IRS issues guidance relating to deferral of gains for investments in a qualified opportunity fund

The Internal Revenue Service issued guidance (PDF) providing additional details about investment in qualified opportunity zones.

The proposed regulations allow the deferral of all or part of a gain that is invested into a Qualified Opportunity Fund (QO Fund) that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged or Dec. 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QO Fund.

Qualified opportunity zone business property is tangible property used in a trade or business of the QO Fund if the property was purchased after Dec. 31, 2017. The guidance permits tangible property acquired after Dec. 31, 2017, under a market rate lease to qualify as “qualified opportunity zone business property” if during substantially all of the holding period of the property, substantially all of the use of the property was in a qualified opportunity zone.

A key part of the newly released guidance clarifies the “substantially all” requirements for the holding period and use of the tangible business property:

  • For use of the property, at least 70 percent of the property must be used in a qualified opportunity zone.
  • For the holding period of the property, tangible property must be qualified opportunity zone business property for at least 90 percent of the QO Fund’s or qualified opportunity zone business’s holding period.
  • The partnership or corporation must be a qualified opportunity zone business for at least 90 percent of the QO Fund’s holding period.

The guidance notes there are situations where deferred gains may become taxable if an investor transfers their interest in a QO Fund. For example, if the transfer is done by gift the deferred gain may become taxable. However, inheritance by a surviving spouse is not a taxable transfer, nor is a transfer, upon death, of an ownership interest in a QO Fund to an estate or a revocable trust that becomes irrevocable upon death.

The guidance (PDF) is posted on IRS.gov. These regulations relate to the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017.

With the filing deadline close, here’s why taxpayers should e-File

A few taxpayers still use the old-school method of filing their tax returns: on paper. For these people, now is the time to consider filing electronically. With the April tax deadline right around the corner, it’s the perfect time to use IRS e-File.

Here are the top six reasons why taxpayers should file electronically in 2019:

It’s accurate and easyE-File helps taxpayers avoid mistakes, such as a transposed Social Security number. Taxpayers who e-File receive an acknowledgement from the IRS within minutes, telling them their return has been accepted. If a return is rejected, the acknowledgement will detail why the IRS rejected the tax return.

It’s secure.
E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from tax-related identity theft. This effort has helped put strong safeguards in place to make electronic tax filing a safe and secure option.

It’s convenient.
Taxpayers can buy commercial tax software to e-File right from their home computer.  They can also ask their tax preparer to e-file their tax return.

It means faster refunds. When taxpayers e-File and use direct deposit for their refund, they can get their money in less than 21 days in most cases. On the other hand, if they mail a paper tax return to the IRS and request a refund check in the mail, it can take up to six weeks. Also, since e-Filed returns are generally more accurate, there probably won’t be additional delays. They delays can be caused when the IRS finds mistakes that must be fixed before the IRS can send a refund.

It’s often free. Most taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Some taxpayers may also qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation to people who generally earned $55,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older.

It can be used whether a taxpayer is getting a refund or needs to make a payment. Taxpayers who owe taxes can e-File early and set up an automatic payment on any day until the April deadline. They can pay electronically from their bank account with IRS Direct Pay. Taxpayers can visit IRS.gov for information on other payment options.

Spread the word about a tax credit that helps millions of Americans

All individual taxpayers and families should claim tax credits for which they are eligible. Tax credits can not only reduce the amount of taxes owed, but some can result in a tax refund. The earned income tax credit is such a credit. It benefits millions of taxpayers by putting more money in their pockets.

The IRS encourages taxpayers who have claimed the credit to help their friends, family members and neighbors find out about EITC. They can go to IRS.gov/eitc or use the EITC Assistant tool on IRS.gov, available in English and Spanish. Word of mouth is a great way to help people who may be eligible for this credit in 2019 for the first time. People often become eligible for the credit when their family or financial situation changed in the last year.

Based on income, family size and filing status, the maximum amount of EITC for Tax Year 2018 is:

  • $6,431 with three or more qualifying children
  • $5,716 with two qualifying children
  • $3,461 with one qualifying child
  • $519 with no qualifying children

Every year, millions of taxpayers don’t claim the EITC because they don’t know they’re eligible. Here are some groups the IRS finds often overlook this valuable credit:

  • American Tribal communities
  • People living in rural areas
  • Working grandparents raising grandchildren
  • Taxpayers with disabilities
  • Parents of children with disabilities
  • Active duty military and/or veterans
  • Healthcare and Hospitality workers

Free tax help from volunteers:

The IRS works with community organizations around the country to offer free tax preparation services. They train volunteers who prepare taxes for people with low and moderate income. These volunteers can help determine if a taxpayer is eligible to claim the EITC. There are two IRS-sponsored programs:

  • Volunteer Income Tax Assistance: This program, also known as VITA, offers free tax return preparation to eligible taxpayers who generally earn $55,000 or less.
  • Tax Counseling for the Elderly: TCE is mainly for people age 60 or older but offers service to all taxpayers. The program focuses on tax issues unique to seniors. AARP participates in the TCE program through AARP Tax-Aide.

IRS offers free March 28 webinar: Understanding how to do a ‘Paycheck Checkup’

The Internal Revenue Service (“IRS”) will provide a free online, web-based information session in two languages on Thursday, March 28, 2019, to help people understand how to do a ‘Paycheck Checkup.’

Doing a Paycheck Checkup means checking tax withholding using the IRS Withholding Calculator and making any necessary adjustments to avoid having too little or too much tax withheld from paychecks.

The webinar is part of a continuing effort by the IRS to share information with taxpayers and partners to help people review their tax withholding, especially if they have already filed and noticed a significant change to their tax refund or amount owed brought about by the Tax Cuts and Jobs Act (TCJA) enacted in 2017. The TCJA lowered tax rates, increased standard deductions, suspended personal exemptions, increased the Child Tax Credit and limited or discontinued deductions.

Sooner is better

The IRS urges all taxpayers to do a “Paycheck Checkup” now so that if a withholding adjustment is needed, there is more time for withholding to happen evenly during the rest of the year. Waiting means there are fewer pay periods to withhold the necessary federal tax – so the change in withholding from each remaining paycheck will be more.

Reviewing withholding is especially important if people did a Paycheck Checkup in 2018 and adjusted their withholding during the middle or late in the year. Another review early this year can help make sure they’re having the right amount withheld for the rest of 2019.

The Withholding Calculator is an accurate, simple way for most taxpayers to determine their correct withholding amount. The tool allows taxpayers to enter their expected 2019 income, deductions, adjustments, and credits – including the Child Tax Credit.

Webinar helps diagnose who needs a ‘Paycheck Checkup’

The two 60-minute webinars, one in English and one in Spanish, include a special Q&A session. The sessions cover the basics of using the online IRS Withholding Calculator and detail the different situations that may require taxpayers to adjust their withholding, including those who:

  • Had a large tax refund or tax bill for 2018 when they filed their tax return this year.
  • Adjusted their tax withholding in the middle or later part of 2018.
  • Had a major life change this year.
  • Are a two-income family.
  • Have two or more jobs at the same time or only work part of the year.
  • Claim credits like the Child Tax Credit.
  • Have dependents age 17 or older.
  • Itemized deductions in the past.
  • Have high income or a complex tax return.
  • Have a large tax refund or tax bill for 2018.

Register to attend either language version of this webinar on March 28; the Spanish webinar starts at 11 a.m. Eastern, and the English webinar begins at 2 p.m. Eastern. It is recommended attendees log in 10 minutes prior to the start time. Closed captioning will be available. Find previous archived webinars on www.irsvideos.gov.

BEWARE: Phony IRS calls increase during filing season

The tax filing season is a busy time for taxpayers, but scammers also stay busy. Taxpayers should be aware of several types of tax scams, but phone scams start to increase during the beginning of tax season and then remain active throughout the remainder of the year. Here’s how this scam generally works:

  • Scammers impersonating the IRS call taxpayers telling them they owe taxes and face arrest if they don’t pay.
  • The scammer may leave a message asking taxpayers to call back to clear up a tax matter or face arrest.
  • When taxpayers call back, the scammers often use threatening and hostile language.
  • The thief demands that the taxpayers pay their tax debts with a gift card, other pre-paid cards or a wire transfer.

Taxpayers who receive these phone calls should:

Taxpayers should remember that the IRS does not:

  • Call taxpayers demanding immediate payment using a specific payment method. Generally, the IRS first mails a bill to the taxpayer.
  • Threaten to have taxpayers arrested for not paying taxes.
  • Demand payment without giving taxpayers an opportunity to question or appeal the amount owed.

Tax reform changes to fringe benefit deductions affect business’s bottom line

The Tax Cuts and Jobs Act includes tax law changes that affect businesses and the 2018 tax returns they file this year. One change is to fringe benefit deductions, which can affect both a business’s bottom line and its employees’ deductions.

Here is a rundown of these changes:

Transportation fringe benefits
The new law disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting, except as necessary for employee safety.

Bicycle commuting reimbursements
Under the new tax law, employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.

Moving expenses
Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the former exclusion for qualified moving expense reimbursements. There is one exception for active duty members of the U.S. Armed Forces. They can still exclude moving expenses from their income. There is additional guidance on reimbursements for employees’ 2017 moves if an employer reimburses the expenses in 2018. Generally, reimbursements in this situation are not taxed.

Achievement awards
Special rules allow an employee to exclude achievement awards from wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies the definition of tangible personal property.

Taxpayers must report health care coverage on 2018 tax return

As taxpayers are completing their 2018 tax returns this year, they must complete the lines related to health care.

For tax year 2018, the IRS will not consider a return complete and accurate if individuals do not do one of the following on their return:

  • Report full-year health coverage
  • Claim a coverage exemption
  • Report and make a shared responsibility payment for everyone on the tax return

The law continues to require taxpayers who do not qualify for an exemption to maintain health care coverage in 2018 or make a shared responsibility payment when they file their tax return.

Most taxpayers have qualifying health coverage or a coverage exemption for all 12 months in the year and will check the box on the front of their tax return. Taxpayers who can check the box don’t have to file Form 8965, Health Coverage Exemptions, to claim any coverage exemptions. This includes the coverage exemption for household income below the filing threshold.

Taxpayers who did not have coverage for the entire year and therefore can’t check the box generally must report a shared responsibility payment when they file. They will report this payment for each month that anyone listed on the tax return didn’t have qualifying health care coverage or a coverage exemption.

Taxpayers can determine if they are eligible for a coverage exemption or are responsible for the individual shared responsibility payment by using the Interactive Tax Assistant on IRS.gov.

In addition, taxpayers may be eligible for the premium tax credit if they purchased health coverage through the Health Insurance Marketplace. Anyone who needs health coverage can visit HealthCare.gov to learn about health insurance options that are available for them and their family.

Under the Tax Cuts and Jobs Act, the shared responsibility payment is reduced to zero for tax year 2019 and all subsequent years. See Publication 5307, Tax Reform Basics for Individuals and Families, for information about the shared responsibility payment for tax year 2019.