Jan 11

Disaster Relief Tax Law Provisions

 

There are questions about the status of casualty losses and other tax return implications due to the 2017 hurricanes and fires. In summary, there are still many open items that have been discussed with IRS SPEC and we are awaiting IRS guidance.

Legislation (PL 115-63) provides targeted tax relief for taxpayers impacted by Hurricanes Harvey, Irma and Maria and the IRS recently issued Revenue Procedures 2018-08 (covers all federally declared disasters) and 2018-09 (covers 2017 hurricanes only) which provide simpler methods that individual taxpayers in those areas may use to determine the amount of their casualty losses for their homes and personal belongings.

At this point, IRS SPEC has not changed the scope provisions regarding casualty losses – they are still out of scope for us. If there is a decision by the IRS to permit Tax-Aide volunteers to include casualty losses for impacted taxpayers, we would have the challenge of developing and providing adequate training so that the taxpayers are properly served.

Most of the provisions in the legislation and the Revenue Procedures do not apply to us if casualty losses continue out of scope. However, there are provisions in the hurricane relief bill which could apply to some of the taxpayers we serve, but the IRS has not announced implementation steps for these provisions and all will presumably require TaxSlayer software changes. These provisions include:

• Allows taxpayers in the hurricane disaster areas who stopped earning income due the hurricanes to use earned income from the immediately preceding years for the earned income tax credit and the child tax credit. Will need to know which taxpayers qualify, their earned income for the preceding year and how to enter it in the software.

• Removes, for all taxpayers who itemize and who make qualified hurricane relief donations before December 31, 2017, the normal general limit that contributions to charitable organizations cannot exceed 50% of adjusted gross income. Will need a way to identify those contributions and a way for the software to ignore the normal limit for them.

• Suspends the 10% additional tax on early distributions from retirement plans for up to $100,000 in distributions made on or after August 23, 2017 and before January 1, 2019 if the distributions were made to an individual: (1) whose principal place of abode on specified dates was in a hurricane disaster area, and (2) who has sustained an economic loss by reason of Hurricanes Harvey, Irma, or Maria. Assuming taxpayer qualifies, presumably can enter on Form 5329 as code 12 (unless new code assigned). Allows a taxpayer who received such a distribution to: (1) repay the distribution by making additional contributions to a retirement account within three years, and (2) include the distribution in gross income by dividing the amount over a three-year period. Do not know how this will be handled.

• Allows individuals to recontribute funds to retirement plans if the funds were distributed for a home purchase in a hurricane disaster area that was cancelled on account of the hurricanes. Do not know how this will be handled.

 

Mar 01

Form 8880 Saver’s Credit Work Around

Saver’s Credit, Form 8880, has generated several questions asking why a taxpayer is not receiving the credit when it was allowed on a prior year return with similar entries. 

  • Obviously, if income limits are exceeded, there is no credit.  But when a taxpayer voluntarily contributes to a qualified retirement plan (Code D on W2, or an IRA as examples) AND receives a distribution on a 1099R, that distribution is an offset dollar for dollar to the contribution.  That offset occurs with most, but not all, retirement income.  See Pub 4012, G 6 and 7 for details.
  • Any income received by TP from a plan to which contributions were mandatory (not voluntary) should not offset the credit.  The most common example is military retirement, which is mandatory and should not reduce/offset the Saver’s Credit.  However, TaxSlayer treats all 1099R income as offset.
  • So, another workaround from NTTC:  on the TS 8880 input page, enter the TP’s total military retirement income as a negative number on the line that says “Enter Any Other Taxable Distributions in 2016 or 2015.”   That prevents the offset.
Feb 25

Volunteer Tax Alert

The IRS has issued Volunteer Tax Alert VTA 2017-01 that covers claiming education benefits without a Form 1098-T. Please ensure this VTA is distributed to all sites for review with all Counselors. Sites will be required to have this available either electronically or in paper. A CyberTax containing this information will be sent to the field soon.