On April 2, the Treasury Inspector General for Tax Administration (TIGTA) reported interim results for the 2019 filing season. As the April 15 filing deadline (April 17 in Massachusetts and Maine) approaches, taxpayers are calling the IRS in record numbers and expanding their use of IRS.gov
Through March 30, 2019, IRS website visits are up 10% from 324 million to 358 million at the same time last year. Part of the reason for greater use of the website was the decline in IRS call services. During the 2019 filing season, 26.5 million taxpayers called the IRS. There were automated replies to 9.5 million callers. Over 3.1 million callers were able to speak with an IRS representative.
The call service was rated lower in 2019. The 2019 service rating was 55.6%, compared with a 78.3% rating for the prior year. Callers in 2019 waited an average of 13 minutes on hold compared with an average of 6 minutes on hold during the 2018 filing season.
Over 92 million returns have been received. The average 2018 tax-year refund of $2,873 is about 1% below the 2017 average refund of $2,893.
The IRS continues to improve software design to reduce identity theft refund fraud. By February 8, 2019 the Service had identified 3,741 fraudulent returns. It rejected requests for $16.7 million in suspected fraudulent refunds.
Bipartisan Retirement Savings Bill
On April 2, the House Ways and Means Committee unanimously passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Chairman Richard Neal (D-MA) claimed this bipartisan measure would "result in the formation of an estimated 600,000 to 700,000 new retirement accounts."
Chairman Neal explained the need for a new retirement bill. With the decline of employer-sponsored pensions, all workers and employers need to increase contributions to 401(k) and other qualified retirement plans.
Neal noted, "The SECURE Act goes a long way in addressing this problem by making it easier for Americans to save. For example, the legislation includes a small employer automatic enrollment credit. Automatic enrollment has been shown to increase employee participation and retirement savings. Our bill creates a new tax credit up to $500 per year to employers to defray startup costs for new Section 401(k) plans that include automatic enrollment."
Ranking Member Kevin Brady (R-TX) strongly supported the SECURE Act. He stated, "We are creating opportunity for workers across the country with this bipartisan legislation to help them make their own decisions about their finances and retirement. Our reforms will help families save more and earlier for the future, ensuring folks have the flexibility and control over their own savings they need for whatever life throws their way."
Rep. Ron Kind (D-WI) has been a diligent advocate for many of the SECURE Act provisions. He noted, "The evidence is clear – retirement security remains out of reach for too many Americans. The SECURE Act is an important, bipartisan step forward for working families to achieve their goals in retirement."
The SECURE Act includes automatic 401(k) enrollment, repeals the age 70½ limit for IRA contributions and permits part-time workers to participate in 401(k) plans. A similar bipartisan retirement bill has been introduced in the Senate.
One substantial difference between the House and Senate bills is the limitation on "stretch IRA" provisions. Under current law, most IRA beneficiaries are permitted to Stretch IRA distributions over their life expectancy. The life expectancy payouts for many children who are IRA beneficiaries may stretch out over 20 to 40 years.
The House bill reduces the stretch payout period to 10 years. The Senate bill (with certain exceptions) could reduce the payout period to 5 years.
As Senate Finance Committee Chairman Chuck Grassley (R-IA) noted this week on the Senate floor, "The last major retirement bill was the Pension Protection Act of 2006." The SECURE Act has bipartisan support in the House and Senate and is likely to pass this year. If the IRA stretch period is reduced from life expectancy to 5 or 10 years, transfer of an IRA to a testamentary unitrust for the life of a child or other heir will instantly become a very popular option.
Estate Beneficiaries Liable For Tax
In United States v. Mary Carol S. Johnson et al.;
No. 17-4083; No. 174093; No. 18-4036 (2019 10th Cir.), the Tenth Circuit held four children personally liable for unpaid estate tax.
Decedent Hazel Anna S. Smith died on December 2, 1991. She owned shares of stock in State Line Hotel and a Nevada gaming license. The estate filed IRS Form 706 on June 1, 1992, paid $4 million in estate tax and elected to pay the remaining estate tax of $2,631,448 in Sec. 6166 installments. The ten payments were scheduled from June 2, 1997 to June 2, 2006.
Because Nevada Gaming Commission rules conflicted with ownership of State Line Hotel by a trust, the stock in the hotel was distributed to decedent's children Mary Carol S. Johnson, James W. Smith, Marian S. Barnwell and Billie Ann S. Devine.
The estate had remaining unpaid taxes and the children signed an agreement that obligated them to make the required payments. The agreement stated, "Each of the beneficiaries acknowledges that the assets distributed to him or her will accomplish a complete distribution of the assets of the Trust. A portion of the total federal estate tax upon the estate of Anna Smith is being deferred and is the equal obligation of the beneficiaries to pay as the same becomes due."
Following the September 11, 2001 attacks on New York and Washington, DC, tourism business dramatically declined. In January of 2002, the State Line Hotel filed for bankruptcy and the remaining Sec. 6166 installment payments were not made.
The key issue before the 10th Circuit was whether the Utah six-year statute of limitations applied or whether the 10-year federal rule under Sec. 6502(a) was applicable. Because the IRS filed a claim as 3rd party beneficiary of the distribution agreement after six years but before 10 years, the statute of limitations issue was determinative.
The Tenth Circuit concluded "When the United States becomes entitled to a claim, acting in its government capacity and asserts its claim in that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement."
Because the government prevailed on the statute of limitations issue, the taxpayer was also not permitted to collect attorneys' fees. Prevailing on the substantive issue showed that the IRS' litigation position was "substantially justified."
Applicable Federal Rate of 3.0% for April -- Rev. Rul. 2019-8; 2019-14 IRB 1 (15 Mar 2018)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2019. The AFR under Section 7520 for the month of April is 3.0%. The rates for March of 3.2% or February of 3.2% 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 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.