When working with IRAs, you face more than just contributions and withdrawals. From correcting excess contributions to navigating the pro-rata rule and backdoor Roth strategies, you need to be ready for the full scope of client challenges.

Knowing how to apply for penalty waivers and accurately report conversions can make all the difference in avoiding costly errors and offering valuable guidance.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: When an IRA is payable to a trust and is liquidated immediately upon death, do the beneficiaries pay the tax on their share?

A: Yes. The trust initially recognizes the income, but if it distributes the IRA proceeds in the same year, the trust gets an income distribution deduction, and the beneficiaries report the income on their personal Form 1040, U.S. Individual Income Tax Return.

Q: When does the 10-year period begin?

A: Distributions must begin by Dec. 31 of the year after the year in which the deceased owner died.

Q: What is the §691(c) deduction?

A: It’s the income in respect of a decedent (IRD) deduction. This federal deduction helps offset income tax on assets already taxed at the estate level. It is claimed on Schedule A, Itemized Deductions, of Form 1040.

Q: Can a taxpayer establish a checking account in an IRA to write QCD checks?

A: Yes, but conditions apply:

• The taxpayer must be 70½ or older on the date the check is written.
• Check must be payable directly to a qualified 501(c)(3) charity.
• It must be cashed by Dec. 31 for the distribution to count that year.

To learn more about mastering IRA strategies, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Injured and innocent spouse cases often require you to navigate complex tax situations clients are unprepared to face on their own. Mastering the nuances of these designations helps you advocate effectively while strengthening your reputation as a trusted advisor.

When you know how to identify eligible clients for the right relief, you deliver real solutions in moments of financial and personal stress for your clients.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: If the injured spouse does not work, but the couple has qualifying children for the child tax credit (CTC), earned income credit (EIC), etc., will the injured spouse get any of the refund?

A: If the credit was refundable, they may be eligible for a portion of the refund.

Q: What is tacit consent?

A: Tacit consent, also known as implied consent, basically says the spouse’s actions show they agreed to the signing of a joint return. For example, the spouse didn’t look at the return they were signing despite having an opportunity to do so. If the IRS finds a spouse gave their tacit consent to the filing of a return on their behalf, it is unlikely to grant innocent spouse relief.

Q: Is Form 8379 used only after going through the Taxpayer Advocate Service (TAS), filing Form 911, Request for Taxpayer Advocate Service Assistance, and finding the taxpayer didn’t qualify?

A: Form 8379 should be used when requesting injured spouse relief. If a taxpayer is eligible, most likely TAS would direct the taxpayer to file the form seeking relief.

Q: In general, does the IRS allocate the injured spouse refund based on the couple’s respective incomes? For example, if the injured spouse earned all the income and the other earned nothing but the refund was taken for the other spouse’s debt. Will the IRS refund the entire refund to the injured spouse?

A: The Internal Revenue Manual (25.18.5.4) says a spouse’s share of the joint liability is computed using the separate tax formula, as follows:

Injured spouse’s separate tax liability divided by the total of spouses’ separate tax liabilities multiplied by the joint tax liability shown on return equals injured spouse’s share of tax liability

To learn more about how to determine an injured or innocent spouse, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Question: Frankie is a U.S. citizen who lives and works in Greece. He meets the bona fide residence test and, under §911(d)(1), he elects to exclude his foreign earned income of $125,000 from U.S. taxation on Form 2555, Foreign Earned Income. Can he also claim the foreign tax credit on Form 1116, Foreign Tax Credit, for income taxes he paid to Greece?

Answer: No, he cannot double-dip on the same income. Because Frankie is using Form 2555 to exclude his foreign-earned income, he cannot use Form 1116 to claim the credit on the same income. Once Frankie elects to exclude his foreign-earned income, he cannot take a foreign tax credit for taxes on income he excluded or could have excluded. If he does, one or both choices may be considered revoked §911(a), Reg. § 1.911-7(b) (2).