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Saturday April 17, 2021

Washington News

Washington Hotline

Avoid "Ghost" Tax Return Preparers

In IR-2021-30, the Internal Revenue Service (IRS) reminded taxpayers to avoid "ghost" tax return preparers. These are tax preparers who will not sign your tax return in an attempt to be invisible. This is an obvious red flag for taxpayers.

Under federal law, any individual who prepares a tax return for others is required to have a valid Preparer Tax Identification Number (PTIN). The paid preparer is required to sign the return and include the PTIN.

Ghost tax return preparers sometimes require payment in cash and do not provide a receipt. They may invent income to qualify individuals for tax credits, claim fake deductions or even direct the refund into their own personal bank account.

If you plan to use a tax preparer, IRS.gov has helpful information on the Choosing a Tax Professional page. There is also an IRS Directory of Federal Tax Return Preparers to help you select a good advisor.

The IRS also warned about a new scam that primarily affects tax professionals. The scam involves an email impersonating the IRS in an effort to steal Electronic Filing Identification Numbers (EFINs) from tax preparers.

IRS Commissioner Chuck Rettig stated, "Phishing scams are the most common tool used by identity thieves to trick tax professionals into disclosing sensitive information, and we often see increased activity during filing season. Tax professionals must remain vigilant. The scammers are very active and very creative."

The fraudulent email claims to be from the IRS and states:

"In order to help protect both you and your clients from unauthorized/fraudulent activities, the IRS requires that you verify all authorized e-filed originators prior to transmitting returns through our system. This that means we need your EFIN (e-file identification number) verification and Driver's license before you e-file."

The bogus email then asks for a copy of the tax professional's EFIN acceptance letter and threatens that he or she will not be able to e-file returns unless this documentation is provided. If a tax professional receives this email, he or she should forward it to phishing@irs.gov and notify the Treasury Inspector General for Tax Administration at TIGTA.gov.

Easement Donation Disallowed but Penalty May Require Trial


In Soddy Creek Preserve LLC et al. v. Commissioner; No. 22271-17 (9 Feb 2021), the Tax Court held that a conservation easement deed was defective due to a failure to satisfy the perpetuity requirement under Section 170(h)(5). Under the deed language, if there were an extinguishment of the easement, the Reg.1.170A-14(g)(6)(ii) requirement that the nonprofit should receive proportionate proceeds was not fulfilled.

Under Section 170(h)(1), a qualified conservation easement gift will produce a charitable deduction if the interest is exclusively for conservation purposes and is protected in perpetuity. The Soddy Creek easement deed did not comply with the perpetuity requirement because it failed to provide the nonprofit with a proportionate interest if there were an extinguishment. Therefore, the charitable deduction for the gift of the conservation easement was denied.

The taxpayer objected to the penalties and claimed that IRS Revenue Agent (RA) Ellie Pennington was not in compliance with Section 6751(b)(1). This provision required penalties to be approved in writing by the immediate supervisor of Pennington before the initial assessment.

The process was not entirely clear with respect to the assessed 40% valuation penalty for gross valuation misstatement. The Revenue Agent Report (RAR) was first provided to taxpayer on January 13, 2015 and an updated version was provided on December 7, 2015. Pennington's supervisor signed a penalty approval form on December 15, 2015. The IRS issued a 60-day letter notifying the taxpayer of the IRS position on June 27, 2016. The revised RAR was subsequently attached to the 60-day letter.

The Tax Court could not determine with clarity whether the factual record complied with the requirement that a supervisor must approve in writing the initial determination of penalties. Therefore, the deduction was denied, but the parties were requested to submit briefs on the potential need for a trial to clarify the factual background with respect to the penalties.

Legacy IRA Act Reintroduced


On February 8, 2021, the Legacy IRA Act was reintroduced by U.S. Senators Kevin Cramer (R-ND) and Debbie Stabenow (D-MI). They also introduced the same bill in 2020.

Senator Cramer stated, "Most nonprofit organizations rely on charitable donations to stay afloat and continue their missions. Our legislation cuts the red tape in the tax code to make it easier for middle-class Americans to generously give their money to worthy causes."

Senator Stabenow continued, "Our charitable organizations are key parts of our communities and do such important work, especially during the COVID-19 crisis. These organizations depend on generous contributions from many American families, which is why we introduced our bill to make it easier for people to give to the charity of their choice."

Senators Steve Daines (R-MT), Jacky Rosen (D-NV) and John Cornyn (R-TX) joined as original cosponsors.

The Legacy IRA Act would enable middle-income seniors to make IRA gifts to charitable remainder unitrusts, annuity trusts and charitable gift annuities. It would expand the IRA Charitable Rollover by enabling individuals age 65 and over to give up to $400,000 annually to life income plans.

A broad coalition of nonprofits support the Legacy IRA Act.

Suzie Upton, Chief Operating Officer for the American Heart Association stated, "The legislation would encourage charitable giving to mission-driven organizations nationwide, enabling seniors to participate in the rich American tradition of philanthropy while continuing to draw needed income from their investments. With organizations like the American Heart Association struggling financially because of the COVID-19 pandemic, this legislation is needed now more than ever. We are grateful to Senator Stabenow and Senator Cramer for their ongoing leadership on behalf of the nationwide philanthropic community, and we urge broad congressional support for this important bill."

Christine Anagnos, Executive Director of Association of Art Museum Directors, noted, "Art museums are more reliant than ever on charitable contributions, now that admissions and other earned revenue are largely off the table due to the pandemic. We offer our thanks to Sens. Stabenow and Cramer for introducing this important legislation."

Eric D. Fingerhut is President and CEO of The Jewish Federations of North America. He stated, "We continue to applaud bipartisan efforts in Congress to expand charitable giving incentives. The Legacy IRA Act introduced by Sens. Cramer and Stabenow builds on a successful giving incentive and can result in increased resources for charities throughout the country."

Sue Cunningham, President and CEO, Council for Advancement and Support of Education, concluded, "CASE's member institutions and the communities they support all benefit from charitable giving in countless ways, including through emergency aid, research and student scholarships. That is why we are grateful to Senators Stabenow and Cramer for introducing the Legacy IRA Act. This legislation will provide an additional incentive for giving that will transform the lives of students, faculty, and staff at schools, colleges and universities, and the impact of that transformation is felt across communities well beyond the educational institutions themselves."

Editor's Note: Senator Cramer has been a champion of the Legacy IRA Act in both the House and Senate. A reduced version of the bill has been included in Sec. 310 of the Securing a Strong Retirement Act of 2020. This retirement legislation has bipartisan support and will be reintroduced in 2021. The actions by Senators Cramer and Stabenow significantly increase the prospects for passage of a bill permitting IRA rollovers to charitable life income plans.

Applicable Federal Rate of 0.6% for February -- Rev. Rul. 2021-4; 2021-6 IRB 1 (19 January 2021)


The IRS has announced the Applicable Federal Rate (AFR) for February of 2021. The AFR under Section 7520 for the month of February is 0.6%. The rates for January of 0.6% or December of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published February 12, 2021
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