On April 15, IRS Commissioner Chuck Rettig thanked taxpayers. He stated, "Our nation's tax system is built around the concept of voluntary tax compliance, meaning citizens comply with their civic duty each year by preparing and filing their taxes — without direct government intervention. This principle has helped make our tax system a model for the entire world. Thanks to taxpayers, this system helps fund our great nation. Each year, 95% of the gross receipts of our country flows through the IRS — about $3.5 trillion last year — funding critical aspects of the U.S., ranging from roads and schools to the nation's military."
Rettig reported a smooth filing season. By April 5, 2019, the IRS had received 103 million tax returns and issued 78 million tax refunds. The total amount of the refunds exceeded $220 billion and the average refund was $2,833.
This will be a busy month for both the IRS and taxpayers. The IRS expected 14.8 million tax returns to be filed the week of April 12. By tax day on April 15, the IRS predicted that another 18.3 million returns would be filed.
Over 14.6 million taxpayers are expected to file IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
Some taxpayers may qualify for the following automatic extensions.
- Alaska Earthquake — Those impacted by the Alaska earthquake on November 30, 2018, may file by April 30, 2019.
- Alabama Tornadoes — The victims of the March 3, 2019, tornadoes in Alabama may file by July 31, 2019.
- California Wildfires — Those who were impacted by the major wildfires in California on November 8, 2018, may delay filing until April 30, 2019.
- Nebraska-Iowa Blizzard — A massive blizzard on March 9, 2019, impacted Nebraska and Iowa. The affected residents may delay filing until July 31, 2019.
- Combat Zones — Active duty military who are in Iraq, Afghanistan or other IRS recognized combat zones may delay filing until 180 days after departing from the combat zone.
- Workers Outside the U.S. — Workers and military residing outside the U.S. generally have until June 17, 2019 to file.
Executor Liable for Estate Tax
In United States v. Ronald Coleman;
No. 2:15-cv-07284 (8 Apr 2019), the United States District Court for the Eastern District of New York held an executor liable for estate taxes of $775,254.11 plus interest.
Decedent Anne D. Coleman was a surviving spouse and passed away December 28, 2005. Her estate included property in Hempstead, NY. Her executor Ronald D. Coleman filed IRS Form 706 on May 7, 2007, and showed estate tax due of $775,790. The estate made no payments and the IRS assessed tax, interest and penalties.
On January 16, 2009, the IRS filed a lien against the estate and the real property in Hempstead, NY. The IRS sought a default judgement against Ronald Coleman. As executor, he failed to answer the amended complaint or appear in court.
Therefore, the magistrate judge respectfully recommended that "the government's motion for default judgement against Ronald D. Coleman, as executor of the estate of Anne D. Coleman, be granted and that the government be awarded the unpaid balance of the federal estate tax due in owing in the amount of $775,254.11, plus statutory additions, including interest, pursuant to 28 U.S.C. Sec. 1961(c)."
Bipartisan Debt Warning
The Committee for a Responsible Federal Budget (CFRB) is a bipartisan organization. Many of the CFRB Directors are retired Senators or Representatives from both parties.
In an article published on April 16, 2019, CFRB President Maya MacGuineas explained the significant risks of "debt denialism." MacGuineas noted, "This new debt denialism could not come at a worse time. The rapid aging of the population means that deficits and debt are on course to explode in the coming decades. With a strong economy and unemployment rate under 4%, now is the time to begin reducing deficits, not increasing them."
Several major risks result from high national debt. CFRB outlines the risks and damage to average Americans that could result from a high national debt.
- Slower Income Growth — Borrowing reduces total investment in the American economy by an estimated $0.33 for every dollar of new debt. This projection leads to lower income levels. With the traditional debt level of 41% of gross domestic product (GDP), by 2048 the typical income is estimated to be $98,000. With debt at the projected level of 152% of GDP, income would be reduced $6,000 to $92,000 per person. These income numbers are larger because of inflation between 2019 and 2048.
- Rising Interest Payments — In 2018, America paid 1.6% of GDP in interest. By 2050, the interest bill could be 6.3% of GDP. The previous highest rate for interest payments, following World War II, was 3.2% of GDP. The larger interest payments could lead to payouts that are greater than the projected Social Security and Medicare payments. There could be substantial pressure to reduce Social Security and Medicare to make these interest payments. This could negatively impact millions of Americans.
- Higher Interest Rates — The 10-year Treasury bond may increase from 2.9% in 2018 to 4.8% by 2048. This would increase the cost for home mortgages and all other debts. Higher interest rates could create budget pressure on Social Security and Medicare.
- Greater Financial Risk — The next recession could be quite painful because the federal government does not have the same power to borrow and spend money to stimulate the economy. After the 2008 "Great Recession," the government increased the debt from 35% of GDP in 2007 to 70% of GDP in 2012. If there is another financial crisis, the government may not have the ability to increase debt at this rate. This could lead to a very painful recession.
- Burden on Children — Spending programs for children have also come under significant federal budget pressure. The amount spent on interest by 2020 could exceed the total expenditures on education, healthcare and other programs for children. As interest payments increase, there may be reduced budget funds available for these programs to help children in need.
With the strong economy in 2019 and the upcoming elections in 2020, there is very little political pressure on Washington to address the national debt problems. It is good for the nation that CFRB and other bipartisan groups continue to raise the debt issue. At some point, Congress will be forced to address this risk to the nation.
Applicable Federal Rate of 2.8% for May -- Rev. Rul. 2019-12; 2019-19 IRB 1 (16 Apr 2018)
The IRS has announced the Applicable Federal Rate (AFR) for May of 2019. The AFR under Section 7520 for the month of May is 2.8%. The rates for April of 3.0% or March 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.