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Minneapolis Tax Law Blog

Guess what? The IRS could be coming to collect in person

The IRS recently announced that it will be holding additional compliance events throughout this year, sending revenue officers to areas that have been underserved in recent years. The agency has identified those areas and is choosing high-priority taxpayers to visit in person.

Who are these high-priority taxpayers? Typically, it will be those who have longstanding tax issues over a certain dollar threshold. They may or may not be in the collections process, but they almost certainly know that they have an issue.

Inflation-based tax changes for FY 2020 announced

The IRS has announced inflation adjustments in dozens of areas, some prompted by the Taxpayer First Act of 2019. Taxpayers should use the new amounts when planning for their 2020 taxes. For example, starting in 2020, the penalty for failing to file a return goes up to $330.

The change with perhaps the most impact on the average taxpayer is an increase in the standard deduction. The Tax Cuts and Jobs Act of 2017 increased the standard deduction to the point where many taxpayers no longer see an advantage in itemizing. The standard deduction is further increasing in 2020:

Could an offer in compromise with the IRS resolve your tax debt?

If you owe more in tax debt than you can realistically repay, you should talk to a tax attorney about negotiating an offer in compromise (OIC) with the IRS. An OIC allows you to settle your tax debt for less than the full amount. Getting one approved, however, can be something of a challenge.

In order to qualify for an OIC, you must have 1) filed all of your tax returns; 2) received a bill for at least one tax debt; 3) made this year's estimated tax payments; and, 4) if you're a business owner with employees, made this quarter's required federal tax deposits.

IRS: Tax law change meant about 2.7 million fewer 2018 refunds

The Tax Cuts and Jobs Act was signed into law in December 2017. One of the more notable things the law changed was the increase to the standard deduction, which made it unnecessary for most people to itemize their deductions. It also increased the child tax credit and lowered some tax rates.

Supporters of the law predicted that most middle-class taxpayers would receive a larger refund than they had in the past. Now, the IRS has released data on how the new law actually affected Americans' taxes.

IRS will now accept debit card payments through private collectors

As we've discussed on this blog before, the IRS's enforcement budget has been slashed by a quarter since 2011. That has meant fewer audits and collection activities overall, and it has focused those efforts on working people more than on the wealthy. In 2017, Congress directed the IRS to allow private collection agencies (PCAs) to collect unpaid taxes.

In the past, past-due taxes or tax debts were paid directly to the IRS. Now, the agency has announced that it will allow taxpayers to pay PCAs directly via preauthorized direct debit. That is to say, the PCA obtains the taxpayer's written permission to charge a debit card, often on a schedule. The PCA receives the money and writes a check to the IRS.

IRS provides guidance on reporting cryptocurrency income

Many investors in Bitcoin and other virtual currencies have been confused about how those investments are taxed. As we've noted before on this blog, cryptocurrency gains are taxed like capital gains. That means that you'll need to keep detailed records on what you paid and what you got when you sold the virtual currency. You will be taxed based on the difference.

Additionally, if you transfer virtual currency between two accounts ("wallets"), you must also document those transfers in order to show the IRS that the transfer was tax-free.

IRS admits it audits the poor just as often as the rich

In April, the nonprofit newsroom ProPublica reported on a surprising imbalance at the IRS. Although it would almost certainly be both more effective and bring in more revenue if it focused on auditing the rich, the agency does not do this. No, it audits the working poor at almost the exact same rate as it does the richest 1% of Americans.

Indeed, it doesn't plan to stop. For one thing, auditing the poor is much easier because their taxes aren't very complex. Relatively low-level auditors can perform these audits by mail. It's very efficient to audit the poor, even though they aren't as likely to have committed major tax blunders, and even though the money garnered through these audits is small.

Minnesota updates its sales tax rules for out-of-state sellers

In 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc.,, Inc., and Newegg, Inc. that states can require out-of-state sellers and so-called "marketplace facilitators" to collect sales tax on their behalf. Previously, the rule had been that a seller or facilitator had to have a physical presence in the state before it could be required to collect that state's taxes.

Since that ruling, more than 40 states have adopted changes to their tax laws to facilitate the collection of taxes by remote sellers and marketplace facilitators. Marketplace facilitators are companies like Amazon that match up small sellers with buyers, allowing the small seller to take part in the online marketplace without setting up its own sales platform.

IMF: Foreign shell companies hold $15 trillion in untaxed capital

If you own a company with interests abroad, you may have wondered if you can take advantage of the lower corporate tax rates some countries have adopted. After all, they've often changed their policies and tax rates in order to garner international investment.

In the 1980s, for example, Ireland had a 50% corporate tax rate. Now the rate is 12.5%.

Under audit for micro-captive insurance transactions? IRS offer

A captive insurance company is one that is created by a business as protection against certain risks. And, Section 831(b) of the Internal Revenue Code allows certain small insurance companies the option of paying tax on only their investment income. There are other tax advantages to captives, as well.

It's perfectly legal and quite common for companies to set up a captive insurer, as long as it actually provides insurance. The company that owns the captive can take a tax deduction on up to $1.2 million in premiums each year. Then, Section 831(b) allows the captive to choose to be taxed on its investment income rather than on those premiums, as long as it receives no more than $1.2 million in premiums annually.

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