Washington Hotline – February 6, 2018


Washington Hotline

2018 Tax Filing Season Opens

On January 29, the IRS published IR-2018-14 and announced the formal opening of tax filing season. The IRS predicts it will receive more than 155 million returns.

Because April 15, 2018, is a Sunday and April 16 is Emancipation Day in Washington, D.C., the last regular tax filing date is Thursday, April 17. Those taxpayers requesting an extension must pay taxes due by April 17, but may file their return on or before October 15, 2018.

In 2017, approximately 70% of taxpayers received refunds. The average refund in 2018 is likely to be similar to the 2017 amount of $2,895.

Acting IRS Commissioner David Kautter announced the new filing season and noted, “The IRS has a number of ways to help taxpayers this filing season, and we encourage people to look into the many options available. The nation’s tax professionals and software community work with the IRS and help make the tax filing process easier for Americans. Today’s filing season kick-off reflects many months of hard work by the nation’s tax community and IRS employees. And we also appreciate the time and attention taxpayers take as they prepare and file their taxes.”

The IRS expects 90% of taxpayers to file electronically. Most taxpayers will also use direct deposit for transfer of refunds to their personal bank accounts.

The www.irs.gov website offers a Free File Program to approximately 100 million individuals and families with incomes of $66,000 or less. Higher-income taxpayers may also use the Free File Fillable Forms on the IRS website.

Free tax help is available through www.irs.gov and the popular smartphone app IRS2GO. The “Where’s My Refund” search tool is updated each day and is available on both the website and the smartphone app. The IRS anticipates that 90% of refunds in 2018 will be available within 21 days after the tax return is filed.

There is an exception if the tax return claims the earned income tax credit (EITC) or added child tax credit (ACTC). Congress limits refunds for these returns to mid-February or later so the IRS can review taxpayer qualifications. Many EITC/ACTC tax returns will lead to refunds starting in late February.

Chairman Brady’s Plans for 2018

After passing the largest tax reform in three decades in December 2017, House Ways and Means Committee Chairman Kevin Brady (R-TX) states, “We think there are still [potential] improvements in the tax code.”

Brady spoke to members of the press at a retreat in West Virginia on February 1. He suggested several tax goals for 2018. These include increasing the number of businesses with employee stock ownership, improving pensions and “encouraging and finding ways for people to save more and earlier in life.”

Brady will hold a retreat for House Ways and Means Committee Republican members on February 6. They will discuss the new tax provisions and IRS plans for tax guidance on the Tax Cuts and Jobs Act of 2017.

The topics during the three day retreat in West Virginia include reviewing the impact of the Tax Cuts and Jobs Act on the majority of taxpayers and proposals for $1 trillion in new infrastructure investments.

While the $1 trillion infrastructure plan is a popular concept, no revenue method has been selected to fund the program.

IRS Needs Added Funding for TCJA Updates

On January 29, National Taxpayer Advocate Nina Olson urged Congress to approve additional IRS funding to implement numerous changes in the Tax Cuts and Jobs Act (TCJA). The IRS issued a supplemental budget request in the amount of $397 million. These funds would cover hiring 1,000 new staff for taxpayer outreach, education and service.

Under the TCJA, about 400 tax forms, publications and rulings must be revised and updated. IRS staff estimate it will take a year to 18 months to complete all of these revisions and updates.

Olson is concerned that the IRS will need to reduce taxpayer support if the added funding is not approved. She noted, “The IRS will implement this law. But if they do not get the funding, what will they take the money from in order to reprogram the systems and things like that?”

Olson continued with an explanation that the IRS previously had moved funds from regular call center support in order to implement the Affordable Care Act tax provisions. She stated, “I am worried if we don’t get that funding, we will see that start again. What is going to go away, or what is going to be added in 2018? That is when I am picking up the phone and calling the IRS. As of now, there will be nobody to answer the phone.”

Olson also urged taxpayers to explore benefits from new withholding schedules published in February. Taxpayers should check with their employers to adjust withholding based on the new standard deductions of $12,000 for single taxpayers and $24,000 for married couples.

The Nonpartisan Tax Policy Center estimated that a middle-class couple with joint income of $75,000 and two children ages 10 and 12 will reduce their tax by $2,000 per year in 2018. They will be able to start lowering their withholding amounts in February.

Applicable Federal Rate of 2.8 for February — Rev. Rul. 2018-5; 2018-6 IRB 1 (17 Jan 2018)

The IRS has announced the Applicable Federal Rate (AFR) for February of 2018. The AFR under Section 7520 for the month of February is 2.8%. The rates for January of 2.6% or December of 2.6% 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 2017, 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.

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