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You make the callBy: NATP Research
January 13, 2022

Question: Jack and Diane attempted to make a rollover to a traditional IRA for $325,000 as a tax-free event. The IRS examined the return and determined it was a taxable event. This resulted in $135,000 of assessed tax liability. The IRS collected the assessment through two levies in June 2013. Jack and Diane disagreed with the IRS’s characterization of their attempted rollover. On the last day to file a timely refund claim, their tax preparer, John, placed their claim in the regular mail using a U.S. postage stamp. A few months later John checked the status of the claim and the IRS indicated it had no record the claim was received. John then forwarded a copy of the original file for refund. The IRS denied the claim on the basis that this claim was not timely filed. Do Jack and Diane have recourse?

Answer: No. While §7502 provides an exception to the physical delivery rule, if a document is postmarked before the deadline and received after the deadline, there is no proof the claim was mailed prior to the due date for the claim for refund. If the claim was mailed via registered mail or certified mail, or with an authorized private delivery service, this would establish the document was in fact postmarked by the due date, even if the IRS never received the document or the has no record of receiving it. Without proof of the postmarked date, Jack and Diane have no recourse with the IRS. However, they may have recourse against their tax preparer.

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You make the callBy: NATP Research
January 6, 2022

Question: Jackie and Lina are S corporation shareholders. Lina left the S corporation when Jackie bought out her stock. Lina provided seller financing over five years to Jackie. Lina heard that tax rates are increasing in the following tax year and is interested in reporting all the gain on the stock sale in the year sold. Is Lina required to report the sale of stock on Form 6252, Installment Sale Income?

Answer: No, Lina is not required to report the stock sale on Form 6252 if the election is made to opt out of using the installment method. While generally receiving one payment in a tax year after the year of sale requires the installment method of reporting, using the election to forego it allows Lina to accelerate income tax gain recognition in the year of sale. To make the election, Lina reports 100% of the gain in income in the year of the stock sale on the timely filed tax return, including extensions. Do not use Form 6252 to elect out. Failure to timely elect out with reasonable cause is approved on a case-by-case basis by IRS authority. A change in tax law, such as increased income tax rates, is not considered reasonable cause by IRS.

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You make the callBy: NATP Research
December 30, 2021

Question: Jessica and Nathan, a divorced couple, have one child, Lillian, age 4. Jessica and Nathan alternate tax years for claiming Lillian as a dependent. In 2020 Jessica claimed Lillian and received advanced child tax credit (CTC) payments totaling $1,800 in 2021. When Jessica files her 2021 tax return, her AGI is $50,000 with a filing status of single, since she is not the custodial parent in 2021. She heard about the repayment protection and asked how much, if any, of the advanced CTC she will have to repay. Does Jessica qualify for the repayment protection? How much will she have to pay back?

Answer: Yes, Jessica qualifies for partial repayment protection. Single taxpayers who have an AGI between $40,000 and $80,000 will qualify for partial repayment protection. The safe harbor amount available is $1,500, which is calculated by taking the safe harbor amount of $2,000, reduced by 25% or $500. The 25% is determined by the excess amount above the AGI safe harbor $10,000 ($50,000 - $40,000) divided by the lower limit of $40,000. Jessica will have to repay $300 ($1,800 - $1,500) of the advanced CTC payments.

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2022 NATP Quick Reference Guide for preparing 2021 returns (preview)By: National Association of Tax Professionals
December 28, 2021

At the close of every year, NATP pulls together a list of common facts and figures that tax professionals can reference throughout the coming tax season while preparing returns and advising clients.

Mem Quick Reference Guide BlogImg P2 (1)

Here’s a brief excerpt from the article:

Personal exemption

For 2018-2025, the personal exemption deduction for taxpayer, spouse and dependents is zero. However, the personal exemption amount for other purposes (for example, the qualifying relative gross income test) is $4,300 for 2021 ($4,400 for 2022).

Standard deduction

The standard deduction amounts increased in 2021.

Filing status 2021 2022
MFJ/Surviving Spouse (SS) $21,500 $25,090
HH $18,800 $19,400
Single $12,550 $12,950
MFS $12,550 $12,950
Additional for age or blindness 2021 2022
MFJ/SS $1,350 $1,400
Single or HH $1,700 $1,750

The standard deduction for dependents who only have unearned income is $1,100. If the dependent has both earned and unearned income, the standard deduction is the greater of:

  • $1,100 ($1,150 for 2022), or
  • The dependent’s earned income plus $350 ($400 for 2022), but not more than the basic standard deduction for their filing status

Itemized deductions

For 2018–2025, the overall limitation (Pease limitation) on itemized deductions for taxpayers with AGI exceeding an applicable threshold does not apply.

Medical expense deduction: The limitation is permanently set for deducting medical expenses to 7.5% of AGI, regardless of age.

Capital gains rates

The top tax rate for capital gains and qualified dividends is permanently set at 20% for taxpayers with taxable income in the highest tax bracket. The net investment income tax (NIIT) of 3.8% makes the overall capital gain rate for higher income taxpayers effectively 23.8%.

For tax years beginning after 2017, the 0% rate applies to capital gain below the maximum 0% rate amount. The 15% rate applies to capital gain at or above the 0% rate amount and below the maximum 15% rate amount. The 20% rate applies to capital gain at or above the 15% rate amount. These amounts will be indexed for inflation.

Read the full article today for free when you sign up for an account with NATP.

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You make the callBy: National Association of Tax Professionals
December 22, 2021

Question: George is a single taxpayer who owns virtual currency investments and is curious about the tax implications of his two hard forks and one airdrop transaction during the year. The first hard fork results in the creation of 60 units of a new virtual currency, which are airdropped into George’s account. He immediately obtains dominion and control of the airdropped units. The new units have an FMV of $350 per unit at the time of the airdrop and an FMV of $100 per unit at the end of the year. The second hard fork results in the creation of 20 units of virtual currency, with no airdrop. The units have an FMV of $100 per unit at the time of the hard fork and an FMV of $150 per unit at the end of the year. Does George have taxable income resulting from these transactions and what is his basis in the units received?

Answer: Yes, George will have taxable income resulting from these transactions. The first hard fork creates taxable ordinary income to George because it was followed by an airdrop. His taxable income from the airdrop is $21,000 (60 units x $350 FMV on date of the airdrop). No taxable income results from the second hard fork because there was not an airdrop following the hard fork. His basis in the new units created by these transactions equals the amount of taxable income recognized, giving him a $21,000 basis in the 60 airdropped virtual currency units and a $0 basis in the additional 20 units created in the second hard fork transaction. The FMV at the end of the year is not relevant.

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