal Revenue Service and the Treasury Department are offering a safe harbor to provide relief to taxpayers who borrowed money to attend a nonprofit or for-profit school and had their student loan debts discharged.

Revenue Procedure 2020-11 provides a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school. The IRS and Treasury are also extending the relief to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

The Treasury Department and the IRS said Wednesday they have determined that it’s appropriate to extend the relief already provided in Rev. Proc. 2015-57Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance their attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc. Both of the for-profit education chains went out of business after enticing tens of thousands of students to take out pricy loans. The Department of Education agreed in 2017 to forgive $30 million in student loans from American Career Institutes, and in 2018 the Department of Education allocated $150 million for Corithinian students, although the Education Department has also come under fire for continuing to try to collect on the debts from former Corinthian students.

In many cases, discharged debts are taxable under federal law, so the revenue procedures provide tax relief for former students who attended schools and were left with high levels of student loan debt.

The new revenue procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders.

Taxpayers within the scope of the revenue procedure will won’t have to recognize gross income as a result of the discharge, and taxpayers shouldn’t report the amount of the discharged loan in gross income on their federal income tax return.

In addition, the IRS said it would not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid any confusion, the IRS is strongly recommending that these creditors not furnish students nor the IRS with a Form 1099-C.

 

(Source: https://www.accountingtoday.com/news/irs-offers-tax-relief-for-student-loan-debt-discharges)

Did You Just Get an IRS Notice of Deficiency? Here’s What to Do Next

Nobody likes getting mail from the IRS — especially when it’s something you weren’t expecting.

One minute, you’re minding your own business and aren’t even thinking about that return you filed months ago. The next minute you open your mailbox and see something called a “Notice of Deficiency” — and your anxiety immediately goes through the roof.

At this point, the most important thing you can do is to relax and take a deep breath. Getting a Notice of Deficiency from the IRS in the mail doesn’t automatically mean you’re about to be audited, and in fact, it may not mean anything bad at all. It does, however, require you to keep a few key things in mind to make sure that you respond in the right way.

What Is an IRS Notice of Deficiency?

Formally known as the CP3219A notice, a Notice of Deficiency is exactly what it sounds like — an indication that the IRS has recently received information that is different from what you originally reported when you filed your tax return for the year in question.

To put it another way, something that you put on your return doesn’t match with a piece of information that a third party provided to the IRS. The discrepancy could be as simple as a difference between your self-reported income and income reported on a Form 1099.

Now, despite the scary-sounding name, this isn’t necessarily a bad thing. Depending on the situation, it could just as easily result in a decrease in the amount of tax that you owe as it could result in an increase.

The note itself will explain exactly how the amount was calculated, so the first thing you’re going to want to do is read it to make sure that you understand — but also that you agree.

Moving Beyond the Notice of Deficiency

If you agree with the changes as outlined by the Notice of Deficiency, then that’s terrific — this process is almost over. All you have to do is sign the enclosed form (which should be Form 5564) and mail it to the address that is printed on the notice itself. This is called the Notice of Deficiency Waiver, and it just means that you agree to either pay the new amount that you owe or, in a perfect world, agree that you would like the IRS to send you some money that you didn’t know you had coming.

If you don’t agree with the changes, however, note that you do have the right to challenge them by filing a petition with the United States Tax Court — but you have to do so by absolutely no later than the date shown on the notice itself. The court will not consider your petition if you file beyond this deadline.

If you don’t agree with the changes and you have additional information that can help clear up any confusion, mail all of the supplementary documentation along with the aforementioned Form 5564 to the address on the notice. But keep in mind that doing this does not extend the amount of time you have to file your petition.

You should also be aware that if the mistake is something that happened because of identity theft that you suffered, there are additional options available to you. The most immediate involves filling out Form 14039, otherwise known as the Identity Theft Affidavit. You should then call the IRS, speak to a representative, explain your situation and get advice about what they want you to do next.

You could also contact the third party that gave the IRS the information that triggered the discrepancy in the first place. If the mistake is theirs, you can ask them to correct it — or at least provide you with more information to help you make your case.

If the mistake was a legitimate one on your end, you’ll also probably want to go over any other returns that you filed to make sure they don’t have the same issue — thus causing even more tax problems down the road. At the very least, you’ll want to file an amended tax return to include any additional information that you received (like more 1099s) after you filed your original one earlier in the year.

If you owe additional taxes and can’t afford to pay right now, don’t worry — it happens. You could always set up a payment plan or make other arrangements with the IRS. Depending on the situation, you could also make an Offer in Compromise and settle your bill for far less than you originally owed.

Resolving a Notice of Deficiency can be very overwhelming, and if not handled properly, you could end up with an even larger problem than you started with. For more assistance and to get help with your CP-3219A notice, contact our office today at 562-404-7996.

10 IRS Audit Red Flags for Retirees

You may be wondering about your odds of an IRS audit. Most people can breathe easy. The vast majority of individual returns escape the IRS audit machine. In 2018, the Internal Revenue Service audited only 0.59% of all individual tax returns, and 81% of these exams were conducted by mail, meaning most taxpayers never met with an IRS agent in person. So the odds are generally pretty low that your return will be picked for review.

That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors. Math errors may draw IRS inquiry, but they’ll rarely lead to a full-blown exam. Check out these 10 red flags that could increase the chances that the IRS will give the return of a retired taxpayer special, and probably unwelcome, attention.

  1. Making a lot of Money 

Although the overall individual audit rate is only about one in 170 returns, the odds increase as your income goes up, as it might if you sell a valuable piece of property or get a big payout from a retirement plan.

IRS statistics for 2018 show that people with incomes between $200,000 and $1 million who do not file a Schedule C had an audit rate of 0.6%. The rate is 1.4% for Schedule C filers. Report $1 million or more of income? There’s a one-in-31 chance your return will be audited.

We’re not saying you should try to make less money — everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you’ll be hearing from the IRS.

Failing to report taxable income from wages, dividends, pensions, IRA distributions, Social Security benefits and other sources will almost certainly draw unwanted attention from the IRS.

The IRS gets copies of all the 1099s and W-2s you receive. This includes the 1099-R (reporting payouts from retirement plans, such as pensions, 401(k)s and IRAs) and 1099-SSA (reporting Social Security benefits). The IRS’s computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill.

So, be sure to report all income, whether or not your receive a form such as a 1099. For example, if you got paid for tutoring, giving piano lessons, driving for Uber or Lyft, dog walking or selling crafts through Etsy, the money you receive is taxable.

Continue reading here: https://www.kiplinger.com/slideshow/retirement/T056-S011-10-irs-audit-red-flags-for-retirees/index.html

Make a Tax-deductible Donation for Hurricane Disaster Relief

With Hurricane Dorian set to make landfall as a devastating storm on the east coast, the Dream Center response team is set to deploy at a moment’s notice.
The Dream Center has been responding to disasters all across the United States and around the world for over 10 years. Bringing aid to Texas, Florida, California and the East Coast with rescues, shelter, food, clothing, and restoration.

Dana and I are so blessed to be part of the efforts the Dream Center has established throughout the years and we’re excited to introduce the new Mobile Response Unit. This mobile response unit is ready for immediate deployment. In the field, this truck turns into a multi-purpose operations center allowing the team to assist Law Enforcement, Search and Rescue Teams, Mobile Feeding Programs, and Medical Teams.

We invite you to partner with us and make a tax-deductible donation to the Dream Center so that they can to continue the efforts of disaster relief response throughout the country. The truck is currently positioned in Florida and ready to move into Georgia and the Carolina’s to help those in need.

Your support is much appreciated! To donate click on the following link: https://www.dreamcenter.org/

Please contact [email protected] for more information

Congress Renews Tax Breaks in Year-End Legislation

The Protecting Americans from Tax Hikes Act of 2015 was signed into law on December 18, 2015. The law renews a long list of tax breaks known as “extenders” that have been expiring on an annual basis. This legislation makes some of the rules effective through December 31, 2016. Others are effective through 2019, and some are effective permanently. Provisions in the Act also make changes to existing tax rules that were not part of the extenders. All of these changes will affect your tax planning now and in future years.

 

Here’s an overview of selected provisions.

  • The provision for tax-free distributions from IRAs to charities is now permanent. When you’re age 70 ½ and over, this break lets you make a qualified distribution of up to $100,000 from your IRA to a charity. The transfer counts as a required minimum distribution and is excluded from your gross income.
  • If you’re a homeowner, you can exclude mortgage debt cancellation or forgiveness of up to $2 million for 2015 and 2016. Discharges of qualified mortgage debt can also be excluded after January 1, 2017, if you have a binding written agreement in effect before that date. This tax break is only available for your principal residence.
  • If you or a family member is an eligible student, you may be able to claim a tuition and fees above-the-line deduction for qualified higher education expenses for 2015 and 2016. For 2015 tax returns, the maximum deduction is $4,000 when your adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers). The maximum deduction is $2,000 when your AGI is less than $80,000 ($160,000 for joint filers).
  • The deduction for up to $250 of out-of-pocket eligible educator expenses is now permanent. It will be indexed for inflation beginning with 2016 tax returns. You claim this deduction “above the line,” meaning it’s available even if you don’t itemize. If you do itemize, you can also generally claim qualified expenses above $250 as a deduction subject to a 2% of adjusted gross income limit.
  • The optional itemized deduction for state and local sales taxes in lieu of deducting state and local income taxes is now permanent. This deduction is especially beneficial if you live in a state with no income tax. You may also benefit no matter where you live if you pay sales tax on a large ticket item such as an automobile, boat, or RV.
  • When you itemize, you can treat mortgage insurance premiums as deductible home mortgage interest in 2015 and 2016. The deduction is subject to phase-out based on adjusted gross income.
  • You may be able to claim a credit of 10% of the cost of energy-saving improvements installed in your home in 2015 and 2016, subject to a lifetime credit limit of $500.
  • The maximum Section 179 deduction for qualified business property, including off-the-shelf software, is now permanently set at $500,000 (subject to a taxable income limitation). That means you can immediately write off up to $500,000 of the cost of assets you purchased and placed in service during the year. The deduction is phased out above a $2 million threshold. Both thresholds will be indexed for inflation beginning in 2016.
  • You can treat qualified leasehold improvements, qualified retail improvements, and qualified restaurant property as Section 179 property subject to a first-year write-off limit of $250,000 for 2015. Modifications to the definition of certain real property that can be treated as Section 179 property, as well as limitations and the maximum amount available to such property, take effect after 2015. In addition, the thresholds will be indexed for inflation beginning 2016.
  • The additional first-year depreciation deduction, known as “bonus depreciation,” is generally extended through 2019 when you buy qualified business property. The deduction is subject to a phase-out beginning in 2018 of 10% per calendar year, but you can deduct up to 50% of the cost of qualified property for 2015 through 2017. You can claim this deduction in conjunction with Section 179.
  • The business research and development (R & D) tax credit is made permanent. The law permits eligible small businesses to claim the credit against AMT liability beginning in 2016.
  • The work opportunity tax credit is extended for five years (through 2019) when you hire eligible individuals. The credit is also expanded to include qualified long-term unemployment recipients who begin work after December 31, 2015.

The remaining extenders range from such things as enhanced deductions for donating land for conservation purposes to tax credits for energy-efficient new homes.

The Protecting Americans from Tax Hikes Act of 2015 also makes changes to 529 college savings plans, such as including the purchase of computers and related services in the definition of qualified higher education expenses. The law modifies tax-free ABLE accounts for disabled individuals to allow flexibility in choosing a state program, as well as rollovers of amounts from 529 college savings plans to these accounts. The law also delays for two years the “Cadillac tax” on high cost health care plans.

Because the Act was passed so late in the year, it will be important for you to review your 2015 transactions to take advantage of applicable breaks in order to claim them on your 2015 federal income tax return. Also, with the rules now extended through 2016 (and in some cases beyond), you can begin to update your current tax plan with some measure of certainty.

Contact us for more information and for help determining which changes affect you.

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