Protect Yourself From Identity Theft
- Fake IRS Websites – The fraudster creates a link to a website that looks similar to IRS.gov. The webpage will appear to reference information about a tax refund or the prior tax return filed by the taxpayer. The email contains a "temporary password" or "one-time password" to help the victim access tax information. When the taxpayer uses the password on the fake IRS website, the website installs software on the taxpayer's computer to gain access to information on the victim's computer.
- Multiple Bogus Websites – Fraudsters may create a large number of websites that appear to be IRS.gov. The government will take action to block or shut down bogus websites when discovered, but fraudsters continue to create new websites to scam additional taxpayers. The new websites give fraudsters increased ability to install software on taxpayers' computers that may give them access to sensitive information and financial accounts.
- No IRS Emails Requesting Personal Information – The IRS has a policy that it will not initiate contact by email or text message to request personal or financial information. The IRS will not initiate a contact by email to request your Social Security Number, a PIN number to your bank account, a password or other types of personal information.
- No IRS Phone Calls Demanding Immediate Payments – The IRS also has a policy that it does not make a phone call to demand immediate payment. If a caller insists that an immediate tax payment must be made through a prepaid debit card, gift card or wire transfer, taxpayers should be on guard. The IRS initiates requests for payment through letters in the U.S. Mail, not through threatening phone calls.
Mayors Support Conservation Easements
On July 24, Stephen K. Benjamin, Mayor of Columbia, South Carolina, sent a letter to Treasury Secretary Steven Mnuchin to urge support for historic conservation easements. Benjamin noted, "I write to you to bring to your attention the U.S. Conference of Mayors' resolution passed during our 87th Annual Meeting in favor of this valuable preservation and economic growth program."
The Conference of Mayors' resolution highlighted the importance of historic preservation easements. It noted, "Significant, sustainable and economically beneficial transformation of urban neighborhoods, while preserving the historic character of the communities, would not have occurred without the program as has been demonstrated in numerous towns and cities across the United States."
However, the IRS actions against taxpayers claiming charitable deductions for preservation easement gifts have had a chilling effect. The Mayors continue, "The threat of civil action by the Internal Revenue Service and the Department of Justice deters constituents from utilizing the program, and constituents have voiced concern to members of the United States Conference of Mayors over their ability to continue to use the program to preserve and rehabilitate historic properties in urban cores throughout the United States."
In order to revitalize the preservation easements process, the Mayors urge the "Internal Revenue Service and the Department of Justice to continue to monitor and pursue abuse in the program, but allow responsible projects to move forward so as to not discourage the use of these programs in urban areas."
Joyce Barrett, Executive Director of Heritage Ohio, echoed the concerns of the Conference of Mayors. In an August 1 letter to Sec. Mnuchin, she criticized the IRS enforcement methods.
Barrett stated, "The Internal Revenue Service has begun engaging in the practice of punishing owners taking advantage of this tax deduction: putting taxpayers (and preservation organizations) under audit, and under financial burdens as they are forced to employ legal representation in the defense of their charitable contribution, and dragging the audit process out over the course of years. The IRS's zeal for auditing every easement donated has put a chilling effect on subsequent easement donations."
Editor's Note: The letters by Benjamin and Barrett were prompted by the introduction of the Charitable Conservation Easement Program Integrity Act of 2019 (S. 170). This bill is supported by several conservation organizations and limits charitable deductions for syndicated partnerships. Several Senate Finance Committee members are concerned that the syndicated partnerships have abused charitable deductions through inflated appraisals.
Estate Appraiser Win – No $45 Million Gift Tax Deficiency
In Estate of Aaron U. Jones et al. v. Commissioner; No. 27952-13; T.C. Memo. 2019-101 (18 Aug 2019), the Tax Court accepted the estate valuation and the IRS did not collect a $45 million deficiency.
In 2009, Aaron U. Jones made gifts of business equity interests to a trust and to his three daughters. Jones had founded Seneca Sawmill Co. (SSC) and Seneca Jones Timber Co. (SJTC). SSC was a subchapter S corporation and SJTC was a limited partnership.
SJTC held 150,000 acres of timberland. SSC was the sole general partner with 10% of the interests in SJTC. SSC purchased logs from SJTC and other sources and produced over 300 million board feet of lumber per year.
On May 28, 2009, Jones transferred "the following equity interests transferred as gifts: (1) 10,267.67 limited partner units in Seneca Jones Timber Co. (SJTC), (2) 4,800 shares of class B nonvoting stock in Seneca Sawmill Co. (SSC), (3) 5,456 shares of class B nonvoting stock in SSC, and (4) 1,300 shares of class A voting stock in SSC."
The estate filed an IRS Form 709 Gift Tax Return and the SSC Class A and B shares and the SJTC units were valued at $325, $207 and $230, respectively. At trial, the estate increased the values to $390, $380 and $380. During the trial, the estate claimed under Sec. 7491(a)(1) it had met the burden of providing "complete and conclusive documentation" with respect to value and the burden of proof on valuation therefore shifted to the IRS. The Tax Court accepted this request and shifted the burden of proof to the IRS.
The IRS valued equity interests at $2,511 and $2,550. It assessed a gift tax deficiency of $44,986,416.
Estate appraiser Richard Reilly valued SSC and SJTC as operating entities. IRS appraiser Phillip Schwab valued SJTC as an asset entity. Schwab valued SJTC timberland at over $400 million.
Because SSC was the sole general partner of SJTC, it could preclude a sale of the timberland. Therefore, this restriction essentially disqualified an asset valuation for SJTC. The Tax Court accepted the estate valuation using an operating income approach. The $45 million gift tax deficiency claim by the IRS was rejected.
Applicable Federal Rate of 2.2% for September -- Rev. Rul. 2019-20; 2019-36 IRB 1 (16 August 2018)
The IRS has announced the Applicable Federal Rate (AFR) for September of 2019. The AFR under Section 7520 for the month of September is 2.2%. The rates for August of 2.2% or July of 2.6% 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 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.