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Friday September 25, 2020

Washington News

Washington Hotline

Last Minute Tax Filers Nearing July 15 Date

In IR–2020–145, the Service encouraged taxpayers to remember the July 15 tax-filing deadline. With the impact of the coronavirus on all Americans, the IRS changed the filing date this year from April 15 to July 15.

For last-minute filers, the Service highlighted the many helpful resources on IRS.gov. Taxpayers have already accessed the IRS website 1.2 billion times during this filing season. Many of the most popular services are IRS Free File, Where's My Refund? and the Tax Withholding Estimator.
  • IRS Free File — Taxpayers with income of $69,000 or less in 2019 may use free tax preparation software from IRS.gov. You may review the different Free File software programs, download your choice and complete your tax return. If you have a higher income, you may benefit from the Free File Fillable Forms. Any taxpayer may use these electronic versions of the IRS forms to complete their taxes. You may check out the Free File selections at IRS.gov/Freefile.
  • Interactive Tax Assistant — The IRS website has a comprehensive set of tax questions and answers. You can use the Interactive Tax Assistant to find answers to many of your common filing and specific tax deduction questions. The IRS also has a selection of Frequently Asked Questions (FAQs) on many topics. This tax information is available in English and other languages, including Spanish, Chinese, Korean, Russian, Vietnamese and Haitian Creole.
  • Where's My Refund — Within 24 hours after you receive confirmation of filing your tax return electronically, the IRS makes available up to date information on your refund. Use the "Where's My Refund?" tool on IRS.gov. You will be able to determine the status of your tax refund.
  • Payments for Taxes — There are multiple options for paying your taxes. The IRS reminds taxpayers that they can always file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, but the extension of the time to file does not extend the time to pay. The full payment is due by July 15. The Direct Pay program is an excellent solution for individuals. This allows you to pay online from your checking or savings account. Many businesses use the Electronic Federal Tax Payment System. They must enroll in the system and may schedule payments up to one year in advance. If you file using tax software, you will have the option of making an electronic fund transfer from your bank account. You may also choose to pay with a credit card, debit card or digital wallet option. If you are filing for an extension for your 2019 tax return, you can file Form 1040–V Payment Voucher and make a payment by check, money order or cashier's check. You should not send cash through the mail, but some participating retail stores will receive cash payments in person for taxes.
  • Payment problems — If you are unable to make full payment of your taxes, there are several options. If you owe $50,000 or less as an individual or $25,000 or less as a business, you may qualify for an Online Payment Agreement. These can be created on IRS.gov/OPA. Some taxpayers may qualify for installment payments by filing Form 9465, Installment Agreement Request. The installment payments are paid by direct deposit from your bank account or through a payroll deduction. Finally, taxpayers with financial problems may be able to qualify for an "Offer in Compromise." The Offer in Compromise is limited to those who have a specific financial need. If you believe you might qualify, go to IRS.gov and use the Offer in Compromise Pre–Qualifier tool.
If you are not required to file a tax return, you may still want to use the Non–Filers tool to receive an Economic Impact Payment. The payments are normally $1,200 for an individual and $2,400 for a couple, with an additional $500 per qualifying child. The deadline for applying for this payment is October 15, 2020.

The IRS also reminded taxpayers that they may fund a traditional Individual Retirement Arrangement (IRA) by July 15, 2020. If you are under 70 by the end of 2019 and have earned income, you are able to fund a traditional IRA and qualify for a deduction. You may transfer up to $6,000 to your 2019 IRA. If you were age 50 or older at the end of 2019, the amount is increased to $7,000.

There are income limits to the IRA funding. If you are covered by a workplace retirement plan, the basic limit is modified adjusted gross income (MAGI) of $64,000 for an individual, $103,000 for a married couple filing jointly, or $193,000 for a married couple filing jointly where one spouse is covered by a qualified retirement plan and the other is not.

Roth IRA contributions for 2019 are not deductible, but they also grow tax-free and the distribution is tax-free. You may contribute to a Roth IRA if your MAGI is below $122,000 for single individuals or $193,000 for married couples. The limits for traditional and Roth IRAs are phased out for individuals and married couples with higher incomes.

IRS Prevails in Four Related Conservation Easement Cases:

Conservation Easement Deduction Denied


In Englewood Place LLC et al. v. Commissioner; No. 1560-18; T.C. Memo. 2020-105 (2020), the Tax Court denied a deduction by a Georgia partnership ("Englewood") for a claimed $4.77 million conservation easement charitable deduction.

In December 2008, Englewood acquired 135 acres of land in Effingham County, Georgia. On July 29, 2011, Englewood donated a conservation easement on 125 acres to the Georgia Land Trust (GLT), a qualified nonprofit.

The easement deed prohibited commercial or residential development, but permitted agricultural and timber harvesting activities, development of roads, construction of buildings for agricultural purposes and construction of residential driveways and utilities for two adjacent five-acre lot parcels. However, the deed's judicial extinguishment provisions stated that the proceeds to the nonprofit would be reduced by "the satisfaction of any and all prior claims," and the formula for the payment of value to the nonprofit is an amount "unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the property at the time of this conveyance without deduction for the value of the Conservation Easement."

Based on a "before and after method" appraisal by David R. Roberts, the partnership claimed a deduction of $4.77 million. On IRS Form 8283, the partnership declined to disclose basis and stated, "A declaration of the taxpayer's basis in the property is not included in the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction."

The IRS audited the partnership, denied the deduction and assessed a 40% gross valuation misstatement penalty under Sec. 6662(h). The IRS contended the deduction was denied because the deed did not "protect in perpetuity" the easement under Section 170(h)(5)(A) and Reg. 1.170A–14(g)(6). The IRS also noted the failure to include the basis on Form 8283, as required by Reg. 1.170A–13(e)(2)(i)(B) caused the deduction to be disqualified.

The Tax Court stated that if there is a judicial extinguishment, Reg. 1.170A–14(g)(6) requires the nonprofit to "receive a proportionate share of the proceeds and use those proceeds consistently with the conservation purposes underlying the original gift." Because the deed required payment of "all prior claims" and this could include liabilities of the partnership and the deed reduced the nonprofit share by the fair market value of improvements made to the property, the charitable purpose was not protected in perpetuity. The taxpayer claimed the regulation was invalid and the Court rejected that claim.

The IRS also noted that Reg. 1.170A–13(e)(2)(i)(B) requires an appraisal summary to include the "cost or other basis of the property." The partnership did not comply and specifically intended to not supply the required basis statement. The basis statement was mandatory because "Congress aimed to give the IRS tools that would aid and enable it to identify inflated charitable contribution deductions."

Because the partnership declined to report its cost basis information, the Form 8283 did not comply. While some omissions are permitted under the substantial compliance doctrine, the failure to include the basis is not one of those permitted omissions. The deduction was denied.

Conservation Easement Deduction Denied


In Maple Landing LLC et al. v. Commissioner; No. 1996-18; T.C. Memo. 2020-104 (2020), the Tax Court denied a deduction by a Georgia partnership ("Maple") for a claimed $6.8 million conservation easement charitable deduction.

In December 2008, Maple acquired 293 acres of land in Effingham County, Georgia. On December 30, 2010, Maple donated a conservation easement on 283 acres to the Georgia Land Trust (GLT), a qualified nonprofit.

The easement deed prohibited commercial or residential development, but permitted agricultural and timber harvesting activities, development of roads, construction of buildings for agricultural purposes, and construction of residential driveways and utilities for two adjacent five-acre lot parcels. However, the deed's judicial extinguishment provisions stated that the proceeds to the nonprofit would be reduced by "the satisfaction of any and all prior claims," and the formula for the payment of value to the nonprofit is an amount "unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the property at the time of this conveyance without deduction for the value of the Conservation Easement."

Based on a "before and after method" appraisal by David R. Roberts, the partnership claimed a deduction of $6.8 million. On IRS Form 8283, the partnership declined to disclose basis and stated, "A declaration of the taxpayer's basis in the property is not included in the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction."

The IRS audited the partnership, denied the deduction and assessed a 40% gross valuation misstatement penalty under Sec. 6662(h). The IRS contended the deduction was denied because the deed did not "protect in perpetuity" the easement under Section 170(h)(5)(A) and Reg. 1.170A–14(g)(6). The IRS also noted the failure to include the basis on Form 8283, as required by Reg. 1.170A–13(e)(2)(i)(B) caused the deduction to be disqualified.

The Tax Court stated that if there is a judicial extinguishment, Reg. 1.170A–14(g)(6) requires the nonprofit to "receive a proportionate share of the proceeds and use those proceeds consistently with the conservation purposes underlying the original gift." Because the deed required payment of "all prior claims" and this could include liabilities of the partnership and the deed reduced the nonprofit share by the fair market value of improvements made to the property, the charitable purpose was not protected in perpetuity. The taxpayer claimed the regulation was invalid and the Court rejected that claim.

The IRS also noted that Reg. 1.170A–13(e)(2)(i)(B) requires an appraisal summary to include the "cost or other basis of the property." The partnership did not comply and specifically intended to not supply the required basis statement. The basis statement was mandatory because "Congress aimed to give the IRS tools that would aid and enable it to identify inflated charitable contribution deductions."

Because the partnership declined to report its cost basis information, the Form 8283 did not comply. While some omissions are permitted under the substantial compliance doctrine, the failure to include the basis is not one of those permitted omissions. The deduction was denied.

Conservation Easement Deduction Denied


In Riverside Place LLC et al. v. Commissioner; No. 2154-18; T.C. Memo. 2020-103 (2020), the Tax Court denied a deduction by a Georgia partnership ("Riverside") for a claimed $4.1 million conservation easement charitable deduction.

In December 2008, Riverside acquired 119 acres of land in Effingham County, Georgia. On December 30, 2009, Riverside donated a conservation easement on 114 acres to the Georgia Land Trust (GLT), a qualified nonprofit.

The easement deed prohibited commercial or residential development, but permitted agricultural and timber harvesting activities, development of roads, construction of buildings for agricultural purposes, and construction of residential driveways and utilities for an adjacent five-acre lot parcel. However, the deed's judicial extinguishment provisions stated that the proceeds to the nonprofit would be reduced by "the satisfaction of any and all prior claims," and the formula for the payment of value to the nonprofit is an amount "unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the property at the time of this conveyance without deduction for the value of the Conservation Easement."

Based on a "before and after method" appraisal by David R. Roberts, the partnership claimed a deduction of $4,071,000. On IRS Form 8283, the partnership declined to disclose basis and stated, "A declaration of the taxpayer's basis in the property is not included in the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction."

The IRS audited the partnership, denied the deduction and assessed a 40% gross valuation misstatement penalty under Sec. 6662(h). The IRS contended the deduction was denied because the deed did not "protect in perpetuity" the easement under Section 170(h)(5)(A) and Reg. 1.170A–14(g)(6). The IRS also noted the failure to include the basis on Form 8283, as required by Reg. 1.170A–13(e)(2)(i)(B) caused the deduction to be disqualified.

The Tax Court stated that if there is a judicial extinguishment, Reg. 1.170A–14(g)(6) requires the nonprofit to "receive a proportionate share of the proceeds and use those proceeds consistently with the conservation purposes underlying the original gift." Because the deed required payment of "all prior claims" and this could include liabilities of the partnership and the deed reduced the nonprofit share by the fair market value of improvements made to the property, the charitable purpose was not protected in perpetuity. The taxpayer claimed the regulation was invalid and the Court rejected that claim.

The IRS also noted that Reg. 1.170A–13(e)(2)(i)(B) requires an appraisal summary to include the "cost or other basis of the property." The partnership did not comply and specifically intended to not supply the required basis statement. The basis statement was mandatory because "Congress aimed to give the IRS tools that would aid and enable it to identify inflated charitable contribution deductions."

Because the partnership declined to report its cost basis information, the Form 8283 did not comply. While some omissions are permitted under the substantial compliance doctrine, the failure to include the basis is not one of those permitted omissions. The deduction was denied.

Conservation Easement Deduction Denied


In Village at Effingham LLC et al. v. Commissioner; No. 2426-18; T.C. Memo. 2020-102 (2020), the Tax Court denied a deduction by a Georgia partnership ("Village") for a claimed $5 million conservation easement charitable deduction.

In December 2008, Village acquired 175 acres of land in Effingham County, Georgia. On December 28, 2010, the Village donated a conservation easement on 165 acres to the Georgia Land Trust (GLT), a qualified nonprofit.

The easement deed prohibited commercial or residential development, but permitted agricultural and timber harvesting activities, development of roads, construction of buildings for agricultural purposes, and construction of residential driveways and utilities for two adjacent five-acre lot parcels. However, the deed's judicial extinguishment provisions stated that the proceeds to the nonprofit would be reduced by "the satisfaction of any and all prior claims," and the formula for the payment of value to the nonprofit is an amount "unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the property at the time of this conveyance without deduction for the value of the Conservation Easement."

Based on a "before and after method" appraisal by David R. Roberts, the partnership claimed a deduction of $5,237,000. On IRS Form 8283, the partnership declined to disclose basis and stated, "A declaration of the taxpayer's basis in the property is not included in the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction."

The IRS audited the partnership, denied the deduction and assessed a 40% gross valuation misstatement penalty under Sec. 6662(h). The IRS contended the deduction was denied because the deed did not "protect in perpetuity" the easement under Section 170(h)(5)(A) and Reg. 1.170A–14(g)(6). The IRS also noted the failure to include the basis on Form 8283, as required by Reg. 1.170A–13(e)(2)(i)(B) caused the deduction to be disqualified.

The Tax Court stated that if there is a judicial extinguishment, Reg. 1.170A–14(g)(6) requires the nonprofit to "receive a proportionate share of the proceeds and use those proceeds consistently with the conservation purposes underlying the original gift." Because the deed required payment of "all prior claims" and this could include liabilities of the partnership and the deed reduced the nonprofit share by the fair market value of improvements made to the property, the charitable purpose was not protected in perpetuity. The taxpayer claimed the regulation was invalid and the Court rejected that claim.

The IRS also noted that Reg. 1.170A–13(e)(2)(i)(B) requires an appraisal summary to include the "cost or other basis of the property." The partnership did not comply and specifically intended to not supply the required basis statement. The basis statement was mandatory because "Congress aimed to give the IRS tools that would aid and enable it to identify inflated charitable contribution deductions."

Because the partnership declined to report its cost basis information, the Form 8283 did not comply. While some omissions are permitted under the substantial compliance doctrine, the failure to include the basis is not one of those permitted omissions. The deduction was denied.

Applicable Federal Rate of 0.6% for July -- Rev. Rul. 2020-14; 2020-28 IRB 1 (15 June 2020)


The IRS has announced the Applicable Federal Rate (AFR) for July of 2020. The AFR under Section 7520 for the month of July is 0.6%. The rates for June of 0.6% or May of 0.8% 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 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published July 10, 2020
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