Author: Leon Clinton

Section 965 of the Internal Revenue Code, enacted in December 2017, imposes a transition tax on untaxed foreign earnings of foreign corporations owned by U.S. shareholders by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and the remaining earnings are taxed at an 8 percent rate. The transition tax generally may be paid in installments over an eight-year period when a taxpayer files a timely election under section 965(h).

Late-payment and filing penalty relief is now available for taxpayers affected by the section 965 transition tax, in accordance with the following guidance:

• In some instances, the IRS will waive the estimated tax penalty for taxpayers subject to the transition tax who improperly attempted to apply a 2017 calculated overpayment to their 2018 estimated tax, as long as they make all required estimated tax payments by June 15, 2018.
• For individual taxpayers who missed the April 18, 2018, deadline for making the first of the eight annual installment payments, the IRS will waive the late-payment penalty if the installment is paid in full by April 15, 2019. Absent this relief, a taxpayer’s remaining installments over the eight-year period would have become due immediately. This relief is only available if the individual’s total transition tax liability is less than $1 million. Interest will still be due. Later deadlines apply to certain individuals who live and work outside the U.S.
• Individuals who have already filed a 2017 return without electing to pay the transition tax in eight annual installments can still make the election by filing a 2017 Form 1040X, Amended U.S. Individual Income Tax Return with the IRS. The amended Form 1040 generally must be filed by October 15, 2018.

For more information about the transition tax and other tax reform provisions, don’t hesitate to call.

• By Leon Clinton
• July 26, 2018

As hurricane season gets underway–and with it, the possibility of scam groups masquerading as charitable organizations–taxpayers should know about the new tax-exempt organization search tool. Located on the IRS website, the Tax Exempt Organization Search (TEOS) tool replaces the EO Select Check tool and enables taxpayers to search and access information about tax-exempt organizations quickly. TEOS is mobile friendly as well, accessible on tablets or smartphones.

When you use the new TEOS tool you will be able to:

• Access images of an organization’s forms 990, 990-EZ, 990-PF, and 990-T filed with the IRS. Initially, only 990 series forms filed in January and February 2018 will be available. New filings will be added monthly.
• Find out additional information about exempt organizations than was previously available using EO Select Check.
• Conduct a simplified search process.
• Access favorable determination letters issued by the IRS when an organization applied for and met the requirements for tax-exempt status. At first, a limited number of determination letters will be available. Determination letters issued since January 2014 will also be available in the future.

Taxpayers can use TEOS to find information previously available on EO Select Check including whether an organization:

• Is eligible to receive tax-deductible contributions.
• Has had its tax-exempt status revoked because it failed to file required forms or notices

for three consecutive years.

• Filed a Form 990-N annual electronic notice with the IRS; this applies to small organizations only.

Publicly available data from electronically-filed 990 forms are still available through Amazon Web Services. Please call or visit the IRS website for additional details. If you have any other questions about the new TEOS tool, don’t hesitate to contact the office.

• By Leon Clinton
• July 24, 2018

The short answer is that yes, tips are taxable. If you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or drive a taxicab, then the tip income you receive as an employee from those services is considered taxable income. Here are a few other tips about tips:

• Taxable income. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
• Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
• Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
• Keep a daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, please call.

Tips can be tricky. Don’t hesitate to contact the office if you have questions.

• By Leon Clinton
• July 22, 2018