Owing more than $51,000.00 of taxes can stop your travel plans.

Beginning in 2018, The IRS started mailing to Taxpayers owing more than $51,000.00 a notice called "CP508C - Notice of Certification of your Seriously Delinquent federal tax debt to the State Department".

If you owe taxes over $51,000, the IRS may inform the State Department which can then revoke your passport.   And you might not even know until you get to the airport.

"On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted Section IRC §7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers owing more than $51,000.00 and certifying the Taxpayer as “Seriously Delinquent. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a Taxpayer with seriously delinquent tax debt. (per IRS)"

The IRS has the following power if you don’t act soon;

• Filed a Notice of Federal Tax Lien,
• Issued a levy to collect the debt to your employer or from your customers,
• If you apply for a passport or passport renewal, the State Department will deny your application,
• If you currently have a valid passport, the State Department may revoke your passport or limit your ability to travel outside the United States.

 It is estimated that about 270,000 Taxpayer are about to receive Notice CP508C in 2019.

Step 1: What to Do? 

1. Give us a call,
2. Request the IRS to provide the detail of accounting for the years and the balances under question.   We will call on your behalf and request IRS “Account Transcripts.” 
3. Evaluate the Account Transcripts for missing payments and locate the canceled check(s) for account adjustments.
4. Verify if the amount owed is correct.

Step 2:  Propose a Viable Collection Alternative

1. Stablish Installment agreement (IA).  The installment agreement must be accepted with the IRS prior the passport revocation can be reversed.
2. Offer in Compromise (OIC).  Same as IA, it must be accepted.
3. Request for an Innocent Spouse Relief.  While the request is pending, reversal is available.  IRC §6015(e)(1)(B) prohibits enforcement while the application is pending.   If the debt is related to your spouse income or business and you did not participate in the business activity, Innocent Spouse Relief can be a good avenue for passport revocation reversal.  The key is that the request does not need to be accepted by the service.  It only needs to be pending.

Key Facts

Before denying a passport, the State Department will hold the application for 90 days to allow a citizen to:

1. Resolve any erroneous assessment issues (Incorrect tax debts or identity theft matters)
2. Make full payment of their debt,
3. Enter into a satisfactory payment arrangement – IRM 5.1.12.27.7(6).

Reversal Certification under IRC §7345(c)

You have established a collection alternative with the IRS and accepted.  The IRS must give notice to the State Department reversing the certification if:

1. Certification is found to be erroneous,
2. Debt is legally unenforceable,
3. Debt is fully satisfied,
4. Debt is no longer “seriously delinquent” per §7345(b),
   1. Installment Agreement is entered into,
   2. Offer in Compromise is accepted,
   3. Justice Department enters into a settlement agreement,
   4. Innocent Spouse Relief is requested.

Once the (IA) and (OIC) are accepted or Innocent Spouse Relief request is pending, the IRS will mail the “Reversal” notice to taxpayer CP508R and to the State Department.  

If you have questions or concerns about the passport revocation, please call Mendoza, Silva & Company today!

We are here to help. 

Increased to $2,000 in 2018

The child tax credit increases in 2018 to $2,000 (up from $1,000) with up to $1,400 being refundable. The earned income threshold is reduced to $2,500 (down from $3,000 in 2017) allowing more taxpayers to qualify for the credit. A child has to be under the age of 17 and have a valid Social Security number issued before the return due date to qualify for the credit.

In addition, a non-refundable tax credit of $500 is available for each non-child dependent that does not qualify for the child tax credit. The AGI thresholds at which the credit begins to phase out are substantially increased: to $400,000 for married filing jointly and $200,000 for all other taxpayers.

You May Be Surprised at the Tax Ramifications

Article Highlights: 

• Schedule C vs. Schedule E 
• Rentals of Less Than15 Days 
• Rentals of 7 Days or Less 
• Rentals of 8 to 30 Days 
• Exception to the 30-Day Rule 

If you are among the many taxpayers renting your first or second home using rental agents or online rental services that match property owners with prospective renters, such as Airbnb, VRBO and HomeAway, then you should know the IRS has special rules related to short-term rentals. 

When property is rented for short periods, special (and sometimes complex) taxation rules come into play, which can make the rents excludable from taxation; other situations may force the rental income and expenses to be reported on Schedule C (as opposed to Schedule E).  If you have been renting your home or second home for short periods of time, here is a synopsis of the rules governing short-term rentals so you can prepare yourself for the upcoming tax season. 

• Rented for Fewer Than 15 Days During the Year: If you rent your property for fewer than 15 days during the tax year, the rental income is not reportable, and the expenses associated with that rental are not deductible. However, interest and property taxes are still deductible as itemized deductions on your Schedule A. 
• Rented for an Average of 7 Days or Less: Under normal circumstances, rentals are treated as passive activities, which are reported on a Schedule E, and net profit from the rental activity is not subject to self-employment tax. But the special rules treat short-term rentals averaging 7 days or less as a trade or business similar to that of a hotel or motel, with the income and expenses reported on Schedule C, and the profits are subject to both income tax and self-employment tax. 
• Rented for an Average of 8 to 30 Days: Even rentals for longer than 7 days are treated as a trade or business when substantial personal services are provided to the short-term tenant. Substantial services are those that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service. Substantial services do not include the furnishing of heat and light, the cleaning of public areas, trash collection, and such. 

When extraordinary services are provided, the rental is treated as a trade or business and reported on Schedule C regardless of the average rental period. However, it would be extremely rare for this to apply to short-term rentals of your home or second home. 

• Exception to the Significant Services Rule – If the personal services provided are similar to those that generally are provided in connection with long-term rentals of high-grade commercial or residential real property (such as the cleaning of public areas and trash collection), and if the rental also includes maid and linen services at a cost of less than 10% of the rental fee, then the personal services are neither significant nor extraordinary for the purposes of the 30-day rule. 

A loss from this type of activity, even when reported on your Schedule C as a trade or business, is still treated as a passive activity loss and can only be deducted against passive income. The $25,000 loss allowance that applies to some Schedule E rentals is not available for rental activities reportable on Schedule C. 

It is important that you keep a record of not only the rental income from each tenant but also the duration of each rental, so the average rental term for the year can be determined. If you have questions about your rental activities, please give this office a call.

El programa de radio se detalla sobre el reembolso de impuestos del IRS a familias que acaban de recibir su residencia “Green Card”. En lay fiscal existe la oportunidad a nuevos residentes recibir un reembolse de impuestos hasta $13,000 por familia. Para cualificar para esta oportunidad, el contribuyente debe de haber preparado impuestos por tres años antes de recibir la residencia. Durante los tres años del impuestos, el contribuyente por falta de el estatuss de residencia no calificaba para ciertos crédito y beneficios otorgados para residentes of ciudadanos. La ley fiscal le da la oportunidad para retroactivamente pedir los beneficios perdidos durante el periodo de no tener la residencia. Para más información llamamos para una consulta.

Clases QuickBooks – Estimados e Invoices Requisitos para calificar para el Reembolso de IRS: Green Card Ingresos menores a U$S 45.000 Haber preparado impuestos por tres años Casado o Cabeza de Familia Tener un dependiente (hijos declarados en los impuestos)