Federal Tax News

Court case looks at where an individual’s tax home was located. Taxpayers who live and work outside the U.S. may be able to exclude foreign-earned income. Generally, to qualify, a taxpayer must have a tax home (his or her regular place of business) in another country and not have an abode in the U.S.

An American pilot employed by a U.S. airline claimed this exclusion, stating that his international flying routes meant he had no regular place of business and that Thailand was his place of abode. But records showed his home base was California. He presented no evidence that he intended to be a Thailand resident, he paid no taxes there, and Thailand listed him as transient. So, the exclusion was denied. (Cutting, TC Memo 2020-158)

The IRS releases its fiscal year 2020 criminal investigation report. The report details cases involving fraudulent claims for Economic Impact Payments, Paycheck Protection Program (PPP) loans and refundable payroll tax credits from the CARES Act.

For example, a Florida man was charged with fraudulently obtaining $3.9 million in PPP loans and using those funds, in part, to purchase a Lamborghini sports car worth $318,000. At the time of his arrest, authorities seized the Lamborghini and $3.4 million in bank accounts. The report notes that in fiscal 2020, the IRS was able to identify over $10 billion in tax fraud and other financial crimes. Read the report: http://bit.ly/2VcC2ob

Taxpayer loses payroll tax penalty court case. Employers that withhold taxes from employee paychecks but don’t pay them over to the IRS may face a harsh penalty. The Trust Fund Recovery Penalty (TFRP) equals 100% of the unpaid tax and can be assessed personally against responsible parties.

One taxpayer who owned a construction company stated that he also controlled the “entire operations on a daily basis” of a related subcontractor, including signing tax returns. When the subcontractor’s taxes went unpaid, the IRS assessed the TFRP against the taxpayer as the responsible party. He argued that he wasn’t responsible. The 3rd Circuit Court of Appeals said he acted in “reckless disregard of risk.” It also added that the owner “has not rebutted the record showing that he willfully violated his duties as a responsible person.” The TFRP was upheld. (Samango Jr., 10/29/20)

Be on the lookout for online scams, according to the IRS. Between COVID-19 and holiday shopping, there’s increased time online, which raises the risk of cybercrime. That’s why the IRS is urging taxpayers to step up their protection efforts.

For example, don’t reveal more information about yourself than required, says the IRS, citing examples such as birthday and age. Ensure your firewall and anti-virus protections are turned on and updated. Learn to recognize and avoid scams. Don’t click links or attachments from unknown sources. Shop only at reputable online retailers. Avoid public Wi-Fi unless you use a virtual private network. Here’s more: https://bit.ly/3qirOkB

Non-itemizers can deduct up to $300 in charitable gifts this year. Taxpayers often want to donate to a charity around the holiday season. As an incentive for 2020, individuals can deduct up to $300 without itemizing deductions on their tax returns.

And an IRS tool, the “Tax Exempt Organization Search,” can help you determine if giving to your favorite cause will allow for a tax deduction. It provides information about an organization’s federal tax status and filings. You can locate organizations by legal name or a “doing business as” name. The search results are sortable by Employer Identification Number, name, state and country. You also can find out if an organization’s tax-exempt status has been revoked. To use the tool, visit http://bit.ly/2Jlru3l