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Coles Reinstein, PLLC
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Recent legislation made the $100,000 qualifying charitable distribution from a traditional IRA permanent. This provision allows an individual to make a charitable contribution directly from their IRA to the charity. The qualifying distribution will not be included in income for the year made and the charitable contribution is not reported as an itemized deduction on the tax return. The individual’s adjusted gross income, which is used to determine the percentage limitation on charitable contributions and medical expenses and the phase-outs for itemized deductions and the personal exemption credit, is lower so these limitations are lower or eliminated. Additionally, it is possible for taxpayers to make use of the standard deduction and lower the amount of Social Security that will be taxable.

The qualifying charitable distribution is included in satisfying the required minimum distribution for that year. The annual limit is $100,000 per each individual’s IRAs. Married couples could make up to $200,000 each year and not include this amount in income.

Will amending a return or filing for an extension of time trigger an IRS audit?

No – not these action by themselves – they are common occurrences. The key prevention with an amended return is to provide a complete and reasoned explanation with the amended return. Some audits are random, but many are triggered by unusual activity. The IRS runs statistical comparisons of returns to identify potential outliers. The best approach is to file a mathematically accurate tax return and to make sure you have adequate support for the amounts claimed on the return filed.

A phone call from the IRS?

Several clients have reported receiving phone calls from someone claiming to be with the IRS. If this is the first time you have heard from the IRS, it is more likely a scam than a legitimate call. So what should you do? The best approach is to ask for a name and phone extension number then hang up and call the IRS main toll free number at 800-829-1040 and ask to be connected with the caller. NEVER give out a social security number, credit card number or bank account number or any other personal information over the phone.

A recent Idaho Supreme Court decision reviewed lower court testimony (including testimony from Coles Reinstein) and clarified how Fair Value is to be treated in the Gem State. In particular, the Supreme Court declined to “apply a rule that mandates discounting shares for minority and marketability reasons when determining fair value.”

We read the court’s decision to mean that determination of fair value requires careful consideration of the specific facts and circumstances applicable to a particular case—always a reasonable course of action in our opinion.

The full text of the decision may be found here:

I was recently asked by a client about the maximum amount they could receive in a gift, before it was subject to tax. This topic is confusing to many people.

First of all, the gift tax applies to the person making the gift, not the person receiving the gift. Whether or not a gift tax applies, depends on the amount transferred – the value of the gift. The current annual exclusion for gifts made in 2016 is $14,000. The amount considered a gift is based on the Fair Market Value of the property (cash or other assets) transferred.

The IRS has a good answer section which you can access if you google “Frequently Asked Questions on Gift Taxes.”

Health Savings Accounts (HSAs) allow a taxpayer to set aside thousands of dollars for which they get a tax deduction. The accounts, controlled by the taxpayer, can be used to reimburse (on a tax free basis) out of pocket medical costs. There are of course rules one must follow in establishing an HSA, but the benefits can be very effective for many taxpayers.

The IRS will be requiring those filing estate tax returns after July 2015 to report the value of estate assets to beneficiaries receiving assets from the estate and also report the same information to the IRS. The new rules generally become effective as of the end of March 2016. If you are an executor or trustee of an estate you must make sure you understand how these rules will apply to you.

This time of year as people gather their tax data, we are often asked how long old records should be kept. The IRS has three years to audit. This time window is measured from the later of the day the return was filed or the due date of the return. The three years is doubled to six if you omitted more than 25% of your income. Keeping a copy of the actual filed tax returns for longer periods of time can come in handy.

In an announcement last week the IRS disclosed that the system they established to protect taxpayers who had been victims of identity theft – the Identity Protection Personal Identification Number (ID PIN) system had itself been the victim of attack by cybercriminals. The IRS has struggled over the last few years with protecting taxpayer’s personal data. The IRS will be notifying affected taxpayers. Protection of data is a growing problem which all taxpayers need to take seriously.
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