Giving Tuesday is coming; now is a good time to review tax benefits for charitable giving

The Tuesday after Thanksgiving marks Giving Tuesday when many people choose to make charitable donations. People making charitable donations for Giving Tuesday, or at any time during the year, should review whether their gift is tax-deductible.

Donations to charities may be deductible
Most contributions of cash or property made to a charitable organization are deductible as an itemized deduction on Schedule A, Form 1040, Itemized Deductions. Cash contributions include those made by check, credit card or debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Donations of property other than cash are generally deductible at their fair market value.

There are some contributions that aren’t tax deductible, including donations:

• Made to a supporting organization
• Intended to help establish or maintain a donor advised fund
• Carried forward from prior years
• Made to most private foundations
• Made to charitable remainder trusts
• Of time spent volunteering

Some things to do when a taxpayer is considering making charitable gifts include:

• Use the Interactive Tax Assistant to help determine if a charitable contribution is deductible.
• Get a written acknowledgement for any charitable contributions of $250 or more.
• Research charities they are considering donating to carefully.

Tax Exempt Organization Search tool
As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for charities. TEOS provides information about an organization's federal tax status and filings.

Things to know about the TEOS tool:

• Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
• Users can find out if an organization had its tax-exempt status revoked.
• TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling and governmental entities.
• TEOS lists organizations under the legal name or a "doing business as" name on file with the IRS. No separate listing of common or popular names is searchable.

Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. The maximum annual amount a taxpayer may exclude from income for a QCD is $100,000. A QCD may also count toward the taxpayer’s required minimum distribution for the year. Taxpayers should review Publication 590-B, Distributions from Individual Retirement Arrangements, for more information.

As the nation prepares to celebrate Veteran’s Day, the IRS reminds members of the military, veterans and their families that the agency offers a variety tax resources specifically for them. These resources and information are designed to help members of the military community navigate their unique and sometimes complex tax situations. Reviewing these resources is a good way to prepare for the upcoming tax filing season.

Here's a list of some of these resources.

• Tax Information for Members of the Military is the main page on IRS.gov where people can go to find links to helpful info, resources and services.  
• A taxpayer's military status affects whether they are eligible for certain benefits. Taxpayers can check their eligibility for military tax benefits by visiting IRS.gov. Qualifying employers include the Armed Forces, uniformed services and support organizations.  
• There are rules specific to those who serve in combat zones. These taxpayers and their families can find out more on the Tax Exclusion for Combat Service page of IRS.gov. They should also review special rules for the earned income tax credit. If these apply to their tax situation, it could lead to a larger refund.  
• The Armed Forces' Tax Guide is a comprehensive IRS publication for military members. This includes:  
• • Special rules for military personnel serving abroad, including deadline extensions
  • Unreimbursed moving expenses
  • Reserve component travel expenses  
• Members of the military and qualifying veterans can prepare and e-file their taxes for free through MilTax. Taxpayers who do not qualify for MilTax have other options to prepare and e-file their federal taxes for free.  
• Most military installations offer free income tax assistance through the military Volunteer Income Tax Assistance program. Military service members can contact their installation's legal office for details. Veterans may also qualify for free tax help at locations nationwide if they meet income or age requirements. 

It is now preparer tax identification number (PTIN) renewal season for 2023.

All PTINs expire on Dec. 31 and must be renewed annually. You must have a valid PTIN if you plan to prepare any federal tax returns for compensation or you are an enrolled agent.

The renewal fee is $30.75 and non-refundable. Get started at www.irs.gov/ptin.

If you can't remember your User ID or password, use the "Forgot User ID" or "Forgot Password" links on the PTIN system login page. You will be asked to enter the email address associated with your account and the answer to your secret question.

Rev. Proc. 2022-40 modifies Rev. Proc. 2016-37, 2016-29 IRB 136, which, in part, provides the circumstances under which a plan sponsor may submit a determination letter application to the Internal Revenue Service with respect to a qualified individually designed plan, to permit the submission of determination letter applications for section 403(b) individually designed plans. Among other things, this revenue procedure also modifies the circumstances under which a plan is considered to have been issued an initial plan determination and modifies the scope of review of qualified individually designed plans submitted under the determination letter program. 

In most cases, distributions from a traditional Individual Retirement Account are taxable in the year the account owner receives them but there are some exceptions. A qualified charitable distribution is one of the few exceptions.

A QCD is a nontaxable distribution made directly by the trustee of an IRA to organizations that are eligible to receive tax-deductible contributions. QCDs can’t occur from Simplified Employee Pension plans and Savings Incentive Match Plan for Employees IRA.

Making a QCD can benefit the taxpayer by reducing their taxable income while they support qualifying charitable organizations of their choice. The taxpayer doesn’t have to worry about meeting the standard deduction or itemizing deductions with a QCD.

Financial institutions report QCDs on Form 1099-R for the calendar year the distribution occurs. There’s no number or letter code on the Form 1099-R that indicates the distribution was a QCD.

QCD Guidelines

• Taxpayers who make a QCD must be at least 70½ years old on the day of the distribution.
• A QCD will count toward a required minimum distribution.
• The taxpayer must have an acknowledgement of the contribution.
• The amount of the QCD can’t be more than the amount of the distribution that would count as income.
• Declare the QCD as income to claim the charitable contribution as a deduction.
• The maximum annual exclusion for QCDs is $100,000.
  • When filing a joint return, the spouse can also have a QCD and exclude up to $100,000.
  • Any QCD more than the $100,000 exclusion limit counts as income like any other distribution.
• The amount of QCD contribution limits for exclusion reduce after age 70½.

Reporting a QCD on an income tax return

• Report a QCD on Form 1040; report the full amount of the charitable distribution on the line for IRA distributions.
• On the line for the taxable amount, enter zero if the full amount was a QCD and enter "QCD" next to this line.
• See the Form 1040 instructions for additional information.

Taxpayers must also file Form 8606 if the QCD came from:

• a traditional IRA and they received a distribution from the IRA during the same year, other than the QCD; or
• a Roth IRA. 

More information:
Retirement Plans
IRA FAQs - Distributions Withdrawals
Charitable Contribution Deductions

WASHINGTON — The Internal Revenue Service today warned taxpayers of a recent increase in IRS-themed texting scams aimed at stealing personal and financial information.

So far in 2022, the IRS has identified and reported thousands of fraudulent domains tied to multiple MMS/SMS/text scams (known as smishing) targeting taxpayers. In recent months, and especially in the last few weeks, IRS-themed smishing has increased exponentially.

Smishing campaigns target mobile phone users, and the scam messages often look like they’re coming from the IRS, offering lures like fake COVID relief, tax credits or help setting up an IRS online account. Recipients of these IRS-related scams can report them to phishing@irs.gov.

“This is phishing on an industrial scale so thousands of people can be at risk of receiving these scam messages,” said IRS Commissioner Chuck Rettig. “In recent months, the IRS has reported multiple large-scale smishing campaigns that have delivered thousands – and even hundreds of thousands – of IRS-themed messages in hours or a few days, far exceeding previous levels of activity.”

With the approach of October’s Cybersecurity Awareness Month, the IRS and the Security Summit partners in the states and the nation’s tax community remind people and the tax professional community to be on the lookout for phishing scams and other schemes that could put sensitive tax data at risk.

In the latest activity, the scam texts often ask taxpayers to click a link where phishing websites will try to collect their information or potentially send malicious code onto their phones. The IRS does not send emails or text messages asking for personal or financial information or account numbers. These messages should all be red flags for taxpayers.

Beginning in the fall of 2020, the IRS observed an increase in reports of smishing scams requesting taxpayer personal and financial information. These smishing campaigns continued through the pandemic. The IRS has taken numerous steps to warn people of this ongoing threat, including posting a video about how to avoid IRS text message scams.

Taxpayers should continue reporting these scams to phishing@irs.gov. Their reporting allows the IRS to report these scams to the appropriate service providers for action, protecting other taxpayers who might receive a variant of the same scam.

While the IRS works to shut down online fraud, criminals are using ever-evolving tactics to cast a wider net and catch more victims, like using algorithms to automatically generate hundreds or even thousands of fraudulent domains. For example, a recent campaign used just three dozen stolen or bogus email addresses to create over 1,000 fraudulent domains.

“Particularly in these cases, the best offense is a good defense,” said Rettig. “Taxpayers and tax pros need to remain constantly vigilant with suspicious IRS-related emails and text messages. And if you get one, sending the IRS important details from the text can help us disrupt the scams and protect others.”

Reporting IRS-related smishing
The IRS maintains an inbox, phishing@irs.gov, to process IRS, Treasury and/or tax-related online scams only. Smishing involving other agencies and/or brands should not be reported to phishing@irs.gov.

Reporting IRS-themed texts to the IRS allows security professionals to track and disrupt these scams. Individuals reporting scam texts to the IRS should include both the body of the message and the sender’s information in one email or text. Copying the actual text into an email is preferred. However, if necessary, screenshots can be sent. Scam SMS/text messages can also be copied and forwarded to wireless providers via text to 7726 (SPAM), which helps them spot and block similar messages in the future.

The following process will help capture important details for reporting smishing to the IRS:

Additional reporting
In addition to reporting the scam to phishing@irs.gov, if IRS-related, report the message to the Treasury Inspector General for Tax Administration using their IRS Impersonation Scam Reporting form and the Federal Trade Commission (FTC) through their Complaint Assistant to make the information available to investigators.

All incidents, successful and attempted, should also be reported to the Internet Crime Complaint Center at www.ic3.gov.

Any individual entering personal information, or otherwise finding themselves a victim of tax-related scams, can find additional resources at Identity Theft Central on IRS.gov.

Additional resources

• IRS.gov: Reporting Phishing and Online Scams
• IRS YouTube: “Here’s How to Avoid IRS Text Message Scams”
• COVID Tax Tip 2020-167: IRS warns people about a COVID-related text message scam
• Federal Communications Commission: Smartphone Security Checker

Federal Trade Commission: How to recognize and report spam text messages

WASHINGTON − The Internal Revenue Service is reminding farmers and ranchers in applicable regions forced to sell livestock because of drought conditions that they may have more time to replace their livestock and defer tax on any gains from the forced sales.

Today, the IRS posted Notice 2022-43 listing the applicable regions, a county or other jurisdiction, designated as eligible for federal assistance on IRS.gov. This includes 44 states, two U.S. Territories and two independent nations in a Compact of Free Association with the United States. The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.

The sales must be solely due to drought, causing an area to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is authorized to further extend this replacement period if the drought continues.

The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.

The IRS provides this extension to eligible farmers and ranchers that qualified for the four-year replacement period, if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2021, and Aug. 31, 2022. This determination is made by the National Drought Mitigation Center.

As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire on Dec. 31, 2022, in most cases now have until the end of their next tax year to replace the sold livestock. Because the normal drought-sale replacement period is four years, this extension impacts drought sales that occurred during 2018. The replacement periods for some drought sales before 2018 are also affected due to previous drought-related extensions affecting some of these localities.

More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, available on IRS.gov.

WASHINGTON — The Internal Revenue Service today updated its frequently-asked-questions (FAQs) (FS-2022-36) on Coronavirus State and Local Fiscal Recovery Funds (SLFR Funds). These funds give eligible state and local governments a substantial infusion of resources to meet pandemic response needs.

This update adds Question 15 through 17.

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible.

More information about reliance is available.

WASHINGTON — Victims of storms and flooding that began on Sept. 15 in parts of Alaska now have until Feb. 15, 2023, to file various federal individual and business tax returns and make tax payments, the Internal Revenue Service announced today. 

The IRS is offering relief to any area designated for individual or public assistance by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim and Lower Yukon, in Alaska qualify for tax relief. Other areas added later will also qualify for this relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. 

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 15, 2022. As a result, affected individuals and businesses will have until Feb. 15, 2023, to file returns and pay any taxes that were originally due during this period. 

This means individuals who had a valid extension to file their 2021 return due to run out on Oct. 17, 2022, will now have until Feb. 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief.   

The Feb. 15, 2023, deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2022, and Jan. 17, 2023, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2022, and Jan. 31, 2023. Businesses with an original or extended due date also have the additional time including, among others, calendar year partnerships and S corporations whose 2021 extensions ran out on Sept. 15, 2022, and calendar-year corporations whose 2021 extensions run out on Oct. 17, 2022. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on Nov. 15, 2022.      

In addition, penalties on payroll and excise tax deposits due on or after Sept. 15, 2022, and before Sept. 30, 2022, will be abated as long as the deposits are made by Sept. 30, 2022. 

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated. 

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization. 

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2022 return normally filed next year), or the return for the prior year (2021). Be sure to write the FEMA declaration number – DR-4672-AK − on any return claiming a loss. See Publication 547 for details. 

The tax relief is part of a coordinated federal response to this disaster and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Notice 2022-43 explains the circumstances under which the four-year replacement period under section 1033(e)(2) is extended for livestock sold on account of drought.  The Appendix to this notice contains a list of counties that experienced exceptional, extreme, or severe drought conditions during the 12-month period ending August 31, 2022.  Taxpayers may use this list to determine if an extension is available.

Notice 2022-43 will be in IRB:  2022- 42, dated October 17, 2022.