District Advisory

Federal government funding is set to run out on Oct. 1. If Congress doesn’t reach an agreement, a partial federal government shutdown will occur. Eager to avoid this outcome during the run-up to the Nov. election, lawmakers have been crafting a continuing resolution to temporarily fund government agencies. Speaker of the House Mike Johnson (R-LA) announced that he has struck a deal with the White House and top democratic leaders that will keep the government funded at current levels through Dec. 20. The bill would also provide more funding for the Secret Service. Notably, the bill doesn’t include a provision that would require proof of citizenship when registering to vote. Stay tuned.

Mistakes happen, even at the IRS. For example, you may receive an IRS document that isn’t meant for you. The National Taxpayer Advocate (NTA) calls that an inadvertent unauthorized disclosure. It may arrive by postal mail, email, fax or electronic transmission. What should you do? The NTA says to notify the IRS using the phone number listed on the misdirected document. The IRS will tell you what action to take depending on how the document was received. If it arrived by postal mail, you’ll likely be given specific directions for returning it the same way. You might be directed to destroy the item, but the NTA says it’s crucial to first notify the IRS of the error.

Individuals with federal tax debts may seek an offer in compromise (OIC). This IRS program allows qualifying taxpayers to settle a debt for less than is owed, or pay over a longer period, if the IRS agrees. However, most OICs are rejected. In addition, the IRS wants the public to beware of OIC “mills” that make aggressive claims that they can settle tax debt for “pennies on the dollar.” They might also claim that time is limited to resolve a debt. IRS Commissioner Danny Werfel urges caution, stating, “Many OIC mills charge steep fees, give false assurances and can take advantage of taxpayers with empty promises that their tax debt will disappear."

The U.S. Senate Finance Committee recently held a hearing to consider how to make the U.S. tax system more fair. The hearing included research released by the Joint Committee on Taxation (https://bit.ly/47tVUrn). The lawmakers discussed taxing the ultra-wealthy, how to simplify reporting and the degree to which taxes should be “progressive.” Chair Ron Wyden (D-OR) called out “buy, borrow, die” wealth strategies and policies that enable some taxpayers to evade tax legally. John Barrasso (R-WY) argued that Democratic proposals to increase the capital gains tax and impose a business income surcharge would harm small businesses. The hearing ended with members divided along party lines.

On Sept. 18, 2024, the U.S. Federal Reserve (Fed) reduced its benchmark federal funds rate by 0.50 percentage points, with more cuts expected in coming months. This is good news for consumers with adjustable-rate debt (for example, credit card interest) and those hoping to finance a car or home purchase. State and local governments will also qualify for more favorable borrowing rates. On the other hand, most savers and new bond buyers will see investment yields drop. Fed rate cuts typically are intended to stimulate the economy and can have tax implications. Increased economic activity and spending generally result in higher business and sales tax collections.

The premium tax credit (PTC) is a refundable credit that helps eligible individuals cover their premiums for health insurance purchased through the Health Insurance Marketplace. A PTC is allowed for months that are considered “coverage months.” Proposed IRS regulations would amend the definition of a coverage month. As proposed, when computing a PTC, a month would be considered a coverage month if the amount of the premium paid for the month is sufficient to avoid termination of the individual’s coverage for that month. The proposed regs would treat the first month of a three-month grace period as a coverage month if other requirements are met.

Eight years after issuing proposed regulations, the IRS has finalized regs on inherited property consistent-basis requirements. The Internal Revenue Code requires consistent-basis reporting between an estate and beneficiaries who acquire property from the estate. If an estate is required to file a federal estate tax return, Section 1014(f) provides that the basis reported by persons who inherit property must not exceed the final value of such property as determined for estate tax purposes. A significant change under the final regs is the removal of the “zero-basis” rule for unreported property. The rule was characterized as “onerous, unduly harsh and unfair.”

IRS Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports payments from payment apps or online marketplaces (also known as third-party settlement organizations). These include apps such as Paypal, Venmo and eBay. For 2024, the reporting threshold is $5,000. In 2025, the threshold is scheduled to be reduced to only $600. The House Ways and Means Committee has advanced a bill, the Saving Gig Economy Taxpayers Act, to the House floor for a vote. The bill would repeal the $600 threshold and return it to the previous threshold of $20,000 on over 200 transactions.

The Inflation Reduction Act established a corporate alternative minimum tax (CAMT), which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations. The CAMT generally applies to large corporations with average annual AFSI exceeding $1 billion. Newly proposed regulations from the IRS provide definitions and general rules for determining and identifying AFSI. The regs also provide rules for determining if a corporation is subject to the CAMT. The IRS is waiving the penalty for a corporation’s failure to pay estimated tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2023, and before Jan. 1, 2025.

The residential real estate market is surging in many areas. If you’re considering selling your principal home, keep in mind that you might owe taxes on the profit, especially if you’ve lived there a while. Here are two ways you may be able to reduce your taxable gain: 1) List the eligible costs when you purchased the home and the costs of qualified improvements you’ve made since then. Add the total to the home’s basis. 2) Subtract allowable closing costs from the net selling price you receive at closing. As you can see, keeping proper records of house-related expenditures as you incur them is vital, but the tax savings may be worth the effort.