Timothy J. Duckworth, Jr.

How to Save Tax on Capital Gains

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A Way to Save Tax on Capital Gains

Qualified Opportunity Zones under the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act introduced Qualified Opportunity Zones, which are intended to encourage private investment into certain low-income communities throughout the country. In general, the Qualified Opportunity Zone legislation allows investors with capital gains tax liabilities to receive favorable tax treatment if those capital gains are invested in Qualified Opportunity Zone Funds (“QO Funds”). The program’s goal is to tap into the significant amount of unrealized capital gains held by investors throughout the country for use in improving low-income urban and rural communities nationwide.

What are the Benefits?

The following tax benefits are available to investors who reinvest gain from the sale of property into QO Funds:

  • Temporary Deferral – If a taxpayer timely reinvests gain in a QO Fund, that gain may be deferred until the earlier of the taxpayer’s disposition of the QO Fund investment or December 31, 2026.

  • Capital Gain Reduction – If the taxpayer holds the QO Fund investment for at least 5 years, 10% of the original deferred gain is excluded from tax; if the taxpayer holds the investment for at least 7 years, an additional 5% of the original deferred gain is excluded from tax (for a total of 15%).

  • Exclusion of Investment Appreciation – If the taxpayer holds the QO Fund investment for at least 10 years, all post-acquisition appreciation in the investment will be tax-free.

What are Qualified Opportunity Zones?

Qualified Opportunity Zones are population census tracts (i.e., areas roughly the size of a neighborhood) designated by the Governor of each state that are located in low-income communities or are contiguous with low-income communities. Governors may designate up to 25% of the low-income census tracts and up to 5% of contiguous tracts in their states as QO Zones. For purposes of the QO Zone legislation, a “low-income community” has the same meaning as under the New Markets Tax Credit provisions of Section 45D of the Internal Revenue Code.

Each Governor will submit proposed QO Zones to the Treasury Department, which will review the nominations and certify those that meet the statutory requirements. A map of “low-income communities” and designated QO Zones can be found on the Community Development Financial Institutions Fund (“CDFI Fund”) website at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx.

What are Qualified Opportunity Funds?

Qualified Opportunity Funds (“QO Funds”) are the investment vehicles taxpayers will use to invest their deferred capital gains in the QO Zones. QO Funds can be organized as partnerships or corporations for the purpose of investing in QO Zone Property (other than another QO Fund), and must hold at least 90% of assets in QO Zone Property.

QO Funds will need to be certified by the Treasury Department, and guidance regarding that process will be forthcoming.  It is expected that the certification process for QO Funds will be similar to the process by the CDFI Fund for community development entities for New Market Tax Credit purposes.

What is QO Zone Property?

QO Zone Property includes qualified opportunity zone stock, qualified opportunity zone partnership interests, or qualified opportunity zone business property. Overall, there are few limitations on the types of property a QO Fund can invest in so long as the investment is made in a QO Zone. Accordingly, QO Funds can invest in real estate projects (whether residential, commercial, or mixed-use) or businesses that have substantially all property in a QO Zone.

A QO Fund, however, cannot invest in any of the following “sin” businesses: any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Mechanics of a QO Fund Investment

Although implementation of the QO Zone incentive program may prove more complicated, the general concepts of the program are relatively straightforward:

  1. A QO Fund is formed and certified by the Treasury Department.
  2. An investor with recently realized capital gain elects to invest that capital gain into the QO Fund, receiving stock or a partnership interest in return. By doing so, the investor may defer including the capital gains in income.
  3. The QO Fund uses the investment to acquire QO Zone Property. This investment represents the QO Fund’s interest in the underlying business in the low-income community.
  4. The investor holds the QO Fund interest for as long as desired or as provided in an investment agreement with the QO Fund.
  5. If the investor sells or exchanges the QO Fund interest before December 31, 2026, he will recognize the deferred capital gain. If, however, his holding period is at least 5 years, he receives a 10% basis step-up in the deferred gain. If his holding period is at least 7 years, he receives an additional 5% basis step-up.
  6. Regardless of whether the investor sells his interest, there is a recognition event on December 31, 2026, at which time the investor must recognize the deferred capital gain (subject to the basis adjustments noted in Step 5).
  7. If the investor continues to hold the QO Fund interest for at least 10 years, he is entitled to a fair market value basis step-up so that any appreciation in the value of the interest is completely excluded from income upon disposition of the interest.

Examples of Potential Tax Benefits from a QO Fund Investment

The following examples demonstrate the potential advantages of investing in a QO Fund:

  1. QO Fund Investment is Held for 5 Years and Sold in 2023
QO Fund Investment Held for at Least 5 Years Ordinary Investment Difference
Deferred Capital Gain $500 Capital Gain $500
Basis Step-Up $50 Basis Step-Up $0
Taxable Gain (taxed in 2023) $450 Taxable Gain (taxed in 2018) $500  
Tax (at 23.8%) $107.10 Tax (at 23.8%) $119 $11.90

By investing capital gains in a QO Fund and holding that investment for at least 5 years, a taxpayer could defer recognizing the capital gain until 2023 and would save about $12 in tax.

  1. QO Fund Investment is Held for 7 Years and Sold in 2025
QO Fund Investment Held for at Least 7 Years Ordinary Investment Difference
Deferred Capital Gain $500 Capital Gain $500
Basis Step-Up $75 Basis Step-Up $0
Taxable Gain (taxed in 2025) $425 Taxable Gain (taxed in 2018) $500  
Tax (at 23.8%) $101.15 Tax (at 23.8%) $119 $17.85

By investing capital gains in a QO Fund and holding that investment for at least 7 years, a taxpayer could defer recognizing the capital gain until 2025 and would save about $18 in tax.

  1. QO Fund Investment is Held for 10 Years and Sold in 2028
QO Fund Investment Held for at Least 10 Years Ordinary Investment Difference
Deferred Capital Gain $500 Capital Gain $500
Basis Step-Up $75 Basis Step-Up $0
Taxable Gain (taxed in 2026) $425 Taxable Gain (taxed in 2018) $500  
Tax (at 23.8%) $101.15 Tax (at 23.8%) $119 $17.85
 
QO Fund Investment Appreciation $1,000 Investment Appreciation $1,000  
Basis Step-Up $1,000 Basis Step-Up $0  
Taxable Gain on Sale of QO Fund Investment $0 Taxable Gain on Sale $1,000  
Tax (at 23.8%) $0 Tax (at 23.8%) $238 $238
$255.85 Total

By investing capital gains in a QO Fund and holding that investment for 10 years, and assuming the investment in the QO Fund doubles over that period, a taxpayer could defer recognizing the capital gain invested in the QO Fund until 2026 and would save about $256 in tax overall.

Conclusion

The Qualified Opportunity Zone legislation has the potential to benefit both investors who wish to defer capital gains tax and low-income communities in need of capital for business and community development. For further information, please contact the tax attorneys at Mosebach, Funt, Dayton & Duckworth, P.C.

William H. Dayton, Jr. selected as winner of LVCF Survey

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Attorney William H. Dayton, Jr. was selected as the Lehigh Valley Community Foundation (LVCF) Survey winner. LVCF requested that professional advisors complete a survey on the different aspects of charitable giving. As survey winner, Attorney Dayton was able to direct a $250.00 gift from LVCF to the charity of his choice. He selected The Fund to Benefit Children & Youth. Attorney Dayton practices in the area of business, real estate, estate planning, probate, and elder law.

Timothy J. Duckworth, Jr.

Agent, Executor, Trustee….explained

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When planning your estate, you will inevitably come across (and be asked to appoint someone as) one, if not all, of the following positions: executor, trustee, and agent. To make the right decision, you need to understand the differences between these roles.

Agent

Your agent is the person you designate to make financial and healthcare-related decisions on your behalf when you are unable to do so. As part of your estate plan, you will typically complete two Power of Attorney documents: one to appoint your agent for financial matters, and the other to appoint your agent for healthcare-related matters. You may appoint the same person or different people for those roles.

Unless you limit your agent’s authority, he will have broad power to handle your property, to make any health care decision, and to exercise any right and power regarding your care, custody, and treatment that you could have made and exercised. In fact, under most general powers of attorney, your agent will have the power to sell or otherwise dispose of your property without advance notice to you or approval by you. Accordingly, you must ensure that the person you appoint is someone you can trust who will make decisions in your best interest.

Subject to your right to limit or revoke your agent’s authority, your agent may exercise the powers given throughout your lifetime, even after you become incapacitated. At your death, your agent’s authority terminates.

Executor

Your executor is the person you appoint in your Last Will and Testament to manage your estate at your death. It is your executor’s job to offer your Will for probate; identify, gather and protect your assets; pay all debts (including taxes); and distribute the balance in accordance with the terms of your Will. In Pennsylvania, your executor conducts the estate administration with considerable autonomy, but is ultimately subject to some degree of court authority and supervision. Executors who mismanage an estate can be subject to personal liability, so it is generally advisable for an executor to obtain advice and assistance from an experienced and knowledgeable estate-planning attorney.

The optimal estate plan for you may include a trust, whether a so-called “living trust” or a testamentary trust. If so, you will need to appoint a trustee. As you may know, a trust is a legal entity that can own property (e.g., real estate, stocks, bonds, and bank accounts). You can think of it as a box in which you place assets, along with a set of instructions for how, when, and for what purposes the assets may be removed. Of course, the trust assets are not actually placed in a box. The “box” is typically a brokerage account or a bank account where the funds are invested.

Trustee

The person responsible for managing the trust assets and following your instructions is your trustee. Your trustee will invest the assets in such a manner as to ensure they are preserved and productive for current and future beneficiaries; and make distributions to the beneficiaries you select, in such amounts and at such times as you direct.

Who to Select?

The selection of an agent, executor, or trustee is one of the most important decisions you will make when planning your estate. In most cases, your spouse or an adult child will be preferable. However, that is not always the case. Sometimes, you may be better suited naming a friend, accountant, lawyer, or a corporate fiduciary. When selecting an individual, ensure he or she is someone who is:

  • meticulous about keeping records;
  • reliable and trustworthy;
  • available and willing to serve;
  • financially savvy;
  • capable of resolving conflicts; and
  • well-informed of your wishes and goals.

 

If you have any questions about naming an agent, executor, or trustee, or the estate planning process in general, please feel free to contact us at MFDD. We would be happy to assist with your estate planning goals.

Timothy J. Duckworth

Beware IRS Impersonation Scam

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Are you aware of the most recent IRS impersonation scam? The IRS posted another alert warning taxpayers and tax professionals of the latest in a long line of Internal Revenue Service scams.

This particular scam targets individuals with hotmail.com email addresses. Typically, the subject line on the email reads “Internal Revenue Service Email No. #### | We’re processing your request soon | T#####-########.” The email then asks the individual to sign in to what appears to be a Microsoft page and complete forms with personal and financial information. Although the page may look legitimate, it is not.

If you or anyone you know receives an email like this, your best option is to forward the email to phishing@irs.gov and then delete the email from your inbox. Always remember that the IRS WILL NOT contact taxpayers by email or request personal information and/or financial information.

Any time you receive communications from the IRS, whether it be a letter in the mail, an email message, or any other method, feel free to contact the tax attorneys at MFDD. We would be happy to help determine if the communication is legitimate. If it is, we can help negotiate a settlement on your behalf.Related: xTRCT, ABdE, VVKyys, UrpRk, uSYSV, ngLmv, kzjL, bJBY, GALERu, WsRZu, oUkOI, eBkM, PwXefM, CvUZ, VEPmfr,Related: google workspace photos, jcpenney home sheets 93677, duplex for rent okc, gunzip command to extract zip file, atlantic monthly press submissions, mychart methodist dallas, drunkn bar fight multiplayer not working, lawrence university basketball roster, what is pulmonary disease pattern on ecg, police beat springfield, il 2021, buckingham va arrests, why did sarah clarke leave the show bosch, why is henry omaga diaz absent in tv patrol, american yacht club rye, ny membership, contrast the townspeople point of view of lady of shalott,Related: houses to rent in ffordd scott, birchgrove, custom musky glide baits, rhode island bowling tournaments, map of skyline drive entrances, miriam dassin tapestry, where is mark as shipped on depop, grailed fees vs ebay fees, jaw pain near ear after wisdom tooth extraction, example of democratic leadership in sport, clifton larson allen director salary, worst window brands, ray ban blue frame sunglasses, richard best wife died, cheryl miller leaves cal state la, recent car crashes near alabama,Related: michael cole actor today, josh weinstein net worth, five nights at freddy’s 3 apk full version, wedding max minghella wife, mag 07 before and after, dr goldberg beverly hills, boomin advert actors, shahrzad belly dancer biography, citizenship interview chicago address, deep creek lake shark attack, how to mass vote on google forms, t95 android box stuck on boot, flashbacks on the landing fort wayne, was terah an idol worshipper, army asco code p1,Related: what are the 12 signs of the apocalypse, oplex student learning portal login, martin archery bow, refrain from driving with _______ to reduce distractions, jazz festivals australia 2021, jobs in buffalo, ny craigslist, levolor motorized blinds battery replacement, how to avoid west elm shipping charges, pill bug experiment with sand and cornstarch independent variable, scottish accent speaker, corid for chickens dosage, ohio department of health nursing home citations, reading fairgrounds memories, how to use siser heat transfer vinyl with cricut, graceland tours from nashville,Related: christian wilkins net worth, iheartradio contest $1,000 2022, phillips funeral home paragould, why did mario cipollina leave huey lewis and the news, most expensive house on zillow 2022, michael fielding disability, avner hershlag net worth, mike and molly victoria gains weight, benji and joel madden young, etihad flight cancellation refund covid, wbir meteorologist leaving, when is an autopsy required by law in south carolina, homes for rent whitfield county, clare fm community diary, science advances vs nature communications,Related: bless unleashed all bag chest locations, death notices lancashire, yakima herald obituaries, mccoy moretz net worth, walk in pantry shelving, fbi art crime team internship, logitech m705 connect without unifying receiver, claiborne county obituaries recent, david zaslav political party, self love activities for groups, basketball legends 2021 unblocked, monticello estates adairsville, ga, christopher eccleston prince philip death, pomeranian puppies for sale in grand rapids, michigan, uk vs germany doctor salary,

MFDD Runs Via Marathon Relay

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Once again, MFDD proudly supported the Lehigh Valley Health Network Via Marathon and entered two relay teams into the September 10th race. We didn’t set any records (once again) but the weather was perfect and the day filled with fun. Our runners were (back, l-r) Tim, Timmy, Andrew, Teri, Donna, Mel, Frank; (front l-r) Chuck, Kristie, Mel.2017 Via Option 5 Revised

Timothy J. Duckworth

Pennsylvania ABLE Savings Program

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Achieve a Better Life Experience with The Pennsylvania ABLE Savings Program

On April 18, 2016, Governor Wolf signed into law The Pennsylvania ABLE Act. This act provides for low-cost savings vehicles with tax advantages allowing individuals with disabilities to gain greater control over their finances while maintaining their disability benefits. While over twenty states offer some kind of ABLE program, Pennsylvania’s ABLE Savings Program is available nationwide, with additional benefits for in-state residents.

A PA ABLE Savings account can be opened by or for an eligible individual with contributions as little as $25. Contributions to an ABLE account can be put into any combination of seven investment options. Six are Asset-Allocation options with varying blends of stocks, bonds, and cash and ranging from conservative to aggressive. The seventh option is an FDIC-insured interest-bearing checking account. Each year an account may receive contributions up to the annual gift tax exclusionary amount ($14,000 in 2017) up to a maximum value of $511,758 (in 2017). Finally, any person (including the eligible individual, friends, and family members), business, employer, trust, or other legal entity can contribute to an account.

Who Qualifies?

Any individual entitled to disability benefits under Title II (Social Security Disability Insurance) or Title XVI (Supplemental Security Income) of the Social Security Act based on a disability that began before his or her 26th birthday is eligible for an ABLE account. You do not need to be receiving these disability benefits to qualify. Rather, you just need to be entitled to such benefits.

Another way to be eligible for an ABLE account is to self-certify that you have a similarly severe disability that began before your 26th birthday. By self-certifying, you are indicating that you are blind, within the meaning of the Social Security Act, or have a medically-determinable physical or mental impairment which results in marked and severe functional limitations, and has lasted or is expected to last 12 continuous months or result in death. Additionally, you must have a written diagnosis related to your disability, signed by a physician meeting Social Security Act criteria.

What Are the Benefits

There are a variety of government benefits that go along with an ABLE account, including:

  1. Supplemental Security Income (“SSI”) benefits are only affected in two scenarios. The first is when the value of an ABLE account exceeds $100,000. Any amount in excess of $100,000 in an ABLE account will be counted towards the SSI resource limit (currently $2,000). The second scenario is if funds are withdrawn for housing or Non-Qualified Expenses and the money is not spent within the same month as the withdrawal.
  2. Medical Assistance (“Medicaid”) is not affected by money in an ABLE account. In fact, ABLE account balances are disregarded when determining Medicaid eligibility.
  3. ABLE accounts also receive tax deferral and tax exemption benefits. Account owners will owe zero federal or Pennsylvania income tax on growth when held in the account. In addition, withdrawals for qualified disability expenses are not subject to federal or Pennsylvania income tax. Further, the entire account is exempt from PA’s inheritance tax.

What Is a Qualified Expense?

In order to receive the benefits of an ABLE account, funds in the account must be used for “qualified disability expenses.” However, the IRS has indicated that the term “qualified disability expenses” is to be broadly construed to permit the inclusion of basic living expenses and not limited to medical necessity. In addition, the federal ABLE act has outlined 11 broad categories included in “qualified disability expenses”:

  1. Education
  2. Housing
  3. Transportation
  4. Employment Training and Support
  5. Assistive Technology and Personal Support Services
  6. Health
  7. Prevention and Wellness
  8. Financial Management and Administrative Services
  9. Legal Fees
  10. Expenses for Oversight and Monitoring
  11. Funeral and Burial Expenses

This list is by no means exhaustive. Any other expenses related to an eligible individual’s disability and made for the benefit of such eligible individual will likely be considered qualified.

What if I Use Funds for Non-Qualified Expenses?

You may choose to use funds in your ABLE account for non-qualified expenses. If you do, you should be aware of the potential tax liabilities. First, the earnings portion of withdrawals for non-qualified expenses is subject to federal income tax and an additional 10% penalty. Additionally, the earnings portion of withdrawals for non-qualified expenses is subject to Pennsylvania income taxes.

It is important to note that although PA ABLE does not require you to submit documentation to prove you are using your account for qualified expenses, you should still keep records. In the event the IRS audits your taxes, you may have to provide records of your qualified expenses.

Although a PA ABLE Savings account may not be for everyone, it is certainly something to consider if you or a loved one qualifies. As always, if you have any questions about the PA 529 Plans or need assistance enrolling, please feel free to contact the attorneys at Mosebach, Funt, Dayton & Duckworth. More information on Pennsylvania ABLE Savings accounts and how to enroll can be found at (www.paable.gov).

Timothy J. Duckworth, Jr.

What if I can’t pay my taxes?

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What if I can’t pay my taxes?

If you can’t pay the taxes you owe, don’t panic. There are payment options available. Which one is right for you will depend on the amount owed, your financial situation, and the varying requirements and fees of each option.

Most importantly, be proactive!

When dealing with IRS debt, the most important thing is to take action. By reaching out to the IRS, or having your tax attorney do so on your behalf, you usually can avoid harsh collection actions such as bank account and wage levies. In some cases, the IRS may agree to waive some or all of the penalties, resulting in thousands of dollars of savings. If you receive letters from the IRS, open and read them. We have worked with many clients who missed important deadlines because they never read the letters sent by the IRS. It is important to understand that ignoring IRS tax debt will not make it go away. Moreover, most of the payment options discussed below work best if you are proactive.

In addition, always file your tax return on time and pay as much as you can with your filing. Failing to file your return only makes matters worse because the IRS will assess a failure-to-file penalty on top of the tax, interest, and failure-to-pay penalty that will already be due.

Step 1: Understand your financial situation.

To understand your options, you must determine the amount you reasonably can afford to pay each month. To do this, make a list of your income, assets, and living expenses. Using an IRS form, such as Form 433-A, will help ensure you include everything the IRS expects you to consider. Also, when reviewing your financial situation, consider whether you have another way of getting money to pay the IRS, such as through a loan from a bank or family member, or using available credit. In most cases, the combination of penalties and interest charged by the IRS is higher than the interest rate and fees charged by a bank or credit card company.

Step 2: Choose the payment option that’s right for you.

After completing your financial assessment, you likely will fall into one the following five situations:

  1. I can pay the full amount now.

If you have the funds available, you can make your payment with an electronic funds transfer, a debit or credit card, by mailing a check to the address listed in your bill, or with cash at your local IRS office.

  1. I can’t pay the full amount immediately, but will be able to pay it within 120 days.

If you can’t pay in full immediately, the IRS will allow additional time (up to 120 days) to do so. This is not a formal installment agreement, so no fees apply; but, penalties and interest will continue to accrue until the balance is paid in full. This agreement can typically be set up using the IRS’s online payment agreement application (“OPA”) or by calling the IRS at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

  1. I can’t pay the full amount now, but I can afford to make monthly payments.

If you need to make monthly payments to pay off the tax, you can request an installment agreement by using the OPA application or by submitting Form 9465. Because this is a formal agreement with the IRS, you will be charged a user fee. The amount of the fee varies depending on your income level and how you choose to make payments. For example, if you use the OPA application to request an installment agreement, the user fee is $149; but, if you use the OPA application and agree to pay via direct debit, the user fee is only $31.

  1. I can barely afford to make monthly payments and I own few or no assets.

If you can’t pay in full and an installment agreement won’t work, you should consider applying for an offer in compromise (OIC). An OIC allows you to satisfy your debt for less than the full amount you owe. You will need to submit an application and generally must pay a fee and a portion of your offer up front. The IRS offers an OIC Pre-Qualifier Tool to help taxpayers determine if this option is right for them.

  1. I can’t make any payment now.

If you can’t make any payment toward your tax debt because it would prevent you from paying your basic living expenses, you can ask the IRS to place your account in currently-not-collectible (“CNC”) status until you are able to pay. If the IRS agrees that you cannot pay the tax and your basic living expenses, it will place your account on hold—meaning, all collection activity will stop—until your financial situation improves. Penalties and interest will continue to accrue while your account is in CNC status, and the IRS will periodically ask you to submit proof of your financial status to ensure CNC status remains appropriate.

Regardless of your situation, it is important to read and respond to all IRS notices. You have certain rights and protections that could be lost. If your situation is more complex than those described above or you need help understanding your options, please call the tax attorneys at Mosebach, Funt, Dayton & Duckworth. We would be happy to negotiate an IRS debt settlement on your behalf.

MFDD Supports Allentown School District Foundation

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MFDD proudly supported the Allentown School District Foundation’s 7th Annual High Notes Gala and Revue held on March 25th. The ASDF provides “more opportunities for more success” with grants, programs and scholarships benefiting over 2,700 students and we were once again honored to sponsor the event.

Timothy J. Duckworth, Jr.

PA Tax Amnesty Program of 2017

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If you owe tax to the Commonwealth of Pennsylvania, relief is on the way.

From April 21, 2017 through June 19, 2017, Pennsylvania is offering a Tax Amnesty Program. During this 60-day period, the Department of Revenue will waive all penalties, collection and lien fees, and one-half of the interest due for anyone who participates.

All taxes owed to Pennsylvania and administered by the Department of Revenue are included in the program, including personal income tax, corporate net income tax, inheritance and estate tax, realty transfer tax, and sales and use tax. Tax periods eligible for amnesty are those for which a delinquency existed as of December 31, 2015.

All individuals, businesses, and other entities with state tax delinquencies as of 12/31/2015 are generally eligible to participate. But, persons who participated in the 2010 Tax Amnesty Program are ineligible, as are those currently under criminal investigation for an alleged violation of any tax law.

It is easy to participate; you simply must:

  • File an online Amnesty application.
  • File all required tax returns.
  • Pay all delinquent taxes and ½ of the interest due by June 19, 2017.

Further, you must remain compliant with your tax obligations after participating. The Department may re-impose all penalty and interest abated during the Amnesty Period if, within two years of the Amnesty Period, you: i) become delinquent for 3 consecutive periods for semi-monthly, monthly, or quarterly filing or payment; or ii) you become delinquent and are 8 or more months late in filing reports and/or payments due on an annual basis.

As to be expected with a tax amnesty program, there are consequences for failing to participate: a 5% non-participation penalty will be imposed on all eligible tax, penalty, and interest that is not paid during the Amnesty Period. The penalty will not apply, however, if you are currently in bankruptcy, have received a bankruptcy discharge determination, have an active deferred payment plan, or if your tax liability is covered by a timely administrative or judicial appeal.

For many taxpayers, the Tax Amnesty Program offers the opportunity to settle outstanding tax debts at a fraction of the current balance due. If you have any questions about the Tax Amnesty Program or need assistance complying with the program or any other obligations to the PA Department of Revenue, please feel free to contact the tax attorneys at Mosebach, Funt, Dayton & Duckworth.  Additional information is available at the Department of Revenue’s Tax Amnesty website (http://www.revenue.pa.gov/taxamnesty).

Timothy J. Duckworth, Jr.

The IRS and the Other Travel Ban….

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Amid the hoopla surrounding President Trump’s executive orders limiting travel to the United States, the Internal Revenue Service and the State Department have quietly taken steps to implement another less-covered travel ban.

Once the program is implemented, the Internal Revenue Service will certify seriously delinquent tax debts to the State Department, which is responsible for issuing and renewing passports. Generally, the Department will not issue or renew a passport after receiving the certification from the IRS. Further, the Department may revoke passports previously issued. Basically, that means beginning sometime in 2017, if you owe taxes, don’t plan to leave the country.

The IRS has not specified when, exactly, the program will be implemented. Rather, the IRS website simply states, “[t]he IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017, and this webpage will be updated to indicate when this process has been implemented.”

So, what makes a tax debt “seriously delinquent” as opposed to “delinquent” or, as our current administration might say, “bigly delinquent”? A few things; it must be an unpaid federal tax debt, which i) totals more than $50,000 (including penalty and interest), and ii) for which a notice of federal tax lien has been filed and all administrative remedies have lapsed or been exhausted, or a levy has been issued.

This being a tax law, there are, of course, several exceptions. Tax debt that is not “seriously delinquent” even though it meets the above criteria includes:

  • debt being paid in a timely manner under an IRS installment agreement, an accepted offer in compromise, or a settlement agreement with the Justice Department;

  • debt for which a collection due process hearing is timely requested in connection with a levy to collect the debt; and

  • debt for which collection has been suspended because a request for innocent spouse relief under IRC §6015 has been made.

If the IRS certifies your seriously delinquent tax debt to the State Department, you will receive a Notice CP 508C by regular mail. At that point, you should take steps to reverse the certification. In most cases, this can be done by establishing an installment agreement with the IRS to pay the debt over time or upon the IRS’s acceptance of an offer in compromise to satisfy the debt.

If you owe taxes to the IRS and need help, call the tax attorneys at Mosebach, Funt, Dayton & Duckworth, P.C. We would be happy to negotiate a tax debt settlement on your behalf.