The IRS recently reminded individuals and businesses that they now have additional time to file an administrative claim or bring a civil action for wrongful levy or seizure. Tax reform legislation enacted in December 2017 extended the time limit from nine months to two years.

Here are some facts about levies and the extension of time to file a claim or civil action:

• An IRS levy permits the legal seizure and sale of property to satisfy a tax debt. For purposes of a levy, the term “property” includes wages, money in a bank or other financial accounts, vehicles and real estate.
• The timeframes apply when the IRS already has sold the property it levied. Taxpayers now can make an administrative claim for return of their property within two years of the date of the levy.
• If an administrative claim is made within the extended two-year period, the two-year period for bringing suit is extended for one of two periods, whichever is shorter:
  • Twelve months from the date the person filed the claim.
  • Six months from the date the IRS disallowed the claim.
• The change in law applies to levies made before, on or after December 22, 2017, as long as the previous nine-month period had not yet expired.
• Anyone who receives an IRS bill titled, “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” should immediately contact the IRS or a tax professional to discuss potential options. By doing so, a taxpayer may be able to make arrangements to pay (or defer payment of) the liability, instead of having the IRS proceed with the levy. Taxpayers also have other options, such as making an Offer in Compromise to settle the tax debt (subject to eligibility), or seeking temporary “currently not collectible” status to defer payment of the tax during a period of financial hardship.

More Information:

Additional information about levies and the IRS collection process is available on the IRS’s website using the following links:

• What is a Levy?
• What if I get a levy against one of my employees, vendors, customers or other third parties
• IRS Publication 4235, Collection Advisory Group Numbers and Addresses
• IRS Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code Section 6343(b)
• IRS Publication 1660, Collection Appeal Rights
• IRS Publication 1, Your Rights as a Taxpayer

For more information about these rules and other available remedies to IRS collections, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this information with others that might benefit from this information.

On May 25, 2018, the Internal Revenue Service provided information to taxpayers and employers about changes from the 2017 Tax Cuts and Jobs Act that affect:

• Moving-related vehicle expenses
• Unreimbursed employee expenses
• Vehicle expensing

Changes to the deduction for moving-related vehicle expenses

The 2017 Tax Cuts and Jobs Act suspended the deduction for moving expenses for tax years beginning after Dec. 31, 2017, and goes through Jan. 1, 2026. Thus, during the suspension period, no deduction is allowed for use of an automobile as part of a move using the mileage rate listed in IRS Notice 2018-03. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.

Changes to the deduction for unreimbursed employee expenses

The 2017 Tax Cuts and Jobs Act also suspended all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Thus, the business standard mileage rate listed in IRS Notice 2018-03, which was issued before the 2017 Tax Cuts and Jobs Act passed, cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance on May 25, 2018, in IRS Notice 2018-42.

Standard mileage rates for 2018

As mentioned in IRS Notice 2018-03, the standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:

• 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
• 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
• 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.

Taxpayers also always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be utilized for more than four vehicles used simultaneously.

Increased depreciation limits

The 2017 Tax Cuts and Jobs Act increases the depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017. Previously, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

More information

IRS Notice 2018-42 (available on the official IRS website at www.IRS.gov) contains information about the update to the standard mileage rates, including the details about the suspension of the deduction for operating a vehicle for moving purposes.

For more information about these and other available deductions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this information with others that might benefit from this information.

The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 54 cents per mile for business miles driven (down from 57.5 cents for 2015)
• 19 cents per mile driven for medical or moving purposes (down from 23 cents for 2015)
• 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming an I.R.C. Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in IRS Rev. Proc. 2010-51.  IRS Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

For more information about these and other available deductions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also can be obtained at the official IRS website at www.IRS.gov. Please also feel free to share this information with others that might benefit from this information.

The Patient Protection and Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return. If you meet certain criteria, you may be exempt from the requirement to have qualifying health coverage. If you are exempt, you will not have to make a shared responsibility payment when you file your 2014 federal income tax return this year. For any month that you do not qualify for a coverage exemption, you will need to have minimum essential coverage or make a shared responsibility payment.

How you get a coverage exemption depends upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace, while others may be claimed when you file your tax return.

You might be exempt if:

• The minimum amount you must pay for the annual premiums is more than eight percent of your household income
• You have a gap in coverage that is less than three consecutive months
• You qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement

You will claim or report coverage exemptions on IRS Form 8965, Health Coverage Exemptions, and attach it to your Form 1040, Form 1040A, or Form 1040EZ income tax return. These forms all can be filed electronically.

If you are granted a coverage exemption from the Marketplace, you should receive a notice with your unique Exemption Certificate Number or ECN. You will enter your ECN in Part I, Marketplace-Granted Coverage Exemptions for Individuals, of Form 8965 in column C. If the Marketplace has not yet processed your exemption application before you file your tax return, the IRS instructs individuals to complete Part I of Form 8965 and enter “pending” in Column C for each person listed.  If you claim the exemption on your return, you do not need an ECN from the Marketplace. With the tax filing season underway, most exemptions for 2014 are only available by claiming them on your tax return.

If your income is below your filing threshold and you are not required to file a tax return, the IRS advises that you still are eligible for an exemption and you do not have to file a tax return to claim it. If you choose to file a tax return, you will use Part II, Coverage Exemptions for Your Household Claimed on Your Return, of Form 8965 to claim a health coverage exemption. Other IRS-granted coverage exemptions may be claimed on your tax return using Part III, Coverage Exemptions for Individuals Claimed on Your Return, of Form 8965. For a coverage exemption that you qualify to claim on your tax return, the IRS advises that all you need to do is file Form 8965 with your tax return—remember that you do not need to contact the IRS to obtain the exemption in advance.

The IRS encourages taxpayers and their tax professionals to consider filing returns electronically. There are a variety of electronic filing options, including free volunteer assistance, IRS Free File for taxpayers who qualify, commercial software, and professional assistance. Using tax preparation software can be an effective and simple way to file a complete and accurate tax return since it guides individuals and tax preparers through the process and does all the math; however, simple software without professional assistance also can suffer from the problem of “garbage in, garbage out,” meaning inaccurate information entered into the program often will lead to inaccurate results on the tax return. Accordingly, individuals also should strongly consider the assistance of a professional tax preparer. (For tips on how to choose a tax return preparer, see the separate article, “Tips to Help You Choose a Tax Return Preparer.”)

For more information about the Patient Protection and Affordable Care Act and filing your 2014 income tax return, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. More information also is available at www.IRS.gov/aca. Please also feel free to share this article with your social networks and anyone that might benefit from this information.

IRS Takes Position That Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes And That General Rules for Property Transactions Apply

Background

The Internal Revenue Service (IRS) on March 25, 2014, issued guidance in a new notice [IRS Notice 2014-21] which provides answers to frequently asked questions (FAQs) on so-called “virtual currency,” such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency. In some environments, virtual currency operates like “real” currency—i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance; however, to date, virtual currency does not have legal tender status in any jurisdiction. Not surprisingly, the new guidance from the IRS provides that virtual currency will be treated as property for U.S. federal tax purposes. Moreover, general tax principles that apply to property transactions will apply to transactions using virtual currency. Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue IRS Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

In the new guidance, the IRS stated that it is aware that virtual currency may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. Again, as stated above, in some environments, it operates like real currency, but to date it does not have legal tender status in any jurisdiction.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. For a more comprehensive description of convertible virtual currencies to date, see Financial Crimes Enforcement Network (FinCEN) Guidance on the Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 18, 2013).

New IRS Q&A Guidance on Exchanging or Using Virtual Currencies

In general, the IRS takes the position that the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. The new IRS guidance addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in the IRS guidance (discussed below) refers only to convertible virtual currency. The IRS stated in the new guidance that no inference should be drawn with respect to virtual currencies not described in the notice.

The IRS notice further stated that the Treasury Department and the IRS recognize that there may be other questions regarding the tax consequences of virtual currency not addressed in the new guidance (as set out in the notice) which warrant consideration. Therefore, the Treasury Department and the IRS requested comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance. The IRS requested such comments to be addressed to the following: Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2014-21), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Alternatively, taxpayers may submit comments electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov. Taxpayers are advised to include “Notice 2014-21” in the subject line. The IRS notice also advised that all comments submitted by the public will be available for public inspection and copying in their entirety.

Frequently Asked Questions

Following is the guidance issued by the IRS in Notice 2014-21, in question and answer format. Note that for purposes of the FAQs in the notice, the taxpayer’s functional currency is assumed to be the U.S. dollar, the taxpayer is assumed to use the cash receipts and disbursements method of accounting and the taxpayer is assumed not to be under common control with any other party to a transaction.

Q&A-1: How is virtual currency treated for federal tax purposes? For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q&A-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws? No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

Q&A-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency? Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See IRS Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services (also available on the official IRS website at www.IRS.gov).

Q&A-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3? The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See IRS Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.

Q&A-5: How is the fair market value of virtual currency determined? For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

Q&A-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property? Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See IRS Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.

Q&A-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency? The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See IRS Publication 544, Sales and Other Dispositions of Assets, for more information about capital assets and the character of gain or loss.

Q&A-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See IRS Publication 525, Taxable and Nontaxable Income, for more information on taxable income.

Q&A-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities? If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax. See Chapter 10 of IRS Publication 334, Tax Guide for Small Business, for more information on self-employment tax and IRS Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.

Q&A-10: Does virtual currency received by an independent contractor for performing services constitute self-employment income? Yes. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax. (See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby.)

Q&A-11: Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes? Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. See IRS Publication 15 (Circular E), Employer’s Tax Guide, for information on the withholding, depositing, reporting, and paying of employment taxes.

Q&A-12: Is a payment made using virtual currency subject to information reporting? A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation.

Q&A-13: Is a person who in the course of a trade or business makes a payment using virtual currency worth $600 or more to an independent contractor for performing services required to file an information return with the IRS? Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income. Payments of virtual currency required to be reported on Form 1099-MISC should be reported using the fair market value of the virtual currency in U.S. dollars as of the date of payment. The payment recipient may have income even if the recipient does not receive a Form 1099-MISC. See the Instructions to Form 1099-MISC and the General Instructions for Certain Information Returns for more information. For payments to non-U.S. persons, see IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Q&A-14: Are payments made using virtual currency subject to backup withholding? Payments made using virtual currency are subject to backup withholding to the same extent as other payments made in property. Therefore, payors making reportable payments using virtual currency must solicit a taxpayer identification number (TIN) from the payee. The payor must backup withhold from the payment if a TIN is not obtained prior to payment or if the payor receives notification from the IRS that backup withholding is required. See IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs, for more information.

Q&A-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers? Yes, if certain requirements are met. In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO). A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000. When completing Boxes 1, 3, and 5a-1 on the Form 1099-K, transactions where the TPSO settles payments made with virtual currency are aggregated with transactions where the TPSO settles payments made with real currency to determine the total amounts to be reported in those boxes. When determining whether the transactions are reportable, the value of the virtual currency is the fair market value of the virtual currency in U.S. dollars on the date of payment. See The Third Party Information Reporting Center, http://www.irs.gov/Tax-Professionals/Third-Party-Reporting-Information-Center, for more information on reporting transactions on Form 1099-K.

Q&A-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with the new IRS guidance prior to March 25, 2014? Taxpayers may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662. In addition, failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722. However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.

For additional information in regard to the potential taxation of the exchange or use of virtual currencies, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information (including all the publications referenced above) also can be found at the official IRS website at www.IRS.gov. Please also feel free to share this article with others that might benefit from this information.

The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. Taxpayers also always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in IRS Rev. Proc. 2010-51.  IRS Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

For more information about these and other available deductions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also can be obtained at the official IRS website at www.IRS.gov. Please also feel free to share this information with others that might benefit from this information.

New Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled in IRS Revenue Ruling 2013-17 that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. Importantly, the ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage, answering a question that previously was not clear.

The ruling implements federal tax aspects of the June 26, 2013, U.S. Supreme Court decision in United States v. Windsor, which decision invalidated a key provision of the 1996 federal Defense of Marriage Act (DOMA). Under the new IRS ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, just as important, the ruling does NOT apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law. Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status. Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

How to File a Claim for Refund

Taxpayers who wish to file a refund claim for prior income taxes should use IRS Form 1040X, Amended U.S. Individual Income Tax Return.  Taxpayers who wish to file a refund claim for gift or estate taxes should file IRS Form 843, Claim for Refund and Request for Abatement. For information on filing an amended return, see IRS Tax Topic 308, Amended Returns, available on www.IRS.gov, or the Instructions to IRS Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form.

Future Guidance

In the new ruling, the Treasury Department and the IRS announced that they intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and the IRS also announced that they intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling. Other agencies also may provide guidance on other federal programs that they administer that are affected by the Internal Revenue Code.

The Treasury Department and the IRS will begin applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier period has not expired.

For further information about the ruling and its impact, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 597-8701. Additionally, individuals can refer to Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, available on the IRS website at www.IRS.gov. See also, Publication 555, Community Property. Please also feel free to share this article with others that might benefit from this information.

Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning in 2013, there is a new, simpler option to figure the business use of your home which the IRS announced earlier in 2013 (see prior article, IRS Announces Simplified Option for Claiming Home Office Deduction Starting in 2013).

This new simplified option does not change the rules for who may claim a home office deduction. This new option merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping.

Here are six facts to know about the new, simplified method to claim the home office deduction:

1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.

2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.

3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.

4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.

5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.

6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one home in that year. However, you may use the simplified method for one home and actual expenses for any others in that year.

For more information, consult your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information is available through the links below, or visit the official IRS website at www.IRS.gov for more information about this easier way to deduct your home office. Full details on the new option can be found in Revenue Procedure 2013-13. Please also feel free to share this article with others that might benefit from this information.

Additional IRS Resources:

• Simplified Option for Home Office Deduction
• Home Office Deduction
• IRS Publication 587, Business Use of Your Home (Including Use by Daycare Providers)

IRS YouTube Videos:

• Simplified Home Office Deduction – English | Spanish
• Home Office Deduction – English | Spanish | ASL

IRS Podcasts:

• Simplified Home Office Deduction – English | Spanish

IRS Criminal Investigation (CI) released its Annual Report for fiscal 2012 on May 10, 2013, highlighting strong gains in enforcement actions and penalties imposed on convicted tax criminals. The 28-page report summarizes a wide variety of IRS CI activity on a range of tax related issues during the year ending Sept. 30, 2012. From the perspective of the IRS, CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.

“The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes,” said Richard Weber, Chief of Criminal Investigation.

Highlights of the report include:

• Investigations initiated and prosecution recommendations were both up nearly 9 percent in fiscal 2012 compared to the prior year. Filings of indictments and other charging documents rose 13 percent. Meanwhile, convictions and those sentenced both gained roughly 12 percent from the prior year.
• Criminal investigation initiations totaled 5,125 cases in fiscal 2012 while investigations completed were 4,937 – up 5 percent from fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

“This annual report showcases some of the many significant cases that were completed by CI during fiscal year 2012 and the many program areas we cover as an organization. These cases are just a few examples of the thousands of investigations initiated by CI last year, as we continue to make our mark as the finest financial investigators in the world,” Weber said.