Ten Tips on Tax-preparers
1. Ethical – You are going to trust your preparer with your Social Security Number, income, investment and deduction records. You must have confidence that he or she is an ethical person.
2. Fees – A tax-preparer should not charge a percentage of the refund. A fixed or flat fee based on service is preferred. Your refund should not be sent to the tax-preparer, but directly to you.
3. Preparer Tax Identification Number (PTIN) – Each qualified tax preparer will have a PTIN. He or she should disclose that number. You also may wish to ask about the education or professional qualification of your preparer.
4. History – Some preparers are attorneys, CPAs or enrolled agents. The enrolled agents are listed in the IRS Office of Enrollment. Attorneys and CPAs are qualified by their respective state boards.
5. E-File – All preparers who send in over ten returns must use the IRS e-filing system. This e-file system is likely to result in a quicker tax refund payment.
6. Tax Records – A qualified preparer will ask for comprehensive records. He or she must base the tax return on your IRS Form W-2, not just a paystub for the year.
7. Available After April 15th – There may be further questions about your tax return. You should ask your preparer whether he or she will be available for follow-up support.
8. Review Returns – Each person should review the basic information on a tax return. This includes your income, deductions and tax amounts. After reviewing and understanding the basic parts of the return, sign and date the return.
9. Blank Returns – Do not sign a blank tax return. Your preparer could complete the return and direct the refund to his or her personal bank account.
10. Preparer Signature – Each person who prepares a tax return is required to sign and include his or her PTIN. The preparer must also give a copy of the return to the taxpayer.
Representative rights are available for many preparers. Attorneys, CPAs and enrolled agents have unlimited rights to represent you before the IRS. They can represent you during audits, the appeal process or the collection process.
Other preparers have more limited rights. The IRS recognizes Annual Filing Season Program preparers and others who hold a PTIN. These preparers are granted limited representation rights. They can represent you only with respect to the returns they have prepared and before an IRS revenue agent. They are not permitted to handle appeals or collections.
While it is still early, the IRS recommends that you make plans today for preparing and filing your tax return for this year. These “Ten Tips” will help to ensure that you are working with a qualified tax preparer.
Chairman Brady Supports Permanent Extenders
On November 5, Chairman Kevin Brady (R-TX) held his first meeting of the House Ways and Means Committee. Brady noted that the time is now growing short for further legislative action and he hopes to move forward promptly with selections of subcommittee members and passage of tax extenders.
He stated, “My goal is to make that happen – a resolution happen sooner rather than later. Whether it is a permanent package, which I am going for, or if that is not possible, a two-year extension.”
Brady plans to meet this week with Senate Finance Committee Chair Orrin Hatch (R-UT), the Ranking Member Ron Wyden (D-OR) and House Ways and Means Committee Ranking Member Sander Levin (D-MI).
Following the selection of Brady, Levin commented, “Kevin has been able to combine his strong views on issues with friendliness across the aisle. I look forward, as do my Democratic colleagues, to working with Kevin as the new Chairman as we seek bipartisan action on the big issues within the Committee that will impact American families and our nation’s economy.”
Sen. Hatch also spoke encouragingly. He stated, “The House Ways and Means and the Senate Finance Committees have a long and storied history of working together to drive a strong economic, trade and health policy agenda. I am pleased Kevin will now play a stronger role in leading that agenda. Kevin understands that in order to retain America’s best and brightest, we must make responsible tax relief permanent so innovation can continue to thrive here at home.”
Editor’s Note: The best case for the tax extenders and the IRA Rollover is now passage by Thanksgiving. It seems very likely that there will not be a permanent bill, but the Senate two-year plan could be enacted. Speaker Paul Ryan stated in a national media interview that the Tax Extenders Bill will be retroactive to January 1.
Trust Appreciated Property Gifts Deductible at Fair Market Value
In Mart D. Green v. United States; No. 5:13-cv-01237 ( 3 Nov 2015) the U.S. District Court for the Western District of Oklahoma held that appreciated property gifts by an irrevocable trust may be deducted at fair market value under Sec. 642(c).
On Dec. 7, 1993, David, Barbara and Mart Green created The David and Barbara Green 1993 Dynasty Trust (the “Trust”). The document authorized the trustee Mart Green to make charitable gifts to Sec. 170(c) organizations. In 2003 and 2004, Green made gifts of Virginia, Oklahoma and Texas appreciated real estate to public charities.
The trust timely filed its 2004 return on Oct. 15, 2005. It reported an appreciated property charitable deduction of $20,526,383. On Oct. 15, 2008, the Trust filed an amended return and increased that charitable deduction to $29,654,233. The IRS disallowed the appreciation on the charitable deductions and permitted only the cost basis.
Sec. 642(c) permits trusts to report charitable deductions “without limitation.” Unlike the 50% limit on individual charitable deductions under Sec. 170, a trust may deduct up to 100% of its income. Because the deduction must come from income, the IRS opined that appreciation was not recognized income and therefore the deduction should be limited to cost basis.
The Court noted that because Sec. 642(c) is “without limitation,” the charitable gift may be completed with assets purchased with prior year income. Because there is no Sec. 642(c) specific limit to basis, the fair market value deduction is permitted.
Editor’s Note: While the IRS theory was highly improbable, it is good for taxpayers that the Court clearly recognized both the right to give property purchased in a prior year and the right to claim the full fair market value.
Applicable Federal Rate of 2.0% for November — Rev. Rul. 2015-22; 2015-44 IRB 1 (20 October 2015)
The IRS has announced the Applicable Federal Rate (AFR) for November of 2015. The AFR under Section 7520 for the month of November will be 2.0%. The rates for October of 2.0% or September of 2.2% 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 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.