In IR-2017-112, IRS Commissioner John Koskinen warned taxpayers to be alert for new tax scams this summer. Koskinen stated, "We continue to urge people to watch out for new and evolving schemes this summer. Many of these are variations of a theme, involving fictitious tax bills and demands to pay by purchasing and transferring information involving a gift card or iTunes card. Taxpayers can avoid these and other tricky financial scams by taking a few minutes to review the telltale signs of these schemes."
Summer scammers are using four principal strategies.
- Electronic Federal Tax Payment System (EFTPS) - The scammer is likely to claim that two certified letters have been sent to the taxpayer and returned or refused. The taxpayer is threatened with immediate arrest if he or she does not use a prepaid debit card for payment. Scammers will claim that the card is required for the EFTPS. The victim is warned not to speak with an attorney, tax preparer or other advisor, but must immediately make the payment.
- "Robo-Call" Messages - Some scammers operate call centers with software to call thousands of numbers each day. If there is no answer, the software leaves a prerecorded threat message. Taxpayers are warned that if they do not immediately return the call, they will be arrested. The taxpayer is told that if he or she does not respond, then he or she will be required to pay the claimed tax debt with a prepaid debit card.
- Private Debt Collectors - The IRS now is making use of four private companies to collect debts. However, the only debts that these companies process are several years old. The IRS will have previously made multiple contacts with the taxpayer prior to transferring the debt to the private collection process.
- Limited English - Scammers may approach immigrants or others who have limited English skills and threaten them in their native language. The scammer will threaten the person with arrest, deportation or loss of a drivers license. Taxpayers should encourage their family members to join together for protection. Families with senior members must offer support to protect them from becoming victims.
The IRS also shared specific information that you should be aware of in order to protect yourself.
- No Immediate Payment Demand - Even if you owe taxes, you will have time to make payment arrangements. Seniors should always speak with a family member or advisor before making a payment.
- No Immediate Arrest - The IRS follows specific procedures when collecting tax. You have a right to receive an explanation of the tax payments and a reasonable time to pay any tax that is due.
- No Phone Debit or Credit Card - The IRS will not call you on the phone and ask for an immediate debit or credit card payment.
The IRS offers multiple help options for taxpayers. You can report scam calls to the Treasury Inspector General for Tax Administration at 800-366-4484. If you would like to speak to an IRS representative, you can call the IRS help line at 800-829-1040.
Some taxpayers also have an ability to access their account on www.irs.gov
. You also may want to go to the IRS site and check out "How To Know It's Really the IRS Calling or Knocking on Your Door."
Deduction Denied Due to String on Real Estate Gift
In Fakiris, George v. Commissioner;
No. 18292-12; T.C. Memo. 2017-126 (27 Jun 2017), the Tax Court denied a $3 million deduction because the donor could recover the gifted property.
George Fakiris was the managing member of a real estate firm named Grou Development LLC (Grou). On March 14, 2001, Grou purchased the St. George Theatre on Staten Island, New York for $700,000. Grou made repairs to the roof, but the theatre was otherwise in need of significant and substantial repairs.
When Grou's plans to build a high-rise structure on the site proved politically unworkable, Fakiris decided to make a charitable gift of the building. His offer of a gift was rejected by New York City and a local community college. Grou then arranged to give the building to a new nonprofit, Richmond Dance Ensemble, Inc. (Richmond). Because Richmond was awaiting IRS recognition, Grou deeded the building to WEMGO Charitable Trust, Inc. (WEMGO), a qualified nonprofit. WEMGO planned to deed the building to Richmond and did so before the IRS approved exempt status for Richmond.
In a 2004 "Contract of Sale," WEMGO and Grou agreed that Grou could recover the building and deed it to Richmond. The deed of transfer did not include this provision. Richmond donors paid $470,000 to Grou as part of the gift transaction.
Grou had obtained an appraisal on November 3, 2003 that valued the building at $5 million. On his 2004 tax return, Fakiris claimed a bargain sale charitable deduction of $3 million, which reflected his 60% ownership of Grou. He did not reduce his deduction for the prorated portion of the cash received.
The IRS audited Fakiris and denied the deduction because Grou could compel return of the gifted property from WEMGO.
Fakiris maintained that the deed had no restriction and, therefore, the gift was complete. The Tax Court agreed that this is the normal rule under New York law. However, if the parties show an intent to make the contract provisions binding, they may apply.
Under the contract, WEMGO was required to hold the property for five years and Grou could recover the property. Therefore, there was a conditional gift and the condition was not so remote as to be negligible. As a result, under Reg. 1.170A-1(1)(e), there was not a qualified charitable gift. Because the misstatement was over 40% of the value, there was also a gross valuation penalty under Sec. 6662(h)(1).
Golf Course Conservation Easement Deduction Denied Due to Mortgage
In RP Golf LLC et al. v. Commissioner;
No. 16-3277 (8th Cir. 2017), the court upheld a denial of a conservation easement charitable deduction. RP Golf donated a $16.4 million conservation easement in 2003 that covered two golf courses in Platt County, Missouri.
Lenders Great Southern and Hillcrest signed subordination agreements on April 14, 2004. Both the Tax Court and the Eighth Circuit noted a conservation easement must be perpetual under Sec. 170(h)(5)(A). If there is a debt obligation, Reg. 1.170A-14(g)(2) denies a deduction unless "the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity."
RP Golf claimed that it had oral agreements in 2003 with Great Southern and Hillcrest to subordinate their mortgage to the conservation easement. Because RP Golf did not prove the existence and validity of the oral agreements at trial, the conservation easement was not qualified. The deduction was denied.
Applicable Federal Rate of 2.2% for July -- Rev. Rul. 2017-14; 2017-27 IRB 1 (16 June 2017)
The IRS has announced the Applicable Federal Rate (AFR) for July of 2017. The AFR under Section 7520 for the month of July will be 2.2%. The rates for June of 2.4% or May of 2.4% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return.