Blizzard Disaster Relief
The blizzard brought winds of up to 89 mph (Hemingford, Nebraska) and as much as a foot of snow. Interstate 80 was closed from Kearney, Nebraska to the Wyoming border.
After the storm passed, there was severe flooding of the Platte, Elkhorn and Missouri rivers. Many cities in eastern Nebraska and western Iowa experienced flooding.
In NE-2019-02 and IA-2019-02, the IRS declared disaster relief status for Butler, Cass, Colfax, Dodge, Douglas, Nemaha, Sarpy, Saunders and Washington counties in Nebraska and Fremont, Harrison, Mills, Monona and Woodbury counties in Iowa.
Nebraska residents in the affected counties may generally defer tax filing deadlines between March 9 and July 31 of this year to July 31, 2019. Iowa residents in impacted counties may delay their filing deadlines from March 12 to July 31 of this year to July 31, 2019.
The tax relief covers filing, payments and estimated tax payments. Individuals who are making IRA contributions also have until July 31, 2019 to maximize their 2018 IRA funding.
Victims in the Nebraska and Iowa counties may also deduct a casualty loss. Taxpayers who are in a federally-declared disaster zone are permitted to deduct losses in either the 2018 or 2019 tax year.
Expanded Penalty Relief for Taxpayers Who Underwithheld
In Notice 2019-25, 2019-15 IRB 1, the Service expanded the penalty relief granted in Notice 2019-11.
Taxpayers with income other than wages are generally required to pay estimated taxes in four installments per year. Under Sec. 6654(d)(1)(B), the estimated tax payments are “the lesser of (i) 90% of the tax shown on the return for the taxable year or (ii) 100% of the tax shown on the taxpayer’s return for the preceding taxable year (110% if the individual’s adjusted gross income on the previous year’s return exceeded $150,000).”
Because the Tax Cuts and Jobs Act was the most comprehensive tax reform in three decades, many taxpayers were not certain how to calculate their estimated tax payments. As a result, an estimated 15% to 18% of taxpayers have underwithheld.
Therefore, the IRS published Notice 2019-11 and reduced the 90% estimated tax safe harbor to 85% for most taxpayers who have underwithheld.
However, in response to concerns expressed by Members of Congress that even more relief was needed, Notice 2019-25 lowers the 90% threshold to 80% for many taxpayers. The new standard states, “The addition to tax under Section 6654 for failure to make estimated income tax payments for the 2018 taxable year otherwise required to be made on or before January 15, 2019, is waived for any individual whose total withholding and estimated tax payments made on or before January 15, 2019, equal or exceed 80% of the tax shown on that individual’s return for the 2018 taxable year.”
To claim this estimated tax waiver, individuals must file Form 2210, Underpayment of Estimated Tax by Individuals, Estate and Trusts. Taxpayers should file Form 2210 with their 2018 tax forms and check the waiver box in Part II, Box A. Filers should write “80% waiver” on this tax form.
Conservation Easement Abuse Investigation
On March 27, 2019, Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) launched an investigation into potential abuses of conservation easement charitable deductions. They sent 14 letters to individuals who are involved with partnerships that invest in real estate and then create conservation easements.
Grassley noted, “There are very legitimate purposes for the conservation easement provisions of the tax code. But when a handful of individuals cook up a scheme to cash in at the expense of federal revenue and in violation of Congress’ intent, something needs to change. There is no reason that the rest of the taxpaying American public should be left with such a raw deal. This is just our first step in getting to the bottom of how these tax provisions are being abused, and it will inform what else ought to be done to fix the problem.”
The letters explained that conservation easements are listed transactions under Notice 2017-10. The 14 individuals are asked for extensive information about all partnerships or passthrough entities that purchase real estate and then donate conservation easements.
Editor’s Note: Sen. Grassley has stated he will move aggressively to limit perceived abuses of charitable deductions. Conservation nonprofits such as the Land Trust Alliance (LTA) generally support the Grassley-Wyden investigation of syndicated conservation easements. Andrew Bowman of the LTA stated that this investigation is “the right step toward permanently ending this abuse. It shines a bright light on transactions that disguise a profitable tax shelter as a charitable donation.”
Applicable Federal Rate of 3.0% for April — Rev. Rul. 2019-8; 2019-14 IRB 1 (15 Mar 2018)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2019. The AFR under Section 7520 for the month of April is 3.0%. The rates for March of 3.2% or February of 3.2% 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 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.