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IRS Sports Industry Campaign: Sport Teams and Owners Targeted

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On January 16, 2024, the IRS Large Business and International division announced a new compliance campaign: the IRS Sports Industry Campaign.  While the announcement is recent and certain details are not yet available, let’s discuss the general direction of this IRS new compliance tax enforcement effort.

IRS Sports Industry Campaign: Background Information

In the mid-2010s, after extensive tax planning, the IRS decided to restructure LB&I in a way that would focus the division on issue-based examinations and compliance campaign processes. The idea was to let LB&I itself decide which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this was the most efficient approach that assured the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

The first thirteen campaigns were announced by LB&I on January 13, 2017. Then, the IRS added eleven campaigns on November 3, 2017, five campaigns on March 13, 2018, six campaigns on May 21, 2018, five campaigns on July 2, 2018, five campaigns on September 10, 2018, five campaigns on October 30, 2018, and so on.  The IRS Sports Industry campaign is the latest one to be announced at the time of this writing.

IRS Sports Industry Campaign: What Does the IRS Say?

The IRS stated that it will conduct its Sports Industry Losses campaign to identify partnerships within the sports industry that report significant tax losses in order to determine whether the income and deductions driving the losses are reported in compliance with the applicable sections of the Internal Revenue Code.

IRS Sports Industry Campaign: Main Target

It is clear from the announcement that the IRS now decided to target sports teams for the losses that they are reporting.  It is indeed true — in the industry renowned for its high profits, the reporting of losses may look suspicious.  

However, when one looks at the fact that it is sports-related partnerships who report much of the losses, it becomes clear that the IRS is really after the beneficial owners of these partnerships.  Who are their owners? Ultra high-net-worth individuals, who are at the center of the IRS newly-funded (by the Inflation Reduction Act) effort to bridge the so-called “tax gap”.

Contact Sherayzen Law Office for Professional Tax Help

If you have been contacted by the IRS as part of this campaign, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their US tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

June 17 Connecticut Deadline Tax Relief | US Tax Lawyer & Attorney

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On January 22, 2024, the Internal Revenue Service announced tax relief for individuals and businesses in parts of Connecticut affected by severe storms, flooding and a potential dam breach that began on January 10, 2024.  These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

June 17 Connecticut Deadline: Areas Affected by Tax Relief

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes New London County, including the Mohegan Tribal Nation and Mashantucket Pequot Tribal Nation. Individuals and households that reside or have a business in these localities qualify for tax relief.  The same relief will be available to any other Connecticut localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.

It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

June 17 Connecticut Deadline:  Deadlines Affected

The tax relief postpones various tax filing and payment deadlines that occurred from January 10, 2024, through June 17, 2024 (“postponement period”). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the June 17, 2024, deadline will now apply to:

  • Individual income tax returns and payments normally due on April 15, 2024.
  • 2023 contributions to IRAs and health savings accounts for eligible taxpayers.
  • Quarterly estimated income tax payments normally due on January 16 and April 15, 2024.
  • Quarterly payroll and excise tax returns normally due on January 31 and April 30, 2024.
  • Calendar-year partnership and S corporation returns normally due on March 15, 2024.
  • Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2024.
  • Calendar-year tax-exempt organization returns normally due on May 15, 2024.
  • In addition, penalties for failing to make payroll and excise tax deposits due on or after January 10, 2024, and before Jan. 25, 2024, will be abated as long as the deposits are made by January 25, 2024.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

June 17 Connecticut Deadline: Additional Tax Relief

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred or the return for the prior year. Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election.  Be sure to write the FEMA declaration number – 3604-EM − on any return claiming a loss.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Sherayzen Law Office continues to monitor the situation concerning IRS tax reliefs for natural disasters and other events.

2022 Required Minimum Distributions | Tax Lawyer Minneapolis

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On December 12, 2022, the Internal Revenue Service reminded those who were born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements face important upcoming deadlines for the 2022 required minimum distributions to avoid penalties.

What are the 2022 Required Minimum Distributions?

Required minimum distributions, or RMDs, are minimum amounts that many retirement plans and IRA account owners must generally withdraw annually after they reach age 72. Account owners can delay taking their first RMD until April 1 following the later of the calendar year they reach age 72 or, in a workplace retirement plan, retire. RMDs are taxable income and may be subject to penalties if not timely taken.

IRA 2022 Required Minimum Distributions

IRAs: The RMD rules require traditional IRA, and SEP, SARSEP, and SIMPLE IRA account holders to begin taking distributions at age 72, even if they’re still working. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023, and the second RMD by December 31, 2023, and each year thereafter.

Roth IRAs do not require distributions while the original owner is alive.

Retirement Plans 2022 Required Minimum Distributions

Retirement Plans: In 401(k), 403(b) and 457(b) plans; profit-sharing and other defined contribution plans; and defined benefit plans, the first RMD is due by April 1 of the later of the year they reach age 72, or the participant is no longer employed (if allowed by the plan). A 5% owner of the employer must begin taking RMDs at age 72. Remember, RMDs may not be rolled over to another IRA or retirement plan.

Who Does the Required Minimum Distributions?

An IRA trustee, or plan administrator, must either report the amount of the RMD to the IRA owner or offer to calculate it. An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. They may be able to withdraw the total amount from one or more of the IRAs. However, RMDs from workplace retirement plans must be taken separately from each plan.

50% tax on the Missed 2022 Required Minimum Distributions

Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed. The IRS has worksheets to calculate the RMD and payout periods.

Special Case: Inherited IRAs

An RMD may be required for an IRA, retirement plan account or Roth IRA inherited from the original owner. Retirement Topics – Beneficiary has information on taking RMDs from an inherited IRA or retirement account and reporting taxable distributions as part of gross income. Publication 559, Survivors, Executors and Administrators, can help those in charge of the estate complete and file federal income tax returns, and explains their responsibility to pay any taxes due on behalf of the decedent or person who has died.

Note on the 2020 Coronavirus-Related Distributions

Since 2020 RMDs were waived, an account owner or beneficiary who received an RMD in 2020 had the option of returning it to their IRA or other qualified plan to avoid paying taxes on that distribution. A 2020 RMD that qualified as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years.

A 2020 withdrawal from an inherited IRA could not be repaid to the inherited IRA but may be spread over three years for income inclusion.

Sherayzen Law Office will continue to monitor any news concerning the 2022 RMDs.

Employee Retention Credit | US Tax Lawyers & Attorneys

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On March 31, 2020, the IRS launched the Employee Retention Credit. This new tax credit is designed to encourage businesses to keep employees on their payroll. Let’s discuss the Employee Retention Credit in more detail.

Employee Retention Credit: Eligibility Criteria

Two categories of employers are not eligible to apply for the Employee Retention Credit: (a) state and local governments and their instrumentalities; and (b) small businesses who take certain small business loans.

The rest of the employers (including tax-exempt organizations) regardless of size can apply as long as they fall within one of the following two categories.

The first category includes all businesses which were fully or partially suspended by government order due to COVID-19 during the calendar quarter. It appears that this category applies to the state “shelter-in-place” orders.

The second category includes businesses with gross receipts below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employee Retention Credit: Credit Calculation

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021, are eligible for the credit. The definition of wages includes not only cash payments, but also a portion of the cost of employer-provided health care insurance.

Employee Retention Credit: Qualified Wages

Qualifying wages are based on the average number of employees in 2019. There is an important difference, however, in the calculation of qualified wages based on the size of an employer.

With respect to employers with less than 100 employees: the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.

With respect to employers with more than 100 employees: if the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Employee Retention Credit: Application Process

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter of 2020. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

Sherayzen Law Office will continue to follow closely the tax developments concerning the COVID-19 tax relief.

2019 Fourth Quarter IRS Interest Rates | PFIC Tax Lawyers

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On August 28, 2019, the Internal Revenue Service (“IRS”) announced that the 2019 Fourth Quarter IRS underpayment and overpayment interest rates will not change from the 3rd Quarter of 2019. This means that, the 2019 Fourth Quarter IRS underpayment and overpayment interest rates will be as follows:

  • five (5) percent for overpayments (four (4) percent in the case of a corporation);
  • two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000;
  • five (5) percent for underpayments; and
  • seven (7) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. The IRS used the federal short-term rate for July of 2019 to determine the 2019 Fourth Quarter IRS interest rates The IRS interest is compounded on a daily basis.

2019 Fourth Quarter IRS interest rates are important for many reasons. These are the rates that the IRS uses to determine how much interest a taxpayer needs to pay on an additional tax liability that arose as a result of an IRS audit or an amendment of his US tax return. The IRS also utilizes these rates with respect to the calculation of PFIC interest on Section 1291 tax.

As an international tax law firm, Sherayzen Law Office keeps track of the IRS underpayment interest rates on a regular basis. We often amend our client’s tax returns as part of an offshore voluntary disclosure process. For example, both Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures require that a taxpayer amends his prior US tax returns, determines the additional tax liability and calculates the interest on this liability.

Moreover, we very often have to do PFIC calculations for our clients under the default IRC Section 1291 methodology. This calculation requires the usage of the IRS underpayment interest rates in order to determine the amount of PFIC interest on the IRC Section 1291 tax.

Finally, it is important to point out that the IRS will use the 2019 Fourth Quarter IRS overpayment interest rates to determine the amount of interest that needs to be paid to a taxpayer who is due a tax refund as a result of an IRS audit or amendment of the taxpayer’s US tax return. Surprisingly, we often see this scenario arise in the context of offshore voluntary disclosures.