Posts

2022 Required Minimum Distributions | Tax Lawyer Minneapolis

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

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

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.

FY 2018 DOJ Criminal Case Statistics | Tax Lawyer & Attorney Minneapolis

An analysis of the fiscal year 2018 DOJ criminal case statistics reveals certain interesting patterns about federal criminal tax prosecution in that year. Let’s explore in more detail these patterns.

2018 DOJ Criminal Case Statistics: Typical Tax Criminal

The analysis of the FY 2018 DOJ criminal case statistics reveals an interesting fact – a typical tax criminal is very different from any other type of a criminal. A typical tax criminal is about 50 years old and has at least one college degree; and, he is male.

This finding is not very surprising, because this category of males happens to also include the description of one of the most productive and affluent parts of our society. Rational risk-taking and even gambling are also characteristics that belong to this demographic.

2018 DOJ Criminal Case Statistics: Fewer but Longer Sentences

In FY 2018, 577 tax crime offenders were sentenced compared to 660 in 2017. The tax crime sentence, however, was much longer than in 2017 – 17 months in FY 2018 versus 13 months in FY 2017.

It should be pointed out that the majority of tax crime offenders entered into plea agreements. Only 7.5% of tax crime cases went to trial.

2018 DOJ Criminal Case Statistics: Judges Are Mostly More Lenient Than Federal Sentencing Guidelines

Another interesting fact is revealed by the FY 2018 DOJ criminal case statistics concerning sentencing. In FY 2018, federal judges were more lenient than the federal sentencing guidelines, thus considering them too harsh for the crimes committed. Almost 76% of sentences fell short of the minimum recommended by the federal sentencing guidelines. About 24% of tax crime sentences fell within the federal sentencing guidelines, but even 65.1% of them were at the minimum end of the recommended range.

Tax practitioners, however, should not ignore the guidelines or assume that the judges will always be lenient: 10 sentences or 7.8% of the 129 cases within the guidelines came in at the maximum end of the range. There were also additional sentences that even exceeded the guidelines.

2018 DOJ Criminal Case Statistics: Probation

In addition to prison time, the courts imposed probation and other conditional confinement which affected the average 17-month sentence that was discussed above. Without the probation, the average FY 2018 tax crime sentence was 23 months. About 32.2% of the tax crime convictions received probation or probation plus some other conditions of confinement (other than prison).

2018 DOJ Criminal Case Statistics: Fines and Restitution

72.1% of tax crime cases resulted in sentences which included restitution but no fines; 16.3% included both; 6.1% of sentences contained neither fines nor restitution. In FY 2018, the judges imposed fines and restitution totaling close to $283.1 million; this averages at $27,517 in fines and $565,766 in restitution per case.

Sherayzen Law Office Strives to Help Its Clients to Avoid Criminal Prosecution

US international tax law is replete with criminal penalties. A US taxpayer who fails to comply with US international tax requirements must always contend with the possibility of facing criminal prosecution.

One of the primary goals of Sherayzen Law Office is to help its clients reduce and even eliminate the possibility of a criminal prosecution with respect to prior noncompliance with US tax laws. A number of strategies may be employed to achieve this goal depending on the situation, including offshore voluntary disclosure and proper handling of an IRS audit.

Contact Sherayzen Law Office for professional help with reducing the possibility of criminal prosecution with respect to your past US tax noncompliance.

2019 IRS Standard Mileage Rates | IRS Tax Lawyer & Attorney

On December 14, 2018, the IRS issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Let’s discuss in a bit more depth these new 2019 IRS Standard Mileage Rates.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.

According to the IRS Rev. Proc. https://www.irs.gov/pub/irs-drop/rp-10-51.pdf2010-51, a taxpayer may use the business standard mileage rate to substantiate a deduction equal to either the business standard mileage rate times the number of business miles traveled. If he does use the 2019 IRS standard mileage rates, then he cannot deduct the actual costs items. Even if the 2019 IRS standard mileage rates are used, however, the taxpayer can still deduct as separate items the parking fees and tolls attributable to the use of a vehicle for business purposes.

It is important to note that under the 2017 Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. With the exception of active duty members of Armed Forces, taxpayers also cannot claim a deduction for moving expenses. Notice-2019-02. As in previous years, 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.

Sherayzen Law Office advises taxpayers that they do not have to use the 2019 IRS standard mileage rates. They have the option of calculating the actual costs of using his vehicle rather than using the standard mileage rates. In such a case, all of the actual expenses associated with the business use of the vehicle can be used: lease payments, maintenance and repairs, tires, gasoline (including all taxes), oil, insurance, et cetera.