Federal Tax News – May

By Team HRH | May 17, 2018

Want to check out a nonprofit group before donating? The IRS just introduced a new online tool designed to provide faster and easier access to information about tax-exempt organizations. The “Tax Exempt Organization Search” replaces the “EO Select Check,” which was available since 2012. The difference: The old tool primarily provided information about the tax-exempt status of an organization. The new one provides images of an organization’s Form 990 and other material not previously available. Access it by visiting: IRS.gov

The IRS issues next year’s inflation-adjusted Health Savings Account (HSA) figures. For calendar year 2019, the annual contribution limit for an HSA for an individual with self-only coverage under a high deductible health plan (HDHP) will be $3,500 (up from $3,450 for 2018). For family coverage, the contribution limit will be $7,000 (up from $6,900 for 2018). To qualify as an HDHP, a health plan’s annual deductible must not be less than $1,350 (same as for 2018) for self-only coverage or $2,700 (same as for 2018) for family coverage. (IRS Revenue Procedure 2018-30)

Court: Ranching activities weren’t engaged in for profit. The taxpayer owned a profitable research and publishing business. Through a limited partnership, he acquired a ranch and began running a cattle operation. The taxpayer kept books for the operation but didn’t have a written business plan, maintain budgets, hire experts or take other steps to become profitable. He reported substantial losses on his tax return. The IRS disallowed them, claiming that the ranching activities weren’t engaged in for profit under the tax code. The U.S. Tax Court agreed. (TC Memo 2018-48)

Is money left in a tip box subject to FICA tax? Workers and employers pay FICA tax on tips reported to the IRS. In one case, a taxpayer engaged individuals to perform services and paid them only tips left in a tip box by customers. The taxpayer wasn’t involved in the collection or distribution of the tips and didn’t report the amounts to the IRS as compensation. The IRS, in a Chief Counsel Advice, found the individuals to be employees, and the tips subject to the employer share of FICA under the tax code’s “notice and demand” procedures. (CCA 201816010)

A taxpayer’s rejected offer in compromise (OIC) is upheld. An OIC is an agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount owed. But certain requirements must be met. The IRS considers a person’s income, ability to pay, expenses and asset equity before accepting an offer.

The U.S. Tax Court recently upheld the rejection of a taxpayer’s OIC. The court determined that the IRS hadn’t abused its discretion in rejecting the taxpayer’s OIC. The offer didn’t reflect the reasonable collection potential, based on the IRS’s local allowances for living expenses. The taxpayer disputed these allowances, but failed to prove they were inadequate. (TC Memo 2018-54)

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