Here’s how the IRS contacts taxpayers

IRS Tax Tip 2018-111, July 19, 2018

Everyone should know how the IRS contacts taxpayers. This will help people avoid becoming a victim of scammers who pretend to be from the IRS with a goal of stealing personal information.

Here are some facts about how the IRS communicates with taxpayers:

• The IRS doesn't normally initiate contact with taxpayers by email.
• The agency does not send text messages or contact people through social media.
• When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service.  Fraudsters will send fake documents through the mail, and in some cases will claim they already notified a taxpayer by U.S. mail.
• Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always.
• IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit.
• Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice.
• IRS revenue officers and agents routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury.
• When visited by someone from the IRS, the taxpayers should always ask for credentials. IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential.

More Information:

• IRS Taxpayers Bill of Rights
• Secure tax payment options
• Consumer alerts
• Report phishing and online scams
• Phone scams 

Taxpayers now have more time to challenge a levy

Tax Reform Tax Tip 2018-123, August 9, 2018

The IRS reminds individuals and businesses that they have additional time to file an administrative claim or bring a civil action for wrongful levy or seizure. Tax reform legislation enacted in December extended the time limit from nine months to two years.

Here are some facts about levies and the extension of time to file a claim or civil action:

• An IRS levy permits the legal seizure and sale of property to satisfy a tax debt. For purposes of a levy, the term “property” includes wages, money in bank or other financial accounts, vehicles and real estate.
   
• The timeframes apply when the IRS has already sold the property it levied. Taxpayers can make an administrative claim for return of their property within two years of the date of the levy.
   
• If an administrative claim is made within the extended two-year period, the two-year period for bringing suit is extended for one of two periods, whichever is shorter:
  • Twelve months from the date the person filed the claim.
  • Six months from the date the IRS disallowed the claim.
     
• The change in law applies to levies made before, on or after December 22, 2017, as long as the previous nine-month period hadn’t yet expired.
   
• Anyone who receives an IRS bill titled, Final Notice of Intent to Levy and Notice of Your Right to A Hearing, should immediately contact the IRS. By doing so, a taxpayer may be able to make arrangements to pay the liability, instead of having the IRS proceed with the levy.

More Information:

• What if I get a levy against one of my employees, vendors, customers or other third parties
• What is a Levy?
• Publication 4235, Collection Advisory Group Numbers and Addresses
• Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code Section 6343(b)
• Publication 1660, Collection Appeal Rights
• Publication 1, Your Rights as a Taxpayer

Tips for extension filers

IRS Tax Tip 2018-122, August 8, 2018

The IRS reminds taxpayers who requested an extra six months to file their 2017 tax return that Monday, October 15, 2018, is the extension deadline for most taxpayers.

For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:

• Taxpayers can still e-file returns for free using IRS Free File. The program is available only on IRS.gov. Filing electronically is the easiest, safest and most accurate way to file taxes.
•  For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file.
•  Taxpayers who owe taxes should consider using IRS Direct Pay. It’s a simple, quick and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options.
• Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.
• The IRS recommends that taxpayers always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year’s return.

More information:

• Get Transcript
• Tax return transcript types and ways to order them
• EITC assistant
• Interactive tax assistant

Taxpayers can monitor their IRS information online

IRS Tax Tip 2018-121, August 7, 2018

Taxpayers can access their federal tax information through a secure login at IRS.gov/account. After logging in, the user can view:

• The amount they owe
• Their payment history
• Tax records
• Key information from their most recent tax return as originally filed

A taxpayer can monitor their personal tax account by keeping track of payments and taxes owed. This online information is the same as what’s provided by IRS representatives.

Taxpayers who owe can pay from their bank account or with a debit or credit card. Taxpayers who need more time to pay can also apply for a payment plan, including an installment agreement. Other payment options are available at IRS.gov/payments.

First-time users must authenticate their identity through the Secure Access process. Additional information about secure access can be found at IRS.gov/secureaccess. Returning users can log in with their user name and password.

The account balance will update no more than once every 24 hours, usually overnight. After making a payment, users should allow up to three weeks for it to appear in the payment history.

The IRS continues to add features to help individual taxpayers conveniently monitor their account information online.

What taxpayers should know about amending a tax return

IRS Tax Tip 2018-118, August 1, 2018

Taxpayers who discover they made a mistake on their tax returns after filing can file an amended tax return to correct it. This includes things like changing the filing status, and correcting income, credits or deductions.

Here are some tips for taxpayers who need to amend a tax return.

• Complete and mail the paper Form 1040X, Amended U.S. Individual Income Tax Return. Taxpayers must file an amended return on paper whether they filed the original return on paper or electronically. Filers should mail the Form 1040X to the address listed in the form’s instructions. However, taxpayers filing Form 1040X in response to a notice received from the IRS, should mail it to the address shown on the notice.
• If taxpayers used other IRS forms or schedules to make changes, they should attach those schedules to their Form 1040X.
• Taxpayers should not amend a tax return to correct math errors; the IRS will make the math corrections for the taxpayers.
• Taxpayers should also not amend if they forgot to include a required form or schedule. The IRS will mail a request about the missing item.
• Anyone amending tax returns for more than one year will need a separate 1040X for each tax year. They should mail each tax year’s Form 1040X in separate envelopes.
• Taxpayers should wait for the refund from their original tax return before filing an amended return. They can cash the refund check from the original return before receiving any additional refund.
• Taxpayers filing an amended return because they owe more tax should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
• Generally, to claim a refund, taxpayers must file a Form 1040X within three years from the date they timely filed their original tax return or within two years from the date the person pays the tax – usually April 15 – whichever is later.
• Taxpayers can track the status of an amended return three weeks after mailing using “Where’s My Amended Return?” Processing can take up to 16 weeks.

More Information:

• Tax Topic 308 – Amended Returns
• Amended Tax Returns – Frequently Asked Questions
• Interactive Tax Assistant - Should I File an Amended Return?

IRS YouTube Videos:

Amending My Return – English | Spanish | ASL

Need to check your federal withholding

From the IRS:

Issue Number:    IRS Media Advisory

Inside This Issue

---

IRS urges taxpayers to check withholding now to avoid tax surprises later; Spotlights special tools during week of Aug. 13 to help people overlooking major changes

With the year more than halfway over, the Internal Revenue Service urges taxpayers who haven’t yet done a “Paycheck Checkup” to take a few minutes to see if they are having the right amount of tax withholding following major changes in the tax law.

A summertime check on tax withholding is critical for millions of taxpayers who haven't reviewed their tax situation. Recent reports note that many taxpayers could see their refund amounts change when they file their 2018 taxes in early 2019.  

To help raise awareness for these taxpayers, the IRS is conducting a second “Paycheck Checkup” effort beginning the week of Aug. 13. During this week, the IRS is spotlighting a variety of tools – including the online Withholding Calculator – to help taxpayers learn if they need to make changes soon to avoid an unwelcome surprise come tax time.

The IRS is also encouraging partner groups inside and outside the tax community to share this important information with their members and employees. The IRS will also be holding special sessions on withholding for tax professionals and industry partners Aug. 15-16 in English and Spanish.

The Tax Cuts and Jobs Act, passed in December 2017, made significant changes, which will affect 2018 tax returns that people file in 2019. These changes make checking withholding amounts even more important. These tax law changes include:

• Increased standard deduction
• Eliminated personal exemptions
• Increased Child Tax Credit
• Limited or discontinued certain deductions
• Changed the tax rates and brackets

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. It can also help taxpayers avoid a large refund if they’d prefer to have their money in their paychecks throughout the year. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help.

Special Alert: Taxpayers who should check their withholding include those who:

• Are a two-income family.
• Have two or more jobs at the same time or only work part of the year.
• Claim credits like the Child Tax Credit.
• Have dependents age 17 or older.
• Itemized deductions in 2017.
• Have high income or a complex tax return.
• Had a large tax refund or tax bill for 2017.

What:  IRS promotes mid-year “Paycheck Checkup” initiative with news releases, tax tips, YouTube videos and other products.

When:   Aug. 13-17, 2018

Where:  Via email distribution for those who subscribe and online at the IRS Newsroom

U.S. Tax Court Case

Thank you all for being part of my blog, and I will continue to keep this going.

Also, starting the month of August, I will analyze one Tax Court case

Have a wonderful day!

Proposed Regulations on Section 199A Deduction and Depreciation Deduction

The IRS issued proposed regulations this week for a new provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income. The new section 199A deduction is available for tax years beginning after Dec. 31, 2017.

The Treasury Department and the IRS also issued proposed regulations this week on the new 100-percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service.

For more information on the two new deductions, visit IRS.gov/taxreform.

New Technial Guidance

There are 4 new technical guidances from the IRS.

Notice 2018-62 announces that the Treasury Department and the IRS intend to issue proposed regulations providing clarification on the new rules increasing the contribution limits to ABLE accounts from certain designated beneficiaries.　

Notice 2018-63 extends the application of the HFA Hardest Hit Fund safe harbor to homeowners who may be affected by the new $10,000 limitation on deductible property taxes.　

Notice 2018-64 proposes a revenue procedure that provides guidance on methods for calculating W-2 wages for purposes of section 199A of the Internal Revenue Code and proposed sections 1.199A-1 through -6 of the Income Tax Regulations (26 CFR part 1), which are being published contemporaneously.　

Revenue Procedure 2018-40 provides the procedures by which a small business taxpayer may obtain automatic consent to change its methods of accounting to reflect these statutory changes and requests comments containing suggestions for future guidance under sections 263A, 447, 448, 460, and 471 to implement section 13102 of the Act.

Tax Relief for California Disaster Victims

Victims of recent wildfires that began July 23 in parts of Shasta County, California, may qualify for tax relief. The President has declared that a major disaster exists in the State of California, permitting the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Heavy Highway Vehicle Use Tax

The deadline to report heavy highway vehicle use tax is Aug. 31. Your clients may pay this tax with a credit or debit card. Review the IRS fact sheet to help your clients with filing and payment responsibilities.

GAO Finds Americans Under-Withholding

This is a good article about under withholding from Taxing Subjects.

By: Bob Williams

A new federal report finds that more Americans may get an unpleasant surprise come April 15.

Most folks expect to pay less tax after the tax cut law went into effect in late 2017. But the Government Accountability Office says more American taxpayers will actually have to pay tax due because their employers aren’t withholding enough tax from their paychecks.

The GAO bases its report on computer simulations run by the Treasury Department, using the previous withholding tables and new versions based on the tax cut legislation. While the simulation showed 73 percent of taxpayers had more money withheld from their paychecks – and will see a refund from the IRS – another 21 percent do not have enough withheld. Those taxpayers will see bigger paychecks, but will also see a bigger tax bill in April.

When the simulation was run using the original withholding tables, about 18 percent of taxpayers had to pay additional withholding. The number of taxpayers who had set aside the correct amount of withholding was the same in both simulations – 6 percent.

Treasury Department officials told the GAO they were under time constraints to come up with figures for withholding because of the push to get the bill through Congress.

The GAO report narrows the type of taxpayer most at risk of under-withholding has $180,000 annual earnings ($20,000 of that comes from non-wage income), two children and itemized deductions.

The IRS has publicly recommended that taxpayers review their withholding and update their preferences after passage of the new tax law. But the GAO found other issues as well.

“Although Treasury and IRS described to us the process for annually updating the withholding tables, there is limited documentation of that process,” the GAO report states. “Federal internal control standards require agencies to document responsibilities through policies and periodically review their control activities.”

The report recommends the Treasury Department work more closely with the Internal Revenue Service to nail down the process and get it in writing.

N-2018-63: Amplification and Modification of Safe Harbor Method for Participants in the HFA Hardest Hit Fund

Notice 2018-63 extends the application of the HFA Hardest Hit Fund safe harbor to homeowners who may be affected by the new $10,000 limitation on deductible property taxes.  Under the modified safe harbor, participating homeowners may allocate mortgage payments actually made first to deductible mortgage interest, and thereafter use any reasonable method to allocate the remaining balance of payments made to real property taxes, mortgage insurance premiums, home insurance premiums and principal.

Notice 2018-63  will be in IRB: 2018-34, dated 8/20/2018.

Tax credits help offset higher education costs

Taxpayers who pay for higher education in 2018 can see tax savings when they file their tax returns. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.

There are two credits available to help taxpayers offset the costs of higher education. The American opportunity credit and the lifetime learning credit may reduce the amount of income tax owed. Taxpayers use Form 8863, Education Credits, to claim the credits.

The American opportunity credit is:

• Worth a maximum benefit up to $2,500 per eligible student
• Only for the first four years at an eligible college or vocational school
• For students pursuing a degree or other recognized education credential
• Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.

The lifetime learning credit is:

• Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify
• Available for all years of postsecondary education and for courses to acquire or improve job skills
• Available for an unlimited number of tax years

To be eligible to claim the American opportunity credit, or the lifetime learning credit, the law requires a taxpayer or a dependent to have received a Form 1098-T from an eligible educational institution.

More Information:
Tax Benefits for Education: Information Center
Education Credits – AOTC and LLC
American Opportunity Tax Credit: Questions and Answers

Treasury, IRS issue proposed regulations on new 100 percent depreciation deduction

The Treasury Department and the Internal Revenue Service today issued proposed regulations on the new 100-percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service.

The proposed regulations, available today in the Federal Register, implement several provisions included in the Tax Cuts and Jobs Act (TCJA),

The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

The deduction is retroactive, applying to qualifying property acquired and placed in service after Sept. 27, 2017. The proposed regulations provide guidance on what property qualifies for the deduction and rules for qualified film, television, live theatrical productions and certain plants.

For details on claiming the deduction or electing out of claiming it, see the proposed regulations or the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property).

Taxpayers who elect out of the 100-percent depreciation deduction must do so on a timely-filed return. Those who have already filed their 2017 return and either did not claim the mandatory deduction on qualifying property, or did not elect out but still wish to do so, will need to file an amended return.

Treasury and IRS welcome public comment, and the proposed regulations provide details on how to submit comments.

For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

Tax relief for severe storms and flooding victims in Texas

Updated 8/1/18:  This news release has been updated to include Jim Wells County.

TX-2018-05, July 9, 2018

Texas — Victims of severe storms and flooding that began on June 19, 2018 in parts of Texas may qualify for tax relief from the Internal Revenue Service.

The President has declared that a major disaster exists in the State of Texas. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain Texas counties will receive tax relief.

Individuals who reside or have a business in Cameron, Hidalgo and Jim Wells counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 19, 2018 and before Oct. 31, 2018, are granted additional time to file through Oct. 31, 2018. This includes an additional filing extension for individuals with valid extensions due to run out on Oct. 15, 2018, and businesses with extensions due to run out on Sept. 17, 2018. It also includes the Sept. 17, 2018 deadline for making quarterly estimated tax payments. For businesses, it also includes the July 31 deadline for filing quarterly payroll and excise tax returns.

In addition, penalties on employment and excise tax deposits due on or after June 19, 2018 and before July 5, 2018, will be abated as long as the deposits were made by July 5, 2018.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. §301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses (including tax-exempt organizations) whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31, 2018, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after June 19, 2018 and before Oct. 31, 2018.

Affected taxpayers that have an estimated income tax payment originally due on or after June 19, 2018 and before Oct. 31, 2018, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Oct. 31, 2018. The IRS also gives affected taxpayers until Oct. 31, 2018 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after June 19, 2018 and before Oct. 31, 2018.

This relief also includes the filing of Form 5500 series returns, (that were required to be filed on or after June 19, 2018 and before Oct. 31, 2018, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

Unless an act is specifically listed in Rev. Proc. 2007-56, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098, or 1099 series; to Forms 1042-S, 3921, 3922 or 8027; or to employment and excise tax deposits.  However, penalties on deposits due on or after June 19, 2018 and before July 5, 2018, will be abated as long as the tax deposits were made by July 5, 2018.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. See Publication 547 for details.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684, Casualties and Thefts and its Instructions.

Affected taxpayers claiming the disaster loss on a 2017 return should put the Disaster Designation, “Texas, Severe Storms and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “Texas, Severe Storms and Flooding” in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-829-3676. The IRS toll-free number for general tax questions is 800-829-1040.

Disabled veteran's nontaxable disability severance pay

This Just In! The Military Taxpayer

          After the text went to print a new development was finally implemented by DFAS and the IRS.  In December the Combat-Injured Veterans Tax Fairness Act of 2016 (See Attachment 1) was signed into law.  This law codifies the decision in United States District Court, E.D. Virginia, Richard C. ST. CLAIR and Gudrun E. St. Clair, Plaintiffs, v. UNITED STATES of America, Defendant. 778 F. Supp 894 (or the St. Clair opinion), dealing with veterans discharged from active service since 1991 with a medical lump sum disability severance. This affects veterans discharged between 1991-2016, the DFAS started reporting the lump sum severances correctly on W2’s in 2017 and forward.
          When a military member is discharged from service due to a medical issue they are many times given a lump sum severance based on the disability and length of service.  Until the St. Clair opinion in 1991 the IRS held the position that this was taxable income regardless of the fact most of these veterans had to have an equal amount withheld from the Veterans Administration Disability Pension to “repay” the severance over the course of future years.  Veterans in this situation were able to make a claim under the Right of Repayment (§1341) in the future years that the VA withholding occurred.  Unfortunately, for the most part, this did the veteran no good due to the rules of that code section.
          In 1991 when the St. Clair opinion was issued the US District Court for the Eastern District of Virginia ruled that Mr. St. Clair’s severance was not taxable in the year received and he was due a refund for the taxes on that sum.  The IRS did not acquiesce on this decision and, while we have been able to file amendments claiming the St. Clair decision, the acceptance by the IRS has been hit and miss.  This Act will correct that problem.
          Many taxpayers and tax professionals have been using the “St. Clair Claim” as a coverall for every veteran discharged who then receives a VA disability award later and this has been part of the problem with the IRS consistency in processing these claims.  The requirements under St. Clair and this new act are very specific and targeted at disability discharges for specific causes.
          To qualify for the new Act or under St. Clair the veteran’s severance must be for a disability AND the disability must meet one or the other of the below listed circumstances:

1.    You have a combat related injury or illness as determined by your military service at separation that: 

              

·         Resulted directly from armed conflict; or

·         Took place while you’re engaged in extra-hazardous service; or

·         Took place under conditions simulating war, including training exercises such as maneuvers; or

·         Was caused by an instrumentality of war.

2.    You are receiving VA disability compensation, or you have received notification from the VA approving such compensation.

Since 1991 the US Armed Forces have done several Reduction In Forces programs where service members were offered a lump sum severance to leave the service early.  These programs do not qualify under this Act, even if they later receive a VA Disability award unless that award directly attributes their disability award to be related to circumstance 1 above.  In this case the veteran will NOT get a letter from DFAS and will need to provide a copy of their VA Disability Award letter to prove eligibility and a copy of their separation letter or DD214 to prove the amount of the lump sum severance.

Veterans who have already been deemed eligible should receive a letter from DFAS in July/August 2018 (see sample Attachment 2) that includes instructions and the dollar amount of their eligible severance.  If the separation date is outside of the normal statute of limitations for filing an amendment, they have an extended date for filing that is one year after the date on their DFAS letter.  That means it has a short life span for the veterans with older separation dates.

The IRS has given veterans a safe harbor to use a standard refund amount based on the year of separation.  This is the quick and easy way to claim the refund and can help if the veteran cannot obtain a copy of their tax return for the year in question.  The safe harbor amounts are:

·        $1750 for tax years 1991-2005

·        $2400 for tax years 2006-2010

·        $3200 for tax years 2011-2016

The 1040X is a shell with the personal information, line 15 and line 22 completed.  (See Attachment #3 for a sample).

This is the quickest and easiest route for the veteran to use to receive their refund, however, this amount may be larger or smaller than the actual tax depending on individual facts and circumstances.

          If the veteran cannot obtain the tax return or other substantiation of return information for the year in question this may be the only alternative. But, if the veteran can provide the return or a transcript then then a full amended return should be calculated to see if the actual amount of the refund would be more then the safe harbor amount. See attachment #4 for an example of how much a difference this can make.    

Also, if the taxpayer filed an original MFJ return and is no longer with that spouse and cannot get cooperation in signing an amendment from that spouse they may have to use the safe harbor.  However, they may be able to use IRS Rev. Rul. 80-8 to file the amendment with just one signature and have the refund directed solely to the veteran.

          Regardless of the method used to calculate the refund the return should have “Veterans Disability Severance” or “St. Clair Claim” across the top of both pages of the 1040X, an explanation in Part three, and attach a copy of the DFAS letter or other substantiation.

          If the claim is for a year out of the statute of limitations it is advisable to attach a clearly marked copy of the original return for substantiation as the IRS processors may or may not be able to access the original return, remember we are talking about claims as far back as 1991.

          We have no information currently about any of the individual states concurrence on the extended statute of limitations for filing amendments in connection with this Act.  The best advice is to check with your individual state for an opinion from their legal department.

         

DFAS Guidance

Combat-Injured Veterans Tax Fairness Act of 2016

​On December 16, 2016, the President of the United States signed into law the Combat-Injured Veterans Tax Fairness Act of 2016, which provides eligible veterans the right to seek a refund of taxes they may have paid on Disability Severance Pay. The Defense Finance and Accounting Service (DFAS) and the Internal Revenue Service (IRS) are jointly responsible for ensuring that affected separated members receive notification of their rights under this new law.

During July 2018, DFAS and the IRS sent letters to approximately 130,000 separated military members who had received disability severance pay as income and with federal tax withholding applied.

In accordance with IRS’s current policy, IRS agreed to forward these letters to separated members on behalf of DFAS because DFAS does not have current addresses for individuals affected by the new law. The IRS has not disclosed address or any other tax information to DFAS.

A small number of potentially affected individuals do not have mailing address information available to the IRS. Veteran and retiree organizations are being asked to share this information with their membership to inform their members who received disability severance pay so they will be able to take advantage of the IRS instructions below and recover withholdings which are now considered non-taxable.

ELIGIBILITY

Eligibility to file an amended federal tax return to receive a refund from the IRS depends on the circumstances of your separation.

Disability Severance Pay is not taxable or subject to federal income tax withholding for members meeting 1 or 2 below:

1.  You have a combat related injury or illness as determined by your military service at separation that:               

·         Resulted directly from armed conflict; or

·         Took place while you’re engaged in extra-hazardous service; or

·         Took place under conditions simulating war, including training exercises such as maneuvers; or

·         Was caused by an instrumentality of war.

2.  You are receiving VA disability compensation, or you have received notification from the VA approving such compensation.

STATUTE OF LIMITATIONS

The amount of time for claiming these tax refunds is limited. However, the law grants veterans an alternative timeframe - one year from the date of the letter from DoD. Veterans making these claims have the normal limitations period for claiming a refund or one year from the date of their letter from the DoD, whichever expires later. As taxpayers can usually only claim tax refunds within 3 years from the due date of the return, this alternative time frame is especially important since some of the claims may be for refunds of taxes paid as far back as 1991.

If you believe you are eligible for or would like to request a refund of taxes, you must seek a refund from the IRS by following the IRS’s instructions below.

WHAT TO DO

Complete and mail IRS Form 1040X, Amended U.S. Individual Income Tax Return, for the year you received Disability Severance Pay, along with a copy of this letter (See note below), to the IRS’s Kansas City address at:

Internal Revenue Service
333 W. Pershing Street, Stop 6503, P5
Kansas City, MO 64108

NOTE: Veterans eligible for a refund who did not receive a letter from DoD may still file Form 1040X to claim a refund but must include both of the following to verify the disability severance payment: *  A copy of documentation showing the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services (DFAS) explaining the severance payment at the time of the payment or a Form DD-214, and * A copy of either the VA determination letter confirming the veteran's disability or a determination that the veteran's injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war. ATTENTION:  Veterans that did not receive the DoD letter and do not have the required documentation to file a claim for refund should contact the National Archives, National Personnel Records Center, or the Department of Veterans Affairs.

You can submit a claim based on the actual amount of your Disability Severance Pay by completing Form 1040X and following the instructions carefully. Don’t request a refund based on the actual amount if you have previously done so.

You can choose instead to claim the standard refund amount listed below that reflects the year you received your Disability Severance Pay. Simply write “Disability Severance Pay” on Form 1040X, line 15, and enter the standard refund amount listed below on line 15, column B, and on line 22, leaving the remaining lines blank.

·         $1,750 for tax years 1991-2005

·         $2,400 for tax years 2006-2010

·         $3,200 for tax years 2011-2016

Claiming a standard refund amount is the easiest way to request a refund because it doesn’t require you to find your original tax return or ask the IRS for information from the return. This may be larger or smaller than the refund based on the actual amount from your return. You can submit a claim for the standard refund amount even if you already filed a claim for the actual amount. If you do this, you can only claim the difference between the standard refund amount above and the amount you previously claimed that was attributable to Disability Severance Pay. 

HOW TO FILE YOUR CLAIM

Please write either “Veteran Disability Severance” or “St. Clair Claim” across the top of the front page of the Form 1040X that you will be submitting and provide an explanation in Part III of why the Disability Severance Pay is not taxable to you.

ADDITIONAL INFORMATION

You can get more information on this issue at IRS.gov. You can also get Form 1040X online or by calling 800-TAX-FORM (800-829-3676). If you have questions, visit the Recent Developments section of the Form 1040X web page  or call the IRS toll-free at (833) 558-5245, ext. 378, between 7 a.m. and 7 p.m. (Alaska and Hawaii follow Pacific time). If you prefer, you can write to the IRS at the Kansas City address above.

Exhibit 1 - Letter from the IRS on behalf of the DoD

Exhibit 2 - Using the standard amount - Form 1040X

Exhibit 3 - Using tax return data from the year benefit was received - Form 1040X