Tax benefits: This tax filing season has been quite busy, but tax day is already approaching.

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This week, we want to give our newsletter a special dramatic touch, as there are only two days left until Tax Day! Considering this fact, we have prepared a lot of useful information for you in the updated free tax guide from Forbes. But of course, if you've made it this far and still haven't filed your tax return, don't worry: you can request an automatic extension—no explanations needed. There's nothing shameful about it: my accountant also confirmed that they process extensions over the weekend.

Extending the filing of the declaration has another important advantage — you can submit the main declaration instead of a corrected one. Let's break down how this works. Usually, you cannot make changes to a tax declaration without a correction. However, if you submit a corrected declaration before the deadline for the original submission — including extension deadlines — this declaration will replace your original one. This doesn't happen very often, but it's still worth keeping in mind. Although in some circles it seems like everyone is talking about taxes (okay, maybe just in mine), that's not always the case. Data from the Urban-Brookings Tax Policy Center shows that the share of taxable shareholders has significantly decreased over time, leading to a shrinking tax base. And before you treat this as a short-term phenomenon, take note of the volume of data collected (from 1965 to 2022).

One of the interesting findings is that foreign investors, pension funds, and other tax-recognized organizations currently dominate stock ownership in the U.S. Understanding the structure of ownership and taxation can serve as a guide for future tax policy. We have already seen attempts to determine who owns companies, for example, through the Corporate Transparency Act, as well as efforts to identify property rights. Earlier this year, I reported on a new disclosure requirement for transactions involving residential properties owned by legal entities, trusts, and shell companies, and last year I discussed how government agencies are tackling the restriction of foreign ownership of land.

This aligns with a growing trend: more and more people are considering renouncing their American citizenship. Among these individuals are "accidental Americans" — those who were born with American citizenship but do not live in the country and have built their lives elsewhere. These "accidental Americans" are still subject to American tax and financial obligations, but often do not realize their responsibilities. As a parent, I can confirm that there is another group of people who may also not understand their tax obligations: college students. Students and their families can take advantage of tax benefits, including education credits and tax exclusions on savings bonds and retirement accounts.

My favorite tip for paying for education is related to interest on student loans: if someone else, like a student's mom or dad, makes a payment on the student loan on behalf of the student, that payment can be considered for federal tax purposes as if the student made it themselves.

Taxes can be a source of concern at any time, but when you add a language barrier or other obstacles, taxpayers may face difficulties during tax season. To improve compliance with tax obligations, it is essential to simplify the process. Finally, we are starting to see steps in this direction from the IRS (forms and publications are now available in multiple languages, as well as for people with hearing and vision impairments) and from the private sector (TurboTax has made all its products available in Spanish). Easing this burden for taxpayers within their legal obligations is certainly the right move.

Since we cannot avoid the issue of taxation, it would be appropriate to discuss the contentious tax situations that often arise for taxpayers. As Tax Day approaches, many may already be considering the scope of their taxable income. I have received questions about the necessity of reporting certain types of income and how this affects the obligation to file a tax return. This can be straightforward when a person receives a salary or wage. But what should one do if the assets differ slightly from the usual ones?

One reader shared their experience: "My grandfather gave me $10,000, do I need to report this? Or am I not obligated to pay taxes on it?" The good news is that most gifts and inheritances are exempt from federal income tax.

There is a point here that can be confusing: a gift or inheritance retains the tax characteristics of the original asset. For example, a gift of $10,000 is not taxable for the recipient from a federal tax perspective. From a federal tax standpoint, there is no need to report it or pay tax on it. However, if you receive an asset that generates income, such as an IRA or a bond with accrued interest, you may be taxed when you decide to cash it in. This is less about the gift or inheritance and more about the nature of the asset.

If you received a gift or inheritance that is not cash, I recommend checking with a tax consultant about what and when you need to report. What if it’s not a gift or inheritance, but unexpected income — for example, capital gains?

A reader asked: "I am unemployed and have investments in cryptocurrency. I want to sell a capital gain of $45,000, which would place me in the 0% tax bracket, and I won't owe any taxes. I have no other income or reason to file a return. Am I required by IRS rules to file a return for the year based on the capital gain I received?" This is a great question. Many taxpayers believe that not having a W-2 form means they have no obligation to file a return. This is not the case.

The necessity to file a tax return depends on your status, age, and gross income. You can find a complete list, but for your question: if you are single and under 65, the gross income threshold for filing a tax return in 2023 is $13,850 (this figure will increase to $14,600 in 2024). Gross income includes everything — including capital gains (there are some exceptions regarding Social Security). You need to add all your income, including capital gains and any unemployment benefits, and if it exceeds $13,850, you will have to file a return, even if you have no tax liability. I should note that the IRS is currently paying special attention to cryptocurrency. It's smart that you are already planning your actions. Good luck!

If you have any tax questions or topics that you think we should cover in the next newsletter, we would be happy to help if we can.

PANAMA PAPERS ARE IN THE NEWS AGAIN

For a long time before the passage of the U.S. Corporate Transparency Act, efforts were made to address the consequences of the Panama Papers. The Panama Papers are a collection of documents leaked from the now-defunct Panamanian law firm Mossack Fonseca, which exposed the financial schemes of very wealthy individuals, including those who used offshore companies.

At that time, it was easy to feel self-satisfied seeing a small number of well-known American names in these documents. However, the documents also revealed an unexpected fact: in some parts of the world, the U.S. was considered a tax haven. In the U.S., flexible business structures, tax benefits for corporate taxation, and preferences for capital gains create a relatively low tax burden, making the country an attractive place for doing business. Moreover, states like Delaware and Nevada have tax structures and corporate laws that enhance their appeal on the international stage.

Don't you believe me? According to the Panama Papers, Nevada ranks 8th among tax havens in terms of the number of registered companies, ahead of countries like Hong Kong and the United Kingdom. The publication of the Panama Papers sparked controversy and likely accelerated the introduction of the Corporate Transparency Act (which was enacted in 2020).

LONG ANALYSIS

The tax court has once again reviewed a case concerning tax benefits for the conservation of natural resources. The associated tax incentives can be complex, but generally provide you with the opportunity to reduce your tax liability when donating rights to use property to a qualified charitable organization.

The amount that can be deducted corresponds to the market value of the property — this is what a buyer is willing to pay if they are interested in purchasing. However, determining this value can sometimes be difficult, as there are not many transactions involving usage rights, and therefore the rules provide a way to calculate the difference between the market value of the property before and after the gift of the right. Valuations often lead to disputes, as was the case with Savannah Shoals LLC, which claimed a deduction of $23 million, but the court determined that "the market value of the gift right as of the date of the gift was $480,000."

Taxpayers have also been imposed sanctions of 40% (ouch). Legal proceedings are inherently adversarial, including the discovery process (a term that describes the gathering of evidence from the other side). This is understandable, as you generally want to obtain all the data from the other side while remaining unaware of your own cards. The U.S. Tax Court is not very fond of such discovery disputes, and as a result of a long-standing case, Branerton v. Comm’r, it developed a process requiring all parties — the taxpayer and the administration — to make attempts to obtain the disclosed information informally.

But what to do when an informal settlement falls apart and one party refuses to cooperate? This is what happened in the case of Everest Granite, LLC. In this situation, the IRS's chief counsel did not respond in time, and the court issued an order requiring clarification on why a summary judgment should not be granted in favor of the taxpayer. Ultimately, the court did not issue a summary judgment, but imposed sanctions on the government for delaying the legal proceedings.

IMPORTANT DATES

• 📅 April 13, 2024, from 9:00 AM to 4:00 PM. The tax service will open numerous Taxpayer Assistance Centers (TAC) across the country on Saturday to provide in-person assistance without an appointment. Typically, TACs operate on weekdays by appointment only.
• 📅 April 15, 2024. Individual federal income tax returns are generally due (or an extension can be filed) for most taxpayers.
• 📅 April 17, 2024. Individual federal income tax returns must be filed (or an extension requested) for taxpayers in Maine and Massachusetts.
• 📅 May 15, 2024. Information returns (Form 990 series) must be filed (or an extension requested) for nonprofit organizations whose tax year ends in December.
• 📅 May 17, 2024. The deadline for filing claims for refunds for the 2020 tax year. The tax service reported that nearly 940,000 people have unclaimed refunds for 2020.

NOTABLE

Several notable events have occurred in the world of taxes. Former IRS chief Jim Lee announced that he has joined Chainalysis as their global head of capacity development. Chainalysis, a blockchain forensics firm based in New York, uses transaction data on the blockchain to track cryptocurrency deals and trace illegal activities. According to Forbes, which previously nominated Chainalysis for its Fintech 50 list, the company was valued at $8.6 billion as of May 2022.

Psychologist Daniel Kahneman passed away last month at the age of 90. Kahneman and his colleague, psychologist Amos Tversky, were considered among the most influential economists of the last half-century. This duo debunked the theory that rational people act flawlessly to maximize their income. Kahneman believed that human decisions are a constant struggle between intuitive (fast thinking) and analytical (slow thinking) processes.

The firm Mayer Brown announced that Sam Reisenberg has joined the company as a partner in the tax department in London, where he will focus on asset recommendations and fund issues in the US, Europe, and the Middle East. Previously, he worked in the Tax practice at KPMG in Washington. The firm Mazars, which provides audit, tax, and consulting services in the US, announced that Ryan McAuliffe has joined as an audit partner in the Long Island office. McAuliffe has over 16 years of experience in accounting, auditing, and consulting with clients in both the private and public sectors.

Registration is open for the National Association of Registered Agents (NAEA) for the Capitol Hill Fly-In Day 2024. Over three days, from May 20 to May 22, 2024, NAEA will meet with lawmakers, tax professionals, and thought leaders to discuss which reforms in Congress will affect registered agents.

If you have any news about careers or the industry, please let us know for consideration.

QUIZ

The contents of the Panama Papers prompted many politicians to take action. Which of them resigned as a result?

• A. Sigmundur David Gunnlaugsson from Iceland
• B. Malcolm Turnbull from Australia
• C. Silvio Berlusconi from Italy
• D. Ali Abu al-Rabai from Jordan

OUR TEAM

I hope you will find it interesting to learn about our team members and authors. Since we focus on tax services, I asked: How long does it take to fill out the 1040 or 1040-SR form? It's about 13 hours. What would you do if you had 13 hours of free time in your schedule?

• Kelly Phillips ErbI don't have enough time for baking. I would love to spend an entire day making delicious bread — maybe even croissants and cookies.
• Robert W. UdIf I had 13 hours, I would start with a long walk and then watch the movies I missed.
• Amber Gray-Fenner (tax advisor): 13 hours of free time? I would do what I usually do: read, knit, watch old movies, and work in the garden. I'm boring, but easily satisfied.
• Virginia La Torre JekerAs a tax advisor, if I had 13 hours of free time, I would gladly read the Collected Works of Emily Dickinson. This three-volume edition, compiled in 1955, is the first complete compilation of Dickinson's works—1775 poems.
• Andrew LeaAs a tax advisor, I have 13 hours of free time in my schedule, and I would choose at least a three-hour nap. After that, I would take 10 hours to fill my thermos with coffee and snacks, pack my backpack, and disappear into the forest for a hike.

KEY FIGURES

128.7 million is the number of individual tax returns that are expected to be filed with the IRS by the deadline of April 15, 2024.

ANSWER TO THE QUIZ

Answer: (A) Sigmundur Davíð Gunnlaugsson from Iceland. All the mentioned individuals were featured in the Panama Papers, but the Prime Minister of Iceland, Sigmundur Davíð Gunnlaugsson, resigned after protests sparked by reports that he owned an offshore company in the British Virgin Islands along with his wife. Gunnlaugsson did not disclose his involvement in a company called Wintris, Inc. when he entered parliament in 2009.

REVIEWS

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