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Wednesday May 25, 2016

Washington News

Washington Hotline

Military Appreciation Month Tax Guide

In IR-2016-77 the Service highlighted a new tax guide on www.IRS.gov to help military members and their families.

May is Military Appreciation Month and the IRS explains tax benefits available for Service members.

1. Combat Pay – Pay for service in Afghanistan, Iraq or other combat zones is partly or fully tax-free.

2. Reservist Travel – If a military person travels over 100 miles to his or her Reserve or National Guard duty station, there will be a deduction available for unreimbursed travel expenses. This deduction is available even if the military member does not itemize deductions.

3. Moving Expenses – While many expenses are covered for moves on official orders, a military member may have unreimbursed moving expenses. These are deductible on IRS Form 3903.

4. Enlisted Members – Some enlisted service members have low incomes and may qualify for the Earned Income Tax Credit. If these members contribute to an IRA or 401k-type plan, they may qualify for the savers credit by using IRS Form 8880.

5. Overseas Service – Members serving overseas may file their tax return on June 15 rather than April 15 each year. A military person serving in a combat zone may defer filing until 180 days after departing that region.

6. Filing Options – Military members may use IRS Free File for electronic filing. The Volunteer Income Tax Assistance program is also available at many military facilities.

Stolen Identity Refund Fraud Prevention Act


On May 16 the House of Representatives passed the Stolen Identity Refund Fraud Prevention Act of 2016 (H.R. 3832). The Senate Finance Committee previously passed a similar bill. The act now moves to the full Senate for a vote.

The bill was introduced by Rep. James Renacci (R-OH). He and his wife were victims of tax refund fraud. Renacci stated, “Today the House passed my bipartisan bill to protect hardworking American taxpayers. Tax-related identity theft is an evolving criminal activity that can happen to anyone. In fact, last tax season my identity was stolen and was used to file a fraudulent tax return. Northeast Ohioans and taxpayers throughout the country deserve to have their hard earned dollars shielded from thieves. That is why I am pleased to see the House take this important first step to better safeguard taxpayers’ dollars and reduce the hardships caused by this criminal activity.”

The bipartisan bill was co-sponsored by Rep. John Lewis (D-GA). Lewis continued, “We must do all we can to fight identity theft, return theft, fraud and scams. In the last few years, the Taxpayer Advocate staff assisting my constituents in Atlanta and the caseworkers working in my District Office have seen an alarming increase in scams targeting the American taxpayer. H.R. 3832 responds to the real needs of real people. The Stolen Identity Refund Fraud Prevention Act of 2016 is a good, bipartisan, and timely legislative step in the right direction.”

The bill is designed to facilitate better IRS assistance for identity theft victims. There are four major provisions in the act.

1. IRS Contact – There will be a central contact in the IRS offices for all identity theft victims.

2. IRS Notice – If the IRS suspects identity theft, the IRS will notify the affected taxpayer.

3. Filing Study – The IRS will conduct a comprehensive study to review options for victims to opt out of electronic filing. Filing paper returns will protect most victims from a second theft.

4. Information Sharing and Analysis Center (ISAC) – The IRS will develop a single center to collect and analyze identity theft data. The goal will be to find new methods to reduce identity theft.

Food Bank Deduction Guidance Requested


On May 10, Angela Simmons, Vice President of Corporate Tax for Darden Restaurants, wrote to the IRS to request inclusion of food inventory gifts in the 2015-16 Priority Guidance Plan. Darden owns over 1,500 restaurants and makes large inventory food gifts each year.

Under IRC Sec. 170(e)(3) there is an enhanced deduction for gifts of inventory to benefit the ill, needy or infants. The PATH Act of 2015 made permanent the Sec. 170(e)(3)(C) deduction for gifts of food inventory to qualified charities.

A “Darden Harvest” program enables the gift of wholesome food inventory from 1,500 restaurants to food banks, shelters and similar organizations. In 2015 over eight million pounds of food were donated through this program.

The deduction for Sec. 170(e)(3) gifts is the lesser of twice the basis or basis plus one half of the appreciation. Darden requests guidance to permit it to “recover its basis as cost of goods sold, but also allow it to compute the enhanced deduction ‘bump’ available under Sec. 170(e)(3).”

Applicable Federal Rate of 1.8% for June -- Rev. Rul. 2016-13; 2016-25 IRB 1 (17 May 2016)


The IRS has announced the Applicable Federal Rate (AFR) for June of 2016. The AFR under Section 7520 for the month of June will be 1.8%. The rates for May of 1.8% or April of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published May 20, 2016

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