IRS Enhances Taxpayer Protections
Taxpayers, professional advisors and third parties (such as colleges and universities providing student assistance) have regularly requested tax transcripts from the IRS. Because identity thieves have been obtaining tax transcripts and filing fraudulent returns, the IRS announced it would “stop its tax transcript faxing service in June and will amend the Form 4506 series to end third-party mailing of tax returns and transcripts in July.”
In 2018, the IRS modified the tax transcripts to remove most personally identifiable information. The Service also hopes to increase data security through new limits on the release of tax transcripts. After June 28, 2019, the IRS will no longer fax tax transcripts to taxpayers or third parties.
Taxpayers may access their tax transcripts in three ways.
- IRS.gov or IRS2Go – You may use the IRS website or smartphone app to request a transcript. After verifying your identity, you may download a tax transcript or request that one be sent to you by U.S. mail.
- Phone – Call the IRS at 800-908-9946 for an automated Get Transcript by Mail service.
- IRS Form 4506-T or 4506T-EZ – You can submit one of these IRS forms to have a transcript mailed to you in about 10 days.
Tax professional advisors may obtain tax transcripts under the new rules. Frequently, tax transcripts are needed for tax preparation purposes.
- Taxpayers – The advisor may obtain a copy from a taxpayer-client who has a tax transcript mailed to him or her.
- IRS Transcript Delivery System – The IRS will send a masked individual transcript or business transcript to the tax professional after appropriate identification.
- Authorized Transcript – If the tax professional faxes authorization to the IRS, it will place the transcript in the tax professional’s IRS eServices mailbox.
On July 1, 2019, there will be no further tax transcripts sent to third-parties. Colleges and universities that need income verification to determine student assistance levels may use the IRS’s Income Verification Express Service (IVES). If a college or university is an approved IVES participant, income verification by the IRS is permitted.
Tax Incentives to Increase Charitable Giving
In a joint report, Independent Sector (IS) and the Indiana University Lilly Family School of Philanthropy (Lilly) suggested several potential options for encouraging charitable giving.
The report begins with a review of giving trends for the past two decades. Between 2000 and 2017, total giving steadily increased. Over $400 billion was donated in 2017. However, the number of donors has been declining by about 1% per year. The percentage of American households that donated to charity dropped from 67% in 2000 to 56% in 2014.
This decline occurred at the same time as the total number of public nonprofits increased. The result of fewer donors and more charities, especially for midsized and small nonprofits, has increased competition for annual fund gifts.
With the increase in the standard deduction under the Tax Cuts and Jobs Act, the number of future donor households is also likely to decline. The Joint Committee on Taxation (JCT) estimates that the 30% of taxpayers who itemized in 2017 may decline to as few as 10% of taxpayers in 2019 and future years.
IS and Lilly suggest several possible options to increase giving.
- Charitable Tax Credit – One possible option is to replace the 60% cash gift deduction limit with a 25% charitable tax credit. This credit is projected to increase the number of donors by 10.6 million and the amount of total gifts by $37 billion. This credit could cost the government an estimated $33 billion.
- Universal Charitable Deduction – By permitting taxpayers to take a nonitemizer charitable deduction, donor households would increase by 7.3 million. The increased number of donors and gifts made by those who are not currently itemizing could lead to a total gift increase of $26 billion. The cost to the government for this option is estimated to be $22 billion.
- Nonitemizer Deduction with Limits – A nonitemizer deduction could include limits, such as a 1% floor or a cap of $4,000 for single taxpayers and $8,000 cap for married couples. With these limits, there may be a modest increase in the number of donors and total gifts. This option would result in a more modest expense to the federal government.
Editor’s Note: While some of the final 2018 giving numbers are not yet published, it appears that total giving for larger nonprofits was up by 1% to 3%. Giving last year to midsized and smaller nonprofits was likely down by 1% to 3%. The exceptions are nonprofits that now are in the third year of comprehensive IRA rollover marketing campaigns. Some nonprofits who are regularly and consistently marketing IRA rollovers are experiencing increases in total gift receipts of 10% to 20%. The path to annual fund prosperity is through the IRA charitable rollover.
SECURE Retirement Bill on Hold in Senate
On May 23, the House passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994). Initially, the Senate hoped to bypass its own retirement bill and pass the House SECURE Act by a unanimous voice vote.
However, Senate Finance Committee Chairman Chuck Grassley (R-IA) reported this week that there are “perhaps as many as six” Senators who oppose various provisions of the House bill. A voice vote in Senate is not possible unless there is unanimous consent, so this opposition by six senators leads to a hold on the bill.
Senator Ted Cruz objects to a last-minute change in the House bill that affected Sec. 529 plans. The final House bill deleted the option that would permit $10,000 from a Sec. 529 plan to be used for homeschooling expenses each year. Cruz stated, “I think we should include the 529 language that passed unanimously out of the House Ways and Means Committee with every Democrat on the committee supporting it.”
Grassley is reluctant to move forward with a retirement bill using the normal Senate process. If the SECURE Act is submitted to the Senate Finance Committee, it is marked up and then passed by the Senate, the compromise between the House and Senate and final enactment of a retirement bill could occur late in 2019.
Editor’s Note: Tax planning professionals continue to discuss the impact of the SECURE Act’s 10-year fixed payout provision for most children who inherit IRAs. This 10-year payout provision eliminates the current “stretch” payment option over the child’s life expectancy. If the SECURE Act passes with the 10-year fixed payout provision, there will be a dramatic increase in the number of testamentary charitable remainder trusts (CRTs) funded with IRA, 403(b), 401(k) and other retirement plans. Transfer of a plan to a testamentary CRT enables a child to recieve payments over a term of 20 years or a lifetime.
Applicable Federal Rate of 2.8% for June — Rev. Rul. 2019-14; 2019-23 IRB 1 (16 May 2018)
The IRS has announced the Applicable Federal Rate (AFR) for June of 2019. The AFR under Section 7520 for the month of June is 2.8%. The rates for May of 2.8% or April of 3.0% 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.