How to Choose Your Tax Preparer

In IR-2016-46 the Service offered tips on selecting your tax preparer. If you would like assistance with your tax return due April 18, 2016, go to www.irs.gov/chooseataxpro.

IRS Commissioner John Koskinen noted, “The filing of a federal income tax return represents one of the biggest financial transactions of the year for many Americans, whether they are getting a refund or paying tax due. Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected.”

The IRS website covers three questions.

1. What kind of tax preparer do I need?

   All tax preparers must have an IRS Preparer Tax Identification Number (PTIN). Many tax preparers also may have additional specific skills. A tax preparer may be an enrolled agent (he or she must pass an IRS test), a certified public accountant (CPA) or a licensed attorney. You may find more information on the “credentials and qualifications” page on the IRS website.

2. How do you check a tax preparer’s credentials?

   The IRS maintains a “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.” You also may find additional information from your state or regional professional association. The professional associations offer background information on CPAs and attorneys.

3. What actions may you take if you have a complaint?

   The IRS webpage has a link with the title “Make a Complaint.” If you wish to proceed with a complaint, you will need to provide some basic information on the tax preparer.

   Finally, there are best practices that you should follow. Your tax preparer must be an ethical person because he or she will have access to your personal financial data. The preparer must sign with his or her PTIN. You should always ask for permission to review the return. Feel free to ask your preparer questions if you have any areas that you don’t understand. Finally, never sign a blank tax return.

Sec. 6035 Basis Filing Delayed

In Notice 2016-27; 2016-15 IRB 1 (22 Mar 2016), the IRS delayed again the executor filing requirement under Sec. 2035. The former March 31 deadline is now changed to June 30, 2016.

Sec. 1014(f) specifies that a recipient of estate property must hold that asset with a basis not in excess of the value as “finally determined for federal estate tax purposes.” The basis for each recipient of the property is reported on an IRS form that is consistent with Sec. 6035.

Each person who is required to file under Sec. 6018(b) must furnish to both the IRS and each recipient of an asset a statement that includes the information under Sec. 6035(a)(1). This statement is due in the future within 30 days after the date of filing the return (including extensions, if any) or the actual filing date. However, the initial submission date under Notice 2016-19, 2016-09 IRB 2 was March 31, 2016. That filing date is now deferred until June 30, 2016.

Editor’s Note: The CPA and bar associations inundated the IRS with requests to defer the initial filing date. The new June 30 deadline should permit executors to be in compliance with the new basis reporting rules.

Conservation Easement Deduction Denied – No Contemporaneous Written Acknowledgment

In Bayne French et ux. v. Commissioner; T.C. Memo. 2016-53; No. 11715-13 (22 Mar 2016), the Tax Court held a conservation easement deed was not sufficient to comply with the contemporaneous written acknowledgment requirements of Sec. 170(f)(8)(B).

On Dec. 29, 2005, Bayne and Christine French, together with other family members, granted a conservation easement in agricultural land to the Montana Land Reliance (MLR). The deed preserved “the rural, agricultural and natural scenic qualities of the area by the retention of significant open space for a variety of uses including wildlife habitat, recreation, forest management, and agricultural purposes.” It did not state “no goods or services were provided” by MLR and failed to state it was “the entire agreement” between the parties.

A qualified appraiser valued the total easement at $1.1 million and the portion for Bayne and Christine at $350,971. They filed an initial Form 1040 without claiming the deduction and Form 1040X on April 15, 2006 claiming the deduction. MLR provided a letter with the “no goods or services were furnished in respect of your easement donation” statement on June 6, 2006. Bayne and Christine carried forward their charitable deductions into years 2006, 2007 and 2008.

An IRS appraiser valued the full deduction at $432,000. The IRS audited years 2006-8 and denied the deduction for failure to obtain a contemporaneous written acknowledgment prior to filing the 2005 tax return.

Taxpayers claimed the deed was sufficient and the MLR letter on June 6, 2006 was timely. The Tax Court noted the letter was not received prior to filing. In addition, the deed did not state “no goods or services were provided” by MLR and failed to state it was “the entire agreement” between the parties. Therefore the deduction carryforwards were denied.

Applicable Federal Rate of 1.8% for April—Rev. Rul. 2016-9; 2016-14 IRB 1 (18 Mar 2016)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2016. The AFR under Section 7520 for the month of April will be 1.8%. The rates for March of 1.8% or February of 2.2% 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.