Sunday December 17, 2017
IRS Year-End Reminders
In IR-2017-201, the IRS "reminds taxpayers there are things they should do now to get ready for filing season."
With the continued effort by the IRS to make the entire tax system more secure, there are a number of actions taxpayers can take to plan for a smooth tax filing experience. These seven IRS year-end tips will be helpful for all taxpayers.
Tax Bill Vote Expected by December 20
On Friday, December 15, the House-Senate Conference Committee on the Tax Cuts and Jobs Act finalized the bill language. House and Senate leaders hope to vote on the comprehensive tax reform bill by Wednesday, December 20.
While the full text was not available at this article's publication time, the general provisions of the bill have been released.
Senate Finance Committee Chairman Orrin Hatch (R-UT) also favored the bill. He stated, "We are very close to producing legislation that will lower individual tax rates across the board and give the largest portion of tax cuts to middle-class families. We are very close to giving working, middle-class families additional help in the form of larger paychecks, an expanded Child Tax Credit and a simplified system where more than nine in ten taxpayers will be able to entirely avoid the complex and time-consuming process of itemizing their deductions."
Senate Finance Committee Ranking Member Ron Wyden (D-OR) firmly opposed the tax reform act. He responded, "The American people are witnessing a master class in how one political party, relying on secrecy, distortion and brute force, can muscle an unpopular, deficit-exploding corporate giveaway to passage. This is the ultimate betrayal of the middle class. It does not give middle class Americans the tax cuts they deserve now, and it takes away Medicare and Social Security later."
Editor's Note: On December 15, Sen. Marco Rubio (R-FL) and Sen. Bob Corker (R-TN) said they would vote yes on the tax bill. The Senate may now have 51 or 52 favorable votes. There also are likely to be sufficient House votes to pass the bill by December 20. The final legislation still will need to qualify under Senate reconciliation rules with projected costs of no more than $1.5 trillion.
Conservation Easement Deduction Denied
In Salt Point Timber LLC ct al. v. Commissioner; No. 18057-14; T.C. Memo. 2017-245 (11 Dec 2017), the Tax Court denied a $2.1 million deduction for a conservation easement. The Court determined that the option to replace the easement with a similar easement on adjacent property was not permitted.
Salt Point Timber LLC (SPT) is a partnership that bought 1,032 acres in Berkeley County, South Carolina in 1987. On June 30, 2009, SPT transferred a conservation easement on the property to Lord Berkeley Conservation Trust (LBCT).
The open space conservation easement granted LBCT rights against SPT "and all future owners in perpetuity."
However, the deed permits transfer of the easement to an adjacent property holder. If "the owner of the adjacent property and the holder of the conservation easement agree to modify the conservation easement on the adjacent property to encumber the transferred property by the adjacent property's conservation easement, the parties agree to amend this easement to release the transferred property from this easement."
LBCT paid $400,000 to SPT for the easement. The appraised value of the easement was $2,530,000 and the reported tax deduction was $2,130,000.
The court observed that under Sec. 170(h)(1) a conservation easement must be a qualified property transferred to a qualified conservation organization exclusively for conservation purposes.
The IRS claimed this easement has two flaws. It permits transfer of the easement to a new owner that may not be a qualified conservation organization and it permits the original property to be released if the easement is transferred to adjacent property.
The taxpayer noted that state law required a qualified holder of the easement. In addition, the possibility of change of ownership is negligible. Therefore, the easement should be permitted.
The Court determined the possibility of transfer of the easement to an adjacent owner was "more than negligible." Therefore, the deduction was denied.
Applicable Federal Rate of 2.6% for December -- Rev. Rul. 2017-24; 2017-49 IRB 1 (17 Nov 2017)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2017. The AFR under Section 7520 for the month of December is 2.6%. The rates for November of 2.4% or October of 2.2% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.
Published December 15, 2017