In a series of letters this week, the IRS announced three types of tax relief for victims of Hurricane Irma who are from Florida, Puerto Rico or the U.S. Virgin Islands. These are filing extensions, hardship loans from qualified retirement plans and leave donation programs. The IRS actions are similar to steps taken recently to help victims of Hurricane Harvey.
IRS Commissioner John Koskinen stated, "This has been a devastating storm for the southeastern part of the country, and the IRS will move quickly to provide tax relief for victims, just as we did following Hurricane Harvey. The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."
In IR-2017-150 the filing deadlines for taxpayers with extensions to October 16 are changed to January 31, 2018. Various tax deadlines for quarterly estimated tax payments and certain business tax returns are also extended.
Taxpayers may search for "Disaster Relief" on www.irs.gov
or call 1-866-362-5227 for assistance.
In IR-2017-151 and Announcement 2017-13 the Service announced streamlined procedures for loans from 401(k), nonprofit 403(b) or government 457(b) plans. Plan administrators can permit loans up to the legal limits for victims in federally-designated disaster areas.
Even if the plan has not been amended to permit these hardship loans, the IRS will permit distributions for food and shelter needs. However, hardship distributions are still taxable and may also subject recipients under age 59½ to a 10% early withdrawal tax.
Finally, Notice 2017-52 enables employers to accept gifts of leave to provide Hurricane Irma and Hurricane Harvey charitable relief. Employees may have unused vacation, sick or personal leave days. An employee may give these days back to the employer. There is no deduction or taxable income for the employee.
By January 1, 2019, the employer must give the cash value of the donated days to a Sec. 170(c) organization. The gifts must be designated for relief of Hurricane Irma or Hurricane Harvey victims. Payments by the corporations are deductible either under Sec. 170(c) as charitable gifts or under Sec. 162 as ordinary and necessary business expenses.
IRS May Recalculate DSUE
In Sower, Estate of Minnie Lynn et. al. v. Commissioner
; No. 32361-15; 149 T.C. No. 11 (11 Sep 2017), the Tax Court held that the IRS could recalculate a deceased spouse unused exclusion (DSUE) even though the estate was closed.
Decedent Minnie Lynn Sower had been married to Frank Sower. He passed away on February 23, 2012. His estate file IRS Form 706, reported a DSUE of $1,256,033 and elected portability. On November 1, 2013, an IRS closing letter accepted that return as filed.
Minnie died on August 7, 2013 and her estate claimed the $1,256,033 DSUE on her IRS Form 706. The IRS adjusted her estate by taxable gifts for 2003-2005 of $997,920, adjusted the DSUE by Frank's 2003-2005 gifts of $997,921, recalculated the DSUE as $282,690 and assessed a deficiency of $788,165.
The estate made three arguments. The closing agreement was final, the Sec. 2010(c)(5)(B) provision on DSUE amounts precluded review of the 2003-2005 taxable gifts and reopening Frank's estate was an unconstitutional lack of due process.
The Tax Court noted Sec. 2010 (c)(5)(B) permits recalculation of DSUE in the estate of the first spouse to pass away. Therefore, the IRS recalculated the DSUE. It also did not assess any deficiency for Frank's estate.
Because the applicable law on determining the taxable estate in 2012 permitted review of prior gifts, the IRS may review the 2003-2005 gifts even though they were prior to passage of marital portability in 2010. Recalculation of DSUE is not an assessment of an additional tax against Frank's estate and is simply for the purpose of determining the tax on the estate of Minnie. Therefore, there was no violation of due process of law and the deficiency was affirmed.
Private Foundation Equivalency Determinations
In Rev. Proc. 2017-53; 2017-40 IRB 1 (13 Sep 2017)
, the Service provided guidelines for written advice used by private foundations to make equivalency determinations.
A private foundation may desire to make grants to foreign nonprofits. If the private foundation does not want to risk payment of an excise tax under Sec. 4945 for failure to exercise expenditure responsibility, it may make a good-faith determination that the foreign grantee qualifies as a public charity.
This determination requires written advice from a qualified professional. An affidavit from the grantee is not sufficient.
The written advice must describe the charitable actions of the foreign grantee in sufficient detail to demonstrate it could qualify as a public charity. The determination will be based on all of the applicable facts and circumstances.
Preferred written advice must include several items.
- English Translation - All of the articles incorporation, bylaws, organizing documents or similar documents must be translated into English.
- Country - The country in which the entity is formed and operated must be specified if not apparent from the organizing documents.
- Tax-Exempt Purposes - The written advice must show sufficient factual background to explain and characterize the charitable functions and activities of the grantee.
- Analysis - The expertise and qualifications of the author and the rationale for applying applicable nonprofit law to the facts and circumstances must be described. In essence, the author must explain his or her background and the analysis that leads to a conclusion the recipient qualifies as a public charity.
Applicable Federal Rate of 2.4% for September -- Rev. Rul. 2017-17; 2017-36 IRB 1 (18 Aug 2017)
The IRS has announced the Applicable Federal Rate (AFR) for September of 2017. The AFR under Section 7520 for the month of September will be 2.4%. The rates for August of 2.4% or July 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.