Revenue Ruling 2020-05 modifies Rev. Rul. 2009-13 and Rev. Rul. 2009-14 to reflect  § 1016(a)(1)(B) of the Internal Revenue Code, which was added by section 13521 of the 2017 Tax Cuts and Jobs Act.  Under §1016(a)(1)(B), the adjusted basis of an insurance contract is not reduced by the cost of insurance.  Section 1016(a)(1)(B) reversed the position in Rev. Rul. 2009-13 and Rev. Rul. 2009-14 that the basis of an insurance contract is reduced by the cost of insurance.

Revenue Ruling 2020-05 will be in IRB:  2020-9, dated 2/24/2020.

WASHINGTON – The Internal Revenue Service today launched Identity Theft Central, designed to improve online access to information on identity theft and data security protection for taxpayers, tax professionals and businesses. 

Located on IRS.gov, Identity Theft Central is available 24/7 at irs.gov/identitytheft. It is a resource on how to report identity theft, how taxpayers can protect themselves against phishing, online scams and more. 

Improving awareness and outreach are hallmarks of initiatives to combat identity theft coordinated by the IRS, state tax agencies and the nation’s tax industry, all working in partnership under the Security Summit banner. 

Since 2015, the Security Summit partners have made substantial progress in the fight against tax-related identity theft. But thieves are still constantly looking for ways to steal the identities of individuals, tax professionals and businesses in order to file fraudulent tax returns for refunds. 

The partnership has taken a number of steps to help educate and improve protections for taxpayers, tax professionals and businesses. As part of this effort, the IRS has redesigned the information into a new, streamlined page − Identity Theft Central − to help people get information they need on ID theft, scams and schemes. 

From this special page, people can get specific information including:

The page also features videos on key topics that can be used by taxpayers or partner groups. The new page includes a video message from IRS Commissioner Chuck Rettig, warning signs for phishing email scams – a common tactic used for identity theft – and steps for people to protect their computer and phone. 

Tax professionals and others may want to bookmark Identity Theft Central and check their specific guidance periodically for updates. 

This is part of an ongoing effort by the IRS to share identity theft-related information with the public. The IRS continues to look for ways to raise awareness and improve education and products related to identity theft for taxpayers and the tax professional community.

WASHINGTON − The Internal Revenue Service announced today the overwhelming acceptance of a time-limited settlement offer made to certain taxpayers under audit who participated in abusive micro-captive insurance transactions.

Nearly 80% of taxpayers who received offer letters elected to accept the settlement terms. In addition, the IRS is establishing 12 new examination teams that are expected to open audits related to thousands of taxpayers in coming months.

“The overwhelming acceptance rate of the private settlement offer is a reflection of the success of the government’s work to stop this abuse,” said IRS Commissioner Chuck Rettig. “Taxpayers who elected to accept the IRS’ terms have done the right thing by coming into compliance with their federal tax obligations and putting this behind them. Putting an end to abusive schemes is a high priority for the IRS.”

Abusive micro-captives have been a threat to tax administration and a concern to the IRS for several years. The transaction has appeared on the IRS “Dirty Dozen” list of tax scams since 2014. In 2016, the Department of the Treasury and IRS issued Notice 2016-66, which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. 

The settlement offer followed three U.S. Tax Court decisions confirming that certain micro-captive arrangements are not eligible for federal tax benefits. The terms of the settlement required substantial concession of the income tax benefits claimed by the taxpayer together with appropriate penalties.

The IRS will continue to vigorously pursue those involved in these and other similar abusive transactions going forward. Enforcement activity in this area is being significantly increased. To that end, the IRS is deploying additional resources, which includes standing up 12 new examination teams comprised of employees from the IRS Large Business and International and Small Business/Self-Employed divisions that will be working to address these abusive transactions and open additional exams. These teams will use all available enforcement tools, including summonses, to obtain necessary information.
 
Examinations impacting micro-captive insurance transactions of several thousand taxpayers will be opened by these teams in the coming months. Potential civil outcomes can include full disallowance of claimed captive insurance deductions, inclusion of income by the captive entity and imposition of all applicable penalties.
 
The IRS reminds taxpayers and advisors that disclosure of participation in micro-captive insurance transactions is required with the IRS Office of Tax Shelter Analysis under Notice 2016-66. Failure to properly disclose can result in significant civil penalties. Taxpayers involved in these abusive transactions should immediately consult with independent, competent tax advisors on the proper treatment for past and future tax years to consider best available options.

WASHINGTON – As part of an ongoing effort to improve service for the tax-exempt community, the Internal Revenue Service has revised Form 1023 to allow electronic filing for the first time starting later this month.

To help charities apply for Section 501(c)(3) tax-exempt status, the IRS has revised Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and its instructions.

“Filing electronically reduces errors, and we believe this will help provide a smoother application process for those seeking tax exemption,” said Tammy Ripperda, Commissioner of the IRS Tax Exempt and Government Entities division. “As we’ve seen with the 1023-EZ, we believe this change will help with application processing time and help with our wider efforts to improve our work with the tax-exempt community.”

The IRS expects the electronic Form 1023 benefits to mirror those realized when Form 1023-EZ went online in 2014. IRS statistics show the 1023-EZ improved application processing time for both the Form 1023 and 1023-EZ while maintaining similar approval and rejection rates between the two forms.

Beginning Jan. 31, 2020, applications for recognition of exemption on Form 1023 must be submitted electronically online at www.pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017).

The required user fee for Form 1023 will remain $600 for 2020. Applicants must pay the fee through www.pay.gov when submitting the form. Payment can be made directly from a bank account or by credit or debit card.

Updates about Form 1023 can be obtained by subscribing to Exempt Organizations Update, a free e-Newsletter from the IRS Exempt Organizations’ office. EO Update provides information on tax policy, services and information that’s important to tax-exempt organizations including:

Additional information on how to apply for IRS recognition of tax-exempt status is available:

Revenue Procedure 2020-08 makes specific modifications to Rev. Proc. 2020-5 to allow for the new electronic submission process of the Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. It also provides a 90-day transition relief period, during which paper Form 1023 applications will be accepted. This revenue procedure also modifies language related to the submission of written requests of Canadian charities to be listed on the Tax Exempt Organizations Search database or for a determination on private foundation status.

Revenue Procedure 2020-08 will be in IRB:  2020-08, dated 2/18/2020.

WASHINGTON ― The Internal Revenue Service wants seniors to know about the availability of a new tax form, Form 1040-SR, featuring larger print and a standard deduction chart with a goal of making it easier for older Americans to read and use.

The Bipartisan Budget Act of 2018 required the IRS to create a tax form for seniors. Taxpayers age 65 or older now have the option to use Form 1040-SR, U.S. Tax Return for Seniors. Form 1040-SR, when printed, features larger font and better readability.

Taxpayers who electronically file Form 1040-SR may notice the change when they print their return. More than 90% of taxpayers now use tax software to prepare and file their tax return.

Taxpayers born before Jan. 2, 1955, have the option to file Form 1040-SR whether they are working, not working or retired. The form allows income reporting from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

Seniors can use Form 1040-SR to file their 2019 federal income tax return, which is due April 15, 2020. All lines and checkboxes on Form 1040-SR mirror the Form 1040, and both forms use all the same attached schedules and forms. The revised 2019 Instructions cover both Forms 1040 and 1040-SR.

Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Taxpayers who itemize deductions can file Form 1040-SR and attach Schedule A, Itemized Deductions, when filing a paper return. For those taking the standard deduction, Form 1040-SR includes a chart listing the standard deduction amounts, making it easier to calculate. It also ensures seniors are aware of the increased standard deduction for taxpayers age 65 and older.

Married people filing a joint return can use the Form 1040-SR regardless of whether one or both spouses are age 65 or older or retired. 

Both the 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. Many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.

Revenue Ruling 2020-04 clarifies the manner to properly compute the income limits applicable to the low-income housing credit under § 42 of the Internal Revenue Code.  The Consolidated Appropriations Act of 2018 added a new minimum set-aside test, the average income test (§ 42(g)(1)(C)), to the existing minimum set-aside tests available to owners of a low-income housing project.  This revenue ruling addresses the additional income limits available in the average income test.

Revenue Ruling 2020-04 will be in IRB:  2020-8, dated February 18, 2020.

WASHINGTON – The Internal Revenue Service wants tax-exempt organizations to know about recent tax law changes that might affect them. The Taxpayer Certainty and Disaster Tax Relief Act, passed on Dec. 20, 2019, includes several provisions that may apply to tax-exempt organizations’ current and previous tax years.

Repeal of ‘parking lot tax’ on exempt employers
This legislation retroactively repealed the increase in unrelated business taxable income by amounts paid or incurred for certain fringe benefits for which a deduction is not allowed, most notably qualified transportation fringes such as employer-provided parking. Previously, Congress had enacted this provision as part of the Tax Cuts and Jobs Act, effective for amounts paid or incurred after Dec. 31, 2017.

Tax-exempt organizations that paid unrelated business income tax on expenses for qualified transportation fringe benefits, including employee parking, may claim a refund. To do so, they should file an amended Form 990-T within the time allowed for refunds. More information on this process can be found at IRS.gov.

Tax simplification for private foundations
The legislation reduced the 2% excise tax on net investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements.

The changes are effective for taxable years beginning after Dec. 20, 2019.

Exclusion of certain government grants by exempt utility co-ops
Generally, a section 501(c)(12) organization must receive 85% or more of its income from members to maintain exemption.

Under changes enacted as part of the Tax Cuts and Jobs Act, government grants are usually considered income and would otherwise be treated as non-member income for telephone and electric cooperatives. Under prior law, government grants were generally not treated as income, but as contributions to capital.

The 2019 legislation provided that certain government grants made to tax-exempt 501(c)(12) telephone or electric cooperatives for purposes of disaster relief, or for utility facilities or services, are not considered when applying the 85%-member income test. Since these government grants are excluded from the income test, exempt telephone or electric co-ops may accept these grants without the grant impacting their tax-exemption.

This legislation is retroactive to taxable years beginning after 2017.

IRS YouTube Videos:
Earned Income Tax Credit – Get it Right – English | Spanish | ASL

WASHINGTON − The Internal Revenue Service and its partners nationwide remind taxpayers about the Earned Income Tax Credit on Jan. 31, “EITC Awareness Day.” This is the 14th year of the EITC awareness campaign that alerts millions of workers to this significant tax credit.

"The EITC is a vital tax credit that helps millions of hard-working working families around the nation," said IRS Commissioner Chuck Rettig. "It’s critical that people review the credit to see if they qualify. Increasing awareness about the EITC is important, and the IRS is proud to support the ongoing efforts by partner groups across the country for sharing this critical information with taxpayers.”

There are outreach events and activities scheduled to promote EITC awareness around the country. The EITC is the federal government’s largest refundable federal income tax credit for low- to moderate-income workers. It can give taxpayers a refund even if they owe no tax.

The IRS estimates four of five eligible taxpayers claim and get the EITC. Nationwide in 2019, 25 million taxpayers received over $61 billion in EITC. The average EITC amount received was $2,504. The EITC is as much as $6,557 for a family with children or up to $529 for taxpayers who do not have a qualifying child.

Taxpayers earning $55,952 or less can see if they qualify using the EITC Assistant tool at www.irs.gov/eitc. The EITC Assistant, available in English and Spanish, helps users determine if they are eligible and if they have a qualifying child or children, and it estimates the amount of the EITC they may get. If an individual doesn’t qualify for the EITC, the Assistant explains why.

Workers who can claim the EITC
Workers at risk for overlooking this important credit can include taxpayers:

How to claim the EITC
To get the EITC, workers must file a tax return and claim the credit, even if their earnings were below the filing requirement. Free tax preparation help is available online and through volunteer organizations.

Those eligible for the EITC have these options:

The IRS reminds taxpayers to be sure they have valid Social Security numbers (SSN) for themselves, their spouse, if filing a joint return, and for each qualifying child claimed for the EITC. The SSNs must be issued before the due date of the return, including extensions. There are special rules for those in the military or those out of the country.

Refunds
By law the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the Additional Child Tax Credit (ACTC). The IRS must hold the entire refund − even the portion not associated with EITC or ACTC. This helps ensure taxpayers receive the refund they deserve and gives the agency more time to detect and prevent errors and fraud. 
 
'Where’s My Refund?' on IRS.gov and the IRS2Go app will be updated with projected deposit dates for most early EITC/ACTC refund filers by Feb. 22. So EITC /ACTC filers will not see an update to their refund status for several days after Feb. 15. The IRS expects most EITC or ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March, if they choose direct deposit and there are no other issues with their tax return. Check ‘Where’s My Refund?’ for a personalized refund date.

Avoid errors
Taxpayers are responsible for the accuracy of their tax return even if someone else prepares it for them. The EITC rules can be complicated and the IRS urges taxpayers to seek help to make sure they are eligible by visiting a free tax return preparation site, or using Free File software or a paid tax professional. Errors can have lasting impact on future eligibility to claim EITC and leave taxpayers with a penalty.  

Taxpayers should be sure to reply promptly to any letter from the IRS requesting additional information about EITC and call the number on the IRS letter if they need assistance or have questions.

Taxpayers who had an EITC claim reduced or denied for any reason other than a mathematical or clerical error must file Form 8862, Information to Claim Certain Credits after Disallowance, to claim the credit.

Beware of scams
Be sure to choose a tax preparer wisely. Beware of scams that claim to increase the EITC refund. Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty.

Visit IRS online
IRS.gov is a valuable first stop to help taxpayers get it right this filing season. Information on other tax credits, such as the Child Tax Credit, are also available.

Related items

WASHINGTON — With just a few days remaining until the deadline, the Internal Revenue Service reminds employers and other businesses that Jan. 31 is the filing deadline for submitting wage statements and forms for independent contractors with the government.

Employers must file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31. The Jan. 31 deadline also applies to certain Forms 1099-MISC, Miscellaneous Income, filed with the IRS to report non-employee compensation to independent contractors.

This deadline helps the IRS fight tax fraud by making it easier to verify income reported on individual tax returns. The IRS no longer grants an automatic extension of time to file Form W-2. Requests for more time to file must be submitted before the due date. Only certain reasons, such as a death or natural disaster are allowed. Details can be found on the instructions for Form 8809, Application for Extension of Time To File Information Returns.

Failure to file these forms correctly and timely may result in penalties. The IRS recommends employers and other businesses to e-file as the quickest, most accurate and convenient way to file these forms.

Taxpayers: Steps to take if no W-2

Most taxpayers get their Form W-2, Wage and Tax Statement, by the end of January. Taxpayers need their W-2s to file accurate tax returns, as the form shows an employee’s income and taxes withheld for the year.

Taxpayers who haven’t received their W-2 by the end of February should, as a first step, contact their employer. Taxpayers should ask their current or former employer for a copy of their W-2. Be sure the employer has the correct address. Additional information for taxpayers is available at IRS.gov.