Federal Tax News – April

By Team HRH | April 14, 2018

The U.S. Treasury Department and IRS have created 18″Opportunity Zones. “Opportunity Zones are investment areas that can receive preferential tax treatment to spur investment in distressed communities, as provided for in the Tax Cuts and Jobs Act. The law allows for the designation of certain low-income community population census tracts to be eligible for favorable tax rules aimed at spurring economic growth and investment. Submissions were approved for American Samoa, AZ, CA, CO, GA, ID, KY, MI, MS, NE, NJ, OK, PR, SC, SD, VT, U.S. VI and WI. Read the press release here: www.treasury.gov

Report: Budget deficitis expected to soar. A new Congressional Budget Office report says the deficit will rise sharply over the next few years, mainly because of deep tax cuts in the Tax Cuts and Jobs Act. The report states the deficit will grow to $804 billion in fiscal year 2018, $242 billion larger than what was projected in 2017. Accounting for most of the difference is a $194 billion reduction in projected revenues, mainly because the law is expected to reduce collection of individual and corporate income taxes. To read the report: www.cbo.gov

Taxpayer wins and loses in court. The U.S. Tax Court ruled that a used car dealership manager was entitled to deductions for mileage expenses he had incurred while using his personal vehicle to attend car auctions. Although the taxpayer didn’t keep receipts or contemporaneous documents, he credibly testified that he was required to go to auctions as part of his employment. However, his claims for tolls, parking and customer amenity expenses failed because he “offered no specific evidence to support” them and his testimony regarding them was “vague and unconvincing,” the court stated. (TC Memo 2018-43)

What are your chances of being audited by the IRS? Not very high, according to the recently issued IRS Data Book. The annual publication contains statistical tables, IRS organizational information, and the rate at which the IRS audits tax returns. In 2017, the audit rate dropped to 0.6%, the lowest rate since 2002. In addition, the business taxes collected were$338.5 billion, down from $345.6 billion in fiscal year 2016. However, there were increases in the individual income, estate and employment taxes collected. You can read the Data Book here: www.IRS.gov

Court: Taxpayer’s expenses were not alimony. A property settlement in a divorce doesn’t usually create a taxable event. But alimony paid is deductible to the payor and taxable income to the recipient (in divorces executed before 2019). One taxpayer was required by a divorce decree to pay joint debts incurred in his marriage. After paying $22,176 in joint debt, he deducted it as alimony on his tax return. The IRS denied the deduction and the U.S. Tax Court agreed, stating the payments weren’t alimony, but was due to a property settlement and didn’t meet other requirements to be alimony. (TC Memo 2018-38)

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