Due Today: Second Quarter estimated tax payments; returns for U.S. citizens living abroad.
IRS declines to make the estate tax portability election easy. There’s no such thing as a joint estate tax return. That means if one spouse has all of the assets, the other spouse’s lifetime estate tax exemption — $5,430,000 for 2015 deaths — can be lost.
Congress changed the tax law to allow a surviving spouse to inherit the deceased spouse’s unused estate tax exemption, for use on when the surviving spouse files an estate tax return. unfortunately, this treatment is not automatic. It is only available if a Form 706 estate tax return is filed for the first spouse to die. The IRS on Friday issued final regulations rejecting any short-cuts in this process.
There are many problems with this approach. The most obvious is the lottery winner problem. A couple might be living in a trailer, and when the first spouse dies, there seems to be no point in filing an estate tax return when their combined assets are a small fraction of the amount triggering estate tax. Then the surviving spouse wins the Powerball, and suddenly the first spouse’s estate tax exemption becomes very valuable — but it’s lost, because no return was filed.
The IRS rejected allowing any pro-forma or short-cut estate tax returns for such situations:
The Treasury Department and the IRS have concluded that, on balance, a timely filed, complete, and properly prepared estate tax return affords the most efficient and administrable method of obtaining the information necessary to compute and verify the DSUE amount, and the alleged benefits to taxpayers from an abbreviated form is far outweighed by the anticipated administrative difficulties in administering the estate tax. In
The IRS did say it would be generous in allowing “Section 9100” late-filing relief for taxpayers who die with assets below the exclusion amount, but they did not provide any sort of automatic election. The result is a trap for the unwary executors of small estates.
Cite: TD 9725
The agreement — reached after the project was originally announced March 19 — includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. And there will be continued collaborative efforts going forward.
The most promising of the steps:
Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:
-Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.
-Reviewing computer device identification data tied to the return’s origin.
-Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.
-Capturing metadata in the computer transaction that will allow review for identity theft related fraud.
These are important because they might actually prevent fraudulent refunds from being issued. Measures to help identify fraud after it happens don’t do much, especially when the fraud occurs abroad. Catching the fraudulent returns before the refunds are issued is the only way to really deal with the problem, and the only way to keep innocent taxpayers whose identification has been stolen from having to go through the annoying and sometimes lengthy process of recovering their overpayments.
The sad thing – I see nothing here that couldn’t have been done five years ago, when ID theft refund fraud was already becoming a problem. But the Worst Commissioner Ever was too busy trying to impose preparer regulations on behalf of the big franchise tax prep outfits to pay attention. Priorities.
Bob Vineyard, Best Kept Secrets About Obamacare (Insureblog). “About half of those living in Kentucky and classified as poor were not aware of the basics of Obamacare.”
TaxGrrrl, Spain’s King Felipe Strips Sister Of Royal Title As Tax Evasion Charges Proceed. What good is being regal if things like this happen?
Annette Nellen, Tax reform for 2015? Seems unlikely
Peter Reilly, Why Is Multi-State Tax Compliance So Hard? “Don’t get me wrong. I believe that the prudent thing is to try to be in pretty good, if not perfect, compliance. Just don’t expect anybody to make it really easy any time soon.”
Robert Wood, Beware Tax Cops At Farmers’ Markets
Joseph Henchman, State of the States: Special Session Edition and Kansas Approves Tax Increase Package, Likely Will Be Back for More (Tax Policy Blog). Mr. Henchman rounds up end-of-session tax moves from around the country. Kansas may have made the biggest changes, including a small retreat from its exemption of pass-throughs from the income tax:
Kansas in 2012 completely exempted the income from such individuals, who now total over 330,000 exempt entities. Efforts to repeal this unusual and non-neutral total exclusion of pass-through income earned a veto threat from Governor Brownback. The guaranteed payments provision is estimated to generate approximately $20 million per year.
Taxing guaranteed payments will hardly plug the fiscal hole created by the blanket pass-through exemption. Joseph concludes: “But overall, it is a grab bag of ideas that does little to address the problems underlying Kansas’s tax and budgetary instability. Absent more fundamental changes, legislators will likely have to return in coming years to address budget gaps.”
Norton Francis, How Would the Kansas Senate Close the State’s Budget Gap? Mostly by Taxing Poor People (TaxVox)
Career Corner. Reminder: Parents Meddling in Your Careers Will Not Help You (Caleb Newquist, Going Concern)