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Tax News: June ’18

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in Small Business Tax

Thoroughly modern IRS. The House has passed a package of bills designed to modernize the IRS. For instance, several bills address technology issues, such as requiring a special filing password to protect information. Also, the IRS would provide a single point of contact to taxpayers who are victimized by ID theft. Another bill would make the Free-File service for low-income taxpayers permanent. We will monitor the progress.

A breed apart. The IRS often challenges losses from taxpayers who claim losses from farming activities purported to be businesses. According to the IRS, the activity is a hobby instead. In a new case, it denied losses of $1.7 million over 16 years for a cattle operation where the taxpayer spent only about eight hours a week on the activity. The Tax Court agreed that the IRS had properly disallowed the losses under the hobby loss rules because the taxpayer lacked a profit motive. (Williams, TC Memo 2018-48, 4/9/18)

Read the book. Taxpayers can find a treasure trove of information in the new IRS “Data Book” for the 2017 fiscal year. (IR-2-018-77, 3/29/18) This compilation includes interesting statistics and information about taxes and IRS operations. Key point: According to the new Data Book, the audit rate for individuals was 0.6%, the lowest recorded rate since 2002. For more details, visit www.irs.gov/pub/irs-soi/17databk.pdf.

Blended tax rates. The IRS has issued new guidance on tax rates for fiscal-year corporations. (IRS Internal News Release IR-2018-99, 4/16/18) Due to a provision in the new Tax Cuts and Jobs Act (TCJA), a corporation with a fiscal year that includes January 1, 2018, must pay tax using a blended tax rate, instead of the flat 21% rate under the TCJA that generally applies to tax years beginning after 2017. These corporations are instructed to calculate their tax for the entire tax year using the rates in effect prior to TCJA and then the new 21% rate based on the number of days in the tax year when the different rates were in effect. The sum of these two amounts is the corporation’s tax for the fiscal year.

Hang up on phone scam. The IRS is warning taxpayers about a new twist to an old phone scam. (IRS Internal News Release IR-2018-103, 4/24/18) In this version, criminals use telephone numbers that mimic Taxpayer Assistance Centers (TACs) to trick taxpayers into paying nonexistent tax bills. Scam artists have programmed their computers to display the TAC telephone number, which appears on the taxpayer’s caller ID. If the taxpayer questions their demand for tax payment, they direct him or her to www.irs.gov to verify the local TAC office telephone number. The crooks hang up, wait a short time and then call back a second time. Now that the number has been “verified,” the fraudsters resume their demands for money, generally demanding payment on a debit card.

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