In IR-2018-86, the Service offered 10 tips for avoiding "common tax return filing mistakes," as the April 17 tax return deadline approaches. These apply especially to taxpayers rushing to file before the deadline.
- File Electronic Returns - An electronic return is substantially safer than a paper return. Tax preparation software will calculate your tax and warn you about common errors. If you are missing information, the software will prompt you to provide the missing information in order to complete the return.
- Paper Return - If you file a paper tax return, check www.IRS.gov and your tax form instructions for the appropriate mailing address. If you send your return to the wrong IRS address, it will delay your refund.
- Tax Tables - If you are using tax tables to determine your tax, make sure that you have the correct table for your filing status and you refer to the correct column. The IRS receives returns each year in which the taxpayer has used the wrong table or the incorrect column.
- Complete Information - Check to make certain that every required item is included. Make sure you have your correct Social Security Number, check only one filing status and select the appropriate exemption boxes.
- Your Figures - Check all of your figures. If you are using software, it will normally conduct a fairly comprehensive review of your return. If you are using a paper return, check to be certain that you do not have any mathematical or other obvious errors.
- Bank Numbers - Check carefully to see that you have entered the correct numbers. Your bank has a routing number and you have a personal account number. If you include the wrong number, your refund may be deposited in another person's bank account.
- Sign and Date - All tax returns are required to be signed and dated. If it is a joint return, both spouses must sign the return. If you file electronically, a tax return is filed using a personal identification number (PIN).
- Adjusted Gross Income - If you are filing electronically, you may need your 2016 adjusted gross income to validate your electronic signature. If you do not have this amount, you may extend and obtain a transcript. Alternatively, you may choose to print out a paper return, personally sign it and then mail it to the IRS.
- Required Forms - If you are using a paper tax return, you will need to attach your IRS Forms W-2. If you have made a charitable gift of property valued over $500, you should include IRS Form 8283. Some taxpayers request a payment agreement with the IRS. In that case, file Form 9465, Installment Agreement Request.
- Tax Return Copies - You should keep a copy for your personal records in a secure location.
If you are not prepared to file by the April 17 deadline, you may request an extension to October 15, 2018. The extension may be obtained with Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return. You also may use the Free File system or IRS.gov to request an extension electronically. You must still pay tax by April 17 to avoid a penalty. An electronic payment may be made through the IRS Direct Pay or the Electronic Federal Tax Payment system.
Foreign Account Tax Reporting
In IR-2018-7 and IR-2018-87, the Service reminded taxpayers that if they had a foreign account in 2017 that held more than $10,000 in assets, they are required to report that amount. The 2017 Report of Foreign Bank and Financial Accounts (FBAR), Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 17, 2018. There is an automatic extension to October 15, 2018 if you do not file on time.
The FBAR is due for joint accounts, spousal accounts and accounts owned by children.
- Joint Accounts - If two or more persons own a foreign bank account, each must report the full value.
- Spouses - If all foreign bank accounts are jointly owned, the spouse may sign Form 114a, Record of Authorization to Electronically File FBARs, and file jointly. All accounts must be jointly owned and each spouse must report the entire value of the accounts.
- Children - If a foreign bank account is owned by a child and the value exceeds $10,000, the FBAR is due. If the child is a minor, a parent or guardian may sign the FBAR.
There are general exclusions for individual retirement accounts and tax-qualified retirement plans. Most of these plans are described in Internal Revenue Code Sections 401(a), 403(a) or 403(b).
There are major penalties for failure to file the FBAR. A willful violation will subject a taxpayer to a penalty of the greater of $124,588 or 50% of the foreign account balance. For a criminal violation, there may be a fine and up to five years in prison.
There is still time for taxpayers with unreported foreign accounts to use the Offshore Voluntary Disclosure Program (OVDP). The details on OVDP are available on www.IRS.gov. The Service plans to close OVDP on September 28, 2018.
Serious Steps Toward IRS Reform
While the House Ways and Means Committee discussed a "Taxpayer First" IRS reform bill, Acting IRS Commissioner David Kautter appeared before the Senate Finance Committee. Senate Finance Committee Chair Orrin Hatch (R-UT) emphasized the importance of serious steps toward IRS reform.
Hatch stated, "On the one hand, the IRS has made marked improvements in recent years. Including catching more identity fraud, preventing more fraudulent returns, and moving forward to implement the multitude of tax law changes that have occurred, including the most comprehensive tax reform in the generation. But, on the other hand, it is an agency stuck in the past. It relies on software and core processing systems designed during the Kennedy Administration."
Kautter started with a report on the 2018 filing season. By March 30, the Service received 94 million tax returns and issued 73 million refunds. The $212 billion in total refunds produced an average amount of $2,900 for each taxpayer.
Kautter also highlighted the IRS success in reducing identity theft. Between 2015 and 2017, the number of fraudulent returns declined 57% from 1.4 million to 597,000. The dollar value of fraudulent refunds recovered by banks declined from $852 million to $204 million during those two years.
Two key issues for both House and Senate tax writers are increasing customer service and updating IRS technology. House Ways and Means Committee Chair Kevin Brady (R-TX) praised the bipartisan IRS reform bill by Rep. Lynn Jenkins (R-KS) and Rep. John Lewis (D-GA).
Brady stated, "They advance a modern vision for the IRS so taxpayers are treated fairly, their disputes are handled objectively, and issues resolve quickly and more affordably. They create an independent office to handle taxpayer appeals and ensure taxpayers are no longer at a disadvantage to the IRS. They also insist that the IRS aggressively protects personal taxpayer information, proactively combats identity theft and is prepared to readily assist American taxpayers when they are victims of this theft."
Kautter agreed to consider new metrics for evaluating IRS performance. The current system simply measures time on the phone per taxpayer. An improved system would analyze the effectiveness of electronic and phone support in actually answering taxpayer questions.
There are substantive and bipartisan steps in both the House and Senate to create a more "taxpayer friendly" level of IRS service. Some substantial IRS reform may occur during 2018.
Applicable Federal Rate of 3.2 for April -- Rev. Rul. 2018-9; 2018-13 IRB 1 (16 Mar 2018)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2018. The AFR under Section 7520 for the month of April is 3.2%. The rates for March of 3.0% or February of 2.8% 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 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here