Tax

Under the Protecting Americans from Tax Hikes (PATH) Act, Individual Taxpayer Identification Numbers (ITINs) that have not been used on a federal tax return at least once in the last three consecutive years will expire December 31, 2018. In addition, ITINs with middle digits 73, 74, 75, 76, 77, 81 or 82 will also expire at the end of the year. These affected taxpayers who expect to file a tax return in 2019 must submit a renewal application as soon as possible.

ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. With more than 2 million ITINs set to expire at the end of 2018, taxpayers should submit renewal applications for Form W-7, Application for IRS Individual Taxpayer Identification Number soon to beat the rush and avoid refund delays for next year’s tax returns.

While spouses or dependents residing inside the United States should renew their ITINs, spouses, and dependents residing outside the United States do not need to renew their ITINs unless they anticipate being claimed for a tax benefit (for example, after they move to the United States) or if they file their own tax return. That’s because the deduction for personal exemptions is suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act. Consequently, spouses or dependents outside the United States who would have been claimed for this personal exemption benefit and no other benefit do not need to renew their ITINs this year.

To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7.

Federal tax returns that are submitted in 2019 with an expired ITIN will be processed. However, certain tax credits and any exemptions will be disallowed. Once the ITIN is renewed, applicable credits and exemptions will be restored, and any refunds will be issued.

As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise additional documents to prove U.S. residency are required.

• By Leon Clinton
• August 26, 2018

Taxpayers who make an effort to comply with the law but are unable to meet their tax obligations due to circumstances beyond their control may qualify for relief from penalties.

If you’ve received a notice stating that the IRS assessed a penalty, the first step taxpayers should take is to check that the information in the notice is correct. Those who can resolve an issue in their notice may get relief from certain penalties, which include failing to:

• File a tax return
• Pay on time
• Deposit certain taxes as required

There are several types of penalty relief:

1. Reasonable cause

This relief is based on all the facts and circumstances in a taxpayer’s situation. The IRS will consider this relief when the taxpayer can show they tried to meet their obligations but were unable to do so. Situations, when this could happen, include a house fire, natural disaster and a death in the immediate family.

2. Administrative Waiver and First Time Penalty Abatement

A taxpayer may qualify for relief from certain penalties if he or she:

• Didn’t previously have to file a return or had no penalties for the three tax years prior to the tax year in which the IRS assessed a penalty.
• Filed all currently required returns or filed an extension of time to file.
• Paid, or arranged to pay, any tax due.

3. Statutory Exception

In certain situations, legislation may provide an exception to a penalty. Taxpayers who received incorrect written advice from the IRS may qualify for a statutory exception.

Taxpayers who received a notice or letter saying the IRS didn’t grant the request for penalty relief may appeal. If you have any questions about IRS penalties, please call.

• By Leon Clinton
• August 24, 2018

Certain veterans who received disability severance payments after January 17, 1991, and included that payment as income that they should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment. The refund is the result of the Combat-Injured Veterans Tax Fairness Act passed in 2016.

Most veterans who received a one-time lump-sum disability severance payment when they separated from their military service will receive a letter from the Department of Defense with information explaining how to claim tax refunds they are entitled to; the letters include an explanation of a simplified method for making the claim.

The amount of time for claiming these tax refunds is limited; however, the law grants veterans an alternative timeframe of one year from the date of the letter from DoD. Veterans making these claims have the normal limitations period for claiming a refund or one year from the date of their letter from the DoD, whichever expires later. As taxpayers can usually only claim tax refunds within 3 years from the due date of the return, this alternative time frame is especially important since some of the claims may be for refunds of taxes paid as far back as 1991.

Veterans can submit a claim based on the actual amount of their disability severance payment by completing Form 1040X and carefully following the instructions. There is also a simplified method where veterans can instead choose to claim a standard refund amount based on the calendar year (i.e., an individual’s tax year) in which they received the severance payment. Claiming the standard refund amount is the easiest way for veterans to claim a refund because they do not need to access the original tax return from the year of their lump-sum disability severance payment.

Veterans eligible for a refund who did not receive a letter from DoD may still file Form 1040X to claim a refund but must include additional documentation to verify the disability severance payment. Veterans who did not receive the DoD letter and who do not have the required documentation showing the exact amount of and reason for their disability severance payment will need to obtain the necessary proof by contacting the Defense Finance and Accounting Services (DFAS).

Please contact the office if you need additional information or assistance filing Form 1040X.

• By Leon Clinton
• August 21, 2018